<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-26537
ALLSCRIPTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3444974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2401 Commerce Drive
Libertyville, Illinois 60048
(Address of principal executive offices)
______________________
(847) 680-3515
(Registrant's telephone number, including area code)
______________________
Indicate by check ( X ) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No
--- ---
(2) Yes X No
--- ---
As of October 31, 1999, there were 24,146,985 shares of the Registrant's
$0.01 par value common stock outstanding.
<PAGE>
ALLSCRIPTS, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
At December 31, 1998 and September 30, 1999 (unaudited) 1
Unaudited Condensed Consolidated Statements of Operations
For the three and nine months ended September 30, 1998 and 1999 3
Unaudited Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 1998 and 1999 4
Notes to Unaudited Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 718 $27,089
Marketable securities - 36,000
Accounts receivable, net of allowances of $4,523 in 1998 and
$3,691 in 1999 9,525 4,810
Inventories 2,905 3,721
Prepaid expenses and other current assets 230 523
------ -------
Total current assets 13,378 72,143
Fixed assets, net of accumulated depreciation of $4,855 in 1998
and $5,103 in 1999 1,784 2,565
Intangible assets, net of accumulated amortization of $17,142 in 1998
and $12,020 in 1999 3,702 4,171
Other assets 57 68
------- -------
Total assets $18,921 $78,947
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
1
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable $ 4,000 $ -
Accounts payable 7,830 5,110
Accrued vacation 550 718
Deferred revenue - 437
Accrued compensation/withholding taxes 7 378
Other accrued expenses 720 389
----------- -------------
Total current liabilities 13,107 7,032
Long-term debt 59 59
----------- -------------
Total liabilities 13,166 7,091
----------- -------------
Redeemable preferred shares:
Series I, cumulative, $1.00 par value, 1,339,241 shares authorized,
issued and outstanding, including $521 of cumulative
dividends at December 31, 1998; liquidation value of $8,654;
no shares authorized, issued and outstanding at September 30, 1999 8,546 -
Series J, cumulative, $1.00 par value, 1,812,903 shares authorized,
1,803,838 issued and outstanding, including $702 of
cumulative dividends at December 31, 1998; liquidation value
of $11,656; no shares authorized, issued and outstanding at
September 30, 1999 12,358 -
Series H, cumulative, $1.00 par value, 1,361,775 shares authorized,
issued and outstanding, including $3,007 of cumulative
dividends at December 31, 1998; liquidation value of $8,800;
no shares authorized, issued and outstanding at
September 30, 1999 11,643 -
------------ -------------
Total redeemable preferred shares 32,547 -
------------ -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred shares:
Series A, $1.00 par value, 1,050,000 shares authorized,
issued and outstanding, liquidation value of $1,050, convertible to
common shares at December 31, 1998; no shares authorized, issued and
outstanding at September 30, 1999 1,050 -
Series B, $1.00 par value, 533,333 shares authorized, issued and
outstanding, liquidation value of $2,000, convertible to
common shares at December 31, 1998; no shares authorized, issued
and outstanding at September 30, 1999 533 -
Series C, $1.00 par value, 2,187,501 shares authorized, issued and
outstanding, liquidation value of $7,000, convertible to
common shares at December 31,1998; no shares authorized, issued
and outstanding at September 30, 1999 2,188 -
Series D, $1.00 par value, 1,833,334 shares authorized, issued and
outstanding, liquidation value of $8,250, convertible to
common shares at December 31, 1998; no shares authorized, issued
and outstanding at September 30, 1999 1,833 -
Series F, $1.00 par value, 2,492,781 shares authorized, issued
and outstanding, liquidation value of $3,116, convertible to
common shares at December 31, 1998; no shares authorized, issued
and outstanding at September 30, 1999 2,493 -
Series G, $1.00 par value, 621,819 shares authorized, issued and
outstanding, liquidation value of $2,798, convertible to
common shares at December 31, 1998; no shares authorized,
issued and outstanding at September 30, 1999 622 -
------------ -------------
Total preferred shares 8,719 -
Common shares:
$0.01 par value, 125,000,000 shares authorized, 8,358,654 shares
issued, 8,324,189 shares outstanding at December 31, 1998;
75,000,000 shares authorized, 24,033,596 shares issued,
23,858,475 shares outstanding at September 30, 1999 84 240
Treasury stock at cost; 34,465 common shares at December 31, 1998;
175,121 common shares at September 30, 1999 (68) (1,463)
Unearned compensation (230) (1,773)
Additional paid-in-capital 15,467 131,890
Accumulated deficit (50,764) (57,038)
------------ -------------
Total stockholders' equity (deficit) (26,792) 71,856
------------ -------------
Total liabilities, redeemable preferred
shares and stockholders' equity (deficit) $ 18,921 $ 78,947
============ =============
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
2
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 5,760 $ 6,975 $ 18,167 $ 19,395
Cost of revenue 4,280 5,686 13,231 15,394
------------ ------------ ------------ ------------
Gross profit 1,480 1,289 4,936 4,001
Selling, general and administrative expenses 3,117 5,698 9,709 13,802
Amortization of intangibles 93 477 280 745
Other operating expenses - 319 112 319
------------ ------------ ------------ ------------
Loss from operations (1,730) (5,205) (5,165) (10,865)
------------ ------------ ------------ ------------
Interest income 1 646 4 670
Interest expense (47) (43) (528) (267)
------------ ------------ ------------ ------------
Interest, net (46) 603 (524) 403
------------ ------------ ------------ ------------
Loss from continuing operations (1,776) (4,602) (5,689) (10,462)
Income from discontinued operations 202 616 882 642
Gain from sale of discontinued operations - - - 3,547
------------ ------------ ------------ ------------
Net loss before extraordinary item (1,574) (3,986) (4,807) (6,273)
Extraordinary loss from early extinguishment of debt - - (790) -
------------ ------------ ------------ ------------
Net loss (1,574) (3,986) (5,597) (6,273)
Accretion of mandatory redemption value of
preferred shares and accrued dividends on preferred shares (699) (800) (1,788) (2,198)
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $ (2,273) $ (4,786) $ (7,385) $ (8,471)
============ ============ ============ ============
Per share data-basic and diluted:
Loss from continuing operations (including accretion
and accrued dividends on preferred shares) $ (0.31) $ (0.27) $ (1.35) $ (1.24)
Income from discontinued operations 0.03 0.03 0.16 0.06
Gain from sale of discontinued operations - - - 0.35
Extraordinary loss - - (0.14) -
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $ (0.28) $ (0.24) $ (1.33) $ (0.83)
============ ============ ============ ============
Per share data-pro forma basic and diluted:
Loss from continuing operations (excluding accretion
and accrued dividends on preferred shares-see Note 6) $ (0.19) $ (0.23) $ (0.70) $ (0.82)
Income from discontinued operations 0.02 0.03 0.10 0.05
Gain from sale of discontinued operations - - - 0.28
Extraordinary loss - - (0.09) -
------------ ------------ ------------ ------------
Net loss attributable to common stockholders $ (0.17) $ (0.20) $ (0.69) $ (0.49)
============ ============ ============ ============
Weighted average shares of common stock outstanding
used in computing basic and diluted loss per share 8,012 20,110 5,557 10,199
============ ============ ============ ============
Weighted average shares of common stock outstanding
used in computing pro forma basic and diluted loss per share 11,009 20,110 8,554 12,793
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION> Nine Months Ended
September 30,
---------------------------------------------
1998 1999
------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,597) $ (6,273)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 460 637
Amortization 657 872
Provision for losses on accounts receivable 112 (351)
Gain on sale of discontinued operations - (3,547)
Extraordinary loss 790 -
Non-cash compensation expense on common share options 156 412
Non-cash expense from issuance of contingent shares - 319
Exchange of debentures in satisfaction of accrued interest 439 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (324) 5,201
Increase in inventories (421) (1,489)
Increase in prepaid expenses and other assets (99) (411)
(Decrease) increase in accounts payable 61 (3,239)
Decrease in accrued and other current liabilities (57) (70)
------------------- --------------------
Net cash used in operating activities (3,823) (7,939)
------------------- --------------------
Cash flows from investing activities:
Capital expenditures (653) (1,634)
Purchases of marketable securities - (36,000)
Proceeds from sale of discontinued operations - 7,473
Cash received in acquisitions - 49
------------------- --------------------
Net cash used in investing activities (653) (30,112)
------------------- --------------------
Cash flows from financing activities:
Proceeds from exercise of common stock options 41 378
Proceeds from initial public offering-net - 103,026
Payments for preferred stock redemptions - (34,745)
Proceeds from Series I Unit Offering 8,930 -
Payment of note payable in connection with acquisition - (650)
Proceeds from exercise of common stock warrants - 413
Borrowings under line of credit 2,550 1,400
Payments under line of credit (2,500) (5,400)
Payments on long-term debt (4,693) -
------------------- --------------------
Net cash provided by financing activities 4,328 64,422
------------------- --------------------
Net increase (decrease) in cash and cash equivalents (148) 26,371
Cash and cash equivalents, beginning of period 205 718
------------------- --------------------
Cash and cash equivalents, end of period $ 57 $ 27,089
------------------- --------------------
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
4
<PAGE>
ALLSCRIPTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The quarterly financial information presented herein should be read in
conjunction with Allscripts' audited financial statements and the accompanying
notes included in our Registration Statement on Form S-1 (No. 333-78431)
declared effective July 23, 1999. The unaudited interim financial statements for
the three and nine months ended September 30, 1999, have been prepared on a
basis consistent with those financial statements and reflect all adjustments
(all of which are of a normal recurring nature) that are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods. The consolidated financial statements include the accounts of
Allscripts, Inc. and its wholly owned subsidiaries (collectively referred to as
"Allscripts"). All significant intercompany accounts and transactions have been
eliminated in consolidation. The results for the interim periods are not
necessarily indicative of the results to be expected for the year.
2. Recently Issued Accounting Standards
In the first quarter of 1999, Allscripts adopted Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 requires entities to capitalize certain internal-use
software costs once certain criteria are met. Prior to 1999, Allscripts'
practice was to expense the costs of obtaining or developing internal-use
software as incurred. Costs that are capitalizable under this pronouncement
include external direct costs of materials and services consumed in developing
or obtaining internal-use computer software, payroll and payroll-related costs
for employees who are directly associated with and who devote time to the
internal-use computer software project and interest costs incurred when
developing computer software for internal use. Costs incurred relating to
development of internal-use software have not been material.
3. Initial Public Offering
On July 28, 1999, Allscripts completed the initial public offering of its
common stock. Allscripts issued 7,000,000 shares of common stock at an initial
public offering price of $16.00 per share. The initial public offering resulted
in gross proceeds of $112,000,000, $7,840,000 of which was applied to the
underwriting discount and approximately $1,150,000 of which was applied to
related offering expenses. In addition, Allscripts used approximately
$34,745,000 of the proceeds to redeem all outstanding shares of its Series H, I
and J Redeemable Preferred Stock, plus accrued dividends thereon, $3,900,000 to
repay advances under its revolving line of credit with it's commercial bank and
approximately $653,000 to repay a promissory note, including accrued interest,
issued as consideration for Allscripts' acquisition of Shopping@Home, Inc. (see
Note 4). The remaining net proceeds of approximately $64,000,000 were invested
in short-term, interest-bearing, investment grade securities.
4. Business Combinations
On May 10, 1999, Allscripts acquired TeleMed Corp., which operated as
MedSmart, a privately held company that sells Internet-based physician drug
education programs and medical books online and by telephone. In exchange for
all of the outstanding common shares of MedSmart, Allscripts issued 117,500
shares of its common stock at closing, and an additional 87,271 shares in
September 1999 pursuant to a contingent payment obligation. Allscripts assigned
a value of $11.00 per share to the shares issued at closing and $14.65 per share
to the shares issued in September. The business combination was accounted for
using the purchase method of accounting and MedSmart's results of operations
have been included in the consolidated financial statements subsequent to the
date of acquisition. The acquisition
5
<PAGE>
resulted in goodwill of approximately $3,200,000, which represents the excess of
the purchase price over the fair value of the assets and which is being
amortized on a straight-line basis over two years.
On June 30, 1999, Allscripts acquired substantially all of the assets of
Shopping@Home, Inc., a development-stage Internet retailer, in exchange for a
promissory note in the principal amount of $650,000, bearing interest at 6% per
year and payable upon the consummation of an initial public offering. The
business combination was accounted for using the purchase method of accounting,
and the results of operations of Shopping@Home have been included in the
consolidated financial statements subsequent to the date of acquisition. The
acquisition resulted in goodwill of approximately $640,000, which represents the
excess of the purchase price over the fair value of the assets and which is
being amortized on a straight-line basis over two years. The promissory note,
including accrued interest of $3,000, was repaid in August 1999.
The following unaudited pro forma consolidated results of operations for
the nine months ended September 30, 1998 and 1999 assume the MedSmart and
Shopping@Home, Inc. acquisitions occurred as of January 1 of each year. The pro
forma results are not indicative of the actual results that would have occurred
had the acquisitions been completed as of the beginning of each of the periods
presented, nor are they necessarily indicative of future consolidated results.
As a result, weighted average shares include 204,771 shares issued as
consideration for the TeleMed Corp. acquisition as if they had been issued as of
January 1 of each period presented.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------------------------
1998 1999
--------------------- -------------------
(In thousands, except per share amounts)
(unaudited)
<S> <C> <C>
Revenue $ 19,322 $ 19,854
Loss from continuing operations $ (5,956) $ (10,915)
Income from discontinued operations 882 642
Gain from sale of discontinued operations - 3,547
Extraordinary loss from early extinguishment of debt (790) -
--------------------- -------------------
Net loss $ (5,864) $ (6,726)
===================== ===================
Per share data - basic and diluted:
Loss from continuing operations (including $ (1.34) $ (1.27)
accretion and accrued dividends on preferred
shares)
Income from discontinued operations 0.15 0.06
Gain from sale of discontinued operations - 0.35
Extraordinary loss from early extinguishment of debt (0.14) -
--------------------- -------------------
Net loss $ (1.33) $ (0.86)
===================== ===================
Weighted average shares of common stock outstanding
used in computing basic and diluted loss per share 5,762 10,363
===================== ===================
</TABLE>
6
<PAGE>
5. Other Expense
Other operating expenses for the three and nine months ended September 30,
1999 of $319,000 reflect a non-cash, non-recurring charge related to the
issuance of common stock upon the closing of the initial public offering in
settlement of a contingent payment obligation related to an acquisition
Allscripts made in 1995.
6. Net Loss Per Share
Allscripts accounts for net loss per share in accordance with SFAS No. 128,
"Earnings per Share." SFAS No. 128 requires the presentation of "basic" earnings
per share and "diluted" earnings per share. Basic earnings per share is computed
by dividing the net loss attributable to common stockholders by the weighted
average shares of outstanding common stock. For purposes of calculating diluted
earnings per share, the denominator includes both the weighted average shares of
common stock outstanding and dilutive potential common stock.
In accordance with SFAS No. 128, basic and diluted net loss per share has
been computed using the weighted average number of shares of common stock
outstanding during the period. Allscripts has excluded the impact of all
outstanding warrants and options to purchase shares of common stock, all
outstanding convertible preferred shares on an if converted basis and contingent
share payment obligations from the calculation of diluted loss per share because
all such securities are antidilutive for all periods presented. Antidilutive
potential common stock from the exercise of outstanding warrants and options to
purchase shares of common stock excluded from the diluted earnings per share
computation for the three and nine months ended September 30, 1998 and the three
and nine months ended September 30, 1999 includes 7,852,000, 6,419,000,
6,203,000 and 7,197,000 shares, respectively.
On July 28, 1999, Allscripts consummated an initial public offering of its
common stock. Upon the closing of the offering, all of the outstanding shares of
Allscripts' convertible preferred stock were automatically converted into
2,977,483 shares of common stock. Additionally, 19,958 shares of common stock
were issued upon the closing of the offering, pursuant to a contingent share
payment obligation (see Note 5). The unaudited pro forma diluted net loss per
share information included in the accompanying consolidated statement of
operations for the three and nine months ended September 30, 1998 and 1999
reflects the impact of such conversion and such issuance on basic and diluted
net loss per share as of the beginning of the year, or date of issuance, if
later, using the if-converted method. In addition, the unaudited pro forma net
loss per share information excludes accretion and accrued dividends on
redeemable preferred shares as redemption of said shares is assumed to have
occurred as of the beginning of the year or, if later, the date of issuance.
Below is a summary of the shares used in calculating unaudited diluted net
loss per share and unaudited pro forma diluted net loss per share for the
periods indicated.
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
1998 1999 1998 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Unaudited diluted weighted average shares outstanding:
Attributable to common stock outstanding 8,012 20,110 5,557 10,199
Attributable to common stock options and warrants - - - -
Attributable to convertible preferred stock - - - -
Attributable to contingent share payment obligation - - - -
-------- ------- ------ ------
8,012 20,110 5,557 10,199
======== ======= ====== ======
Unaudited pro forma diluted weighted average shares outstanding:
Attributable to common stock outstanding 8,012 20,110 5,557 10,199
Attributable to common stock options and warrants - - - -
Attributable to convertible preferred stock 2,977 - 2,977 2,581
Attributable to contingent share payment obligation 20 - 20 13
-------- ------- ------ ------
11,009 20,110 8,554 12,793
======== ======= ====== ======
</TABLE>
7. Exercise of Warrants
In the third quarter of 1999, 4,114,728 shares of common stock were issued
through the cashless exercise of warrants. Shares of common stock totaling
140,656 were surrendered to exercise the warrants, such shares being valued at
the excess of fair market value of a common share on the day of exercise over
the warrant exercise price. The net value surrendered was approximately
$1,395,000. These surrendered shares have been recorded as treasury stock in the
September 30, 1999 balance sheet.
8. Contingencies
The pharmaceutical repackaging industry is subject to stringent federal and
state regulations. Allscripts' repackaging operations are regulated by the FDA
as if Allscripts were a manufacturer. Allscripts is also subject to regulation
by the DEA in connection with the packaging and distribution of controlled
substances.
Allscripts is a defendant in over 2,000 multi-defendant lawsuits involving
the manufacture and sale of dexfenfluramine, fenfluramine and phentermine.
Approximately 115 of these suits were filed between February 1998 and June 1999
and the remaining suits were filed in state courts in Texas in August 1999. The
plaintiffs in these cases claim injury as a result of ingesting a combination of
these weight-loss drugs. In each of these suits, Allscripts is one of many
defendants, including manufacturers and other distributors of these drugs.
Allscripts does not believe it has any significant liability incident to the
distribution or repackaging of these drugs, and it has tendered defense of these
lawsuits to its insurance carrier for handling. In addition, since physician
dispensing is generally prohibited in Texas and Allscripts has never distributed
these drugs in Texas, Allscripts believes that it is unlikely that it is
responsible for the distribution of the drugs at issue in many of the recently
filed Texas suits. The lawsuits are in various stages of litigation, and it is
too early to determine what, if any, liability Allscripts will have with respect
to the claims made in these lawsuits. If Allscripts' insurance coverage in the
amount of $16,000,000 per occurrence and $17,000,000 per year in the aggregate
is inadequate to satisfy any resulting liability, Allscripts will have to defend
these lawsuits and be responsible for the damages, if any, that Allscripts
suffers as a result of these lawsuits. Allscripts does not believe that
8
<PAGE>
the outcome of these lawsuits will have a material adverse effect on its
financial condition, results of operations or cash flows.
9. Discontinued Operations
In March 1999, Allscripts sold substantially all of the assets, excluding
cash and accounts receivable, of its pharmacy benefit management business. The
operating results of the pharmacy benefit management business have been
segregated from continuing operations and reported as a separate line item on
the Unaudited Condensed Consolidated Statements of Operations under the caption
"Income from discontinued operations." Additionally, Allscripts has restated its
prior financial statements to present the operating results of the pharmacy
benefit management operation as a discontinued operation.
Operating results from discontinued operations were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1998 1999
----------- -----------
(In thousands)
(unaudited)
<S> <C> <C>
Revenue $ 38,517 $ 14,292
Cost of revenue 35,939 13,378
-------- --------
Gross profit 2,578 914
Selling, general and administrative expenses 1,321 146
Amortization of intangibles 377 126
-------- --------
Operating income 880 642
Interest income 2 -
-------- --------
Income from discontinued operations $ 882 $ 642
======== ========
</TABLE>
Included in revenue is $2,550,000 in the first nine months of 1998 and
$375,000 in the first nine months of 1999 from Anthem, Inc., a related party.
In the first quarter of 1999, Allscripts recognized a gain on the sale of
this business of $3,547,000, which has also been reported as a separate line
item under the caption "Gain on sale of discontinued operations." This gain
does not reflect contingent payments from the buyer of up to $8,400,000, which
will be recognized if and when they are realized.
In the third quarter of 1999, Allscripts reduced selling, general and
administrative expenses relating to discontinued operations resulting in income
from discontinued operations of $616,000 due to the collection of receivables
that had previously been fully reserved.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
We provide physicians with Internet and client/server medication management
solutions designed to improve the quality and cost effectiveness of
pharmaceutical healthcare. We currently derive our revenue from the sale of
prepackaged medications, software licenses of our TouchScript medication
management software, computer hardware and related services.
Our shift in focus to physicians who require technology-based services to
operate successfully in a managed care environment and away from physicians with
a high percentage of fee-for-service patients is reflected in the composition of
our revenue, as depicted in the following table:
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------------------
1998 1999
---------------------------------------------------- --------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
--------- -------- --------- -------- --------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Traditional revenue........ $6,101 $5,807 $5,394 $5,036 $5,235 $4,537 $4,035
E-commerce revenue......... 250 249 366 479 793 1,855 2,940
------ ------ ------ ------ ------ ------ ------
Total revenue........... $6,351 $6,056 $5,760 $5,515 $6,028 $6,392 $6,975
====== ====== ====== ====== ====== ====== ======
</TABLE>
Traditional revenue is derived from the sale of prescription medications
and other medical products to physicians through non-Internet channels. We
expect traditional revenue to represent a decreasing percentage of total revenue
in the future. E-commerce revenue includes the sale of prescription medications
over the Internet as well as technology-related revenue for software license
fees, computer hardware sales and leases and related services. For the three
months ended September 30, 1999, sales of prepackaged medications represented
88.2% of e-commerce revenue. For the three months ended September 30, 1999,
approximately 14% of e-commerce revenue represented a shift of traditional
medication sales to Internet or TouchScript ordering. While we expect a portion
of future e-commerce revenue to continue to represent a shifting of traditional
revenue, we anticipate that most of the future growth in e-commerce revenue will
be generated by physician practice groups that are not currently our customers
but either have an interest in physician dispensing, or do not intend to
dispense but are subject to financial risk imposed by managed care payers with
respect to medications that they prescribe, or both.
We believe that managed care prescription programs will continue to cover
an increasing percentage of patients in the foreseeable future. This trend will
have the effect of reducing the dispensing opportunities of our traditional
dispensing customers because of their inability to submit claims electronically
for reimbursement by managed care payers. This reduction in dispensing
opportunities will reduce the revenue that we have historically recognized from
these customers. Additionally, managed care programs impose reduced
reimbursement rates for the medications dispensed to their plan participants,
thus providing us with a dollar margin per prescription dispensed that is lower
than we have historically experienced. Because TouchScript enables physicians
to submit claims electronically for reimbursement by managed care payers, a
large portion of the medications dispensed by our TouchScript customers are to
managed care patients. Accordingly, we expect that the fastest growing portion
of our business will provide margins with respect to the sale of prepackaged
medications that are lower than we have historically experienced.
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Total revenue for the three months ended September 30, 1999 increased by
21.1% or $1,215,000 from $5,760,000 in 1998 to $6,975,000 in 1999. E-commerce
revenue increased by 703.3% or $2,574,000 from $366,000 in
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the third quarter of 1998 to $2,940,000 in the third quarter of 1999.
Traditional revenue for the three months ended September 30, 1999 decreased by
25.2% or $1,359,000 from $5,394,000 in 1998 to $4,035,000 in 1999.
The increase in e-commerce revenue reflects a shifting of traditional
revenue as a result of traditional customers ordering products over the
Internet, additional installations and increased use of TouchScript, and an
increase in the percentage of brand drugs dispensed. The decrease in
traditional revenue reflects a shifting of traditional revenue to e-commerce as
outlined above and reduced levels of prepackaged medication dispensing by our
traditional customers due to the increased penetration of managed care
prescription programs, as well as the attrition of customers. This decrease was
partially offset by general price inflation of brand medications, an increase in
the percentage of brand drugs dispensed, which have a considerably higher
average selling price than their generic counterparts, and revenue generated by
MedSmart, which was acquired in May 1999.
Cost of revenue for the three months ended September 30, 1999 increased by
32.9% or $1,406,000 from $4,280,000 in 1998 to $5,686,000 in 1999 due to
increased revenue, a greater percentage of revenue coming from higher cost brand
products, increased operating costs at sites where we manage the dispensary on
behalf of the physician and increased costs of technical support. For the three
months ended September 30, 1999, cost of revenue as a percentage of total
revenue increased to 81.5% from 74.3% in the prior year period principally due
to a greater percentage of revenue coming from lower margin brand products and
increased operating costs at sites where we manage the dispensary on behalf of
the physician. This percentage increase was partially offset by higher relative
margin contributions from software licensing fees and MedSmart revenues.
Selling, general and administrative expenses for the three months ended
September 30, 1999 increased by 82.8% or $2,581,000 over the prior year period
due primarily to additional spending for sales support personnel and related
expenses needed to sell, implement and support TouchScript installations,
additional spending for TouchScript and Internet product development personnel
and related support expenses, increased legal costs and expenses related to
MedSmart operations. As a result, selling, general and administrative expenses
as a percentage of total revenue increased to 81.7% for the three months ended
September 30, 1999 from 54.1% of total revenue in the prior year period.
Amortization of intangibles for the three months ended September 30, 1999
increased by 413.0% or $384,000 from the prior year period. The increase in
amortization relates to the amortization of goodwill recorded in the MedSmart
acquisition, which was completed in May 1999, and the Shopping@Home acquisition,
which was completed in June 1999.
Other operating expenses for the three months ended September 30, 1999 of
$319,000 reflect a non-cash, non-recurring charge related to the issuance of
common stock upon the closing of the initial public offering in accordance with
a contingent payment obligation related to an acquisition we made in 1995.
Net interest income for the three months ended September 30, 1999 was
$603,000 as compared to net interest expense of $46,000 for the prior year
period. The increase relates to interest earned on the investment of net
proceeds from our initial public offering and the repayment of borrowings under
our revolving credit facility in July 1999.
We have recorded no provision or benefit for income taxes during the three
months ended September 30, 1999, because we currently anticipate that the annual
effective income tax rate will be minimal or zero, and we have fully reserved
all of our deferred tax assets.
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Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Total revenue for the nine months ended September 30, 1999 increased by
6.8% or $1,228,000 from $18,167,000 in 1998 to $19,395,000 in 1999. E-commerce
revenue increased by 546.0% or $4,723,000 from $865,000 for the nine months
ended September 30, 1998 to $5,588,000 for the same period in 1999. Traditional
revenue for the nine months ended September 30, 1999 decreased by 20.2% or
$3,495,000 from $17,302,000 in 1998 to $13,807,000 in 1999.
The increase in e-commerce revenue reflects a shifting of traditional
revenue as a result of traditional customers ordering products over the
Internet, as well as additional installations and increased use of TouchScript.
The decrease in traditional revenue reflects a shifting of traditional revenue
to e-commerce as outlined above and reduced levels of prepackaged medication
dispensing by our traditional customers due to the increased penetration of
managed care prescription programs, as well as the attrition of customers. This
decrease was partially offset by general price inflation of brand medications,
an increase in the dispensing percentage of brand drugs, which have a
considerably higher average selling price than their generic counterparts, and
revenue generated by MedSmart.
Cost of revenue for the nine months ended September 30, 1999 increased by
16.3% or $2,163,000 from $13,231,000 in 1998 to $15,394,000 in 1999 due to a
greater percentage of revenue coming from sales of higher cost brand products,
increased operating costs at sites where we manage the dispensary on behalf of
the physician, increased costs of technical support and increased revenue. For
the nine months ended September 30, 1999, cost of revenue as a percentage of
total revenue increased to 79.4% from 72.8% in the prior year period,
principally due to a greater percentage of revenue coming from lower margin
brand products and increased operating costs at sites where we manage the
dispensary on behalf of the physician. This percentage increase was partially
offset by higher relative percentage margin contributions from software and
MedSmart revenues.
Selling, general and administrative expenses for the nine months ended
September 30, 1999 increased by 42.2% or $4,093,000 over the prior year period
due primarily to additional spending for sales support personnel and related
expenses needed to sell, implement and support TouchScript installations,
additional spending for TouchScript and Internet product development personnel
and related support expenses, expenses related to MedSmart operations, increased
legal costs and additional deferred stock compensation expense. In 1998 and the
first quarter of 1999, we recorded unearned stock compensation of approximately
$2,250,000, representing the difference between the exercise price of stock
option grants and the deemed fair market value of our common stock at the time
of the grants. This amount will be amortized to expense over the vesting
periods of the applicable grants and is expected to be fully amortized by 2003.
As a result, selling, general and administrative expenses as a percentage of
total revenue increased to 71.2% for the nine months ended September 30, 1999
from 53.4% of total revenue in the prior year period.
Amortization of intangibles for the nine months ended September 30, 1999
increased by 166.1% or $465,000 in 1999 from the prior year period. The
increase in amortization relates to the amortization of the goodwill recorded in
the MedSmart acquisition, which was completed in May 1999, and the Shopping@Home
acquisition, which was completed in June 1999.
Other operating expenses for the nine months ended September 30, 1999
increased by 184.8% or $207,000 over the prior year period. Other operating
expenses for the nine months ended September 30, 1999 of $319,000 reflect a non-
cash, non-recurring charge related to the issuance of common stock upon the
closing of the initial public offering in accordance with a contingent payment
obligation related to an acquisition we made in 1995. The 1998 expense
consisted entirely of severance costs related to the refocusing of our sales
efforts.
Net interest income for the nine months ended September 30, 1999 was
$403,000 as compared to net interest expense of $524,000 for the prior year
period. This increase relates to interest earned on the investment of net
proceeds from our initial public offering, the exchange of subordinated
convertible debentures for redeemable preferred stock and
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the repayment of the term loan we had with our commercial bank in April 1998 and
the repayment of borrowings on our revolving credit facility with our commercial
bank in July 1999.
We have recorded no provision or benefit for income taxes during the nine
months ended September 30, 1999, because we currently anticipate that the annual
effective income tax rate will be minimal or zero and we have fully reserved all
of our deferred tax assets.
The operating results of our pharmacy benefit management business, which we
sold in March 1999, have been segregated from continuing operations and reported
as a separate line item on the Unaudited Condensed Consolidated Statements of
Operations under the caption "Income from discontinued operations."
Additionally, the gain we recognized from the sale of this business has been
reported as a separate line item under the caption "Gain from sale of
discontinued operations."
Liquidity and Capital Resources
At September 30, 1999, our principal sources of liquidity consisted of
$27,089,000 of cash and cash equivalents and $36,000,000 of marketable
securities.
Net cash used in operating activities increased by $4,116,000 to $7,939,000
for the nine months ended September 30, 1999, compared to $3,823,000 for the
nine months ended September 30, 1998, due to an increase in operating losses.
Accounts receivable, net of allowances, decreased from $9,525,000 at December
31, 1998 to $4,810,000 at September 30, 1999, and accounts payable and rebates
payable decreased over the same period from $7,830,000 to $5,110,000. These
decreases resulted primarily from the collection of outstanding receivables and
the payment of outstanding payables related to our pharmacy benefit management
business, which we sold in March 1999. In addition, net inventories increased
$816,000 from December 31, 1998 to September 30, 1999 as our inventories of
computer equipment increased in anticipation of increased sales and
installations of our TouchScript software.
Net cash used in investing activities increased to $30,112,000 in the first
nine months of 1999 from $653,000 in the first nine months of 1998, primarily as
a result of the purchase of marketable securities of $36,000,000 offset by cash
received from the sale of the pharmacy benefit management business in March
1999. Capital expenditures were $1,634,000 for the first nine months of 1999
and $653,000 for the first nine months of 1998. The increased level of
expenditures in 1999 relates to computer systems placed at sites where we manage
the dispensary on behalf of the physician and increases in capital outlays to
accommodate new employees. Currently, we have no material commitments for
capital expenditures, although we anticipate ongoing capital expenditures in the
ordinary course of business.
Net cash provided by financing activities increased to $64,422,000 for the
first nine months of 1999 compared to $4,328,000 for the nine months ended
September 30, 1998, primarily due to the receipt of net proceeds of $103,000,000
from the initial public offering of our common stock and $1,400,000 in increased
borrowings under our revolving credit line, offset by preferred stock
redemptions of $34,745,000 and repayment of revolving credit line borrowings of
$5,400,000.
We have spent $771,000 and $1,008,000 on software development costs in 1998
and in the nine months ended September 30, 1999, respectively. While
technological feasibility for the current version of TouchScript has been
achieved and, therefore, we have capitalized the related software development
costs, these costs have been written off because their recoverability is
uncertain since market acceptance of the current version of TouchScript has not
been achieved.
On July 28, 1999, we completed an initial public offering of our common
stock. We issued 7,000,000 shares of common stock at an initial public offering
price of $16.00 per share. The initial public offering resulted in gross
proceeds of $112,000,000, $7,840,000 of which was applied to the underwriting
discount and approximately $1,150,000
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of which was applied to related offering expenses. In addition, we used
$34,745,000 of the proceeds to redeem all outstanding shares of our Series H, I
and J Redeemable Preferred Stock, plus accrued dividends thereon, $3,900,000 to
repay advances under our revolving line of credit with our commercial bank and
$653,000 to repay a promissory note, including accrued interest, issued as
consideration for our acquisition of Shopping @ Home, Inc. The remaining net
proceeds of approximately $64,000,000 were invested in short-term, interest-
bearing, investment grade securities pending their use for general corporate
purposes and working capital.
We believe that current cash, cash equivalents and marketable securities
balances will be sufficient to meet our anticipated cash needs for at least the
next 12 months. However, any projections of future cash needs and cash flows
are subject to substantial uncertainty. We will, from time to time, consider
the acquisition of, or investment in, complementary businesses, products,
services and technologies, which might impact our liquidity requirements or
cause us to issue additional equity or debt securities. There can be no
assurance that financing will be available in the amounts or on terms acceptable
to us, if at all.
Year 2000
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the Year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the Year 2000
phenomenon. For example, we are dependent on third-party vendors to host our
Internet servers, perform certain information processing functions and provide
other services critical to our business.
We have reviewed the Year 2000 compliance of our medication management
products and have tested these products to determine how they will function at
and beyond the Year 2000. Based upon our assessment to date, we believe that
all of the medication management products that we currently sell are Year 2000
compliant. We have contacted the small number of customers using certain older
versions of our products that are not Year 2000 compliant. We have offered
these customers upgrades to Year 2000 compliant versions of these products at no
cost.
We have assessed the Year 2000 readiness of all mission-critical hardware,
operating systems and third-party and proprietary software, which include
software for use in our accounting, order entry, database, security, phone and
other operating systems. The failure of our software or systems to be Year 2000
compliant could have a material adverse effect on our corporate accounting
functions, our ability to fulfill orders and the operation of TouchScript and
our Web site. As part of the assessment of the Year 2000 compliance of these
systems, we have received assurances from our vendors that their software,
computer technology and other services are Year 2000 compliant. We have
expensed amounts incurred in connection with Year 2000 assessment through
September 30, 1999. Such amounts have not been material.
As of September 30, 1999 we had completed our assessment process, replaced
all mission-critical, non-compliant hardware with hardware that is Year 2000
compliant, upgraded all mission-critical third-party software, including
operating systems, to Year 2000 compliant versions, upgraded proprietary
software so that it is Year 2000 compliant and completed the necessary upgrades
of interfaces between those systems and external systems. System-wide testing
of these upgrades was completed in October 1999. At this time, we cannot
determine the expenses that we may incur in the future associated with any
potential remediation plan. The failure of our software and computer systems
and of our third-party suppliers to be Year 2000 compliant could have a material
adverse effect on us. As of September 30, 1999, we had incurred costs that we
believe are allocable to the Year 2000 problem of approximately $150,000.
The Year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet to provide our services. The infrastructure
necessary to support our operations consists of a network of computers and
telecommunications systems located
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throughout the world and operated by numerous unrelated entities and
individuals, none of which has the ability to control or manage the potential
Year 2000 issues that may impact the entire infrastructure. Our ability to
assess the reliability of this infrastructure is limited and relies solely on
generally available news reports, surveys and comparable industry data. Based on
these sources, we believe most entities and individuals who rely significantly
on the Internet are carefully reviewing and attempting to remediate issues
relating to Year 2000 compliance, but it is not possible to predict whether
these efforts will be successful in reducing or eliminating the potential
negative impact of Year 2000 issues. A significant disruption in the ability to
reliably access the Internet or portions of it would have an adverse effect on
demand for our products and services and would have a material adverse effect on
us.
We have not developed a contingency plan to address situations that may
result if we or our vendors are unable to achieve Year 2000 compliance. If
circumstances require, we will develop a contingency plan. The cost of
developing and implementing such a plan, if necessary, could be material. Any
failure of our material systems, our vendors' material systems or the Internet
to be Year 2000 compliant could have material adverse consequences for us.
These consequences could include difficulties in operating our Web site
effectively, taking product orders, making product deliveries, transmitting data
or conducting other fundamental parts of our business.
Safe Harbor For Forward-Looking Statements
This report and statements we or our representatives make contain forward-
looking statements that involve risks and uncertainties. We develop forward-
looking statements by combining currently available information with our beliefs
and assumptions. These statements often contain words like believe, expect,
anticipate, intend, contemplate, seek, plan, estimate or similar expressions.
Forward-looking statements do not guarantee future performance. Recognize these
statements for what they are and do not rely upon them as facts.
Forward-looking statements involve risks, uncertainties and assumptions,
including, but not limited to, those discussed in this report. We make these
statements under the protection afforded them by Section 21E of the Securities
Exchange Act of 1934. Because we cannot predict all of the risks and
uncertainties that may affect us, or control the ones we do predict, our actual
results may be materially different from the results we express in our forward-
looking statements.
For a more complete discussion of the risks, uncertainties and assumptions
that may affect us, see Allscripts' Registration Statement on Form S-1
(No. 333-78431), declared effective July 23, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
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On July 28, 1999, Allscripts completed the initial public offering of its
common stock. Upon the closing of the offering, Allscripts, Inc., an Illinois
corporation, merged with and into its wholly owned subsidiary, Allscripts, Inc.,
a Delaware corporation. In connection with the merger, Allscripts (Delaware)
issued shares of common stock to the holders of common stock of Allscripts
(Illinois), in exchange for such holders' shares of common stock of Allscripts
(Illinois). In addition, upon the closing of the offering, all outstanding
shares of Allscripts' Series A, B, C, D, F and G Convertible Preferred Stock
converted into a total of 2,977,483 shares of common stock in accordance with
the terms of each series of preferred stock. Exemption from registration is
claimed for the above issuances of securities under Section 3(a)(9) of the
Securities Act of 1933, as they were exchanges of securities by Allscripts with
existing securityholders.
After the closing of the initial public offering through September 30,
1999, Allscripts issued an aggregate of 521,793 shares of common stock upon the
exercise of outstanding warrants for an aggregate exercise price of $416,713.
Exemption from registration is claimed under Section 4(2) of the Securities Act,
no public sale having been involved. During the same period, Allscripts issued
an aggregate of 4,114,728 shares of common stock upon the cashless exercise of
outstanding warrants in exchange for 140,656 shares of common stock. Exemption
from registration is claimed under Section 3(a)(9) of the Securities Act, as
they were exchanges of securities by Allscripts with existing securityholders.
Also during that period, Allscripts issued an aggregate of 57,020 shares of
common stock upon the exercise of outstanding options under its Amended and
Restated 1993 Stock Incentive Plan for an aggregate exercise price of $71,387.
Exemption from registration is claimed under Rule 701 promulgated under the
Securities Act, as they were sales under a written compensatory benefit plan.
In September 1999, Allscripts issued an aggregate of 87,271 shares of
common stock to the stockholders of TeleMed Corp. based upon a contingent
payment provision related to the acquisition of TeleMed that was completed in
May 1999. Exemption from registration is claimed pursuant to Section 4(2) of
the Securities Act, no public sale having been involved.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - See Index to Exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 15, 1999 ALLSCRIPTS, INC.
(Registrant)
By: /s/ David B. Mullen
-------------------
David B. Mullen
President and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
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INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
10.1 Employment Agreement, effective August 2, 1999, between Allscripts
and Joseph E. Carey
27.1 Financial Data Schedule
18
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made as of this 2nd day of August,
1999, by and between Allscripts, Inc., a corporation organized and existing
under the laws of the State of Illinois, with its principal place of business at
2401 Commerce Drive, Libertyville, Illinois 60048 ("Company") and Joseph E.
Carey ("Executive").
RECITALS
WHEREAS, the Company desires to employ Executive as its Chief Operating
Officer;
WHEREAS, Executive desires to be employed by Company in the aforesaid
capacity;
NOW THEREFORE, in consideration of the foregoing premises, of the mutual
agreements and covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
AGREEMENT
I. Employment
The Company hereby agrees to employ Executive, and Executive hereby accepts
employment as Chief Operating Officer of the Company, pursuant to the terms of
this Agreement. Executive shall report directly to the President. Executive
shall have the duties and responsibilities of Chief Operating Officer, and such
other duties and responsibilities not inconsistent with the performance of his
duties as Chief Operating Officer as are reasonably assigned.
During the term of this Agreement, Executive shall carry out his
responsibilities hereunder to the best of his ability on a full-time basis.
II. Effective Date and Term
The initial term of Executive's employment by the Company under this
Agreement shall commence as of August 2, 1999 and shall continue until December
31, 2000. On December 31, 2000, and on each December 31 thereafter, this
Agreement shall automatically renew for a one (1) year term unless the Company
or Executive elects not to renew this Agreement in a written notice to the other
party given at least thirty (30) days preceding such December 31. The
Executive's employment period hereunder ("Employment Period") shall begin on
August 2, 1999 and end on the December 31 on which its term expires by reason of
an election not to renew by the Company or the Executive ("Expiration Date")
except that if Executive's employment is terminated pursuant to Section IV
hereof the Employment Period shall terminate on the Effective Termination Date
(as defined in Section IV).
III. Compensation and Benefits
In consideration for the services Executive shall render under this
Agreement, the Company shall provide or cause to be provided to Executive the
following compensation and benefits:
<PAGE>
A. Base Salary
During the Employment Period, the Company shall pay or cause to be paid to
Executive an annual base salary at a rate of $190,000 for each twelve month
period ending July 15 ("Base Salary"), subject to all appropriate federal and
state withholding taxes and payable in accordance with the Company's normal
payroll procedures. Such sum shall be reviewed prior to each July 15 during the
Employment Period by the Board or its Compensation Committee for the purposes of
determining appropriate merit increases based on Executive's performance. The
results of such review shall be reported to Executive prior to each such July
15.
B. Benefits
During the Employment Period and as otherwise provided hereunder, the
Company shall provide or cause to be provided to Executive the following:
1. Twenty (20) business days per year of paid vacation, such vacation time
not to be cumulative (i.e., vacation time not taken in one year shall
not be carried forward and used in any subsequent year).
2. Health and/or dental insurance, including immediate coverage for
Executive and his eligible dependents as provided by the Company in
accordance with its group health insurance plan coverage applicable to
senior executive employees; and
3. To the extent that they do not duplicate benefits and perquisites
provided in this Agreement, such other benefits and perquisites as are
provided in accordance with the Company's plans, practices, policies
and programs for senior executive employees of the Company.
C. Performance Bonus
Executive shall be entitled to a cash bonus ("Performance Bonus") (i) of
$25,000 as a sign-on bonus payable upon commencement of employment, (ii) an
annual bonus for each whole calendar year falling within the Employment Period,
and (iii) to the extent provided in Section IV, for the portion of the last
calendar year falling within the Employment Period if the Employment Period
terminates on the Effective Termination Date. The Performance Bonus for periods
beginning on and after January 1, 2000 shall be contingent upon the attainment
of such Company objectives and shall be in such amounts as are determined
annually by the Chief Executive Officer in consultation with the Board or its
Compensation Committee prior to January 1, 2000 and prior to each January 1
thereafter falling within the Employment Period. The Performance Bonus, if any,
shall be payable on or before March 31 of the year immediately succeeding the
calendar year for which such Performance Bonus was earned, provided, however,
that if the applicable Company objectives are based on the Company's annual
audited financial statements and if on such March 31 such financial statements
have not yet been issued, the Performance Bonus, if any, shall be payable
promptly upon the issuance of such financial statements.
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D. Expenses
--------
The Company shall reimburse Executive for proper and necessary expenses
incurred by him in the performance of his duties under this Agreement from
time to time upon Executive's submission to the Company of invoices for such
expenses in reasonable detail.
IV. TERMINATION PRIOR TO EXPIRATION DATE AND CONSEQUENCES THEREOF
This Section IV sets forth the circumstances in which the Employment
Period shall terminate on a date ("Effective Termination Date") prior to the
Expiration Date (as defined in Section II hereof).
A. Death or Disability
-------------------
The Employment Period shall terminate upon the Executive's date of
death or the date the Executive is given written notice that he has been
determined to be disabled by the Company. For purposes of this Agreement,
the Executive shall be deemed to be "disabled" if the Executive, as a result
of illness or incapacity, (1) shall be unable to perform substantially his
required duties for a period of three (3) consecutive months or for any
aggregate period of three (3) months in any six (6) month period. In the
event of a dispute as to whether Executive is disabled, the Company may
refer Executive to a licensed practicing physician of the Company's choice,
and Executive agrees to submit to such tests and examination as such
physician shall deem appropriate.
B. Termination by Company For Cause
--------------------------------
The Employment Period shall terminate on the date the Company provides
the Executive with written notice that he is being terminated for cause.
For the purposes of this Agreement, the term "Cause" shall mean:
(i) the willful or grossly negligent failure by Executive to
perform his duties and obligations hereunder in any material respect,
other than any such failure resulting from his disability;
(ii) Executive's conviction of a felony involving moral
turpitude; or
(iii) Executive's violation of the law in connection with his
employment which is materially injurious to the Company, monetarily or
otherwise.
Notwithstanding the foregoing, Cause shall not exist under clause (i)
above until notice of such failure has been given to Executive by the
Company and one week has lapsed following such notice without Executive
curing such failure; provided, however, that such notice and lapse of time
shall not be required with respect to any event or circumstance which is the
same or substantially the same as an event or circumstance with respect to
which notice and opportunity to cure has been given within the previous six
months.
C. Termination by Company Without Cause
------------------------------------
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The Employment Period shall terminate on the date the Company provides
the Executive with written notice that the Company is exercising its rights
under this Section IV (C) to terminate the Employment Period without Cause.
If the Company elects not to renew this Agreement for any renewal period
pursuant to Section II hereof, such election shall not constitute a
termination of the Employment Period without Cause.
D. Termination by Executive for Good Reason
----------------------------------------
The Employment Period shall terminate thirty days following the date
the Executive provides the Company with written notice that the Executive is
exercising his right under this Section IV (D) to terminate the Employment
Period for good reason. For purpose of this Agreement "good reason" shall
mean:
(i) an intentional, willful and material failure of the Company
to meet its obligations in any material respect under this Agreement
which remains uncured after the Executive has provided written notice
of such failure and one week has elapsed following such notice without
the Company curing such failure; provided, however, that such notice
and lapse of time shall not be required with respect to any event or
circumstance which is the same or substantially the same as an event or
circumstance with respect to which notice and an opportunity to cure
has been given within the previous six months;
(ii) a substantial adverse alteration in the nature or status of
the Executive's responsibilities with the Company; or
(iii) a request of the Executive to relocate his residence
greater than 100 miles from his then current residence without his
consent; and an exercise by him of his right under this Section IV (D)
within sixty (60) days after such request.
E. Termination by Executive Without Good Reason
--------------------------------------------
The Employment Period shall end thirty (30) days following the date the
Executive provides the Company with written notice that Executive is
exercising his right under this Section IV (E) to terminate the Employment
Period without good reason. If the Executive elects not to renew this
Agreement for any renewal period pursuant to Section II hereof, such
election shall not constitute a termination of the Employment Period without
good reason.
F. Consequence of Termination Under this Section IV
------------------------------------------------
The table at the end of this Section IV (F) sets out the consequences
of a termination of the Employment Period on the Effective Termination Date,
i.e., a date other than the Expiration Date as defined in Section II. Such
consequences are as follows;
(i) Termination Without Cause or for Good Reason. If the Company
exercises its right to terminate the Employment Period without Cause or if
Executive exercises his right to terminate the Employment Period for good
reason, the Company shall be obligated to pay Executive (a) any salary that
was accrued but not yet paid as of the Effective Termination Date; (b) as
severance
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<PAGE>
pay, an amount, payable in twelve equal monthly installments commencing
on the Effective Termination Date, equal to Executive's annual Base
Salary in effect immediately prior to the Effective Termination Date
(such amount to be payable regardless of whether (x) Executive obtains
other employment and is compensated therefor, (y) the Effective
Termination Date is less than twelve months prior to the Expiration
Date or (z) Executive dies prior to the first anniversary of the
Effective Termination Date, but only for so long as Executive is not in
violation of Section V hereof); (c) the unpaid Performance Bonus, if
any, with respect to the calendar year preceding the Effective
Termination Date (such Performance Bonus, if any, to be determined in
the manner it would have been determined and payable at the time it
would have been payable under Section III(C) had there been no
termination of the Employment Period); and (d) any Performance Bonus
for the calendar year in which the Effective Termination Date occurs
that would have been payable under Section III(C) had there been no
termination of the Employment Period (such Performance Bonus, if any,
to be determined in the manner it would have been determined and
payable at the time it would have been payable under Section III(C) had
there been no termination of the Employment Period).
(ii) Termination With Cause or Without Good Reason. If the
Company exercises its right to terminate the Employment Period with
Cause or if Executive exercises his right to terminate the Employment
Period without good reason, the Company shall be obligated to pay
Executive (a) any salary that was accrued but not yet paid as of the
Effective Termination Date; and (b) the unpaid Performance Bonus, if
any, with respect to the calendar year preceding the Effective
Termination Date (such Performance Bonus, if any, to be determined in
the manner it would have been determined and payable at the time it
would have been payable under Section III(C) had there been no
termination of the Employment Period).
(iii) Termination Upon Death or Disability. If the Employment
Period is terminated because of the death or disability of Executive,
the Company shall be obligated to pay Executive or, if applicable,
Executive's estate (a) any salary that was accrued but not yet paid as
of the Effective Termination Date; (b) the unpaid Performance Bonus, if
any, with respect to the calendar year preceding the Effective
Termination Date (such Performance Bonus, if any, to be determined in
the manner it would have been determined and payable at the time it
would have been payable under Section III(C) had there been no
termination of the Employment Period); and (c) a Pro Rata Share of any
Performance Bonus for the calendar year in which the Effective
Termination Date occurs that would have been payable under Section
III(C) had there been no termination of the Employment Period (such
Performance Bonus, if any, to be determined in the manner it would have
been determined and payable at the time it would have been payable
under Section III(C) had there been no termination of the Employment
Period). "Pro Rata Share" means a fraction the numerator of which is
the number of days prior to the Effective Termination Date in the
calendar year in which the Effective Termination Date occurs and the
denominator of which is 365.
5
<PAGE>
Table Setting Out Consequences of a Termination of Employment
-------------------------------------------------------------
Period on the Effective Termination Date
----------------------------------------
<TABLE>
<CAPTION>
Paragraph Salary Severance Cobra
Reference Ceases? Bonus? Paid? Continues?
- ------------------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
(A) Death or Disability Yes Prorated Bonus No No on death
Yes on disability
(B) Company terminates for Yes No Bonus No Yes
cause
(C) Company terminates no Yes Full Bonus Yes Yes
cause
(D) Executive terminates for Yes Full Bonus Yes Yes
good reason
(E) Executive terminates Yes No Bonus No Yes
without good reason
</TABLE>
V. NONCOMPETITION AND CONFIDENTIALITY
1. For purposes of this Agreement, the term "Direct Competitor" shall mean
any person or entity engaged in the business of marketing or providing
within the continental United States prescription products or services
or pharmacy benefit management products or services, including, without
limitation, prepackaged prescription products or services, point of
care pharmacy dispensing systems, mail service pharmacy products or
services, or pharmaceuticals or pharmaceutical delivery systems.
2. During the Employment Period and for a period of one year after the
termination, for any reason, of the Employment Period, Executive shall
not, (i) directly or indirectly act in concert or conspire with any
person employed by the Company in order to engage in or prepare to
engage in or to have a financial or other interest in any business
which is a Direct Competitor; or (ii) serve as an employee, agent,
partner, shareholder, director or consultant for, or in any other
capacity participate, engage or have a financial or other interest in
any business which is a Direct Competitor (provided, however that
notwithstanding anything to the contrary contained in this Agreement,
Executive may own up to 2% of the outstanding shares of the capital
stock of a company whose securities are registered under Section 12 of
the Securities Exchange Act of 1934).
3. The Company has advised Executive and Executive acknowledges that it is
the policy of the Company to maintain as secret and confidential all
Protected Information (as defined below), and that Protected
Information has been and will be developed at substantial cost and
effort to the Company. Executive shall not at any time, directly or
indirectly, divulge, furnish or make accessible to any person, firm,
corporation, association or other entity (otherwise than as may be
required in the regular course of Executive's
6
<PAGE>
employment), nor use in any manner, either during the Employment
Period or after the termination, for any reason, of the Employment
Period, any Protected Information, or cause any such information of
the Company to enter the public domain. "Protected Information" means
trade secrets, confidential and proprietary business information of
the Company, and any other information of the Company, including but
not limited to, customer lists (including potential customers),
sources of supply, processes, plans, materials, pricing information,
internal memoranda, marketing plans, internal policies, and products
and services which may be developed from time to time by the Company
and its agents or employees, including Executive; provided, however,
that information that is in the public domain (other than as a result
of a breach of this Agreement), approved for release by the Company or
lawfully obtained from third parties who are not bound by a
confidentiality agreement with the Company, is not Protected
Information.
4. Executive acknowledges and agrees that the restrictions imposed upon
him by this Section V and the purpose for such restrictions are
reasonable and are designed to protect the trade secrets, confidential
and proprietary business information and the continued success of the
Company without unduly restricting Executive's future employment by
others. Furthermore, Executive acknowledges that in view of the
confidential information of the Company which he has or will acquire
or has or will have access to and the necessity of the restrictions
contained in this Section V, any violation of the provisions of this
Section V would cause irreparable injury to the Company and its
successors in interest with respect to the resulting disruption in
their operations. By reason of the foregoing, Executive consents and
agrees that if he violates any of the provisions of this Section V,
the Company and its successors in interest as the case may be, shall
be entitled, in addition to any other remedies that they may have,
including monetary damages, to an injunction to be issued by a court
of competent jurisdiction, restraining Executive from committing or
continuing any violation of this Section V.
VI. Miscellaneous
A. Valid Obligation
----------------
This Agreement has been duly authorized, executed and delivered by the
Company and has been duly executed and delivered by Executive and is a
legal, valid and binding obligation of the Company and of Executive,
enforceable in accordance with its terms.
B. No Conflicts
------------
Executive represents and warrants that the performance by him of his
duties hereunder will not violate, conflict with or result in a breach of
any provision of, any agreement to which he is a party.
C. Applicable Law
--------------
This Agreement shall be construed in accordance with the laws of the
State of Illinois, without reference to Illinois' choice of law statutes or
decisions.
D. Severability
------------
7
<PAGE>
The provisions of this Agreement shall be deemed severable, and the
invalidity or unenforceability of any one or more of the provisions hereof shall
not affect the validity or enforceability of any other provision. In the event
any clause of this Agreement is deemed to be invalid, the parties shall endeavor
to modify that clause in a manner which carries out the intent of the parties in
executing this Agreement.
E. No Waiver
The waiver of a breach of any provision of this Agreement by any party
shall not be deemed or held to be a continuing waiver of such breach or a waiver
of any subsequent breach of any provision of this Agreement or as nullifying the
effectiveness of such provision, unless agreed to in writing by the parties.
F. Notices
All notices hereunder shall be in writing and shall be sent by hand
delivery, overnight courier, or by certified mail, return receipt requested, to
the parties at the addresses set forth below:
To the Company: Allscripts, Inc.
2401 Commerce Drive
Libertyville, Illinois 60048
Attention: Chief Executive Officer
with a copy to: Gardner, Carton & Douglas
321 North Clark Street
Chicago, Illinois 60610
Attention: Joseph H. Greenberg
to Executive: Joseph E. Carey
2636 Oak Avenue
Northbrook, Illinois 60062
with a copy to: _________________________
_________________________
_________________________
Attention: _____________
G. Assignment of Agreement
This Agreement shall inure to the benefit of Executive and the Company,
their respective successors and assignees and Executive's heirs and personal
representatives. Neither party may assign any rights or obligations hereunder to
any person or entity without the prior written consent of the other party. This
Agreement shall be personal to Executive for all purposes.
H. Entire Agreement
Except as otherwise provided herein, this Agreement contains the entire
understanding between the parties, and there are no other agreements or
understandings between the parties with
8
<PAGE>
respect to Executive's employment by the Company and his obligations.
Executive acknowledges that he is not relying upon any representations or
warranties concerning his employment by the Company except as expressly set
forth herein. No alteration or modification hereof shall be valid except by
a subsequent written instrument executed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
ALLSCRIPTS, INC.
By: /s/David B. Mullen
-------------------------------
Name: David B. Mullen
-----------------------------
Title: President
----------------------------
/s/Joseph E. Carey
----------------------------------
[Name of Executive]
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
condensed consolidated financial statements of Allscripts, Inc. as of and for
the nine months ended September 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 27,089
<SECURITIES> 36,000
<RECEIVABLES> 8,501
<ALLOWANCES> 3,691
<INVENTORY> 3,721
<CURRENT-ASSETS> 72,143
<PP&E> 7,668
<DEPRECIATION> 5,103
<TOTAL-ASSETS> 78,947
<CURRENT-LIABILITIES> 7,032
<BONDS> 59
0
0
<COMMON> 240
<OTHER-SE> 71,616
<TOTAL-LIABILITY-AND-EQUITY> 78,947
<SALES> 19,395
<TOTAL-REVENUES> 19,395
<CGS> 15,394
<TOTAL-COSTS> 15,394
<OTHER-EXPENSES> 14,866
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (403)
<INCOME-PRETAX> (10,462)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,462)
<DISCONTINUED> 4,189
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,273)
<EPS-BASIC> (0.83)
<EPS-DILUTED> (0.83)
</TABLE>
