UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
Commission File Number 0-26345
CareInsite, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3630930
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
669 River Drive, Center Two 07407-1361
Elmwood Park, New Jersey (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (201) 703-3400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes X No
--- ---
The number of shares of the registrant's common stock outstanding at
February 11, 2000 was 74,082,150.
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
Index
-----
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements Page
----
Consolidated Balance Sheets - December 31, 1999 and
June 30, 1999 3
Consolidated Statements of Operations - Three and six
months ended December 31, 1999 and 1998 and Cumulative
from Inception (December 24, 1996) through December
31, 1999 5
Consolidated Statements of Changes in Stockholders'
Equity for the Period from Inception (December 24,
1996) through June 30, 1997, the Years ended June 30,
1998 and June 30, 1999 and the six months ended
December 31, 1999 6
Consolidated Statements of Cash Flows - Six months ended
December 31, 1999 and 1998 and Cumulative from
Inception (December 24, 1996) through
December 31, 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II OTHER INFORMATION:
Item 1. Legal Proceedings 18
Item 2. Changes In Securities and Use of Proceeds 18
Item 6. Exhibits and Reports of Form 8-K 18
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this report, the words "anticipate",
"believe", "estimate", "expect", and similar expressions, as they relate to the
Company or the Company's management, are intended to identify forward-looking
statements. Such statements reflect the current view of the Company with respect
to future events, are not guarantees of future performance and are subject to
certain risks and uncertainties. These risks and uncertainties may include:
product demand and market acceptance risks; the feasibility of developing
commercially profitable Internet healthcare services; the effect of economic
conditions; user acceptance; success of transactions with third parties; the
impact of competitive products, services and pricing; product development,
commercialization and technological difficulties; the effect of government
regulation of the Internet or healthcare e-commerce services; the outcome of
litigation; and other risks described elsewhere herein, including those set
forth in "--Management's Discussion and Analysis of Financial Condition and
Results of Operations" below, and in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1999. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, or expected. The Company does not intend to update these
forward-looking statements.
2
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
--------------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 21,861 $ 64,019
Marketable securities .......................................... 44,596 54,670
Accounts receivable, net of allowances of $55 and $6
at December 31, 1999 and June 30, 1999, respectively .... 757 532
Accounts and Notes receivable from affiliate ................... 4,627 1,591
Current portion of prepaid marketing and licensing agreements .. 9,272 --
Other current assets ........................................... 3,411 554
--------- ---------
Total current assets ................................ 84,524 121,366
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements ......................................... 786 732
Equipment ...................................................... 3,926 3,454
Furniture and fixtures ......................................... 647 427
Construction in progress ....................................... 6,290 --
--------- ---------
11,649 4,613
Less: Accumulated depreciation ................................. (2,648) (2,033)
--------- ---------
Property, plant and equipment, net .................. 9,001 2,580
--------- ---------
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net of
accumulated amortization of $523 at December 31, 1999 .......... 30,807 31,330
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $3,380 and
$1,902 at December 31, 1999 and June 30, 1999, respectively 20,102 22,475
Non-current marketable securities .............................. 49,594 --
Prepaid marketing and licensing agreements ..................... 2,581 --
Other .......................................................... 1,201 2,202
--------- ---------
Total other assets .................................. 73,478 24,677
--------- ---------
$ 197,810 $ 179,953
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
3
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------- -----------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable ............................................. $ 2,916 $ 764
Payable to Parent ............................................ 334 853
Accrued liabilities .......................................... 4,917 4,912
--------- ---------
Total current liabilities ........................ 8,167 6,529
--------- ---------
CONVERTIBLE REDEEMABLE PREFERRED STOCK ............................. 5,166 --
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 30,000,000 shares authorized;
100 shares issued and outstanding at December 31, 1999 .... -- --
Common stock, $ .01 par value, authorized 300,000,000 shares;
70,410,134 shares issued and outstanding .............. 704 704
Additional paid-in capital ................................... 254,855 247,932
Deficit accumulated during the development stage ............. (70,637) (75,490)
Accumulated other comprehensive (loss) income ................ (445) 278
--------- ---------
Total stockholders' equity ....................... 184,477 173,424
--------- ---------
$ 197,810 $ 179,953
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
4
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Cumulative
Three Months Ended Six Months Ended from Inception
December 31, December 31, (Dec. 24, 1996)
---------------------- ---------------------- Through
1999 1998 1999 1998 December 31, 1999
--------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Net revenue ................................................. $ 805 $ -- $ 1,585 $ -- $ 1,956
Service revenue to affiliates ............................... 696 -- 1,573 -- 2,566
--------- --------- --------- --------- ---------
Total revenues ...................................... 1,501 -- 3,158 -- 4,522
--------- --------- --------- --------- ---------
Costs and Expenses:
Cost of revenues ........................................ 272 -- 526 -- 595
Cost of services to affiliates .......................... 696 -- 1,573 -- 2,566
Research and development expenses ....................... 4,778 5,180 7,901 5,688 30,818
Sales and marketing expenses ............................ 4,599 304 6,511 615 11,304
General and administrative expenses ..................... 3,798 877 6,354 1,708 14,336
Litigation costs ........................................ 450 -- 1,100 -- 5,400
Acquired in-process research and development ............ -- -- -- -- 32,185
Depreciation and amortization ........................... 1,512 435 2,685 887 6,619
--------- --------- --------- --------- ---------
Total costs and expenses ............................ 16,105 6,796 26,650 8,898 103,823
--------- --------- --------- --------- ---------
Loss from operations ........................................ (14,604) (6,796) (23,492) (8,898) (99,301)
Other income, net ........................................... 1,588 47 3,267 91 3,586
Gain on sale of investment .................................. 25,511 -- 25,511 -- 25,511
--------- --------- --------- --------- ---------
Net income (loss) ........................................... 12,495 (6,749) 5,286 (8,807) (70,204)
Accretion on Series A Preferred Stock ....................... (375) -- (433) -- (433)
--------- --------- --------- --------- ---------
Net income (loss) available to common stockholders .......... $ 12,120 $ (6,749) $ 4,853 $ (8,807) $ (70,637)
========= ========= ========= ========= =========
Net income (loss) per share available to common stockholders:
Basic ............................................... $ 0.17 $ (0.13) $ 0.07 $ (0.18) $ (1.28)
========= ========= ========= ========= =========
Diluted ............................................. $ 0.15 $ (0.13) $ 0.06 $ (0.18) $ (1.28)
========= ========= ========= ========= =========
Weighted average shares outstanding:
Basic ............................................... 70,410 50,063 70,410 50,063 55,207
========= ========= ========= ========= =========
Diluted ............................................. 79,223 50,063 78,776 50,063 55,207
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
5
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------ Deficit
Number Additional Stock Accumulated
of Paid-In Subscription During the
Shares Amount Capital Receivable Development Stage
--------- --------- --------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
Capitalization at Inception, December 24, 1996 .. 50,063 $ 501 $ 9,499 $ (10,000) $ --
Contribution of Avicenna assets ........... -- -- 28,817 -- --
Contribution of CareAgents stock .......... -- -- 3,250 -- --
Net loss .................................. -- -- -- -- (42,357)
Capital contributions from Parent ......... -- -- 11,856 -- --
--------- --------- --------- --------- ---------
Balance at June 30, 1997 ........................ 50,063 501 53,422 (10,000) (42,357)
--------- --------- --------- --------- ---------
Net loss .................................. -- -- -- -- (10,335)
Capital contributions from Parent ......... -- -- 16,567 -- --
--------- --------- --------- --------- ---------
Balance at June 30, 1998 ........................ 50,063 501 69,989 (10,000) (52,692)
--------- --------- --------- --------- ---------
Net loss .................................. -- -- -- -- (22,798)
Unrealized gains on marketable securities . -- -- -- -- --
Total comprehensive loss
Settlement of stock subscription receivable -- -- -- 10,000 --
Common stock issued to Cerner ............. 13,148 131 32,455 -- --
Issuance of warrants to THINC ............. -- -- 1,700 -- --
Issuance of warrants to Horizon ........... -- -- 6,725 -- --
Sale of common stock in initial public
offering, net of underwriting discount
and offering expenses of $10,509 ........ 6,498 65 106,381 -- --
Common stock issued to Parent ............. 701 7 11,207 -- --
Capital contributions from Parent ......... -- -- 19,475 -- --
--------- --------- --------- --------- ---------
Balance at June 30, 1999 ........................ 70,410 704 247,932 -- (75,490)
--------- --------- --------- --------- ---------
Net income ................................ -- -- -- -- 5,286
Accretion on Series A Preferred Stock ..... -- -- -- -- (433)
Unrealized losses on marketable securities -- -- -- -- --
Total comprehensive income
Issuance of warrants ...................... -- -- 555 -- --
Issuance of Series A Preferred Stock ...... -- -- 5,268 -- --
Capital contributions from Parent ......... -- -- 1,100 -- --
--------- --------- --------- --------- ---------
Balance at December 31, 1999 (unaudited) ........ 70,410 $ 704 $ 254,855 $ -- $ (70,637)
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Comprehensive Stockholders'
Income (loss) Equity
------------- ------------
<S> <C> <C>
Capitalization at Inception, December 24, 1996 .. $ -- $ --
Contribution of Avicenna assets ........... -- 28,817
Contribution of CareAgents stock .......... -- 3,250
Net loss .................................. -- (42,357)
Capital contributions from Parent ......... -- 11,856
--------- ---------
Balance at June 30, 1997 ........................ -- 1,566
--------- ---------
Net loss .................................. -- (10,335)
Capital contributions from Parent ......... -- 16,567
--------- ---------
Balance at June 30, 1998 ........................ -- 7,798
--------- ---------
Net loss .................................. -- (22,798)
Unrealized gains on marketable securities . 278 278
--------- ---------
Total comprehensive loss (22,520)
Settlement of stock subscription receivable -- 10,000
Common stock issued to Cerner ............. -- 32,586
Issuance of warrants to THINC ............. -- 1,700
Issuance of warrants to Horizon ........... -- 6,725
Sale of common stock in initial public
offering, net of underwriting discount
and offering expenses of $10,509 ........ -- 106,446
Common stock issued to Parent ............. -- 11,214
Capital contributions from Parent ......... -- 19,475
--------- ---------
Balance at June 30, 1999 ........................ 278 173,424
--------- ---------
Net income ................................ -- 5,286
Accretion on Series A Preferred Stock ..... -- (433)
Unrealized losses on marketable securities (723) (723)
--------- ---------
Total comprehensive income 4,130
Issuance of warrants ...................... -- 555
Issuance of Series A Preferred Stock ...... -- 5,268
Capital contributions from Parent ......... -- 1,100
--------- ---------
Balance at December 31, 1999 (unaudited) ........ $ (445) $ 184,477
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
6
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Cumulative
Six Months Ended From Inception
December 31, (Dec 24, 1996)
------------------------- Through
1999 1998 December 31, 1999
--------- --------- -----------------
<S> <C> <C> <C>
Cash Flows Used In Operating Activities:
Net income (loss) ...................................................... $ 5,286 $ (8,807) $(70,204)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization ................................... 2,685 888 6,619
Gain on sale of investment ...................................... (25,511) -- (25,511)
Write-off of acquired in-process research and development costs . -- -- 32,185
Write-off of acquired intellectual property and
software technologies ..................................... -- -- 5,228
Write-off of capitalized software costs ......................... -- 2,381 2,381
Net loss from investment in unconsolidated affiliate ............ 895 -- 1,491
Changes in operating assets and liabilities:
Accounts and affiliate receivable, net ...................... (3,261) -- (4,530)
Prepaid and other current assets ............................ (11,733) -- (12,143)
Other assets ................................................ (3,579) (126) (4,169)
Accounts and Parent payables ................................ 1,633 (294) 3,220
Accrued liabilities ......................................... 5 105 (486)
--------- --------- ---------
Net cash used in operating activities ........................ (33,580) (5,853) (65,919)
--------- --------- ---------
Cash Flows Used In Investing Activities:
Purchases of property, plant and equipment ...................... (7,105) (65) (10,501)
Software development costs ...................................... -- (7,763) (12,741)
Purchases of marketable securities .............................. (50,000) -- (104,392)
Maturities and redemptions of marketable securities ............. 9,916 -- 9,916
Acquisition of Med-Link, net of cash acquired ................... -- -- (13,980)
Investment in unconsolidated affiliate .......................... -- -- (1,350)
Proceeds from sale of investment ................................ 27,511 -- 27,511
--------- --------- ---------
Net cash used in investing activities ........................ (19,678) (7,828) (105,537)
--------- --------- ---------
Cash Flows Provided By Financing Activities:
Proceeds from stock subscription receivable ..................... -- -- 10,000
Proceeds from sale of Series A Preferred Stock and Option ....... 10,000 -- 10,000
Proceeds from sale of common stock .............................. -- -- 131,366
Contributions from Parent ....................................... 1,100 14,002 41,951
--------- --------- ---------
Net cash provided by financing activities .................... 11,100 14,002 193,317
--------- --------- ---------
Change in cash and cash equivalents ........................................ (42,158) 321 21,861
Cash and cash equivalents, beginning of period ............................. 64,019 315 --
--------- --------- ---------
Cash and cash equivalents, end of period ................................... $ 21,861 $ 636 $ 21,861
========= ========= =========
Supplemental disclosure of non-cash investing and financing activities:
Contribution of Avicenna assets from Parent ............................ $ -- $ -- $ 28,817
========= ========= =========
Contribution of CareAgents stock from Parent ........................... $ -- $ -- $ 3,250
========= ========= =========
Contribution of acquired intellectual property and software
technologies from Parent ............................................ $ -- $ -- $ 5,228
========= ========= =========
Contribution of note receivable from Parent ............................ $ -- $ -- $ 2,000
========= ========= =========
Issuance of equity for software technology licensed from Cerner ........ $ -- $ -- $ 20,800
========= ========= =========
Conversion of note receivable into a stock investment .................. $ -- $ -- $ 2,000
========= ========= =========
Issuance of warrants ................................................... $ 555 $ -- $ 8,980
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
7
<PAGE>
CAREINSITE, INC.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Basis of Presentation
The accompanying unaudited consolidated financial statements include
the accounts of CareInsite, Inc. and its subsidiaries ("CareInsite" or the
"Company"), after elimination of intercompany accounts and transactions. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Form 10-K for the fiscal year ended June 30, 1999. The
results of the interim periods presented herein are not necessarily indicative
of the results to be expected for any other interim period or the full year. In
the opinion of management, the information furnished reflects all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation of the results for the reported interim periods.
On December 24, 1996, Medical Manager Corporation (formerly known as
Synetic, Inc., herein referred to as "Medical Manager" or the "Parent") acquired
Avicenna Systems Corporation, a privately held, development stage company that
marketed and built Intranets for managed healthcare plans, integrated healthcare
delivery systems and hospitals. The acquisition of Avicenna marked the inception
of the Parent's healthcare electronic commerce business (the "Inception"). On
January 23, 1997, the Parent acquired CareAgents, Inc. ("CareAgents"), a
privately held, development stage company engaged in developing Internet-based
clinical commerce applications. On November 24, 1998, the Parent formed Synetic
Healthcare Communications, Inc., which was subsequently renamed CareInsite, Inc.
On January 2, 1999, the Parent contributed the stock of CareAgents to Avicenna.
Concurrently, Avicenna contributed the stock of CareAgents and substantially all
of Avicenna's other assets and liabilities to the Company (the "Formation"). The
Parent also contributed $10,000,000 in cash to the Company. The Formation has
been accounted for using the carryover basis of accounting and the Company's
financial statements include the accounts and operations of Avicenna and
CareAgents for all periods presented from the date each entity was acquired. As
of February 11, 2000, Medical Manager owned 68.5% of the outstanding common
stock of the Company.
On June 16, 1999, the Company completed its initial public offering of
6,497,500 shares of its common stock (the "Offering"). The net proceeds of the
Offering were $106,446,000.
The Company is in the development stage. The Company intends to provide
a broad range of healthcare electronic commerce services which it believes will
leverage Internet technology to improve communication among physicians, payers,
suppliers and patients. The provision of products and services using Internet
technology in the healthcare electronic commerce industry is subject to risks,
including, but not limited to, those associated with competition from existing
companies offering the same or similar services, uncertainty with respect to
market acceptance of its products and services, rapid technological change,
management of growth, availability of future capital and minimal previous record
of operations or earnings.
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
(2) America Online Agreement
In September 1999, the Company entered into a strategic alliance with
America Online, Inc. ("AOL") for the Company to be AOL's exclusive provider of a
comprehensive suite of services that connect AOL's members, as well as
CompuServe members and visitors to AOL's Web-based
8
<PAGE>
services, Netcenter, AOL.COM and Digital City (collectively, "AOL Members"), to
physicians, health plans, pharmacy benefit managers, covered pharmacies and
labs. Under the agreement, the Company and AOL have agreed to create co-branded
sites which will enable AOL Members to manage their healthcare through online
communication with their physicians, health plans, pharmacy benefit managers,
covered pharmacies and labs. The agreement has an initial term of four years,
subject to termination by AOL under certain conditions. Through this
arrangement, AOL Members will have access to the Company's secure, real-time
services being developed that allow them, among other things, to select and
enroll in health plans, choose their providers, schedule appointments, renew and
refill plan approved prescriptions, view lab results, review claims status,
receive explanation of benefits, review patient education materials provided by
their health plans, understand plan policies and procedures and receive plan
treatment authorizations. The Company and AOL have also agreed to collaborate in
sales and marketing to the healthcare industry, and they intend to leverage
their alliance into cross-promotional and shared advertising revenue
initiatives. Under the financial terms of the arrangement, the Company has
agreed to make $30,000,000 of guaranteed payments to AOL over three years. The
Company made the first payment of $10,000,000 in September 1999.
The Company also entered into a four-year agreement with Netscape
Communications Corporation ("Netscape") under which the Company acquired a
nonexclusive and nontransferable right and license for the use of an unlimited
quantity of the Netscape and Sun Microsystems software offered via the Sun
Microsystems-Netscape Alliance. The cost of the products was $3,750,000, with a
maintenance fee of $750,000 in the initial year and an option to purchase
maintenance at $1,000,000 per year in the second, third, and fourth years of the
agreement.
Under a separate agreement entered into in September 1999, AOL
purchased 100 shares of the Company's newly issued Series A Convertible
Redeemable Preferred Stock ("Series A Preferred Stock") at a price of $100,000
per share, or $10,000,000 of Series A Preferred Stock in the aggregate, with an
option to purchase up to an additional 100 shares of Series A Preferred Stock in
September 2000 ("Series A Preferred Option") at the same price. At the option of
AOL, in March 2002, the Series A Preferred Stock is either redeemable in whole
for $100,000 per share in cash or convertible in whole, on a per share basis,
into (i) the number of shares of the Company's common stock equal to $100,000
divided by $49.25 (or 2,030.5 shares) and (ii) a warrant exercisable for the
same number of shares of the Company's common stock, or 2,030.5 shares, at a
price of $49.25 per share. In the event that AOL elects to convert the 100
shares of Series A Preferred Stock it purchased in September 1999, it would
receive 203,046 shares of the Company's common stock and a warrant exercisable
into an additional 203,046 shares at $49.25 per share. Prior to March 2002, AOL
has the right to require the Company to redeem the Series A Preferred Stock in
whole at $100,000 per share in the event of a change in control of the Company.
The Series A Preferred Stock is non-voting except under certain extraordinary
circumstances, and no dividend is payable on the Series A Preferred Stock unless
the Company declares a dividend on its common stock.
The proceeds received of $10,000,000 were allocated based on the
relative fair values of the Series A Preferred Stock and the Series A Preferred
Option, as determined by management. Accordingly, $7,608,000 was allocated to
the Series A Preferred Stock and $2,392,000 was allocated to the Series A
Preferred Option. Additionally, as the Series A Preferred Stock is convertible
into equity securities with a value in excess of $10,000,000 (the "beneficial
conversion feature"), a portion of the proceeds has been allocated to the
beneficial conversion feature and is reflected as a discount to the Series A
Preferred Stock. The value of the beneficial conversion feature, as determined
by management was $5,268,000. The discount is being amortized through March 2002
using the effective interest method and is reflected in the accompanying
statement of operations as accretion on Series A Preferred Stock. The Series A
Preferred Stock and Series A Preferred Option are classified as Convertible
Redeemable Preferred Stock in the accompanying balance sheets.
9
<PAGE>
(3) Fair Value of Financial Instruments
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, short-term and
long-term marketable securities and accounts receivable. Cash, cash equivalents
and short-term and long-term marketable securities are deposited with high
quality financial institutions. All highly liquid investments with an original
maturity from date of purchase of three months or less are considered to be cash
equivalents. The Company's cash, cash equivalents and short-term marketable
securities are invested in various investment-grade commercial paper, money
market accounts and certificates of deposit. All of the short-term marketable
securities mature within twelve months. The Company's long-term marketable
securities are invested in U.S. Federal Agency notes maturing in June 2001.
Gross unrealized losses on the marketable securities were $445,000 at
December 31, 1999 and gross unrealized gains on the marketable securities were
$278,000 at June 30, 1999 and are included as part of accumulated other
comprehensive income.
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Marketable debt and equity securities are considered
available-for-sale, and are carried at their fair value, with the unrealized
gains and losses reported net-of-tax as other comprehensive income or loss.
Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in other
income. The cost of securities sold is based on specific identification.
Interest and dividends on securities classified as available-for-sale are
included in other income.
(4) Earnings per Share
The following table sets forth the computation of basic and diluted
earnings (loss) available to common shareholders (in thousands except per share
data).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic earnings per share:
Net income (loss) available to common stockholders . $ 12,120 $ (6,749) $ 4,853 $ (8,807)
-------- -------- -------- --------
Weighted average shares outstanding ................ 70,410 50,063 70,410 50,063
Basic earnings (loss) per share available to
common stockholders ................................ $ 0.17 $ (0.13) $ 0.07 $ (0.18)
======== ======== ======== ========
Diluted earnings per share:
Net income (loss) available to common stockholders . $ 12,120 $ (6,749) $ 4,853 $ (8,807)
-------- -------- -------- --------
Weighted average shares outstanding ................ 70,410 50,063 70,410 50,063
Effect of dilutive securities:
Stock options
3,439 -- 3,111 --
Warrants and convertible securities
5,374 -- 5,225 --
-------- -------- -------- --------
Weighted average shares outstanding ................ 79,223 50,063 78,776 50,063
Diluted earnings (loss) per share available
to common shareholders ........................... $ 0.15 $ (0.13) $ 0.06 $ (0.18)
======== ======== ======== ========
</TABLE>
10
<PAGE>
(5) Commitments and Contingencies
On February 18, 1999, Merck & Co., Inc. ("Merck") and Merck-Medco
Managed Care, L.L.C. ("Merck-Medco") filed a complaint in the Superior Court of
New Jersey against the Company, Medical Manager, Martin J. Wygod, Chairman of
the Company and Medical Manager, and three officers and/or directors of the
Company and Medical Manager, Paul C. Suthern, Roger C. Holstein and Charles A.
Mele. The plaintiffs assert that the Company, Medical Manager and the individual
defendants are in violation of certain non-competition, non-solicitation and
other agreements with Merck and Merck-Medco, and seek to enjoin the Company and
them from conducting the Company's healthcare e-commerce business and from
soliciting Merck-Medco's customers. Medical Manager's and Mr. Wygod's agreements
expired on May 24, 1999, Mr. Suthern's agreement expired in December 1999,
Mr. Mele's and Mr. Holstein's agreements expire in March 2000 and September
2002, respectively.
A hearing was held on March 22, 1999 on an application for preliminary
injunction filed by Merck and Merck-Medco. On April 15, 1999, the Superior Court
denied this application. The Company believes that Merck's and Merck-Medco's
positions in relation to it and the individual defendants are without merit and
the Company intends to vigorously defend the litigation. However, the outcome of
complex litigation is uncertain and cannot be predicted at this time. Any
unanticipated adverse result could have a material adverse effect on the
Company's financial condition and results of operations.
The Company recorded $450,000 and $1,100,000 in litigation costs
associated with the Merck and Merck-Medco litigation in the three and six months
ended December 31, 1999, resepectively. Pursuant to an existing indemnification
agreement between the Company and Medical Manager, the agreement provides that
Medical Manager will bear both actual costs of conducting the litigation and
monetary damages that may be awarded to Merck and Merck-Medco in the litigation.
The costs borne by Medical Manager of $1,100,000 for the six months ended
December 31, 1999 are reflected as contributions from Parent in the accompanying
consolidated statements of changes in stockholders' equity.
In the normal course of business, the Company is involved in various
claims and legal proceedings. While the ultimate resolution of these matters has
yet to be determined, the Company does not believe that their outcome will have
a material adverse effect on its financial condition or results of operations.
(6) Subsequent Event
In January 2000, the Company acquired the 80% equity interest in The
Health Information Network Connection ("THINC") owned by Empire Blue Cross and
Blue Shield, Group Health Incorporated, HIP Health Plans and Greater New York
Hospital Association (the "THINC founding members") in a stock transaction
valued at approximately $45,000,000. The acquisition will be accounted for using
the purchase method of accounting. Concurrently with the acquisition, warrants
to purchase an aggregate of 3,247,294 shares of the Company's common stock,
which represented the THINC founding members' interest in the warrants issued by
the Company to THINC in January 1999, were distributed to the THINC founding
members. Immediately following this transaction, the THINC founding members
exercised their warrants in full. All shares including those issued upon the
exercise of the warrants, are subject to certain restrictions on transfer.
Simultaneously, the Company acquired Cerner Corporation's ("Cerner") 2%
non-voting ownership interest in THINC for a note payable of $2,735,000. As a
result of the exercise by the THINC founding members of their warrants, Cerner
has a warrant to purchase 806,756 shares of Company common stock at an exercise
price of $4.00 per share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company is in the initial stages of deploying certain of its
healthcare e-commerce services. The market for the Company's services is
unproven. These factors make it difficult to evaluate the Company's business and
prospects. The Company has incurred substantial operating losses since the
Company's inception and there can be no assurance that the Company will generate
significant revenues or profitability in the future. The Company intends to
significantly increase its expenditures primarily in the areas of development,
sales and marketing, data center operations and customer support. As a result,
the Company expects to incur substantial operating losses for at least the next
two fiscal years.
The Company expects to generate a significant portion of its revenue
from payers and suppliers who are expected to pay initial set-up and ongoing
maintenance fees associated with organizing, loading and maintaining their
content and transaction fees associated with the processing of healthcare
transactions. The Company also expects to generate revenue from physicians who
are expected to pay a monthly fee for access to a range of the Company's
services.
The Company also has contracted with certain payers and in the future
may contract with other payers and suppliers to guarantee them incremental cost
savings from the use of certain of the Company's services. If any of these
payers or suppliers do not realize the guaranteed level of cost savings, the
Company will be obligated to make a payment to that payer or supplier, which
payment may exceed the Company's charges to that payer or supplier. In some
cases, the Company intends to share in any cost savings in excess of the
guaranteed cost savings. The amount and timing of transaction revenue generated
under these arrangements may be impacted by the Company's guarantee of cost
savings.
In September 1999, the Company entered into a strategic alliance with
America Online, Inc. ("AOL") for the Company to be AOL's exclusive provider of a
comprehensive suite of services that connect AOL's members, as well as
CompuServe members and visitors to AOL's Web-based services, Netcenter, AOL.COM
and Digital City (collectively, "AOL Members"), to physicians, health plans,
pharmacy benefit managers, covered pharmacies and labs. Under the agreement, the
Company and AOL have agreed to create co-branded sites which will enable AOL
Members to manage their healthcare through online communication with their
physicians, health plans, pharmacy benefit managers, covered pharmacies and
labs. The agreement has an initial term of four years, subject to termination by
AOL under certain conditions. Through this arrangement, AOL Members will have
access to the Company's secure, real-time services being developed that allow
them, among other things, to select and enroll in health plans, choose their
providers, schedule appointments, renew and refill plan approved prescriptions,
view lab results, review claims status, receive explanation of benefits, review
patient education materials provided by their health plans, understand plan
policies and procedures and receive plan treatment authorizations. The Company
and AOL have also agreed to collaborate in sales and marketing to the healthcare
industry, and they intend to leverage their alliance into cross-promotional and
shared advertising revenue initiatives. Under the financial terms of the
arrangement, the Company has agreed to make $30,000,000 of guaranteed payments
to AOL over three years. The Company made the first payment of $10,000,000 in
September 1999.
The Company also entered into a four-year agreement with Netscape
Communications Corporation ("Netscape") under which the Company acquired a
nonexclusive and nontransferable right and license for the use of an unlimited
quantity of the Netscape and Sun Microsystems software products offered via the
Sun Microsystems--Netscape Alliance. The cost of the products was $3,750,000,
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with a maintenance fee of $750,000 in the initial year and an option to purchase
maintenance at $1,000,000 per year in the second, third, and fourth years of the
agreement.
In January 2000, the Company acquired the 80% equity interest in The
Health Information Network Connection ("THINC") owned by Empire Blue Cross and
Blue Shield, Group Health Incorporated, HIP Health Plans and Greater New York
Hospital Association (the "THINC founding members") in a stock transaction
valued at approximately $45,000,000. The acquisition will be accounted for using
the purchase method of accounting. Concurrently with the acquisition, warrants
to purchase an aggregate of 3,247,294 shares of the Company's common stock,
which represented the THINC founding members' interest in the warrants issued by
the Company to THINC in January 1999, were distributed to the THINC founding
members. Immediately following this transaction, the THINC founding members
exercised their warrants in full. All shares including those issued upon the
exercise of the warrants, are subject to certain restrictions on transfer.
Simultaneously, the Company acquired Cerner Corporation's ("Cerner") 2%
non-voting ownership interest in THINC for a note payable of $2,735,000. As a
result of the exercise by the THINC founding members of their warrants, Cerner
has a warrant to purchase 806,756 shares of Company common stock at an exercise
price of $4.00 per share.
Results of Operations
Total revenues for the three and six months ended December 31, 1999
were $1,501,000 and $3,158,000, respectively, and were comprised of (i) revenues
attributable to the Company's electronic data interchange services of $805,000
and $1,585,000 for the three and six months ended December 31, 1999,
respectively, and (ii) revenues consisting of management services provided to
THINC of $696,000 and $1,573,000 for the three and six months ended December 31,
1999, respectively. As a result of the Company's January 2000 acquisition of
THINC, the Company will no longer generate management service revenue related to
services provided to THINC.
Cost of revenues, other than to affiliates, was $272,000 and $526,000
for the three months and six months ended December 31, 1999, respectively. Cost
of services to affiliates was $696,000 and $1,573,000 for the three and six
months ended December 31, 1999, respectively, and consisted primarily of
employee compensation and benefits expense for those employees supporting the
THINC business.
Research and development expenses consisted primarily of employee
compensation, the cost of consultants and other direct expenses. Total research
and development expenditures were $4,778,000 and $7,901,000 for the three and
six months ended December 31, 1999, respectively, as compared to $5,179,000 and
$5,687,000 for the three and six months ended December 31, 1998, respectively.
Excluding the impact of (i) a $2,381,000 charge related to the write-off of
certain software products in the three months ended December 31, 1998 and (ii)
the capitalization of $2,366,000 of internal research and development
expenditures in the three months ended September 30, 1998, research and
development expenditures increased by $1,980,000 and $2,229,000 for the three
and six months ended December 31, 1999, respectively. These increases in
research and development expenditures are due to increased expenditures related
to the development of the Company's physician portal, software products and data
center. There were no capitalized costs for the three and six months ended
December 31, 1999.
Sales and marketing expenses consist primarily of salaries and
benefits, travel for sales, marketing and business development personnel and
promotion related expenses such as advertising, marketing materials, and
trade shows. Sales and marketing expenses were $4,599,000 and $6,511,000 for the
three and six months ended December 31, 1999, respectively, as compared to
$304,000 and $615,000 for the three and six months ended December 31, 1998,
respectively. The increase of $4,295,000 and $5,896,000 for the three and six
months ended December 31, 1999, respectively, is primarily related to (i)
expenses related to the AOL agreement for which there are no comparable amounts
in the prior periods, (ii) increased
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marketing activities, (iii) increased staffing, and (iv) inclusion of expenses
related to the acquisition of Med-Link for which there were no comparable
amounts in the prior periods.
General and administrative expenses consist primarily of compensation
for legal, finance, management and administrative personnel. General and
administrative expenses were $3,798,000 and $6,354,000 for the three and six
months ended December 31, 1999, respectively, as compared to $877,000 and
$1,708,000 for the three and six months ended December 31, 1998, respectively.
The increase in general and administrative expenses of $2,921,000 and $4,646,000
for the three and six months ended December 31, 1999, respectively, resulted
primarily from (i) increased staffing in the finance, legal and corporate
development groups, (ii) inclusion of expenses related to the acquisition of
Med-Link for which there were no comparable amounts in the prior periods and
(iii) the Company's interest in the losses of its equity investee for which
there were no comparable amounts in the prior periods.
The Company recorded $450,000 and $1,100,000 in litigation charges in
the three and six months ended December 31, 1999, respectively, related to the
Company's ongoing defense against assertions that it violated certain agreements
with Merck & Co., Inc. ("Merck") and Merck-Medco Managed Care, L.L.C.
("Merck-Medco"). Pursuant to an existing indemnification agreement between the
Company and Medical Manager, the agreement provides, among other things, that
Medical Manager will bear both actual costs of conducting the litigation and
monetary damages that may be awarded to Merck and Merck- Medco in the
litigation. The costs borne by Medical Manager of $1,100,000 for the six months
ended December 31, 1999, are reflected as a contribution from Parent in the
accompanying consolidated statements of changes in stockholders' equity.
Depreciation and amortization expenses were $1,512,000 and $2,685,000
for the three and six months ended December 31, 1999, respectively, as compared
to $436,000 and $888,000 for the three and six months ended December 31, 1998,
respectively. The increase is primarily due to (i) amortization of goodwill
related to the acquisition of Med-Link, (ii) the amortization of the Company's
capitalized software costs and (iii) amortization related to certain contracts
and other intangibles.
Other income was $1,588,000 and $3,267,000 for the three and six months
ended December 31, 1999, respectively, as compared to $47,000 and $91,000 for
the three and six months ended December 31, 1998, respectively. The increase is
due to interest income on the funds raised in connection with the Company's
initial public offering on June 16, 1999 and interest income on the funds
generated by the sale of the Company's investment in a privately held company
that merged with a publicly held company during the three months ended December
31, 1999.
Gain on sale of investment was $25,511,000 and relates to the
disposition of an investment in a privately held company that merged with a
publicly traded company during the three months ended December 31, 1999.
Liquidity and Capital Resources
Prior to completing its initial public offering on June 16, 1999, the
Company's operations since Inception (December 24, 1996) were funded through
capital contributions from its parent company, Medical Manager. On June 16,
1999, the Company completed its initial public offering of 6,497,500 shares at
of its common stock at $18.00 per share (the "Offering"). The net cash proceeds
of the Offering were approximately $106,446,000, after deducting anticipated
amounts for underwriting discounts and commissions and Offering expenses. As of
December 31, 1999, the Company had $116,051,000 of cash and cash equivalents and
short and long-term marketable securities.
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Cash used in operating activities was $33,580,000 for the six months
ended December 31, 1999 compared to $5,853,000 in the comparable prior year
period. The cash used during this period was primarily attributable to the
losses associated with the development of the Company's business activities and
the payment of $10,000,000 in connection with the Company's strategic alliance
and agreement with AOL.
Cash used in investing activities was $19,678,000 for the six months
ended December 31, 1999 compared to $7,828,000 in the comparable prior year
period. Cash used during the period resulted from (i) purchases of marketable
securities of $50,000,000, and (ii) the purchase of computer equipment primarily
related to the establishment of Company's data center of $7,105,000 offset by
(i) proceeds of $27,511,000 from the sale of the Company's investment in a
privately held company that merged with a publicly traded company during the
three months ended December 31, 1999 and (ii) maturities and redemptions of
marketable securities of $9,916,000. The Company's marketable securities are
invested in various investment-grade commercial paper, money market accounts,
certificates of deposit and Federal Agency Notes.
Cash provided by financing activities was $11,100,000 for the six
months ended December 31, 1999 compared to $14,002,000 in the comparable prior
year period. The cash provided during this period was primarily related to the
purchase by AOL of 100 shares of the Company's newly issued Series A Convertible
Redeemable Preferred Stock ("Series A Preferred Stock") at a price of $100,000
per share, or $10,000,000 of Series A Preferred Stock in the aggregate, with an
option to purchase up to an additional 100 shares of Series A Preferred Stock in
September 2000 ("Series A Preferred Option") at the same price. At the option of
AOL, in March 2002, the Series A Preferred Stock is either redeemable in whole
for $100,000 per share in cash or convertible in whole, on a per share basis,
into (i) the number of shares of the Company's common stock equal to $100,000
divided by $49.25 (or 2,030.5 shares) and (ii) a warrant exercisable for the
same number of shares of the Company's common stock, or 2,030.5 shares, at a
price of $49.25 per share. In the event that AOL elects to convert the 100
shares of Series A Preferred Stock it purchased in September 1999, it would
receive 203,046 shares of the Company's common stock and a warrant exercisable
into an additional 203,046 shares at $49.25 per share. Prior to March 2002, AOL
has the right to require the Company to redeem the Series A Preferred Stock in
whole at $100,000 per share in the event of a change in control of the Company.
The Series A Preferred Stock is non-voting except under certain extraordinary
circumstances and no dividend is payable on the Series A Preferred Stock unless
the Company declares a dividend on its common stock. The cash provided in the
prior year period relates to contributions from Medical Manager.
Under the terms of the strategic alliance and agreement with AOL, the
Company is required to make guaranteed payments of $10,000,000 in August 2000
and $10,000,000 in August 2001.
The Company currently anticipates that its available cash resources
will be sufficient to meet the Company's presently anticipated working capital,
capital expenditure and business expansion requirements, including the
requirements of THINC, for approximately the next 18 - 24 months. There can be
no assurance that the Company will not require additional capital prior to the
expiration of this 18 - 24 month period. If such additional funds are required,
the Company may seek additional equity or debt financing. There can be no
assurance that such financing will be available on acceptable terms, if at all,
or that such financing will not be dilutive to the Company's stockholders.
The Company continues to pursue an acquisition program pursuant to
which it seeks to effect one or more acquisitions or other similar business
combinations with businesses it believes have significant growth potential.
Financing for such acquisitions may come from several sources, including,
without limitation, (a) the Company's cash, cash equivalents and marketable
securities and (b) proceeds from the incurrence of additional indebtedness or
the issuance of common stock, preferred stock, convertible debt or other
securities. There can be no assurance that the Company's acquisition program
will be successful.
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Year 2000
Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries for the year in the date
code field. This problem is often referred to as the "Year 2000 problem". These
systems and software products need to accept four digit year entries to
distinguish 21st century dates from 20th century dates. Though the Company did
not experience any year 2000 problems on January 1, 2000, additional year 2000
problems may become evident after that date.
The Company believes that its systems are year 2000 compliant and, to
date, those systems have not experienced any year 2000 problems. Although the
Company continues to have contingency plans in place for operational problems
which may arise as a result of a year 2000 problem, the Company cannot be
assured that year 2000 issues will not potentially pose significant operational
problems or have a material adverse effect on the Company's business, financial
condition and results of operations in the future.
To date, the Company has not incurred any material expenditures in
connection with identifying or evaluating year 2000 compliance issues. The
Company does not expect its future costs related to year 2000 to be material.
The Company is not aware of any material year 2000 problems encountered
by suppliers or customers of the Company's businesses to date but have not yet
obtained confirmations from such suppliers and customers that they did not
experience year 2000 problems. Accordingly, the Company cannot determine whether
any suppliers have experienced year 2000 problems that may impact their ability
to supply the Company with equipment and services or any customers have
experienced disruptions to their business. Further, the Company cannot determine
the state of its suppliers' and customers' year 2000 readiness on a going
forward basis. The Company cannot be assured that the Company's suppliers and
customers will be successful in ensuring that their systems have been or will be
year 2000 compliant or that their failure to do so will not have an adverse
effect on the Company's business, financial condition and results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
Interest rate sensitivity
The Company is exposed to market risk from potential changes in
interest rates as it relates to the Company's investments in highly liquid
marketable debt securities. The Company believes that the amount of risk as it
relates to its investments is not material to the Company's financial condition
or results of operations due to the following:
o The Company does not use derivative financial instruments in its
investments.
o The Company's investments consist primarily of U.S Treasury Notes and
Federal Agency Notes.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For legal proceedings, please refer to "Item 3 - Legal Proceedings"
filed in the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 15, 1999 the Company issued to America Online, Inc.
("AOL") 100 shares of newly issued Series A Convertible Redeemable Preferred
Stock ("Series A Preferred Stock") at a price of $100,000 per share, or
$10,000,000 of Series A Preferred Stock in the aggregate, with an option to
purchase up to an additional 100 shares of Series A Preferred Stock in September
2000 at the same price. At the option of AOL, in March 2002, the Series A
Preferred Stock is either redeemable in whole for $100,000 per share in cash or
convertible in whole, on a per share basis, into (i) the number of shares of the
Company's common stock equal to $100,000 divided by $49.25 (or 2,030.5 shares)
and (ii) a warrant exercisable for the same number of shares of the Company's
common stock, or 2,030.5 shares, at a price of $49.25 per share. Prior to March
2002, AOL has the right to require the Company to redeem the Series A Preferred
Stock in whole at $100,000 per share in the event of a change in control of the
Company. The Series A Preferred Stock is non-voting except under certain
extraordinary circumstances and no dividend is payable on the Series A Preferred
Stock unless the Company declares a dividend on its common stock.
On June 16, 1999, the Company completed the initial public offering
(the "Offering") of 6,497,500 shares of its common stock at a price of $18.00
per share. The shares of common stock sold in the offering were registered under
the Securities Act of 1933, as amended, on a Registration Statement on Form S-1
(No. 333-75071). The Registration Statement was declared effective by the
Securities and Exchange Commission on June 16, 1999. Concurrent with the
Offering, the Company sold 537,634 shares of its common stock in a separate,
private transaction to Cerner for net proceeds of approximately $9,000,000.
The Company invested the proceeds from the Offering, the private sale
to Cerner and the sale of Series A Preferred Stock to AOL primarily in U.S.
Treasury Notes and Federal Agency Notes. During the three and six months ended
December 31, 1999, the Company used a portion of the proceeds for working
capital.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Exhibits
----------- ---------
10* Employment Agreement dated as of January 4, 2000
between Medical Manager Corporation, CareInsite and
Marvin P. Rich.
27* Financial Data Schedule.
* Attached hereto.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CAREINSITE, INC.
Dated: February 11, 2000 /s/ James R. Love
-------------------------------------------------
James R. Love
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Number Description
- ----------- -----------
10 Employment Agreement dated as of January 4, 2000
between Medical Manager Corporation, CareInsite and
Marvin P. Rich.
27 Financial Data Schedule.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated as of January 4,
2000, by and among MEDICAL MANAGER CORPORATION, a Delaware corporation (the
"Company"), CAREINSITE, INC., a Delaware corporation and majority-owned
subsidiary of the Company ("CareInsite"), and MARVIN P. RICH ("Executive").
WHEREAS, each of the Company and CareInsite desires to employ
Executive on a full-time basis and Executive desires to be so employed by the
Company and CareInsite;
NOW, THEREFORE, in consideration of the mutual covenants in
this Agreement, the parties agree as follows:
1. Effectiveness of Agreement and Employment of Executive.
1.1. Effectiveness of Agreement. This Agreement shall become
effective as of the date first written above (the "Effective Date").
1.2 Employment by the Company and CareInsite. (a) The Company
hereby employs Executive as its President and CareInsite hereby employs
Executive as its Chief Executive Officer and Executive hereby accepts such
employment with each of the Company and CareInsite. Executive shall report to,
and perform such duties and services for the Company, CareInsite, and their
respective subsidiaries and affiliates (such subsidiaries and affiliates,
collectively, "Affiliates") commensurate with such positions as may be
designated from time to time by, the Chairman of the Board of Directors of the
Company (the "Board") and of the Board of Directors of CareInsite (the
"CareInsite Board"), as the case may be. Each of the Company and CareInsite
shall, subject to its fiduciary duties, use its best efforts to appoint
Executive as a member of the Board and the CareInsite Board, respectively, as of
the Effective Date. During the Employment Period (as defined below), each of the
Company and CareInsite shall, subject to its fiduciary duties, use its best
efforts to include Executive in management's nominees for election, and
recommend the election of Executive, as a member of the Board and of the
CareInsite Board. In the event that the employment of Executive with the Company
or CareInsite (or both) is terminated for any reason, Executive agrees that he
will promptly resign from the Board or the CareInsite Board (or both), as the
case may be.
(b) Executive shall perform his duties hereunder at the
Company's and CareInsite's headquarters at 669 River Drive, Elmwood Park, New
Jersey; provided, however, that Executive shall be required to travel on
business on a reasonable basis in connection with the performance of his duties
hereunder. Executive shall use his best and most diligent efforts to promote the
interests of the Company, CareInsite and the Affiliates, and shall devote all of
his business time and attention to his employment under this Agreement.
<PAGE>
2. Compensation and Benefits.
2.1. Salary. The Company shall pay Executive for services
during his employment under this Agreement a base salary at the annual rate of
$250,000 (as it may be increased pursuant to this Section 2.1, the "Company Base
Salary"). In addition, CareInsite shall pay Executive for services during his
employment under this Agreement a base salary at the annual rate of $250,000 (as
it may be increased pursuant to this Section 2.1, the "CareInsite Base Salary").
Such Company Base Salary or CareInsite Base Salary may be increased (but not
decreased) from time to time in the sole discretion of (i) the Board or
Compensation Committee of the Board in the case of the Company Base Salary or
(ii) the CareInsite Board or Compensation Committee of the CareInsite Board in
the case of the CareInsite Base Salary. The Company Base Salary and CareInsite
Base Salary shall be payable in equal installments, no less frequently than
monthly, pursuant to the Company's or CareInsite's, as the case may be,
customary payroll policies in force at the time of payment, less any required or
authorized payroll deductions.
2.2. Benefits. During the Employment Period, Executive shall
be entitled to participate, on the same basis and at the same level as other
senior officers of the Company in any group insurance, hospitalization, medical,
health and accident, disability, fringe benefit and tax-qualified retirement
plans or programs of the Company now existing or hereafter established to the
extent that he is eligible under the general provisions thereof.
2.3. Expenses. Pursuant to the Company's or CareInsite's
customary policies in force at the time of payment, Executive shall be promptly
reimbursed, against presentation of vouchers or receipts therefor, for all
authorized expenses properly and reasonably incurred by him on behalf of the
Company, CareInsite or their Affiliates in the performance of his duties
hereunder.
2.4 Relocation. The Company and Executive understand that
Executive currently maintains a residence in New Canaan, Connecticut, but that
Executive will relocate to an area convenient to the corporate headquarters in
Elmwood Park, New Jersey. Upon the presentation of invoices, the Company shall
reimburse, on an after tax basis, Executive's reasonable out-of-pocket expenses
related to the relocation of him and his family to such area. In addition,
during the period while Executive is maintaining his current residence and his
new residence (which may be a temporary residence or hotel accommodations),
which period shall not exceed six months, the Company shall reimburse Executive
for the cost of the lower of (i) his monthly mortgage payment for his existing
home in New Canaan, Connecticut and (ii) his monthly mortgage or rental payment
on his new home or temporary living arrangement.
2.5 Vacation. Executive shall be entitled to vacation time
consistent with the Company's vacation policies. The date or dates of such
vacations shall be selected by Executive having reasonable regard to the
business needs of the Company and CareInsite.
2.6 Car Allowance. During the Employment Period, the Company
shall provide Executive with a car allowance in accordance with Company policy.
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2.7 Bonus. With respect to each 12 month period (the
"Performance Period") during the Employment Period, Executive shall be entitled
to receive (i) a bonus (the "Company Bonus") of up to $250,000 in the event that
the Company has attained certain specified performance goals and (ii) a bonus
(the "CareInsite Bonus") of up to $250,000 in the event that CareInsite has
attained certain specified performance goals. The performance goals shall be
established by the Compensation Committee of the Board or the Compensation
Committee of the CareInsite Board, as applicable, and shall be communicated to
Executive prior to the commencement of each Performance Period or, in the case
of the first Performance Period, within 30 days of the Effective Date. The
determination as to whether the performance goals have been attained shall be
made by the Compensation Committee of the Board or the Compensation Committee of
the CareInsite Board, as the case may be, (i) in its sole and absolute
discretion to the extent the performance goals are not quantifiable and (ii) on
the basis of a report prepared by the Chief Financial Officer of the Company or
CareInsite, as applicable, to the extent the performance goals are quantifiable.
Such report shall be presented to the applicable Compensation Committee within
30 days of the last day of the Performance Period. Payment of the Company Bonus
and the CareInsite Bonus, if any, shall be made as soon as practicable following
the presentation by the Chief Financial Officer; but in no event more than 30
days thereafter, provided, that, except as set forth in Section 5 below,
Executive remains in the employ of the Company or CareInsite on the payment
date. In the event that the Company or CareInsite reasonably determines that the
Company Bonus or the CareInsite Bonus may be subject to the limitation on
deductible compensation set forth in Section 162(m) of the Internal Revenue Code
of 1986, as amended, the Company or CareInsite may defer the payment of the
Company Bonus or CareInsite Bonus (or portion thereof) until the limitation no
longer applies to such payment (or portion thereof).
2.8 Loan. As soon as practicable following the Effective Date,
the Company or CareInsite shall make a full recourse loan (the "Loan") to
Executive in the principal amount of $600,000. The Loan shall be evidenced by a
promissory note to be executed by Executive in a form satisfactory to the
Company or CareInsite, as applicable, and shall be secured by any options to
purchase shares of the Company's or CareInsite's common stock held by Executive.
The Loan shall bear interest at a rate equal to the lowest rate necessary to
avoid characterization of the Loan as a "below-market loan" within the meaning
of Section 7872 of the Internal Revenue Code of 1986, as amended, and shall
become due and payable on the earlier of (i) any demand by the Company after 30
days following the termination of Executive's employment with the Company and
CareInsite for any reason and (ii) the second anniversary of the date on which
the Loan is made.
3. Employment Period.
Executive's employment under this Agreement shall commence as
of the Effective Date, and shall terminate on the fifth anniversary thereof,
unless terminated earlier pursuant to Section 5 (the "Employment Period").
Unless written notice of either party's desire to terminate the Employment
Period has been given to the other party at least 30 days prior to the
expiration of the Employment Period (or any one-month renewal thereof
contemplated by this sentence), the term of this Agreement shall be
automatically renewed for successive one-month periods.
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4. Stock Option.
4.1 Subject to obtaining the approval of the Stock Option
Committee of the Board, Executive shall be granted (i) an option (the "Company
Class A Stock Option") to purchase 250,000 shares of the Company's common stock
pursuant to the Company's Amended and Restated 1989 Class A Stock Option Plan
(the "Class A Plan") and the terms of a stock option agreement to be entered
into between the Company and Executive (the "Company Class A Stock Option
Agreement") and (ii) an option (the "Company Class B Stock Option" and
collectively with the Company Class A Stock Option, the "Company Stock Options")
to purchase 200,000 shares of the Company's common stock pursuant to the
Company's Amended and Restated 1989 Class B Stock Option Plan (the "Class B
Plan") and the terms of a stock option agreement to be entered into between the
Company and Executive (the "Company Class B Stock Option Agreement" and together
with the Company Class A Stock Option Agreement, the "Company Stock Option
Agreements"). The Company Stock Option Agreements shall contain the terms
described in this Section 4 and such other terms as are not any less favorable
than those applicable to other executive officers of the Company. Subject to
Executive's remaining in the employ of the Company or CareInsite (except as set
forth in Sections 4.3, 5.2, 5.3 and 5.5 below), the Company Stock Options shall
be exercisable in accordance with the following schedule:
Anniversary of % of Stock
Date of Grant Option Exercisable
------------- ------------------
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
In the event of a Change in Control (as defined below) of the Company or
CareInsite, notwithstanding anything to the contrary contained in the Class A
Plan or Class B Plan, the Company Stock Options shall be treated in the manner
described in Section 4.3 below. Executive will be eligible to receive future
grants of options to purchase shares of the Company's common stock at the
discretion of the Stock Option Committee of the Board.
4.2 Subject to obtaining the approval of the
Compensation Committee of CareInsite, Executive shall also be granted an option
(the "CareInsite Stock Option", collectively with the Company Stock Options, the
"Stock Options") to purchase 450,000 shares of the common stock of CareInsite
pursuant to the terms of CareInsite's 1999 Officer Stock Option Plan (the
"CareInsite Plan") and a stock option agreement to be entered into between
CareInsite and Executive (the "CareInsite Stock Option Agreement" and, together
with the Company Stock Option Agreements, the "Stock Option Agreements"). The
CareInsite Stock Option Agreement shall contain the terms described in this
Section 4 and such other terms as are not any less favorable than those
applicable to other executive officers of the Company. Subject to Executive's
remaining in the employ of the CareInsite or the Company (except as set forth in
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Sections 4.3, 5.2, 5.3 and 5.5 below), the CareInsite Stock Option shall be
exercisable in accordance with the following schedule:
Anniversary of % of
Date of Grant Stock Option Exercisable
------------- ------------------------
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
provided, however, that no portion of the CareInsite Stock Option shall become
vested and exercisable prior to December 15, 2001, (on such date, the portion of
the CareInsite Stock Option shall become vested and exercisable to the extent
that such portion would have become exercisable by virtue of the above vesting
schedule). In the event of a Change in Control of CareInsite or the Company,
notwithstanding anything to the contrary contained in the CareInsite Plan, the
CareInsite Stock Option shall be treated in the manner described in Section 4.3
below. Executive will be eligible to receive future grants of options to
purchase shares of CareInsite's common stock at the discretion of the
Compensation Committee of the CareInsite Board.
4.3 Change in Control. (a) In the event that (x) a Change in
Control (as defined below) of the Company or, to the extent set forth in Section
4.3(b)(B), CareInsite occurs during the Employment Period and (y)(i) except in
the case of an event specified in Section 4.3(b)(D), Executive is still employed
by the Company or CareInsite, as applicable, or the acquiring company on the one
year anniversary of the date on which such Change in Control occurs or (ii) the
Employment Period is terminated by CareInsite, the Company or the acquiring
company without Cause or by Executive for Good Reason during such one year
period, the Stock Options, to the extent not vested, shall become vested and
exercisable (x) on the one year anniversary of the date on which such Change in
Control occurs or the date of the Change in Control if the Change in Control is
an event specified in Section 4.3(b)(D) (in the case of clause (i) above) or (y)
on the effective date of such termination of the Employment Period (in the case
of clause (ii) above). In the event of the occurrence of the circumstances
described in the preceding sentence, the Company or CareInsite or the acquiring
company, as the case may be, shall also have the obligations specified in
Sections 5.3 and 5.5 of this Agreement.
(b) For purposes of this Agreement and the Stock Option
Agreements, a "Change in Control" of the Company or CareInsite, as the case may
be, shall be deemed to have occurred if:
(A) Both (i) any person, entity or group shall have
acquired, in one or more transactions, the beneficial
ownership of at least 50 percent of the voting power of
the outstanding voting securities of the Company,
excluding Martin J. Wygod and his affiliates, and (ii)
following such acquisition of 50 percent voting power,
Martin J. Wygod shall no longer be the Chairman of the
Board of the Company or CareInsite or a senior
executive
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officer of the acquiring company of 50 percent voting
power, in each case with duties and responsibilities
greater than or substantially equivalent to those prior
to such acquisition of 50 percent voting power; or
(B) Only in the event that CareInsite has assumed all of
the obligations under this Agreement, both (i) any
person, entity or group shall have acquired, in one or
more transactions, the beneficial ownership of at least
50 percent of the voting power of the outstanding
voting securities of CareInsite, excluding Martin J.
Wygod and his affiliates, and (ii) following such
acquisition of 50 percent voting power, Martin J. Wygod
shall no longer be the Chairman of the Board of
CareInsite or a senior executive officer of the
acquiring companyof 50 percent voting power, in each
case with duties and responsibilities greater than or
substantially equivalent to those prior to such
acquisition of 50 percent voting power; or
(C) The sale of all or substantially all of the assets of
the Company or, if CareInsite assumes all of the
obligations under this Agreement, the sale of all or
substantially all of the assets of CareInsite
(including, without limitation, by way of merger,
consolidation, lease or transfer) to a person, entity
or group other than Martin J. Wygod or his affiliates
in a transaction (except for a sale-leaseback
transaction) (x) where the Company, CareInsite or the
holders of the common stock of the Company or
CareInsite, as the case may be, do not receive (i)
voting securities representing a majority of the voting
power entitled to vote on a regular basis for the board
of directors of the acquiring entity or of an affiliate
which controls the acquiring entity, or (ii) securities
representing a majority of the equity interest in the
acquiring entity or of an affiliate that controls the
acquiring entity, if other than a corporation and (y),
following such sale of assets, Martin J. Wygod shall no
longer be the Chairman of the Board of the Company or
CareInsite or a senior executive officer of the
acquiring entity, in each case with duties and
responsibilities greater than or substantially
equivalent to those prior to such sale of assets; or
(D) A complete liquidation or dissolution of the Company
and CareInsite shall have occurred.
4.4 Future Equity Grants. In the event that either the Company
or CareInsite effects a public offering of the securities of a subsidiary
thereof, Executive shall receive equity in such subsidiary on a basis which is
substantially similar to the equity participation of other senior executive
officers of the Company or CareInsite, as applicable (other than the Chairman of
the Board or of the CareInsite Board), as applicable.
5. Termination.
5.1. Termination by the Company for Cause. (a) The
Employment Period may be terminated at any time by the Company or CareInsite for
Cause (as defined below).
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Upon such a termination, the Company and CareInsite shall have no obligation to
Executive other than (i) the payment of Executive's earned and unpaid Company
Base Salary and CareInsite Base Salary to the effective date of such termination
and (ii) Executive shall not be entitled to any additional rights or vesting
with respect to the Stock Options following the effective date of such
termination
(b) For purposes of this Agreement, the term "Cause" shall
mean any of the following:
1. A willful failure of Executive to perform
his duties hereunder in any material respect which failure is not cured
by Executive within 30 days following written notice from the Company
or CareInsite detailing such failure;
2. Any willful misconduct by Executive
relating, directly or indirectly, to the Company, CareInsite or any of
their Affiliates, which misconduct, if susceptible to cure, is not
cured by Executive within 30 days following written notice from the
Company or CareInsite detailing such misconduct;
3. Any material breach by Executive of this
Agreement, including, without limitation, Section 6 hereof, which
breach, if susceptible to cure, is not cured by Executive within 30
days following written notice from the Company or CareInsite detailing
such breach; or
4. Executive's commission of a common law
fraud against the Company, CareInsite or any of their Affiliates or
conviction of a felony.
5.2 Death and Disability. (a) The Employment Period may be
deemed terminated by the Company and CareInsite upon the death of Executive or
Executive becoming Disabled (as defined below), and the Company and CareInsite
shall have the following obligations to Executive or Executive's estate (but no
other obligation to Executive or Executive's estate pursuant to this Agreement):
(i) a continuation of the Company Base Salary and
CareInsite Base Salary for a period (the "Applicable
Period") commencing on the date of termination and
ending on the fourth anniversary of the date of
termination, payable in accordance with the fourth
sentence of Section 2.1,
(ii) a continuation of the benefits to which Executive is
entitled pursuant to the Welfare Plans (as defined in
Section 5.3(a)(ii) below) for the Applicable Period,
(iii) the Company Bonus and CareInsite Bonus that would have
been payable to Executive pursuant to Section 2.7 for
each year (or portion thereof) during the Applicable
Period, payable at the time that such bonuses are
required to be paid pursuant to Section 2.7, such
Company Bonus and CareInsite Bonus to be equal to the
highest Company Bonus and
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CareInsite Bonus paid to Executive for any of the
prior three years or, if shorter, during the Employment
Period, and
(iv) the Stock Options shall remain outstanding and continue
to vest, and shall otherwise be treated for purposes of
the terms and conditions thereof, as if Executive
remained in the employ of the Company or CareInsite
during the Applicable Period
; provided, however, that the continuation of such salary, welfare benefits and
the continuation of vesting and exercisability of the Stock Options shall cease
on the occurrence of a material breach of the covenants contained in Section 6
below; and provided further, however, that Executive's eligibility to continue
to participate in the Welfare Plans shall cease at such time as Executive is
offered comparable coverage with a subsequent employer. Any payments that may be
required to be made by the Company or CareInsite pursuant to this Section 5.2
shall first be applied to the repayment of the principal amount of and interest
on the Loan.
(b) For purposes of this Agreement, Executive shall be
"Disabled" if (i) Executive becomes incapacitated by bodily injury or disease
(including as a result of mental illness) so as to be unable to regularly
perform the duties of his position for a period in excess of 180 days in any
consecutive twelve-month period, (ii) a qualified independent physician mutually
acceptable to the Company, CareInsite and Executive determines that Executive is
mentally or physically disabled so as to be unable to regularly perform the
duties of his position and such condition is expected to be of a permanent
duration or (iii) he is deemed "disabled" for purposes of the long term
disability insurance policy maintained by the Company for the Executive.
5.3 Termination by the Company or CareInsite Without Cause.
(a) The Employment Period may be terminated at any time by the Company or
CareInsite without Cause. If the Company or CareInsite (or both) terminates the
Employment Period without Cause, the Company or CareInsite, as the case may be,
shall have the following obligations to Executive (but excluding any other
obligation to Executive pursuant to this Agreement):
(i) a continuation of the Company Base Salary or CareInsite
Base Salary, as the case may be, for a period (the
"Severance Period") commencing on the date of
termination and ending on the third anniversary of the
date of termination, payable in accordance with the
fourth sentence of Section 2.1,
(ii) Executive shall be eligible to continue to participate
during the Severance Period on the same terms and
conditions that would have applied had he remained in
the employ of the Company or CareInsite during the
Severance Period in all health, medical, dental and
other welfare plans provided to Executive pursuant to
Section 2.2 at the time of such termination and which
are provided by the Company or CareInsite to its
employees following the date of termination ("Welfare
Plans"),
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(iii) the Company Bonus and CareInsite Bonus that would have
been payable to Executive pursuant to Section 2.7 for
each year (or portion thereof) during the Severance
Period, payable at the time that such bonuses are
required to be paid pursuant to Section 2.7, such
Company Bonus and CareInsite Bonus to be equal to the
highest Company Bonus and CareInsite Bonus paid to
Executive for any of the prior three years or, if
shorter, during the Employment Period, and
(iv) the Company Stock Options or the CareInsite Stock
Option, as the case may be, shall remain outstanding
and continue to vest, and shall otherwise be treated
for purposes of the terms and conditions thereof, as
if Executive remained in the employ of the Company or
CareInsite, as the case may be, during the Severance
Period, except that Section 4.3 shall apply in the
event that the Executive's termination of employment
without Cause occurs during the one year period
following a Change in Control
; provided, however, that the continuation of such salary, welfare benefits and
the vesting and exercisability of the Stock Options shall cease on the
occurrence of any material breach of the covenants contained in Section 6 below;
provided further, however, that Executive's eligibility to participate in the
Welfare Plans shall cease at such time as Executive is offered comparable
coverage with a subsequent employer. If Executive is precluded from
participating in any Welfare Plan by its terms or applicable law, the Company or
CareInsite shall provide Executive with benefits that are reasonably equivalent
in the aggregate to those which Executive would have received under such plan
had he been eligible to participate therein. Anything to the contrary herein
notwithstanding in Section 5.2 or this Section 5.3, the Company shall have no
obligation to continue to maintain any Welfare Plan solely as a result of the
provisions of this Agreement. Any payments that may be required to be made by
the Company or CareInsite pursuant to this Section 5.3 shall first be applied to
the repayment of the principal amount of and interest on the Loan.
(b) Notwithstanding anything to the contrary in this
Agreement, in the event that the Company determines that it is in the best
interest of the Company and its stockholders to terminate Executive's employment
with the Company due to a corporate transaction or the potential for a conflict
of interest with CareInsite, such a termination shall not constitute a
termination without Cause so long as CareInsite assumes the Company's
obligations to pay the Company Base Salary and Company Bonus and to provide the
other benefits contemplated in Section 2 in accordance with its plans and
policies.
5.4 Liquidated Damages. Executive acknowledges that the
payment of all amounts and benefits due to him under Section 5.3 or Section 5.5
resulting from a termination of the Employment Period by the Company or
CareInsite without Cause or by Executive for Good Reason (as defined below) are
in lieu of any and all claims that Executive may have against the Company,
CareInsite or any of their Affiliates (other than benefits under the Company's
or CareInsite's employee benefit plans that by their terms survive termination
of employment, benefits under the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended, and rights to indemnification under certain indemnification
arrangements for officers of the
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Company), and represent liquidated damages (and not a penalty). The Company may
request that Executive confirm such acknowledgment in writing prior to the
receipt of such benefits.
5.5 Termination by Executive for Good Reason. (a) Executive
may terminate his employment with the Company or CareInsite (and the Employment
Period with respect to the Company or CareInsite will be terminated) for Good
Reason. If Executive terminates his employment with the Company or CareInsite
for Good Reason, Executive shall be entitled to the same salary and welfare
benefit continuation, bonus, and the continuation of vesting and exercisability
of the Stock Options that he would have been entitled to receive under Section
5.3 if the Employment Period were terminated by the Company or CareInsite
without Cause.
(b) For purposes of this Agreement, the term "Good Reason"
shall mean any of the following conditions or events which condition(s) or
event(s) remain in effect 30 days after written notice is provided by Executive
to the Company or CareInsite, as the case may be, detailing such condition or
event:
1. A material reduction in Executive's title or
responsibilities with CareInsite or the Company or if he is required to
report to any person other than Martin J. Wygod (other than as a result
of the health of Mr. Wygod or his death); provided that Executive shall
not have Good Reason if the Company determines that as a result of a
corporate transaction or potential conflicts of interest with
CareInsite, it is not in the best interests of the Company and its
stockholders that Executive continue to serve as the President of the
Company or having the responsibilities associated with such position so
long as CareInsite assumes the Company's obligations to pay the Company
Base Salary and Company Bonus and to provide the other benefits
contemplated in Section 2 in accordance with its plans and policies;
2. Any reduction in the Company Base Salary or CareInsite
Base Salary or material fringe benefits provided by the Company;
3. Any material breach by the Company or CareInsite of
this Agreement (which shall not include the circumstance described in
the proviso in clause 1 above);
4. Executive's remaining in the employ of the Company and
CareInsite for a period of one year following the occurrence of a
Change in Control of the Company or CareInsite, as the case may be.
6. Covenants of Executive
6.1 Confidentiality. (a) Executive understands and
acknowledges that in the course of his employment, he will have access to and
will learn information that is proprietary to, or confidential to the Company,
CareInsite and their Affiliates that concerns the operation, methodology and
plans of the Company, CareInsite and their Affiliates, including, without
limitation, business strategy and plans, financial information, protocols,
proposals, manuals, clinical procedures and guidelines, technical data, computer
source codes, programs, software, know-how and specifications, copyrights, trade
secrets, market information, Developments (as
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defined in Section 6.4 below), information regarding acquisition and other
strategic partner candidates, and customer information (collectively,
"Proprietary Information"). Executive agrees that, (i) at all times (including
following termination of his employment with the Company or CareInsite) with
respect to Proprietary Information that is not financial information of the
Company or CareInsite and (ii) during his employment with the Company or
CareInsite and for three years thereafter, with respect to financial information
of the Company and CareInsite, he will keep confidential and will not disclose
directly or indirectly any such Proprietary Information to any third party,
except as required to fulfill his duties hereunder, and will not misuse,
misappropriate or exploit such Proprietary Information in any way. The
restrictions contained herein shall not apply to any information which Executive
can demonstrate (i) was already available to the public at the time of
disclosure, or subsequently becomes available to the public, otherwise than by
breach of this Agreement by Executive, (ii) was the subject of a court order for
Executive to disclose or (iii) was known by Executive prior to the Effective
Date. Upon any termination of Executive's employment, Executive shall
immediately return to the Company or CareInsite, as applicable, all copies of
any Proprietary Information in his possession.
(b) Executive agrees that at no time during his employment by
the Company, CareInsite or thereafter, shall he make, or cause or assist any
other person to make, any statement or other communication to any third party
which falsely impugns or falsely attacks, or is otherwise critical of, the
reputation, business or character of the Company, CareInsite or their Affiliates
or any of their respective officers or employees.
6.2. Restrictions on Solicitation. During the period beginning
on the Effective Date and ending on the second anniversary of the date of
cessation of the employment of Executive for any reason whatsoever (the
"Restricted Period"), Executive shall not, directly or indirectly, without the
prior written approval of the Company, solicit or contact any customer, or any
prospective customer, of the Company, CareInsite or any of their Affiliates for
any commercial pursuit which is in competition with the Company, CareInsite or
any of their Affiliates, or that is contemplated by the Business Plan (as
defined below) at the time of termination or take away or interfere or attempt
to interfere with any custom, trade, business or patronage of the Company,
CareInsite or any of their Affiliates. During the Restricted Period, Executive
shall not, directly or indirectly, without the prior written approval of the
Company, solicit or induce, or attempt to induce, any employees, agents or
consultants of or to the Company, CareInsite or any of their Affiliates to leave
the employ of the Company, CareInsite or such Affiliate or do anything from
which Executive is restricted by reason of this Agreement nor shall Executive,
directly or indirectly, offer or aid others to offer employment to or interfere
or attempt to interfere with any employees, agents or consultants of the
Company, CareInsite or any of their Affiliates. For purposes of this Agreement,
"Business Plan" shall mean, at any point in time, the then current business plan
of the Company, CareInsite or any of their Affiliates and any business plans of
the Company, CareInsite or any of their Affiliates in effect during the prior 18
months.
6.3. Restrictions on Competitive Employment. (a) During the
Restricted Period, Executive shall not, anywhere in the United States, directly
or indirectly, without the prior written approval of the Company, own an
interest in or, as principal, agent, employee,
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consultant or otherwise, engage in activities for or render services to, any
firm or business (i) engaged in competition with the Company, CareInsite or any
of their Affiliates, (ii) conducting a business of the type and character
engaged in by (or contemplated by the Business Plan of) the Company, CareInsite
or any of their Affiliates at the time of termination, or (iii) developing
products or services competitive with those of the Company, CareInsite or any of
their Affiliates (all of the businesses in clauses (i), (ii) and (iii)
collectively, "Competitive Business"). Notwithstanding the foregoing, Executive
may have an interest consisting of publicly traded securities constituting less
than 1 percent of any class of publicly traded securities in any public company
engaged in a Competitive Business so long as he is not employed by and does not
consult with, or become a director of or otherwise engage in any activities for,
such company.
(b) For purposes of the covenant not to compete set forth in
paragraph (a) above, Executive acknowledges that the Company, CareInsite and
their Affiliates presently conduct their businesses throughout the United
States. Executive agrees that the Restricted Period and the geographical areas
encompassed by such covenant are necessary and reasonable in order to protect
the Company, CareInsite and their Affiliates in the conduct of their businesses.
The parties intend that the foregoing covenant of Executive shall be construed
as a series of separate covenants, one for each geographic area specified.
Except for geographic coverage, each such separate covenant shall be deemed
identical in terms to the covenant set forth in paragraph (a) above. To the
extent that the foregoing covenant or any provision of this Section 1.5 shall be
deemed illegal or unenforceable by a court or other tribunal of competent
jurisdiction with respect to (i) any geographic area, (ii) any part of the time
period covered by such covenant, (iii) any activity or capacity covered by such
covenant or (iv) any other term or provision of such covenant, such
determination shall not affect such covenant with respect to any other
geographic area, time period, activity or other term or provision covered by or
included in such covenant.
6.4. Assignment of Developments. All Developments that are at
any time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, arising out of or as a result of Executive's employment
with the Company or CareInsite shall be the sole and absolute property of the
Company, CareInsite and the Affiliates, free of any reserved or other rights of
any kind on Executive's part. During Executive's employment and, if such
Developments were made, conceived or suggested by Executive during or as a
result of Executive's employment under this Agreement or any other employment
with the Company, CareInsite or the Affiliates, thereafter, Executive shall
promptly make full disclosure of any such Developments to the Company or
CareInsite, as applicable, and, at the Company's or CareInsite's cost and
expense, do all acts and things (including, among others, the execution and
delivery under oath of patent and copyright applications and instruments of
assignment) deemed by the Company or CareInsite to be necessary or desirable at
any time in order to effect the full assignment to the Company, CareInsite and
the Affiliates of Executive's right and title, if any, to such Developments. For
purposes of this Agreement, the term "Developments" shall mean all data,
discoveries, findings, reports, designs, inventions, improvements, methods,
practices, techniques, developments, programs, concepts, and ideas, whether or
not patentable, relating to the present or planned activities, or future
activities, or the products and services of the Company, CareInsite or any of
the Affiliates.
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6.5. Remedies. Executive acknowledges and agrees that damages
for a breach or threatened breach of any of the covenants set forth in this
Section 6 will be difficult to determine and will not afford a full and adequate
remedy, and therefore agrees that the Company or CareInsite, in addition to
seeking actual damages in connection therewith, may seek specific enforcement of
any such covenant in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction.
7. Notices.
Any notice or communication given by either party hereto to
the other shall be in writing and personally delivered or mailed by registered
or certified mail, return receipt requested, postage prepaid, to the following
addresses:
(a) if to the Company:
Medical Manager Corporation
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopier No.: (201) 703-3401
Attention: General Counsel
with a copy to CareInsite at the address in
subparagraph (b) below.
(b) if to CareInsite:
CareInsite, Inc.
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopier No.: (201) 703-3401
Attention: General Counsel
with a copy to the Company at the address in
subparagraph (a) above.
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(c) if to Executive at the address set forth below.
Any notice shall be deemed given when actually delivered to
such address, or three days after such notice has been mailed or sent by Federal
Express, whichever comes earliest. Any person entitled to receive notice may
designate in writing, by notice to the other, such other address to which
notices to such person shall thereafter be sent.
8. Miscellaneous.
8.1. Representations and Covenants. In order to induce the
Company to enter into this Agreement, Executive makes the following
representations and covenants to the Company and CareInsite and acknowledges
that the Company and CareInsite are relying upon such representations and
covenants:
(a) No agreements or obligations exist to which
Executive is a party or otherwise bound, in writing or otherwise, that
in any way interfere with, impede or preclude him from fulfilling all
of the terms and conditions of this Agreement.
(b) Executive, during his employment, shall use his
best efforts to disclose to the Chairman of the Board of the Company or
CareInsite in writing or by other effective method any bona fide
information known by him and not known to the Chairman of the Board of
the Company or CareInsite that he reasonably believes would have any
material negative impact on the Company, CareInsite or any of their
Affiliates.
8.2. Entire Agreement. This Agreement and the Stock Option
Agreements contain the entire understanding of the parties in respect of their
subject matter and supersede upon their effectiveness all other prior agreements
and understandings between the parties with respect to such subject matter.
8.3 Amendment; Waiver. This Agreement may not be amended,
supplemented, canceled or discharged, except by written instrument executed by
the party against whom enforcement is sought. No failure to exercise, and no
delay in exercising, any right, power or privilege hereunder shall operate as a
waiver thereof. No waiver of any breach of any provision of this Agreement shall
be deemed to be a waiver of any preceding or succeeding breach of the same or
any other provision.
8.4. Binding Effect; Assignment. The rights and obligations of
this Agreement shall bind and inure to the benefit of any successor of the
Company or CareInsite by reorganization, merger or consolidation, or any
assignee of all or substantially all of the Company's or CareInsite's business
and properties. The Company or CareInsite may assign its rights and obligations
under this Agreement to any of its Affiliates without the consent of Executive
so long as the Company or CareInsite remains responsible for the payment of the
obligations hereunder. Executive's rights or obligations under this Agreement
may not be assigned by Executive, except that the rights specified in Section
5.2 shall pass upon Executive's death to Executive's executor or administrator.
14
<PAGE>
8.5. Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
8.6. Governing Law; Interpretation. This Agreement shall be
construed in accordance with and governed for all purposes by the laws and
public policy (other than conflict of laws principles) of the State of New
Jersey applicable to contracts executed and to be wholly performed within such
State.
8.7. Further Assurances. Each of the parties agrees to
execute, acknowledge, deliver and perform, and cause to be executed,
acknowledged, delivered and performed, at any time and from time to time, as the
case may be, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be reasonably necessary to carry out
the provisions or intent of this Agreement.
8.8. Severability. The parties have carefully reviewed the
provisions of this Agreement and agree that they are fair and equitable.
However, in light of the possibility of differing interpretations of law and
changes in circumstances, the parties agree that if any one or more of the
provisions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Moreover, if any of the provisions contained in this Agreement are determined by
a court of competent jurisdiction to be excessively broad as to duration,
activity, geographic application or subject, it shall be construed, by limiting
or reducing it to the extent legally permitted, so as to be enforceable to the
extent compatible with then applicable law.
15
<PAGE>
8.9. Withholding Taxes. All payments hereunder shall be
subject to any and all applicable federal, state, local and foreign withholding
taxes.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MEDICAL MANAGER CORPORATION
By: _____________________________
Name:
Title:
CAREINSITE, INC.
By: _____________________________
Name:
Title:
EXECUTIVE
_____________________________
Marvin P. Rich
1323 Ponus Ridge Road
New Canaan, CT 06840
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS AS REPORTED
ON THE SECOND QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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0
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