<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 2000
REGISTRATION NO. 333-91657
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VANTAGEMED CORPORATION
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7372 68-0383530
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
</TABLE>
3017 KILGORE ROAD, SUITE 195
RANCHO CORDOVA, CALIFORNIA 95670
(916) 638-4744
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
JOEL M. HARRIS
PRESIDENT
VANTAGEMED CORPORATION
3017 KILGORE ROAD, SUITE 195
RANCHO CORDOVA, CALIFORNIA 95670
(916) 638-4744
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
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<S> <C>
GILLES S. ATTIA, ESQ. JACK B. STEELE, ESQ.
KEVIN A. COYLE, ESQ. WILLIAM O. FABBRI, ESQ.
TERESA M. DERICHSWEILER, ESQ. McDermott, Will & Emery
Gray Cary Ware & Freidenrich LLP 28 State Street
400 Capitol Mall, 21(st) Floor Boston, Massachusetts 02109-1775
Sacramento, California, 95814
(916) 930-3200
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to Offering Price Aggregate Amount of
Securities to be Registered be Registered per Share Offering Price(1) Registration Fee
<S> <C> <C> <C> <C>
Common Stock ($.001 par value)..... 3,450,000 $12.00 $41,400,000 $11,462(2)
</TABLE>
(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act.
(2) $911 paid herewith. $10,551 paid upon initial filing.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 13, 2000.
3,000,000 SHARES
[LOGO]
COMMON STOCK
------------------
VantageMed is offering 3,000,000 shares of its common stock. This is our
initial public offering. We have applied for approval for quotation of our
common stock on the Nasdaq National Market under the symbol "VMDC." We
anticipate that the initial public offering price will be between $10.00 and
$12.00 per share.
------------------------
AN INVESTMENT IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
---------------------
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<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price.....................
Underwriting discounts and commissions....
Proceeds to VantageMed....................
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT, NOR HAS ANY STATE SECURITIES
REGULATOR, APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
VantageMed has granted the underwriters a 30-day option to purchase up to an
additional 450,000 shares of common stock to cover any over-allotments. The
underwriters expect to deliver the shares of common stock to purchasers on or
about January __, 2000.
------------------------
ADVEST, INC. J.C. BRADFORD & CO.
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE>
DESCRIPTION OF ARTWORK
INSIDE FRONT COVER
Two stripes run horizontally across the top of the page. Below is the
caption "Extending Our Healthcare Information Technology Through the Internet."
Centered horizontally below the caption is a large oval. Across the top edge of
the oval is the caption, "VantageMed Future Internet Services..." Directly
below, in the center top portion of the oval, are five lines of text as follows:
"Information Transfer"; "Insurance Eligibility & Authorizations"; "Electronic
Medical Claims & Statements"; "Clinical Information"; and "Pharmacy
Prescriptions & Refills." In the right half of the oval are five lines of text
as follows: "Communications"; "Patient--Provider Messages"; and "Remote Provider
Access to Office Administrative and Patient Data." In the left half of the oval
are five lines of text as follows: "Services"; "Application Services
Outsourcing"; "Medical Records Transcription"; "Automated Software Support and
Upgrades." In the lower center of the oval is a triangle containing the word,
"Internet." Across the lower edge of the oval is the caption, "Linking the
Medical Practice to the Outside World." Below the oval, centered on the page,
are two small triangles connecting the oval to three smaller linked ovals. These
lower ovals are as follows: the left oval, with the caption, "Practice
Management," contains a picture of a woman typing at a computer terminal; the
right oval, with the caption, "Clinical Records," contains a picture of a doctor
ministering to a patient; the middle oval, with the caption "Managed Care,"
shows a woman working at a computer terminal. In the center linked portion of
these three ovals is the word, "Internet."
In the lower right corner of the page is the caption, "10,000 Customer Sites
Currently Using Our Systems" and the VantageMed logo. In the lower left corner
of the page is the caption, "Integrated Systems with an Internet Advantage." A
solid stripe runs across the bottom of the page.
INSIDE BACK COVER
Centered horizontally across the top of the page is the caption, 'VantageMed
Regional Offices. A National Company with a Local Presence. Products and
Services Created on a National Scale...Sold and Supported Locally by 15
Strategically Located Offices.'
Below this caption is a map of the United States with the State of Alaska
appearing to the left of the top caption. This map is in contrasting pastel
colors and is marked and the locations, including city names, of each of
VantageMed's regional offices are marked with a dot. These regional offices
include: Seattle, Washington; Sacramento and Van Nuys, California; Honolulu,
Hawaii; Boulder, Colorado; Kansas City, Missouri; Little Rock, Arkansas;
Houston, Texas; Springfield, Illinois; Birmingham, Alabama; Detroit, Michigan;
Pittsburgh, Pennsylvania; Greensboro, North Carolina; Pompton Plains, New
Jersey; and Boston, Massachusetts.
Arranged below the map are logo for VantageMed and for the following
VantageMed products: Ridgemark; eMCee; Therapist Helper; DentalMate; and Chart
Keeper.
<PAGE>
TABLE OF CONTENTS
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PAGE
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<S> <C>
Summary..................................................... 1
Risk Factors................................................ 4
Special Note Regarding Forward Looking Statements........... 13
Use of Proceeds............................................. 14
The Company................................................. 16
Dividend Policy............................................. 16
Dilution.................................................... 17
Capitalization.............................................. 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 33
Management.................................................. 45
Certain Transactions and Relationships...................... 54
Principal Stockholders...................................... 56
Description of Capital Stock................................ 58
Shares Eligible for Future Sale............................. 63
Underwriting................................................ 65
Legal Matters............................................... 66
Experts..................................................... 66
Where You Can Find More Information......................... 67
Index to Financial Statements............................... F-1
</TABLE>
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i
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THE ENTIRE PROSPECTUS SHOULD BE READ CAREFULLY, INCLUDING THE RISK FACTORS
SECTION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE
STATEMENTS. UNLESS OTHERWISE INDICATED, THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS HAVE NOT EXERCISED THEIR OPTION TO PURCHASE ADDITIONAL SHARES, THAT
A ONE-FOR-THREE REVERSE STOCK SPLIT HAS OCCURRED AND THAT ALL SHARES OF
CONVERTIBLE PREFERRED STOCK AND A PROMISSORY NOTE IN THE PRINCIPAL AMOUNT OF
$3.0 MILLION ISSUED TO FRIEDLI CORPORATE FINANCE HAVE BEEN AUTOMATICALLY
CONVERTED INTO SHARES OF COMMON STOCK. VANTAGEMED, DENTALMATE, RIDGEMARK, EMCEE,
THERAPIST HELPER, CHARTKEEPER AND MEDSOFT ARE TRADEMARKS OF VANTAGEMED
CORPORATION OR ITS WHOLLY-OWNED SUBSIDIARIES. THIS PROSPECTUS ALSO CONTAINS
OTHER TRADE NAMES AND TRADEMARKS OF VANTAGEMED AND OF OTHER COMPANIES.
OUR BUSINESS
VantageMed is a provider of healthcare information systems and services
distributed to over 10,000 customer sites through a national network of 15
regional offices. Our suite of software products and services automates
administrative, financial, clinical and management functions for physicians,
dentists, other healthcare providers and provider organizations. We provide our
customers with:
- Windows-based software products that are enabled for easy access to the
Internet;
- computer hardware and supplies;
- product maintenance and support services; and
- electronic processing of patient statements and insurance claims, commonly
referred to as electronic transaction services.
Since July 1997, we have acquired 26 healthcare information systems
companies in order to build a national distribution network and increase our
customer base. Historically, approximately 50% of our revenues have been
generated from the sale of software and systems, with the remaining 50% of our
revenues generated from customer support and electronic services.
Initially, our products were sold primarily to physicians. Through our
acquisitions, we have expanded our customer base to include dentists, behavioral
health providers and provider organizations. Currently, in excess of 80% of our
total revenues come from sales of products and services to existing customers.
We believe these recurring revenues are a strong indicator of customer
satisfaction and future revenue potential. We are leveraging our distribution
network to increase our revenues through the sale of our Windows-based products
and services. We have enhanced several of our products and services to provide
easy access to the Internet and to facilitate the transfer of information over
the Internet. These enhanced products and services are referred to throughout
this prospectus as "Internet-enabled" products and services.
Our installed customer base, software products and services, and Internet
strategy have positioned us to address the information needs of healthcare
providers through the implementation and continued development of our integrated
technology solution.
OUR INDUSTRY
The healthcare industry's information technology infrastructure is
characterized by numerous, incompatible and, in many cases, old or outdated
software systems known as legacy products. Healthcare information is often
communicated via paper, fax, and telephone, resulting in errors and delays. We
believe that these inefficiencies lead to wasteful spending and have contributed
to rising healthcare costs. In order to compete effectively in today's complex
healthcare environment, healthcare providers need advanced integrated systems
that streamline access to information and improve the flow of information among
healthcare participants.
The Internet has created a new means for healthcare providers and provider
organizations to interact directly with patients and other healthcare
participants. As a result, we believe that healthcare
1
<PAGE>
providers can benefit from technology solutions that integrate Internet
functionality with software systems that support the management of healthcare
practices. We are continuing to expand the Internet capabilities of our existing
Windows-based products and developing new Windows-based, Internet-enabled
products to increase our customers' access to information and their ability to
communicate with numerous other healthcare participants. Since our customers are
already utilizing our software products and services, we are a logical candidate
to provide them with the next generation of Internet-based technology solutions.
We believe both the healthcare information systems industry and the market
it serves are highly fragmented, with over 500 geographically dispersed
healthcare information systems companies serving healthcare providers throughout
the U.S., primarily on a regional basis. This market dynamic presents
significant opportunities to grow our business through strategic business
combinations.
OUR STRATEGY
Our objective is to expand our market share through acquisitions and
internal growth and to increase our recurring revenues in order to strengthen
our position as a supplier of healthcare information systems and services. We
intend to increase our revenues and market share through growth strategies that
focus on:
- offering Windows-based, Internet-enabled products and services;
- enabling our customers to move from legacy products to our Windows-based,
Internet-enabled products;
- strengthening our national distribution network through the selective
acquisition of established healthcare information systems companies in
attractive regional markets;
- cross-selling our products and services to existing customers and pursuing
opportunities with new customers; and
- forming strategic Internet affiliations to develop a full range of
services for clinical, administrative and electronic commerce functions in
order to become our customers' primary Internet interface.
THE OFFERING
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<S> <C>
Common stock offered by VantageMed........... 3,000,000 shares
Common stock outstanding after this
offering................................... 8,648,450 shares
Use of proceeds by VantageMed................ Repayment of approximately $3.5 million of
indebtedness, working capital and general
corporate purposes, including financing of
possible future acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... VMDC
</TABLE>
The number of shares outstanding after the offering is based upon shares
outstanding as of December 31, 1999 and assumes an initial public offering price
of $11.00 per share and a closing date of January 31, 2000 for purposes of
determining the number of shares we will issue upon conversion of the promissory
notes in the principal amount of $3.0 million issued to Friedli Corporate
Finance. The number of shares outstanding excludes, as of December 31, 1999,
451,878 shares of common stock available for issuance under our 1998 Stock
Option/Stock Issuance Plan, 548,122 shares of common stock issuable upon
exercise of outstanding stock options, 43,333 shares of common stock issuable
upon the exercise of outstanding warrants and 83,784 shares of common stock
issuable on the conversion of promissory notes convertible at the election of
the holders.
2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------------ ------------------------
ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1)
-------- ------------- -------- -------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software and systems...................................... $ 3,943 $ 10,053 $ 5,751 $ 9,654
Customer support and electronic services.................. 5,430 13,335 6,709 10,857
------- -------- ------- --------
Total revenues.......................................... 9,373 23,388 12,460 20,511
Operating Costs and Expenses:
Software and systems...................................... 2,146 4,464 2,603 3,803
Customer support and electronic services.................. 3,606 7,354 4,462 5,956
Selling, general and administrative....................... 4,706 13,174 6,213 11,107
Product development....................................... 1,500 3,330 2,797 3,543
Depreciation and amortization............................. 1,472 5,943 2,578 4,539
------- -------- ------- --------
Total operating costs and expenses...................... 13,430 34,265 18,653 28,948
------- -------- ------- --------
Loss From Operations........................................ (4,057) (10,877) (6,193) (8,437)
Interest expense, net....................................... (207) (274) (419) (484)
------- -------- ------- --------
Loss Before Income Taxes.................................... (4,264) (11,151) (6,612) (8,921)
------- -------- ------- --------
Benefit for income taxes.................................... (343) (1,387) (3,284) (3,652)
------- -------- ------- --------
Net loss.................................................... $(3,921) $ (9,764) $(3,328) $ (5,269)
======= ======== ======= ========
Basic and diluted loss per share(2)......................... $ (1.82) $ (3.22) $ (1.16) $ (1.54)
Weighted-average shares--basic and diluted(2)............... 2,158 3,032 2,877 3,415
Basic and diluted loss per share(3)......................... $ (2.96) $ (1.28)
Weighted-average shares--basic and diluted(3)............... 3,301 4,141
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------------
PRO FORMA(5)
ACTUAL PRO FORMA(4) AS ADJUSTED
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Net working capital......................................... $(4,170) $ (1,599) $ 27,761
Total assets................................................ 30,715 46,118 72,478
Long-term debt, net of current portion...................... 2,243 3,095 3,095
Series A-1 preferred stock.................................. 2 2 --
Series B preferred stock.................................... -- -- --
Accumulated deficit......................................... (7,612) (7,612) (10,642)
Total stockholders' equity.................................. 20,456 30,511 59,871
</TABLE>
- ------------------------------
(1) The pro forma consolidated statement of operations data presents our
consolidated results of operations as if our acquisitions had occurred as of
January 1, 1998. The pro forma information is not necessarily indicative of
what would have occurred had the acquisitions been made as of such periods,
nor is it indicative of future results of operations.
(2) Common equivalent shares from preferred stock, stock options, warrants and
convertible notes have been excluded from the computation of diluted
earnings (loss) per share in all loss periods, as their effect is
antidilutive.
(3) Includes shares of preferred stock converted to common shares as if the
shares had been converted on the dates of their issuance. Series A-1 and B
preferred shares convert into 0.33386 and 1.09 shares of common stock,
respectively, assuming an offering price of $11 per share.
(4) The pro forma balance sheet presents information as if our acquisitions that
occurred after September 30, 1999 occurred as of September 30, 1999 and has
been adjusted to record the October issuance of a $3.0 million convertible
promissory note with a beneficial conversion feature in the amount of
$3.0 million.
(5) The pro forma as adjusted balance sheet data presents information as if our
acquisitions that occurred after September 30, 1999 occurred as of
September 30, 1999 and has been adjusted to reflect the conversion of all
outstanding shares of preferred stock into 730,334 shares of common stock
upon completion of this offering, conversion of a $3.0 million promissory
note plus accrued interest into 555,856 shares of common stock upon
completion of this offering, and receipt of the estimated net proceeds from
the sale of the 3,000,000 shares of common stock offered by us at an assumed
offering price of $11.00 per share, after deducting the estimated
underwriting discounts and commissions and the estimated offering expenses.
The pro forma as adjusted balance sheet also records interest expense
related to the beneficial conversion feature of the $3.0 million note and
records the effect of the warrant issued to purchase 13,333 shares of common
stock at 60% of the IPO share price.
3
<PAGE>
RISK FACTORS
THE PURCHASE OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF INVESTMENT RISK.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK. THIS
PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISKS DESCRIBED BELOW AND
ELSEWHERE IN THIS PROSPECTUS.
RISKS ASSOCIATED WITH OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY, A HISTORY OF LOSSES, EXPECT OUR
EXPENDITURES TO INCREASE AND OUR LOSSES TO CONTINUE, AND MAY NEVER ACHIEVE
PROFITABILITY
We have incurred operating losses since we became a Delaware corporation in
April 1997. We operate with a negative cash flow primarily due to acquisition
expenses, prior debt incurred by acquired companies and assumed by us, and the
costs of improving our operating, sales and product development infrastructure.
In our first two years of operation, we incurred aggregate net losses of
$7.3 million, of which $3.4 million was amortization and depreciation. Our
business strategies may not be successful and we may not be able to achieve or
sustain revenue growth or profitability.
IF WE FAIL TO GENERATE RECURRING REVENUES FROM OUR EXISTING CUSTOMERS, WE MAY BE
UNABLE TO ACHIEVE OR SUSTAIN REVENUE GROWTH AND PROFITABILITY
Our financial success depends upon our ability to increase revenues derived
from existing customers. To this end, we focus our marketing efforts on
upgrading existing systems, and providing new software that enables our
customers to migrate from legacy to Windows-based products. If existing
customers fail to upgrade or migrate to our newer systems, we may not be able to
increase our revenues or obtain profitability in the near term or at all.
IF WE FAIL TO INTERNET-ENABLE OUR PRODUCTS IN A TIMELY FASHION WE MAY LOSE OUR
MARKET OPPORTUNITY AND MAY BE UNABLE TO ACHIEVE OR SUSTAIN REVENUE GROWTH AND
PROFITABILITY
Not all of our Windows-based products are Internet-enabled and those that
are have not been tested in the market for any substantial length of time. If we
fail to Internet-enable our products in a timely manner we may lose market share
opportunities to competitors and may be unable to increase our revenues or to
obtain profitability in the near term or at all.
INTERNET OR TELECOMMUNICATION SERVICE OR PERFORMANCE PROBLEMS OR SOFTWARE ERRORS
ARISING AFTER THE INSTALLATION OF OUR SOFTWARE AT CUSTOMER SITES COULD DELAY
MARKET ACCEPTANCE OF OUR PRODUCTS, LEAD TO CUSTOMER DISSATISFACTION AND LOSS OF
REVENUE AND INJURE OUR BUSINESS REPUTATION
The performance of our Internet-enabled products depends upon the efficient
operation of Internet and telephone connections, web browsers and Internet
service providers and upon the reliability of our software, including
third-party software incorporated into our software. The Internet and related
equipment has experienced periodic operational problems or outages. In addition,
software errors that we fail to detect may result in software performance
problems. The occurrence of any of these problems could cause customers to
experience system delays, failures and loss of data. Such problems could lead to
customer dissatisfaction, delays in market acceptance of our products, injury to
our business reputation and a loss of revenue.
WE MAY BECOME SUBJECT TO STATE, FEDERAL OR FOREIGN TAXES THAT COULD HARM OUR
BUSINESS
We do not currently collect sales or other similar taxes with respect to
revenues from consumers in states other than the state of origin. However, one
or more states may seek to impose sales tax
4
<PAGE>
collection obligations on out-of-state companies, similar to ours. Expansion of
our operations into such states could subject revenues from these states to
state sales taxes under current laws. In addition, a federal or foreign tax may
potentially be imposed on products and services sold over the Internet. A
successful assertion by one or more states or any foreign country that we should
collect sales or other taxes on the sale of merchandise or the imposition of
federal taxes could seriously harm our business.
On October 21, 1998, The Internet Tax Freedom Act was signed into law
placing a three-year moratorium on new state and local taxes on e-commerce in
the United States. The moratorium is expected to end on October 21, 2001.
Failure to renew this legislation could result in the broad imposition of state
and local taxes on e-commerce, which could seriously harm our business.
IF SECURITY AND LEGAL LIABILITY CONCERNS MAKE CUSTOMERS UNWILLING TO UTILIZE OUR
PRODUCTS AND SERVICES TO TRANSMIT MEDICAL INFORMATION OVER THE INTERNET, THE
DEMAND FOR OUR PRODUCTS MAY DIMINISH AND WE MAY BE UNABLE TO ACHIEVE OR SUSTAIN
PROFITABILITY
Potential customers may choose not to utilize our Internet-enabled software
products because of concerns related to the transfer and management of medical
information over the Internet, including:
- security of the patient medical records being transferred through the
Internet;
- errors in the transmission of sensitive medical data over the Internet;
- legal liability for data security failures or transmission errors; and
- regulatory burdens imposed on healthcare participants who use the Internet
to transfer confidential patient medical information.
If these concerns prevent potential customers from buying our products and
prevent existing customers from upgrading to our Internet-enabled products, our
revenues may not increase and we may be unable to achieve or sustain
profitability.
BREACHES OF NETWORK SECURITY COULD DAMAGE OUR BUSINESS REPUTATION, LEAD TO
CUSTOMER DISSATISFACTION, DELAY MARKET ACCEPTANCE OF OUR PRODUCTS AND RESULT IN
LEGAL AND FINANCIAL LIABILITY AND A LOSS OF REVENUE
Our electronic transaction services involve the storage and transmission of
confidential medical information through our network data centers, over the
Internet and over dedicated private data lines. Despite the implementation of
security measures, our infrastructure may be vulnerable to physical break-ins,
computer viruses or similar disruptive problems. In the event of such a security
breach, proprietary and confidential information could be misappropriated or our
operations could be interrupted. These problems could damage our business
reputation, lead to customer dissatisfaction and delay market acceptance of our
products. We may also incur legal and financial liability and a loss of revenue
as a result of such problems.
CONCERNS RELATED TO THE INFRASTRUCTURE, SPEED AND RELIABILITY OF THE INTERNET
COULD DIMINISH THE DEMAND FOR AND DELAY MARKET ACCEPTANCE OF OUR PRODUCTS AND
COULD KEEP US FROM BECOMING PROFITABLE
The Internet may fail to become a viable mechanism for the delivery,
exchange and management of healthcare information due to a number of factors
that are out of our control, including:
- communication speed;
- reliability of Internet service;
- Internet capacity;
- lack of development of complementary products, such as communication
devices; and
5
<PAGE>
- delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity.
If concerns about such factors prevent potential customers from buying our
products and/or prevent existing customers from upgrading to our
Internet-enabled products, our Internet-enabled products may not gain market
acceptance, our sales revenues may not increase and we may be unable to achieve
or sustain profitability.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE VOLATILITY OR DECLINE
IN THE MARKET PRICE OF OUR COMMON STOCK
It is possible that our revenues and operating results may be below the
expectations of securities analysts or investors in future quarters. If we fail
to meet or surpass the expectations of securities analysts or investors, the
market price of our common stock will most likely decline. We expect that our
quarterly revenue and operating results may fluctuate as a result of a number of
factors, including:
- future acquisitions;
- entry into new healthcare markets;
- introduction of new products and service offerings and reductions in
prices of products by our competitors;
- software defects, delays in development and other quality factors;
- changes in customer demand for our applications and services; and
- changes within the healthcare industry.
We expect to increase activities and spending in substantially all of our
operational areas. We base our expense levels in part upon our expectations
concerning future revenues, and these expense levels are relatively fixed in the
short term. If we have lower revenues, we may not be able to make corresponding
reductions in our spending in the short term. Any shortfall in revenues would
have a direct impact on our results of operations. Fluctuations in our quarterly
results or the failure to meet analysts' expectations could affect the market
price of our common stock in a manner unrelated to our long-term operating
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY WE MAY LOSE ASSETS OR
INCUR COSTLY LITIGATION TO PROTECT OUR RIGHTS
We rely primarily on a combination of copyrights, trademarks, trade secret
laws and restrictions on disclosure to protect our intellectual property. We
currently have no patents and limited registered copyrights covering technology
related to our products. We have no plans to seek such legal protection and, if
we do, protection may not be granted.
Despite our efforts to protect our intellectual property, a third party or a
former employee could copy, reverse engineer or otherwise obtain and use our
intellectual property or trade secrets without authorization or could develop
software competitive to ours.
Our intellectual property may be misappropriated or infringed upon or may
infringe upon the rights of others. Consequently, litigation may be necessary in
the future to enforce our intellectual property rights, to protect our
confidential information or trade secrets, or to determine the validity or scope
of the rights of others. Litigation could result in substantial costs and
diversion of management and other resources and may not successfully protect our
intellectual property. Additionally, we may deem it advisable to enter into
royalty or licensing agreements to resolve such claims. Such agreements, if
required, may not be available on commercially reasonable or desirable terms or
at all.
6
<PAGE>
THE LOSS OF EXPERIENCED PERSONNEL TO COMPETITORS OR OUR INABILITY TO ATTRACT AND
RETAIN QUALIFIED PERSONNEL COULD SIGNIFICANTLY INTERRUPT OUR BUSINESS OPERATIONS
Our future success will depend, to a significant extent, on the ability of
our management to operate effectively, both individually and as a group. The
loss of the services of any of our senior management could negatively impact our
ability to carry out our business plan. We are dependent on our ability to
attract, retain and motivate high caliber key personnel. Competition for
qualified personnel in our industry is intense, and we may not be successful in
attracting and retaining such personnel. There are a limited number of persons
with the requisite skills available serve in these key positions and it may
become increasingly difficult to hire such persons. Our business will suffer if
we encounter delays in hiring these additional personnel. Competitors and others
have in the past and may in the future attempt to recruit our employees.
YEAR 2000 PROBLEMS COULD CAUSE US TO LOSE REVENUES OR INCUR ADDITIONAL COSTS
Many currently installed computer and software products are coded to accept
only six-digit entries in the date code field rather than the eight-digit
entries required to distinguish twenty-first century dates from twentieth
century dates. This problem is commonly referred to as the "Year 2000" problem.
We presently believe that the products we are developing and marketing are
Year 2000 compliant. However, as a result of our acquisitions, we have acquired
software that is not Year 2000 compliant and that some customers continue to
use. It is our policy to notify such customers that their software and/or
systems are not Year 2000 compliant and that we have no plans to make them ready
for the Year 2000. However, we cannot guarantee that we will be able to identify
and contact all such customers. We offer these customers an opportunity to
upgrade to newer products that are Year 2000 compliant, but such customers may
not upgrade and we may be subject to liability for the non-compliance of these
acquired software products.
We do not independently test third-party software that is incorporated into
our products and instead rely on the representations made by the suppliers of
such third-party software as to the Year 2000 compliance of their products.
Therefore, it is possible that Year 2000 problems will occur with these internal
and/or third-party systems. Such problems could have an adverse impact on our
business, operating results and financial condition. The risk exists primarily
in three areas:
- potential warranty or other claims from our customers, which may result in
significant expense to us;
- failures of systems we use to run our business, which could disrupt our
business operations; and
- the potential for failures of our products due to Year 2000 problems
associated with products developed by other vendors and used in
conjunction with our products, which may require that we incur significant
unexpected expenses.
OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO RAISE
FURTHER FINANCING, IF REQUIRED
We may need to raise additional funds to respond to business contingencies
which may include the need to:
- cover unexpected losses;
- fund more rapid expansion;
- fund additional marketing expenditures;
- enhance our operating infrastructure;
- respond to competitive pressures; or
7
<PAGE>
- acquire or develop complementary businesses or necessary technologies.
Additional financing may not be available on terms favorable to us, or at
all. In the event that such financing requires the issuance of additional shares
of our capital stock, you will experience dilution in your ownership. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our operations, take advantage of opportunities, develop
products or services or otherwise respond to competitive pressure could be
significantly limited.
OUR CHARTER PROVISIONS COULD HAVE THE EFFECT OF DELAYING OR PREVENTING CORPORATE
TAKEOVERS
Our certificate of incorporation authorizes our board of directors to issue
up to 5,000,000 shares of preferred stock and to determine the price, rights,
preferences and privileges, including voting rights, of those shares without any
further vote or action by the stockholders. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The authority
to issue this preferred stock could enable our board of directors to deter our
acquisition by another company. Additionally, our certificate of incorporation
and bylaws contain the following features which could have the effect of
delaying or preventing corporate takeovers:
- a board of directors classified into three classes, which makes it more
difficult to acquire immediate control of our board of directors because
only a minority of the directors are elected each year;
- requiring stockholder actions to occur only at duly called meetings of the
stockholders, thereby reducing the ability of the stockholders to act
contrary to the interests of the board of directors;
- permitting only the board, chairman president, chief executive officer or
holders of the least 20% of our outstanding shares to call a special
meeting of the stockholders;
- requiring advance notice from stockholders for director nominations or
other stockholder proposals; and
- requiring the affirmative vote of at least two-thirds of the stockholders
to approve amendments to our certificate and bylaws that affect these
anti-takeover provisions.
RISKS ASSOCIATED WITH OUR ACQUISITION STRATEGY
IF WE FAIL TO IDENTIFY OR NEGOTIATE THE PURCHASE OF COMPLEMENTARY ACQUISITION
CANDIDATES OR IF COMPETITION FOR SUCH CANDIDATES INCREASES, WE MAY BE UNABLE TO
GROW OUR BUSINESS AND EXPAND OUR DISTRIBUTION NETWORK AND MAY FAIL TO ACHIEVE OR
SUSTAIN PROFITABILITY
We believe that two of our competitors, Infocure Corporation and Medical
Manager Corporation, are undertaking an acquisition strategy similar to ours. If
competition for acquisition targets increases, there may be fewer qualified
acquisition candidates available to us and the terms of such acquisitions may
become less favorable. Identifying appropriate acquisition candidates,
negotiating and consummating an acquisition can be a lengthy and costly process,
may divert management's attention and may prevent us from growing our business
and expanding our distribution network.
PROBLEMS INTEGRATING ACQUIRED COMPANIES COULD RESULT IN SUBSTANTIAL COSTS,
DIVERT THE ATTENTION OF OUR MANAGEMENT TEAM, CAUSE US TO LOSE VALUABLE CUSTOMERS
AND DILUTE THE VALUE OF OUR ACQUISITIONS
When we acquire new businesses we must:
- cross-train existing and acquired sales personnel;
- standardize accounting, operational and financial functions of acquired
businesses;
8
<PAGE>
- retain key acquired personnel; and
- incorporate acquired technology into our existing products.
Problems or delays in the integration process may result in substantial
costs and the diversion of management's attention from our existing business. In
addition, integration delays could cause us to lose key customers and employees
from the acquired company thereby diluting the value of the acquired company.
WE HAVE DISCOVERED MATERIAL WEAKNESSES IN OUR INTERNAL ACCOUNTING CONTROLS WHICH
MAY AFFECT OUR FINANCIAL REPORTING.
During the integration of our acquired companies, we discovered material
weaknesses in our internal accounting controls. These weaknesses include
inadequate monitoring of key financial processes, inconsistent application of
revenue recognition policies and procedures, difficulty in closing the books in
some of our offices and inadequate financial reporting. We are implementing a
common accounting software platform and closing procedures for all of our
regional offices. We have developed and implemented revenue recognition
guidelines, policies and procedures, and we are training our regional managers
and accountants. We believe that these measures will correct the noted
weaknesses. However, there can be no assurance that we will not continue to
experience such deficiencies as it continues to further expand our operations.
TECHNICAL PROBLEMS WITH ACQUIRED TECHNOLOGY OR PRODUCTS COULD HARM OUR
REPUTATION, RESULT IN UNEXPECTED COSTS AND CAUSE OUR REVENUES TO DECREASE
Although we test and examine an acquisition target's technology and products
prior to consummating an acquisition, there may be technical product problems
that we fail to discover. These problems may result in unexpected costs that
decrease our revenues and may result in customer dissatisfaction and harm to our
business reputation.
WE MAY BECOME RESPONSIBLE FOR UNKNOWN OR UNEXPECTED FINANCIAL OR LEGAL
LIABILITIES FOLLOWING AN ACQUISITION
When we purchase a target company, we generally acquire all of that
company's liabilities. Although we perform due diligence prior to an
acquisition, we may become responsible for a liability that is unknown or
greater than anticipated. Any recourse we may have against the former
shareholders of an acquired company in such a situation is limited. Such
unexpected liabilities could have a significant negative impact on our profits.
IF OUR ACQUISITION ACTIVITIES DIVERT THE ATTENTION OF OUR MANAGEMENT TEAM AWAY
FROM THE DAY-TO-DAY OPERATIONS OF OUR COMPANY, PRODUCT DEVELOPMENT, EXISTING
CUSTOMER RELATIONSHIPS AND FINANCIAL PERFORMANCE COULD SUFFER
As a part of our growth strategy, we intend to acquire additional healthcare
information systems companies. The identification and investigation of
appropriate acquisition candidates and the negotiation of acquisitions will
require a substantial investment of time on the part of our management team.
These activities could divert time and attention from our product development
and from the day-to-day operations of our company. These disruptions could in
turn harm our relationships with existing customers and have a negative effect
on our overall financial performance.
OUR ACQUISITION STRATEGY MAY REQUIRE US TO RAISE ADDITIONAL CAPITAL, WHICH COULD
RESULT IN DILUTION
We intend to finance future acquisitions by issuing shares of common and/or
preferred stock for all or a substantial portion of the acquisition price. In
the event that the potential acquisition candidates
9
<PAGE>
are unwilling to accept stock as part of the consideration for the sale of their
businesses, we may decide to utilize more of our cash resources, if available,
in order to maintain our acquisition program. This may result in the need to
raise additional capital. To the extent we issue shares of our capital stock to
finance acquisitions or raise capital, you will experience dilution in your
ownership.
RISKS ASSOCIATED WITH OUR INDUSTRY
INTENSE COMPETITION IN THE MARKET FOR HEALTHCARE INFORMATION SYSTEMS AND
SERVICES COULD PREVENT US FROM INCREASING OR SUSTAINING REVENUES AND PREVENT US
FROM ACHIEVING OR SUSTAINING PROFITABILITY
Our competitors vary in size, geographic coverage and scope of products and
services offered. The market demand for certain products varies across
geographic territories. Industry competitors include organizations such as
Medical Manager Corporation, Physician Computer Network, Inc., Infocure
Corporation, Medic Computer Systems, Inc., IDX Systems Corporation, CyCare, a
division of McKessonHBOC, Quality Systems Inc., MedicaLogic Inc., Dentrix Dental
Systems, Inc., and National Data Corporation. Additionally, within each regional
market there are several smaller competitors who have developed technologically
advanced products offered at lower prices. Finally, with the integration of
clinical information systems into practice management systems, several
well-funded pharmaceutical, medical supply and biotech companies have entered
the practice management systems market. New healthcare information Internet
companies may become direct competitors in the future. Many of our competitors
have greater financial, research and development, technical, marketing and sales
resources than we do. In addition, other entities not currently offering
products and services similar to ours may enter our market. We may not be able
to compete successfully with current and/or future competitors. Failure to do so
could prevent us from increasing or sustaining revenues and achieving
profitability.
ECONOMIC AND COST REDUCTION PRESSURES FACED BY HEALTHCARE PROVIDERS MAY LIMIT
THE ABILITY OF OUR CUSTOMERS TO BUY OUR PRODUCTS AND SERVICES AND COULD LIMIT
OUR PROFITABILITY
Economic and cost reduction pressures may limit the ability of healthcare
providers to make expenditures for new software systems or for upgrades to
existing software systems. A reluctance or inability on the part of healthcare
providers to make such expenditures could result in fewer sales and could limit
our ability to achieve or sustain profitability.
IF WE FAIL TO RESPOND TO THE RAPIDLY CHANGING TECHNOLOGY THAT CHARACTERIZES OUR
MARKET, OUR PRODUCTS MAY BE RENDERED OBSOLETE, WE MAY LOSE OUR MARKET
OPPORTUNITY AND FAIL TO ACHIEVE OR SUSTAIN PROFITABILITY
The market for our products is highly competitive and changes rapidly.
Therefore, timely introduction of new products, features and services to
existing customers will significantly impact our future success. We will be
required to meet rapidly changing market demands, respond to market
requirements, develop new proprietary solutions, and successfully market new
products and enhancements to new customers and our existing customer base.
ANY FAILURE TO COMPLY WITH REGULATIONS GOVERNING THE CONFIDENTIALITY AND
INTEGRITY OF HEALTHCARE INFORMATION TRANSMITTED ELECTRONICALLY COULD RESULT IN
SEVERE LEGAL AND FINANCIAL LIABILITY, HARM OUR BUSINESS REPUTATION AND RESULT IN
A SIGNIFICANT LOSS OF CUSTOMERS
Federal regulations under the Health Insurance Portability and
Accountability Act of 1996 governing the confidentiality and integrity of
healthcare information transmitted electronically are complex and are evolving
rapidly. Although we believe that our software products meet the current
regulatory standards described more fully in the "Business" section of this
prospectus, any failure on the part of our software to comply with current or
future regulations could subject us to severe legal
10
<PAGE>
and financial liability. Such failures could also result in harm to our business
reputation and a significant loss of customers.
FUTURE STATE OR FEDERAL LEGISLATION MAY IMPOSE RESTRICTIONS ON THE ABILITY TO
TRANSMIT PATIENT DATA OVER THE INTERNET WITHOUT SPECIFIC PATIENT CONSENT AND
COULD DIMINISH THE VALUE OF OUR INTERNET-ENABLED SOFTWARE PRODUCTS AND SERVICES
AND LOWER OUR REVENUES AND PROFITS
The confidentiality of patient records is the subject of substantial
regulation by state and federal governments. Although compliance with these laws
and regulations is at present principally the responsibility of healthcare
providers, additional legislation governing the dissemination of medical records
has been discussed. If such legislation imposes restrictions on the ability of
third-party processors, like us, to transmit certain patient data without
specific patient consent, the value of our Internet-enabled products and
services to our customers could be diminished, causing our revenues to decrease.
OUR BILLING AND CLAIMS SERVICES ARE SUBJECT TO FEDERAL AND STATE REGULATION AND
ANY NON-COMPLIANCE WITH THESE REGULATIONS COULD LEAD TO CIVIL, CRIMINAL AND
FINANCIAL LIABILITY
The performance of our billing and claims services are governed by numerous
federal and state civil and criminal laws. Increased scrutiny has been placed on
the billing and collection practices of healthcare providers and related
entities. Although we believe that we are in compliance with any such
regulations that may relate to the provision of our billing and claims services,
any non-compliance could lead to civil monetary penalties, criminal fines,
imprisonment or exclusion from participation in Medicare, Medicaid and other
federally funded healthcare programs for us and the customer involved in the
non-compliance.
REGULATIONS THAT RESTRICT THE ABILITY TO DISPENSE OR REFILL CONTROLLED
SUBSTANCES THROUGH AN ELECTRONICALLY TRANSMITTED PRESCRIPTION COULD LIMIT THE
FUNCTIONALITY OF OUR INTERNET-ENABLED SOFTWARE PRODUCTS AND COULD DIMINISH THE
REVENUE GENERATED FROM THESE PRODUCTS
The Federal Drug Enforcement Agency has promulgated regulations that may
prohibit a pharmacy from dispensing and/or refilling controlled substances
through an electronically transmitted prescription. These regulations may limit
the scope of the prescription ordering and refill functions in our current and
future Internet-enabled software products and may diminish the revenues we
obtain from the sale of these products.
IF OUR SOFTWARE PRODUCTS ARE DEEMED MEDICAL DEVICES, WE WILL BE SUBJECT TO
ADDITIONAL REGULATION THAT COULD RESULT IN CRIMINAL, CIVIL AND FINANCIAL
LIABILITY, INCREASE OUR COSTS AND DELAY THE MARKETING OF OUR NEW OR EXISTING
PRODUCTS
The U.S. Food and Drug Administration has jurisdiction under the 1976
Medical Device Amendments to the Federal Food, Drug and Cosmetic Act to regulate
computer products and software as medical devices if they are intended for use
in the diagnosis, cure, mitigation, treatment or prevention of disease in
humans. We believe that our healthcare information systems are not subject to
FDA regulation. If, however, the FDA determined that our products were subject
to regulation, non-compliance with applicable requirements could result in,
among other things, fines, injunctions, civil penalties, total or partial
suspension of production, refusal by the government to approve products,
revocation of approval or clearance previously granted and criminal prosecution.
Future FDA policies, laws or regulations concerning the development or marketing
of healthcare information systems may cause our products to be subject to FDA
regulation, which could increase our costs or delay the marketing of new or
existing products.
11
<PAGE>
FUTURE REGULATIONS ENACTED BY CONGRESS OR BY STATE GOVERNMENTS MAY ADVERSELY
IMPACT THE HEALTHCARE INDUSTRY IN WAYS THAT COULD DAMAGE OUR BUSINESS
OPPORTUNITIES OR PROFITABILITY
The healthcare industry is highly regulated and has been the subject of
increasing levels of government regulation during the past several years. We
cannot predict with any certainty the types of regulations that might be imposed
or the impact that those regulations might have on our business. The adoption of
regulations currently unanticipated by us or by the healthcare industry could
impose burdensome requirements or restrictions on our products or on the
activities of healthcare providers. These restrictions could decrease the demand
for our products and could prevent us from growing our business and attaining
profitability.
RISKS ASSOCIATED WITH THIS OFFERING
PURCHASERS OF OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE SUBSTANTIAL DILUTION
The purchasers of the shares of common stock sold in this offering will
experience immediate and substantial dilution in the pro forma net tangible book
value as of September 30, 1999 of their shares of $7.88 per share (assuming an
initial public offering price of $11.00 per share).
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE
Prior to this offering, there has been no public market for our common
stock. An active trading market may not develop or be sustained upon
consummation of the offering and the market price of the common stock may
decline below the initial offering price. The market price of our common stock
may fluctuate significantly due to a variety of factors, some of which are
outside of our control, including:
- announcements of technological innovations or new products or services by
us or our competitors;
- fluctuations in our quarterly and annual results of operations;
- changes in the general condition of the economy or the healthcare or
information technology industries;
- changes in earnings estimates by public market analysts; and
- changes in our business strategies.
THERE WILL BE A SUBSTANTIAL NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE FOLLOWING
THIS OFFERING, WHICH COULD CAUSE OUR STOCK PRICE TO DROP
Sales of substantial amounts of our common stock in the public market
following this offering could adversely affect the market price of the common
stock. Upon the completion of this offering, we will have 8,648,450 shares of
common stock outstanding. Of this amount, the 3,000,000 shares sold in this
offering (plus any additional shares sold upon the underwriters' exercise of
their over-allotment option) will be available for immediate sale in the public
market unless purchased by our affiliates. An additional 324,269 restricted
shares will be available for sale immediately following this offering under
Rule 144(k). The remaining 5,324,181 shares of common stock outstanding upon
completion of this offering will be available for sale in the public market at
various times following completion of this offering. See "Shares Eligible for
Future Sale" for a complete description of shares available to be sold in the
public market.
12
<PAGE>
SINCE WE HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS FROM THIS OFFERING, WE
MAY USE PROCEEDS IN WAYS WITH WHICH YOU DISAGREE
We have allocated approximately $3.5 million of the net proceeds from this
offering for the repayment of outstanding debt; the remainder of the net
proceeds have not been allocated for any specific purpose. Accordingly, our
management will have significant flexibility in applying the net proceeds of
this offering. If our management team fails to use such funds effectively we may
fail to achieve or sustain revenue growth or profitability.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", "estimates" and similar expressions. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward-looking
statements for a number of reasons, including those discussed under "Risk
Factors" and elsewhere in this prospectus.
You should read statements that contain these words carefully because they
discuss our expectations about our future performance, contain projections of
our future operating results or our future financial condition, or state other
"forward-looking" information. Before you invest in our common stock, you should
be aware that the occurrence of any of the events described in these risk
factors and elsewhere in this prospectus could substantially harm our business
and our profitability and that upon the occurrence of any of these events, the
trading price of our common stock could decline and you could lose all or part
of your investment.
13
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale and issuance of the 3,000,000 shares of
common stock being offered, after deducting the estimated underwriting discounts
and estimated offering expenses payable by us and assuming an initial offering
price of $11.00 per share, are estimated to be $29.3 million ($33.9 million if
the underwriters' over-allotment option is exercised in full).
We will use the net proceeds of this offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPLICATION OF NET PROCEEDS AMOUNT
- --------------------------- --------------
(IN THOUSANDS)
<S> <C>
To repay promissory notes and accrued interest(1)........... $ 3,477
For working capital and other general corporate purposes,
including the financing of possible acquisitions of
complementary products, technologies and businesses....... $25,823
-------
$29,300
=======
</TABLE>
- ------------------------
(1) Consists of 17 promissory notes and accrued interest in an aggregate amount
of $3,476,500 through January 31, 2000 (the assumed closing date of this
offering). The following is a description of the notes we intend to repay:
- Three notes with a current aggregate balance of $173,260 maturing in
December 2000 bearing interest at 8% per year issued in the acquisition of
Medical System Solutions, Inc.
- A note with a current balance of $250,000 maturing in February 2000
bearing interest at 10% per year issued in the acquisition of American
Voice Computer, Inc.
14
<PAGE>
- A note with a current balance of $280,391 maturing in June 2000 bearing
interest at 15% per year issued in the acquisition of Civitec Healthcare
Computers, Inc.
- Two notes with a current aggregate balance of $500,000 maturing in October
2001 bearing interest at 10% per year issued in the acquisition of Medical
Digital Technologies, Inc.
- Two notes, one with a current balance of $115,610 maturing in November
2001 bearing interest at 9.75% per year, and the other with a current
balance of $222,000 maturing in August 2000 bearing interest at 8% per
year, in each case issued in the acquisition of Data Decisions, Inc.
- A note with a current balance of $142,096 maturing in December 2002
bearing interest at 12% per year issued in the acquisition of CARE
Information Systems, Inc.
- A note with a current balance of $37,500 maturing in March 2000 bearing
interest at 6% per year issued in the acquisition of MedSoft, Inc.
- A note with a current balance of $13,837 maturing in May 2000 bearing
interest at 12% per year issued in the acquisition of Metropolitan
Information Services, Inc.
- A note with a current balance of $194,572 maturing in July 2004 bearing
interest at 10.5% per year issued in the acquisition of Logos Systems,
Inc.
- A note with a current balance of $47,345 maturing in May 2000 bearing
interest at 12.5% per year issued in the acquisition of Brand Software,
Inc.
- A note with a current balance of $300,000 maturing in June 2004 bearing
interest at 10% per year issued in the acquisition of Healthcare
Information Network, Inc. We will pay the note with the proceeds of this
offering if the holder of the note decides not to convert the note into
shares of our common stock prior to the close of this offerings.
- A note with a current balance of $700,000 maturing in July 2000 bearing
interest at 10% per year issued to Friedli Corporate Finance, a company
controlled by one of our directors, Peter Friedli, issued in connection
with a bridge loan provided to us.
- A note with a current balance of $500,000 maturing in December 2000
bearing interest at 12% per year issued in connection with a bridge loan
provided to us.
We currently anticipate that from $6 million to $10 million of the proceeds
of this offering may be used for potential acquisitions. However, while we
continually evaluate acquisition opportunities, there can be no assurance that
any acquisition will be completed or that any of the proceeds will be used for
acquisitions. Conversely, we may spend more than $10 million on acquisitions if
appropriate opportunities are available. We do not currently have any binding
understandings or agreements to acquire any companies, products or technologies.
We plan to use approximately $51,330 of the proceeds of this offering to pay
compensation deferred by ten members of our management team. For a full
description of these salary deferments, see "Management Executive Compensation".
We also expect to use the proceeds to increase our marketing, development
and operations activities. We may repay additional indebtedness and we may hire
additional personnel. Final allocation of proceeds depends on numerous factors,
including amounts spent on acquisitions, growth of our business and the need for
additional marketing and development activities. Because we cannot currently
anticipate what our actual needs will be we will retain broad discretion over
actual use of proceeds.
Pending application of the net proceeds as described above, we intend to
invest the net proceeds of this offering in short-term, investment-grade,
interest bearing investment securities, such as government-backed treasuries.
15
<PAGE>
THE COMPANY
Our predecessor, VantageMed Corporation, was incorporated in California in
June 1995. The California corporation effected a migratory merger into
VantageMed Corporation, a Delaware corporation, in April 1997. Our executive
offices are located at 3017 Kilgore Road, Suite 195, Rancho Cordova, California
95670. Our telephone number is (916) 638-4744.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock, and
we do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We currently intend to retain future earnings, if any, for
use in our business.
16
<PAGE>
DILUTION
As of September 30, 1999, our net tangible book value was $(3.7 million), or
$(0.95) per share of common stock. Net tangible book value per share represents
the amount of total tangible assets less total liabilities, divided by the
number of shares of common stock then outstanding. After giving effect to the
sale of 3,000,000 shares of common stock in this offering at an assumed initial
public offering price of $11.00 per share and after deduction of the estimated
underwriting discounts and commissions and the estimated expenses of this
offering, net tangible book value on September 30, 1999 would have been
$25.6 million or approximately $3.09 per share. This represents an immediate
increase in net tangible book value of $4.04 per share of common stock to
existing investors and an immediate dilution of $7.91 per share to new investors
purchasing shares in the offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $ 11.00
Net tangible book value before the offering.......... $(0.95)
Increase per share attributable to new investors..... 4.04
------
Net tangible book value per share after the offering....... 3.09
-------
Dilution per share to new investors........................ $ 7.91
=======
</TABLE>
The following table summarizes, as of September 30, 1999, on a pro forma
basis described above, the difference between the number of shares of common
stock purchased from us, the total consideration paid and the average price per
share paid by the existing stockholders and the new investors purchasing shares
of common stock in this offering before deducting underwriting discounts and
commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 5,208,515 63.5% $ 31,085,000 48.5% $ 5.97
New investors........................... 3,000,000 36.5 33,000,000 51.5% $ 11.00
--------- ----- ------------- -----
Total............................... 8,208,515 100.0% $ 64,085,000 100.0%
========= ===== ============= =====
</TABLE>
The foregoing computations are based on the number of shares of common stock
outstanding as of September 30, 1999, and exclude shares of common stock
issuable upon exercise of outstanding stock options, additional shares reserved
for future issuance under our 1998 Stock Option/Stock Issuance Plan, shares of
common stock issuable upon the exercise of outstanding warrants and shares of
common stock issuable upon the conversion of promissory notes convertible at the
election of the holders. See "Capitalization."
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis giving effect to all acquisitions occurring to date
and the issuance of the $3.0 million secured convertible promissory note;
and
- pro forma as adjusted to reflect our receipt of the estimated net proceeds
from the sale of the 3,000,000 shares of common stock offered by us at an
assumed offering price of $11.00 per share after deducting the estimated
underwriting discounts and commissions and the estimated offering
expenses, the conversion of all outstanding shares of preferred stock into
730,334 shares of common stock and the conversion of the $3.0 million
convertible promissory note into 555,856 shares of common stock upon
completion of this offering.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS, EXCEPT FOR SHARE DATA) -------- --------- -----------
<S> <C> <C> <C>
Current portion of long-term debt........................... $ 2,261 $ 5,318 $ 2,318
======= ======= =======
Long-term debt, net of current portion...................... $ 2,243 $ 3,095 $ 3,095
------- ------- -------
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, actual and pro forma; 5,000,000 shares
authorized, pro forma as adjusted Series A-1--1,795,300
shares outstanding, actual and pro forma; and no shares
outstanding pro forma as adjusted......................... 2 2 --
Series B--120,000 shares outstanding, actual and pro
forma; and no shares outstanding pro forma as
adjusted................................................ -- -- --
Common stock, $0.001 par value per share, 20,000,000 shares
authorized, 3,906,108 shares issued and outstanding,
actual; 20,000,000 shares authorized, 4,362,260 shares
issued and outstanding, pro forma; 20,000,000 shares
authorized, 8,632,234 shares issued and outstanding, pro
forma as adjusted......................................... 4 4 9
Additional paid-in capital.................................. 28,062 38,117 70,504
Retained earnings (deficit)................................. (7,612) (7,612) (10,642)
------- ------- -------
Total stockholders' equity................................ 20,456 30,511 59,871
------- ------- -------
Total capitalization.................................... $22,699 $33,606 $62,966
======= ======= =======
</TABLE>
The table shown above excludes, as of September 30, 1999: 531,054 shares of
common stock issuable upon exercise of stock options outstanding at a
weighted-average exercise price of $7.83 per share; 268,946 shares reserved for
future issuance under our 1998 Stock Option/Stock Issuance Plan; 13,333 shares
of common stock issuable upon the exercise of an outstanding warrant at an
exercise price equal to 60% of the initial price of shares of our common stock
as sold in this offering; 30,000 shares of common stock issuable upon the
exercise of other warrants at an exercise price of $11.10 per share; and 40,000
shares of common stock issuable upon the conversion of outstanding convertible
promissory notes at a conversion price of $7.50 per share.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below are derived from
our audited and unaudited financial statements and should be read in conjunction
with our consolidated financial statements and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus. The consolidated statement of
operations for the years ended December 31, 1996, 1997, and 1998, and the
consolidated balance sheets at December 31, 1997, and 1998 have been audited by
Arthur Andersen LLP, independent public accountants, and are included elsewhere
in this prospectus. The consolidated statement of operations data for the year
ended December 31, 1995 and the nine months ended September 30, 1998 and 1999,
and the consolidated balance sheets data at December 31, 1995 and 1996 and
September 30, 1998 and 1999, are derived from our unaudited financial
statements. We believe that the unaudited financial data fairly reflects our
results of operations and our financial condition for the respective periods
presented.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -------------------
1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Software and systems...................................... $2,051 $2,056 $2,800 $ 3,943 $ 2,591 $ 5,751
Customer support and electronic services.................. 1,623 1,874 2,448 5,430 3,452 6,709
------ ------ ------ ------- ------- -------
Total revenues.......................................... 3,674 3,930 5,248 9,373 6,043 12,460
Operating Costs and Expenses:
Software and systems...................................... 1,060 1,181 1,274 2,146 1,427 2,603
Customer support and electronic services.................. 796 981 1,200 3,606 2,355 4,462
Selling, general and administrative....................... 1,250 1,209 2,566 4,706 2,951 6,213
Product development....................................... 280 287 441 1,500 1,015 2,797
Depreciation and amortization............................. 50 141 376 1,472 976 2,600
------ ------ ------ ------- ------- -------
Total operating costs and expenses...................... 3,436 3,799 5,857 13,430 8,724 18,675
------ ------ ------ ------- ------- -------
Income (Loss) From Operations............................... 238 131 (609) (4,057) (2,681) (6,215)
Interest income (expense), net.............................. 40 16 (20) (207) (157) (419)
------ ------ ------ ------- ------- -------
Income (Loss) Before Income Taxes........................... 278 147 (629) (4,264) (2,838) (6,634)
------ ------ ------ ------- ------- -------
Provision (benefit) for income taxes........................ 58 64 (195) (343) (218) (3,284)
------ ------ ------ ------- ------- -------
NET INCOME (LOSS)........................................... $ 220 $ 83 $ (434) $(3,921) $(2,620) $(3,350)
====== ====== ====== ======= ======= =======
Basic earnings (loss) per share............................. $ 1.05 $ 0.07 $(0.27) $ (1.82) $ (1.25) $ (1.17)
====== ====== ====== ======= ======= =======
Diluted earnings (loss) per share(1)........................ $ 0.97 $ 0.07 $(0.27) $ (1.82) $ (1.25) $ (1.17)
====== ====== ====== ======= ======= =======
Weighted-average shares--basic.............................. 210 1,255 1,620 2,158 2,089 2,874
Weighted-average shares--diluted(1)......................... 227 1,272 1,620 2,158 2,089 2,874
Pro forma basic and diluted loss per share(1)(2)............ $ (1.67) $ (1.16) $ (0.93)
Pro forma weighted-average shares--basic and
diluted(1)(2)............................................. 2,342 2,253 3,594
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
----------------------------------------- ---------------------
1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Net working capital......................................... $ 83 $ 251 $ 106 $(4,563) $(2,289) $(4,170)
Total assets................................................ 923 993 5,165 11,367 10,296 30,715
Long-term debt, net of current portion...................... -- -- 1,501 1,721 1,969 2,243
Series A-1 preferred stock.................................. -- -- -- -- -- 2
Series B preferred stock.................................... -- -- -- -- -- --
Accumulated earnings (deficit).............................. 116 199 (267) (4,262) (2,961) (7,612)
Total stockholders' equity.................................. 183 (293) 2,242 3,234 4,277 20,456
</TABLE>
- ------------------------------
(1) Common equivalent shares from preferred stock, stock options, warrants and
convertible notes have been excluded from the computation of diluted
earnings (loss) per share in all loss periods, as their effect is
antidilutive.
(2) Includes conversion of preferred stock into common shares, as if the shares
had been converted on the dates of their issuance.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER SUBSTANTIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY
FACTORS INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
VantageMed is a national provider of healthcare information systems and
services. Our strategy is to continue to expand our national distribution
network through the acquisition of established regional healthcare products and
managed care systems companies who will sell and support our new software
products and services to an existing and expanding customer base. We plan to
continue to grow our recurring revenues through additional acquisitions and the
migration of current customers from legacy systems to our Windows-based,
Internet-enabled software products and Internet and electronic services, while
at the same time continuing to expand both our market penetration and product
offerings.
Of the 26 business combinations we have completed to date, Healthcare
Information Systems, Inc. and Northern Health Solutions, Inc. were accounted for
as pooling of interests, and therefore, our financial statements have been
restated to reflect them as a part of our operations for all periods presented.
We acquired four established regional healthcare information systems companies
in 1997, with the first occurring in July 1997, eight companies in 1998 and nine
companies in the first nine months of 1999. In addition, we completed five
acquisitions since September 30, 1999. We have financed our 26 business
combinations to date through the issuance of approximately 3.1 million shares of
common stock, 120,000 shares of Series B preferred stock, $1.2 million in stock
options, $4.3 million in promissory notes and $1.1 million in cash.
We derive revenues from two sources: software and systems; and customer
support and electronic services. Software and systems revenues result from the
licensing of our proprietary software, as well as third-party software, computer
hardware and supplies. The third-party software is primarily desktop operating
systems and standard communication/security software. Customer support revenues
are derived from software maintenance and customer service, network and computer
hardware support, training, data conversion and system installation. Electronic
services revenues are generated by electronic insurance claims processing,
electronic statement printing and mailing and electronic posting of insurance
payments, referred to as electronic remittance advices.
Our revenues include both recurring and non-recurring revenues. We define
recurring revenues as any revenues derived from an existing or acquired customer
after the initial installation of the product and revenues generated from sales
of new products to existing customers. We consider our non-recurring revenues to
be revenues generated on sales to new customers. We expect the mix of recurring
and non-recurring revenues to fluctuate because of our acquisition activities
and our ability to sell our products to new customers. Over time, we believe
that recurring revenues will continue to represent a large portion of our
overall revenues. Recurring revenue is not a measurement defined by generally
accepted accounting principles (GAAP) and should not be considered an
alternative to, or more meaningful than, revenues as defined by GAAP. All
companies do not calculate recurring revenues in the same manner or at all.
Accordingly, our recurring revenue data may not be comparable with that of other
companies. We have included information concerning recurring revenues because we
believe recurring revenues provides useful information regarding our overall
revenue mix.
20
<PAGE>
Cost of revenues consists primarily of the costs of software and computer
hardware products sold to customers and associated shipping costs, third-party
costs for supplies and electronic services and salary and benefit costs for
employees performing customer support. Selling, general and administrative
expenses include the salaries, commissions and benefits of sales staff,
executive and administrative personnel costs, advertising and promotional
materials costs and travel, communications, facilities, insurance and other
administrative expenses. Product development expenses are primarily payroll and
related costs to develop new products and enhance existing products.
BUSINESS SEGMENT GROSS PROFIT DATA
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SOFTWARE AND SYSTEMS:
Revenues............................................ $2,056 $2,800 $3,943 $2,591 $5,751
Cost of revenues.................................... 1,181 1,274 2,146 1,427 2,603
------ ------ ------ ------ ------
Gross profit........................................ $ 875 $1,526 $1,797 $1,164 $3,148
====== ====== ====== ====== ======
Gross profit percentage............................. 42.6% 54.5% 45.6% 44.9% 54.7%
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CUSTOMER SUPPORT AND ELECTRONIC SERVICES:
Revenues............................................ $1,874 $2,448 $5,430 $3,452 $6,709
Cost of revenues.................................... 981 1,200 3,606 2,355 4,462
------ ------ ------ ------ ------
Gross profit........................................ $ 893 $1,248 $1,824 $1,097 $2,247
====== ====== ====== ====== ======
Gross profit percentage............................. 47.7% 51.0% 33.6% 31.8% 33.5%
====== ====== ====== ====== ======
</TABLE>
Our acquisitions have resulted in significant intangibles and related
amortization. Amortization expenses result from the amortization of intangible
assets. Intangible assets acquired include acquired software, covenants not to
compete, customer lists, assembled workforce and goodwill and has averaged 95%
of the consideration paid by VantageMed for an acquisition. Acquired software is
amortized over two to four years depending on the estimated continued use of the
software product acquired. Covenants not to compete are amortized over two to
five years, representing the life of such agreements. Customer lists are
amortized over two to ten years, representing the estimated future life of
customer relationships. Assembled workforce is amortized over one to ten years,
depending upon the average length of employment for the employees of those
companies we have acquired. Goodwill is amortized over two to ten years
depending upon whether the acquisition is established as a new one or is
consolidated into an existing regional office; and whether or not there is
continuing sales of the software purchased in the acquisition.
Depreciation expenses also include depreciation of tangible property and
equipment over their useful lives, which range from three to seven years.
Depreciation expenses are not material to our operating results. Depreciation
and amortization expenses have resulted in sizeable non-cash charges to our
historical operating results and are expected to continue to generate
significant operating expenses in the near term due to our acquisition strategy.
We have invested approximately $5.3 million in product development since our
inception. These funds have been primarily invested in our medical and dental
products and to a lesser extent into our electronic claims processing systems
and a clinical information management system.
21
<PAGE>
As of September 30, 1999, we had a post-acquisition federal net operating
loss carryforward of approximately $5.3 million available to offset future
taxable income, if any. This net operating loss carryforward will begin to
expire incrementally at various dates beginning in 2017 through 2019.
For the next 12 months we expect our revenues to increase through both
acquisitions and internal growth. We believe that migration of current and
acquired customers to our Windows-based, Internet-enabled products and the
development and marketing of these products to new and existing customers are
the keys to our internal growth strategy. Our internal growth model is therefore
focused on increasing revenues from software licensing and electronic
transaction services, as well as maintaining recurring support revenues. We
recognize revenues from software license fees in accordance with American
Institute of Certified Public Accountants Statement of Position 97-2. Software
license fees are recognized as revenues upon delivery of our software products
to our customers, as long as evidence of an arrangement exists, the amounts of
fees are fixed and determinable and the collection of the resulting receivable
is probable. Computer hardware and supplies revenues are recognized upon product
shipment. Revenues from support and maintenance contracts are recognized ratably
over the life of the contract. Revenues from other services are recognized as
the services are provided.
Our strategy is to acquire companies with technology that will enhance our
overall product offerings or companies that build regional market penetration in
support of our national distribution channel. Since July 1997, we have acquired
over 10,000 customer sites. Our acquisitions have produced an established
distribution channel of 15 regional offices nationwide, provided us access to an
existing customer base, new product offerings, and helped us to build our
management team. As we continue to grow, we expect our operating expenses as a
percentage of sales to decrease. Our operating expenses to date have grown
faster than our revenues as a result of building our infrastructure and a
management team to execute our strategy.
RESULTS OF OPERATIONS
The following table sets forth certain data expressed as a percentage of
total revenues for the periods indicated.
SELECTED CONSOLIDATED FINANCIAL DATA PERCENTAGES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Software and systems.............................. 52.3% 53.4% 42.1% 42.9% 46.2%
Customer support and electronic services.......... 47.7 46.6 57.9 57.1 53.8
------ ------ ------ ------ ------
Total revenues.............................. 100.0 100.0 100.0 100.0 100.0
Operating Costs And Expenses:
Software and systems.............................. 30.1 24.3 22.9 23.6 20.9
Customer support and electronic services.......... 25.0 22.9 38.5 39.0 35.8
Selling, general & administrative................. 30.8 48.9 50.2 48.8 49.9
Product development............................... 7.3 8.4 16.0 16.8 22.4
Depreciation and amortization..................... 3.6 7.2 15.7 16.2 20.9
------ ------ ------ ------ ------
Total costs and operating expenses.......... 96.8 111.5 143.3 144.4 149.9
------ ------ ------ ------ ------
Income (Loss) From Operations....................... 3.2 (11.5) (43.3) (44.4) (49.9)
Interest Income (Expense)........................... 0.4 (0.4) (2.2) 2.6 (3.4)
------ ------ ------ ------ ------
Income (Loss) Before Income Taxes................... 3.6 (11.9) (45.5) (47.0) (53.3)
------ ------ ------ ------ ------
Provision (benefit) for income taxes................ 1.6 (3.6) (3.7) (3.6) (26.4)
------ ------ ------ ------ ------
Net income (loss)................................... 2.0% (8.3)% (41.8)% (43.4)% (26.9)%
====== ====== ====== ====== ======
</TABLE>
22
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
A large portion of the variances between the nine months ended
September 30, 1998 and the corresponding period of 1999 is attributable to our
acquisition activity. During the nine months ended September 30, 1998, we
completed eight business combinations, six of which were accounted for using the
purchase method of accounting and two accounted for as poolings. Therefore,
revenues and expenses from these companies were only included for a portion of
the nine months ended September 30, 1998, but were included in the entire nine
months ended September 30, 1999. In addition, nine companies were acquired using
purchase accounting between October 1, 1998 and September 30, 1999, resulting in
additional revenues and expenses for the nine months ended September 30, 1999
that were not present in the corresponding period of 1998.
REVENUES. Total revenues increased 106.2% from $6.0 million in the nine
months ended September 30, 1998 to $12.5 million in the corresponding period of
1999. Of this $6.5 million increase, $5.0 million was attributable to additional
revenues from acquisitions and the remaining $1.5 million was attributable to
internal growth. Recurring revenues increased 100% from $5.0 million in the nine
months ended September 30, 1998 to $10.0 million in the corresponding period of
1999, while non-recurring revenues increased 151.8% from $1.0 million in the
nine months ended September 30, 1998 to $2.5 million in the corresponding period
of 1999.
SOFTWARE AND SYSTEMS. The software and systems component of total
revenues increased 122.0% from $2.6 million, or 42.9% of total revenues for
the nine months ended September 30, 1998 to $5.8 million, or 46.2% of total
revenues in the corresponding period of 1999. Software and systems revenues
consist of software licensing revenues and revenues from the sale of
computer hardware and supplies. Software licensing revenues were 38.9% and
45.6% and computer hardware and supply revenues were 61.1% and 54.4% of
total software and systems revenues for the nine months ended September 30,
1998 and 1999, respectively. Approximately $2.4 million of the increase in
software and systems revenues was due to acquisitions, and the remaining
$750,000 was due to our internal growth.
Revenues from software licensing increased 159.9% from $1.0 million for
the nine months ended September 30, 1998 to $2.6 million for the same period
in 1999. Legacy product sales were 92.2% of software licensing revenues for
the nine months ended September 30, 1998 compared to 54.9% in the
corresponding period of 1999. New product sales were 7.8% of software
licensing revenues for the nine months ended September 30, 1998 compared to
45.1% in the corresponding period of 1999. The gross profit for software
licensing revenues increased 179.6% from $854,000 for the nine months ended
September 30, 1998 to $2.4 million in the corresponding period of 1999.
Revenues from computer hardware and supplies increased 97.8% from
$1.6 million for the nine months ended September 30, 1998 to $3.1 million in
the corresponding period of 1999. The gross profit for computer hardware and
supplies revenues increased 144.9% from $310,000 for the nine months ended
September 30, 1998 to $759,000 in for the corresponding period of 1999.
CUSTOMER SUPPORT AND ELECTRONIC SERVICES. The customer support and
electronic services component of total revenues increased 94.4% from
$3.5 million, or 57.1% of total revenues in the nine months ended
September 30, 1998, to $6.7 million, or 53.8% of total revenues in the
corresponding period of 1999. Customer support revenues are derived from
software maintenance and customer service, network and computer hardware
support, training, data conversion and system installation. Electronic
services revenues are generated by electronic insurance claims processing,
electronic statement printing and mailing and electronic remittance advices.
Customer support revenues were 90.0% and 91.6% and electronic services
revenues were 10.0% and 8.4% of total customer support and electronic
services revenues for the nine months ended September 30, 1998 and 1999,
respectively. Approximately $2.6 million of the increase in Customer Support
and Electronic Services was due to acquisitions. The remaining $648,000 of
the increase was due to internal growth.
23
<PAGE>
Revenues from customer support increased 97.7% from $3.1 million for the
nine months ended September 30, 1998 to $6.1 million in the corresponding
period of 1999. The gross profit for customer support revenues increased
110.7% from $918,000 for the nine months ended September 30, 1998 to
$1.9 million in the corresponding period of 1999.
Revenues from electronic services increased 64.1% from $345,000 for the
nine months ended September 30, 1998 to $567,000 in the corresponding period
of 1999. The gross profit for electronic services revenues increased 74.4%
from $179,000 for the nine months ended September 30, 1998 to $312,000 in
the corresponding period of 1999.
COST OF REVENUES. Total cost of revenues increased 86.8% from $3.8 million
for the nine months ended September 30, 1998 to $7.1 million in the
corresponding period of 1999, but decreased as a percentage of total revenues
from 62.6% for the nine months ended September 30, 1998 to 56.7% in the
corresponding period of 1999.
SOFTWARE AND SYSTEMS. Software and systems costs include both software
licensing costs and computer hardware and supplies. Software and systems
costs increased 82.4% from $1.4 million or 23.6% of total revenues for the
nine months ended September 30, 1998 to $2.6 million, or 20.9% of total
revenues in the corresponding period of 1999. Software licensing costs were
10.8% and 8.9%, and computer hardware and supplies costs were 89.2% and
91.1% of total software and systems costs for the nine months ended
September 30, 1998 and 1999, respectively.
Costs for software licensing increased 50.4% from $154,000, or 2.5% of
total revenues in the nine months ended September 30, 1998 to $231,000, or
1.9% of total revenues in the corresponding period of 1999. The decrease as
a percent of total revenues is due to a change in the mix of products and
services sold. The gross margin percentage for new products was 90.2% and
95.4% for the nine months ended September 30, 1998 and 1999, respectively.
The gross margin percentage for legacy products was 84.3% and 87.7% for the
nine months ended September 30, 1998 and 1999, respectively.
Costs for computer hardware and supplies increased 86.3% from
$1.3 million, or 21.1% of total revenues in the nine months ended
September 30, 1998 to $2.4 million, or 19.0% of total revenues in the
corresponding period of 1999. The decrease as a percent of total revenues is
due to a change in the mix of product and services sold. Gross margin
percentage for computer hardware and supplies increased from 19.6% for the
nine months ended September 30, 1998 to 24.2% in the corresponding period of
1999.
CUSTOMER SUPPORT AND ELECTRONIC SERVICES. Customer support and
electronic services costs increased 89.5% from $2.4 million, or 39.0% of
total revenues in the nine months ended September 30, 1998 to $4.5 million,
or 35.8% of total revenues in the corresponding period of 1999. Customer
support costs were 92.9% and 94.3%, and electronic services costs were 7.1%
and 5.7% of total customer support and electronic services costs for the
nine months ended September 30, 1998 and 1999, respectively.
Costs for customer support increased 92.3% from $2.2 million or 36.2% of
total revenues, in the nine months ended September 30, 1998 to
$4.2 million, or 33.8% of total revenues, in the corresponding period of
1999. The customer support gross margin percentage increased from 29.6% for
the nine months ended September 30, 1998 to 31.5% in the corresponding
period of 1999, primarily due to acquisitions.
Costs for electronic services increased 53.1% from $166,000, or 2.8% of
total revenues, in the nine months ended September 30, 1998 to $255,000, or
2.0% of total revenues, in the corresponding period of 1999. The electronic
services gross margin percentage increased from 51.9% for the nine months
ended September 30, 1998 to 55.1% in the corresponding period of 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 110.5% from $3.0 million, or 48.8% of total revenues for the
nine months ended September 30, 1998, to
24
<PAGE>
$6.2 million, or 49.9% of total revenues in the corresponding period of 1999. Of
the $3.2 million increase, selling expenses, corporate administration, and
regional distribution channel expenses increased approximately $700,000,
$700,000, and $1.8 million, respectively. This $1.8 million increase resulted
from regional operating costs directly related to our acquired distribution
channel and the associated increases in headcount and building of corporate
staff and infrastructure.
PRODUCT DEVELOPMENT. Product development expenses increased from
$1.0 million, or 16.8% of total revenues for the nine months ended
September 30, 1998, to $2.8 million, or 22.4% of total revenues in the
corresponding period of 1999. The dollar and percentage increases were due
primarily to additional staffing and related costs necessary for development of
our new products.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased from $976,000, or 16.2% of total revenues, for the nine months ended
September 30, 1998, to $2.6 million, or 20.9% of total revenues, in the
corresponding period of 1999. Of these amounts, amortization expenses were
$875,000 for the nine months ended September 30, 1998 and $2.0 million in the
corresponding period of 1999. At September 30, 1999, we had intangible assets
totaling $27.8 million with accumulated amortization of $3.6 million. The
weighted average life of these intangibles was 7.8 years.
INTEREST INCOME (EXPENSE), NET. Interest expense increased from $157,000, or
2.6% of total revenues for the nine months ended September 30, 1998 to $419,000,
or 3.4% of total revenues in the corresponding period of 1999. The percentage
and dollar increases primarily resulted from interest expense associated with
indebtedness incurred to complete our acquisitions.
PROVISION (BENEFIT) FOR INCOME TAXES. A tax benefit of $218,000 was recorded
for the nine months ended September 30, 1998 compared to a tax benefit of
$3.3 million in the corresponding period of 1999. The tax benefit resulted from
net operating losses recognized to the extent of deferred tax liabilities
recorded in connection with purchased intangibles other than goodwill in
accordance with SFAS 109 "Accounting for Income Taxes."
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
The increase in revenues and expenses from the year ended December 31, 1997
to December 31, 1998 was primarily the result of two factors. First, the four
companies we acquired in 1997 were accounted for on a purchase accounting basis
and were acquired at various times throughout the year, representing less than a
full year's revenues and expenses as compared to a full year in 1998. Second,
two of the eight companies acquired in 1998 were accounted for as pooling of
interests. The remaining 1998 acquisitions were accounted for on a purchase
accounting basis. Therefore, revenues from these companies acquired on a
purchase accounting basis represent revenues and expenses incremental to 1997.
REVENUES. Total revenues increased 78.6% from $5.2 million for the year
ended December 31, 1997 to $9.4 million in the corresponding period of 1998.
This increase resulted primarily from acquisitions. Recurring revenues increased
74.1% from $4.3 million for the year ended December 31, 1997 to $7.5 million in
the corresponding period of 1998, while non-recurring revenues increased 100.0%
from $914,000 for the year ended December 31, 1997 to $1.8 million in the
corresponding period of 1998.
SOFTWARE AND SYSTEMS. The software and systems component of total
revenues increased 40.8% from $2.8 million, or 53.4% of total revenues, for
the year ended December 31, 1997 to $3.9 million, or 42.1% of total
revenues, in the corresponding period of 1998. Software licensing revenues
were 31.5% and 38.0% and computer hardware and supplies revenues were 68.5%
and 62.0% of total software and systems revenues for the year ended
December 31, 1997 and 1998, respectively. This increase in revenues was due
to change in product mix between legacy and new products.
Revenues from software licensing increased 69.6% from $882,200 for the
year ended December 31, 1997, to $1.5 million in the corresponding period of
1998. Legacy products were
25
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96.1% of software licensing revenues for the year ended December 31, 1997 as
compared to 85.8% in the corresponding period of 1998. New product sales
were 3.9% of software licensing revenues for the year ended December 31,
1997 as compared to 14.2% in the corresponding period of 1998. The gross
profit for software licensing revenues increased 65.4% from $802,000 for the
year ended December 31, 1997 to $1.3 million in the corresponding period of
1998.
Revenues from computer hardware and supplies increased 27.6% from
$1.9 million for the year ended December 31, 1997 to $2.4 million in the
corresponding period of 1998. The gross profit for computer hardware and
supplies revenues decreased 35.1% from $724,000 for the year ended
December 31, 1997 to $470,000 in the corresponding period of 1998.
CUSTOMER SUPPORT AND ELECTRONIC SERVICES. The customer support and
electronic services component of total revenues increased 121.8% from
$2.4 million, or 46.6% of total revenues for the year ended December 31,
1997 to $5.4 million, or 57.9% of total revenues in the corresponding period
of 1998. Customer support revenues were 91.8% and 89.7% and electronic
services revenues were 8.2% and 10.3% of total customer support and
electronic service revenues for the year ended December 31, 1997 and 1998,
respectively.
Revenues from customer support increased 116.8% from $2.2 million for
the year ended December 31, 1997, to $4.9 million in the corresponding
period of 1998. The gross profit for customer support revenues increased
33.4% from $1.1 million for the year ended December 31, 1997, to
$1.5 million in the corresponding period of 1998.
Revenues from electronic services increased 176.5% from $202,000 for the
year ended December 31, 1997, to $557,000 in the corresponding period of
1998. The gross profit for electronic services revenues increased 169.4%
from $117,000 for the year ended December 31, 1997, to $316,000 in the
corresponding period of 1998.
COST OF REVENUES. The total cost of revenues increased 132.5% from
$2.5 million, or 47.1% of total revenues for the year ended December 31, 1997,
to $5.8 million, or 61.4% of total revenues in the corresponding period of 1998.
This increase was primarily due to an acquisition providing a platform for
application service provider type services with historically lower margins than
our other products and services.
SOFTWARE AND SYSTEMS. Software and systems costs increased 68.4% from
$1.3 million, or 24.3% of total revenues for the year ended December 31,
1997 to $2.1 million, or 22.9% of total revenues in the corresponding period
of 1998. Software licensing costs were 6.3% and 7.9%, and computer hardware
and supplies costs were 93.7% and 92.1% of total software and systems costs
for the year ended December 31, 1997 and 1998, respectively.
Costs for software licensing increased 112.0% from $80,000, or 1.5% of
total revenues for the year ended December 31, 1997 to $170,000, or 1.8% of
total revenues in the corresponding period of 1998. Gross margin percentage
for new products was 87.5% and 95.1% for the year ended December 31, 1997
and 1998, respectively. Gross margin percentage for legacy products was
91.0% and 87.6% for the year ended December 31, 1997 and 1998, respectively.
Costs for computer hardware and supplies increased 65.6% from
$1.2 million, or 22.8% of total revenues for the year ended December 31,
1997 to $2.0 million, or 21.1% of total revenues in the corresponding period
of 1998. Gross margin percentage for computer hardware and supplies was
37.8% and 19.2% for the year ended December 31, 1997 and 1998, respectively.
CUSTOMER SUPPORT AND ELECTRONIC SERVICES. Customer support and
electronic services costs increased 200.5% from $1.2 million, or 22.9% of
total revenues for the year ended December 31, 1997 to $3.6 million, or
38.5% of total revenues in the corresponding period of 1998. Customer
support costs were 93.0% and 93.3%, and electronic services costs were 7.0%
and 6.7% of total customer support and electronic services costs for the
year ended December 31, 1997 and 1998, respectively.
Costs for customer support increased 201.5% from $1.1 million, or 21.3%
of total revenues for the year ended December 31, 1997 to $3.4 million, or
35.9% of total revenues in the corresponding period of 1998. The customer
support gross margin percentage decreased from 50.3% for the year ended
December 31, 1997 to 31.0% in the corresponding period of 1998, primarily
due to acquisitions.
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Costs for electronic services increased 186.4% from $84,000 or 1.6% of
total revenues for the year ended December 31, 1997 in 1997 to $242,000, or
2.6% of total revenues in the corresponding period of 1998. The electronic
services gross margin percentage decreased from 58.1% for the year ended
December 31, 1997 to 56.7% in the corresponding period of 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased from $2.6 million, or 48.9% of total revenues for the year
ended December 31, 1997 to $4.7 million, or 50.2% of total revenues in the
corresponding period of 1998. Of this $2.1 million increase, selling expenses,
corporate administration, and regional distribution channel expenses increased
approximately $1.0 million, $500,000, and $600,000, respectively. Increased
selling expenses included approximately $500,000 of additional marketing
expense, increased corporate infrastructure to manage the rapid rate of growth
and increased regional operating expenses from acquisitions.
PRODUCT DEVELOPMENT. Product development expenses increased from $441,000,
or 8.4% of total revenues for the year ended December 31, 1997 to $1.5 million,
or 16.0% of total revenues, in the corresponding period of 1998. This increase
was due to the additional staffing and related expenses to develop new products
and enhancement of existing products.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased from $376,000, or 7.2% of total revenues for the year ended December
31, 1997, to $1.5 million, or 15.7% of total revenues in the corresponding
period of 1998. Of these amounts, amortization expenses were $292,000 for the
year ended December 31, 1997 and $1.3 million in the corresponding period of
1998. At December 31, 1998, we had intangible assets totaling $8.9 million with
accumulated amortization of $1.6 million. The weighted average life of these
intangibles was 7.5 years.
INTEREST INCOME (EXPENSE), NET. Interest expense increased from $20,000, or
0.4% of total revenues for the year ended December 31, 1997 to $207,000, or 2.2%
of total revenues in the corresponding period of 1998. The increase primarily
reflects increases in interest expense associated with indebtedness incurred to
complete our acquisitions.
PROVISION (BENEFIT) FOR INCOME TAXES. We realized an income tax benefit of
$195,000 for the year ended December 31, 1997 compared to an income tax benefit
of $343,000 in the corresponding period of 1998. This increase resulted from an
increase in our operating loss before income taxes between 1997 and 1998.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Nearly all revenues and expenses in 1996 were attributable to two business
combinations completed in 1998 that were accounted for as pooling of interests.
In 1997, revenues and expenses were comprised of these two entities along with
another four companies acquired using purchase accounting. Also in 1997, we
focused on selling our higher margin software products, placing less emphasis on
computer hardware and service sales.
REVENUES. Total revenues increased 33.5% from $3.9 million for the year
ended December 31, 1996 to $5.2 million in the corresponding period of 1997. The
entire $1.3 million increase in revenues resulted from companies acquired in
1997. Recurring revenues increased 32.1% from $3.3 million for the year ended
December 31, 1996 to $4.3 million in the corresponding period of 1997, while
non-recurring revenues increased 40.6% from $650,000 for the year ended
December 31, 1996 to $914,000 in the corresponding period of 1997.
SOFTWARE AND SYSTEMS. The software and systems component of total
revenues increased 36.2% from $2.1 million, or 52.3% of total revenues for
the year ended December 31, 1996 to $2.8 million, or 53.4% of total revenues
in the corresponding period of 1997. Software licensing revenues were 19.2%
and 31.5% and computer hardware and supplies revenues were 80.8% and 68.5%
of total software and systems revenues for the year ended December 31, 1996
and 1997,
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respectively. The increase in revenues was due to the variation in mix
resulting from both changes in the existing base of business and from
acquisitions.
Revenues from software licensing increased 123.7% from $394,000 for the
year ended December 31, 1996, to $882,000 in the corresponding period of
1997. Legacy products were 100% of software licensing revenues for the year
ended December 31, 1996 compared to 96.1% in the corresponding period of
1997. Software revenues did not include any new product sales for the year
ended December 31, 1996, compared to 3.9% in the corresponding period of
1997. The gross profit for software licensing revenues increased 129.9% from
$349,000 for the year ended December 31, 1996 to $802,000 in corresponding
period of 1997.
Revenues from computer hardware and supplies increased 15.4% from
$1.7 million for the year ended December 31, 1996 to $1.9 million in the
corresponding period of 1997. The gross profit for computer hardware and
supplies revenues increased 37.7% from $526,000 for the year ended
December 31, 1996 to $724,000 in the corresponding period of 1997.
CUSTOMER SUPPORT AND ELECTRONIC SERVICES. The customer support and
electronic services component of total revenues increased 30.6% from
$1.9 million, or 47.7% of total revenues for the year ended December 31,
1996 to $2.4 million, or 46.6% of total revenues in the corresponding period
of 1997. Customer support revenues were 93.7% and 91.8% and electronic
services revenues were 6.3% and 8.2% of total customer support and
electronic services revenues for the year ended December 31, 1996 and 1997,
respectively.
Revenues from customer support increased 28.0% from $1.8 million for the
year ended December 31, 1996, to $2.2 million in the corresponding period of
1997. The gross profit for customer support revenues increased 34.7% from
$840,000 for the year ended December 31, 1996, to $1.1 million in the
corresponding period of 1997.
Revenues from electronic services increased 70.7% from $118,000 for the
year ended December 31, 1996, to $202,000 in the corresponding period of
1997. The gross profit for electronic services revenues increased 120.5%
from $53,000 for the year ended December 31, 1996, to $117,000 in the
corresponding period of 1997.
COST OF REVENUES. The total cost of revenues increased 14.4% from
$2.2 million, or 55.0% of total revenues for the year ended December 31, 1996,
to $2.5 million, or 47.1% of total revenues in the corresponding period of 1997,
primarily due to acquisitions.
SOFTWARE AND SYSTEMS. Software and systems costs increased 7.9% from
$1.2 million, or 30.1% of total revenues for the year ended December 31,
1996 to $1.3 million, or 24.3% of total revenues in the corresponding period
of 1997. Software licensing costs were 3.8% and 6.3%, and computer hardware
and supplies costs were 96.2% and 93.7% of total software and systems costs
for the year ended December 31, 1996 and 1997, respectively.
Costs for software licensing increased 76.7% from $45,000 or 1.2% of
total revenues for the year ended December 31, 1996 to $80,000 or 1.5% of
total revenues in the corresponding period of 1997. Gross margin percentage
for new products was 87.5% for the year ended December 31, 1997. No new
products were sold in 1996. Gross margin percentage for legacy products was
88.5% and 91.0% for the year ended December 31, 1996 and 1997, respectively.
Costs for computer hardware and supplies increased 5.1% from
$1.1 million, or 28.9% of total revenues for the year ended December 31,
1996 to $1.2 million, or 22.7% of total revenues in the corresponding period
of 1997. Gross margin percentage for computer hardware and supplies was
31.7% and 37.8% for the year ended December 31, 1996 and 1997, respectively.
CUSTOMER SUPPORT AND ELECTRONIC SERVICES. Customer support and
electronic services costs increased 22.3% from $981,000, or 25.0% of total
revenues for the year ended December 31, 1996 to $1.2 million, or 22.9% of
total revenues in the corresponding period of 1997. Customer support
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costs were 93.4% and 93.0%, and electronic services costs were 6.6% and 7.0%
of total customer support and electronic services costs for the year ended
December 31, 1996 and 1997, respectively.
Costs for customer support increased 21.8% from $917,000, or 23.3% of
total revenues for the year ended December 31, 1996 to $1.1 million or 21.3%
of total revenues in the corresponding period of 1997. The customer support
gross margin percentage increased from 47.8% for the year ended December 31,
1996 to 50.3% in the corresponding period of 1997 primarily due to
acquisitions.
Costs for electronic services increased 29.9% from $65,000 or 1.7% of
total revenues for the year ended December 31, 1996 to $84,000 or 1.6% of
total revenues in the corresponding period of 1997. The electronic services
gross margin percentage increased from 45.0% for the year ended December 31,
1996 to 58.1% in the corresponding period of 1997.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general, and administrative
expenses increased from $1.2 million, or 30.8% of total revenues, for the year
ended December 31, 1996 to $2.6 million, or 48.9% of total revenues in the
corresponding period of 1997. Of the $1.4 million increase, selling expenses,
corporate administration, and regional distribution channel expenses increased
approximately $300,000, $600,000, and $500,000, respectively. The increases
resulted from acquisitions and the costs associated with executing our plan for
growth.
PRODUCT DEVELOPMENT. Product development expenses increased from $287,000,
or 7.3% of total revenues for the year ended December 31, 1996, to $441,000, or
8.4% of total revenues in the corresponding period of 1997. The increase was due
to a focus on our new product offerings released in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased from $141,000, or 3.6% of total revenues for the year ended December
31, 1996 to $376,000, or 7.2% of total revenues in the corresponding period of
1997. Of these amounts, amortization expenses were zero for the year ended
December 31, 1996 and $292,000 in the corresponding period of 1997. The dollar
and percentage increases were due substantially to the additional non-cash
amortization of intangible assets purchased in connection with our acquisitions.
At December 31, 1997, we had intangible assets totaling $3.8 million with
accumulated amortization of $291,000.
INTEREST INCOME (EXPENSE), NET. Interest income (expense) changed from
$16,000 of income, or 0.4% of total revenues for the year ended December 31,
1996 to $20,000 of expense, or 0.4% of total revenues in the corresponding
period of 1997. The change in interest income (expense) was due to the
indebtedness incurred to finance our operations, as well as to complete our
acquisitions.
PROVISION (BENEFIT) FOR INCOME TAXES. An income tax provision of $64,000
was recorded for the year ended December 31, 1996, compared to a tax benefit of
$195,000 in the corresponding period of 1997. The tax benefit for the year ended
December 31, 1997 was recognized in connection with the pre-tax operating loss.
LIQUIDITY AND CAPITAL RESOURCES
Since 1996, we have financed our operations primarily through a combination
of indebtedness, capital leases and equity financings. Approximately 84.1% of
the consideration paid for our acquisitions was paid with our stock or stock
options. The balance of the consideration was promissory notes and cash.
In October 1999, we borrowed $3.0 million from Friedli Corporate Finance, an
entity controlled by one of our Directors. For a description of the terms of
this borrowing, please see "Certain Transactions and Relationships."
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In January 2000, we borrowed $700,000 from Friedli Corporate Finance, an
entity controlled by one of our Directors. For a description of the terms of
this borrowing, please see "Certain Transactions and Relationships."
In January 2000, we also borrowed $500,000 at an interest rate of 12% from
one of our vendors with a maturity date the earlier of ten days following the
completion of this offering or December 31, 2000.
At September 30, 1999, we had $1.2 million of cash and cash equivalents. At
September 30, 1999, we had $408,000 in capital leases primarily for computers
and office equipment, most of which we assumed in connection with acquisitions.
In addition, we had $4.5 million in promissory notes outstanding at
September 30, 1999. Of this amount, $3.7 million was assumed debt or promissory
notes issued in connection with acquisitions, and $300,000 was a loan from an
individual convertible into 40,000 shares of common stock at the election of the
holder. Interest rates on the promissory notes range from non-interest bearing
to 15%. Future minimum principal payments under debt and lease obligations
(capital and operating) for the balance of 1999, 2000, 2001 and 2002 are
$556,000, $2.0 million, $642,000 and $522,000 respectively. Approximately
$3.5 million of debt will be paid off with proceeds from this offering. The
remaining debt will remain outstanding due to its favorable terms, including
interest rates. Minimum principal payments after this offering are expected to
be $939,000, $550,000, $428,000 and $391,000 respectively for 2000 through 2003.
We have operated with negative working capital and with negative cash flow
primarily due to acquisition expenses, prior debt incurred by acquired companies
and the costs of building infrastructure and product development activities. For
the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999, net cash used for operating activities was $611,000,
$298,000 and $6.6 million, respectively. The net cash used for operating
activities was funded by $7.6 million of investment capital and net cash of
$4.2 million received from businesses acquired. This offering will eliminate our
negative working capital position, however, the negative cash flow from
operations is expected to continue until cross-selling of new products and
add-on services to our existing customer base produces positive cash flow.
Net cash used for investing activities for the years ended December 31, 1997
and 1998 was $499,000 and $1.4 million, respectively. Net cash provided by
investing activities for the nine months ended September 30, 1999 was
$3.9 million. During this 33-month period, approximately $520,000 was paid for
computers and office equipment used in our regional offices, $1.5 million was
invested in software for claims processing and $4.2 million was net cash
received from businesses acquired. During 1997, net cash paid for acquired
businesses was $228,000 compared to net cash received from acquired businesses
of $270,000 in 1998 and $4.2 million for the nine months ended September 30,
1999.
During 1997, net cash provided by financing activities was $1.3 million. A
small group of investors purchased $414,000 of common stock, and one investor
purchased 413,018 shares of Series A preferred stock for $1.1 million and
provided a $500,000 line of credit. The Series A preferred stock, subsequently
rolled into the Series A-1 preferred stock, is convertible into common stock on
the closing of this offering. We issued $166,000 in long-term debt and made
payments of $290,000 on long-term debt, which was primarily incurred in
connection with the four acquisitions completed in 1997. Also, one of the pooled
companies distributed $32,000 to its shareholders.
During 1998, net cash provided by financing activities was $1.4 million.
This consisted of $588,000 in proceeds from the issuance of common stock to four
investors, the issuance of $1.3 million in long-term debt and $433,000 for
payments of long-term debt. Substantially all of the $1.3 million in new debt
came from five private lenders, one of which is a principal stockholder.
For the nine months ended September 30, 1999, net cash provided by financing
activities was $3.4 million. This consisted of $636,000 in proceeds from
issuance of common stock, $374,000 in
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issuance of long-term debt and $3.0 million in proceeds from issuance of
preferred stock to a previous investor. This $3.0 million of additional
investment was combined with a previous investment of $1.2 million and the
conversion of a $500,000 fully drawn line of credit into the Series A-1
preferred stock convertible into common stock on the closing of this offering.
Payment of long-term debt totaled $620,000.
We believe that the net proceeds from this offering, together with other
available funds, will be sufficient to meet our capital requirements for the
next 12 months. We currently anticipate that from $6 million to $10 million of
the proceeds of this offering may be used for potential acquisitions. However,
while we continually evaluate acquisition opportunities, there can be no
assurance that any acquisitions will be completed or that any of the proceeds
will be used for acquisitions. Conversely, we may spend more than $10 million on
acquisitions if appropriate opportunities are available. We do not have any
binding understandings or agreements to acquire any companies, products or
technologies. In addition, we may need to finance acquisitions through a
combination of internally generated funds, if any, additional debt or equity
financing.
YEAR 2000
Our Windows-based, Internet-enabled products and most of our acquired legacy
systems are Year 2000 compliant. We have identified three of our practice
management legacy systems currently in operation that potentially have Year 2000
problems. These three products are being discontinued and in most instances have
been replaced with Year 2000 compliant software. Certain customers, however,
have not responded to notifications we have sent to inform them of the potential
impact to their systems. These customers have been informed that third party
software and/or computer hardware products may have potential Year 2000 problems
that may require upgrades and/or replacements. Such customers may not upgrade
their systems.
Our internal information systems including accounting, customer support and
tracking, reporting and communications utilize computer hardware and software
from several commercial suppliers. We have investigated the internal information
systems for Year 2000 compliance and have not identified any computer hardware
or software applications that require further modification. To date, we have not
incurred any material expenses associated with our efforts to become Year 2000
compliant and do not anticipate that any future costs associated with our Year
2000 remediation efforts will be material.
We have relationships with and to varying degrees are dependent on a large
number of third parties that supply information, goods and services to us. Our
business, results of operations and financial condition could be materially
adversely effected if any of the third parties with whom we have relationships
were to experience significant Year 2000 related problems. We have communicated
with our significant suppliers to evaluate their Year 2000 compliance plans and
states of readiness and to determine the extent to which our systems may be
affected by the failure of others to resolve their own Year 2000 issues.
However, we have not independently confirmed all information received from other
parties with respect to Year 2000 issues. Such other parties may not complete
their Year 2000 conversion in a timely fashion and may suffer Year 2000 business
disruptions.
The risk to us from Year 2000 problems exists primarily in three areas:
- potential warranty or other claims from our customers, which may result in
significant expense to us;
- failures of systems we use to run our business, which could disrupt our
business operations; and
- the potential for failures of our products due to Year 2000 problems
associated with products developed by other vendors and used in
conjunction with our products, which may require that we incur significant
unexpected expenses.
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RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities," issued in April 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 will be
effective for our fiscal year ending December 31, 1999. The adoption of SOP 98-5
is not expected to have a material impact on our financial statements.
Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting
for Derivative Instruments and Hedging Activities," will be effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 requires
companies to value derivative financial instruments, including those used for
hedging foreign currency exposures, at current market value with the impact of
any change in market value being charged against earnings in each period. This
statement is not expected to affect us as we currently does not engage or plan
to engage in derivative instruments or hedging activities.
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BUSINESS
THE COMPANY
VantageMed is a national provider of healthcare information systems and
services distributed to over 10,000 customer sites through a network of 15
regional offices. Our suite of software products and services automates
administrative, financial, clinical and management functions for physicians,
dentists, other healthcare providers and provider organizations. Our software
manages the patient data necessary to effectively integrate Internet-based
solutions with the functions performed by our systems. Because of our existing
relationships with our customers, we are uniquely positioned to manage their
transition from legacy products to our Internet-enabled products and services.
With the addition of Internet capabilities to our Windows-based products, we
will increase our customers' access to information and their ability to
communicate with numerous healthcare participants such as their patients,
providers, third-party insurance payers, managed care organizations, pharmacies,
and other ancillary service providers.
We have acquired 26 healthcare information systems companies. We plan to
strengthen our market position through the continued acquisition of established
healthcare information systems companies. For the nine months ended
September 30, 1999, 80.0% of our revenues were recurring, which we define as any
revenues derived from an existing or acquired customer after the initial
installation of the product, including revenues from sales of new products to
existing customers. To increase recurring revenues, we are expanding our service
offerings and migrating existing customers to our Windows-based,
Internet-enabled products and services.
Our installed customer base, software products and services, and Internet
strategy have positioned us to address the information needs of healthcare
providers through the development of an integrated technology solution.
INDUSTRY BACKGROUND
The healthcare industry is burdened with growing economic pressures,
inefficient communications and a lack of consistency among healthcare
information systems. Healthcare is further complicated by the need to manage
numerous relationships among healthcare participants and the information
requirements of managed care and other payers.
The Health Care Financing Administration estimates that healthcare
expenditures currently represent $1.2 trillion, or 14% of the U.S. economy.
Furthermore, these expenditures are expected to almost double to $2.2 trillion
by 2008 due to both rising healthcare costs and an aging population.
Inefficient, paper-intensive administrative processes are contributing to the
nation's escalating healthcare costs. This market dynamic has driven managed
care organizations and other third-party insurance payers to carefully evaluate
cost saving measures. For example, some payers are beginning to require
healthcare providers to submit reimbursement claims electronically. Manual
claims require more time and are significantly more expensive to prepare, file
and process than electronically submitted claims.
According to Faulkner & Gray, while the percentage of health claims
processed electronically rose nearly 9% in 1999, 57% of all claims submitted by
physicians are still processed manually. This implies significant market upside
for electronic healthcare transaction services. Overall, The Kennedy Group
projects that healthcare information technology expenditures in the physician
practice management, clinic, outpatient services and home health market will
grow from $5.5 billion in 2000 to $15.1 billion in 2005, a compound annual
growth rate of 22.4%.
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The following are several key factors affecting the market for healthcare
information systems:
MANAGED CARE. To control rising costs, the U.S. healthcare industry has
shifted away from traditional fee-for-service indemnity plans to various types
of managed care plans. This shift to managed care plans has increased the
economic pressure to contain costs and has shifted much of the financial risk of
delivering healthcare from traditional insurance companies and other third-party
payers to healthcare providers. Many healthcare providers have entered into
contracts with payers that involve complex reimbursement arrangements, resulting
in additional administrative tasks and an increase in the amount of information
exchanged. In order to succeed in this changing environment, healthcare
providers must operate their businesses more efficiently by streamlining the
flow and management of information, reducing operating costs, and improving cash
flow.
MARKET FRAGMENTATION. Both the healthcare information systems industry and
the market it serves are highly fragmented. Approximately 70% of doctors in the
U.S. practice in groups of fewer than 26 individuals. There are over 500
geographically dispersed healthcare information systems vendors serving
healthcare providers throughout the U.S., primarily on a regional basis. Over
the past decade, these companies have introduced and sold a number of software
products to the healthcare market. Most of these products have focused on
solving the basic administrative and financial requirements of healthcare
providers such as patient scheduling and billing. However, many have not
adequately kept pace with the rapidly changing economics of the healthcare
market and have limited functionality and integration capabilities.
DEPENDENCE ON EXISTING VENDOR RELATIONSHIPS. Our experience has
demonstrated that the economic pressures and demands of patient care limit the
ability of healthcare providers to experiment with and evaluate new information
systems. As a result, healthcare providers depend upon accessible, proven and
reliable suppliers of healthcare information systems.
NEED TO UPDATE TECHNOLOGY. The healthcare industry's current technology
infrastructure is characterized by numerous, incompatible and, in many cases,
outdated legacy systems. Many healthcare participants communicate via paper,
fax, and telephone, often resulting in errors and delays. We believe that these
inefficiencies lead to wasteful spending and have contributed to the rising cost
of healthcare.
THE VANTAGEMED SOLUTION
We offer integrated Windows-based, Internet-enabled healthcare information
systems that reduce the impact of growing economic pressures, administrative
burdens and increased information requirements now faced by healthcare providers
and physician organizations. Our products enable our customers to access and
process information more efficiently and reliably, reduce staff time, and more
effectively meet the challenges of healthcare cost containment. With our
established distribution network, we are well-positioned to take advantage of
the opportunities that result from the increasingly complex needs of the
healthcare industry.
Our objective is to expand our market share and increase our recurring
revenues in order to strengthen our position as one of the leading suppliers of
information systems and services to healthcare providers. We intend to increase
our revenues and market share through growth strategies that focus on:
- OFFERING WINDOWS-BASED, INTERNET-ENABLED PRODUCTS AND SERVICES. These
products and services are designed to meet the changing and expanding
needs of our customers and to enable them to meet the increasingly complex
demands of the healthcare market.
- OFFERING PRODUCT MIGRATION ALTERNATIVES. We enable our current and future
customers to move from their existing legacy technology products to our
Windows-based, Internet-enabled products and services.
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- STRENGTHENING OUR NATIONAL DISTRIBUTION NETWORK. Through the continued
acquisition of established healthcare information systems companies in
regional markets where we can gain critical mass, we are expanding our
customer base and broadening our market reach.
- CROSS-SELLING OUR PRODUCTS AND SERVICES TO EXISTING CUSTOMERS AND PURSUING
NEW CUSTOMERS. With over 10,000 customer sites, we have the ability to
generate significant growth by cross-selling additional products and
services, including ongoing maintenance support and electronic transaction
services, to our installed customer base. These services are important
sources of recurring revenues. We believe that our strong relationships
with our customers position us to be the vendor of choice within our
client base and to obtain access to new customers through referrals.
- FORMING INTERNET AFFILIATIONS. By leveraging the systems capabilities of
our Internet-enabled products, we intend to provide the primary interface
to the Internet for our customers. We have developed affiliations with
on-line drugstores, medical and office supply companies and an Internet
service provider. We intend to form additional affiliations to provide a
full range of services for clinical, administrative and electronic
commerce functions.
PRINCIPAL PRODUCTS
We classify our software products as either "Windows-based" or "legacy." Our
Windows-based products are the primary products currently offered to our new
customers and are the focus of our on-going product development efforts. Our
suite of Windows-based products includes Ridgemark, eMCee, eMCee Connect,
ChartKeeper, Therapist Helper and DentalMate. With the exception of DentalMate
and ChartKeeper, each of these products is Internet-enabled. Our Windows-based
products provide our customers with software designed to automate
administrative, financial, clinical and other practice management and managed
care functions. These products offer advanced functionality and are compatible
with the latest generation of operating systems and hardware platforms. These
products can accommodate from one to hundreds of healthcare providers and users.
As a result of our acquisitions, we support a number of legacy systems.
These systems operate on variations of UNIX or DOS-based platforms and generally
lack the most advanced features of our Windows-based products. We currently have
30 legacy products. Although we do not actively market our legacy products,
these systems provide on-going revenues derived from support services, software
and hardware upgrades, electronic transaction services and new system sales.
Approximately 59% of our customer sites use our Windows-based products, while
approximately 41% use one or more of our legacy products. We are in the process
of migrating customers from the legacy systems to our Windows-based products and
believe this represents a significant sales and marketing opportunity.
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<PAGE>
We have designed our products to enable our customers to easily transition
from their legacy systems to Windows-based products and services. The features,
functions and targeted customers of our Windows-based products and services are
described below.
<TABLE>
<CAPTION>
- --------------------- INTERNET- TYPE OF PRACTICE OR ORGANIZATION
PRODUCTS AND SERVICES ENABLED FEATURES AND FUNCTIONS PRIMARY CUSTOMER
<S> <C> <C> <C>
Ridgemark Yes Scheduling, billing, patient Primary and specialty
registration, electronic claims, medical practices.
reporting.
eMCee Yes Member tracking, patient Managed healthcare
eligibility and authorizations, organizations and physician
referral tracking, claims associations contracted with
adjudication, utilization third-party payers,
review, risk and contracting traditionally referred to as
analysis. Management Services
Organizations (MSOs),
Independent Physician
Associations (IPAs) and
Physician Hospital
Organizations (PHOs).
eMCee Connect Yes Internet access to member MSOs, IPAs and PHOs.
demographics, patient
eligibility and referrals,
authorization and claim payment
status.
ChartKeeper Under Electronic storage and tracking Medium to large medical
development of patient charts, transcription groups.
notes, document imaging,
security and authentication and
electronic chart distribution.
Therapist Helper Yes Patient registration, Psychologists and behavioral
scheduling, billing, managed health practitioners.
care tracking, electronic claims
and reporting. Palm
Pilot-enabled.
DentalMate Under Scheduling, billing, General dental practices.
development registration, electronic claims,
charting, digital camera and
x-ray.
</TABLE>
The Internet is emerging as a means of delivering management information
services to customers from off-site computer operation centers, known as an
Application Service Providers, or ASPs. Although our products are primarily
installed at customer sites, we intend to offer our customers the opportunity to
outsource the maintenance and operation of our products and services through an
ASP operated by us. Customers will be able to use our ASP for all or a portion
of their information technology and related business service needs. Our ASP
alternative will expand the type of information services we can offer our
customers. We already offer an ASP alternative over private communications
networks with our on-line service business. This experience, combined with the
capabilities of Internet-enabled products under development, will enable us to
quickly develop an Internet-based ASP.
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<PAGE>
OUR INTERNET STRATEGY
We believe that most of the clinical and financial problems facing
healthcare providers require solutions that integrate Internet functionality
with software systems that support the management of healthcare practices. Our
Internet strategy is to provide a full range of Windows-based, Internet-enabled
products and services that reduce inefficiencies and expand the quality and
scope of information exchanged between healthcare participants. This strategy is
designed to:
- link information systems in medical offices with third-party insurance
payers and other healthcare management organizations to improve the flow
of information;
- provide integrated Internet access for healthcare providers through our
suite of software products;
- enhance the value of information collected and managed by our customers;
- expand access to our information systems through our ASP;
- allow healthcare providers to deliver information and services to patients
over the Internet; and
- facilitate electronic commerce for both commercial and consumer use within
the healthcare delivery system.
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<PAGE>
As described in the following table, many clinical and administrative
functions are poorly automated and require manual processing. The following
table describes the Internet opportunities we are pursuing which will enable
healthcare providers to communicate interactively with their patients and
related healthcare entities through the Internet.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
<CAPTION>
- --------------------- CURRENT DELIVERY SERVICE PROBLEMS INTERNET STRATEGY VALUE-ADDED
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
CLINICAL FUNCTIONS
Prescription Ordering Paper and telephone Time consuming, E-mail or access Access to patient
accuracy, patient pharmacy order system education site and
satisfaction, drug improved accuracy
interaction
Patient Chart Handheld recorder Time consuming, labor Browser-based Wireless hand-held
Dictation with transcriber intensive recorder with browser
internet
transcription service
Laboratory Orders and Paper, fax or printer Time consuming, Access laboratory and Patient and hospital
Results errors, misplaced store data on patient system Internet
documents chart system access
Patient Education Paper Accuracy, manual Internet search and Query system database
storages, maintenance health-related web to identify patients
sites by disease,
prescriptions,
demographics, etc.
Doctor On-Call Telephone or paper Lack of familiarity Remote access to Access from hand-held
with patient patient chart or portable devices
- -----------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE FUNCTIONS
Patient Appointment Telephone or none Time consuming, Send e-mail to Attach patient
Reminder missed appointments patients through the education or visit
scheduling system as instructions and
a reminder of future forms; patient
appointments directed access to
the scheduler
Patient Billing and Mail Time consuming, Send e-mail with Enable consumer
Statements potential errors, billing statements to payment of
cash management patients from the outstanding bills via
delays billing system credit card
acceptance
Billing to Insurance Telephone, electronic Time consuming, data Access electronic Provide patient and
Companies or paper errors, patient claims clearinghouse; doctor access to
eligibility and access benefit claim status
benefits not verified systems to determine
benefit status
Insurance Remittance Check or paper Delays in payment and Receive electronic Electronically
Advice time consuming to file and post to receive and post
post payments accounts receivable funds
system
Verification of Telephone Ineligible patients Access benefit plans Verify through the
Patient Eligibility scheduled and before patient visit Internet at time of
and Benefits services are rendered appointment
without knowing
benefits
Authorization of Telephone, fax or Delays in patient Electronically send Automatic approval of
Additional Medical mail care, time consuming and receive standard
Services authorizations authorization
requests
- -----------------------------------------------------------------------------------------------------------------
ELECTRONIC COMMERCE AND OTHER FUNCTIONS
Prescription Refill Paper or telephone Time consuming, E-mail or access Access to patient
accuracy, and drug pharmacy order system education site
interaction
Medical Supplies Telephone or fax Time consuming, Access supplier Web Search for low cost
Ordering costly sites to order products, volume
supplies purchasing
opportunities
Office Supplies and Telephone or fax Time consuming and Access supplier web Search for low cost
Services costly sites to order products and volume
supplies purchases
</TABLE>
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<PAGE>
To build customer and patient confidence, we are developing a secure
Internet portal to provide confidentiality for information transferred between
the healthcare provider, the patient and related healthcare participants.
Through a log-on procedure, our secure portal will enable us to verify access
while introducing the user to other health-related sites ranging from
prescription ordering to patient education sources through the Internet.
The following diagram shows connections between our products and services
and our secure portal and also shows potential connections to external
Internet-based services. The top oval shows our Windows-based software products,
each of which contain, or will contain, Internet functions which could be
utilized through our secure portal. The middle oval shows services we are
currently able to provide through the Internet. The lower oval shows potential
connections to external Internet-based services which we hope to offer access to
in the future.
[INTERNET PORTAL DIAGRAM]
At the left center of the graphic is a circle overlaid with a picture of a
computer server. To the left of this circle is the caption, 'VantageMed Secure
Internet Portal.' Lines from the center circle link to three ellipses, arranged
around the center circle.
The top ellipse contains graphics of five computer monitors each connected
to the center circle by a line. From left to right, these monitors contain the
following captions: 'Ridgemark Medical Practice,' 'DentalMate Practice,'
'Therapist Helper Practice,' eMCee Managed Care,' and 'ChartKeeper Electronic
Charting.' Beneath these five monitors is the caption, 'Our Software Systems.
The center ellipse is positioned to the right of the circle and contains
four graphics each connected to the center circle by a line. The graphics and
their captions are as follows: (i) a graphic of a woman at a computer terminal
talking on the telephone with the caption, 'Software Support'; (ii) a graphic of
a document with a lightening bolt behind it and the caption, 'Electronic
Authorizations, Referrals, Claims, and Statements'; (iii) a graphic of a man
holding a personal digital assistant with the caption, 'Individual Provider Web
Sites'; and (iv) a graphic of three men working with a computer and the caption,
'Application Service Provider.' In the center left portion of the ellipse is the
caption, 'Our Internet Services.'
The bottom ellipse contains seven graphics each connected to the center
circle by a line. The graphics and their captions are as follows: (i) a graphic
of a nurse administering to a patient in a hospital bed with the caption,
'Hospitals and Ancillary Facilities'; (ii) a graphic of a man talking on a
telephone with the caption, 'Provider Remote Access'; (iii) a graphic of a
wheelchair with the caption, 'Medical Supplies and Equipment'; (iv) a graphic of
a pharmacist with the caption, 'Pharmacies'; (v) a graphic of a physician and a
medical chart with the caption, 'Healthcare Information and Education'; (vi) a
graphic of a man talking on a telephone with the caption, 'Transcription
Services'; and (vii) a graphic of a woman and children working with a computer
with the caption, 'Patient Home Access.' In the center of the ellipse is the
caption, 'Potential Internet Connections.'
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<PAGE>
ELECTRONIC SERVICES
Our products enable electronic data interchange, or EDI functions. EDI can
improve a healthcare practice's cash flow by enabling more cost-efficient
processing of patient statements, accurate and timely submission of claims to
third-party payers, and more rapid receipt of payer reimbursements. Our EDI
services currently include the following:
ELECTRONIC CLAIMS SUBMISSION. Electronically submits insurance claims from
practices to payers, either directly or through an independent national
clearinghouse.
ELECTRONIC PATIENT BILLING. Electronically submits patient billing
information from practices by dial-up modem to either our printing center or
to an independent national clearinghouse which processes, prints and mails
invoices and provides billing reports to the practice.
ELECTRONIC PAYMENT REMITTANCE. Electronically remits insurance payments and
automatically posts explanation of benefits into the practice management
system.
PATIENT INSURANCE VERIFICATION. Electronically accesses insurance and
managed care plans to determine a patient's eligibility and benefits.
We generate revenues by providing these electronic services on a per
transaction or flat monthly fee basis. With the implementation of our central
claims clearinghouse service, we have added nearly 400 customers in less than
one year who submit claims on a recurring basis and are charged transaction
and/or flat fees for these electronic services. We have started to convert our
customers to our internal clearinghouse service to improve the quality of
information, increase the level of customer service, and generate additional
revenues. We offer additional EDI services such as eligibility verification,
referral authorization, and claims status services through our Internet-enabled
product eMCee Connect.
SUPPORT SERVICES
We believe that customer satisfaction with support and services is critical
to our on-going success. The scope of our support services includes software and
hardware installation, training, software maintenance, data conversion, network
support and hardware maintenance. To achieve a higher level of customer
satisfaction, many of these services are performed at the customer's site. Our
technical service is organized by regional office, product, and practice
specialty. In addition to providing on-site training for certain of our product
lines, we maintain classroom-based training facilities in 10 locations
throughout the U.S. We publish periodic newsletters and sponsor user group
conferences. These forums provide the user with current information and provide
us with an opportunity to demonstrate new products.
We provide our customers with on-going software support and services under
monthly and annual agreements that typically have automatically renewable terms.
These agreements provide for help desk support, software maintenance, and remote
diagnostics. We plan to provide customer support and services through a wide
area voice and data network which enables automated call distribution of
customer calls from any location to the appropriate support person. As of
December 31, 1999, our customer service and support groups consisted of 198
employees, representing approximately 50% of our total employee base.
HARDWARE AND SUPPLIES
In many cases, the sale of our software products is combined with the sale
of hardware systems and installation services. In addition, because many medical
practices require additional hardware as their practices grow, we sell computers
and other peripherals as part of our product offerings. We typically receive
installation and on-going maintenance revenues as a result of these hardware
sales.
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<PAGE>
PRODUCT DEVELOPMENT
As of December 31, 1999, our product development organization consisted of
72 employees. We focus our product development efforts on improving the
functionality and performance of our Windows-based products and on developing
new products that operate on a common architecture. This common architecture,
based upon the latest Microsoft tools, gives our products the capability to
simultaneously operate on different systems such as standard desktop computers
or less sophisticated and lower cost workstations using standard Internet
browsers.
Our development teams are organized by product. Each product team has a
product manager, a project manager and various developers. Our quality assurance
and testing teams follow established guidelines in all phases of development.
Subject matter experts and analysts contribute to work flow design, content and
business rule development. A formalized process for software enhancement
requests provides feedback from end users and our sales teams. Project
management tools, project scheduling and distribution of technical and training
notes are managed through our corporate intranet.
PRIVACY ISSUES
Because our products and services are utilized to transmit and manage highly
sensitive and confidential medical information, we must address the security and
confidentiality concerns of our customers and of patients and consumers. To
enable the use of our products and services for the transmission of sensitive
and confidential medical information, we utilize advanced technology designed to
ensure a high degree of security. This technology includes:
- password security that requires a password to access our software;
- user access restrictions that allow our customers to determine the
individuals who will have access to data and what level of access such
individual will have;
- encryption of data transmitted over private networks, where we control
access to the network and public networks where use is shared with the
public, including over the Internet; and
- use of a mechanism for preventing outsiders from improperly accessing
private data resources on our network, commonly referred to as a
"firewall".
The level of data encryption utilized by our products is in compliance with the
encryption guidelines set forth in the federal Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"). We also encourage each of our customers to
implement their own firewall to protect the confidentiality of information being
transferred into and out of their computer network.
Internally, we work to ensure the safe handling of confidential data by
employees in our electronic services department by:
- providing each employee with an employee handbook explaining practices and
procedures for handling confidential medical information;
- monitoring employee activities to ensure compliance with the standards set
forth in our employee handbook;
- using individual user names and passwords for each employee handling
electronic data; and
- requiring employees who handle confidential data to sign confidentiality
agreements.
We monitor proposed regulations that might effect our software products and
services, in order to ensure that we are in compliance with such regulations
when and if they are affected.
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<PAGE>
SALES AND MARKETING STRATEGY
Although we are a national company, we manage our sales and marketing
efforts to serve our customers on both a regional and national basis. This
allows us to meet the unique needs and expectations of each customer. Organized
by specialty practice area and product line, the members of our sales force
focus on maintaining strong customer relationships within regional markets to
build recurring revenues. Within our existing customer base, we promote and sell
system upgrades, maintenance services, add-on software modules and electronic
data interchange services. Our sales force focuses on cross-selling to existing
customers as well as attracting new customers.
As a result of our acquisition strategy, we have acquired a number of
qualified sales personnel with strong experience and customer relationships in
the regions they serve. As of December 31, 1999, we had 47 sales and marketing
personnel, including national sales managers, regional sales specialists and
direct sales representatives.
ACQUISITION INTEGRATION
Our infrastructure has been designed to support the acquisition and
integration of targeted businesses. An acquisition team, which includes key
members of our management and technical staff, identifies acquisition targets,
performs due diligence investigations and negotiates the terms of each
acquisition. An integration team, which includes key operational personnel,
works with each acquired company to identify and complete the various
post-acquisition tasks of integration, including incorporation of desired
product features into our products and consolidation of administrative and
financial functions.
Operating systems and procedures are typically integrated within 30 days of
the close of an acquisition. We rapidly standardize the reporting of newly
acquired companies to minimize the time and expense associated with financial
integration.
As part of our integration process, we facilitate communications with
acquired businesses through our corporate intranet and software systems. Our
corporate intranet connects our regional offices and provides up-to-date and
complete information on our policies and procedures, product descriptions, and
administrative functions along with full e-mail and contact management.
We believe that our existing infrastructure and our integration practices
and procedures effectively position us to continue the acquisition of new
companies as such opportunities arise.
COMPETITION
The healthcare information systems market is highly competitive on both a
regional and a national level. We believe that the primary competitive factors
in this market are:
- service and support;
- price;
- product features, functionality and ease of use;
- ongoing product enhancements; and
- reputation and stability of the seller.
We believe that our principal competitive advantage stems from our offerings
of feature-rich products based on an open system architecture designed to meet
our customers' needs, our substantial installed customer base, our focus on
customer support and training programs and our network of offices.
Our principal competitors include practice management systems and Internet
companies. Industry competitors include organizations such as Medical Manager
Corporation, Physician Computer
42
<PAGE>
Network, Inc., Infocure Corporation, Medic Computer Systems, Inc., IDX Systems
Corporation, CyCare, a division of McKessonHBOC, Quality Systems, Inc., Dentrix
Dental Systems, Inc., and National Data Corporation. Additionally, within each
regional market there are several smaller competitors who have developed
technologically advanced niche products offered at lower prices. Finally, with
the integration of clinical information systems into practice management
systems, several well-funded pharmaceutical, medical supply and biotech
companies have entered the practice management systems market. Many of our
competitors have greater financial, development, technical, marketing and sales
resources than we do. These competitors may be able to respond more rapidly to
new or emerging technologies and changes in customer requirements than we can.
In addition, as the market for our products develops, additional competitors may
enter the market and competition may intensify, requiring us to lower the prices
of our products and services.
INTELLECTUAL PROPERTY
Our success is dependent, in part, on our ability to protect our proprietary
software and confidential information from unauthorized use and disclosure. We
rely on a combination of trade secrets, common law intellectual property rights,
license agreements, nondisclosure and other contractual provisions and technical
measures to establish and protect our proprietary rights in our intellectual
property and confidential information. We do not own any patents on our
products. Employees and technical consultants and contractors are required to
execute agreements with us providing for the confidentiality of information and
the assignment to us of all proprietary rights. The legal protections afforded
to us or the steps taken by us may not be adequate to prevent misappropriation
of our technology and confidential information. In addition, these protections
do not prevent independent third-party development of competitive products or
services. We believe that our proprietary rights do not infringe upon the
proprietary rights of third parties. However, third parties may assert
infringement claims against us in the future and any such assertion may require
us to enter into a license agreement or royalty arrangement with the party
asserting the claim. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect our confidential information or trade
secrets, or to determine the validity or scope of the rights of others.
Litigation could result in substantial costs and diversion of management and
other resources and could seriously harm our business.
GOVERNMENT REGULATION
The confidentiality of patient records and the circumstances under which
such information may be used or released are subject to substantial regulation
by state and federal laws and regulations. Regulations governing the electronic
transmission of patient medical information are evolving rapidly and are often
unclear and difficult to apply.
HIPAA was enacted on August 21, 1996 and required the Secretary of Health
and Human Services to adopt national standards for the transmission of certain
types of patient medical information and the data elements used in such
transmissions, and to adopt standards to ensure the integrity and
confidentiality of such information.
On November 3, 1999, the Secretary promulgated proposed regulations designed
to protect the privacy of electronically transmitted or maintained, individually
identifiable health information. We do not know if these regulations will be
adopted in their present form, a different form, or at all. However, if these
regulations are adopted, authorization may be required before identifiable
patient information could be electronically transmitted to third parties for any
purpose other than treatment, payment or health care operations which include
such activities as quality assessment, verification of a healthcare providers
credentials, insurance rating, peer review, fraud and abuse compliance review
and document production for use in civil or criminal legal proceedings. These
regulations also would require that we enter into agreements with certain of our
customers governing the dissemination of such information and would require that
holders or users of such information implement specified
43
<PAGE>
security measures. We continue to monitor HIPAA activity and are prepared to
incorporate any changes to our software products or our operations that are
necessary to ensure compliance.
The U.S. Food and Drug Administration (the "FDA") has jurisdiction under the
1976 Medical Device Amendments to the Federal Food, Drug, and Cosmetic Act to
regulate computer products and software as medical devices if they are intended
for use in the diagnosis, cure, mitigation, treatment or prevention of disease
in humans. We believe that our healthcare information systems products are not
medical devices currently subject to FDA regulation. However, FDA regulations
are constantly changing and the FDA may promulgate regulations, or interpret
current regulations in a way that would cover our products. In addition, we may
develop products that subject us to FDA regulation. Compliance with FDA
regulations could substantially increase our cost of doing business and may
limit the extent of our planned product development.
The Federal Drug Enforcement Agency has promulgated regulations that may
prohibit a pharmacy from the initial dispensing and/or refilling of certain
controlled substances through an electronically transmitted prescription. A
violation of these regulations may result in civil and criminal penalties. Such
regulations may limit the scope of our planned prescription ordering and refill
functions.
FACILITIES
We currently occupy approximately 13,500 square feet at our corporate
headquarters at 3017 Kilgore Road, Rancho Cordova, California. We also lease
space at each of our regional offices.
EMPLOYEES
As of December 31, 1999, we employed 397 persons, including 47 in sales and
marketing, 198 in customer support services, 72 in product development and 80 in
administration, finance and management. In order to augment our hiring of
ready-to-work skilled individuals, we utilize several programs to educate and
train our work force. None of our employees is represented by a labor union. We
have not experienced any work stoppages and consider relations with our
employees to be good.
LEGAL PROCEEDINGS
We are not currently party to any legal proceedings which would have a
material adverse effect on our business, results of operations or financial
condition.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
James L. Seiler(1)........................ 53 Chief Executive Officer and Chairman of
the Board
Joel M. Harris(1)......................... 44 President and Director
Richard W. Pendleton(1)................... 51 Senior Vice President--Mergers
and Acquisitions and Director
Thomas A. McCreery........................ 46 Chief Financial Officer
Larry W. LeGate........................... 57 Senior Vice President--Sales
Gregory F. Vap............................ 47 Senior Vice President--Operations
Peter Friedli(2)(3)....................... 41 Director
John R. Stevens(2)(3)..................... 78 Director
</TABLE>
- ------------------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Upon completion of this offering our Board of Directors will be divided into
three classes. Class I will consist of Messrs. Pendleton and Friedli, Class II
will consist of Messrs. Seiler and Stevens and Class III will consist of Mr.
Harris. See "Description of Capital Stock--Anti-takeover Provisions of the
Certificate of Incorporation and Bylaws."
JAMES L. SEILER has served as our Chief Executive Officer since our
acquisition of Mariner Systems, Inc. in August 1999 and became the Chairman of
our Board of Directors in January 2000. Prior to joining us, Mr. Seiler served
as President and Chief Executive Officer of Mariner Systems Inc., a managed care
software company, from September 1993 to August 1999, and also as Chairman of
the Board from November 1997 to August 1999. Before joining Mariner, Mr. Seiler
served first as Chief Financial Officer and then as President and Chief
Executive Officer of Destron/IDI, Inc., a public radio frequency technology
company. Mr. Seiler is a Certified Public Accountant and received a Bachelor of
Science degree in Accounting from the University of Akron.
JOEL M. HARRIS was a co-founder of VantageMed since May 1996 and has served
as our President since May 1997. Mr Harris also served concurrently as our Chief
Executive Officer from May 1997 through August 1999. From October 1994 through
April 1996, Mr. Harris served as Chief Operating Officer of Insurance Benefit
Spot Check, Inc., a provider of electronic data interchange services for
healthcare providers. Previously, Mr. Harris co-founded the Stratum Group, a
software development and consulting firm. Mr. Harris received a Bachelor of
Science degree in Business Administration from California State University,
Northridge.
RICHARD W. PENDLETON was a co-founder of VantageMed and served as Chairman
of the Board from our inception in April 1995 until January 2000. Mr. Pendleton
has also served concurrently as Senior Vice President--Mergers and Acquisitions
since April 1997. From October 1993 to February 1995, Mr. Pendleton served as
Senior Vice President and Director of Software Development for QuadraMed
Corporation, a healthcare information technology company. Prior to his work with
QuadraMed, Mr. Pendleton served as President of Coast Micro, Inc., a medical
software company, and founded and served as Chief Executive Officer of Cost
Containment Systems, Inc., a healthcare software company. Mr. Pendleton has also
held senior administrative positions at several medical centers. Mr. Pendleton
received a Master of Business Administration in Hospital Administration from the
University of
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<PAGE>
Chicago and a Bachelor of Science degree in Business Administration from the
University of Illinois--Chicago.
THOMAS A. MCCREERY joined VantageMed as our Chief Financial Officer in
August 1998. From September 1997 through July 1998, Mr. McCreery was an
independent consultant. From April 1997 to August 1997, Mr. McCreery served as
the Chief Financial Officer and negotiated the sale of Falcon Systems, a
computer storage systems company. From May 1989 through March 1997,
Mr. McCreery held a number of executive positions with several affiliates of
Wickland Oil Company, an international petroleum company. Mr. McCreery is a
certified public accountant and received a Master of Business Administration
from the University of Chicago and a Bachelor of Arts degree in Economics from
the University of California at Davis.
LARRY W. LEGATE was a co-founder of VantageMed and has served as our Senior
Vice President--Sales since inception in April 1995. Mr. LeGate also served as a
member of our Board of Directors from April 1997 through August 1999. From
January 1994 through June 1995, Mr. LeGate was the Senior Vice President of
Sales and Marketing for QuadraMed Corporation. Prior to joining QuadraMed,
Mr. LeGate served as Vice President of Sales and Customer Service for DATIS
Corporation, a database software products company. Mr. LeGate received a
Bachelor of Science degree in Architectural Engineering from Oklahoma State
University.
GREGORY F. VAP has served as our Senior Vice President--Operations since
December 1998 and served as our Senior Vice President from April 1998 through
December 1998. Prior to joining us, Mr. Vap founded Heathcare Information
Systems, Inc., a provider of medical practice management products, and served as
President and Chief Executive Officer from 1984 until our acquisition of
Healthcare Information Systems in April 1998. Mr. Vap received a Bachelor of
Science degree in Electronic Engineering from the Missouri Institute of
Technology.
PETER FRIEDLI has served as director of VantageMed since August 1999.
Mr. Friedli has been the principal of Friedli Corporate Finance, Inc., a venture
capital firm, since its inception in 1986. Prior to joining Friedli Corporate
Finance, Mr. Friedli worked as an international management consultant for
service and industrial companies in Europe and the U.S. Mr. Friedli has over a
decade of experience as an independent investment manager for venture capital
and has managed various venture investment companies in the U.S.
JOHN R. STEVENS has served as a director of VantageMed since May 1997. Since
1987, Mr. Stevens has served as the Chief Executive Officer and Chairman of the
Board of StellarNet, Inc., a software and communications company, which he
founded. Mr. Stevens received a Bachelor of Science degree in Military Science
from the University of Maryland.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by us
for the fiscal year ended December 31, 1998 and 1999 for our Chief Executive
Officer and our other four most highly compensated executive officers who were
serving as executive officers at the end of the last completed fiscal year and
whose total annual salary and bonus exceeded $100,000 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
------------------------------------ OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS(9) GRANTED(#) COMPENSATION
- ---------------------------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
James L. Seiler(1)........... 1998 $ -- $ -- -- --
Chief Executive Officer and 1999 50,000(2) 2,000 100,000 --
Chairman of the Board
Joel M. Harris(1)............ 1998 120,000(3) -- -- --
President and Director 1999 120,000(4) 3,000 -- --
Richard W. Pendleton......... 1998 120,000 -- -- --
Senior Vice President-- 1999 120,000(5) 2,000 -- --
Mergers and Acquisitions
and Director
Thomas A. McCreery(6)........ 1998 52,500 -- 66,666 --
Chief Financial Officer 1999 120,000 -- -- --
Gregory F. Vap(7)............ 1998 83,333 -- -- $7,689
Senior Vice President-- 1999 125,000(8) 2,083 -- --
Operations
</TABLE>
- ------------------------
(1) Mr. Harris served as our Chief Executive Officer until August 1999 at which
time James L. Seiler joined us as Chief Executive Officer. Mr. Harris
currently serves as our President.
(2) Includes $10,000 of compensation deferred until 2000 at the election of Mr.
Seiler. On an annual basis, Mr. Seiler's salary would have been $120,000.
(3) Includes $20,000 of compensation deferred until 1999 at the election of Mr.
Harris.
(4) Includes $15,000 of compensation deferred until 2000 at the election of Mr.
Harris.
(5) Includes $10,000 of compensation deferred until 2000 at the election of Mr.
Pendleton.
(6) Mr. McCreery became Chief Financial Officer on July 28, 1998. On an annual
basis, Mr. McCreery's salary would have been $120,000.
(7) Mr. Vap became Senior Vice President--Operations on May 1, 1998. On an
annual basis, Mr. Vap's salary would have been $125,000. The $7,689 in
"Other Compensation" was a one-time payment for benefits surrendered by
Mr. Vap upon his joining us.
(8) Includes $10,417 of compensation deferred until 2000 at the election of Mr.
Vap.
(9) All bonuses represent amounts earned on compensation deferred in 1999. These
bonuses were deferred until the completion of this offering at the election
of each recipient.
Ten members of our management team have elected to defer payment of salary
since December 1999 until the earlier of the completion of this offering or
June 30, 2000. As of December 31, 1999, aggregate deferred salaries payable was
$51,330. In addition, we are obligated to pay bonuses equal to 20% of the amount
deferred. We will pay these deferred salary and bonus amounts from the proceeds
of this offering.
47
<PAGE>
OPTION GRANTS IN FISCAL YEARS 1998 AND 1999
The following table sets forth option grants for the years ended
December 31, 1998 and 1999 to each of the Named Executive Officers who received
options:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK PRICE
TOTAL OPTIONS APPRECIATION
NUMBER OF GRANTED TO FOR OPTION TERM(3)
FISCAL SHARES UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME YEAR END OPTIONS GRANTED FISCAL YEAR(1) PRICE(2) DATE 5% 10%
- ---- -------- ----------------- -------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
James L. Seiler...... 1999 100,000 37% $11.10 8/06/09 $698,073 $1,769,054
Joel M. Harris....... -- -- -- -- -- -- --
Richard W.
Pendleton............ -- -- -- -- -- -- --
Thomas A. McCreery... 1998 38,333 21% $ 7.50 12/02/08 $180,807 $ 458,198
1998 13,333(4) 7% $ 7.50 12/02/08 $ 62,888 $ 159,370
1998 15,000(5) 8% $ 7.50 12/02/08 $ 70,751 $ 179,296
Gregory F. Vap....... -- -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Based on an aggregate of 178,037 options granted during fiscal year 1998 and
269,354 options granted during fiscal year 1999 to employees.
(2) The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined by the Board of
Directors after consideration of a number of factors, including, but not
limited to, VantageMed's financial performance, market conditions and; the
price and preferred rights and privileges of shares of equity securities
sold to or purchased by outside investors.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant, which is ten years. It is calculated assuming that the
fair market value of VantageMed's common stock on the date of grant
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last day
of its term for the appreciated stock price.
(4) 6,250 shares of Mr. McCreery's 13,333 share option will vest upon the close
of this offering.
(5) 833 shares of Mr. McCreery's 15,000 share option will vest upon the close of
this offering.
48
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999 AND FISCAL YEAR END 1999 OPTION
VALUES
The following table sets forth information concerning option exercises and
option holdings for the year ended December 31, 1999 with respect to the Named
Executive Officers. Except as set forth below, no options or stock appreciation
rights were exercised by any such individual during such year, and no stock
appreciation rights were outstanding on December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED ON VALUE --------------------------- ------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James L. Seiler....... 100,000(1) -- -- --
-- 36,321 -- $ 312,249(2) --
Joel M. Harris........ -- -- -- --
Richard W.
Pendleton........... -- -- -- --
Thomas A. McCreery.... 26,146 40,521 91,511(3) 141,824(3)
</TABLE>
- ------------------------
(1) These options are immediately exercisable and are subject to a repurchase
right held by VantageMed which lapses in equal monthly installments over a
period of 36 months. These options have an exercise price of $11.10 per
share, which price is not in-the-money based upon a fair market value equal
to an assumed offering price of $11.00 per share.
(2) Based on a fair market value equal to an assumed offering price of
$11.00 per share, less option exercise prices as follows: 10,508 of these
options have an exercise price of $6.28; 4,549 of these options have an
exercise price of $4.40 per share; and 21,264 of these options have an
exercise price of $0.06 per share.
(3) Based on a fair market value equal to an assumed offering price of
$11.00 per share, less the option exercise price of $7.50 payable for these
shares.
EMPLOYEE BENEFIT PLANS
1998 STOCK OPTION/STOCK ISSUANCE PLAN. 1998 Stock Option/Stock Issuance
Plan (the "1998 Plan") was adopted by our Board of Directors and approved by our
stockholders in May 1998, and most recently amended and restated by our Board of
Directors in November 1999, which amendment was approved by our stockholders in
January 2000. The 1998 Plan authorizes the grant of incentive and non-statutory
stock options and stock bonuses.
Effective upon the close of this offering, we will have a total of 1,000,000
shares of our common stock reserved for issuance under the 1998 Plan. This share
reserve will automatically increase on January 1(st) of each year, beginning
with calendar year 2001, by an amount equal to 5% of the total number of shares
of our common stock outstanding on December 31(st) of the prior year. As of
December 31, 1999, there were options to purchase a total of 548,122 shares of
our common stock outstanding under the 1998 Plan.
Our 1998 Plan includes two separate programs:
- The discretionary option grant program, under which eligible employees may
be granted options to purchase shares of our common stock at an exercise
price not less than the fair market value of those shares on the grant
date.
- The stock issuance program, under which eligible employees may be issued
shares of common stock directly, upon the attainment of performance
milestones or upon the completion of a period of service or as a bonus for
past services.
49
<PAGE>
The individuals eligible to participate in our 1998 Plan include our
officers and other employees, our directors and any consultants we hire. The
discretionary stock option grant and stock issuance programs are administered by
our Compensation Committee. This committee determines which eligible individuals
are to receive option grants or stock issuances under those programs, the time
or times when the grants or issuances are to be made, the number of shares
subject to each grant or issuance, the status of any granted option as either an
incentive stock option or a nonstatutory stock option under the federal tax
laws, the vesting schedule to be in effect for the option grant or stock
issuance and the maximum term for which any granted option is to remain
outstanding.
Our 1998 Plan provides that the exercise price for any options granted under
the 1998 Plan may be paid in cash or in shares of our common stock valued at
fair market value on the exercise date. Options may also be exercised through a
same-day sale program without any cash outlay by the option holder.
Our 1998 Plan includes the following change in control provisions, which may
result in the accelerated vesting of outstanding option grants and stock
issuances:
- In the event that we consummate a merger or asset sale of our company,
each outstanding option under the discretionary option grant program which
is not to be assumed by the successor corporation or substituted with a
substantially equivalent option, will immediately become exercisable
subject to repurchase rights with respect to those shares that we may
assign to the successor corporation.
- The Compensation Committee has complete discretion to grant one or more
options which will become fully vested and exercisable in the event those
options are assumed in an acquisition but the optionee's service with us
or the acquiring entity is subsequently terminated.
- The Compensation Committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with the consummation of a successful
tender offer for more than 50% of our outstanding voting stock. Such
accelerated vesting may occur either at the time of such transaction or
upon the subsequent termination of the individual's service.
The Board of Directors may amend or modify the 1998 Plan at any time,
subject to any required stockholder approval.
401(K) PLAN. Substantially all full-time employees are covered by a defined
contribution plan. Employees are permitted to defer up to 15% of their salaries.
No matching has occurred to date.
EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENTS
JAMES L. SEILER. We entered into an employment agreement with James L.
Seiler pursuant to which he is employed as our Chief Executive Officer. The
initial term of this employment agreement expires on August 1, 2002. This
employment agreement will continue on a month-to-month basis thereafter. Under
the terms of the employment agreement, Mr. Seiler is paid a monthly base salary
of $10,000, subject to increases as authorized by the Board of Directors and
subject to any company-wide compensation cap then in place. Mr. Seiler's salary
will be reviewed by the Board of Directors on February 1, 2000 and on
August 1(st) of each year thereafter to determine if an increase in salary is
appropriate. At no time shall Mr. Seiler be paid a base salary that is less than
the greater of $120,000 per annum; any compensation cap then in place; or the
base salary of our highest paid officer and/or employee. Our employment
agreement with Mr. Seiler can be terminated at any time by mutual agreement,
upon 100 days written notice on the part of Mr. Seiler, or immediately for
cause. The term "for cause" is defined to mean: an uncured material violation of
the terms of the employment agreement or proprietary information and inventions
agreement; a conviction or nonappealable judgment involving a claim of
dishonesty, willful misfeasance or nonfeasance of duty by Mr. Seiler intending
to injure or having the effect of injuring in some material fashion our
reputation, business or
50
<PAGE>
relationships; Mr. Seiler's conviction upon a felony charge; or Mr. Seiler's
willful or prolonged absence from work or his failure, neglect or refusal to
perform his duties. If, prior to the expiration of the agreement's initial three
year term, we terminate Mr. Seiler's employment without good cause or due to his
death, or if he terminates his employment for good cause, he will receive
monthly payments equal to his monthly base salary through the expiration of that
initial three year term and all options then held by him shall become
fully-vested and immediately exercisable. Mr. Seiler has agreed not to compete
with us for a period of one year following the cessation of his employment. In
connection with the signing of this employment agreement, Mr. Seiler was granted
an option to purchase 100,000 shares of our common stock.
THOMAS A. MCCREERY. We entered into an agreement with Thomas A. McCreery,
our Chief Financial Officer, pursuant to which we agreed to provide six months
notice of termination in the event of a change of control. This agreement is
described more fully under the heading "Certain Transactions and Relationships."
DIRECTOR COMPENSATION
The members of our Board of Directors currently do not receive compensation
for their services as Directors. Members of the Board of Directors are eligible
to receive option grants and stock issuances under the 1998 Plan although no
determination has been made as to the number of options, if any, each director
may be entitled to receive.
COMMITTEES OF THE BOARD OF DIRECTORS
We have the following special committees of our Board of Directors:
EXECUTIVE COMMITTEE. The Executive Committee is empowered to exercise all
authority of our Board of Directors except as limited by the Delaware General
Corporation Law. Under Delaware law, an executive committee may not approve,
adopt or recommend to stockholders actions required by Delaware law to be
approved by stockholders, or adopt, amend or repeal any bylaw of the
corporation. The Executive Committee consists of Richard W. Pendleton, James L.
Seiler and Joel M. Harris.
COMPENSATION COMMITTEE. The Compensation Committee is primarily responsible
for reviewing and approving our general compensation policies and setting
compensation levels for executive officers. The Compensation Committee also
administers and establishes the terms and conditions of all stock options
granted under the 1998 Plan. The Compensation Committee consists of Peter
Friedli and John R. Stevens.
AUDIT COMMITTEE. The Audit Committee is primarily responsible for approving
the services performed by our independent auditors, reviewing with the
independent auditors the scope and results of the audit engagement, monitoring
our financial policies and control procedures and reviewing and monitoring the
provisions of non-audit services performed by our auditors. The Audit Committee
consists of Peter Friedli and John R. Stevens.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Amended and Restated Certificate of Incorporation provides that our
directors shall not be personally liable to us or our shareholders, except
liability for:
- breach of the director's duty of loyalty;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
51
<PAGE>
- the unlawful payment of a dividend or unlawful stock purchase or
redemption; and
- any transaction from which the director derives an improper personal
benefit.
Our Amended and Restated Certificate of Incorporation and our Amended and
Restated Bylaws also provide that we shall indemnify our directors and officers
to the fullest extent permitted by the Delaware General Corporation Law. We have
also entered into indemnification agreements with each of our directors.
At present, there is no pending litigation or proceeding involving any of
our directors or officers where indemnification is required or permitted.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of our Board of Directors, formed
in September 1999 are Peter Friedli and John R. Stevens. Prior to September
1999, the functions of the Compensation Committee were performed by the Board of
Directors as a whole. Prior to the formation of the Compensation Committee,
Messrs. Seiler, Harris and Pendleton were involved in compensation decisions.
In October 1999, we borrowed $3.0 million from Friedli Corporate Finance at
an interest rate of 6%. Peter Friedli assisted us in securing this loan. In
connection with the borrowing of these funds we issued a secured convertible
promissory note which requires us to repay the principal sum of $3.0 million,
plus interest at an annual rate of 6%, by July 1, 2000. The outstanding
principal and any accrued interest on this note will be automatically converted
into shares of our common stock at a conversion ratio equal to 50% of the
initial price of shares of common stock sold in this offering. In addition, we
issued to Friedli Corporate Finance convertible promissory notes in the
principal amounts of $190,000 and $180,000, each due and payable on October 6,
2002. No interest accrues or is due on either of these notes. The $190,000 note
will be cancelled in the event that we sell shares of our common stock for an
initial price of greater than $21.00 per share. Upon the close of this offering
this promissory note will be convertible into 17,117 shares of our common stock,
at the option of the holder. The $180,000 was converted into 16,216 shares of
common stock in December 1999.
In exchange for the services rendered in securing this loan, we granted
Mr. Friedli a warrant to purchase 13,333 shares of our common stock at an
exercise price equal to 60% of the initial price of shares of our common stock
as sold in this offering. This warrant may be exercised at any time following
the completion of this offering and terminates on October 6, 2002.
In January 2000, we borrowed $700,000 from Friedli Corporate Finance. Peter
Friedli assisted us in securing this loan. In connection with the borrowing of
these funds we issued a secured promissory note which requires us to repay the
principal sum of $700,000 plus interest at an annual rate of 10% and a premium
payment equal to 7% of the outstanding principal amount of the note at the
earlier to occur of the completion of this offering or July 1, 2000.
We have entered into a consulting agreement with Friedli Corporate Finance
pursuant to which we agreed to pay Friedli Corporate Finance a $2,000 per month
consulting fee and to take action to support the election of Peter Friedli, the
principal of Friedli Corporate Finance, to our Board of Directors. In exchange,
Friedli Corporate Finance provides us with financial consulting services. We
charge the cost of the consulting arrangement to expense as the services are
used. This consulting agreement terminates on July 31, 2002 or upon 30 days
written notice by either party. If we terminate the consulting agreement without
cause, we must immediately pay Friedli Corporate Finance the full balance,
through July 31, 2002, owed under the consulting agreement.
In August 1999 we acquired Mariner Systems, Inc. In connection with this
acquisition, Mr. Seiler signed a three-year employment agreement whereby he
agreed to serve as our Chief Executive Officer.
52
<PAGE>
Mr. Seiler received 20,680 shares of our common stock in exchange for all of his
shares of Mariner Systems, Inc. and we assumed options held by Mr. Seiler which
entitle him to purchase an additional 36,321 shares of our common stock at a
weighted-average exercise price of $2.40. Upon the signing of his employment
agreement with us we granted Mr. Seiler an option to purchase an additional
100,000 shares of our common stock at an exercise price of $11.10 per share.
Venturetec, Inc., a shareholder in Mariner, became a principal stockholder of
our company and now owns 432,873 shares of our common stock. In addition, in
exchange for services rendered in connection with the acquisition of Mariner, we
issued one warrant to purchase 20,000 shares of our common stock and one warrant
to purchase 10,000 shares of our common stock to Pine, Inc., an entity
controlled by Friedli Corporate Finance, which is controlled by Peter Friedli.
Both of these warrants were issued at an exercise price of $11.10 per share. Mr.
Friedli, a principal with Venturetec, was a member of the Board of Directors of
Mariner and later became a member of our Board of Directors.
None of our executive officers serve on the Board of Directors or
Compensation Committee of any entity which has one or more executive officers
serving as a member of our Board of Directors or Compensation Committee.
53
<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
SERIES A PREFERRED STOCK
In July 1997, we issued 377,647 shares of our Series A preferred stock to
QuadraMed Corporation for an aggregate purchase price of $1.2 million. Prior to
the completion of the financing, QuadraMed issued us an unsecured convertible
bridge note in the amount of $125,000 at an interest rate of 8%, payable at the
earlier of October 1, 1997 or the close of the Series A financing. Therefore,
the $1.2 million consideration included the cancellation of the bridge note.
Pursuant to the terms of this transaction, we agreed that the $1.2 million
purchase price paid by QuadraMed entitled them to receive an aggregate of 10% of
our issued and outstanding shares of capital stock at the close of four
acquisitions then pending. Therefore, we agreed that upon the close of those
acquisitions, we would issue to QuadraMed, without payment of additional
consideration, that number of additional shares of Series A preferred stock
necessary to maintain such 10% ownership interest. Accordingly, upon the close
of the four acquisitions, we issued an additional 35,371 shares of Series A
preferred stock to QuadraMed, bringing their total holdings to 413,018 shares of
Series A preferred stock.
Richard Pendleton, our Senior Vice President-Mergers and Acquisitions, was
employed by QuadraMed from October 1993 through February 1995, prior to joining
us. Larry LeGate, our Senior Vice President-Sales, was employed by QuadraMed
from January 1994 through June 1995, prior to joining us.
CREDIT AGREEMENT WITH QUADRAMED CORPORATION
In July 1997 we entered into a credit agreement with QuadraMed Corporation
giving us the right to borrow an aggregate of $500,000 at an interest rate of
8%. We borrowed the entire $500,000 on this credit agreement and paid interest
on that amount monthly as it accrued. The $500,000 principal amount was repaid
and the credit facility terminated upon the closing of our sale of Series A-1
preferred stock to QuadraMed in January 1999.
SERIES A-1 PREFERRED STOCK
In January 1999, we issued 1,795,300 shares of our Series A-1 preferred
stock to QuadraMed Corporation for an aggregate purchase price of $3,500,000,
which included the repayment of the $500,000 balance on our credit facility with
QuadraMed and the exchange of 413,018 shares of Series A preferred stock held by
QuadraMed.
ACQUISITION OF HEALTHCARE INFORMATION SYSTEMS, INC.
In April 1998, we acquired all of the outstanding shares of Healthcare
Information Systems, Inc. In connection with this acquisition, Gregory F. Vap
joined us as Senior Vice President-Operations. Mr. Vap received 212,774 shares
of our common stock in exchange for all of his shares of Healthcare Information
Systems.
ACQUISITION OF MARINER SYSTEMS, INC.
In connection with the acquisition of Mariner Systems, Inc., James L. Seiler
signed a three-year employment agreement whereby he agreed to serve as our Chief
Executive Officer. The employment agreement is described more fully under the
heading "Management--Employment Agreements."
CONSULTING AGREEMENT WITH FREIDLI CORPORATE FINANCE
In connection with the acquisition of Mariner Systems, Inc., we entered into
a consulting agreement with Peter Friedli, now a member of our Board of
Directors. The consulting agreement is
54
<PAGE>
described more fully under the heading "Compensation Committee Interlocks and
Insider Participation."
FINANCING ARRANGEMENT WITH FRIEDLI CORPORATE FINANCE
In October 1999, we borrowed $3.0 million from Friedli Corporate Finance.
Peter Friedli assisted us in securing this loan. The financing arrangement is
described more fully under the heading "Management--Compensation Committee
Interlocks and Insider Participation."
SECURED PROMISSORY NOTE WITH FRIEDLI CORPORATE FINANCE
In January 2000, we borrowed $700,000 from Friedli Corporate Finance. Peter
Friedli assisted us in securing this loan. The promissory note is described more
fully under the heading, "Management--Compensation Committee Interlocks and
Insider Participation."
PROMISSORY NOTE FROM RICHARD PENDLETON
In July 1997, we issued a promissory note to Richard Pendleton, our Senior
Vice President-Mergers and Acquisitions, for $148,000 at an interest rate of
5.25%, payable on or before July 15, 2000. Accrued interest on this note can be
paid annually on July 15th of each year beginning July 15, 1998 or upon
repayment of the principal amount. Mr. Pendleton has elected to defer the
payment of interest on this note and has not paid any of the principal. As of
December 31, 1997, Mr. Pendleton owed a total of $148,000 on the note. As of
December 31, 1998 and 1999 the total balance due on the note was $155,770 and
$163,947, respectively.
CHANGE IN CONTROL AGREEMENT WITH THOMAS A. MCCREERY
In July 1998, we entered into an agreement with Thomas A. McCreery, our
Chief Financial Officer, pursuant to which we agreed to: pay Mr. McCreery a
bonus of $30,000 upon the completion of this offering; accelerate the vesting of
options to purchase 7,083 shares of our common stock upon the completion of this
offering; provide six months notice of termination upon a change of control; and
to enter into negotiations for a potential market adjustment to Mr. McCreery's
annual salary.
NON-EXCLUSIVE SOFTWARE LICENSE AGREEMENT WITH QUADRAMED CORPORATION
In December 1998, we entered into a non-exclusive software license agreement
with QuadraMed Corporation, one of our principal stockholders. Under the terms
of this agreement, QuadraMed granted us a royalty-free license to certain of
their software modules. The terms of this license allow us to: incorporate these
modules into our products; reproduce and distribute the software contained in
the modules; and make modifications, enhancements and improvements to one of the
modules, the Claimstar EDI module. As consideration for this software license
agreement, we paid QuadraMed an up-front fee of $1.5 million. We also agreed to
negotiate with QuadraMed for the grant to QuadraMed of a non-exclusive right to
use, reproduce, modify, sublicense and/or distribute any improvements we make to
the Claimstar EDI module. Throughout 1999 we worked with QuadraMed on joint
development efforts to improve the Claimstar EDI module, including activities in
the area of year 2000 compliance. Although we have not negotiated a license for
the rights to these improvements, we have shared the product of our joint
development efforts with QuadraMed.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to the beneficial ownership of our common stock as of December 31, 1999, except
as noted in the footnotes below, by:
- all persons who are beneficial owners of 5% or more of our common stock;
- each director;
- our Chief Executive Officer and the Named Executive Officers; and
- all directors and executive officers as a group.
The number of shares of common stock beneficially owned and the percentage
of shares beneficially owned prior to the offering are based on 4,362,260 shares
of common stock outstanding as of December 31, 1999. The percentage of shares
beneficially owned after the completion of the offering is based on 8,648,450
shares of common stock outstanding immediately following the completion of the
offering.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED(2)
----------------------
NUMBER OF BEFORE THE AFTER THE
NAME AND ADDRESS(1) SHARES OFFERING OFFERING
- ------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Peter Friedli(3)............................................ 1,151,246 23.1% 13.2%
QuadraMed Corporation(4).................................... 599,425 12.1% 6.9%
1003 W. Cutting Blvd., Ste. 2
Richmond, CA 94804
Friedli Corporate Finance(5)................................ 572,983 11.6 6.6
Freigustrasse #5
8002 Zurich, Switzerland
Venturetec, Inc.(6)......................................... 432,873 9.9% 5.0%
c/o Friedli Corporate Finance
Freigustrasse #5
8002 Zurich, Switzerland
Richard W. Pendleton........................................ 300,000 6.9% 3.5%
Gregory Vap................................................. 212,774 4.9% 2.5%
Joel M. Harris.............................................. 150,000 3.4% 1.7%
James L. Seiler(7).......................................... 73,669 1.7% *%
Thomas A. McCreery(8)....................................... 34,826 * *
John R. Stevens............................................. 16,667 * *
Executive officers and directors as a group (8 persons)..... 2,072,515 40.9% 23.6%
</TABLE>
- ------------------------
* Less than 1%
(1) Except as otherwise noted, the address of each person listed on the table is
c/o VantageMed Corporation, 3017 Kilgore Road, Suite 195, Rancho Cordova,
California 95670. Unless otherwise indicated, each of the stockholders has
sole voting and investment power with respect to the shares beneficially
owned, subject to community property laws, where applicable.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to such shares. All shares of common stock subject to options
or warrants currently exercisable or exercisable within 60 days
56
<PAGE>
after December 31, 1999, are deemed to be outstanding and to be beneficially
owned by the person holding such options or warrants for the purpose of
computing the number of shares beneficially owned and the percentage
ownership of such person, but are not deemed to be outstanding and to be
beneficially owned for the purpose of computing the percentage ownership of
any other person.
(3) Includes: (i) 43,333 shares issuable upon the exercise of warrants;
(ii) 17,127 shares issuable upon the conversion of secured promissory notes
held by Friedli Corporate Finance; (iii) 555,856 shares issuable at the
close of this offering upon the conversion of a secured convertible
promissory note held by Friedli Corporate Finance (assuming a public
offering price of $11.00 per share for the shares registered in this
offering and closing this offering on January 31, 2000); (iv) 432,873 shares
held by Venturetec, Inc.; and (v) 102,057 shares held by Pine, Inc.
Mr. Friedli is a control person of Venturetec, Pine and Friedli Corporate
Finance.
(4) Reflects the conversion of 1,795,300 shares of Series A-1 preferred stock
into an aggregate of 599,425 shares of common stock immediately prior to the
completion of this offering.
(5) Includes (i) 555,856 shares issuable at the close of this offering upon the
conversion of a secured convertible promissory note held by Friedli
Corporate Finance (assuming a public offering price of $11.00 per share for
the shares registered in this offering and closing this offering on
January 31, 2000); and (ii) 17,127 shares issuable upon the conversion of a
secured promissory note held by Friedli Corporate Finance. Peter Friedli, a
director of VantageMed, is a control person of Friedli Corporate Finance.
The shares referenced in this footnote are also included in the shares shown
as beneficially owned by Peter Friedli.
(6) Peter Friedli, a director of VantageMed, is control person of
Venturetec, Inc. The shares referenced in this footnote are also included in
the shares shown as beneficially owned by Peter Friedli.
(7) Includes 52,988 shares underlying options granted to Mr. Seiler which are
exercisable within 60 days of December 31, 1999.
(8) Consists of 34,826 shares underlying options granted to Mr. McCreery which
are exercisable within 60 days of December 31, 1999.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
After this offering, our authorized capital stock will consist of 20,000,000
shares of common stock and 5,000,000 shares of undesignated preferred stock. As
of December 31, 1999, there were an aggregate 4,362,260 shares of common stock
issued and outstanding held of record by 188 stockholders and 1,915,300 shares
of preferred stock issued and outstanding held of record by five stockholders.
After giving effect to this offering, there will be an aggregate of
8,648,450 shares of common stock outstanding and approximately 675,239 shares of
common stock issuable upon exercise of outstanding options and warrants and
conversion of notes, assuming an initial public offering price of $11.00 per
share and a closing date of this offering of January 31, 2000. There will be no
shares of preferred stock issued or outstanding.
COMMON STOCK
Holders of shares of common stock are entitled to one vote per share for the
election of directors and all matters to be submitted to a vote of the
stockholders. The holders of shares of common stock are entitled to share
ratably in such dividends as may be declared by the Board of Directors and paid
by us out of funds legally available therefor. In the event of our dissolution,
liquidation, or winding up, holders of shares of common stock are entitled to
share ratably in all assets remaining after payment of all liabilities and
liquidation preferences, if any. Holders of shares of common stock have no
preemptive, subscription, redemption, or conversion rights. The outstanding
shares of common stock are, and the shares of common stock to be issued by us in
connection with this offering will be, duly authorized, validly issued, fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the preferred stock in one
or more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting a series or the designation of
such series, without any further vote or action by our stockholders. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of delaying, deferring or preventing a change in control without further action
by the stockholders and may adversely affect the market price, and the voting
and other rights of the holders of common stock. The issuance of preferred stock
with voting and conversion rights may adversely affect the voting power of the
holders of common stock, including the loss of voting control to others. We have
no current plans to issue any shares of preferred stock.
ANTI-TAKEOVER PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Our Amended and Restated Certificate of Incorporation (the "Certificate")
and Restated Bylaws (the "Bylaws") which will become effective on completion of
the offering, contain provisions that could have the effect of making it more
difficult to effect an acquisition of us without the cooperation of our Board.
These provisions are summarized below:
CLASSIFIED BOARD Delaware law permits a corporation to establish in its
certificate of incorporation a "classified board," which typically consists of
two or more classes of directors with staggered terms of office. The Certificate
provides for a classified board of directors. The directors of the Company will
thereupon be divided into three classes. The directors in the first class (Class
I) will hold office until the first annual meeting of stockholders following the
completion of this offering; the directors in the second class (Class II) will
hold office until the second annual meeting of stockholders following the
completion of this offering; and the directors in the third class (Class III)
will hold office until the third
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annual meeting of stockholders following the completion of this offering (and,
in each case, until their successors are duly elected and qualified or until
their earlier resignation, removal from office or death). After each such
election, the directors in each such class will then serve in succeeding terms
of three years and until their successors are duly elected and qualified. As a
result, only one class of directors will be elected at each annual meeting of
stockholders, with the rest of the directors continuing to serve for their
respective terms.
Upon the classification of the Board, it would ordinarily require at least
two annual meetings for a majority of the voting stock to elect a majority of
the Board unless, prior to the end of such two years, stockholders were able to
(i) obtain the approval of the then-existing Board to increase the number of
authorized directors; (ii) amend the Certificate and the Bylaws providing for a
classified board of directors; (iii) cause the stockholders to amend the
Certificate and the Bylaws to increase the number of directors; (iv) remove, or
induce to resign, a sufficient number of directors; or (v) call a special
meeting and vote to remove directors and elect persons to fill the resulting
vacancies. The Certificate and Bylaws provide that directors can be removed only
with cause and with no less than the affirmative vote of the holders of a
majority of the voting power of all of the then outstanding shares of capital
stock entitled to vote generally in the election of directors.
The classification system of electing directors may tend to maintain the
incumbency of the Board because it generally makes it more difficult for
stockholders to change a majority of the directors. The Board believes that
classification will better enable the Board to protect the interests of
nontendering or minority stockholders in the event that another person, through
a tender offer or otherwise, should obtain a substantial amount of the Company's
shares. A classified board of directors also may contribute to continuity and
stability in leadership and policy.
NUMBER OF DIRECTORS. The number of our directors will be initially set at
five (5). The Certificate and Bylaws will, however, permit the Board to change
the authorized number of directors from time to time, without further
stockholder approval.
FILLING VACANCIES ON THE BOARD OF DIRECTORS. The Certificate and Bylaws
provide that a vacancy on the Board occurring during the course of the year may
be filled only by the remaining directors. Vacancies in the Board resulting from
removal by the stockholders may be filled by a majority of the directors then in
office, though less than a quorum. These provisions further provide that any
directors so appointed will serve for the remainder of the full term for which
elected and no decrease in the number of directors shall reduce the term of any
incumbent. Under Delaware law, however, if, at any time of filling any vacancy
or newly created directorship, the directors then in office constitute less than
a majority of the entire board of directors (as constituted immediately prior to
any such increase), the Delaware Court of Chancery may, under certain
circumstances, order an election to be held to fill any such vacancies or newly
created directorships or to replace the directors chosen by the directors then
in office.
AMENDMENT OF CHARTER. Under Delaware law, our charter may be amended if
such amendment is approved by the board of directors and by a majority of the
stockholders. In addition, if we were to have more than one class or series of
stock outstanding, amendments that would adversely affect the rights of any
class would require the vote of a majority of the shares of such class or
series.
The Certificate provides that the vote of two-thirds of all of the
outstanding shares of the capital stock entitled to vote is required to repeal
the provisions of the Certificate relating to:
(i) the elimination of the right of stockholders to act without a meeting;
(ii) the establishment of a classified board of directors, the terms of
office of the members of the board of directors and the exclusive right
of directors to change the number of authorized directors and to fill
vacancies on the board of directors;
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(iii) the authority of the Board and the stockholders to amend the Bylaws;
(iv) the elimination of directors' personal liability for monetary damages
arising from their negligence and gross negligence; and
(v) the percentage of our shares necessary to amend the Certificate.
These provisions would prevent the holder(s) of a majority, but less than
two-thirds of the combined voting power of our stock from circumventing any or
all of the foregoing provisions by amending the Certificate to remove or amend
one or more of them. This requirement may make the amendment or repeal of the
foregoing provisions more difficult even in circumstances where either or both
of (i) the Board or (ii) a majority of the stockholders believe such amendment
or repeal to be favorable to the interest of the stockholders.
AMENDMENT OF THE BYLAWS. Under Delaware law, a corporation may include
provisions in its certificate of incorporation that require a supermajority of
the stockholders to amend the Bylaws of the corporation. Our Certificate
provides that the affirmative vote of either two-thirds of the voting power of
all of the outstanding shares of capital stock or a majority of the Board is
required to approve amendments to the Bylaws. This provision is designed to
prevent a person who has acquired control of more than fifty percent (but less
than two-thirds) of the common stock of the Company from amending the Bylaws in
a way that limits the power of the Board to manage the Company. The disadvantage
of such a provision is that it may limit the ability of the stockholders to
adopt amendments to the Bylaws without the approval of the Board.
LIMITATION ON RIGHT OF STOCKHOLDERS TO ACT WITHOUT A MEETING. Delaware law
does not require that stockholders be allowed to act by written consent. The
Certificate provides that the Company's stockholders may act only at an annual
or special meeting. The Board believes that all stockholders should have the
opportunity to consider matters that may affect their rights, that the Board
should be able to give advance consideration to any such action, and that it is
therefore inappropriate for stockholders of a publicly-held company to take
action affecting a corporation and all its stockholders without a meeting. This
provision may make it more difficult for stockholders to take action opposed by
the Board and thus may deter persons from acquiring substantial stock positions
in us or making unsolicited takeover proposals. Action by written consent, under
some circumstances, may permit the taking of stockholder action opposed by the
Board more rapidly than would be possible if a meeting of a stockholders were
required.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND STOCKHOLDER PROPOSALS. The
Bylaws provide that, at an annual meeting of the stockholders, no matter
proposed by a stockholder will be considered unless a written notice of such
business is provided to not less than 120 days in advance of the anniversary of
the date on which our proxy statement was released to stockholders in connection
with the previous year's annual meeting of stockholders. Such notice must be
received by us not more than ten days following the date of notice of the annual
meeting. The notice must describe the proposed business and provide the
information regarding the proposal which we would be required to provide in a
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission if proxies for the proposal were being solicited by the Company.
These provisions are designed to prevent a hostile acquiror of our
securities from presenting proposals to the stockholders or nominating directors
without giving adequate notice to the Board, thereby permitting the Board to
consider and prepare a response to such proposals. These provisions do not give
the Board any power to approve or disapprove stockholder proposals. They may
have the effect, however, of precluding the consideration of such business at a
meeting if the procedures established are not followed.
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CALLING SPECIAL MEETINGS OF STOCKHOLDERS The Certificate and Bylaws provide
that special meetings of stockholders may be called only by the Board, Chairman
of the Board, President, Chief Executive Officer or holders of at least 20% of
our outstanding shares.
BLANK CHECK PREFERRED STOCK The Certificate authorizes the issuance of up
to 5,000,000 preferred stock. It further provides that the Board is entitled to
set the rights, preferences, privileges, and restrictions of such authorized and
unissued stock. By issuing preferred stock with particular rights, we may be
able to defer a hostile acquisition. For example, we may issue shares of
preferred stock with extraordinary voting rights or liquidation preferences to
make it more difficult for a hostile acquiror to gain control of us. Preferred
stock can also be used in connection with a rights plan, although we have no
current intention of adopting a rights plan.
AUTHORIZED COMMON STOCK We have authorized 20,000,000 shares of common
stock. The Board believes that this number of authorized shares of common stock
is desirable so that, as the need may arise, we will have more flexibility to
issue shares of common stock in connection with future opportunities for
expanding the business through investments or acquisitions, possible future
stock dividends or stock splits, and for other general corporate purposes. There
are no preemptive rights with respect to our common stock.
Authorized but unissued shares of our common stock may be issued at such
times, for such purposes and for such consideration as the Board may determine
to be appropriate without further authority from our stockholders, except as
otherwise required by applicable law. To the extent that the additional
authorized shares are issued in the future, they will decrease the existing
stockholders' percentage equity ownership, and depending upon the price at which
they are issued, they could be either dilutive or nondilutive to the then
existing stockholders.
The issuance of additional shares of common stock could also have the effect
of delaying or preventing a change in control of us without further action by
the stockholders. Shares of authorized and unissued common stock could (within
the limits imposed by applicable law) be issued in one or more transactions
which would make a change in control of us more difficult and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of common
stock, and such additional shares could be used to dilute the stock ownership or
voting rights of a person seeking to obtain control of the Company.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
As a corporation incorporated in the state of Delaware, we are subject to
Section 203 of the Delaware General Corporation Law ("Section 203"), which
regulates large accumulations of shares, including those made by tender offers.
Section 203 may have the effect of significantly delaying a purchaser's ability
to acquire the entire interest in us if such acquisition is not approved by the
Board. In general, Section 203 prevents an "Interested Stockholder" (defined
generally as a person with 15% or more of a corporation's outstanding voting
stock) from engaging in a "Business Combination" (defined below) with a Delaware
corporation for three years following the date such a person became an
Interested Stockholder. For purposes of Section 203, the term "Business
Combination" is defined broadly to include (i) mergers and certain other
transactions with or caused by the Interested Stockholder; (ii) sales or other
dispositions to the Interested Stockholder (except proportionately with the
corporation's other stockholders) of assets of the corporation or a subsidiary
equal to ten percent or more of the aggregate market value of the corporation's
consolidated assets or its outstanding stock; (iii) the issuance or transfer by
the corporation or a subsidiary of stock of the corporation or such subsidiary
to the Interested Stockholder (except for transfers in a conversion or exchange
or a pro rata distribution or certain other transactions, none of which increase
the Interested Stockholder's proportionate ownership of any class or series of
the corporation's or such subsidiary's stock); or (iv) receipt by the Interested
Stockholder (except proportionately as a stockholder), directly or indirectly,
of
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any loans, advances, guarantees, pledges or other financial benefits provided by
or through the corporation or a subsidiary.
The three-year moratorium imposed on Business Combinations by Section 203
does not apply if: (i) prior to the date on which a stockholder becomes an
Interested Stockholder, the Board approves either the Business Combination or
the transaction which resulted in the person becoming an Interested Stockholder;
(ii) the Interested Stockholder owns 85% of the corporation's voting stock upon
consummation of the transaction which made it an Interested Stockholder
(excluding from the 85% calculation shares owned by directors who are also
officers of the target corporation and shares held by employee stock plans which
do not permit employees to decide confidentially whether to accept a tender or
exchange offer): or (iii) on or after the date a person becomes an Interested
Stockholder, the Board approves the Business Combination and it is also approved
at a stockholder meeting by sixty-six and two-thirds percent (66-2/3%) of the
voting stock not owned by the Interested Stockholder.
Under Section 203, the restrictions described above do not apply if, among
other things, the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by Section 203. The Certificate
does not contain such a provision. The restrictions described above also do not
apply to certain Business Combinations proposed by an Interested Stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
Interested Stockholder during the previous three years or who became an
Interested Stockholder with the approval of a majority of the corporation's
directors.
LISTING
We have applied to have our common stock approved for quotation on The
Nasdaq National Market under the symbol VMDC.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of our common stock is American Stock
Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no market for our shares of common
stock. We can make no predictions as to the effect, if any, that sales of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of significant amounts of the common
stock in the public market, or the perception that such sales may occur, could
adversely affect prevailing market prices.
The number of shares outstanding after this offering is based on the number
of shares outstanding as of December 31, 1999. Of the 8,648,450 shares
outstanding upon completion of this offering, the 3,000,000 shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless they are purchased by one of our "affiliates"
as that term is defined in Rule 144 under the Securities Act (which sales would
be subject to certain limitations and restrictions described below). The
remaining 5,648,450 shares of common stock may be sold in the public market only
if registered or sold pursuant to an exemption from registration such as
Rules 144, 144(k) or 701 promulgated under the Securities Act.
Holders of 4,712,249 shares of our common stock, including all executive
officers and directors, have entered into lock-up agreements with the
representatives of the underwriters. See "Underwriting." As a result of
contractual restrictions and the provisions of Rules 144 and 701, additional
shares will be available for sale in the public market as follows: (i) 324,269
restricted shares will be eligible for immediate sale on the date of this
prospectus; (ii) 241,883 restricted shares will be eligible for sale 90 days
after the date of this prospectus under Rules 144 and 144(k) (iii) 1,548,461
restricted shares will be eligible for sale under Rule 144 and 1,464,032 will be
eligible for sale under Rule 144(k) 180 days after the date of this prospectus
upon expiration of lock-up agreements; and (iv) the remaining restricted shares
will be eligible for sale in the public market under Rules 144 and 144(k) at
various times after 180 days after the date of this prospectus. In addition, we
currently have 548,122 shares issuable upon exercise of outstanding options,
43,333 shares issuable upon exercise of outstanding warrants and 83,784 shares
issuable on conversion of outstanding convertible notes at the option of the
holder. These shares, if issued, will be available for sale in the public market
at various times following completion of this offering under Rules 144, 144(k)
and 701.
After the completion of this offering, we intend to file a Registration
Statement on Form S-8 under the Securities Act to register the 1,000,000 shares
of common stock reserved for issuance under the 1998 Stock Option/Stock Issuance
Plan. Such registration statement will automatically become effective
immediately upon filing. Any shares issued upon the exercise of stock options
will be eligible for immediate public sale, subject to the lock-up agreements
noted above.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least one year is entitled to sell in
"brokers' transactions" or to market makers, within any three-month period a
number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock outstanding (approximately
86,484 shares immediately after this offering); or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the required
filing of a Form 144 with respect to such sale.
Sales under Rule 144 are subject to the availability of current public
information about us.
Under Rule 144(k), a person, or persons whose shares are aggregated, who is
not deemed to have been our affiliate at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years (including the holding period of any prior owner except an affiliate),
is entitled to sell such shares without having to comply with the manner of
sale,
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public information, volume limitation, or notice filing provisions of Rule 144.
Unless otherwise restricted or subject to a lock-up agreement, such "144(k)
shares" may therefore be sold immediately upon the completion of this offering.
The lock-up agreements generally provide that stockholders executing such an
agreement will not offer, pledge, sell, offer to sell, contract to sell, sell
any option or contract to purchase, purchase any option to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any of the shares of common stock or any securities
convertible into, or exercisable or exchangeable for, common stock owned by
them, or enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the common
stock, for a period of 180 days after the date of this prospectus, without the
prior written consent of Advest, Inc. Transfers may be made earlier:
- as a bona fide gift or gifts, provided the donee or donees agree in
writing to be bound by this restriction;
- as a distribution to partners, stockholders or beneficiaries of the
transferor, provided that the distributees agree in writing to be bound by
the terms of this restriction;
- with respect to dispositions or purchases of common stock acquired on the
open market; or
- with the prior written consent of Advest, Inc.
Advest, Inc. may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements.
Advest, Inc. currently does not intend to release any of the securities subject
to lock-up agreements. If Advest, Inc. releases any securities subject to
lock-up agreements it will not provide any notice of such release. When
determining whether or not to release shares from the lock-up agreements,
Advest, Inc. will consider, among other factors, the stockholder's reasons for
requesting the release, the number of shares for which the release is being
requested and market conditions at the time.
Following the offering, under specified circumstances and subject to
customary conditions, Messrs. Friedli, Seiler and Vap and certain other
stockholders will have rights with respect to 3,074,518 shares of common stock,
subject to the 180-day lock-up arrangement described above, to require us to
register their shares of common stock under the Securities Act, and will have
rights to participate in future registrations of securities by us.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, except we
may issue, and grant options to purchase, shares of common stock under the 1998
Stock Option/Stock Issuance Plan.
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UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement,
the underwriters named below through their representatives, Advest, Inc., and
J.C. Bradford & Co., have severally agreed to purchase from us, the following
respective numbers of shares of common stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Advest, Inc..............................................
J.C. Bradford & Co.......................................
Total..................................................
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will
purchase all shares of the common stock offered hereby if any of such shares are
purchased.
We have been advised by the representatives of the underwriters that the
underwriters propose to offer the shares of common stock to the public at the
initial public offering price set forth on the cover page of this prospectus and
to certain dealers at such price less a concession not in excess of $ per
share. The underwriters may allow, and such dealers may allow, a concession not
in excess of $ per share to certain other dealers. After the initial public
offering, the offering price and other selling terms may be changed by the
representatives.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 450,000 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. To the
extent that the underwriters exercise such option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
that the number of shares of common stock to be purchased by it shown in the
above table bears to 3,000,000, and we will be obligated, pursuant to the
option, to sell such shares to the underwriters. The underwriters may exercise
such option only to cover over-allotments made in connection with the sale of
common stock offered hereby. If purchased, the underwriters will offer such
additional shares on the same terms as those on which the 3,000,000 shares are
being offered.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.
<TABLE>
<CAPTION>
NO FULL
EXERCISE EXERCISE
--------------- ---------------
<S> <C> <C>
Per Share............................................. $ $
Total................................................. $ $
</TABLE>
The underwriters will offer the shares, including the shares from the
over-allotment option if it is exercised, on a firm commitment basis.
Advest, Inc. expects to deliver the shares of common stock to purchasers on
, 2000.
We have agreed to indemnify the underwriters and their contracting persons
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
We and our officers, directors and stockholders holding in the aggregate
approximately shares of common stock, have agreed, subject to certain
exceptions, not to offer, sell or otherwise dispose of any shares of common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of Advest, Inc. When determining whether to release shares
from the
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lock-up agreements, Advest, Inc. may consider, among other factors, market
conditions at the time, the number of shares for which the release is requested
and the shareholder's reasons for requesting the release. Advest, Inc. currently
does not intend to release any of the securities subject to lock-up agreements.
If Advest, Inc. releases any securities subject to lock-up agreements it will
not provide any notice of such release.
We have requested that the underwriters reserve up to 5% of the shares of
common stock for sale at the initial public offering price to directors,
officers, employees and other persons designated by us.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thereby creating a
short position in the common stock for their own account. Additionally, to cover
such over-allotments or to stabilize the market price of the common stock, the
underwriters may bid for, and purchase, shares of the common stock in the open
market. Finally, the representatives, on behalf of the underwriters, also may
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of the common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the common stock will
be determined by negotiations among us and the representatives of the
underwriters. Among the factors to be considered in such negotiations will be:
- prevailing market conditions;
- our results of operations in recent periods;
- the market capitalizations and stages of development of other companies
that we and the representatives of the underwriters believe to be
comparable to us;
- estimates of our business potential; and
- the present state of our development and other factors deemed relevant.
LEGAL MATTERS
The validity of the issuance of the shares of the common stock offered
hereby will be passed upon for us by Gray Cary Ware & Freidenrich LLP,
Sacramento, California and certain matters will be passed upon for the
underwriters by McDermott, Will & Emery.
EXPERTS
The audited financial statements and schedules included in this prospectus
and elsewhere in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, Washington, D.C. 20549, under the Securities Act
a Registration Statement on Form S-1 relating to the common stock offered. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to us and the common stock
offered hereby, reference is made to the registration statement. Statements made
in this prospectus as to the contents of any contract, agreement, or other
document are not necessarily complete and in each instance, reference is made to
the copy of such contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference. The registration statement and the exhibits and schedules
thereto may be inspected without charge at the public reference facilities
maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices of the Commission: Seven World
Trade Center, Room 1400, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, at
prescribed rates. In addition, we are required to file electronic versions of
these documents with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a
World Wide Web Site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
We intend to make available to our stockholders annual reports containing
financial statements audited by an independent public accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
67
<PAGE>
VANTAGEMED CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
VANTAGEMED CORPORATION
Report of Independent Public Accountants.................. F-4
Consolidated Balance Sheets............................... F-5
Consolidated Statements of Operations..................... F-6
Consolidated Statements of Stockholders' Equity........... F-7
Consolidated Statements of Cash Flows..................... F-8
Notes to Consolidated Financial Statements................ F-9
Unaudited Consolidated Balance Sheet as of September 30,
1999.................................................... F-32
Unaudited Consolidated Statements of Operations for the
nine months ended September 30, 1998 and 1999........... F-33
Unaudited Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1999........... F-34
Notes to Unaudited Consolidated Financial Statements...... F-35
ATEK COMPUTER DISTRIBUTORS, INC.
Report of Independent Public Accountants.................. F-39
Balance Sheets............................................ F-40
Statements of Operations.................................. F-41
Statements of Stockholders' Deficit....................... F-41
Statements of Cash Flows.................................. F-42
Notes to Financial Statements*............................ F-43
BRAND SOFTWARE, INC.
Report of Independent Public Accountants.................. F-48
Balance Sheets............................................ F-49
Statements of Operations.................................. F-50
Statements of Stockholders' Deficit....................... F-51
Statements of Cash Flows.................................. F-52
Notes to Financial Statements*............................ F-53
CIVITEC HEALTHCARE COMPUTERS, INC.
Report of Independent Public Accountants.................. F-59
Balance Sheet............................................. F-60
Statement of Operations................................... F-61
Statement of Changes in Stockholders' Deficit............. F-62
Statement of Cash Flows................................... F-63
Notes to Financial Statements*............................ F-64
CM HEALTHCARE TECHNOLOGIES, INC.
Report of Independent Public Accountants.................. F-68
Balance Sheets............................................ F-69
Statements of Operations.................................. F-70
Statements of Cash Flows.................................. F-71
Statements of Stockholders' Deficit....................... F-72
Notes to Financial Statements*............................ F-73
COMPUTERIZED DOCTORS SYSTEMS, INC
Report of Independent Public Accountants.................. F-77
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Balance Sheet............................................. F-78
Statement of Income and Retained Earnings................. F-79
Statement of Cash Flows................................... F-80
Notes to Financial Statements*............................ F-81
CSS, INC.
Report of Independent Public Accountants.................. F-85
Balance Sheet............................................. F-86
Statement of Income....................................... F-87
Statement of Shareholders' Equity......................... F-88
Statement of Cash Flows................................... F-88
Notes to Financial Statements*............................ F-89
DATA DECISIONS, INC.
Report of Independent Public Accountants.................. F-92
Balance Sheets............................................ F-93
Statements of Operations.................................. F-94
Statements of Stockholders' Deficit....................... F-95
Statements of Cash Flows.................................. F-96
Notes to Financial Statements*............................ F-97
MARINER SYSTEMS, INC.
Report of Independent Public Accountants.................. F-102
Balance Sheets............................................ F-103
Statements of Operations.................................. F-104
Statements of Shareholders' Equity........................ F-105
Statements of Cash Flows.................................. F-106
Notes to Financial Statements*............................ F-107
MEDICAL DIGITAL TECHNOLOGIES, INC.
Report of Independent Public Accountants.................. F-118
Balance Sheet............................................. F-119
Statement of Income....................................... F-120
Statement of Stockholders' Equity (Deficit)............... F-121
Statement of Cash Flows................................... F-122
Notes to Financial Statements*............................ F-123
MEDICAL SOFTWARE SOLUTIONS, INC.
Report of Independent Public Accountants.................. F-127
Balance Sheet............................................. F-128
Statement of Operations................................... F-129
Statement of Changes in Stockholders' Equity.............. F-130
Statement of Cash Flows................................... F-131
Notes to Financial Statements*............................ F-132
Unaudited Balance Sheet as of April 30, 1999.............. F-136
Unaudited Statements of Operations for the three months
ended April 30, 1999 and 1998........................... F-137
Unaudited Statements of Cash Flows for the three months
ended April 30, 1999 and 1998........................... F-138
Notes to Condensed Financial Statements................... F-139
MEDICOM CORPORATION
Report of Independent Public Accountants.................. F-140
Balance Sheets............................................ F-141
Statements of Operations.................................. F-142
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C>
Statements of Changes in Stockholders' Equity............. F-143
Statements of Cash Flows.................................. F-144
Notes to Financial Statements*............................ F-145
TREND SIERRA
Report of Independent Public Accountants.................. F-149
Balance Sheets............................................ F-150
Statements of Operations.................................. F-151
Statements of Owners Deficit.............................. F-152
Statements of Cash Flows.................................. F-153
Notes to Financial Statements*............................ F-154
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Basis of Presentation..................................... F-156
Pro Forma Consolidated Balance Sheet...................... F-158
Pro Forma Consolidated Statement of Operations for the
year ended December 31, 1998............................ F-159
Pro Forma Consolidated Statement of Operations
for the nine months ended September 30, 1999............ F-160
Notes to Pro Forma Consolidated Financial Statements...... F-161
*The notes to the financial statements of Atek Computer
Distributors, Inc., Brand Software, Inc., Civitec
Healthcare Computers, Inc., CM Healthcare
Technologies, Inc., Computerized Doctors
Systems, Inc., CSS, Inc., Data Decisions, Inc., Mariner
Systems, Inc., Medical Digital Technologies, Inc.,
Medical Software Solutions, Inc., Medicom Corporation
and Trend Sierra reflect the effect of the one-to-three
reverse stock split which has been reflected in the
consolidated financial statements of VantageMed
Corporation.
</TABLE>
F-3
<PAGE>
After the reverse stock split discussed in note 16 to VantageMed
Corporation's consolidated financial statements is effected, we expect to be in
a position to render the following report.
November 8, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To VantageMed Corporation:
We have audited the accompanying consolidated balance sheets of VANTAGEMED
CORPORATION (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1998 and June 30, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998 and the six months ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VantageMed Corporation and
subsidiaries as of December 31, 1997 and 1998 and June 30, 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998 and the six months ended June 30, 1999, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Sacramento, California
November , 1999
F-4
<PAGE>
VANTAGEMED CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 680 $ 435 $ 192
Accounts receivable, net of allowance of $68, $311 and
$231, respectively...................................... 731 1,206 1,671
Inventories............................................... 50 105 114
Prepaid expenses and other................................ 67 103 241
------ ------- -------
Total current assets................................ 1,528 1,849 2,218
PROPERTY AND EQUIPMENT, net................................. 196 2,232 2,170
INTANGIBLES, net of accumulated amortization of $291, $1,597
and $2,611, respectively.................................. 3,441 7,286 10,978
------ ------- -------
Total assets........................................ $5,165 $11,367 $15,366
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Book overdraft............................................ $ -- $ 1,632 $ --
Current portion of long-term debt......................... 283 1,510 1,874
Accounts payable.......................................... 162 886 1,679
Accrued liabilities....................................... 281 858 1,456
Customer deposits and deferred revenue.................... 696 1,526 1,870
------ ------- -------
Total current liabilities........................... 1,422 6,412 6,879
LONG-TERM DEBT, net of current portion...................... 1,501 1,721 1,639
------ ------- -------
Total liabilities................................... 2,923 8,133 8,518
------ ------- -------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 14)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 5,000,000 shares
authorized
Series A-1--413,018, 413,018 and 1,795,300 shares issued
and outstanding, respectively (aggregate liquidation
preference of $4,722 at June 30, 1999)................ -- -- 2
Series B--0, 100,000 and 100,000 shares issued and
outstanding, respectively (aggregate liquidation
preference of $1,000 at June 30, 1999)................ -- -- --
Common stock, $0.001 par value, 20,000,000 shares
authorized; 1,819,299, 2,405,996 and 2,706,315 shares
issued and outstanding, respectively.................... 2 2 3
Additional paid-in capital................................ 2,507 7,494 13,809
Accumulated deficit....................................... (267) (4,262) (6,966)
------ ------- -------
Total stockholders' equity.......................... 2,242 3,234 6,848
------ ------- -------
Total liabilities and stockholders' equity.......... $5,165 $11,367 $15,366
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
VANTAGEMED CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------ -------------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Software and systems............. $ 2,056 $ 2,800 $ 3,943 $ 1,596 $ 3,162
Customer support and electronic
services....................... 1,874 2,448 5,430 2,035 4,062
---------- ---------- ---------- ---------- ----------
Total revenues................. 3,930 5,248 9,373 3,631 7,224
---------- ---------- ---------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Software and systems............. 1,181 1,274 2,146 870 1,648
Customer support and electronic
services....................... 981 1,200 3,606 1,374 2,781
Selling, general and
administrative................. 1,209 2,566 4,706 1,767 3,371
Product development.............. 287 441 1,500 598 1,560
Depreciation and amortization.... 141 376 1,472 574 1,405
---------- ---------- ---------- ---------- ----------
Total operating costs and
expenses..................... 3,799 5,857 13,430 5,183 10,765
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS...... 131 (609) (4,057) (1,552) (3,541)
---------- ---------- ---------- ---------- ----------
INTEREST INCOME (EXPENSE):
Interest income.................. 19 27 45 27 12
Interest expense................. (3) (47) (252) (118) (307)
---------- ---------- ---------- ---------- ----------
Total interest income
(expense).................... 16 (20) (207) (91) (295)
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES............................ 147 (629) (4,264) (1,643) (3,836)
PROVISION (BENEFIT) FOR INCOME
TAXES............................ 64 (195) (343) (120) (1,132)
---------- ---------- ---------- ---------- ----------
Net income (loss).............. $ 83 $ (434) $ (3,921) $ (1,523) $ (2,704)
========== ========== ========== ========== ==========
Basic and diluted earnings (loss)
per share........................ $ 0.07 $ (0.27) $ (1.82) $ (0.76) $ (1.07)
========== ========== ========== ========== ==========
Weighted-average shares--basic..... 1,254,854 1,620,245 2,158,314 2,009,477 2,520,789
========== ========== ========== ========== ==========
Weighted-average shares--diluted... 1,271,854 1,620,245 2,158,314 2,009,477 2,520,789
========== ========== ========== ========== ==========
Pro forma basic and diluted loss
per share........................ $ (1.67) $ (.84)
========== ==========
Pro forma weighted-average shares--
basic and diluted................ 2,341,943 3,229,306
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
VANTAGEMED CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------------------------
SERIES A-1 SERIES B COMMON STOCK
---------------------- -------------------- ---------------------- ADDITIONAL
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL
--------- ---------- -------- --------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995....... -- $ -- -- $ -- 952,729 $ 1 $ 66
Issuance of common stock to
founders....................... -- -- -- -- 513,943 1 --
Issuance of common stock......... -- -- -- -- 14,367 -- 26
Net income....................... -- -- -- -- -- -- --
--------- ---------- ------- --------- --------- ---------- -------
BALANCE AT DECEMBER 31, 1996....... -- $ -- -- $ -- 1,481,039 $ 2 $ 92
Issuance of common stock to
founders....................... -- -- -- -- 10,000 -- --
Issuance of common stock......... -- -- -- -- 134,773 -- 414
Issuance of common stock in
connection with acquisition.... -- -- -- -- 193,487 -- 801
Issuance of Series A preferred
stock.......................... 413,018 -- -- -- -- -- 1,200
Distribution to shareholders of
NHS............................ -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
--------- ---------- ------- --------- --------- ---------- -------
BALANCE AT DECEMBER 31, 1997....... 413,018 $ -- -- $ -- 1,819,299 $ 2 $ 2,507
Issuance of common stock......... -- -- -- -- 111,753 -- 838
Issuance of common stock in
connection with acquisitions... -- -- -- -- 474,944 -- 3,149
Issuance of Series B preferred
stock in connection with
acquisition.................... -- -- 100,000 -- -- -- 1,000
Distribution to shareholders of
NHS............................ -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
--------- ---------- ------- --------- --------- ---------- -------
BALANCE AT DECEMBER 31, 1998....... 413,018 $ -- 100,000 $ -- 2,405,996 $ 2 $ 7,494
Issuance of common stock......... -- -- -- -- 54,933 -- 412
Issuance of common stock in
connection with acquisitions... -- -- -- -- 245,386 1 2,355
Conversion of Series A preferred
stock to Series A-1 preferred
stock.......................... (413,018) -- -- -- -- -- (1,200)
Issuance of Series A-1 preferred
stock.......................... 1,795,300 2 -- -- -- -- 4,698
Issuance of warrants............. -- -- -- -- -- -- 50
Net loss......................... -- -- -- -- -- -- --
--------- ---------- ------- --------- --------- ---------- -------
BALANCE AT JUNE 30, 1999........... 1,795,300 $ 2 100,000 $ -- 2,706,315 $ 3 $13,809
========= ========== ======= ========= ========= ========== =======
<CAPTION>
ACCUMULATED
EARNINGS
(DEFICIT) TOTAL
------------ --------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1995....... $ 116 $ 183
Issuance of common stock to
founders....................... -- 1
Issuance of common stock......... -- 26
Net income....................... 83 83
------- -------
BALANCE AT DECEMBER 31, 1996....... $ 199 $ 293
Issuance of common stock to
founders....................... -- --
Issuance of common stock......... -- 414
Issuance of common stock in
connection with acquisition.... -- 801
Issuance of Series A preferred
stock.......................... -- 1,200
Distribution to shareholders of
NHS............................ (32) (32)
Net loss......................... (434) (434)
------- -------
BALANCE AT DECEMBER 31, 1997....... $ (267) $ 2,242
Issuance of common stock......... -- 838
Issuance of common stock in
connection with acquisitions... -- 3,149
Issuance of Series B preferred
stock in connection with
acquisition.................... -- 1,000
Distribution to shareholders of
NHS............................ (74) (74)
Net loss......................... (3,921) (3,921)
------- -------
BALANCE AT DECEMBER 31, 1998....... $(4,262) $ 3,234
Issuance of common stock......... -- 412
Issuance of common stock in
connection with acquisitions... -- 2,356
Conversion of Series A preferred
stock to Series A-1 preferred
stock.......................... -- (1,200)
Issuance of Series A-1 preferred
stock.......................... -- 4,700
Issuance of warrants............. -- 50
Net loss......................... (2,704) (2,704)
------- -------
BALANCE AT JUNE 30, 1999........... $(6,966) $ 6,848
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
VANTAGEMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ 83 $ (434) $(3,921) $(1,523) $(2,704)
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities-
Depreciation and amortization............... 141 376 1,472 574 1,405
Bad debt expense............................ -- 68 243 38 (80)
Deferred income taxes....................... -- (212) (438) (121) (1,226)
Changes in assets and liabilities, net of
effects from acquisitions-
Accounts receivable....................... 68 (50) (335) (178) (203)
Inventories............................... 69 126 (15) (18) 2
Prepaid expenses and other................ -- (61) 50 (110) (78)
Book overdraft............................ -- -- 1,632 -- (1,632)
Accounts payable and accrued
liabilities............................. (110) (231) 506 86 1,116
Customer deposits and deferred revenue.... 61 (193) 508 181 (72)
----- ------ ------- ------- -------
Net cash provided by (used for)
operating activities.................. 312 (611) (298) (1,071) (3,472)
----- ------ ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........... (92) (271) (1,637) (120) (285)
Cash (paid) received from businesses acquired,
net......................................... -- (228) 270 19 115
----- ------ ------- ------- -------
Net cash used for investing
activities............................ (92) (499) (1,367) (101) (170)
----- ------ ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.................... 27 414 588 581 412
Issuance of preferred stock................. -- 1,075 -- -- 3,000
Proceeds from issuance of long-term debt.... 9 166 1,339 753 274
Payments on long-term debt.................. -- (290) (433) (275) (287)
Distributions to shareholders of Northern
Health Solutions, Inc..................... -- (32) (74) (74) --
----- ------ ------- ------- -------
Net cash provided by financing
activities............................ 36 1,333 1,420 985 3,399
----- ------ ------- ------- -------
Net change in cash and cash
equivalents........................... 256 223 (245) (187) (243)
CASH AND CASH EQUIVALENTS, beginning of year.... 201 457 680 680 435
----- ------ ------- ------- -------
CASH AND CASH EQUIVALENTS, end of year.......... $ 457 $ 680 $ 435 $ 493 $ 192
===== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND RISKS:
VantageMed Corporation (the Company) was incorporated in California on
June 11, 1995. On April 9, 1997, the Company was reincorporated in Delaware. The
basis of presentation includes Northern Health Solutions, Inc. and Healthcare
Information Systems, Inc., two business combinations effected in 1998 accounted
for as poolings and included for all periods presented. The Company is a
diversified healthcare information systems supplier headquartered in Sacramento,
California with regional offices in Walnut Creek and San Francisco, California;
Honolulu, Hawaii; Seattle, Washington; Kansas City, Missouri; Flint, Michigan;
Pompton Plains, New Jersey; Detroit, Michigan; and Pittsburgh, Pennsylvania. The
Company develops, sells, installs and supports software products and services
that assist physicians, dentists, physician organizations and other healthcare
providers in the operation of their practices and organizations. The Company is
building a national distribution network by acquiring established regional
healthcare practice management systems companies to sell and support its new
generation software and services. Subsequent to June 30, 1999, the Company
acquired additional businesses and began operations in Massachusetts, Illinois,
Colorado, Utah, Texas, Alabama, North Carolina and Arkansas.
The practice management software products offered by the Company provide
physicians, dentists and other healthcare professionals with comprehensive
office management software designed to automate the administrative, financial,
practice management and clinical requirements of a practice. These systems range
in capacity from one to approximately one hundred users. The Company also
provides software, network and hardware support, training, electronic claims
processing, electronic statement printing and mailing and electronic remittance
advices.
RISKS AND UNCERTAINTIES
The Company has suffered recurring losses from operations since its
inception and does not currently have substantial operating reserves. The
Company operates with a negative cash flow primarily because of acquisition
expenses, prior debt incurred by the acquired companies, and the costs of
building infrastructure for future growth. In order to make acquisitions and pay
for the startup losses, the Company must raise additional capital.
The Company is also subject to a number of additional risks, including, but
not limited to, risks associated with acquisitions (successful integration and
operation of new products, technologies and businesses), uncertainties in the
healthcare industry, and dependence on the medical and dental market. There can
be no assurance that the Company will successfully integrate acquired entities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim consolidated statements of operations and cash flows for the six
months ended June 30, 1998 included herein are unaudited. The unaudited interim
financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all normal
recurring adjustments necessary for a fair presentation of the results of their
F-9
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: (CONTINUED)
operations and their cash flows for the six months ended June 30, 1998. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to rules and regulations relating to interim
financial statements. The results of operations for the six months ended
June 30, 1998 are not necessarily indicative of the results to be expected for
future periods.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
FINANCIAL INSTRUMENTS
The fair values of financial instruments are the amounts at which the
instruments could be exchanged in a current transaction between willing parties.
Management estimates that the carrying amounts of the Company's financial
instruments included in the accompanying consolidated balance sheets are not
materially different from their fair values.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of supplies and new computer equipment purchased to
fill customer orders.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, generally three to seven years. Leasehold improvements are amortized
over the remaining lease term. Maintenance and repairs are expensed as incurred.
Software rights included in property and equipment represent software purchased
for internal use and are not intended to be resold. Such software rights are
recorded at cash cost and amortized over their estimated useful life of three
years.
INTANGIBLES
Intangibles include goodwill, acquired software, customer lists, covenants
not to compete and assembled workforces. Goodwill represents the amount of
purchase price in excess of the fair value of the identifiable assets purchased
in acquisitions completed by the Company and is amortized on a straight-line
basis over a period of two to ten years, depending upon whether the acquisition
is established as a new regional office or is consolidated into an existing one
and whether or not there are continuing sales of the software purchased in the
acquisition. Acquired software consists of software purchased in acquisitions
completed by the Company and is amortized on a straight-line basis over a period
of two to four years depending on the estimated continued use of the software
product acquired. Covenants not to compete are amortized on a straight-line
basis over two to five years, representing the life of such agreements. Customer
lists are amortized on a straight-line basis over two to ten years, representing
the estimated future life of customer relationships. Assembled workforce is
amortized on a straight-line basis over a period of one to ten years depending
upon the average length of employment for the employees of the acquired
companies.
F-10
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: (CONTINUED)
ASSET IMPAIRMENT
Statement of Financial Accounting Standards No. 121 (SFAS No. 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," effective for years beginning after December 15, 1995, requires
that long-lived assets and certain intangibles to be held and used by the
Company be reviewed for impairment. The Company periodically reviews whether
there has been a permanent impairment of its long-lived assets, in accordance
with SFAS No. 121. The measurement of possible impairment is based upon
determining whether projected undiscounted future cash flows of the acquired
businesses or from the use of the asset over the remaining amortization period
is less than the carrying amount of the asset. In the opinion of management,
there has been no such impairment.
SOFTWARE DEVELOPMENT COSTS
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," the Company capitalizes software development costs incurred after
technological feasibility of the software development projects has been
established. To date, all of the Company's costs for research and development of
software products have been expensed as incurred since the amount of software
development costs incurred subsequent to the establishment of technological
feasibility has been immaterial.
REVENUE RECOGNITION
Effective January 1, 1998, the Company adopted Statement of Position 97-2
(SOP 97-2), "Software Revenue Recognition." SOP 97-2 provides guidance on
applying generally accepted accounting principles for recognizing revenue on
software transactions. The adoption of SOP 97-2 did not have a material impact
on the Company's revenue. In December 1998, the American Institute of Certified
Public Accountants issued Statement of Position 98-9 (SOP 98-9), "Modification
of SOP 97-2. Software Revenue Recognition With Respect to Certain Transactions."
SOP 98-9 is effective for fiscal years beginning after March 15, 1999. The
Company believes that the adoption of SOP 98-9 will not have a material effect
on the results of their operations or financial condition.
Software and systems revenue is derived from the licensing of proprietary
software, the sale of third-party software, primarily desktop operating systems
and communication and security software and the sale of computer hardware and
supplies. Customer support and electronic services revenue is derived from
software maintenance and customer service, network and computer hardware
support, training, data conversion, system installation, electronic claims
processing, electronic statement printing, mailing and electronic remittance
advices.
The Company enters into license agreements with customers, which allow for
the use of the Company's products, usually restricted by the number of
employees, the number of users, or the license term. Fees from licenses are
recognized as revenue in accordance with SOP 97-2 when all shipment obligations
have been met, fees are fixed and determinable, collection of the sale proceeds
is deemed probable and persuasive evidence of an agreement exists. Other
customer support and electronic services are also provided to the Company's
licensees of software products. These services consist primarily of software
maintenance and customer service, network and computer hardware support and
installation of software at customer sites. The revenue from the installations
is recognized upon
F-11
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: (CONTINUED)
completion of installation. The revenue from software maintenance, customer
service and support is recognized ratably over the term of the support period.
For arrangements that include multiple elements, the fee is allocated to the
various elements based on vendor-specific objective evidence of fair market
value established by independent sale of the elements sold separately. Revenues
from other services, which include training, data conversion, electronic claims
processing, electronic statement printing, mailing and electronic remittance
advices are recognized as the services are provided.
Deferred revenue consists of revenue deferred under annual maintenance and
annual support agreements under which amounts have been received from customers
and for which the earnings process has not been completed. Customer deposits
consist of cash collections for undelivered product and related services as of
the reporting period. The Company expects to recognize these deferred revenues
in accordance with its revenue recognition policy, typically over a period of
one year or less.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," under which deferred income taxes are provided
based upon enacted tax laws and rates applicable to the periods in which taxes
become payable. A valuation allowance is provided against the future benefits of
deferred tax assets if it is determined that it is more likely than not that the
future tax benefits associated with the deferred tax asset will not be realized.
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted-average number of
shares of common stock outstanding while diluted earnings per share reflects the
potential dilution that would have occurred if preferred stock had been
converted and stock options and warrants had been exercised. Common equivalent
shares from preferred stock, stock options, warrants, and convertible notes in
the amount of 139,673 and 542,173 for years ended December 31, 1997 and 1998,
respectively, and in the amount of 142,923 and 1,033,599 for six months ended
June 30, 1998 and 1999, have been excluded from the computation of diluted
earnings (loss) per share in all loss periods, as their effect is antidilutive.
Pro forma basic and diluted loss per share has been calculated assuming the
conversion of Series A-1 and Series B preferred stock into common shares, as if
the shares had been converted on the dates of their issuance. Common equivalent
shares from stock options, warrants, and convertible notes in the amount of
4,500 for the year ended December 31, 1998 and 122,666 for the six months ended
June 30, 1999 have been excluded from the calculation of pro forma loss per
share in all loss periods, as their effect is antidilutive.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130),"Reporting Comprehensive Income."
SFAS 130 establishes standards for reporting comprehensive income and its
components in financial statements. Comprehensive income, as defined, includes
all changes in equity (net assets) during a period from non-owner sources. The
adoption of this statement had no material impact on the Company's financial
statements for the periods presented.
F-12
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." As permitted by
SFAS 123, the Company has not changed its method of accounting for stock options
but has provided the additional required disclosures. For the years ended
December 31, 1996, 1997 and 1998 and the six months ended June 30, 1998 and
1999, the Company recognized no compensation expense related to stock options.
RECENT PRONOUNCEMENTS
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities," issued in April 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 will be
effective for the Company's fiscal year ending December 31, 1999. The adoption
of SOP 98-5 is not expected to have a material impact on the Company's financial
statements.
Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting
for Derivative Instruments and Hedging Activities," will be effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 requires
companies to value derivative financial instruments, including those used for
hedging foreign currency exposures, at current market value with the impact of
any change in market value being charged against earnings in each period. This
statement is not expected to affect the Company as it currently does not engage
or plan to engage in derivative instruments or hedging activities.
3. BUSINESS COMBINATIONS:
BUSINESS COMBINATIONS ACCOUNTED FOR AS PURCHASES
Each of the following acquisitions was accounted for under the purchase
method of accounting, applying the provisions of Accounting Principles Board
Opinion No. 16, "Business Combinations." As a result, the Company recorded the
identifiable assets and liabilities of the acquired companies at their estimated
fair values with the excess of the purchase price over these amounts being
recorded as goodwill. Intangibles including acquired software, customer lists,
covenants not to compete and assembled workforce are valued based upon
discounted future cash flows associated with the related intangible asset and
its economic life. The acquired deferred revenues were recorded at values which
approximate the present value of cost that will be incurred to fulfill
maintenance and support obligations plus a normal profit. The financial
statements reflect the operations of the acquired businesses for the periods
after their respective dates of acquisition. All purchase price allocations
reported in historical financial statements are substantially final and any
final adjustments are not expected to be material. The consideration for the
purchases was cash, notes and company stock. The value of the Company's stock
given in consideration was determined through a combination of
F-13
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS COMBINATIONS: (CONTINUED)
negotiation between the buyer and the seller and by comparing the value used to
other shares issued for cash.
PURCHASES DURING THE YEAR ENDED DECEMBER 31, 1997
The Company acquired Atek Computer Distributors, Inc. (Atek) in July 1997.
The purchase price of $976,000 comprised $175,000 in cash and 193,487 shares of
common stock issued at $4.14 per share for a total of $801,000. Goodwill and
acquired software are being amortized over ten years, customer lists over five
years, covenants not to compete and acquired software over two years, and
assembled workforce over four years.
The Company acquired Trend Sierra (Trend) in August 1997. The purchase price
of $1,600,000 comprised $75,000 in cash and $1,525,000 in notes payable.
Goodwill is being amortized over ten years, acquired software over two years,
customer lists over six years, covenants not to compete and assembled workforce
over five years.
The Company acquired Prophase System, Inc. and Patriot Healthcare Inc.
(Other 1997 Acquisitions) in 1997. The purchase price of $75,000 comprised
$15,000 in cash and $60,000 in notes payable. Goodwill is being amortized over
two years, customer lists over two to four years, and covenants not to compete
over three years.
The following table summarizes the fair values of the assets acquired and
liabilities assumed in connection with the foregoing acquisitions accounted for
as purchases in the year ended December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
OTHER 1997
ATEK TREND ACQUISITIONS TOTAL
-------- -------- ------------ --------
<S> <C> <C> <C> <C>
Cash..................................................... $ 28 $ 9 $ -- $ 37
Accounts receivable...................................... 242 106 -- 348
Inventories.............................................. 91 22 -- 113
Property and equipment................................... 72 23 -- 95
Goodwill................................................. 1,225 530 20 1,775
Other intangibles........................................ 528 1,092 66 1,686
Accounts payable......................................... (146) (26) -- (172)
Accrued liabilities...................................... (86) (79) (11) (176)
Customer deposits and deferred revenue................... (323) (77) -- (400)
Long-term debt........................................... (443) -- -- (443)
Deferred tax liability................................... (212) -- -- (212)
------ ------ ---- ------
Net assets acquired.................................... $ 976 $1,600 $ 75 $2,651
====== ====== ==== ======
</TABLE>
PURCHASES DURING THE YEAR ENDED DECEMBER 31, 1998
The Company acquired Pacific Software, Inc. (Pacific) in April 1998. The
purchase price of $1,254,000 comprised 264,517 shares of common stock issued at
$4.74 per share. Goodwill and customer lists are being amortized over ten years,
acquired software and covenants not to compete over two years, and assembled
workforce over four years.
F-14
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS COMBINATIONS: (CONTINUED)
The Company acquired Medicom Corporation (Medicom) in July 1998. The
purchase price of $1,000,000 comprised 100,000 shares of Series B preferred
stock issued at $10.00 per share. Goodwill and customer lists are being
amortized over ten years, covenants not to compete over three years, and
assembled workforce over four years.
The Company acquired CM Healthcare Technologies, Inc. (CMHT) in August 1998.
The purchase price of $1,671,000 comprised 174,095 shares of common stock issued
at $9.60 per share. Goodwill is being amortized over ten years, acquired
software and customer lists over two years, and assembled workforce over seven
years.
The Company acquired Medsoft, Inc., American Voice Computer, Inc., and DOT
Medical, Inc. (Other 1998 Acquisitions) in 1998. The purchase price of $599,000
comprised $25,000 in cash, $350,000 in notes payable and 36,332 shares of common
stock issued at a weighted-average price of $6.17 per share for a total of
$224,000 in common stock. Goodwill is being amortized over two to five years,
acquired software over two years, customer lists over two to eight years,
assembled workforce over three years and covenants not to compete over two to
three years.
The following table summarizes the fair values of the assets acquired and
liabilities assumed in connection with the foregoing acquisitions accounted for
as purchases in the year ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
OTHER 1998
PACIFIC MEDICOM CMHT ACQUISITIONS TOTAL
-------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Cash............................................ $ 23 $ 41 $ 210 $ 21 $ 295
Accounts receivable............................. 120 133 112 18 383
Inventories..................................... 31 5 4 -- 40
Prepaid expenses and other...................... 5 1 74 6 86
Property and equipment.......................... 358 69 83 53 563
Goodwill........................................ 1,039 712 1,286 591 3,628
Other intangibles............................... 172 185 607 561 1,525
Accounts payable................................ (30) (28) (71) (193) (322)
Accrued liabilities............................. (27) (43) (296) (107) (473)
Customer deposits and deferred revenue.......... (110) -- -- (212) (322)
Long-term debt.................................. (258) (1) (95) (87) (441)
Deferred tax liability.......................... (69) (74) (243) (52) (438)
------ ------ ------ ----- ------
Net assets acquired........................... $1,254 $1,000 $1,671 $ 599 $4,524
====== ====== ====== ===== ======
</TABLE>
PURCHASES DURING THE SIX MONTHS ENDED JUNE 30, 1999
The Company acquired Civitec Healthcare Computers, Inc. (Civitec) in
April 1999. The purchase price of $1,386,000 comprised $127,000 in cash,
$408,000 in notes payable and 88,667 shares of common stock issued at $9.60 per
share for a total of $851,000 in common stock. Goodwill and customer lists are
being amortized over ten years, acquired software over two years, covenants not
to compete over three years, and assembled workforce over eight years.
The Company acquired Medical Software Solutions, Inc. (MSS) in May 1999. The
purchase price of $1,278,000 comprised $460,000 in notes payable and
85,156 shares of common stock issued at $9.60
F-15
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS COMBINATIONS: (CONTINUED)
per share for a total of $818,000 in common stock. Goodwill and customer lists
are being amortized over ten years, acquired software over two years, covenants
not to compete over three years, and assembled workforce over seven years.
The Company acquired Acrotrex Corporation and Metropolitan Information
Services, Inc. (Other 1999 Acquisitions) in 1999. The purchase price of $818,000
comprised $25,000 in cash, $106,000 in notes payable and 71,563 shares of common
stock issued at $9.60 per share for a total of $687,000 in common stock.
Goodwill is being amortized over two to ten years, acquired software over two
years, customer lists over seven to ten years, assembled workforce over four to
ten years and covenants not to compete over three years.
The following table summarizes the fair values of the assets acquired and
liabilities assumed in connection with the foregoing acquisitions accounted for
as purchases in the six months ended June 30, 1999 (in thousands):
<TABLE>
<CAPTION>
OTHER 1999
CIVITEC MSS ACQUISITIONS TOTAL
-------- -------- ------------ --------
<S> <C> <C> <C> <C>
Cash.................................................... $ 234 $ 18 $ 15 $ 267
Accounts receivable..................................... 18 92 72 182
Inventories............................................. 3 -- 8 11
Prepaid expenses and other.............................. 7 225 3 235
Property and equipment.................................. 24 -- 20 44
Goodwill................................................ 735 493 478 1,706
Other intangibles....................................... 1,246 1,114 640 3,000
Accounts payable........................................ (56) (34) (25) (115)
Accrued liabilities..................................... (38) (81) (41) (160)
Customer deposits and deferred revenue.................. (289) (64) (63) (416)
Long-term debt.......................................... -- (13) (33) (46)
Deferred tax liability.................................. (498) (472) (256) (1,226)
------ ------ ----- -------
Net assets acquired................................... $1,386 $1,278 $ 818 $ 3,482
====== ====== ===== =======
</TABLE>
PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
The following unaudited pro forma information presents the consolidated
results of operations of the Company as if all of the acquisitions had occurred
as of the beginning of 1998. The pro forma information is not necessarily
indicative of what would have occurred had the acquisitions been made as of
January 1, 1998, nor is it indicative of future results of operations (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------ ----------
1998 1999
------------ ----------
<S> <C> <C>
Revenue.............................................. $14,733 $ 8,377
Depreciation and amortization........................ 2,410 1,323
Loss available to common stockholders................ (4,647) (2,579)
Basic and diluted loss per share..................... (1.79) (0.97)
</TABLE>
F-16
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS COMBINATIONS: (CONTINUED)
Common equivalent shares from preferred stock, stock options, warrants and
convertible notes in the amount of 542,173 for the year ended December 31, 1998
and 1,033,599 for the six months ended June 30, 1999 have been excluded from the
calculation of pro forma loss per share in all loss periods, as their effect is
antidilutive.
BUSINESS COMBINATIONS ACCOUNTED FOR AS POOLING OF INTERESTS
In April 1998, the Company acquired all of the outstanding capital stock and
options of Healthcare Information Systems, Inc. (HIS), based in Kansas City,
Missouri, for 384,695 shares of VantageMed common stock and 17,022 options. Upon
closing the acquisition, the assets and liabilities of HIS were recorded at net
book value. Assets consisted primarily of cash, accounts receivable, inventory
and fixed assets. Liabilities consisted primarily of vendor payables, accrued
liabilities and deferred revenue. The accompanying consolidated financial
statements reflect the acquisition of HIS as a pooling of interests.
In December 1998, the Company acquired all of the outstanding capital stock
of Northern Health Solutions, Inc. (NHS), based in Pittsburgh, Pennsylvania, for
210,416 shares of VantageMed common stock and assumption of 17,022 stock
options. Upon closing the acquisition, the assets and liabilities of NHS were
recorded at net book value. Assets consisted primarily of cash, accounts
receivable and fixed assets. Liabilities consisted primarily of vendor payables
and accrued liabilities. The accompanying consolidated financial statements
reflect the acquisition of NHS as a pooling of interests.
The accompanying consolidated financial statements have been restated to
include the accounts of HIS and NHS as if the companies had combined at the
beginning of the first period presented.
There were no transactions between the Company and HIS nor between the
Company and NHS prior to the combination and no adjustments were necessary to
conform either HIS' or NHS' accounting policies. The results of operations for
the separate companies and the combined amounts presented in the consolidated
statements of income are as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue
The Company..................................... $ 4 $1,402 $ 5,398 $ 1,632 $ 5,035
HIS............................................. 2,785 2,577 2,515 1,274 1,399
NHS............................................. 1,141 1,269 1,460 725 790
------ ------ ------- ------- -------
$3,930 $5,248 $ 9,373 $ 3,631 $ 7,224
Net income (loss)
The Company..................................... $ (105) $ (574) $(3,612) $(1,637) $(2,803)
HIS............................................. 137 179 (81) (1) (12)
NHS............................................. 51 (39) (228) 115 111
------ ------ ------- ------- -------
$ 83 $ (434) $(3,921) $(1,523) $(2,704)
</TABLE>
F-17
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Software rights..................................... $ -- $1,500 $1,500
Office and computer equipment....................... 203 409 619
Furniture and fixtures.............................. 185 319 422
Vehicles............................................ 27 41 41
Leasehold improvements.............................. 48 399 414
----- ------ ------
463 2,668 2,996
Less: accumulated depreciation...................... (267) (436) (826)
----- ------ ------
$ 196 $2,232 $2,170
===== ====== ======
</TABLE>
Depreciation expense was approximately $141,000, $85,000, $164,000, $52,000
and $391,000 for the years ended December 31, 1996, 1997 and 1998 and the six
months ended June 30, 1998 (unaudited) and 1999, respectively.
5. INTANGIBLES:
Intangibles consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Goodwill.......................................... $1,775 $ 5,402 $ 7,107
Acquired software................................. 884 1,439 2,072
Customer lists.................................... 1,018 1,909 4,206
Covenants not to compete.......................... 24 36 81
Assembled workforce............................... 31 97 123
------ ------- -------
3,732 8,883 13,589
Less: accumulated amortization.................... (291) (1,597) (2,611)
------ ------- -------
$3,441 $ 7,286 $10,978
====== ======= =======
</TABLE>
Amortization expense related to intangibles was approximately $0, $291,000,
$1,308,000, $522,000 and $1,014,000 for the years ended December 31, 1996, 1997
and 1998 and the six months ended June 30, 1998 (unaudited) and 1999,
respectively.
F-18
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT:
The Company's long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Promissory note, owner of acquired company, interest at
prime plus 1.5%, not to exceed 10.5% per annum (9.25% at
June 30, 1999), monthly principal payments of $18,750 plus
accrued interest commencing August 1999, due in full by
August 2005, unsecured.................................... $ 1,500 $ 1,400 $ 1,400
Promissory notes, stockholders, various fixed interest rates
between 8.75% and 10%, monthly principal and interest
payments between $1,000 and $3,000, principal ranges from
due on demand to due June 2005, secured by assets of the
Company................................................... 136 253 225
Promissory notes, stockholders, various fixed interest rates
between 7% and 12%, monthly principal and interest
payments between $2,000 and $11,000, principal ranges from
due in December 1999 to due in May 2000 unless an initial
public offering is completed, at which time the principal
is due on demand, secured by assets of the Company........ -- -- 83
Promissory notes, stockholders, bearing interest at 8%,
principal payment of $75,000 due in October 1999, monthly
payments of $15,000 beginning January 2000 through
December 2000 unless an initial public offering is
completed, at which time the principal is due on demand,
secured by certain assets of the Company.................. -- -- 248
Promissory note, stockholder, bearing interest at 15%,
monthly principal and interest payments of $30,000 from
April 1999 through May 2000, due in full June 2000 unless
an initial public offering is completed, at which time the
principal is due on demand, secured by certain assets of
the Company............................................... -- -- 383
Promissory notes, stockholders, various fixed interest rates
between 6% and 10%, monthly payments consist of accrued
interest only, principal is due on demand, secured by
certain assets of the Company............................. 24 42 19
Promissory note, stockholder, various fixed interest rates
between 6% and 10%, monthly payments consist of accrued
interest only, principal is due in March 2000 to June 2000
unless an initial public offering is completed, at which
time the principal is due on demand, secured by certain
assets of the Company..................................... -- 138 263
Promissory note, stockholder, bearing interest at 10%,
monthly payments consist of accrued interest only,
principal due in March 2000 unless an initial public
offering is completed, at which time the principal is due
on demand, secured by certain assets of the Company....... -- 350 250
Promissory notes, financial institution, bearing interest at
9.5%, monthly principal and interest payments between $300
and $600 through February 2003, secured by Company
vehicles.................................................. -- -- 30
</TABLE>
F-19
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Convertible promissory notes, stockholders, bearing interest
at 10% per annum, convertible into 40,000 shares of the
Company's common stock at $7.50 per share, subject to a
conversion provision upon completion of a public offering,
principal and interest due December 1999, unsecured....... -- 300 300
Promissory notes, stockholders, non-interest bearing,
$20,000 paid in January 1998 and the balance paid in
January 1999, secured by stock in the Company............. 40 20 --
Promissory notes, stockholders, non-interest bearing,
monthly payments of $2,000, due on demand, personally
guaranteed by Chairman of the Company..................... 20 52 40
Line of credit, stockholder, maximum borrowing of $500,000,
bearing interest at 8%. In January 1999 the note was
converted into shares of Series A- 1 preferred stock of
the Company............................................... -- 500 --
Convertible promissory note, stockholder, bearing interest
at 10% per annum, convertible into 13,333 shares of the
Company's common stock at $7.50 per share, subject to a
conversion provision. Payee also has an option to purchase
additional 66,666 shares at $7.50 per share and 50,000
shares at $10.50 per share. Principal and interest due
August 1999. The note was converted to stock in August
1999...................................................... -- -- 100
Line of credit, financial institution, maximum borrowing of
$50,000, bearing interest at lender's base rate plus 3.1%
(11.85% at June 30, 1999), personally guaranteed by a
stockholder............................................... -- 50 50
Capital lease obligations................................... 64 126 122
------- ------- -------
1,784 3,231 3,513
Less: current portion....................................... (283) (1,510) (1,874)
------- ------- -------
$ 1,501 $ 1,721 $ 1,639
======= ======= =======
</TABLE>
F-20
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
Future minimum payments under all debt obligations excluding capital lease
obligations, during the twelve months subsequent to June 30, 1999, are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
- --------------------
<S> <C>
2000........................................................ $1,837
2001........................................................ 481
2002........................................................ 278
2003........................................................ 278
2004........................................................ 262
Thereafter.................................................. 255
------
$3,391
======
</TABLE>
7. CAPITAL AND OPERATING LEASE OBLIGATIONS:
The Company leases its headquarters and certain other facilities under
operating leases and a portion of its equipment under capital lease
arrangements. The minimum future lease payments required under the Company's
capital and operating leases at June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING JUNE 30, LEASES LEASES
- -------------------- -------- ---------
<S> <C> <C>
2000....................................................... $ 46 $361
2001....................................................... 39 175
2002....................................................... 31 19
2003....................................................... 27 --
2004....................................................... 1 --
---- ----
Total minimum payments................................... $144 $555
====
Less: interest on capital lease obligations at rates of
8.13% to 17.25%.......................................... (22)
----
Net minimum principal payments............................. 122
Less: current maturities................................... (37)
----
Long-term portion.......................................... $ 85
====
</TABLE>
Rent expense was approximately $134,000, $204,000, $509,000, $208,000 and
$340,000 for the years ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1998 (unaudited) and 1999, respectively.
F-21
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCKHOLDERS' EQUITY:
COMMON STOCK
As of June 30, 1999, the Company is authorized to issue 20,000,000 shares of
common stock with a par value of $0.001 per share.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock with
a par value of $0.001 per share, of which 1,850,000 shares are designated for
Series A-1 preferred stock (Series A-1), 1,795,300 of which are issued and
outstanding as of June 30, 1999 and 500,000 are designated for Series B
preferred stock (Series B), 100,000 of which are issued and outstanding as of
June 30, 1999. As of January 1, 1999, 413,018 shares of previously issued
Series A preferred stock was re-designated as Series A-1 in conjunction with the
issuance of an additional 1,382,282 shares of Series A-1 to the same investor.
Significant terms of the preferred stock are as follows:
- Each share of Series A-1 is convertible at the option of the holder into
shares of common stock as determined by a conversion ratio applicable to
the Series A-1 preferred stock. There is no stated conversion ratio, only
a formula for deriving the ratio. Shares of Series A-1 and B will
automatically be converted into common stock upon the closing of public
offering in excess of $12,500,000 and $10,000,000, respectively, and at a
price equal to or greater than $27.00 per share for Series A-1. Subsequent
to June 30, 1999, the Company has received a commitment from the
Series A-1 preferred shareholder to convert their preferred stock upon the
closing of a public offering.
- Each share has the same voting rights as the number of shares of common
stock to which it could be converted.
- In the event of liquidation, dissolution or winding up of the Company, the
preferred shareholders of Series A-1 and B shall receive an amount equal
to $2.63 and $10.00 per share, respectively, plus an amount equal to all
declared but unpaid dividends on each share. Subsequent to June 30, 1999,
the amount that Series B shareholders would receive in the event of a
liquidation was increased to $12.00 per share. In the event available
assets are insufficient to pay the full liquidation preference amount, any
remaining assets will be distributed ratably among the holders of
Series A-1 and B preferred stock in proportion to the amount of stock
owned by each holder.
- Holders of preferred stock are entitled to annual non-cumulative dividends
of $2.63 per share for Series A-1 and $0.08 for Series B, as declared by
the Board of Directors, before any dividend declared on common stock. No
dividends have been declared since inception through June 30, 1999.
9. STOCK OPTION PLANS AND WARRANTS:
The Company has two stock option plans, the Healthcare Information Systems
Plan (HIS Plan) and the 1998 Stock Option/Stock Issuance Plan (1998 Plan). No
further options may be granted under the HIS Plan, and all 17,022 options
previously granted and outstanding under the HIS Plan have been converted into
options of the Company's common stock. Each HIS option was converted into
0.13055 of the Company's options at an exercise price of $1.89 per share. Under
the 1998 Plan, the Board of Directors is authorized to grant options for up to
400,000 shares of common stock to employees,
F-22
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS AND WARRANTS: (CONTINUED)
directors and consultants at prices not less than the fair market value at date
of grant for incentive stock options and not less than 85% of fair market value
for non-statutory stock options. The 1998 Plan is divided into two separate
equity programs: the Option Grant Program under which eligible persons may be
granted options to purchase shares of common stock and the Stock Issuance
Program under which eligible persons may be issued shares of common stock
directly, either through the immediate purchase of shares or as a bonus for
services rendered the Company. The stock options generally vest 25% in the first
year and ratably over the following three-year period and expire ten years from
the date of grant. The 1998 Plan permits the exercise of unvested options.
Unvested common stock purchased under the 1998 Plan is subject to repurchase by
the Company at the option exercise price.
As permitted by SFAS 123, the Company has elected to account for its
stock-based compensation plans under the intrinsic value method as outlined in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Had compensation cost for the Company's
option plan been determined based on the fair value at the grant dates for the
awards, calculated in accordance with the method prescribed by SFAS 123, the
Company's pro forma net income (loss) would have been as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ----------
1996 1997 1998 1999
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net income (loss) available to common stockholders
As reported............................................. $ 83 $ (434) $(3,921) $(2,704)
Pro forma............................................... $ 79 $ (438) $(4,046) $(2,828)
Basic and diluted earnings (loss) per share
As reported............................................. $0.07 $(0.27) $ (1.82) $ (1.07)
Pro forma............................................... $0.06 $(0.27) $ (1.87) $ (1.12)
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1999: risk free interest rate of 5.5%,
expected stock price volatility of 50%, an expected life of six years and no
dividend payments. The resulting pro forma compensation cost may not be
representative of that to be expected in future years.
F-23
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS AND WARRANTS: (CONTINUED)
A summary of stock option activity and related information is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------------- ---------------------
1996 1997 1998 1999
--------------------- --------------------- --------------------- ---------------------
WTD.-AVG. WTD.-AVG. WTD.-AVG. WTD.-AVG.
EXERCISE EXERCISE EXERCISE EXERCISE
NUMBER PRICE PER NUMBER PRICE PER NUMBER PRICE PER NUMBER PRICE PER
OF SHARES SHARE OF SHARES SHARE OF SHARES SHARE OF SHARES SHARE
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
beginning of period........... 17 $1.89 17 $1.89 17 $1.89 186 $7.14
Granted....................... -- -- -- -- 169 7.65 83 8.28
Exercised..................... -- -- -- -- -- -- -- --
Forfeited or canceled......... -- -- -- -- -- -- -- --
-- ----- -- ----- --- ----- --- -----
Balance, end of period.......... 17 $1.89 17 $1.89 186 $7.14 269 $7.49
== ===== == ===== === ===== === =====
Vested, end of period........... 4 9 16 24
== == === ===
</TABLE>
The following table summarizes information about the Company's outstanding
stock options at June 30, 1999 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
- -------------------------------------------------------------------- ------------------------------
NUMBER OF WTD.-AVG.
RANGE OF SHARES CONTRACT LIFE WTD.-AVG. NUMBER OF WTD.-AVG.
EXERCISE PRICE OUTSTANDING REMAINING EXERCISE PRICE SHARES VESTED EXERCISE PRICE
- --------------------- ----------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$1.89 17 6.5 $1.89 15 $1.89
7.50 189 9.5 7.50 -- 7.50
8.34 32 8.9 8.34 9 8.34
9.60 31 9.8 9.60 -- 9.60
----------- --- --- ----- -- -----
1.$89-9.60 269 9.3 $7.49 24 $4.31
=========== === === ===== == =====
</TABLE>
During 1997, the Company issued options to purchase up to 1,437 shares of
the Company's common stock at a price of $1.74 per share, 2,283 shares at a
price of $4.50 per share and 3,786 shares at a price of $7.50 per share to a
consultant in connection with raising capital for the Company. The exercise
price approximates the stock price on the issuance dates and the options were
fully vested at issuance. The fair value of the options of approximately $25,000
was calculated using the Black-Scholes option pricing model and is netted
against proceeds from common stock issued.
During 1999, the Company issued options to purchase up to 2,166 shares of
the Company's common stock at a price of $7.50 per share to a consultant in
connection with raising capital for the Company. The fair value of the options
of approximately $12,000 was calculated using the Black-Scholes option pricing
model and is netted against the proceeds from common stock issued.
WARRANTS
In June 1999, in connection with the issuance of a convertible promissory
note, the Company issued warrants to purchase up to 66,666 shares of the
Company's common stock at a price of $7.50 per share, the fair value on the date
of issuance, and the right to purchase another 50,000 shares of the
F-24
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS AND WARRANTS: (CONTINUED)
Company's common stock at the price of $10.50 per share. The warrants become
immediately exercisable upon the conversion of the note to common stock and all
unexercised warrants were to expire on August 31, 1999. The fair value of the
warrants of approximately $50,000 was calculated using the Black-Scholes option
pricing model and was amortized to interest expense over the two month term of
the note. Subsequent to June 30, 1999, the note was converted to 13,333 shares
of common stock at $7.50 per share, and 6,666 warrants were exercised at $7.50
per share. The remaining warrants expired on August 31, 1999.
10. RELATED PARTY TRANSACTIONS:
The Company had receivables from related parties included in prepaid
expenses and other as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Due from stockholder.................................. $52 $20 $10
Due from employees.................................... 3 6 --
--- --- ---
$55 $26 $10
=== === ===
</TABLE>
During 1998, the Company incurred consulting costs to the president of an
acquired company in the amount of approximately $35,000. In addition, the
Company purchased software rights from a corporate shareholder for $1,500,000 in
cash.
11. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest amounted to approximately $3,000, $47,000,
$220,000, $114,000 and $310,000 for the years ended December 31, 1996, 1997 and
1998 and the six months ended June 30, 1998 (unaudited) and 1999, respectively.
The Company made cash payments for income taxes of approximately $800, $800,
$800, $0 and $7,000 for the years ended December 31, 1996, 1997 and 1998 and the
six months ended June 30, 1998 (unaudited) and 1999, respectively.
During the year ended December 31, 1997, the Company acquired Atek Computer
Distributors, Inc., Trend Sierra, Prophase Systems, Inc., and Patriot Healthcare
Development, Inc. Aggregate consideration for these acquisitions completed in
1997 were 193,487 shares of common stock, $265,000 in cash, and $1,585,000 in
notes payable for an approximate aggregate value of $2,651,000. Additionally,
the Company financed the purchase of property and equipment under capital leases
of approximately $61,000, purchased software for a $120,000 note payable, and
converted a $125,000 note into preferred stock.
During the year ended December 31, 1998, the Company acquired
Medsoft, Inc., American Voice Computer, Inc., Pacific Software, Inc., DOT
Medical, Inc., Medicom Corporation and CM Healthcare Technologies, Inc.
Aggregate consideration for these acquisitions completed in 1998 was 474,944
common shares, 100,000 shares of Series B preferred stock, $25,000 in cash, and
$350,000 in notes payable for an approximate aggregate value for $4,524,000. The
Company issued stock warrants with an aggregate fair value of approximately
$50,000 for services rendered to the Company. Additionally, the Company financed
the purchase of property and equipment under capital leases of approximately
$114,000 and converted a note payable for $250,000 into common stock.
F-25
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUPPLEMENTAL CASH FLOW INFORMATION: (CONTINUED)
During the six months ended June 30, 1999, the Company acquired Civitec
Healthcare Computers, Inc., Acrotrex Corporation, Medical Software
Solutions, Inc. and Metropolitan Information Services, Inc. Aggregate
consideration for these acquisitions completed in the first six months of 1999
was 245,386 common shares, $152,000 in cash, and $974,000 in notes payable for
an approximate aggregate value of $3,482,000. Additionally, the Company
converted a $500,000 line of credit to 197,628 shares of Series A-1 preferred
stock and financed the purchase of property and equipment under capital leases
of approximately $16,000.
12. EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) Savings Plan (the Plan). Under the terms of
the Plan, employees may elect to contribute up to 15% of their pre-tax
compensation to the Plan. Employee contributions are 100% vested at all times.
The Company may make discretionary contributions to the Plan, which vest
annually over a six-year period. Discretionary contributions made to the Plan
were approximately $0, $0, $4,000, $1,500 and $2,500 for the years ended
December 31, 1996, 1997 and 1998 and the six months ended June 30, 1998
(unaudited) and 1999, respectively.
13. INCOME TAXES:
The provision (benefit) for income taxes consists of (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
------------------------------------ JUNE 30,
1996 1997 1998 1999
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Current:
Federal................................................ $50 $ -- $ -- $ --
State.................................................. 14 -- -- --
--- ----- ------ -------
Total current........................................ 64 -- -- --
Deferred:
Federal................................................ (4) (307) (1,188) (1,186)
State.................................................. -- (61) (302) (265)
--- ----- ------ -------
Total deferred....................................... (4) (368) (1,490) (1,451)
--- ----- ------ -------
Change in valuation allowance............................ 4 173 1,147 319
--- ----- ------ -------
Net income tax provision (benefit)................... $64 $(195) $ (343) $(1,132)
=== ===== ====== =======
</TABLE>
Deferred taxes result from temporary differences between the bases of assets
and liabilities for financial reporting purposes and such amounts as measured by
tax laws and regulations. At June 30, 1999, the Company had net operating loss
carryforwards of approximately $1,832,000 and $329,000 available to offset
future federal and state taxable income, respectively. Such federal and state
carryforwards expire through 2018 and 2003, respectively. The extent to which
the loss carry forwards
F-26
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. INCOME TAXES: (CONTINUED)
can be used to offset future taxable income may be limited. The sources of the
temporary differences and their effect on deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $199 $ 988 $2,161
Accruals and reserves............................ 107 415 388
Depreciation..................................... -- 31 31
Difference between book and tax basis of
intangibles.................................... 38 211 305
---- ------ ------
344 1,645 2,885
Deferred tax liabilities:
Difference between book and tax amortization
related to acquired identifiable intangibles
other than goodwill............................ (150) (304) (1,225)
---- ------ ------
Net deferred tax asset before allowance............ 194 1,341 1,660
---- ------ ------
Valuation allowance................................ (194) (1,341) (1,660)
---- ------ ------
Net deferred tax asset......................... $ -- $ -- $ --
==== ====== ======
</TABLE>
The following table accounts for the differences between the actual tax
provision (benefit) and amounts obtained by applying the Statutory U.S. Federal
rate to the income (loss) before income taxes (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS ENDED
------------------------------------ JUNE 30,
1996 1997 1998 1999
-------- -------- -------- ----------------
<S> <C> <C> <C> <C>
Expected tax provision (benefit)................... $51 $(214) $(1,434) $(1,304)
Increase (decrease)in income taxes resulting from:
State income benefit........................... 9 (38) (253) (230)
Change in deferred tax asset valuation
allowance.................................... 4 173 1,128 319
Nondeductible goodwill......................... -- -- 77 --
Other, net..................................... -- (116) 139 83
--- ----- ------- -------
Net income tax provision (benefit)................. $64 $(195) $ (343) $(1,132)
=== ===== ======= =======
</TABLE>
14. CONTINGENCIES:
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. As of
June 30, 1999, the Company was not a party to any legal proceedings, which, if
decided adversely to the Company, would, in the opinion of management,
individually or in the aggregate, have a material adverse effect on the
Company's business, financial condition or results of operations.
F-27
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT REPORTING:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information," which was adopted by the Company for
the fiscal year ended December 31, 1998. This statement establishes standards
for reporting selected segment services, geographic areas and major customers.
The Company reported on two operating segments in 1998 and 1999--the software
and systems sales and customer support and electronic services groups. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on margin level before selling general and administrative and other
operating costs. The Company does not manage costs below gross margin by
segment. The Company does not track long-lived assets by segment and therefore
related disclosures are not relevant and are not presented. The software and
systems sales group sells and licenses practice management software products to
physicians, dentists and other professionals with comprehensive office
management software designed to automate the administrative, financial, practice
management and clinical requirements of a practice. The customer support and
electronic services group provides software, network and hardware support,
training, electronic claims processing, electronic statement printing and
mailing and electronic remittance advices. The Company's reportable segments
offer different products and services, which are sold and serviced by the same
selling and support personnel.
For the year ended December 31, 1998, the following table reports selected
segment information (in thousands):
<TABLE>
<CAPTION>
CUSTOMER
SOFTWARE AND SUPPORT AND
SYSTEMS ELECTRONIC
SALES SERVICES TOTAL
------------ ----------- --------
<S> <C> <C> <C>
Revenues..................................... $3,943 $5,430 $9,373
Cost of revenues............................. 2,146 3,606 5,752
------ ------ ------
Gross margin............................... $1,797 $1,824 $3,621
====== ====== ======
</TABLE>
For the six months ended June 30, 1999, the following table reports selected
segment information (in thousands):
<TABLE>
<CAPTION>
CUSTOMER
SOFTWARE AND SUPPORT AND
SYSTEMS ELECTRONIC
SALES SERVICES TOTAL
------------ ----------- --------
<S> <C> <C> <C>
Revenues..................................... $3,162 $4,062 $7,224
Cost of revenues............................. 1,648 2,781 4,429
------ ------ ------
Gross margin............................... $1,514 $1,281 $2,795
====== ====== ======
</TABLE>
16. SUBSEQUENT EVENTS (UNAUDITED):
In November 1999, the Company filed a registration statement with the
Securities and Exchange Commission that would permit the Company to sell shares
of the Company's common stock in connection with a proposed initial public
offering (IPO). Approximately $3.5 million of the proceeds will be used to
retire outstanding promissory notes. The balance of the proceeds will be used
for working capital and for other general corporate purposes, including the
funding of future acquisitions.
F-28
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
If the offering is consummated under the terms presently anticipated, each of
the outstanding shares of the Company's Series B preferred stock will
automatically convert into 1.09 shares of common stock. Each of the shares of
Series A-1 preferred stock will convert into 0.33886 shares of common stock.
On November 22, 1999, the board of directors approved a one-for-three
reverse stock split which is subject to shareholders' approval. The split would
be effective upon the completion of an IPO and would affect all outstanding
shares of common stock. All common share and per share data in these financial
statements have been retroactively adjusted to give effect to the reverse stock
split. In addition, the conversion and exercise provisions of the outstanding
shares of preferred stock, stock options and warrants have been adjusted
accordingly.
In October 1999, the Company issued a $3,000,000 convertible note. The note
is convertible into a number of shares equal to the quotient obtained by
dividing the aggregate outstanding principal due on the date of conversion by an
amount equal to 50% of the IPO share price. Based upon the above terms and using
a per share fair value equal to the Company's per share value of stock provided
in an acquisition that occurred in October of 1999, the convertible note has an
embedded beneficial conversion feature of $3,000,000.
The beneficial conversion feature will be recorded as a debt discount of
$3 million with a corresponding increase to paid in capital. The debt discount
will be amortized straight-line to interest expense at $500,000 per month
through March 2000. The note was extended in November to July 2000. The
remaining amortization will be amortized over the remaining period. Upon the
completion of the IPO any unamortized balance will be expensed. In connection
with the $3,000,000 convertible note, the Company issued a warrant to purchase
13,333 shares of common stock at an exercise price equal to 60% of the IPO share
price. This warrant may be exercised at any time following the completion of the
IPO. The warrant terminates on October 6, 2002.
Subsequent to June 30, 1999, the Company committed to issue an aggregate of
38,664 shares of common stock at $7.50 per share. 28,665 shares were committed
to outside investors, 6,666 shares were committed to a director and 3,333 shares
to an employee. 16,665 of the committed shares were from the conversion of notes
receivable and 21,999 were to be sold for cash. No additional services or
financing was involved with the issuance of the common stock, and all shares
were subsequently issued at the fair-market value at the date of issuance.
SUBSEQUENT BUSINESS COMBINATIONS
Subsequent to June 30, 1999, the Company acquired the following acquisitions
using the purchase method of accounting, applying the provisions of Accounting
Principles Board Opinion No. 16, "Business Combinations." As a result, the
Company recorded the identifiable assets and liabilities of the acquired
companies at their estimated fair values with the excess of the purchase price
over these amounts being recorded as goodwill. Intangibles including acquired
software, customer lists, covenants not to compete and assembled workforce are
valued based upon discounted future cash flows associated with the related
intangible asset and its economic life. The acquired deferred revenues were
recorded at values which approximate the present value of cost that will be
incurred to fulfill maintenance and support obligations plus a normal profit.
The financial statements reflect the operations of the acquired businesses for
the periods after their respective dates of acquisition. All purchase price
allocations reported in historical financial statements are substantially final
and any final
F-29
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
adjustments are not expected to be material. The consideration for the purchases
was cash, notes and company stock. The value of the Company's stock given in
consideration was determined through a combination of negotiation between the
buyer and the seller and by comparing the value used to other shares issued for
cash.
The Company acquired Brand Software, Inc. in July 1999. The purchase price
of $2,207,000 comprised 160,804 shares of common stock issued at $9.60 per share
for a total of $1,544,000 in common stock, 20,000 shares of Series B preferred
stock issued at $12.00 per share for a total of $240,000 in preferred stock, and
67,506 stock options with exercise prices ranging from $1.89 to $9.60 per share
for a total of $423,000 in stock options. The fair value of the options granted
and assumed was determined using the Black-Scholes option pricing model.
The Company acquired Mariner Systems, Inc. in August 1999. The purchase
price of $10,577,000 comprised $190,000 in notes payable and 873,770 shares of
common stock issued at $11.10 per share for a total of $9,699,000 in common
stock, and 179,816 stock options with exercise prices ranging from $0.06 to
$62.82 per share for a total of $688,000 in stock options. The fair value of the
options granted and assumed was determined using the Black-Scholes option
pricing model.
The Company acquired Care Information Systems, Inc., Health Information
Network and Logos Systems, Inc. during the three months ended September 30,
1999. The purchase price of $1,803,000 comprised $442,000 in notes payable and
141,813 shares of common stock issued at $9.60 per share for a total of
$1,361,000 in common stock.
The Company acquired CSS, Inc. in October 1999. The purchase price of
$1,350,000 comprised of $230,000 in cash and 71,089 shares of common stock
issued at $15.75 per share.
The Company acquired Pepware Software, Inc. in October 1999. The purchase
price of $365,000 comprised $50,000 in notes payable and 20,000 shares of common
stock issued at $15.75 per share for a total of $315,000 in common stock.
The Company acquired Data Decisions, Inc. in October 1999. The purchase
price of $2,488,000 comprised $78,000 in cash, $222,000 in notes payable and
138,943 shares of common stock issued at $15.75 per share for a total of
$2,188,000 in common stock.
The Company acquired Computerized Doctors Systems, Inc. in October 1999. The
purchase price of $1,912,000 comprised 113,413 shares of common stock issued at
$15.75 per share and 17,756 stock options with an exercise price of $15.75 per
share for a total of $126,000 in stock options.
The Company acquired Medical Digital Technologies, Inc. in October 1999. The
purchase price of $2,320,000 comprised $300,000 in cash, $500,000 in notes
payable and 96,491 shares of common stock issued at $15.75 per share for a total
of $1,520,000 in common stock.
The following unaudited pro forma information presents the consolidated
results of operations of the Company as if the above acquisitions, and those
discussed in Note 3, had occurred as of the beginning of 1998. The pro forma
information is not necessarily indicative of what would have occurred
F-30
<PAGE>
VANTAGEMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
had the acquisitions been made as of January 1, 1998, nor is it indicative of
future results of operations (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------ ---------------
1998 1999
------------ ---------------
<S> <C> <C>
Revenue............................................ $23,388 $13,622
Depreciation and amortization...................... 5,943 3,061
Loss available to common stockholders.............. (9,764) (4,416)
Basic and diluted loss per share................... (3.12) (1.38)
</TABLE>
F-31
<PAGE>
VANTAGEMED CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
SEPTEMBER 30, SEPTEMBER 30,
1999 1999
------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,190
Accounts receivable, net of allowance of $329............. 1,773
Notes receivable, current portion......................... 64
Inventories............................................... 273
Prepaid expenses and other................................ 546
-------
Total current assets.................................... 3,846
NOTES RECEIVABLE, net of current portion.................... 141
PROPERTY AND EQUIPMENT, net................................. 2,573
INTANGIBLES, net of accumulated amortization of $3,612...... 24,155
-------
Total assets............................................ $30,715
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Book overdraft............................................ $ 299
Current portion of long-term debt......................... 2,261
Accounts payable.......................................... 1,143
Accrued liabilities....................................... 1,746
Customer deposits and deferred revenue.................... 2,567
-------
Total current liabilities............................... 8,016
LONG-TERM DEBT, net of current portion...................... 2,243
-------
Total liabilities....................................... 10,259
-------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 5,000,000 shares
authorized
Series A-1--1,795,300 shares outstanding at September 30,
1999 (aggregate liquidation preference of $4,722); no
pro forma shares outstanding............................ 2 $ --
Series B--120,000 shares outstanding at September 30, 1999
(aggregate liquidation preference of $1,440); no pro
forma shares outstanding................................ -- --
Common stock, $0.001 par value, 20,000,000 shares
authorized;
3,906,198 shares outstanding at September 30, 1999;
4,636,532
pro forma shares outstanding............................ 4 5
Additional paid-in capital.................................. 28,062 28,063
Accumulated deficit......................................... (7,612) (7,612)
------- -------
Total stockholders' equity.............................. 20,456 20,456
------- -------
Total liabilities and stockholders' equity.............. $30,715 $30,715
======= =======
</TABLE>
The accompanying notes are an integral part of these statements
F-32
<PAGE>
1.16
VANTAGEMED CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1998 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Software and systems...................................... $ 2,591 $ 5,751
Customer support and electronic services.................. 3,452 6,709
---------- ----------
Total revenues.......................................... 6,043 12,460
OPERATING COSTS AND EXPENSES:
Software and systems...................................... 1,427 2,603
Customer support and electronic services.................. 2,355 4,462
Selling, general and administrative....................... 2,951 6,213
Product development....................................... 1,015 2,797
Depreciation and amortization............................. 976 2,600
---------- ----------
Total operating costs and expenses...................... 8,724 18,675
---------- ----------
LOSS FROM OPERATIONS........................................ (2,681) (6,215)
---------- ----------
INTEREST INCOME (EXPENSE):
Interest income........................................... 35 23
Interest expense.......................................... (192) (442)
---------- ----------
Total interest income (expense)......................... (157) (419)
---------- ----------
LOSS BEFORE INCOME TAXES.................................... (2,838) (6,634)
BENEFIT FOR INCOME TAXES.................................... (218) (3,284)
---------- ----------
Net loss................................................ $ (2,620) $ (3,350)
---------- ----------
Basic and diluted loss per share............................ $ (1.25) $ (1.17)
---------- ----------
Weighted-average shares--basic and diluted.................. 2,088,741 2,873,550
---------- ----------
Pro forma basic and diluted loss per share.................. $ (1.16) $ (0.93)
---------- ----------
Pro forma weighted-average shares--basic and diluted........ 2,253,482 3,593,945
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE>
VANTAGEMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(2,620) $(3,350)
Adjustments to reconcile net loss to net cash used for
operating activities-
Depreciation and amortization........................... 976 2,600
Bad debt expense........................................ 126 128
Provision for deferred income taxes..................... (438) (3,275)
Changes in assets and liabilities, net of effects from
acquisitions-
Accounts receivable................................... (162) (176)
Inventories........................................... 2 (151)
Prepaid expenses and other............................ (47) (141)
Book overdraft........................................ -- (1,333)
Accounts payable and accrued liabilities.............. 286 (529)
Customer deposits and deferred revenue................ 277 (346)
------- -------
Net cash used for operating activities.............. (1,600) (6,573)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (61) (262)
Cash received from businesses acquired, net............... 270 4,200
------- -------
Net cash provided by investing activities........... 209 3,938
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 580 636
Proceeds from issuance of preferred stock................. -- 3,000
Proceeds from issuance long-term debt..................... 967 374
Payments on long-term debt................................ (364) (620)
Distributions to shareholders............................. (74) --
------- -------
Net cash provided by financing activities........... 1,109 3,390
------- -------
Net change in cash and cash equivalents............. (282) 755
CASH AND CASH EQUIVALENTS, beginning of period.............. 680 435
------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 398 $ 1,190
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 176 $ 404
Cash paid for income taxes................................ $ 1 $ 7
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE>
VANTAGEMED CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. ORGANIZATION AND BASIS OF PRESENTATION:
The information presented at September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 is unaudited, but includes all adjustments
which the management of VantageMed Corporation and Subsidiaries (the Company)
believes to be necessary for a fair presentation of the financial condition,
results of operations and cash flows for the periods presented. Historical
results may not be indicative of the results to be expected in the future.
Certain footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. These unaudited consolidated financial statement notes
should be read in conjunction with the remainder of this document.
OPERATIONS
The Company was incorporated in California on June 11, 1995. On April 9,
1997, the Company reincorporated in Delaware. The Company began operations in
July 1997 with its first acquisition. The Company is a diversified healthcare
information systems supplier headquartered in Sacramento, California with
regional offices in Walnut Creek and San Francisco, California; Honolulu,
Hawaii; Seattle, Washington; Kansas City, Missouri; Pittsburgh, Pennsylvania;
Flint, Michigan; Pompton Plains, New Jersey; Detroit, Michigan; Boston,
Massachusetts; Springfield, Illinois; Boulder, Colorado; Salt Lake City, Utah
and Houston, Texas. The Company develops, sells, installs and supports software
products and services that assist physicians, dentists, physician organizations
and other healthcare providers in the operation of their practices and
organizations. The Company is building a national distribution network by
acquiring established regional healthcare practice management systems companies
to sell and support its new generation software and services.
The practice management software products offered by the Company provide
physicians, dentists and other healthcare professionals with comprehensive
office management software designed to automate the administrative, financial,
practice management and clinical requirements of a practice. These systems range
in capacity from one to approximately one hundred users. The Company also
provides software, network and hardware support, training, electronic claims
processing, electronic statement printing and mailing and electronic remittance
advices.
RISKS AND UNCERTAINTIES
The Company has suffered recurring losses from operations since its
inception and does not currently have a substantial amount of operating
reserves. The Company operates with a negative cash flow primarily because of
acquisition expenses, prior debt incurred by the acquired companies, and the
costs of building infrastructure for future growth. In order to make
acquisitions and pay for the startup losses, the Company must raise additional
capital. The Company is also subject to a number of additional risks, including,
but not limited to, risks associated with acquisitions (successful integration
and operation of new products, technologies and businesses), uncertainties in
the healthcare industry, and dependence on the medical and dental market. There
can be no assurance that the Company will successfully integrate acquired
subsidiaries.
F-35
<PAGE>
VANTAGEMED CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
2. BUSINESS COMBINATIONS:
Each of the following acquisitions was accounted for under the purchase
method of accounting, applying the provisions of Accounting Principles Board
Opinion No. 16, "Business Combinations." As a result, the Company recorded the
identifiable assets and liabilities of the acquired companies at their estimated
fair values with the excess of the purchase price over these amounts being
recorded as goodwill. The financial statements reflect the operations of the
acquired businesses for the periods after their respective dates of acquisition.
The consideration for the purchases was cash, notes and company stock. The value
of the Company's stock given in consideration was determined through a
combination of negotiation between the buyer and the seller and by comparing the
value used to other shares issued for cash.
PURCHASES DURING THE SIX MONTHS ENDED JUNE 30, 1999
The Company acquired Civitec Healthcare Computers, Inc. in April 1999. The
purchase price of $1,386,000 comprised $127,000 in cash, $408,000 in notes
payable and 88,667 shares of common stock issued at $9.60 per share for a total
of $851,000 in common stock.
The Company acquired Medical Software Solutions, Inc. in May 1999. The
purchase price of $1,278,000 comprised $460,000 in notes payable and 85,156
shares of common stock issued at $9.60 per share for a total of $818,000 in
common stock.
The Company acquired Acrotrex Corporation and Metropolitan Information
Services, Inc. in 1999. The purchase price of $818,000 comprised $25,000 in
cash, $106,000 in notes payable and 71,563 shares of common stock issued at
$9.60 per share for a total of $687,000 in common stock.
PURCHASES DURING THE THREE MONTHS ENDED SEPTEMBER 30, 1999
The Company acquired Brand Software, Inc. in July 1999. The purchase price
of $2,207,000 comprised 160,804 shares of common stock issued at $9.60 per share
for a total of $1,544,000 in common stock, 20,000 shares of Series B preferred
stock issued at $12.00 per share for a total of $240,000 in preferred stock, and
67,506 stock options with exercise prices ranging from $1.89 to $9.60 per share
for a total of $423,000 in stock options. The fair value of the options granted
and assumed was determined using the Black-Scholes option pricing model.
The Company acquired Mariner Systems, Inc. in August 1999. The purchase
price of $10,577 comprised $190,000 in notes payable and 873,770 shares of
common stock issued at $11.10 per share for a total of $9,699,000 in common
stock, and 179,816 stock options with exercise prices ranging from $0.06 to
$62.82 per share for a total of $688,000 in stock options. The fair value of the
options granted and assumed was determined using the Black-Scholes option
pricing model.
The Company acquired Care Information Systems, Inc., Health Information
Network and Logos Systems, Inc. during the three months ended September 30,
1999. The purchase price of $1,803,000 comprised $442,000 in notes payable and
141,813 shares of common stock issued at $9.60 per share for a total of
$1,361,000 in common stock.
The following unaudited pro forma information presents the consolidated
results of operations of the Company as if all of the acquisitions had occurred
as of the beginning of 1998. The pro forma information is not necessarily
indicative of what would have occurred had the acquisitions been made
F-36
<PAGE>
VANTAGEMED CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
2. BUSINESS COMBINATIONS: (CONTINUED)
as of January 1, 1998, nor is it indicative of future results of operations (in
thousands except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Revenues.................................................. $13,380 $16,013
Depreciation and amortization............................. 3,818 4,193
Loss available to common stockholders..................... (6,958) (5,364)
Basic and diluted loss per share.......................... 2.69 (1.80)
</TABLE>
Common equivalent shares from preferred stock, stock options, warrants, and
convertible notes in the amount of 543,548 and 1,311,932 for the nine months
ended September 30, 1998 and 1999 have been excluded from the computation of
diluted loss per share in all loss periods, as their effect is antidilutive.
3. STOCKHOLDERS' EQUITY:
On November 22, 1999, the board of directors approved a one-for-three
reverse stock split which is subject to shareholders' approval. The split would
be effective upon the completion of an IPO and would affect all outstanding
shares of common stock. All common share and per share data in these financial
statements have been retroactively adjusted to give effect to the reverse stock
split. In addition, the conversion and exercise provisions of the outstanding
shares of preferred stock, stock options and warrants have been adjusted
accordingly.
During the nine months ended June 30, 1999, in addition to the shares issued
in connection with acquisitions, the Company issued the following shares:
- 76,933 common shares for $636,000 cash
- 16,666 common shares converted from a note for $125,000
- 955 common shares for $6,000 cash in accordance with stock option
agreements
- 1,184,654 Series A-1 preferred shares for $3,000,000 cash
- 197,628 Series A-1 preferred shares from a line of credit for $500,000
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
In November 1999, the Company filed a registration statement with the
Securities and Exchange Commission that would permit the Company to sell shares
of the Company's common stock in connection with a proposed initial public
offering (IPO). If the IPO is consummated under the terms presently anticipated,
all of the currently outstanding shares of Series A-1 and Series B preferred
stock will be automatically converted into shares of common stock upon the
closing of the IPO. The effect of this transaction has been reflected as
unaudited pro forma stockholders' equity in the accompanying balance sheet as of
September 30, 1999.
F-37
<PAGE>
VANTAGEMED CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
4. EARNINGS PER SHARE:
Basic loss per share is computed using the weighted-average number of shares
of common stock outstanding while diluted loss per share reflects the potential
dilution that would occur if preferred stock had been converted and stock
options and warrants had been exercised. Common equivalent shares from preferred
stock, stock options and convertible notes have been excluded from the
computation of diluted loss per share, as their effect is antidilutive.
Pro forma basic and diluted loss per share has been calculated assuming the
conversion of Series A-1 and Series B preferred stock into common shares, as if
the shares had been converted on the dates of their issuance.
F-38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of VantageMed Corporation:
We have audited the accompanying balance sheet of ATEK COMPUTER
DISTRIBUTORS, INC. (a Delaware Corporation) as of March 31, 1997, and the
related statements of operations, stockholders' deficit and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Atek Computer
Distributors, Inc. as of March 31, 1997 and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Sacramento, California
October 22, 1999
F-39
<PAGE>
ATEK COMPUTER DISTRIBUTORS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
--------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 12,833 $ 36,154
Accounts receivable, net of allowance of $38,250 and
$31,636 for March 31, 1997 and June 30, 1997,
respectively............................................ 45,050 54,825
Inventories............................................... 40,852 42,485
Prepaid expenses and other................................ 3,390 3,390
--------- ---------
Total current assets.................................... 102,125 136,854
NOTE RECEIVABLE............................................. 25,000 0
PROPERTY AND EQUIPMENT, net................................. 86,827 75,382
--------- ---------
Total assets............................................ $ 213,952 $ 212,236
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 112,656 $ 106,717
Accrued liabilities....................................... 68,003 110,901
Customer deposits and deferred revenue.................... 297,799 323,006
Current portion of long-term debt......................... 377,549 363,792
--------- ---------
Total current liabilities............................... 856,007 904,416
LONG-TERM DEBT, net of current portion...................... 79,846 79,537
--------- ---------
Total liabilities....................................... 935,853 983,953
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 7)
STOCKHOLDERS' DEFICIT:
Common stock, no par value, 2,000 shares authorized, 1,369
shares outstanding...................................... 166,900 166,900
Accumulated deficit....................................... (888,801) (938,617)
--------- ---------
Total stockholders' deficit............................. (721,901) (771,717)
--------- ---------
Total liabilities and stockholders' deficit............. $ 213,952 $ 212,236
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE>
ATEK COMPUTER DISTRIBUTORS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED -------------------
MARCH 31, JUNE 30, JUNE 30,
1997 1996 1997
---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES.................................................... $1,912,523 $510,625 $304,194
OPERATING COST AND EXPENSES:
Cost of revenues.......................................... 979,603 260,497 144,018
Selling, general and administrative....................... 1,127,836 226,652 195,432
---------- -------- --------
Income (loss) from operations........................... (194,916) 23,476 (35,256)
OTHER INCOME (EXPENSE):
Interest, net............................................. (61,884) (16,593) (14,600)
Other, net................................................ 0 112 40
---------- -------- --------
Net income (loss)....................................... $ (256,800) $ 6,995 $(49,816)
========== ======== ========
</TABLE>
ATEK COMPUTER DISTRIBUTORS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1996............................ 1,369 $166,900 $(632,001) $(465,101)
Net loss........................................... 0 0 (256,800) (256,800)
----- -------- --------- ---------
BALANCE AT MARCH 31, 1997............................ 1,369 166,900 (888,801) (721,901)
Net loss (for three months)........................ 0 0 (49,816) (49,816)
----- -------- --------- ---------
BALANCE AT JUNE 30, 1997 (UNAUDITED)................. 1,369 $166,900 $(938,617) $(771,717)
===== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE>
ATEK COMPUTER DISTRIBUTORS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
MARCH 31, -------------------------------
1997 JUNE 30, 1996 JUNE 30, 1997
---------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $(256,800) $ 6,995 $(49,816)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities--
Depreciation and amortization........................ 31,173 7,408 9,267
Bad debt expense..................................... 38,250 12,766 7,909
Changes in assets and liabilities, net of effects
from acquisitions--
Accounts receivable................................ 164,446 (38,965) (17,684)
Inventories........................................ 14,127 7,688 (1,633)
Prepaid expenses and other......................... (3,390) 0 0
Accounts payable and accrued liabilities........... (117,624) (12,006) 36,959
Customer deposits and deferred revenue............. (78,368) (47,323) 25,207
--------- -------- --------
Net cash provided by (used for) operating
activities..................................... (208,186) (63,437) 10,209
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................... (24,160) 0 0
Proceeds from sale of property and equipment........... 0 0 2,178
--------- -------- --------
Net cash provided by (used for) investing
activities..................................... (24,160) 0 2,178
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............... 217,264 40,000 0
Payments on long-term debt............................. 0 (4,471) (14,066)
Issuance of notes receivable........................... (25,000) 0 0
Settlement of notes receivable......................... 0 0 25,000
--------- -------- --------
Net cash provided by financing activities........ 192,264 35,529 10,934
--------- -------- --------
Net change in cash............................... (40,082) (27,908) 23,321
CASH, beginning of period................................ 52,915 52,915 12,833
--------- -------- --------
CASH, end of period...................................... $ 12,833 $ 25,007 $ 36,154
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................. $ 38,317 $ 11,674 $ 10,369
Cash paid for income taxes............................. $ 800 $ 0 $ 0
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE>
ATEK COMPUTER DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
1. ORGANIZATION:
Atek Computer Distributors, Inc. (the Company) is a Delaware corporation.
The Company is a healthcare information systems supplier that operates in
California. The Company sells, installs, and supports computerized practice
management systems, and provides related services to medical and dental
practices. The Company was acquired by VantageMed Corporation (VantageMed) in
July 1997 under an agreement in which the Company's owners exchanged their total
1,369 shares of common stock for 193,487 shares of VantageMed's common stock.
Under this agreement, VantageMed then contributed $50,000 to pay certain notes
payable of the Company. Also under the agreement VantageMed has the right to
redeem up to 47.5% of the VantageMed common shares held by the Company's
previous owners for a price ranging between $8.28 and $16.56 per share,
depending upon the time redeemed.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Management estimates that the carrying amounts of the Company's financial
instruments included in the accompanying consolidated balance sheets are not
materially different from their fair values.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of computer equipment purchased to fill customer
orders.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, which are generally three to seven years. Leasehold improvements are
amortized over the term of the lease. Maintenance and repairs are expensed as
incurred.
REVENUE RECOGNITION
Revenue is primarily generated from new software installations, software
conversions and upgrades for existing customers, sales of hardware manufactured
by other companies, hardware maintenance, software support and electronic
transaction services. In accordance with American Institute of Certified Public
Accountants ("AICPA") Statement of Position 97-2 ("SOP 97-2"), "Software Revenue
Recognition," revenue from software product sales is recognized upon delivery to
the customer provided the collection of the sales proceeds is deemed probable,
the fee is fixed and determinable and no significant vendor obligations remain.
Other revenue, including hardware sales, maintenance, licensing and support
activities are recognized as hardware is shipped or as services are provided.
For arrangements that include multiple elements, the Company recognizes revenue
based on the fair value of each element determined by the price charged when the
same element is sold separately.
F-43
<PAGE>
ATEK COMPUTER DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: (CONTINUED)
Deferred revenue primarily consists of revenue deferred under annual
maintenance and license agreements on which amounts have been received from
customers and for which the earnings process has not been completed.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" under which deferred income taxes are provided
based upon enacted tax laws and rates applicable to the periods in which taxes
become payable. A valuation allowance is provided against the future benefits of
deferred tax assets if it is determined that it is more likely than not that the
future tax benefits associated with the deferred tax asset will not be realized.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
--------- -----------
(UNAUDITED)
<S> <C> <C>
Office and computer equipment......................... $ 71,468 $ 117,382
Furniture and fixtures................................ 177,566 177,566
Vehicles.............................................. 88,450 88,450
Leased equipment...................................... 48,092 0
--------- ---------
385,576 383,398
Less: Accumulated depreciation........................ (298,749) (308,016)
--------- ---------
$ 86,827 $ 75,382
========= =========
</TABLE>
Depreciation expense was $31,173, $7,408 (unaudited) and $9,267 (unaudited),
for the year ending March 31, 1997 and for the three months ending June 30, 1996
and 1997, respectively.
F-44
<PAGE>
ATEK COMPUTER DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
4. LONG-TERM DEBT:
The Company's long-term debt consists of:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
Note payable to individual, secured by accounts
receivable, interest at 10%, payable on demand...... $ 130,208 $ 125,000
Note payable to financing companies, secured by
vehicles, interest ranging from 6.75% to 7.75%,
payable in monthly installments through June 2000... 23,840 20,554
Note payable to shareholder, secured by vehicle,
interest at 15%, due on demand...................... 3,594 3,683
Note payable to shareholder, secured by software,
interest at 11%, payable in monthly installments
through January 1998................................ 5,160 3,661
Note payable to shareholder, unsecured, interest at
12%, due on demand.................................. 50,000 51,515
Notes payable to shareholders, unsecured, interest
ranging from 10% to 12%, due in monthly installments
through July 1999................................... 198,941 203,186
Note payable to third party, unsecured, interest at
10%, payable in monthly installments through April
1997................................................ 500 0
Capital leases payable, secured by equipment or
vehicles, payable in monthly installments through
August 1998......................................... 45,152 35,730
--------- ---------
Total............................................... 457,395 443,329
Current portion..................................... (377,549) (363,792)
--------- ---------
Notes payable, less current portion................. $ 79,846 $ 79,537
========= =========
</TABLE>
Future minimum payments under all debt obligations excluding capital lease
obligations, during the 12 month periods subsequent to June 30, 1997, are as
follows:
<TABLE>
<S> <C>
1998........................................................ $363,792
1999........................................................ 79,067
2000........................................................ 470
--------
$443,329
========
</TABLE>
F-45
<PAGE>
ATEK COMPUTER DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
5. OPERATING LEASE OBLIGATION:
The Company leases facilities under a non-cancellable operating lease
arrangement. The minimum future lease payments required under the Company's
operating lease at June 30, 1997 is as follows:
<TABLE>
<S> <C>
1998........................................................ $ 72,972
1999........................................................ 72,972
2000........................................................ 72,972
2001........................................................ 72,972
2002........................................................ 72,972
Thereafter.................................................. 36,486
--------
$401,346
========
</TABLE>
Rent expense for this lease was $30,405, $0 (unaudited), and $18,243
(unaudited) for the year ending March 31, 1997 and the three months ending
June 30, 1996 and 1997, respectively.
6. INCOME TAXES:
The provision (benefit) for income taxes is included in selling, general and
administrative expenses and consists of:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED -------------------
MARCH 31, JUNE 30, JUNE 30,
1997 1996 1997
---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Federal...................................... $ (82,176) $2,238 $(15,942)
State........................................ (23,112) 630 (4,483)
--------- ------ --------
Total current.............................. (105,288) 2,868 (20,425)
Deferred:
Federal...................................... (2,804) 306 (2,176)
State........................................ (789) 85 86
--------- ------ --------
Total deferred............................. (3,593) 391 (2,090)
--------- ------ --------
Change in valuation allowance.................. 108,881 0 22,515
--------- ------ --------
Net income tax provision (benefit)......... $ 0 $3,259 $ 0
========= ====== ========
</TABLE>
F-46
<PAGE>
ATEK COMPUTER DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
6. INCOME TAXES: (CONTINUED)
Deferred taxes result from temporary differences between the bases of assets
and liabilities for financial reporting purposes and such amounts as measured by
tax laws and regulations. The sources of the temporary differences and their
effect of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Accruals and reserves................................ $ 27,881 $ 45,469
Depreciation......................................... 7,817 7,695
-------- --------
35,698 53,164
Valuation allowance.................................... (35,698) (53,164)
-------- --------
Net deferred tax asset............................. $ 0 $ 0
======== ========
</TABLE>
The following table accounts for the differences between the actual tax
provision and amounts obtained by applying the Statutory U.S. Federal rate to
the income (loss) before income taxes.
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, JUNE 30,
1997 1996 1997
--------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Expected tax benefit............................ $(89,880) $2,448 $(17,436)
Increase (decrease) in income taxes resulting
from:
State income benefit.......................... (15,408) 420 (2,989)
Change in deferred tax asset valuation
allowance................................... 108,881 0 22,515
Other, net.................................... (3,593) 391 (2,090)
-------- ------ --------
Net income tax provision (benefit).............. $ 0 $3,259 $ 0
======== ====== ========
</TABLE>
7. CONTINGENCIES:
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. As of
June 30, 1997, the Company was not a party to any legal proceedings, which, if
decided adversely to the Company, would, individually or in the aggregate, have
a material adverse effect on the Company's business, financial condition or
results of operations.
F-47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Brand Software, Inc.:
We have audited the accompanying balance sheet of Brand Software, Inc. (a
New York corporation) as of March 31, 1999, and the related statements of
operations, stockholders' deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Brand Software, Inc. as of
March 31, 1999, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
October 18, 1999
F-48
<PAGE>
BRAND SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1999
--------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 75,280 $ 55,522
PROPERTY AND EQUIPMENT, AT COST:
Computer hardware and software............................ 89,553 98,198
Office equipment.......................................... 46,061 48,908
Equipment under capital lease............................. 27,702 27,702
Furniture and fixtures.................................... 5,899 7,484
--------- ---------
Total assets............................................ 169,215 182,292
Less--Accumulated depreciation.............................. 103,130 107,164
--------- ---------
66,085 75,128
--------- ---------
DEPOSITS.................................................... 1,359 13,258
--------- ---------
Total assets............................................ $ 142,724 $ 143,908
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Line of credit............................................ $ 47,250 $ 47,250
Current portion of capital lease obligations.............. 3,579 4,652
Current portion of notes payable.......................... 9,547 10,914
Accounts payable.......................................... 167,324 137,718
Accrued expenses.......................................... 116,413 109,674
Deferred maintenance revenue.............................. 500,179 546,000
--------- ---------
Total current liabilities............................... 844,292 856,208
--------- ---------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION............. 20,873 18,991
NOTES PAYABLE, LESS CURRENT PORTION......................... 19,376 15,717
COMMITMENTS (Note 6)
STOCKHOLDERS' DEFICIT:
Common stock, no par value--
Authorized--5,000 shares
Issued and outstanding--2,364 shares.................... 81,520 81,520
Accumulated deficit....................................... (823,337) (828,528)
--------- ---------
Total stockholders' deficit............................. (741,817) (747,008)
--------- ---------
Total liabilities and stockholders' deficit............. $ 142,724 $ 143,908
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
BRAND SOFTWARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30,
MARCH 31, -------------------------
1999 1998 1999
---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
License.................................................. $1,030,702 $213,785 $340,099
Service and other........................................ 465,068 117,197 201,224
---------- -------- --------
1,495,770 330,982 541,323
OPERATING EXPENSES:
Cost of revenues......................................... 72,119 14,670 24,579
Selling, general and administrative...................... 1,484,135 325,009 472,495
Product development...................................... 128,435 32,070 42,323
Depreciation............................................. 12,589 3,056 4,034
---------- -------- --------
Total operating expenses............................... 1,697,278 374,805 543,431
---------- -------- --------
Loss from operations................................... (201,508) (43,823) (2,108)
INTEREST EXPENSE........................................... (15,874) (2,996) (4,583)
GAIN ON SALE OF EQUIPMENT.................................. -- -- 1,500
---------- -------- --------
Net loss............................................... $ (217,382) $(46,819) $ (5,191)
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
BRAND SOFTWARE, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED MARCH 31, 1999 AND THE
THREE MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE, MARCH 31, 1998............................... 2,364 $81,520 $(605,955) $(524,435)
Net loss............................................ -- -- (217,382) (217,382)
----- ------- --------- ---------
BALANCE, MARCH 31, 1999............................... 2,364 81,520 (823,337) (741,817)
Net loss (unaudited)................................ -- -- (5,191) (5,191)
----- ------- --------- ---------
BALANCE, JUNE 30, 1999 (UNAUDITED).................... 2,364 $81,520 $(828,528) $(747,008)
===== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
BRAND SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30,
MARCH 31, -------------------
1999 1998 1999
---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(217,382) $(46,819) $ (5,191)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation............................................ 12,589 3,056 4,034
Gain on disposal of equipment........................... -- -- (1,500)
Changes in assets and liabilities--
Accounts payable...................................... 2,694 (8,046) (29,606)
Accrued expenses...................................... 77,512 12,758 (6,739)
Deferred maintenance revenue.......................... 192,179 31,000 45,821
--------- -------- --------
Net cash provided by (used in) operating
activities........................................ 67,592 (8,051) 6,819
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (30,797) (2,656) (13,077)
Proceeds from sales of equipment.......................... -- -- 1,500
Increase in deposits...................................... (1,359) -- (11,899)
--------- -------- --------
Net cash used in investing activities............... (32,156) (2,656) (23,476)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit.......................... 20,000 20,000 --
Principal payments on notes payable....................... (8,578) (2,060) (2,292)
Principal payments on capital lease obligations........... (3,250) -- (809)
--------- -------- --------
Net cash provided by (used in) financing
activities........................................ 8,172 17,940 (3,101)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 43,608 7,233 (19,758)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 31,672 31,672 75,280
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 75,280 $ 38,905 $ 55,522
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest.................... $ 15,036 $ 2,996 $ 4,378
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING:
Equipment acquired under capital lease obligations........ $ 27,702 $ 22,456 $ --
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
BRAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Brand Software, Inc. (the Company) is a developer and distributor of billing
and practice management software for mental health professionals. The Therapist
Helper-TM- software is used by psychologists, professional counselors and social
workers nationwide.
Effective July 1999, the Company was acquired by VantageMed Corporation
(VMC). To affect this acquisition, the shareholders of the Company agreed to
exchange substantially all of the assets and certain liabilities of the Company
for 160,804 shares of VMC Common Stock and 20,000 shares of VMC Preferred
Series B Stock. In addition, outstanding options of the Company were converted
into fully vested 25,837 VMC Common Stock options and 41,669 additional VMC
common stock options were issued. The exercise price on these options range from
$1.89 to $2.52 and vest from three to five years from the original grant date.
It is anticipated that this merger will be accounted for as a purchase, in
accordance with Accounting Principles Board (APB) Option No. 16, BUSINESS
COMBINATIONS.
The Company is subject to a number of risks associated with emerging,
technology-oriented companies. Principal among these are the risks associated
with marketing the Company's products, dependence upon key individuals,
competition from larger, more financially independent competitors and the need
to obtain adequate financing to fund future operations. The Company has incurred
losses of $828,000 from inception through June 30, 1999. These losses have been
funded through bank and stockholder loans.
The accompanying financial statements reflect the application of certain
significant accounting policies, as described below and in the accompanying
notes to financial statements.
(a) INTERIM FINANCIAL STATEMENTS
The accompanying statements of operations and cash flows for the three
months ended June 30, 1999 and 1998 are unaudited, but in the opinion of
management, include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of results for these interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted, although the Company believes that the disclosures included are
adequate to make the information presented not misleading. The results of
operations for the three months ended June 30, 1999 and 1998 are not necessarily
indicative of the results to be expected for the entire fiscal year.
(b) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(c) REVENUE RECOGNITION
The Company recognizes revenue in accordance with Statement of Position
(SOP) 97-2, "Software Revenue Recognition."
F-53
<PAGE>
BRAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
License revenue consists of software licenses. In accordance with SOP 97-2,
revenue from software license sales is recognized upon delivery to the customer
provided the collection of the sale proceeds is deemed probable, the fee is
fixed and determinable, and no significant vendor obligations remain.
Customer support revenue is generated from software support and maintenance
agreements. Revenue from support and maintenance agreements, which are typically
one to three years in length, is recognized ratably over the life of the
contract. Deferred maintenance revenue consists of revenue deferred under annual
support and maintenance agreements on which amounts have been received from
customers and for which the earnings process has not been completed.
(d) DEPRECIATION
The Company provides for depreciation using the straight-line method and
charges to operations amounts estimated to allocate the cost of the assets over
their useful lives, as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- -------------------- -------------
<S> <C>
Computer hardware and software.............................. 3 to 5 years
Office equipment............................................ 5 to 7 years
Equipment under capital leases.............................. Life of lease
Furniture and fixtures...................................... 5 to 7 years
</TABLE>
(e) SOFTWARE DEVELOPMENT COSTS
In accordance with SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, the Company will capitalize
software development costs incurred after technological feasibility of the
software development projects are established. To date, all of the Company's
costs for research and development of software products have been charged to
operations as incurred, since the amount of software development costs incurred
subsequent to the establishment of technological feasibility has been
immaterial.
(f) CONCENTRATIONS OF CREDIT RISK/SIGNIFICANT CUSTOMERS
SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet risk, such as
foreign exchange contracts, option contracts or other foreign hedging
arrangements, or concentration of credit risk.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash and equivalents,
line-of-credit loan, notes payable and accounts payable. The carrying amounts of
these financial instruments approximate fair value.
F-54
<PAGE>
BRAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) ACCRUED EXPENSES
Accrued expenses consisted of payroll and vacation of $50,039 and other
accruals of $66,374 as of March 31, 1999.
(i) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. The Company does not have any items of comprehensive income other than
net income.
(2) LINE OF CREDIT
The Company has up to a $50,000 line of credit with a bank that bears
interest at prime plus 4% (11.75% at March 31, 1999). The line of credit is due
on demand. At March 31, 1999, $47,250 was outstanding. The line is guaranteed by
a stockholder and the president of the Company.
As a result of the merger (Note 1), the Company is in default with certain
provisions of this agreement.
(3) NOTES PAYABLE
Notes payable at March 31, 1999 consist of the following:
<TABLE>
<S> <C>
Promissory note, stockholder, bearing interest at 10.75% per
annum. Due in monthly payments of $325 including interest
and maturing December 2001. Secured by assets of the
Company................................................... $ 9,235
Promissory note bearing interest at 10.75% per annum. Due in
monthly payments of $692 including interest and maturing
December 2001. Secured by assets of the Company........... 19,688
-------
Total notes payable....................................... 28,923
Less--Current portion....................................... 9,547
-------
$19,376
=======
</TABLE>
Future principal maturities on the above notes are $9,547 in 1999, $10,626
in 2000, and $8,750 in 2001.
(4) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. SFAS No. 109 prescribes an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities.
F-55
<PAGE>
BRAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(4) INCOME TAXES (CONTINUED)
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of March 31, 1999:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Deferred tax assets (liabilities)--
Net operating loss carryforwards.......................... $ 3,000
Cash to accrual........................................... 280,000
Depreciation.............................................. (10,000)
Valuation allowance....................................... (273,000)
---------
$ --
=========
</TABLE>
Due to the uncertainty surrounding the realization of this deferred tax
asset, the Company provided a full valuation reserve against this amount at the
time it was recorded.
At March 31, 1999, the Company had net operating loss carryforwards for
federal and Massachusetts income tax purposes of approximately $8,000. The net
operating loss carryforwards expire through 2018 and are subject to review and
possible adjustment by the Internal Revenue Service (IRS). The Tax Reform Act of
1986 contains provisions that may limit the net operating loss carryforwards
available to be used in any given year in the event of significant changes in
ownership interest, as defined.
(5) STOCK OPTION PLAN
On December 31, 1997, a stock option plan (the Plan) was approved by the
Company's Board of Directors and stockholders. The Plan provides for the award
of options to purchase up to 480 shares of the Company's common stock. Stock
options granted under the Plan may be either incentive stock options or
nonqualified stock options.
The Plan is administered by the Board of Directors, which has the authority
to designate participants and determine the number and type of options to be
granted, the time at which options are exercisable, the method of payment and
any other terms or conditions of the options. Options generally vest annually
over a five-year period and expire 10 years from the date of grant.
The Board of Directors determines the prices at which options may be
exercised under the Plan. To date, the Company has issued only incentive stock
options, the exercise price of which must be at least 100% (110% for incentive
stock options granted to a 10% stockholder) of the fair market value of the
Company's common stock on the date of grant.
F-56
<PAGE>
BRAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(5) STOCK OPTION PLAN (CONTINUED)
The following table summarizes information about stock option activity for
the year ended March 31, 1999 and the three months ended June 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding, March 31, 1998.............................. 340 $144.95
Granted................................................ 120 181.33
--- -------
Outstanding, March 31, 1999.............................. 460 154.44
Granted................................................ -- --
--- -------
Outstanding, June 30, 1999............................... 460 $154.44
=== =======
</TABLE>
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE NUMBER
OUTSTANDING REMAINING EXERCISABLE
AT JUNE 30, CONTRACTUAL AT JUNE 30,
EXERCISE PRICE 1999 LIFE (YEARS) 1999
- -------------- ----------- ------------ -----------
<S> <C> <C> <C>
$135.33................................... 226 8.50 175
$164.03................................... 114 8.50 50
$181.33................................... 120 8.83 27
--- ---
460 252
=== ===
</TABLE>
As of June 30, 1999, the Company may issue future stock options to purchase
20 shares under the plan.
In October 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. SFAS No. 123 requires the measurement of the fair value of stock
options or warrants to be included in the statement of operations or disclosed
in the notes to financial statements. The Company has determined that it will
continue to account for stock-based compensation for employees under Accounting
Principles Board Opinion No. 25 and will elect the disclosure-only alternative
under SFAS No. 123.
The Company has computed the pro forma disclosures required under SFAS
No. 123 for options granted in 1999 using the Black-Scholes option pricing model
prescribed by SFAS No. 123, using the following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 6%
Expected dividend yield..................................... None
Expected lives.............................................. 5 years
Expected volatility......................................... None
Weighed average value of grants............................. $48.07
</TABLE>
F-57
<PAGE>
BRAND SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(5) STOCK OPTION PLAN (CONTINUED)
Had compensation cost for the Company's stock option plan been determined
consistent with SFAS No. 123, the pro forma net loss for the year ended
March 31, 1999 would have been as follows:
<TABLE>
<S> <C>
Net loss--
As reported............................................... $(217,382)
Pro forma................................................. (221,090)
</TABLE>
(6) CAPITAL AND OPERATING LEASE OBLIGATIONS
The Company has operating lease commitments for its facilities, as well as
capital lease commitments for certain equipment, which expire through
June 2004. The approximate future minimum payments under these leases as of
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR LEASE LEASE
- ---- --------- --------
<S> <C> <C>
2000..................................................... $ 69,000 $ 9,650
2001..................................................... 75,000 9,650
2002..................................................... 6,000 9,650
2003..................................................... -- 9,650
2004..................................................... -- 2,412
-------- -------
Total future minimum lease payments.................... $150,000 41,012
========
Less--Amount representing interest....................... 16,560
-------
Present value of future minimum lease payments......... 24,452
Less--Current portion of capital lease obligation........ 3,579
-------
Long-term portion...................................... $20,873
=======
</TABLE>
Rent expense included in the accompanying statements of operation for the
year ended March 31, 1999 and the three months ended June 30, 1998 and 1999 was
approximately $52,000, $12,000 and $14,000, respectively.
F-58
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To VantageMed Corporation:
We have audited the accompanying balance sheet of CIVITEC HEALTHCARE
COMPUTERS, INC. (a Michigan Corporation) as of March 31, 1999, and the related
statements of operations, stockholders' deficit and cash flows for the nine
months then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Civitec Healthcare
Computers, Inc. as of March 31, 1999, and the results of its operations and its
cash flows for the nine months then ended, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Detroit, Michigan
October 14, 1999
F-59
<PAGE>
CIVITEC HEALTHCARE COMPUTERS, INC.
BALANCE SHEET
AS OF MARCH 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 241,124
Accounts receivable....................................... 20,113
Inventories............................................... 3,018
Prepaid expenses and other................................ 8,453
---------
Total current assets.................................... 272,708
PROPERTY AND EQUIPMENT, net................................. 34,391
---------
Total assets............................................ $ 307,099
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 55,715
Accrued liabilities....................................... 57,892
Customer deposits and deferred revenue.................... 288,853
---------
Total current liabilities............................... 402,460
Long-term deferred tax liability.......................... 4,500
---------
Total liabilities....................................... 406,960
---------
COMMITMENTS
STOCKHOLDERS' DEFICIT:
Common stock, $1.00 par value, 100,000 shares authorized;
99,750 shares issued and outstanding.................... 99,750
Additional paid-in capital................................ 27,750
Accumulated deficit....................................... (227,361)
---------
Total stockholders' deficit............................. (99,861)
---------
Total liabilities and stockholders' deficit............. $ 307,099
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
CIVITEC HEALTHCARE COMPUTERS, INC.
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1999
<TABLE>
<S> <C>
NET REVENUES................................................ $1,056,994
COST OF REVENUES............................................ 512,054
----------
GROSS PROFIT............................................ 544,940
OPERATING COSTS AND EXPENSES................................ 549,467
----------
LOSS FROM OPERATIONS........................................ (4,527)
----------
INTEREST AND OTHER INCOME:
Interest income, net...................................... 1,808
Other income, net......................................... 1,421
----------
Total interest and other income......................... 3,229
----------
LOSS BEFORE INCOME TAXES.................................... (1,298)
PROVISION FOR INCOME TAXES.................................. 400
----------
NET LOSS.................................................... $ (1,698)
==========
NET LOSS PER COMMON SHARE
Basic net loss per share.................................. $ (0.02)
==========
Weighted average common shares outstanding................ 99,750
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
CIVITEC HEALTHCARE COMPUTERS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1998.................... 99,750 $99,750 $27,750 $(225,663) $(98,163)
Net loss.................................. -- -- -- (1,698) (1,698)
------ ------- ------- --------- --------
BALANCE AT MARCH 31, 1999................... 99,750 $99,750 $27,750 $(227,361) $(99,861)
====== ======= ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
CIVITEC HEALTHCARE COMPUTERS, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (1,698)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Depreciation............................................ 8,975
Provision for deferred income taxes..................... 200
Changes in assets and liabilities--
Accounts receivable................................... 6,473
Inventories........................................... (1,655)
Prepaid expenses and other............................ 6,087
Accounts payable and accrued liabilities.............. 15,851
Customer deposits and deferred revenue................ (10,530)
--------
Net cash provided by operating activities........... 23,703
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.............. 668
Purchases of property and equipment....................... (1,044)
--------
Net cash used for investing activities.............. (376)
--------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 23,327
CASH AND CASH EQUIVALENTS, beginning of year................ 217,797
--------
CASH AND CASH EQUIVALENTS, end of year...................... $241,124
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 347
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
CIVITEC HEALTHCARE COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
1. ORGANIZATION:
Civitec Healthcare Computers, Inc. (the "Company") is incorporated in
Michigan and began operations in 1987. The Company is a healthcare information
systems supplier headquartered in Grand Blanc, Michigan. The Company develops,
sells, installs and supports computerized practice management systems and
provides related services to medical professionals.
The practice management software products offered by the Company provide
physicians and other medical industry professionals with comprehensive office
management software designed to automate the administrative, financial, practice
management and clinical requirements of a practice. These systems range in
capacity from one to approximately one hundred providers. The Company also
provides software, network and hardware support, training, electronic claims
processing, electronic statement printing and mailing and electronic remittance
advices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Management estimates that the carrying amounts of the Company's financial
instruments included in the accompanying balance sheet are not materially
different from their fair values.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of supplies and new computer equipment purchased to
fill customer orders.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, which are generally three to seven years. Leasehold improvements are
amortized over the term of the lease. Maintenance and repairs are expensed as
incurred.
REVENUE RECOGNITION
Revenue is generated primarily from the following sources: New software
installations, software conversions and upgrades for existing customers, sales
of hardware manufactured by other companies, hardware maintenance, software
support and electronic transaction services. In accordance with American
Institute of Certified Public Accountants ("AICPA") Statement of Position 97-2
("SOP 97-2"), "Software Revenue Recognition", revenue from software product
sales is recognized upon delivery to the customer provided the collection of the
sales proceeds is deemed probable, the fee is fixed and determinable and no
significant vendor obligations remain. Other revenue, including
F-64
<PAGE>
CIVITEC HEALTHCARE COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: (CONTINUED)
hardware sales, maintenance, licensing and support activities, is recognized as
hardware is shipped or as services are provided. Deferred revenue primarily
consists of revenue deferred under annual maintenance and annual license
agreements on which amounts have been received from customers and for which the
earnings process has not been completed.
SOFTWARE DEVELOPMENT COSTS
Under the criteria set forth in Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", capitalization of software development costs begins upon
the establishment of technological feasibility of the product. The establishment
of technological feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenue, estimated economic product lives and changes in software and
hardware technology. Amounts that would have been capitalized under this
statement after consideration of the above factors were immaterial, and
therefore, no software development costs have been capitalized by the Company.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes", under which deferred income taxes
are provided based upon enacted tax laws and rates applicable to the periods in
which taxes become payable. A valuation allowance is provided against the future
benefits of deferred tax assets if it is determined that it is more likely than
not that the future tax benefits associated with the deferred tax asset will not
be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates.
F-65
<PAGE>
CIVITEC HEALTHCARE COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<S> <C>
Office and computer equipment............................... $ 65,666
Furniture and fixtures...................................... 26,752
Vehicles.................................................... 8,013
Leasehold improvements...................................... 27,256
--------
127,687
Less: Accumulated depreciation.............................. (93,296)
--------
$ 34,391
========
</TABLE>
Depreciation expense was approximately $9,000 for the nine months ended
March 31, 1999.
4. OPERATING LEASE OBLIGATION:
The Company leases its headquarters under a non-cancelable operating lease
that expires in March 2001. The minimum future lease payments required under the
Company's operating lease for the fiscal years ending June 30 are as follows:
<TABLE>
<S> <C>
1999........................................................ $11,700
2000........................................................ 46,900
2001........................................................ 35,200
-------
Total minimum payments.................................... $93,800
=======
</TABLE>
Rent expense was approximately $48,000 for the nine months ended March 31,
1999.
5. EMPLOYEE BENEFIT PLANS:
The Company maintains a 408(k) Savings Plan ("the Plan"). All eligible
employees can participate in the Plan. Under the terms of the Plan, employees
may elect to contribute up to 15% of their pre-tax compensation to the Plan.
Employee contributions are 100% vested at all times.
6. INCOME TAXES:
The provision for income taxes consists of:
<TABLE>
<S> <C>
Current provision........................................... $200
Deferred provision.......................................... 200
----
Provision for income taxes................................ $400
====
</TABLE>
F-66
<PAGE>
CIVITEC HEALTHCARE COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
6. INCOME TAXES: (CONTINUED)
Deferred taxes result from temporary differences between the bases of assets
and liabilities for financial reporting purposes and such amounts as measured by
tax laws and regulations. The sources of the temporary differences and the
related deferred tax assets and liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accruals and reserves..................................... $ 4,300
Deferred tax liabilities:
Depreciation.............................................. (4,500)
-------
Net deferred tax liability.............................. $ (200)
=======
</TABLE>
The following table accounts for the differences between the actual tax
provision and amounts obtained by applying the Statutory U.S. Federal rate to
the loss before income taxes.
<TABLE>
<S> <C>
Expected tax benefit........................................ $(195)
Increase in income taxes resulting from nondeductible
items..................................................... 595
-----
Net income tax provision.................................... $ 400
=====
</TABLE>
7. SUBSEQUENT EVENT:
Subsequent to March 1999, the Company was acquired by VantageMed
Corporation. As consideration, the stockholders of the Company received
approximately 88,667 shares of VantageMed stock and a promissory note for
approximately $408,000 in exchange for the stock of the Company.
F-67
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To VantageMed Corporation:
We have audited the accompanying balance sheet of CM Healthcare
Technologies, Inc. (a Washington corporation) as of December 31, 1997, and the
related statements of operations, stockholders' deficit and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CM Healthcare
Technologies, Inc. as of December 31, 1997, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Seattle, Washington,
October 22, 1999
F-68
<PAGE>
CM HEALTHCARE TECHNOLOGIES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 204,414 $ 191,087
Accounts receivable, net of allowance of $18,538 and
$25,924................................................. 102,200 94,327
Other..................................................... -- 3,628
--------- ---------
Total current assets.................................... 306,614 289,042
PROPERTY AND EQUIPMENT, at cost, net of $536,877 and
$551,877 of accumulated depreciation...................... 89,551 84,096
OTHER ASSETS................................................ 248 1,053
--------- ---------
Total assets............................................ $ 396,413 $ 374,191
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 122,779 $ 70,454
Accrued compensation and benefits......................... 66,832 82,767
Accrued expenses.......................................... 14,351 20,077
Deferred revenue.......................................... 19,710 --
Current portion of notes payable and other long-term
liabilities............................................. 84,446 91,729
--------- ---------
Total current liabilities............................... 308,118 265,027
NOTES PAYABLE AND OTHER LONG-TERM LIABILITIES, net of
current portion........................................... 249,621 221,272
--------- ---------
Total liabilities....................................... 557,739 486,299
--------- ---------
STOCKHOLDERS' DEFICIT:
Class A common stock and paid-in capital, $0.01 par value;
4,800,000 shares authorized; 1,421,956 and 1,320,279
issued and outstanding.................................. 395,580 494,207
Class B non-voting common stock, no par value; 200,000
shares authorized; 200,000 shares issued and
outstanding............................................. -- --
Accumulated deficit....................................... (556,906) (606,315)
--------- ---------
Total stockholders' deficit
(161,326) (112,108)
--------- ---------
Total liabilities and stockholders' deficit............. $ 396,413 $ 374,191
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-69
<PAGE>
CM HEALTHCARE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
1997 1997 1998
------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES:
System sales....................................... $ 628,592 $ 399,302 $ 279,320
Maintenance and other.............................. 608,463 236,582 293,994
Facility management services....................... 503,671 228,528 345,992
----------- ----------- -----------
Total revenues................................... 1,740,726 864,412 919,306
----------- ----------- -----------
OPERATING EXPENSES:
Cost of system sales............................... 398,253 251,561 175,972
Cost of maintenance and other...................... 437,756 170,339 211,676
Cost of facility management services............... 403,806 182,822 276,794
Selling, general and administrative................ 537,039 353,675 278,401
Depreciation....................................... 23,593 13,000 15,000
----------- ----------- -----------
Total operating expenses......................... 1,800,447 971,397 957,843
----------- ----------- -----------
LOSS FROM OPERATIONS................................. (59,721) (106,985) (38,537)
INTEREST EXPENSE, net................................ (16,376) (4,062) (10,872)
----------- ----------- -----------
NET LOSS............................................. $ (76,097) $ (111,047) $ (49,409)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-70
<PAGE>
CM HEALTHCARE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
1997 1997 1998
------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(76,097) $(111,047) $(49,409)
Adjustments to reconcile net loss to net cash from
operating activities--
Depreciation..................................... 23,593 13,000 15,000
Common stock issued to employees................. -- -- 98,627
Changes in assets and liabilities:
Accounts receivable............................ 35,278 68,427 7,873
Other assets................................... 575 (516) (4,433)
Accounts payable............................... (6,363) 30,167 (52,325)
Accrued compensation and accrued expenses...... 8,258 1,515 21,661
Deferred revenue............................... (58,706) (78,416) (19,710)
-------- --------- --------
Net cash from operating activities........... (73,462) (76,870) 17,284
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................ (23,574) (22,438) (9,545)
-------- --------- --------
Net cash from investing activities........... (23,574) (22,438) (9,545)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable........................ 76,621 -- --
Repayments of notes payable........................ (65,545) (15,673) (21,066)
-------- --------- --------
Net cash from financing activities........... 11,076 (15,673) (21,066)
-------- --------- --------
NET DECREASE IN CASH................................. (85,960) (114,981) (13,327)
CASH, beginning of period............................ 290,374 290,374 204,414
-------- --------- --------
CASH, end of period.................................. $204,414 $ 175,393 $191,087
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND
NONCASH ACTIVITIES:
Cash paid for interest............................. $ 14,657 $ 6,403 $ 3,373
Property and equipment acquired under notes
payable.......................................... 26,621 -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-71
<PAGE>
CM HEALTHCARE TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
--------- -------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1996..................... 1,520,279 $395,580 $(480,809) $ (85,229)
Net loss...................................... -- -- (76,097) (76,097)
--------- -------- --------- ---------
BALANCES, December 31, 1997..................... 1,520,279 395,580 (556,906) (161,326)
Issuance of stock to employees................ 101,677 98,627 -- 98,627
Net loss...................................... -- -- (49,409) (49,409)
--------- -------- --------- ---------
BALANCES, June 30, 1998 (unaudited)............. 1,621,956 $494,207 $(606,315) $(112,108)
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-72
<PAGE>
CM HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND NATURE OF OPERATIONS:
CM Healthcare Technologies, Inc., a Washington corporation, was incorporated
under the name CM Computers, Inc. in 1978. In July 1996, in order to better
reflect its business focus, CM Computers, Inc. changed its name to CM Healthcare
Technologies, Inc. (CMHT). CMHT and its predecessors are collectively referred
to as the Company or CM. The Company provides and supports automated office
management support systems for the healthcare field. CM markets their products
and services to small and mid-sized medical offices in the United States.
2. SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM FINANCIAL DATA
The unaudited interim financial statements as of June 30, 1998 and for the
six-month periods ended June 30, 1997 and 1998 have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial information set forth therein, in
accordance with generally accepted accounting principles.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is generated primarily from the following sources: software and
hardware installations, software conversions and upgrades for existing
customers, sales of hardware manufactured by other companies, hardware
maintenance, software support and facility management services consisting of
billing and other services for small and mid-sized medical offices. In
accordance with American Institute of Certified Public Accountants ("AICPA")
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition", revenue
from software product sales is recognized upon delivery to the customer provided
the collection of the sales proceeds is deemed probable, the fee is fixed and
determinable and no significant vendor obligations remain. Other revenue,
including hardware sales, maintenance and support activities and management
services are recognized as hardware is shipped or as services are provided. For
arrangements that include multiple elements, the Company recognizes revenue
based on the fair value of each element determined by the price charged when the
same element is sold separately.
CASH
Cash consists of deposits in checking and savings accounts. The Company has
no cash equivalents.
F-73
<PAGE>
CM HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and accounts receivable.
To date, accounts receivable have been derived from revenues earned from
customers located in the United States. The Company performs ongoing credit
evaluations of its customers and generally requires no collateral. Historically,
credit losses have been minor and within management's expectations.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Improvements and replacements
are capitalized. Maintenance and repairs are expensed when incurred.
Depreciation is computed using the straight-line method over lives as indicated
following. The accompanying balance sheet includes the following property and
equipment as of December 31, 1997:
<TABLE>
<CAPTION>
DEPRECIATION
BALANCE LIFE
--------- ------------
<S> <C> <C>
Computer equipment $ 104,255 5 years
Furniture and fixtures 143,289 7 years
Software 378,884 3 years
---------
$ 626,428
Less: Accumulated depreciation (536,877)
---------
$ 89,551
=========
</TABLE>
SOFTWARE DEVELOPMENT
Under the criteria set forth in Statement of Financial Accounting Standards
(SFAS) No. 86, 'Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed,' capitalization of software development costs
begins upon the establishment of technological feasibility of the product, which
the Company has defined as the completion of beta testing of a working product.
The establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by management with
respect to certain external factors, including, but not limited to, anticipated
future gross product revenues, estimated economic life and changes in software
and hardware technology. Amounts that could have been capitalized under this
statement after consideration of the above factors were immaterial and,
therefore, no software development costs have been capitalized by the Company to
date.
INCOME TAXES
The Company recognizes deferred income tax assets and liabilities for the
expected future income tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax bases of assets, liabilities
and carryforwards. Deferred tax assets are then reduced, if deemed
F-74
<PAGE>
CM HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
necessary, by a valuation allowance for the amount of any future benefits which,
more likely than not based on current circumstances, are not expected to be
realized.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and consist
primarily of salaries, travel, materials, supplies and contract services.
3. INCOME TAXES:
At December 31, 1997, for income tax reporting purposes, the Company had
federal net operating loss carryforwards of approximately $120,000, which will
expire at various dates through 2012. A valuation allowance has been recorded
for the entire deferred tax asset as a result of uncertainties regarding
realization of the asset, including the limited operating history of the
Company, the lack of profitability to date and the uncertainty over future
operating profitability. The Internal Revenue Code contains provisions which may
limit the net operating loss carryforwards available to be used in any given
year if certain events occur, including changes in ownership interests.
4. NOTES PAYABLE AND OTHER LONG-TERM LIABILITIES:
<TABLE>
<CAPTION>
<S> <C>
Notes payable and other long-term liabilities consisted of
the following at December 31, 1997:
Note payable to shareholder bearing interest at 8%; monthly
payments of interest only for six months, followed by
monthly principal and interest payments $131,127
Note payable to shareholder bearing interest at 8%,
principal and interest payable monthly 53,155
Note payable to shareholder bearing interest at 8%, monthly
payments of interest only for six months, followed by
monthly principal and interest payments 50,000
Non-interest bearing note payable to former officer; monthly
principal payments of $2,000; interest imputed at 8% 65,892
Note payable bearing interest at 8%, principal and interest
payable annually 8,000
Note payable bearing interest at 10%, principal and interest
payable monthly 25,893
--------
334,067
Less: Current portion (84,446)
--------
$249,621
========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Maturities of long-term debt are as follows:
1998 $ 84,446
1999 102,398
2000 82,896
2001 56,890
2002 and thereafter 7,437
--------
$334,067
========
</TABLE>
F-75
<PAGE>
CM HEALTHCARE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
5. COMMITMENTS:
The Company leases its office space under an operating lease which expired
May 31, 1999. The lease provided for monthly lease payments of $4,884. Future
minimum lease payments were as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $62,648
1999 21,556
</TABLE>
Rent expense under operating leases totaled $63,706 for the year ended December
31, 1997.
6. SUBSEQUENT EVENT:
In August 1998, the Company was acquired by VantageMed Corporation.
F-76
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Computerized Doctors Systems, Inc.:
We have audited the accompanying balance sheet of COMPUTERIZED DOCTORS
SYSTEMS, INC. (an Alabama Corporation) as of September 30, 1999 and the related
statements of income and retained earnings and cash flows for the nine months
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Computerized Doctors
Systems, Inc. as of September 30, 1999 and the results of its operations and its
cash flows for the nine months then ended in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Birmingham, Alabama
October 15, 1999
F-77
<PAGE>
COMPUTERIZED DOCTORS SYSTEMS, INC.
BALANCE SHEET
SEPTEMBER 30, 1999
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $276,557
Accounts receivable....................................... 171,015
Related party receivables................................. 4,900
Inventories............................................... 6,308
Prepaid expenses and other................................ 9,043
--------
Total current assets.................................... 467,823
--------
PROPERTY AND EQUIPMENT, NET................................. 19,694
--------
Total assets............................................ $487,517
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 5,322
Accounts payable.......................................... 27,900
Accrued liabilities....................................... 64,405
Income taxes payable...................................... 24,314
Customer deposits and deferred revenue.................... 201,576
--------
Total current liabilities............................... 323,517
--------
LONG-TERM DEBT.............................................. 13,754
--------
Total liabilities....................................... 337,271
--------
STOCKHOLDERS' EQUITY:
Common stock, $10 par value, 87 shares authorized, issued,
and outstanding......................................... 870
Retained earnings......................................... 149,376
--------
Total stockholders' equity.............................. 150,246
--------
Total liabilities and stockholders' equity.............. $487,517
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-78
<PAGE>
COMPUTERIZED DOCTORS SYSTEMS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C>
REVENUES:
Software licensing........................................ $ 453,467
Support services.......................................... 429,731
Hardware and supplies..................................... 218,177
Conversion................................................ 41,995
Other..................................................... 14,226
----------
Total revenues.......................................... 1,157,596
----------
OPERATING EXPENSES:
Software licenses......................................... 56,971
Support services.......................................... 95,420
Hardware and supplies..................................... 128,183
Selling, general, and administrative...................... 789,992
Depreciation.............................................. 6,531
----------
Total operating expenses................................ 1,077,097
----------
OPERATING INCOME............................................ 80,499
----------
INTEREST INCOME (EXPENSE):
Interest income........................................... 6,896
Interest expense.......................................... (570)
----------
Total interest income................................... 6,326
----------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 86,825
PROVISION FOR INCOME TAXES.................................. 24,314
----------
NET INCOME.................................................. 62,511
RETAINED EARNINGS AT BEGINNING OF PERIOD.................... 86,865
----------
RETAINED EARNINGS AT END OF PERIOD.......................... $ 149,376
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-79
<PAGE>
COMPUTERIZED DOCTORS SYSTEMS, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 62,511
---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 6,531
Changes in assets and liabilities:
Accounts receivable..................................... (118,265)
Inventories............................................. 400
Prepaid expenses and other.............................. (2,140)
Accounts payable........................................ 6,639
Accrued liabilities..................................... 26,353
Income taxes payable.................................... 24,114
Customer deposits and deferred revenue.................. 130,513
---------
Total adjustments..................................... 74,145
---------
Net cash provided by operating activities............. 136,656
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (403)
---------
Net cash used in investing activities................. (403)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments received on related party receivables............ 3,300
Payments on long-term debt................................ (3,312)
---------
Net cash used in financing activities................. (12)
---------
Net change in cash and cash equivalents............... 136,241
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 140,316
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 276,557
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................. $ 570
=========
NONCASH INVESTING ACTIVITY:
Purchase of property and equipment financed with long-term
debt.................................................... $ 13,993
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-80
<PAGE>
COMPUTERIZED DOCTORS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. BUSINESS
Computerized Doctors Systems, Inc. (the "Company") was incorporated in
Alabama on March 8, 1982. The Company is a diversified healthcare information
systems supplier headquartered in Birmingham, Alabama. The Company develops,
sells, installs, and supports computerized practice management systems, and
provides related services to medical practices.
The practice management software products offered by the Company provide
physicians with comprehensive office management software designed to automate
the administrative, financial, practice management and clinical requirements of
a practice. These systems range in capacity from one to approximately one
hundred providers. The Company also provides software, network and hardware
support, training, electronic claims processing, electronic statement printing
and mailing and electronic remittance advices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of supplies, used computer equipment to service the
Company's customers pursuant to revenue producing service agreements and new
computer equipment purchased to fill customer orders.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets, which are generally three to seven years.
Leasehold improvements are amortized over the term of the lease. Maintenance and
repairs are charged to expense as incurred. Upon sale, retirement, or other
disposition of these assets, the cost and related accumulated depreciation are
removed from the respective accounts, and the related gain or loss is credited
or charged to income.
REVENUE RECOGNITION
Revenue is generated primarily from the following sources: New software
installations, software conversions and upgrades for existing customers, sales
of hardware manufactured by other companies, hardware maintenance, software
support and electronic transaction services. In accordance with the American
Institute of Certified Public Accountants' Statement of Position ("SOP")
No. 97-2, SOFTWARE REVENUE RECOGNITION, the Company recognizes revenue from
software product sales upon delivery to the
F-81
<PAGE>
COMPUTERIZED DOCTORS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
customer provided the collection of the sales proceeds is deemed probable, the
fee is fixed and determinable and no significant vendor obligations remain.
Other revenue, including hardware sales, maintenance, licensing and support
activities, is generally recognized as hardware is shipped or as services are
provided. Deferred revenue primarily consists of revenue deferred under annual
maintenance and annual license agreements on which amounts have been received
from customers and for which the earnings process has not been completed.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, ACCOUNTING FOR INCOME TAXES, under which deferred income taxes are
provided based upon enacted tax laws and rates applicable to the periods in
which taxes become payable. A valuation allowance is provided against the future
benefits of deferred tax assets if it is determined that it is more likely than
not that the future tax benefits associated with the deferred tax asset will not
be realized.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Office and computer equipment............................... $ 79,638
Furniture and fixtures...................................... 88,892
Vehicles.................................................... 21,057
Less accumulated depreciation............................... (169,893)
---------
$ 19,694
=========
</TABLE>
Depreciation expense was $6,531 for the nine months ended September 30,
1999.
4. OPERATING LEASE
The Company leases its corporate office under an operating lease which
expires December 31, 2000. The minimum future lease payments required under the
Company's operating lease is $86,436 and $21,609 for the twelve months ended
September 30, 2000 and 2001, respectively.
Rent expense was $64,827 for the nine months ended September 30, 1999.
5. RELATED PARTY TRANSACTIONS
The Company has receivables from related parties as follows:
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Due from stockholder........................................ $4,750
Due from employees.......................................... 150
------
$4,900
======
</TABLE>
F-82
<PAGE>
COMPUTERIZED DOCTORS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
5. RELATED PARTY TRANSACTIONS (CONTINUED)
The receivables from the stockholder and the employees are noninterest
bearing and no formal agreements exist. The Company has these amounts classified
as current as the stockholder and the employees make payments sporadically
throughout the year.
6. EMPLOYEE BENEFIT PLAN
The Company sponsors a Simplified Employee Pension Plan (the "Plan") on
behalf of its employees. All employees are eligible to participate in the Plan
upon attaining age 21 and performing one year of service. The Company makes
discretionary contributions to the Plan. Employer contributions are 100% vested
upon eligibility. As of September 30, 1999, no employer contribution amount had
been approved by the Board of Directors.
7. PROVISION FOR INCOME TAXES
A summary of the components of the provision for income is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, 1999
------------------
<S> <C>
FEDERAL:
Current..................................................... $20,994
Deferred.................................................... (1,213)
-------
19,781
-------
STATE:
Current..................................................... 4,811
Deferred.................................................... (278)
-------
4,533
-------
Provision for income taxes................................ $24,314
=======
</TABLE>
The provision for income taxes differs from the amounts computed by applying
federal statutory rates due to the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
Tax provision computed at the blended federal statutory rate
(20.5%)................................................... $21,706
Effect of state income taxes................................ 3,604
Other, net.................................................. (996)
-------
$24,314
=======
</TABLE>
Temporary differences which create net deferred tax assets, which are
included in prepaid expenses and other in the accompanying balance sheet at
September 30, 1999, include payroll-related accrued expenses and amount to
$5,709.
F-83
<PAGE>
COMPUTERIZED DOCTORS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
8. CONTINGENCIES
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. As of
September 30, 1999, the Company was not a party to any legal proceedings, which,
if decided adversely to the Company, would, individually or in the aggregate,
have a material adverse effect on the Company's business, financial condition or
results of operations.
9. PENDING MERGER
In October 1999, the Company entered into a definitive merger agreement with
VantageMed Corporation ("VantageMed") providing for the acquisition of the
Company by VantageMed. The consideration to be given to the Company by
VantageMed will be 113,413 shares of VantageMed common stock, 17,756 stock
options, and $500,000 in cash.
F-84
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of CSS, Inc.:
We have audited the accompanying balance sheet of CSS, Inc. (a North
Carolina Corporation) as of September 30, 1999, and the related statements of
income, shareholders' equity and cash flows for the period from January 1, 1999,
through September 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CSS, Inc. as of
September 30, 1999, and the results of its operations and its cash flows for the
period from January 1, 1999, through September 30, 1999, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Greensboro, North Carolina,
October 20, 1999.
F-85
<PAGE>
CSS, INC.
BALANCE SHEET SEPTEMBER 30, 1999
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash...................................................... $ 12,629
Accounts receivable, net of allowance for doubtful
accounts of $15,500..................................... 57,027
Inventories............................................... 101,807
Prepaid expenses and other................................ 3,651
--------
Total current assets.................................... 175,114
PROPERTY AND EQUIPMENT, net................................. 11,026
--------
$186,140
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 40,630
Accrued liabilities....................................... 10,343
Deferred revenue.......................................... 61,685
Current portion of capital lease obligation............... 2,217
--------
Total current liabilities............................... 114,875
--------
COMMITMENTS (Note 6)
SHAREHOLDERS' EQUITY:
Class A voting common stock, $1 par value, 50,000 shares
authorized, 250 shares issued and outstanding........... 250
Class B nonvoting common stock, $1 par value, 50,000
shares authorized, 250 shares issued and outstanding.... 250
Additional paid-in capital................................ 8,250
Retained earnings......................................... 62,515
--------
Total shareholders' equity.............................. 71,265
--------
$186,140
========
</TABLE>
The accompanying notes are an integral part of these statements.
F-86
<PAGE>
CSS, INC.
STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1999, THROUGH SEPTEMBER 30, 1999
<TABLE>
<S> <C>
REVENUES:
Software licensing........................................ $ 63,686
Hardware and software maintenance......................... 406,917
Hardware and supplies..................................... 164,788
Installation and other support services................... 79,709
--------
Total revenues.......................................... 715,100
--------
OPERATING COSTS AND EXPENSES:
Software licensing........................................ 11,780
Hardware and software maintenance......................... 31,002
Hardware and supplies..................................... 108,981
Installation and other support services................... 11,478
Selling, general and administrative....................... 480,392
--------
Total operating costs and expenses...................... 643,633
--------
INCOME FROM OPERATIONS...................................... 71,467
--------
INTEREST EXPENSE AND OTHER INCOME:
Interest expense.......................................... (1,298)
Other income.............................................. 371
--------
Total interest expense and other income................. (927)
--------
Net income.................................................. $ 70,540
========
</TABLE>
The accompanying notes are an integral part of these statements.
F-87
<PAGE>
CSS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1999, THROUGH SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
-------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998................... $250 $250 $8,250 $ 17,975 $ 26,725
Net income................................. 0 0 0 70,540 70,540
Distributions to shareholders.............. 0 0 0 (26,000) (26,000)
---- ---- ------ -------- --------
BALANCE, September 30, 1999.................. $250 $250 $8,250 $ 62,515 $ 71,265
==== ==== ====== ======== ========
</TABLE>
CSS, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1999, THROUGH SEPTEMBER 30, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 70,540
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation............................................ 3,287
Changes in assets and liabilities:
Accounts receivable................................... 34,207
Inventories........................................... (11,992)
Prepaid expenses and other............................ (401)
Accounts payable and accrued liabilities.............. (8,298)
Deferred revenue...................................... (4,411)
--------
Net cash provided by operating activities........... 82,932
--------
CASH FLOWS FROM INVESTING ACTIVITIES--Purchases of property
and equipment............................................. (4,771)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan from stockholder.......................... (10,000)
Payments on line-of-credit................................ (30,000)
Payments on capital lease obligation...................... (1,859)
Distributions to shareholders............................. (26,000)
--------
Net cash used in financing activities............... (67,859)
--------
NET INCREASE IN CASH........................................ 10,302
CASH, as of December 31, 1998............................... 2,327
--------
CASH, as of September 30, 1999.............................. $ 12,629
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--Cash paid
for interest.............................................. $ 1,078
========
</TABLE>
The accompanying notes are an integral part of these statements.
F-88
<PAGE>
CSS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. DESCRIPTION OF BUSINESS:
CSS, Inc. (the Company) was incorporated in North Carolina in 1983. The
Company develops, sells, installs and supports computerized practice management
systems and provides related services to medical practices.
The practice management software products offered by the Company provide
physicians with comprehensive office management software designed to automate
the administrative, financial and practice management requirements of a
practice. The Company also provides software and hardware support, training
services and sales of computer supplies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of computer systems, parts and supplies.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets,
which are generally three to seven years. Leasehold improvements are amortized
over the term of the related lease. Maintenance and repairs are expensed as
incurred.
REVENUE RECOGNITION
Revenue is generated primarily from the following sources: new software
installations, software conversions and upgrades for existing customers, sales
of hardware manufactured by other companies, hardware maintenance and software
support services and system installation and training services. Effective
January 1, 1998, the Company adopted American Institute of Certified Public
Accountants (AICPA) Statement of Position 97-2 (SOP 97-2), "Software Revenue
Recognition." Revenue from software licensing is recognized upon delivery to the
customer provided the collection of the sales proceeds is deemed probable, the
fee is fixed and determinable and no significant vendor obligations remain.
Other revenue, including hardware and supplies sales and maintenance and other
support services (system installation and training services), is generally
recognized as the hardware or supplies are shipped or as services are provided.
Deferred revenue primarily consists of revenue deferred under hardware and
software maintenance contracts on which amounts have been billed to customers on
a monthly or quarterly basis and for which the earnings process has not been
completed.
INCOME TAXES
For income tax purposes, the Company has elected S Corporation status under
the Internal Revenue Code. In general, the corporate income or loss of a S
Corporation is allocated to its shareholders for inclusion in their personal
federal income tax returns and, accordingly, no provision for federal income
taxes is required. North Carolina recognizes S Corporation status for state
income tax purposes, accordingly, no provision for state income taxes is
required.
F-89
<PAGE>
CSS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at September 30, 1999:
<TABLE>
<S> <C>
Furniture and equipment..................................... $ 107,576
Leasehold improvements...................................... 23,606
---------
131,182
Less--Accumulated depreciation.............................. (120,156)
---------
$ 11,026
=========
</TABLE>
Depreciation expense related to property and equipment was $3,287 for the
period from January 1, 1999, through September 30, 1999.
4. LINE OF CREDIT:
At September 30, 1999, the Company has a line of credit in the amount of
$30,000 with a bank, with interest at the prime rate plus 1%. There were no
outstanding borrowings against this line at September 30, 1999.
5. EMPLOYEE BENEFIT PLANS:
The Company maintains a retirement plan for the benefit of eligible
employees. Employees can make tax-deferred contributions to the plan under
Section 408 of the Internal Revenue Code. The Company does not make any matching
contributions under the plan. The Company has the option to contribute a
discretionary amount to the plan. No discretionary contributions were made for
the period from January 1, 1999, through September 30, 1999.
6. COMMITMENTS:
OPERATING LEASES
The Company leases its business premises on a month-to-month basis. A
portion of the Company's premises is subleased on a month-to-month basis to
Computer Assistance, Inc., a related party. Lease expense, and sublease income,
was $18,630 and $5,733, respectively, for the period from January 1, 1999,
through September 30, 1999.
F-90
<PAGE>
CSS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
6. COMMITMENTS: (CONTINUED)
CAPITAL LEASE OBLIGATION
The Company leases office equipment under a capital lease arrangement. The
minimum future lease payments required under the Company's capital lease at
September 30, 1999, are as follows:
<TABLE>
<S> <C>
September 30, 2000.......................................... $ 2,310
Less--Interest at 9.0%...................................... (93)
-------
Net minimum principal payments.............................. 2,217
Less--Current portion....................................... (2,217)
-------
Long-term portion........................................... $ 0
=======
</TABLE>
7. SUBSEQUENT EVENTS:
Subsequent to September 1999, the owners' of the Company finalized an
agreement to sell all outstanding shares of the Company to VantageMed
Corporation in exchange for cash and common stock of VantageMed Corporation. The
sale was effective in October 1999.
F-91
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Data Decisions, Inc.:
We have audited the accompanying balance sheet of DATA DECISIONS, INC. (an
Arkansas corporation, the "Company") as of June 30, 1999, and the related
statements of operations, stockholders' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Data Decisions, Inc. as of
June 30, 1999, and the results of its operations and its cash flows for the year
then ended, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Little Rock, Arkansas,
October 15, 1999.
F-92
<PAGE>
DATA DECISIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1999 SEPTEMBER 30, 1999
------------- ------------------
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 68,407 $ 16,437
Accounts receivable....................................... 146,028 126,192
Inventories............................................... 40,073 40,717
Other..................................................... 1,306 --
-------- --------
Total current assets.................................... 255,814 183,346
PROPERTY AND EQUIPMENT, NET................................. 82,277 27,072
SOFTWARE, NET............................................... 58,603 55,377
-------- --------
Total assets............................................ $396,694 $265,795
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 48,309 $ 52,345
Accounts payable.......................................... 62,466 85,184
Accrued liabilities....................................... 36,679 30,767
Deferred revenue.......................................... 174,661 42,873
Due to stockholders....................................... 47,099 65,094
Income taxes payable...................................... 5,940 8,440
-------- --------
Total current liabilities............................... 375,154 284,703
-------- --------
LONG-TERM LIABILITIES:
Long-term debt, net of current portion.................... 114,684 63,265
Deferred taxes............................................ 14,854 13,987
-------- --------
Total liabilities....................................... 504,692 361,955
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)...................... -- --
STOCKHOLDERS' DEFICIT:
Common stock.............................................. 8,068 8,068
Accumulated deficit....................................... (116,066) (104,228)
-------- --------
Total stockholders' deficit............................. (107,998) (96,160)
-------- --------
Total liabilities and stockholders' deficit............. $396,694 $265,795
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE>
DATA DECISIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE FOR THE THREE
ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, 1999 SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------- ------------------ ------------------
UNAUDITED
<S> <C> <C> <C>
REVENUES:
Support service fees......................... $ 569,282 $171,139 $128,773
Software licensing fees...................... 195,152 81,106 40,579
Hardware sales............................... 189,030 175,685 43,097
Statement and claims processing.............. 303,954 70,419 64,094
--------- -------- --------
Total revenues............................. 1,257,418 498,349 276,543
--------- -------- --------
COSTS AND EXPENSES:
Compensation and benefits.................... 654,128 211,310 127,342
Hardware cost of sales....................... 132,189 125,254 29,613
Materials and supplies....................... 133,064 40,929 32,518
Selling, general and administrative.......... 254,138 84,848 55,143
Depreciation and amortization................ 56,929 17,415 14,202
--------- -------- --------
Total expenses............................. 1,230,448 479,756 258,818
--------- -------- --------
INTEREST AND OTHER INCOME (EXPENSE):
Interest expense, net........................ (20,711) (3,697) (5,231)
Lease income................................. 16,800 4,200 5,600
Other income (expense), net.................. 143 (4,561) 1,277
--------- -------- --------
Total interest and other income
(expense)................................ (3,768) (4,058) 1,646
--------- -------- --------
INCOME BEFORE INCOME TAXES..................... 23,202 14,535 19,371
--------- -------- --------
INCOME TAX EXPENSE............................. 4,388 2,697 3,506
--------- -------- --------
NET INCOME..................................... $ 18,814 $ 11,838 $ 15,865
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE>
DATA DECISIONS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
TOTAL
COMMON ACCUMULATED STOCKHOLDERS'
STOCK DEFICIT DEFICIT
-------- ----------- -------------
<S> <C> <C> <C>
Balance, June 30, 1998 $8,068 $(134,880) $(126,812)
Net income................................................ -- 18,814 18,814
------ --------- ---------
Balance, June 30, 1999 8,068 (116,066) (107,998)
Net income (Unaudited).................................... -- 11,838 11,838
------ --------- ---------
Balance, September 30, 1999 (Unaudited)..................... $8,068 $(104,228) $ (96,160)
====== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE>
DATA DECISIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS MONTHS
FOR THE YEAR ENDED ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
JUNE 30, 1999 1999 1998
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 18,814 $ 11,838 $ 15,865
Adjustments to reconcile net income to net cash
provided by (used for) operating activities--
Depreciation and amortization...................... 56,929 17,415 14,202
Provision for bad debts............................ 13,011 -- --
Deferred tax expense (benefit)..................... (1,552) 197 844
Other, net......................................... 3,534 (622) 1,727
Changes in assets and liabilities--
Accounts receivable.............................. (61,256) 19,836 (21,103)
Inventories...................................... (38,008) (644) (3,979)
Prepaid expenses and other....................... 200 1,306 --
Accounts payable and accrued liabilities......... (5,175) 16,806 (18,778)
Deferred revenue................................. 126,757 (131,788) --
Income taxes payable............................. 5,337 2,500 3,265
-------- -------- --------
Net cash provided by (used for) operating
activities................................... 118,591 (63,156) (7,957)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................. (47,598) -- --
Capitalized software................................. (31,913) (3,707) (1,837)
-------- -------- --------
Net cash used for investing activities......... (79,511) (3,707) (1,837)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt......................... 22,765 -- --
Payments on long-term debt........................... (53,974) (10,102) (13,793)
Increase in amounts due to stockholders.............. 32,099 24,995 --
-------- -------- --------
Net cash provided by (used for) financing
activities................................... 890 14,893 (13,793)
-------- -------- --------
NET CHANGE IN CASH..................................... 39,970 (51,970) (23,587)
CASH, beginning of period.............................. 28,437 68,407 28,437
-------- -------- --------
CASH, end of period.................................... $ 68,407 $ 16,437 $ 4,850
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................... $ 26,551 $ 3,937 $ 5,242
Cash paid for income taxes........................... $ 603 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE>
DATA DECISIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
1. ORGANIZATION AND BUSINESS:
Data Decisions, Inc. (the "Company"), an Arkansas corporation incorporated
on July 13, 1981, develops and markets medical office management software for
OB/GYN doctors and clinics. The Company also provides related information
systems products and services, including hardware, non-proprietary software,
training and support, as well as billing statement and medical insurance claims
processing for users of the Company's proprietary software products.
During fiscal year 1999, the Company signed a letter of intent to be
acquired by VantageMed Corporation of Sacramento, California. The acquisition is
expected to close in October 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
INVENTORIES--
Inventories are stated at the lower of cost (specific identification method)
or market and consist primarily of new computer equipment purchased to fill
customer orders.
PROPERTY AND EQUIPMENT--
Property and equipment are recorded at cost. Depreciation expense related to
certain assets is provided on a tax basis using statutory rates and does not
materially differ from depreciation under methods acceptable for financial
reporting purposes. Other depreciable assets are depreciated over their
estimated useful lives which range from 5 to 10 years. Maintenance and repairs
are expensed as incurred.
DEVELOPED SOFTWARE--
The Company capitalizes the costs associated with its software products upon
establishing product technological feasibility. Amortization is computed on a
straight-line basis over the economic life of the product, which is estimated to
be three years. Amortization expense totaled $24,564 for the year ended
June 30, 1999, and $7,918 (unaudited) and $6,141 (unaudited) for the three
months ended September 30, 1999 and 1998, respectively.
Costs related to research, design and development of computer software prior
to establishing product technological feasibility are charged to expense as
incurred. Such amounts were not significant in any of the periods presented.
REVENUE RECOGNITION--
In accordance with American Institute of Certified Public Accountants
Statement of Position 97-2, "Software Revenue Recognition," as amended by
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions," revenue from software
product sales is recognized upon delivery to the customer, provided the
collection of the sales proceeds is deemed probable, the fee is fixed and
determinable and no significant vendor obligations remain. Other revenue,
including hardware sales, maintenance, training and support activities, is
generally recognized as hardware is shipped or as services are provided.
Deferred revenue primarily consists of revenue deferred under periodic
maintenance agreements and new software installations on which
F-97
<PAGE>
DATA DECISIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: (CONTINUED)
amounts have been received from customers and for which the earnings process has
not been completed.
INCOME TAXES--
The Company utilizes the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Under this method, deferred income taxes are provided by
applying statutory tax rates to the differences between the book bases and tax
bases of assets and liabilities.
USE OF ESTIMATES--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods
reported. The estimates and assumptions used in preparing the accompanying
financial statements were based on management's evaluation of the relevant facts
and circumstances as of the date of the financial statements. However, actual
results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS--
The accompanying interim financial statements and related disclosures have
not been audited by independent accountants. However, they have been prepared in
conformity with the accounting principles stated in the audited financial
statements for the year ended June 30, 1999, and include all adjustments of a
normal, recurring nature which, in the opinion of management, are necessary to
present fairly the financial position of the Company and the results of
operations and cash flows for each of the periods presented. The operating
results for the interim periods presented are not necessarily indicative of
results for the full year.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1999
-------- -------------
UNAUDITED
<S> <C> <C>
Office and computer equipment........................ $167,328 $167,328
Furniture and fixtures............................... 2,677 2,677
Vehicles............................................. 83,500 40,006
-------- --------
253,505 210,011
Less: Accumulated depreciation....................... 171,228 182,939
-------- --------
$ 82,277 $ 27,072
======== ========
</TABLE>
F-98
<PAGE>
DATA DECISIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
3. PROPERTY AND EQUIPMENT: (CONTINUED)
Depreciation expense was $29,744, for the year ended June 30, 1999 and
$9,497 (unaudited) and $8,061 (unaudited) for the three months ended
September 30, 1999 and 1998, respectively.
4. LONG-TERM DEBT:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1999
-------- -------------
UNAUDITED
<S> <C> <C>
Promissory note payable to a bank, accruing interest
at 9.75%. Interest and principal are due in monthly
installments with the final payment due on
November 15, 2001. Promissory note is
collateralized by accounts receivable, fixtures,
equipment, inventory and developed software........ $125,712 $115,610
Promissory notes payable to banks, collateralized by
vehicles. Interest rates range from 7.00% to
10.00%. Interest and principal are due in monthly
payments with the final payment due on March 28,
2004............................................... 37,281 --
-------- --------
162,993 115,610
Less current portion................................. (48,309) (52,345)
-------- --------
$114,684 $ 63,265
======== ========
</TABLE>
Future minimum payments under term debt obligations during the fiscal years
subsequent to June 30, 1999, are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 48,309
2001........................................................ 51,572
2002........................................................ 51,170
2003........................................................ 7,059
2004........................................................ 4,882
Thereafter.................................................. --
--------
$162,992
========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Company leases office facilities under an operating lease which expires
October 31, 1999. Management expects to renew this lease under terms not
materially different than those currently in effect. The minimum future lease
payments required under this operating lease totaled $15,960 at June 30, 1999.
Rent expense was approximately $51,254 for the year ended June 30, 1999 and
$11,970 (unaudited) and $11,508 (unaudited) for the three months ended
September 30, 1999 and 1998, respectively.
F-99
<PAGE>
DATA DECISIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
5. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
The Company has received a written notice of dispute from one of its
customers which alleges that software licensed by the Company has not performed
satisfactorily resulting in unspecified damages. Management contends that the
software has performed satisfactorily, has met with representatives of the
customer and is continuing to work toward resolution of the dispute. Management
believes that the matter will be resolved without further legal actions.
However, in the event legal actions are undertaken by the customer related to
this dispute, management intends to vigorously defend such actions.
6. COMMON STOCK:
The Company is authorized to issue 2,000 shares of its common stock, which
has no par value. During all periods presented, 459 shares were issued and
outstanding.
7. EMPLOYEE BENEFIT PLAN:
The Company maintains a contributory, defined contribution plan ("the
Plan"). All employees can participate in the Plan. Under the terms of the Plan,
employees may elect to contribute up to $6,000 of their pre-tax compensation to
the Plan. Employee contributions are 100% vested at all times. The Company is
required to make a matching contribution of up to 3% of employee pre-tax
compensation one year out of every five and can also make discretionary
contributions to the Plan. Contributions made to the Plan were $18,516 for the
year ended June 30, 1999 and $12,456 (unaudited) and $2,061 (unaudited) for the
three months ended September 30, 1999 and 1998, respectively.
8. INCOME TAXES:
Income tax expense consists of:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
FOR THE YEAR MONTHS ENDED MONTHS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
JUNE 30, 1999 1999 1998
------------- ------------- -------------
UNAUDITED
<S> <C> <C> <C>
Current:
Federal............................. $ 4,094 $1,875 $1,704
State............................... 1,846 625 958
------- ------ ------
Total current..................... 5,940 2,500 2,662
------- ------ ------
Deferred:
Federal............................. (1,164) 148 633
State............................... (388) 49 211
------- ------ ------
Total deferred.................... (1,552) 197 844
------- ------ ------
$ 4,388 $2,697 $3,506
======= ====== ======
</TABLE>
F-100
<PAGE>
DATA DECISIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
8. INCOME TAXES: (CONTINUED)
Deferred tax liabilities result from differences between the bases of
developed software and certain property and equipment for financial reporting
purposes and such amounts for tax reporting purposes. The effects of these
differences are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1999 SEPTEMBER 30, 1999
------------- ------------------
UNAUDITED
<S> <C> <C>
Developed software.............................. $11,720 $11,075
Property and equipment.......................... 3,134 2,912
------- -------
$14,854 $13,987
======= =======
</TABLE>
The following table accounts for the differences between reported income tax
expense and amounts expected by applying a U.S. Federal statutory rate of 34% to
the income before income taxes.
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
FOR THE YEAR MONTHS ENDED MONTHS ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
JUNE 30, 1999 1999 1998
------------- ------------- -------------
UNAUDITED
<S> <C> <C> <C>
Expected income tax expense........... $ 7,889 $ 4,942 $ 6,586
Increase (decrease) in income tax
expense resulting from:
State income benefit................ (277) (94) (144)
Impact of graduated U.S. Federal tax
rate scale........................ (4,409) (2,762) (3,680)
Nondeductible expenses.............. 1,284 611 744
Other, net.......................... (99) -- --
------- ------- -------
$ 4,388 $ 2,697 $ 3,506
======= ======= =======
</TABLE>
9. RELATED PARTY TRANSACTIONS:
The amounts reported as due to stockholders in the accompanying balance
sheets represent accrued compensation payments net of certain amounts due from
stockholders related to the sale of vehicles disclosed below.
During the three months ended September 30, 1999, the Company sold vehicles
to the stockholders for $7,000 and the assumption of associated promissory notes
totaling $37,281. Management believes that the fair value of the vehicles
approximated the consideration received, and the transaction did not result in a
material gain or loss. The Company remains an obligor on the assumed promissory
notes, and accordingly, would be liable on these notes in the event the
stockholders do not satisfy these obligations.
F-101
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Mariner Systems, Inc.:
We have audited the accompanying balance sheets of MARINER SYSTEMS, INC.
(the "Company") as of September 30, 1997 and 1998 and June 30, 1999, and the
related statements of operations, shareholders' equity, and cash flows for the
years ended September 30, 1997 and 1998 and the nine-month period ended
June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Mariner Systems, Inc. as of
September 30, 1997 and 1998 and June 30, 1999, and the results of its operations
and its cash flows for the years ended September 30, 1997 and 1998 and the
nine-month period ended June 30, 1999, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Denver, Colorado,
September 10, 1999.
F-102
<PAGE>
MARINER SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- JUNE 30,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 24,358 $ 2,525,358 $ 815,685
Accounts receivable.................................. 127,483 194,484 85,500
Prepaid expenses and other........................... 12,635 27,693 17,851
Current portion of note receivable (Note 10)......... -- -- 56,496
----------- ----------- -----------
Total current assets............................... 164,476 2,747,535 975,532
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net............................ 219,587 452,037 340,985
NOTE RECEIVABLE, net of current portion (Note 10)...... -- -- 155,379
CAPITALIZED SOFTWARE DEVELOPMENT COST, net of
accumulated amortization of $0, $35,092 and $89,796,
respectively......................................... -- 165,700 145,472
OTHER ASSETS........................................... 28,177 49,557 52,812
----------- ----------- -----------
Total assets....................................... $ 412,240 $ 3,414,829 $ 1,670,180
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 145,907 $ 175,433 $ 95,757
Accrued salaries and other........................... 119,792 202,693 176,704
Deferred revenue..................................... 332,343 341,741 204,263
Debt to related parties.............................. 48,138 -- --
Current portion of capital leases.................... 120,558 187,448 156,334
----------- ----------- -----------
Total current liabilities.......................... 766,738 907,315 633,058
CAPITAL LEASES, net of current portion................. 77,045 255,321 180,144
CONVERTIBLE SUBORDINATED DEBENTURE (Note 4)............ 200,000 200,000 --
----------- ----------- -----------
Total liabilities.................................. 1,043,783 1,362,636 813,202
----------- ----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, no par value, 6,000,000 shares
authorized, 896,755, 1,476,761 and 1,476,761 issued
and outstanding at September 30, 1997 and 1998 and
June 30, 1999, respectively 1,964,827 6,739,429 6,739,429
Warrants............................................. -- 143,205 143,205
Accumulated deficit.................................. (2,596,370) (4,830,441) (6,025,656)
----------- ----------- -----------
Total shareholders' (deficit) equity............... (631,543) 2,052,193 856,978
----------- ----------- -----------
Total liabilities and shareholders' equity......... $ 412,240 $ 3,414,829 $ 1,670,180
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-103
<PAGE>
MARINER SYSTEMS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------- ---------------------------
1997 1998 1998 1999
----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUE:
Software license fees.................... $ 1,148,997 $ 752,374 $ 731,173 $ 396,521
Services and maintenance................. 219,527 417,114 355,153 224,530
Hardware................................. 82,119 -- -- --
----------- ----------- ----------- -----------
Total revenue.......................... 1,450,643 1,169,488 1,086,326 621,051
COSTS OF REVENUE:
Software license fee..................... 32,351 58,450 26,588 17,343
Services and maintenance................. 106,095 113,591 79,651 99,718
Hardware................................. 41,948 -- -- --
----------- ----------- ----------- -----------
Total cost of revenue.................. 180,394 172,041 106,239 117,061
----------- ----------- ----------- -----------
GROSS PROFIT............................... 1,270,249 997,447 980,087 503,990
OPERATING EXPENSES:
Research and development................. 1,009,655 1,173,845 875,253 617,702
Selling, general and administrative...... 1,501,658 1,743,061 1,232,282 1,263,592
Depreciation and amortization............ 145,610 229,943 156,470 227,566
Litigation costs......................... -- 89,671 52,623 34,112
----------- ----------- ----------- -----------
Net loss from operations............... (1,386,674) (2,239,073) (1,336,541) (1,638,982)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income.......................... -- 90,905 58,361 47,563
Interest expense......................... (65,486) (85,903) (57,623) (58,796)
Litigation settlement (Note 10).......... -- -- -- 455,000
Gain on sale of product line (Note 1).... 477,976 -- -- --
----------- ----------- ----------- -----------
NET LOSS................................... $ (974,184) $(2,234,071) $(1,335,803) $(1,195,215)
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-104
<PAGE>
MARINER SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK STOCK
---------------------- SUBSCRIPTION ACCUMULATED
SHARES AMOUNT RECEIVABLE WARRANTS DEFICIT TOTAL
--------- ---------- ------------ -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, September 30, 1996 896,755 $1,489,375 $(39,500) $ -- $(1,622,186) $ (172,311)
Expense for modification of
stock option terms.......... -- 475,452 -- -- -- 475,452
Stock subscription payment
received.................... -- -- 39,500 -- -- 39,500
Net loss...................... -- -- -- -- (974,184) (974,184)
--------- ---------- -------- -------- ----------- -----------
BALANCES, September 30, 1997 896,755 1,964,827 -- -- (2,596,370) (631,543)
Stock issued in connection
with private placement-
Common stock................ 370,006 2,978,566 -- -- -- 2,978,566
Warrants.................... -- -- -- 104,584 -- 104,584
Offering costs.............. -- (402,517) -- (14,133) -- (416,650)
Stock issued in connection
with private placement-
Common stock................ 210,000 2,041,508 -- -- -- 2,041,508
Warrants.................... -- -- -- 58,492 -- 58,492
Offering costs.............. -- (200,262) -- (5,738) -- (206,000)
Expense for modification of
stock option terms.......... -- 357,307 -- -- -- 357,307
Net loss...................... -- -- -- -- (2,234,071) (2,234,071)
--------- ---------- -------- -------- ----------- -----------
BALANCES, September 30, 1998 1,476,761 6,739,429 -- 143,205 (4,830,441) 2,052,193
Net loss...................... -- -- -- -- (1,195,215) (1,195,215)
--------- ---------- -------- -------- ----------- -----------
BALANCES, June 30, 1999 1,476,761 $6,739,429 $ -- $143,205 $(6,025,656) $ 856,978
========= ========== ======== ======== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-105
<PAGE>
MARINER SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
----------------------- -------------------------
1997 1998 1998 1999
--------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $(974,184) $(2,234,071) $(1,335,803) $(1,195,215)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization................ 145,610 229,943 156,470 227,566
Note receivable from litigation settlement,
net........................................ -- -- -- (211,875)
Stock based compensation..................... 475,452 357,307 357,307 --
Increase in other long-term assets (6,020) (21,712) (19,034) (3,255)
(Increase) decrease in-
Accounts receivable........................ 185,377 (67,001) (144,781) 108,984
Prepaid expenses and other................. 13,045 (15,058) (39,447) 9,842
Increase (decrease) in-
Accounts payable........................... (120,837) 29,526 (661) (79,676)
Accrued salaries and other................. (79,532) 82,901 76,392 (25,989)
Deferred revenue........................... 168,687 9,398 (78,511) (137,478)
--------- ----------- ----------- -----------
Net cash used in operating activities.... (192,402) (1,628,767) (1,028,068) (1,307,096)
--------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment..... (20,640) (17,964) (4,133) (12,086)
Capitalized software development costs......... -- (200,460) (183,674) (34,476)
--------- ----------- ----------- -----------
Net cash used in investing activities.... (20,640) (218,424) (187,807) (46,562)
--------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock and warrants, net..... -- 4,560,500 4,560,500 --
Proceeds from issuance of debt................. 248,138 -- -- --
Repayment of debt.............................. -- (48,138) (48,138) (200,000)
Repayment of capital lease obligations......... (129,030) (164,171) (114,900) (156,015)
Stock subscription payments received........... 39,500 -- -- --
--------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities............................. 158,608 4,348,191 4,397,462 (356,015)
--------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH.................. (54,434) 2,501,000 3,181,587 (1,709,673)
Cash, beginning of period...................... 78,792 24,358 24,358 2,525,358
--------- ----------- ----------- -----------
Cash, end of period............................ $ 24,358 $ 2,525,358 $ 3,205,945 $ 815,685
========= =========== =========== ===========
SCHEDULE OF NONCASH INVESTING AND FINANCING
TRANSACTIONS:
Property, plant and equipment acquired through
capital leases............................... $ 33,477 $ 409,337 $ 378,216 $ 49,723
========= =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest....... $ 65,486 $ 85,903 $ 57,623 $ 58,796
========= =========== =========== ===========
Cash paid during the period for taxes.......... $ -- $ -- $ -- $ --
========= =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-106
<PAGE>
MARINER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) ORGANIZATION
Mariner Systems, Inc. ("MSI" or the "Company"), a Colorado Corporation, is a
software development company that markets software to physician groups involved
in the managed care industry. The Company develops, licenses and supports
proprietary software marketed under the name "eMCee-Registered Trademark-."
eMCee-Registered Trademark- provides a managed care information system that
automates the mission-critical activities of managed care entities that are
increasingly assuming the financial risks of health care. The
eMCee-Registered Trademark- system is comprised of a fully integrated suite of
applications designed to support a full range of risk management activities,
including capitation, referral management, custom reporting and claims
adjudication. The Company directly markets its software primarily to individual
practice associations, physician health organizations and managed services
organizations.
PRODUCT DEPENDENCE
The Company generated substantially all its revenue during the year ended
September 30, 1997 from the sale and license of two product lines, AccounTRAX,
LegalTRAX, InfoTRAX (referred to, collectively, as the "TRAX products") and
eMCee-Registered Trademark-. In February 1997, the Company sold the TRAX
products line for $759,000 and realized a gain on the sale of this product line
of $477,976. Pro forma operating results without the TRAX products line are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net revenue........................................ $ 747,836 $ 1,169,488
Costs of revenue................................... (112,294) (172,041)
----------- -----------
Gross profit..................................... 635,542 997,447
----------- -----------
Operating expenses................................. 2,364,197 3,236,520
----------- -----------
Operating loss..................................... $(1,728,655) $(2,239,073)
=========== ===========
</TABLE>
During the year ended September 30, 1998 and the nine-months ended June 30,
1998 and 1999, the Company generated all of its revenue from the sale, license,
service and maintenance of one product, eMCee-Registered Trademark-. A
significant decrease in the revenue for eMCee-Registered Trademark- could have a
material adverse effect on the Company's operations and financial condition.
LIQUIDITY
The Company has incurred significant losses in the past several years and
had a cumulative deficit of approximately $6.0 million at June 30, 1999. The
Company believes that available working capital and funds received subsequent to
June 30, 1999 (see Note 11) will be sufficient to fund operations during fiscal
2000; however, additional financing may be required to fund operations and
continue development of the Company's sales and marketing infrastructure. There
is no assurance that such financing will be available when needed. Operations of
the Company are subject to risks and uncertainties including, among others,
uncertainty of product development, inexperience in marketing and selling
developed products, technological uncertainty, competition and dependence on key
personnel.
F-107
<PAGE>
MARINER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INFORMATION
The accompanying unaudited statement of operations and statement of cash
flows contain all adjustments consisting only of normal recurring items
necessary to present fairly the results of the Company for the nine-month period
ending June 30, 1998. The unaudited financial statements presented herein do not
include all information and note disclosures required by generally accepted
accounting principles. The unaudited statements should be read in conjunction
with the audited statements and notes thereto contained herein for the years
ended September 30, 1997 and 1998 and the nine-months ended June 30, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities as well as disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk are primarily accounts receivable and cash equivalents. The
Company performs initial and ongoing credit evaluations of its customers'
financial condition and generally requires that customers pay a 50% down payment
with new contracts and payments for maintenance one year in advance.
The Company's cash equivalents are primarily invested in money market
securities. The Company maintains most of its cash balances with a financial
institution in the form of demand deposits and money market accounts. Such
deposit accounts at times may exceed federally insured limits. The Company has
not experienced losses in such accounts.
The Company has no significant off-balance-sheet concentrations of credit
risk such as foreign exchange contracts, option contracts or other foreign
currency hedging arrangements.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable from future undiscounted cash flows. If not fully recoverable,
impairment losses are recorded for the difference between the carrying value and
fair value of the long-lived assets.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers cash and all
highly liquid investments with original maturities of three months or less to be
cash and cash equivalents.
F-108
<PAGE>
MARINER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company generates revenue from three sources: (i) fees for the initial
license of the Company's proprietary software products, (ii) maintenance fees
paid by customers, in advance, on an annual basis which give the customer the
right to updates of the Company's software when issued by the Company and
telephone support and (iii) implementation, training and consulting services.
Revenue from the initial license fees of the Company's software products are
recognized upon receipt of an executed license agreement, delivery of the
software and acceptance by the customer, provided that the collection of the
license fee is probable and the Company has satisfied all significant
performance obligations. If the terms of the license agreement contain
non-standard customer acceptance criteria, revenue is deferred until all such
significant performance obligations and all significant acceptance criteria are
satisfied.
Revenue from annual maintenance agreements is deferred and recognized
ratably over the term of the agreements, which are typically one year.
Implementation, training, consulting and other services revenue is generally
recognized as the services are performed. Consulting services are typically
performed under separate service agreements and are performed on a time and
materials basis.
The Company recognizes revenue from contracts that contain multiple
elements, such as a license fee and maintenance contract, using the residual
method. The total fair value of the maintenance contract, as determined by
vendor-specific objective evidence, is deferred and subsequently recognized over
the term of the contract and the difference between the total contract fee and
the amount deferred for maintenance is recognized as software license fees.
All costs associated with licensing of software products, support and update
services, and training and consulting services are expensed as incurred.
SOFTWARE DEVELOPMENT COSTS
Capitalization of software development costs commences upon the
establishment of technological feasibility of the product. Software development
costs incurred prior to achieving technological feasibility are expensed as
incurred.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and include
salaries, supplies and other direct costs.
INCOME TAXES
The current provision for income taxes represents actual or estimated
amounts payable on tax returns filed or to be filed for each year. Deferred tax
assets and liabilities are recorded for the estimated future tax effects of
temporary differences between the tax basis of assets and liabilities and
amounts reported in the accompanying balance sheets, and for operating loss and
tax credit carryforwards. The change in deferred tax assets and liabilities for
the period measures the deferred tax provision or benefit for the period.
Effects of changes in enacted tax laws on deferred tax assets and liabilities
are reflected as adjustments to the tax provision or benefit in the period of
enactment. The
F-109
<PAGE>
MARINER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's deferred tax assets have been reduced by a valuation allowance, to the
extent it is deemed more likely than not, that some or all of the deferred tax
assets will not be realized.
STOCK COMPENSATION PLANS
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees ("APB No. 25"), in accounting for its stock option and other
stock-based plans for employees and directors. The Company has adopted the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation for such options and
stock-based plans for employees and directors.
COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income, as defined, includes all changes in
equity (net assets) during a period from non-owner sources. The Company has not
had any material transactions that are required to be reported in comprehensive
income as compared to its net loss.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," which
provides guidance on accounting for the cost of such software. SOP No. 98-1 is
effective for financial statements for fiscal years beginning after
December 15, 1998. The adoption of SOP No. 98-1 did not have a material impact
on the Company's financial statements.
In December 1998, the AICPA issued Statement of Position 98-9 ("SOP 98-9"),
"Modification of SOP 97-2 Software Revenue Recognition, with Respect to Certain
Transactions." SOP 98-9 amends Paragraphs 11 and 12 of SOP 97-2 to require
recognition of revenue using the "Residual Method." SOP 98-9 is effective for
transactions entered into in fiscal years beginning after March 15, 1999. The
Company believes SOP 98-9 will not materially impact its financial statements.
(3) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based on estimated useful lives ranging from three to
five years.
F-110
<PAGE>
MARINER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(3) PROPERTY AND EQUIPMENT (CONTINUED)
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- JUNE 30,
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Computer equipment and software............ $690,418 $1,113,938 $1,175,055
Furniture and fixtures..................... 23,462 29,202 29,894
-------- ---------- ----------
713,880 1,143,140 1,204,949
Less--Accumulated depreciation (494,293) (691,103) (863,964)
-------- ---------- ----------
$219,587 $ 452,037 $ 340,985
======== ========== ==========
</TABLE>
Depreciation expense for the years ended September 30, 1997 and 1998 was
$145,610 and $194,851, respectively. Depreciation expense for the nine months
ended June 30, 1998 and 1999 was $137,848 and $172,862, respectively.
(4) CONVERTIBLE SUBORDINATED DEBENTURE
In connection with the sale of the TRAX product line (see Note 1), the
Company issued a $200,000 convertible debenture with an interest rate of 9.5%
and a term of approximately two years in the exchange for cash received from the
purchasers. The debenture required quarterly interest only payments and could be
redeemed at any time by the Company. The debenture was convertible at the option
of the holder at a conversion price of $8.00 per share. The debenture and
accrued interest were paid in full during fiscal 1999.
(5) CAPITAL LEASE OBLIGATIONS
The Company has entered into various capital lease transactions with imputed
interest rates generally ranging from 8.2% to 29.4%. These leases are
collateralized by the leased assets which have a net book value of $157,922,
$412,721 and $311,490 at September 30, 1997 and 1998 and June 30, 1999,
respectively.
At June 30, 1999, future payments under capital lease obligations are as
follows:
<TABLE>
<S> <C>
Period ending September 30--
1999...................................................... $ 54,579
2000...................................................... 190,287
2001...................................................... 115,702
2002...................................................... 31,384
2003...................................................... 9,067
--------
401,019
Less: Amount representing interest........................ (64,541)
--------
$336,478
========
</TABLE>
F-111
<PAGE>
MARINER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(6) SHAREHOLDERS' EQUITY
FISCAL 1998 PRIVATE PLACEMENTS
In fiscal 1998, the Company completed two private placements. The first
offering was completed in November 1997. Gross proceeds to the Company were
$3,083,150 for 370,006 shares of the Company's common stock and a warrant to
purchase 35,000 shares of the Company's common stock at an exercise price of
$8.33. The fair value of the warrant was determined to be $104,584 using the
Black-Scholes option pricing model. Net proceeds to the Company were $2,666,500
after deducting offering costs of $416,650.
The second offering to the same investor group was completed in June 1998
for gross proceeds to the Company of $2,100,000. The Company issued 210,000
shares of its common stock and a warrant to purchase 20,000 shares of its common
stock for an exercise price of $10.00. The fair value of the warrant was
determined to be $58,492 using the Black-Scholes option pricing model. Net
proceeds to the Company were $1,894,000 after deducting offering costs of
$206,000.
STOCK OPTIONS
The Company has granted nonqualified stock options to its employees from
time to time. Options are usually granted at fair market value and have a
vesting period of four years, however, the Board of Directors reserves the right
to modify option grants and to issue options with other than normal terms.
In fiscal 1997, the Company modified the terms of several option grants to
employees that left the Company when the TRAX product line was sold (see
Note 1). The option grants were modified to allow the employees to leave the
Company, but retain their rights to the options. The modification of these
option grants was treated the same as a grant of new options. The Company
recognized a charge in the amount of $475,452, equal to the intrinsic value of
the options at the date of modification.
In fiscal 1998, the Company modified the terms of several option grants to
employees who agreed to a reduction in their salary. The option grants were
modified to reduce the option price to $.01. The Company recognized a charge in
the amount of $357,307, equal to the intrinsic value of the options at the date
of modification.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 ("SFAS 123")
SFAS No. 123 defines a fair-value based method of accounting for employee
stock options or similar equity instruments. However, SFAS No. 123 allows the
continued measurement of compensation costs for such plans using the intrinsic
value based method prescribed by APB No. 25 provided that pro forma disclosures
are made of net income or loss, assuming the fair value based method of SFAS
No. 123 had been applied.
The Company has elected to account for its stock-based compensation plans
under APB 25; accordingly, for purposes of the pro forma disclosures presented
below, the Company has computed the
F-112
<PAGE>
MARINER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(6) SHAREHOLDERS' EQUITY (CONTINUED)
fair values of all options granted during 1997 and 1998, using the Black-Scholes
pricing model and the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Risk-fee interest rate.................................... 5.0% 5.0%
Expected lives............................................ 4 years 4 years
Expected volatility....................................... 0.001% 0.001%
Expected dividend yield................................... 0% 0%
</TABLE>
To estimate the expected lives of options for this valuation, it was assumed
that all options will be exercised at the end of the vesting period. Options
granted during the year ended September 30, 1998 vest over various periods
ranging from date of grant to a four year period from the date of grant.
Cumulative compensation cost recognized in pro forma net loss with respect to
options that are forfeited prior to vesting is adjusted as a reduction of pro
forma compensation expense in the period of forfeiture.
The total fair value of options granted was computed to be $18,439 and
$26,239 for the years ended September 30, 1997 and 1998, respectively, and
$25,353 and $13,297 for the nine months ended June 30, 1998 and 1999,
respectively. These amount are amortized ratably over the vesting periods of the
options. Pro forma stock-based compensation, net of the effect of forfeitures,
was $11,735 and $18,197 for the years ended September 30, 1997 and 1998, and
$13,558 and $21,138 for the nine-months ended June 30, 1998 and 1999,
respectively. If the Company has accounted for its stock-based compensation
plans in accordance with SFAS 123, the Company's net income would have been
reported as follows.
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
--------------------- ------------------------
1997 1998 1998 1999
-------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net loss:
As reported................... $974,184 $2,234,071 $1,335,803 $1,195,215
======== ========== ========== ==========
Pro forma..................... $985,919 $2,252,268 $1,349,361 $1,216,353
======== ========== ========== ==========
</TABLE>
F-113
<PAGE>
MARINER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(6) SHAREHOLDERS' EQUITY (CONTINUED)
A summary of option activity for the years ended September 30, 1997 and 1998
and the nine months ended June 30, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1997 1998
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 469,830 $ .51 486,830 $ .71
Granted................................. 17,000 6.12 21,988 6.73
------- ----- ------- -----
Outstanding at end of year.............. 486,830 $ .71 508,818 $ .97
======= ===== ======= =====
Exercisable at end of year.............. 131,388 $ .96 472,693 $ .50
======= ===== ======= =====
Weighted average fair value at date of
grant................................. $1.08 $1.19
=================== ===================
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
-----------------------------------------
1998 1999
------------------- -------------------
(UNAUDITED)
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period...... 486,830 $ .71 508,818 $ .90
Granted................................. 21,988 6.65 8,000 10.00
------- ----- ------- -----
Outstanding at end of period............ 508,818 $ .90 516,818 $1.10
======= ===== ======= =====
Exercisable at end of period............ 456,881 $ .46 486,318 $ .63
======= ===== ======= =====
Weighted average fair value at date of
grant................................. $1.15 $1.77
=================== ===================
</TABLE>
F-114
<PAGE>
MARINER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(7) INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, JUNE 30,
--------------------- -----------------------
1997 1998 1998 1999
--------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current--
Federal........................ $ -- $ -- $ -- $ --
State.......................... -- -- -- --
--------- --------- --------- ---------
Total current provision...... -- -- -- --
--------- --------- --------- ---------
Deferred--
Federal........................ (323,975) (748,278) (445,673) (399,573)
State.......................... (31,445) (72,627) (43,257) (38,782)
Valuation allowance............ 355,420 820,905 488,930 438,355
--------- --------- --------- ---------
Total deferred provision
(benefit).................. -- -- -- --
--------- --------- --------- ---------
Total provision.............. $ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
The statutory federal income tax rate was 34% for the years ended
September 30, 1997 and 1998 and the nine-months ended September 30, 1998 and
1999.
Reasons for the difference between the income tax expense reported in the
statements of operations and the amount computed by applying the statutory
federal income tax rate to earnings before income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, JUNE 30,
--------------------- -----------------------
1997 1998 1998 1999
--------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Benefit at statutory rate........................ $(331,223) $(759,584) $(454,174) $(406,373)
Increase (decrease) due to--
State income taxes............................. (32,148) (73,724) (44,081) (39,442)
Nondeductible expenses......................... 7,951 12,403 9,325 7,460
Valuation allowance............................ 355,420 820,905 488,930 438,355
--------- --------- --------- ---------
Income tax provision............................. $ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
F-115
<PAGE>
MARINER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(7) INCOME TAXES (CONTINUED)
Components of net deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------- JUNE 30,
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Current--
Accrued liabilities.................... $ 44,682 $ 75,604 $ 65,911
Deferred revenue....................... 123,964 127,469 76,190
Valuation allowance.................... (168,646) (203,073) (142,101)
--------- ----------- -----------
Net current deferred tax assets.......... $ -- $ -- $ --
========= =========== ===========
Non-current--
Depreciation........................... $ (51,615) $ (119,315) $ (180,062)
Net operating losses................... 735,287 1,589,465 2,149,541
Valuation allowance.................... (683,672) (1,470,150) (1,969,479)
--------- ----------- -----------
Net non-current deferred tax assets $ -- $ -- $ --
========= =========== ===========
</TABLE>
For income tax reporting purposes, the Company has approximately
$5.7 million of net operating loss carryforwards that expire at various dates
through 2014. The Tax Reform Act of 1986 contains provisions that may limit the
net operating loss carryforwards available to be used in any given year in the
event of a significant change in ownership interests. Realization is dependent
on generating sufficient taxable income prior to the expiration dates of the
respective carryforward amounts.
During the years ended September 30, 1997 and 1998 and the nine months ended
June 30, 1998 and 1999, the Company increased its valuation allowance by
$355,420, $820,905, $488,930 and $438,355, respectively, due mainly to
uncertainty relating to the realizability of the net operating loss
carryforwards. The amount of the deferred tax assets considered realizable could
be adjusted in the near term if future taxable income materializes.
(8) PROFIT SHARING PLAN
The Company has established a 401(k) plan for its employees. Employees may
contribute up to 15% of gross compensation not to exceed the federal statutory
amount. The Company may make discretionary matching contributions. No matching
contributions have been made by the Company through June 30, 1999.
(9) LEASES
The Company leases office space under a lease that expires in
December 1999. Future minimum annual rental payments due under this lease are as
follows:
<TABLE>
<S> <C>
Period ended September 30--
1999...................................................... $24,755
2000...................................................... 24,755
-------
Total..................................................... $49,510
=======
</TABLE>
F-116
<PAGE>
MARINER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
(9) LEASES (CONTINUED)
Rent expense totaled $55,634 and $70,437 for the year ended September 30,
1997 and 1998, respectively, and was $45,946 and $73,999 for the nine months
ended June 30, 1998 and 1999, respectively.
(10) LITIGATION SETTLEMENT
On May 6, 1999, the Company successfully settled a lawsuit against two
former employees, the companies they founded, and their shareholder for
misappropriation of trade secrets, breach of contract and breach of fiduciary
duty. The terms of the settlement included cash payments to the Company of
$229,000, two promissory notes totaling $226,000 secured by an irrevocable
letter of credit from a bank, an option to repurchase shares of the Company
owned by the two former employees and the cancellation of all future royalty
payments to the two former employees. The Company exercised its option to
repurchase the shares owned by the two former employees subsequent to June 30,
1999.
(11) SUBSEQUENT EVENTS
EQUITY INVESTMENT
Subsequent to June 30, 1999, the Company completed an equity offering to the
same investor group who purchased common stock and warrants in fiscal 1998 (see
Note 6). The Company issued 3,871,477 shares and received proceeds from the
offering of approximately $3.2 million, net of offering costs of $148,000. The
Company also cancelled all previous warrants issued to this investor group.
MERGER
In July 1999, the Company entered into a merger agreement (the "Agreement")
with VantageMed Corporation ("VantageMed"). The merger has been structured as a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986 and will qualify for tax free treatment. The Company will exchange
all of its shares and options for the shares and options of VantageMed at an
exchange ratio of approximately 0.16 shares of VantageMed stock for each share
of the Company's stock. The shareholders approved the merger and it was
completed in August 1999.
BUILDING LEASE
Subsequent to June 30, 1999, the Company entered into a new non-cancelable
lease for office space which commences on December 1, 1999. The initial term of
the lease is for five years and provides for escalating lease payments. Future
lease payments under this lease are as follows:
<TABLE>
<S> <C>
Year Ended September 30--
2000...................................................... $ 71,960
2001...................................................... 88,512
2002...................................................... 91,164
2003...................................................... 93,898
2004...................................................... 96,716
Thereafter................................................ 16,198
--------
$458,448
========
</TABLE>
F-117
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Medical Digital Technologies, Inc.:
We have audited the accompanying balance sheet of MEDICAL DIGITAL
TECHNOLOGIES, INC. (a California Corporation) as of September 30, 1999, and the
related statements of income, stockholders' equity (deficit) and cash flows for
the nine-month period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Medical Digital
Technologies, Inc. as of September 30, 1999, and the results of its operations
and its cash flows for the nine-month period then ended, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Los Angeles, California
October 20, 1999
F-118
<PAGE>
MEDICAL DIGITAL TECHNOLOGIES, INC.
BALANCE SHEET--SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $320,656
Accounts receivable, net of allowance of $10,000.......... 132,306
Inventories............................................... 27,938
Deferred income taxes..................................... 56,026
--------
Total current assets.................................... 536,926
--------
PROPERTY AND EQUIPMENT, net................................. 37,095
OTHER ASSETS................................................ 4,264
--------
Total assets............................................ $578,285
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $138,983
Payable to related party.................................. 8,044
Accrued liabilities....................................... 73,429
Income tax payable........................................ 81,568
Customer deposits......................................... 137,186
Deferred revenue.......................................... 80,177
Other current liabilities................................. 13,840
--------
Total current liabilities............................... 533,227
========
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value;
7,500 shares authorized,
3,330 shares outstanding................................ 33,330
Retained earnings......................................... 11,728
--------
Total stockholders' equity.............................. 45,058
--------
Total liabilities and stockholders' equity.............. $578,285
========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-119
<PAGE>
MEDICAL DIGITAL TECHNOLOGIES, INC.
STATEMENT OF INCOME
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C>
NET SALES................................................... $1,292,817
COST OF SALES............................................... 862,812
----------
Gross Profit.............................................. 430,005
SELLING, GENERAL AND ADMINISTRATIVE......................... 267,908
----------
INCOME FROM OPERATIONS...................................... 162,097
INTEREST INCOME............................................. 5,617
----------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 167,714
PROVISION FOR INCOME TAXES.................................. 26,342
----------
NET INCOME.................................................. $ 141,372
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-120
<PAGE>
MEDICAL DIGITAL TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK STOCKHOLDERS' STOCKHOLDERS
------------------- EARNINGS EQUITY
SHARES AMOUNT (DEFICIT) (DEFICIT)
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Balance December 31, 1998........................... 3,330 $33,330 $(129,644) $(96,314)
Net Income.......................................... -- -- 141,372 141,372
----- ------- --------- --------
Balance September 30, 1999.......................... 3,330 $33,330 $ 11,728 $ 45,058
===== ======= ========= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-121
<PAGE>
MEDICAL DIGITAL TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $141,372
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 15,046
Deferred income taxes................................... (56,026)
Bad debt expense........................................ 7,632
Changes in assets and liabilities:
Accounts receivable................................... (50,500)
Inventories........................................... (27,938)
Accounts payable...................................... 78,779
Payable to related party.............................. 8,044
Income tax payable.................................... 81,568
Accrued liabilities................................... 9,270
Customer deposits..................................... (40,892)
Deferred revenue...................................... 53,299
Other current liabilities............................. 13,840
--------
Net cash provided by operating activities........... 233,494
CASH FLOWS FROM INVESTING ACTIVITIES--
Purchases of property and equipment....................... (7,468)
--------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 226,026
CASH AND CASH EQUIVALENTS, beginning of period.............. 94,630
--------
CASH AND CASH EQUIVALENTS, end of period.................... $320,656
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ --
========
Cash paid for income taxes................................ $ 800
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-122
<PAGE>
MEDICAL DIGITAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. ORGANIZATION AND BUSINESS
Medical Digital Technologies, Inc. (the "Company") provides physicians and
other healthcare professionals in the United States, with office management
software designed to automate the administrative, financial, and practice
management requirements of medical practices. The Company also provides
software, network and hardware support, training, forms and supplies and
interfaces for EDI including claims, electronic remittance advice and electronic
statement printing services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with an original maturity of
three months or less to be cash equivalents.
FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Management estimates that the carrying amounts of the Company's financial
instruments included in the accompanying balance sheet is not materially
different from their fair values.
CONCENTRATIONS OF CREDIT RISK
The Company's accounts receivable are unsecured and the Company is at risk
to the extent such amounts become uncollectible. As of September 30, 1999, three
customers represented 46 percent of accounts receivable. For the nine-months
ended September 30, 1999, one customer represented 12 percent of net sales.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of supplies and new computer equipment purchased to
fill customer orders.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the double-declining balance method with the mid-year convention. The Company
depreciates property and equipment over the estimated useful lives of the
respective assets, which are generally three to seven years. Maintenance and
repairs are expensed as incurred.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", under which deferred income taxes are provided
based upon enacted tax laws and rates applicable to the periods in which taxes
become payable. A valuation allowance is provided against the future benefits of
deferred tax assets if it is determined that it is more likely than not that the
future tax benefits associated with the deferred tax assets will not be
realized.
F-123
<PAGE>
MEDICAL DIGITAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
REVENUE RECOGNITION
Software and systems revenue is derived from the licensing of proprietary
software, the sale of third-party software, primarily desktop operating systems
and standard communication and security software and the sale of computer
hardware and supplies. Customer support and electronic services revenue is
derived from software maintenance and customer service, network and computer
hardware support, training, data conversion, system installation, electronic
claims processing, electronic statement printing, mailing and electronic
remittance advices.
Fees from licenses are recognized as revenue in accordance with Statement of
Position 97-2 when all shipment obligations have been met, fees are fixed and
determinable, collection of the sale proceeds is deemed probable and persuasive
evidence of an agreement exists. The Company records revenue when the configured
system is shipped or is installed by Company personnel. When systems are sold
through a distributor, the Company records revenue after the system for the
specific end user has been completed by the distributor. Revenue from service
contracts is deferred and recognized over the term of the contract. All other
revenue is recognized during the period in which services are performed or the
product is shipped. Post customer support obligations are insignificant and are
accrued at the time of the sale.
SOFTWARE DEVELOPMENT INCOME
In accordance with SFAS No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed", development costs related to
software products are expensed as incurred until the technological feasibility
of the product has been established. Technological feasibility in the Company's
circumstances occurs when a working model is completed. After technological
feasibility is established, additional costs would be capitalized. The Company
believes its process for developing software is essentially completed concurrent
with the establishment of technological feasibility, and, accordingly, no
software development costs have been capitalized to date.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 1999:
<TABLE>
<S> <C>
Software.................................................... $ 8,006
Office and computer equipment............................... 184,944
Furniture and fixtures...................................... 26,740
---------
219,690
Less: Accumulated depreciation.............................. (182,595)
---------
$ 37,095
=========
</TABLE>
F-124
<PAGE>
MEDICAL DIGITAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
3. PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation expense was $15,046 for the nine-month period ended
September 30, 1999 and is included in cost of goods sold.
4. COMMITMENTS AND CONTINGENCIES
The Company leases its office space under an operating lease. The minimum
future lease payments at September 30, 1999 are as follows:
For the period ending December 31,
<TABLE>
<S> <C>
1999........................................................ $10,662
2000........................................................ 42,648
2001........................................................ 31,986
-------
$85,296
=======
</TABLE>
Rent expense was $36,057 for the nine-month period ended September 30, 1999.
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. As of
September 30, 1999, the Company was not involved in any legal proceedings,
which, according to management in consultation with its legal counsel, would
individually or in the aggregate, have a material adverse effect on the
Company's business, financial condition or results of operations.
5. RELATED PARTY TRANSACTIONS
The Company sells certain products to its stockholders at cost. During 1999,
the Company sold products to the physician practices of two of the Company's
stockholders. Sales to these two physician practices during the nine-month
period ended September 30, 1999 totaled $33,104. Another company owned by one of
these stockholders received commissions of $11,389 relating to current period
sales. After deducting commissions, the net sales price equaled the cost to the
Company. At September 30, 1999, $8,044 was due to this company.
During 1999, the Company subcontracted some internal training to a company
owned by another stockholder. Services by this company totaled $1,700 for the
nine-month period ended September 30, 1999.
6. INCOME TAXES
The Company has recorded a net deferred tax asset of $56,026 at
September 30, 1999. Realization is dependent on generating sufficient taxable
income in the future. Although realization is not assured, management believes
it is more likely than not that all of the deferred tax asset will be realized.
F-125
<PAGE>
MEDICAL DIGITAL TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
6. INCOME TAXES (CONTINUED)
The provision for income taxes for the nine-month period ended
September 30, 1999 consists of the following:
<TABLE>
<S> <C>
Current:
Federal................................................... $ 63,871
State..................................................... 18,497
--------
Total current............................................... 82,368
Deferred:
Federal................................................... (11,207)
State..................................................... (3,653)
--------
Total deferred.............................................. (14,860)
--------
Change in valuation allowance............................... (41,166)
--------
Provision for income taxes.................................. $ 26,342
========
</TABLE>
Differences between the provision for income taxes and income tax computed
at the federal statutory income tax rate for the nine-months ended
September 30, 1999 are as follows:
<TABLE>
<S> <C>
Income tax at statutory
federal rate.............................................. $ 57,023
State income tax, net of federal tax benefit................ 9,818
Other....................................................... 667
Change in valuation allowance............................... (41,166)
--------
$ 26,342
========
</TABLE>
The components of the net deferred tax asset at September 30, 1999 are as
follows:
<TABLE>
<S> <C>
Allowance for bad debts..................................... $ 3,983
Vacation accrual............................................ 7,974
Deferred service revenue.................................... 35,917
State income taxes.......................................... 6,289
Other....................................................... 1,863
-------
$56,026
=======
</TABLE>
7. SUBSEQUENT EVENT
In October 1999, the Company's stockholders' entered into a sales agreement
with VantageMed Corporation ("VMC"). All shares of the Company's common stock
outstanding at October 1, 1999 will be exchanged for 96,491 shares of VMC common
stock, $600,000 in cash and $500,000 in promissory notes.
F-126
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To VantageMed Corporation:
We have audited the accompanying balance sheet of MEDICAL SOFTWARE
SOLUTIONS, INC. (a Michigan Corporation) as of January 31, 1999, and the related
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Medical Software
Solutions, Inc. as of January 31, 1999, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Detroit, Michigan,
October 19, 1999
F-127
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
BALANCE SHEET
AS OF JANUARY 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 725
Accounts receivable, net of allowance of $29,350.......... 118,814
Accrued interest receivable............................... 20,083
Deferred tax asset........................................ 6,464
--------
Total current assets.................................... 146,086
PROPERTY AND EQUIPMENT, net................................. 13,009
OFFICERS/STOCKHOLDERS LOANS................................. 199,906
OTHER ASSETS................................................ 10,000
--------
Total assets............................................ $369,001
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 61,473
Accrued liabilities....................................... 19,453
Outstanding drafts........................................ 20,600
Customer deposits and deferred revenue.................... 56,187
--------
Total current liabilities............................... 157,713
--------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 50,000 shares authorized;
1,000 shares issued and outstanding..................... 1,000
Accumulated earnings...................................... 210,288
--------
Total stockholders' equity.............................. 211,288
--------
Total liabilities and stockholders' equity.............. $369,001
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-128
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1999
<TABLE>
<S> <C>
NET REVENUES................................................ $1,022,668
COST OF REVENUES............................................ 588,068
----------
GROSS PROFIT.............................................. 434,600
OPERATING COSTS AND EXPENSES................................ 543,959
----------
LOSS FROM OPERATIONS...................................... (109,359)
----------
INTEREST AND OTHER INCOME:
Interest income........................................... 22,690
Other income, net......................................... 8,591
----------
Total interest and other income......................... 31,281
----------
LOSS BEFORE INCOME TAXES.................................... (78,078)
BENEFIT FOR INCOME TAXES.................................... (12,701)
----------
NET LOSS.................................................... $ (65,377)
==========
NET LOSS PER COMMON SHARE
Basic net loss per share.................................. $ (65.38)
==========
Weighted-average common shares outstanding................ 1,000
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-129
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ACCUMULATED
SHARES AMOUNT EARNINGS TOTAL
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 31, 1998............................ 1,000 $1,000 $275,665 $276,665
Net loss............................................. -- -- (65,377) (65,377)
----- ------ -------- --------
BALANCE AT JANUARY 31, 1999............................ 1,000 $1,000 $210,288 $211,288
===== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-130
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANURARY 31, 1999
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(65,377)
Adjustments to reconcile net loss to net cash provided by
operating activities--
Depreciation............................................ 8,103
Credit for deferred income taxes........................ (19,365)
Changes in assets and liabilities--
Accounts receivable................................... 70,316
Prepaid expenses and other............................ 251
Accounts payable and accrued liabilities.............. 18,001
Outstanding drafts.................................... 20,600
Customer deposits and deferred revenue................ 7,700
--------
Net cash provided by operating activities........... 40,229
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities............... 26,333
Accrued interest receivable............................... (2,657)
Net borrowings of officers/stockholders................... (85,676)
Purchases of property and equipment....................... (6,963)
--------
Net cash used in investing activities............... (68,963)
--------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... (28,734)
CASH AND CASH EQUIVALENTS, beginning of year................ 29,459
--------
CASH AND CASH EQUIVALENTS, end of year...................... $ 725
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes................................ $ 8,825
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-131
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
1. ORGANIZATION AND BASIS OF PRESENTATION:
Medical Software Solutions, Inc. (the "Company") was incorporated in
Michigan on February 1, 1985. The Company develops and sells practice management
software and related services to physicians and other healthcare professionals.
The practice management software products offered by the Company provide
physicians and other professionals with comprehensive office management software
designed to automate the administrative, financial, practice management and
clinical requirements of a practice. These systems range in capacity from one to
approximately twenty-five providers. The Company also provides software, network
and hardware support, training, electronic claims processing and electronic
statement printing and mailing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Management estimates that the carrying amounts of the Company's financial
instruments included in the accompanying balance sheet are not materially
different from their fair values.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
accelerated methods over the estimated useful lives of the respective assets,
which are generally three to seven years. Leasehold improvements are amortized
over the term of the related lease. Maintenance and repairs are expensed as
incurred.
REVENUE RECOGNITION
Revenue is generated primarily from the following sources: new software
installations, software conversions and upgrades for existing customers, sales
of hardware manufactured by other companies, hardware maintenance, software
support and electronic transaction services. In accordance with American
Institute of Certified Public Accountants ("AICPA") Statement of Position 97-2
("SOP 97-2"), "Software Revenue Recognition", revenue from software product
sales is recognized upon delivery to the customer provided the collection of the
sales proceeds is deemed probable, the fee is fixed and determinable and no
significant vendor obligations remain. Other revenue, including hardware sales,
maintenance, licensing and support activities, is recognized as hardware is
shipped or as services are provided. Deferred revenue primarily consists of
revenue deferred under annual maintenance and annual license agreements on which
amounts have been received from customers and for which the earnings process has
not been completed.
F-132
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Under the criteria set forth in Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", capitalization of software development costs begins upon
the establishment of technological feasibility of the product. The establishment
of technological feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenue, estimated economic product lives and changes in software and
hardware technology. Amounts that would have been capitalized under this
statement after consideration of the above factors were immaterial, and
therefore, no software development costs have been capitalized by the Company.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes", under which deferred income taxes
are provided based upon enacted tax laws and rates applicable to the periods in
which taxes become payable. A valuation allowance is provided against the future
benefits of deferred tax assets if it is determined that it is more likely than
not that the future tax benefits associated with the deferred tax asset will not
be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<S> <C>
Office and computer equipment............................... $ 52,159
Furniture and fixtures...................................... 7,063
Leasehold improvements...................................... 1,200
--------
60,422
Less: Accumulated depreciation.............................. (47,413)
--------
$ 13,009
========
</TABLE>
Depreciation expense was approximately $8,000 for 1999.
F-133
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
4. OPERATING LEASE OBLIGATIONS:
The Company leases two autos under non-cancelable operating leases. The
minimum future lease payments required under the Company's operating leases for
the fiscal years ending January 31 are as follows:
<TABLE>
<S> <C>
2000...................................................... $ 8,700
2001...................................................... 5,400
2002...................................................... 500
-------
Total minimum payments.................................... $14,600
=======
</TABLE>
Total rent expense was approximately $29,000 for fiscal 1999.
5. RELATED PARTY TRANSACTIONS:
OFFICERS/STOCKHOLDERS LOANS
The Company has outstanding loans receivable from officers/stockholders of
approximately $200,000 at January 31, 1999. The loans earn interest at a rate of
9.25% and repayment terms are unspecified. Total related party interest income
on these loans was approximately $20,000 for 1999.
ROYALTIES
The Company has a contractual agreement with the officers/stockholders of
the Company and a related third party to pay royalties for product development
and inventions, whose value is determined on a periodic basis. Royalties under
this agreement of $190,000 were charged to operating expenses in 1999.
6. EMPLOYEE BENEFIT PLANS:
The Company maintains an employee retirement plan under which leased
employees may defer a portion of their annual compensation, pursuant to
Section 401(k) of the Internal Revenue Code. Substantially all leased employees
who have completed at least 90 days of service are eligible to participate in
the plan. The company has no contributory obligations with respect to this plan,
nor did it incur any significant plan expense during the year.
7. INCOME TAXES:
The benefit for income taxes consists of:
<TABLE>
<S> <C>
Current provision........................................... $ 6,664
Deferred benefit............................................ (19,365)
--------
Benefit for income taxes.................................. $(12,701)
========
</TABLE>
Deferred taxes result from temporary differences between the bases of assets
and liabilities for financial reporting purposes and such amounts as measured by
tax laws and regulations. The Company
F-134
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1999
7. INCOME TAXES: (CONTINUED)
is a cash basis taxpayer therefore the sources of the temporary differences and
the related deferred tax assets and liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accrued expenses.......................................... $ 26,187
Deferred tax liabilities:
Accrued revenue........................................... (19,723)
--------
Net deferred tax asset...................................... $ 6,464
========
</TABLE>
The following table accounts for the differences between the actual tax
benefit and amounts obtained by applying the Statutory U.S. Federal rate to the
loss before income taxes.
<TABLE>
<S> <C>
Expected tax benefit........................................ $(16,178)
Increase in income taxes resulting from nondeductible
items..................................................... 3,477
--------
Benefit for income taxes.................................... $(12,701)
========
</TABLE>
8. SUBSEQUENT EVENT:
Subsequent to January 31, 1999, the Company was acquired by VantageMed
Corporation. As consideration, the stockholders of the Company received
approximately 85,156 shares of VantageMed Corporation stock and a promissory
note for approximately $460,000 in exchange for the stock of the Company.
F-135
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
BALANCE SHEET
AS OF APRIL 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 9,977
Accounts receivable, net of allowance of $29,350.......... 139,884
Accrued interest receivable............................... 24,706
Deferred tax asset........................................ 990
--------
Total current assets.................................... 175,557
PROPERTY AND EQUIPMENT, net................................. 11,495
OFFICERS/STOCKHOLDERS LOANS................................. 224,616
OTHER ASSETS................................................ 10,000
--------
Total assets............................................ $421,668
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 57,951
Accrued liabilities....................................... 17,894
Customer deposits and deferred revenue.................... 62,317
--------
Total current liabilities............................... 138,162
--------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 50,000 shares authorized;
1,000 shares issued and outstanding..................... 1,000
Accumulated earnings...................................... 282,506
--------
Total stockholders' equity.............................. 283,506
--------
Total liabilities and stockholders' equity.............. $421,668
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-136
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
NET REVENUES................................................ $427,445 $294,346
COST OF REVENUES............................................ 209,976 122,629
-------- --------
GROSS PROFIT............................................ 217,469 171,717
OPERATING COSTS AND EXPENSES................................ 134,821 114,841
-------- --------
INCOME FROM OPERATIONS.................................. 82,648 56,876
INTEREST INCOME............................................. 4,633 4,279
-------- --------
INCOME BEFORE INCOME TAXES.................................. 87,281 61,155
PROVISION FOR INCOME TAXES.................................. 15,063 10,503
-------- --------
NET INCOME.................................................. $ 72,218 $ 50,652
======== ========
NET INCOME PER COMMON SHARE
Basic net earnings per share.............................. $ 72.22 $ 50.65
======== ========
Weighted average common shares outstanding................ 1,000 1,000
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-137
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 72,218 $ 50,652
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation............................................ 1,514 2,026
Provision (credit) for deferred income taxes............ 5,474 (15,831)
Changes in assets and liabilities--
Accounts receivable................................... (21,070) 40,850
Accounts payable and accrued liabilities.............. (25,681) 85,669
Customer deposits and deferred revenue................ 6,130 (5,616)
-------- ---------
Net cash provided by operating activities........... 38,585 157,751
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Accrued interest receivable............................... (4,623) (4,025)
Proceeds from sale of marketable securities............... -- 26,333
Net borrowings of officers/stockholders................... (24,710) (119,622)
Purchases of property and equipment....................... -- (103)
-------- ---------
Net cash used in investing activities............... (29,333) (97,417)
-------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... 9,252 60,334
CASH AND CASH EQUIVALENTS, beginning of year................ 725 29,459
-------- ---------
CASH AND CASH EQUIVALENTS, end of year...................... $ 9,977 $ 89,793
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes................................ $ 1,896 $ 4,580
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-138
<PAGE>
MEDICAL SOFTWARE SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998
1. BASIS OF PRESENTATION:
The interim financial statements are unaudited and reflect all adjustments
that, in the opinion of management, are necessary for a fair presentation of the
results for the interim periods. The results of operations for the current
interim period are not necessarily indicative of results to be expected for the
current year or any other period.
These interim financial statements should be read in conjunction with the
Company's financial statements for the year ended January 31, 1999.
2. ROYALTIES:
The Company has a contractual agreement with the officers/stockholders of
the Company and a related third party to pay royalties for product development
and inventions, whose value is determined on a periodic basis. Royalties under
this agreement of $50,000 and $35,000 were charged to operating expenses during
the three months ended April 30, 1999 and 1998, respectively.
3. INCOME TAXES:
The following table accounts for the differences between the actual tax
benefit and amounts obtained by applying the Statutory U.S. Federal rate to the
loss before income taxes.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Expected tax provision................................ $14,489 $10,152
Increase in income taxes resulting from nondeductible
items............................................... 574 351
------- -------
Provision for income taxes............................ $15,063 $10,503
======= =======
</TABLE>
4. SUBSEQUENT EVENT:
Subsequent to April 30, 1999, the Company was acquired by VantageMed
Corporation. As consideration, the stockholders of the Company received
approximately 85,156 shares of VantageMed Corporation stock and a promissory
note for approximately $460,000 in exchange for the stock of the Company.
F-139
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Medicom Corporation:
We have audited the accompanying balance sheet of Medicom Corporation (a
California corporation) as of December 31, 1997, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Medicom Corporation as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
San Francisco, California,
October 15, 1999
F-140
<PAGE>
MEDICOM CORPORATION
BALANCE SHEETS
AS OF DECEMBER 31, 1997, AND JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 56,432 $ 44,029
Accounts receivable....................................... 68,652 75,495
Prepaid expenses and other................................ 4,351 9,900
--------- --------
Total current assets.................................... 129,435 129,424
PROPERTY AND EQUIPMENT, net................................. 89,398 68,640
OTHER ASSETS.............................................. 3,416 3,897
--------- --------
Total assets............................................ $ 222,249 $201,961
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 45,215 $ 28,681
Accrued liabilities....................................... 49,494 15,834
Capital lease obligation.................................. 4,255 0
--------- --------
Total current liabilities............................... 98,964 44,515
DEFERRED INCOME TAXES....................................... 9,447 17,646
STOCKHOLDERS' EQUITY:
Common stock, no par value, 5,000,000 shares authorized;
871,278 shares outstanding as of December 31, 1997, and
June 30, 1998........................................... 258,670 258,670
Accumulated deficit....................................... (144,832) (118,870)
--------- --------
Total stockholders' equity.................................. 113,838 139,800
--------- --------
Total liabilities and stockholders' equity.................. $ 222,249 $201,961
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-141
<PAGE>
MEDICOM CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997, AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
DECEMBER 31, -------------------
1997 1997 1998
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
On-line revenue........................................... $ 701,106 $360,525 $326,538
Full-service revenue...................................... 721,340 421,034 239,726
Other..................................................... 53,970 24,547 13,777
---------- -------- --------
Total revenues.......................................... 1,476,416 806,106 580,041
OPERATING COSTS AND EXPENSES:
Cost of revenue........................................... 1,203,171 605,377 456,077
Selling, general and administrative....................... 202,008 116,405 68,657
Depreciation.............................................. 51,014 25,577 21,861
---------- -------- --------
Income from operations.................................. 20,223 58,747 33,446
INTEREST INCOME, net........................................ 2,075 1,222 715
---------- -------- --------
Income before income taxes.............................. 22,298 59,969 34,161
PROVISION FOR INCOME TAXES.................................. 5,352 14,201 8,199
---------- -------- --------
Net income.............................................. $ 16,946 $ 45,768 $ 25,962
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-142
<PAGE>
MEDICOM CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997, AND
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
-------------------- EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996..................... 1,102,443 $327,300 $ 12,315 $ 339,615
Repurchase of common stock..................... (231,165) (68,630) (174,093) (242,723)
Net income..................................... 0 0 16,946 16,946
--------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1997..................... 871,278 258,670 (144,832) 113,838
Net income..................................... 0 0 25,962 25,962
--------- -------- --------- ---------
BALANCE AT JUNE 30, 1998 (unaudited)............. 871,278 $258,670 $(118,870) $ 139,800
========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-143
<PAGE>
MEDICOM CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997, AND
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- --------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 16,946 $ 45,768 $ 25,962
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation............................................ 51,014 25,577 21,861
Changes in assets and liabilities:
Accounts receivable................................... 3,730 (50,473) (6,843)
Prepaid expenses and other............................ 14,551 9,145 (5,549)
Other assets.......................................... 1,548 1,548 (481)
Accounts payable...................................... (9,088) (8,886) (16,534)
Accrued liabilities................................... (34,444) (22,264) (33,660)
Deferred income taxes................................. 2,052 (5,580) 8,199
--------- --------- --------
Net cash provided by (used for) operating
activities........................................ 46,309 (5,165) (7,045)
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property
and equipment............................................. (16,060) (1,350) (1,103)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock................................ (242,723) (242,723) 0
Repayment of capital lease obligation..................... (667) 0 (4,255)
--------- --------- --------
Net cash used for financing activities................ (243,390) (242,723) (4,255)
--------- --------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... (213,141) (249,238) (12,403)
--------- --------- --------
CASH AND CASH EQUIVALENTS, beginning of period.............. 269,573 269,573 56,432
--------- --------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 56,432 $ 20,335 $ 44,029
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 191 $ 111 $ 96
Cash paid for income taxes................................ 800 800 800
</TABLE>
The accompanying notes are an integral part of these statements.
F-144
<PAGE>
MEDICOM CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Medicom Corporation (the Company) was incorporated in May 1981 in the state
of California. The Company develops, implements, and supports computerized
practice management systems and provides related services to medical and dental
practices. The practice management software products offered by the Company
provide physicians, dentists, and other professionals with comprehensive office
management software designed to automate the administrative, financial, practice
management, and clinical requirements of a practice. The Company also provides
software, network and hardware support, training, electronic claims processing,
electronic statement printing and mailing, and electronic remittance advices.
CONCENTRATION OF BUSINESS RISKS
The market for the Company's products and services is characterized by rapid
technological developments, the need to update products and services due to
changing regulatory requirements, intense competition, and changing consumer
preferences. Accordingly, the Company will be required to continually improve
the performance, features, and reliability of its products and services to meet
consumer demand and maintain its competitive advantage. Additional risks include
development of an effective marketing and sales strategy, retention of qualified
personnel, and the Company's ability to grow its client base.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited financial information included herein as of June 30, 1998, and
for the six months ended June 30, 1997 and 1998, has been prepared in accordance
with generally accepted accounting principles for interim financial statements.
In the opinion of the Company, these unaudited financial statements reflect all
adjustments necessary, consisting of normal recurring adjustments, for a fair
presentation of such data on a basis consistent with that of the audited data
presented herein. The results of operations for interim periods are not
necessarily indicative of the results expected for a full year.
REVENUE RECOGNITION
The Company primarily generates revenues from two types of clients: on-line
and full service. On-line clients are granted remote access to the Company's
software, perform most data entry functions, and are the primary users of the
software. Full-service clients essentially outsource their practice management
function to the Company. The types of revenue generated from on-line and full-
service clients are primarily set-up/installation fees, monthly base recurring
charges, and monthly variable charges based on the services used. Other revenues
consist primarily of hardware sales and performance of one-time services.
Revenues from set-up/installation services are recognized ratably over the
contract period. Fees generated from monthly base recurring charges and monthly
variable charges are recognized as revenue in accordance with SOP 97-2 when all
shipment obligations have been met, fees are fixed and determinable, collection
of the sale proceeds is deemed probable and persuasive evidence of an agreement
exists. Other types of revenue are recognized in accordance with SOP 97-2 as
services are rendered or hardware is shipped. For arrangements that include
multiple elements, the Company recognizes revenue based on the fair value of
each element determined by the price charged when the
F-145
<PAGE>
MEDICOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
same element is sold separately or if the element is not yet being sold
separately, the price established by the Company's management.
CONCENTRATION OF CREDIT RISK
Financial instruments that may potentially subject the Company to
concentration of credit risk consist principally of accounts receivable. The
Company has experienced minimal losses due to write-offs of uncollectible
accounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying the applicable statutory tax
rate to the differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities. Under SFAS No. 109, the effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date based on the applicable tax rate.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, which are generally five to seven years. Maintenance and repairs are
expensed as incurred.
SOFTWARE DEVELOPMENT COSTS
Under the criteria set forth in SFAS No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased or Otherwise Marketed," capitalization of
software development costs begins upon the establishment of technological
feasibility. The ongoing assessment of the recoverability of these costs
requires considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future gross product
revenues, estimated economic life, and changes in software and hardware
technology. After considering the above factors, the Company has expensed
software development costs incurred for the year ended December 31, 1997.
F-146
<PAGE>
MEDICOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
2. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Office and computer equipment........................ $ 450,131 $ 451,233
Furniture and fixtures............................... 54,703 54,704
--------- ---------
504,834 505,937
Less: Accumulated depreciation....................... (415,436) (437,297)
--------- ---------
$ 89,398 $ 68,640
========= =========
</TABLE>
Depreciation expense for the year ended December 31, 1997, was $51,014.
3. ACCRUED LIABILITIES:
Accrued liabilities consist of the following at December 31, 1997, and June
30, 1998 (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Payroll and related.................................. $30,590 $12,090
Deferred revenue..................................... 6,616 975
Other................................................ 12,288 2,769
------- -------
$49,494 $15,834
======= =======
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases office space for its headquarters and on-line operations
pursuant to a month-to-month operating lease. The Company also leases its
full-service operating facility pursuant to an operating lease, which expires in
May 1999. The lease payments for this operating facility are consistent over the
lease period and are therefore charged to expense over the lease terms as they
become payable. Future minimum payments under the full-service operating lease
are $52,376 and $40,446 in 1998 and 1999, respectively.
The Company has entered into a capital lease agreement for its telephone
system. The capital lease expires in June 1998. The minimum future capital lease
payments due through the expiration of this lease total $4,255.
Rent expense for the year ended December 31, 1997, was approximately
$106,000.
F-147
<PAGE>
MEDICOM CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
5. STOCKHOLDERS' EQUITY:
COMMON STOCK
During 1997, the Company repurchased 231,165 shares from various
stockholders at $1.05 per share. The difference between the cash paid to
repurchase the stock and the original proceeds received is included in
accumulated deficit in the accompanying balance sheets.
6. INCOME TAXES:
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. The Company's primary temporary differences
relate to expense items deductible for financial reporting purposes but not for
income tax purposes, primarily differences between depreciation for financial
reporting purposes and income tax purposes. Other than state income taxes, there
are no significant differences between effective and statutory income tax rates.
As of December 31, 1997, the Company had a net operating loss (NOL)
carryforward of approximately $7,000 for California purposes. The California NOL
begins expiring in 2002. SFAS No. 109 requires that the tax benefit of such net
operating loss be recorded as an asset. However, SFAS No. 109 also requires that
a valuation allowance be provided to the extent uncertainty surrounds the
realizability of the deferred tax assets. Accordingly, the Company has recorded
a full valuation allowance against the California NOL.
7. SIGNIFICANT CLIENTS:
The Company earned approximately 20 percent of its revenue from sales made
to one client during the year ended December 31, 1997.
8. SUBSEQUENT EVENTS:
Effective July 1998, the Company entered into an agreement and plan of
merger with VantageMed Corporation. The 871,278 shares of Company common stock
were converted into the right to receive an aggregate of 100,000 shares of
VantageMed Series B preferred stock.
F-148
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of VantageMed Corporation:
We have audited the accompanying balance sheet of TREND SIERRA (a California
Proprietorship) as of December 31, 1996, and the related statements of
operations, owner's deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Trend Sierra as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Sacramento, California
October 22, 1999
F-149
<PAGE>
TREND SIERRA
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 JUNE 30, 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 7,769 $ 0
Accounts receivable, net of allowance of $40,160 and
$23,740 for December 31, 1996, and June 30, 1997,
respectively............................................ 192,755 123,722
Inventories............................................... 18,472 21,616
Other current assets...................................... 2,695 2,695
---------- ----------
Total current assets.................................... 221,691 148,033
PROPERTY AND EQUIPMENT, net................................. 15,548 21,286
---------- ----------
Total assets............................................ $ 237,239 $ 169,319
========== ==========
LIABILITIES AND OWNER'S DEFICIT
CURRENT LIABILITIES:
Bank overdraft............................................ $ 0 $ 17,281
Accounts payable.......................................... 57,440 15,633
Accrued liabilities....................................... 70,496 72,442
Customer deposits......................................... 56,547 12,562
Deferred revenue.......................................... 67,417 64,249
Loan from affiliate....................................... 787,883 835,592
---------- ----------
Total current liabilities............................... 1,039,783 1,017,759
COMMITMENTS AND CONTINGENCIES (NOTE 5)
OWNER'S DEFICIT
Total owner's deficit................................... (802,544) (848,440)
---------- ----------
Total liabilities and owner's deficit................... $ 237,239 $ 169,319
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-150
<PAGE>
TREND SIERRA
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED -----------------------------
DECEMBER 31, 1996 JUNE 30, 1996 JUNE 30, 1997
----------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES.......................................... $ 1,922,848 $ 892,298 $ 852,225
OPERATING COST AND EXPENSES:
Cost of revenues................................ 1,118,211 536,783 509,994
Selling, general and administrative............. 688,246 365,679 322,657
------------ ------------ -----------
Income (loss) from operations............... 116,391 (10,164) 19,574
OTHER EXPENSE:
Interest........................................ (166,490) (73,920) (64,288)
Other........................................... 0 0 (1,182)
------------ ------------ -----------
(166,490) (73,920) (65,470)
------------ ------------ -----------
Net loss.................................... $ (50,099) $ (84,084) $ (45,896)
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-151
<PAGE>
TREND SIERRA
STATEMENTS OF OWNER'S DEFICIT
<TABLE>
<S> <C>
BALANCE AT DECEMBER 31, 1995................................ $ (752,445)
Net loss.................................................. (50,099)
----------
BALANCE AT DECEMBER 31, 1996................................ (802,544)
Net loss (for six months)................................. (45,896)
----------
BALANCE AT JUNE 30, 1997 (UNAUDITED)........................ $ (848,440)
==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-152
<PAGE>
TREND SIERRA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, -----------------------------
1996 JUNE 30, 1996 JUNE 30, 1997
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (50,099) $(84,084) $(45,896)
Adjustments to reconcile net loss to net cash provided
by (used for) operating activities--
Depreciation and amortization......................... 6,413 3,206 3,518
Interest added to principal balance on loan from
affiliate........................................... 156,694 58,639 47,709
Bad debt expense...................................... 40,160 24,092 23,740
Loss on disposal of property and equipment............ 0 0 1,182
Changes in assets and liabilities--
Accounts receivable................................. (180,066) (39,492) 45,293
Inventories......................................... (1,206) (6,129) (3,144)
Bank overdraft, accounts payable, and accrued
liabilities....................................... 1,571 51,095 (22,580)
Customer deposits and deferred revenue.............. 20,950 (20,679) (47,153)
--------- -------- --------
Net cash provided by (used for) operating
activities...................................... (5,583) (13,352) 2,669
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (10,411) (10,411) (10,438)
--------- -------- --------
Net cash used for investing activities............ (10,411) (10,411) (10,438)
--------- -------- --------
Net change in cash................................ (15,994) (23,763) (7,769)
CASH, beginning of period................................. 23,763 23,763 7,769
--------- -------- --------
CASH, end of period....................................... $ 7,769 $ 0 $ 0
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-153
<PAGE>
TREND SIERRA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION:
Trend Sierra (the Company) is a sole proprietorship in the state of
California. The Company is a healthcare information systems supplier that
operates in California. The Company sells, installs and supports computerized
practice management systems and provides related services to medical and dental
practices. The Company was acquired by VantageMed Corporation (VantageMed) in
August 1997 under an agreement in which the sole proprietor of Trend Sierra
exchanged all of his ownership interest for $75,000 in cash and a note from
VantageMed for $1,525,000. The note is payable over eight years at prime plus
1.5% (not to exceed 10.5%). No principal is paid in the first two years.
VantageMed pledged 100 shares of stock as collateral for the note.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Management estimates that the carrying amounts of the Company's financial
instruments included in the accompanying balance sheets are not materially
different from their fair values.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of new computer equipment purchased to fill
customer orders.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over five years, the estimated useful life of the
office and computer equipment.
REVENUE RECOGNITION
Revenue is primarily generated from the licensing of proprietary software,
the sale of third-party software, software conversions and upgrades for existing
customers, sales of hardware manufactured by other companies, hardware
maintenance, software support and electronic transaction services. In accordance
with American Institute of Certified Public Accountants ("AICPA") Statement of
Position 97-2 ("SOP 97-2"), "Software Revenue Recognition", revenue from
software product sales is recognized upon delivery to the customer provided the
collection of the sales proceeds is deemed probable, the fee is fixed and
determinable and no significant vendor obligations remain. Other revenue,
including hardware sales, maintenance, licensing and support activities are
recognized as hardware is shipped or as services are provided. The revenue from
software maintenance, customer service and support is recognized ratably over
the term of the support period. For arrangements that include multiple elements,
the fee is allocated to the various elements based on vendor-specific objective
evidence of fair market value established by independent sale of the elements
sold separately.
Deferred revenue consists of revenue deferred under annual maintenance and
license agreements on which amounts have been received from customers and for
which the earnings process has not been completed.
F-154
<PAGE>
TREND SIERRA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: (CONTINUED)
INCOME TAXES
The Company is a sole proprietorship. All income tax is assessed to the
Company owner on his personal tax return.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ---------
(UNAUDITED)
<S> <C> <C>
Office and computer equipment........................ $ 32,880 $ 39,952
Less: accumulated depreciation....................... (17,332) (18,666)
-------- --------
$ 15,548 $ 21,286
======== ========
</TABLE>
Depreciation expense was $6,413, $3,206 (unaudited), and $3,518 (unaudited)
for the year ending December 31, 1996, and the six month periods ending June 30,
1996 and 1997, respectively.
4. LOAN FROM AFFILIATE:
Loan from affiliate represents a loan from an entity in which the Company's
proprietor has a partial interest. Interest is paid monthly at 18% and no
maturity date is set.
5. CONTINGENCIES:
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. As of
June 30, 1997, the Company was not a party to any legal proceedings, which, if
decided adversely to the Company, would, individually or in the aggregate, have
a material adverse effect on the Company's business, financial condition or
results of operations.
F-155
<PAGE>
VANTAGEMED CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
BASIS OF PRESENTATION
The unaudited pro forma financial statements present the balance sheet and
results of operations data from the consolidated financial statements of
VantageMed Corporation ("VantageMed" or the "Company") and give effect to the
acquisitions by VantageMed.
The following table lists the acquisitions completed in 1998 (collectively,
the 1998 Acquisitions):
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION DATE
- ----------- ----------------
<S> <C>
Medsoft, Inc................................................ January 1998
American Voice Computer, Inc................................ February 1998
Pacific Software, Inc....................................... April 1998
DOT Medical, Inc............................................ May 1998
Medicom Corporation (Medicom)............................... July 1998
CM Healthcare Technologies, Inc. (CMHT)..................... August 1998
</TABLE>
The following table lists the acquisitions completed between January 1, 1999
and September 30, 1999 (collectively, the 1999 Acquisitions):
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION DATE
- ----------- ----------------
<S> <C>
Civitec Healthcare Computers, Inc. (Civitec)............... April 1999
Acrotrex Corporation....................................... April 1999
Medical Software Solutions, Inc. (MSS)..................... May 1999
Metropolitan Information Services, Inc..................... June 1999
Brand Software, Inc. (Brand)............................... July 1999
Care Information Systems, Inc.............................. July 1999
Mariner Systems, Inc. (Mariner)............................ August 1999
Logos Systems, Inc......................................... August 1999
Health Information Network................................. September 1999
</TABLE>
The following table lists the acquisitions completed subsequent to
September 30, 1999 (collectively, the Recent Acquisitions):
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION DATE
- ----------- ----------------
<S> <C>
CSS, Inc. (CSS)............................................. October 1999
Pepware Software, Inc....................................... October 1999
Computerized Doctors Systems, Inc. (CDS).................... October 1999
Medical Digital Technologies, Inc. (MDT).................... October 1999
Data Decisions, Inc. (Data Decisions)....................... October 1999
</TABLE>
The unaudited pro forma balance sheet also gives effect to proceeds from
issuance and conversion of a $3.0 million promissory note and this offering.
The unaudited pro forma consolidated statements are based on the historical
financial statements of VantageMed and other historical financial statements
included elsewhere in this Prospectus, and other financial statements not
included in this Prospectus, and the estimates and assumptions set forth below
and in the notes to the unaudited pro forma consolidated financial statements.
All purchase
F-156
<PAGE>
VANTAGEMED CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED
price allocations reported in historical financial statements are substantially
final and any final adjustments are not expected to be material.
The unaudited pro forma consolidated statements of operations have been
prepared for the year ended December 31, 1998, and the nine months ended
September 30, 1999. These statements give effect to the 1998 Acquisitions, the
1999 Acquisitions and the Recent Acquisitions as if such transactions had
occurred as of January 1, 1998. The unaudited pro forma consolidated balance
sheet gives effect to the Recent Acquisitions and the issuance and conversion of
a $3.0 million promissory note into common stock and the offering as if such
transactions had occurred as of September 30, 1999.
The pro forma adjustments are based on estimates, available information and
certain assumptions that management deems appropriate. The unaudited pro forma
consolidated financial data presented herein do not purport to represent the
results of operations or the financial position that would have occurred had the
transactions which were the subject of the pro forma adjustments occurred as of
January 1, 1998, or September 30, 1999, respectively, as assumed. The unaudited
pro forma consolidated financial statements should be read in conjunction with
the other financial statements and notes thereto included elsewhere in the
Prospectus. See also the "Risk Factors" included elsewhere in this Prospectus.
F-157
<PAGE>
VANTAGEMED CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA SUBTOTAL
VANTAGEMED EFFECT OF VANTAGEMED
HISTORICAL ACQUISITIONS AND ALL OFFERING
CONSOLIDATED (NOTE 5) ACQUISITIONS ADJUSTMENTS REF PRO FORMA ADJUSTMENTS
------------ ------------ ------------ ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents... $ 1,190 $ 302 $ 1,492 $3,000 (A) $ 4,492 $29,300
Accounts receivable, net.... 1,773 510 2,283 2,283
Notes receivable, current
portion................... 64 5 69 69
Inventories................. 273 177 450 450
Prepaid expenses and
other..................... 546 73 619 3,000 (A) 3,619 (2,940)
------- ------ ------- ------ ------- -------
Total current assets...... 3,846 1,067 4,913 6,000 10,913 26,360
NOTE RECEIVABLE, net of
current portion............. 141 -- 141 141
PROPERTY AND EQUIPMENT, net... 2,573 150 2,723 2,723
INTANGIBLES, net.............. 24,155 8,186 32,341 32,341
------- ------ ------- ------ ------- -------
Total assets.............. $30,715 $9,403 $40,118 $6,000 $46,118 $26,360
======= ====== ======= ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Book overdraft.............. $ 299 $ 279 $ 578 $ 578
Current portion of long-term
debt...................... 2,261 57 2,318 $3,000 (A) 5,318 $(3,000)
Accounts payable............ 1,143 306 1,449 1,449
Accrued liabilities......... 1,746 330 2,076 2,076
Customer deposits and
deferred revenue.......... 2,567 524 3,091 3,091
------- ------ ------- ------ ------- -------
Total current
liabilities............. 8,016 1,496 9,512 3,000 12,512 (3,000)
LONG-TERM DEBT, net of current
portion..................... 2,243 852 3,095 3,095
Total liabilities......... 10,259 2,348 12,607 3,000 15,607 (3,000)
STOCKHOLDERS' EQUITY:
Preferred
Stock--Series A-1......... 2 -- 2 -- 2 (2)
Preferred
Stock--Series B........... -- -- -- -- -- --
Common stock................ 4 -- 4 -- 4 5
Additional paid-in
capital................... 28,062 7,055 35,117 3,000 (A) 38,117 32,387
Accumulated deficit......... (7,612) -- (7,612) -- (7,612) (3,030)
------- ------ ------- ------ ------- -------
Total stockholders'
equity.................. 20,456 7,055 27,511 3,000 30,511 29,360
------- ------ ------- ------ ------- -------
Total liabilities and
stockholders' equity.... $30,715 $9,403 $40,118 $6,000 $46,118 $26,360
======= ====== ======= ====== ======= =======
<CAPTION>
PRO FORMA
REF AS ADJUSTED
-------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents... (B) $ 33,792
Accounts receivable, net.... 2,283
Notes receivable, current
portion................... 69
Inventories................. 450
Prepaid expenses and
other..................... (A)(G) 679
--------
Total current assets...... 37,273
NOTE RECEIVABLE, net of
current portion............. 141
PROPERTY AND EQUIPMENT, net... 2,723
INTANGIBLES, net.............. 30,341
--------
Total assets.............. $ 72,478
========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Book overdraft.............. $ 578
Current portion of long-term
debt...................... (C) 2,318
Accounts payable............ 1,449
Accrued liabilities......... 2,076
Customer deposits and
deferred revenue.......... 3,091
--------
Total current
liabilities............. 9,512
LONG-TERM DEBT, net of current
portion..................... 3,095
Total liabilities......... 12,607
STOCKHOLDERS' EQUITY:
Preferred
Stock--Series A-1......... --
Preferred
Stock--Series B........... --
Common stock................ (B)(C) 9
Additional paid-in
capital................... (B)(C) 70,504
Accumulated deficit......... (G) (10,642)
--------
Total stockholders'
equity.................. 59,871
--------
Total liabilities and
stockholders' equity.... $ 72,478
========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
F-158
<PAGE>
VANTAGEMED CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA SUBTOTAL
VANTAGEMED EFFECT OF VANTAGEMED
HISTORICAL ACQUISITIONS AND ACQUISITION
CONSOLIDATED (NOTE 5) ACQUISITIONS ADJUSTMENTS REF PRO FORMA
------------ ------------ ------------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Software and systems......................... $ 3,943 $ 6,110 $10,053 $ 10,053
Customer support and electronic services..... 5,430 7,905 13,335 13,335
------- -------- ------- ------- ----------
Total revenues............................. 9,373 14,015 23,388 23,388
OPERATING COSTS AND EXPENSES:
Software and systems......................... 2,146 2,318 4,464 4,464
Customer support and electronic services..... 3,606 3,748 7,354 7,354
Selling, general and administrative.......... 4,706 8,468 13,174 13,174
Product development.......................... 1,500 1,830 3,330 3,330
Depreciation and amortization................ 1,472 452 1,924 $ 4,019 (D) 5,943
------- -------- ------- ------- ----------
Total operating costs and expenses......... 13,430 16,816 30,246 4,019 34,265
LOSS FROM OPERATIONS........................... (4,057) (176) (6,858) (4,019) (10,877)
INTEREST INCOME AND EXPENSE:
Interest income.............................. 45 17 62 62
Interest expense............................. (252) (84) (336) (336)
------- -------- ------- ------- ----------
Total interest income (expense)............ (207) (67) (274) (274)
LOSS BEFORE INCOME TAXES....................... (4,264) (2,868) (7,132) (4,019) (11,151)
PROVISION (BENEFIT) FOR INCOME TAXES........... (343) 10 (333) (1,054) (E) (1,387)
------- -------- ------- ------- ----------
Net loss................................... $(3,921) $ (2,878) $(6,799) $(2,965) $ (9,764)
======= ======== ======= ======= ==========
Basic and diluted loss per share............... (F) $ (2.96)
Weighted-average shares--basic and diluted..... (F) 3,300,574
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
F-159
<PAGE>
VANTAGEMED CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA SUBTOTAL
VANTAGEMED EFFECT OF VANTAGEMED
HISTORICAL ACQUISITIONS AND ACQUISITION
CONSOLIDATED (NOTE 5) ACQUISITIONS ADJUSTMENTS REF PRO FORMA
------------ ------------ ------------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Software and systems......................... $ 5,751 $ 3,903 $ 9,654 $ 9,654
Customer support and electronic services..... 6,709 4,148 10,857 10,857
------- -------- ------- ------- ----------
Total revenues............................. 12,460 8,051 20,511 20,511
OPERATING COSTS AND EXPENSES:
Software and systems......................... 2,603 1,200 3,803 3,803
Customer support and electronic services..... 4,462 1,494 5,956 5,956
Selling, general and administrative.......... 6,213 4,894 11,107 11,107
Product development.......................... 2,797 746 3,543 3,543
Depreciation and amortization................ 2,600 280 2,880 $ 1,681 (D) 4,561
------- -------- ------- ------- ----------
Total operating costs and expenses......... 18,675 8,614 27,289 1,681 28,970
LOSS FROM OPERATIONS........................... (6,215) (563) (6,778) (1,681) (8,459)
INTEREST INCOME AND EXPENSE:
Interest income.............................. 23 14 37 37
Interest expense............................. (442) (79) (521) (521)
------- -------- ------- ------- ----------
Total interest income (expense)............ (419) (65) (484) (484)
LOSS BEFORE INCOME TAXES....................... (6,634) (628) (7,262) (1,681) (8,943)
PROVISION (BENEFIT) FOR INCOME TAXES........... (3,284) 70 (3,214) (438) (E) (3,652)
------- -------- ------- ------- ----------
Net loss................................... $(3,350) $ (698) $(4,049) $(1,243) $ (5,291)
======= ======== ======= ======= ==========
Basic and diluted loss per share............... (F) $ (1.28)
Weighted-average shares--basic and diluted..... (F) 4,141,286
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
F-160
<PAGE>
VANTAGEMED CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
VantageMed Corporation (the Company) was incorporated in California on
June 11, 1995. On April 9, 1997, the Company was reincorporated in Delaware. The
basis of presentation includes Northern Health Solutions, Inc. and Healthcare
Information Systems, Inc., two business combinations effected in 1998 accounted
for as poolings and included for all periods presented. The Company is a
diversified healthcare information systems supplier headquartered in Sacramento,
California with regional offices in Walnut Creek and San Francisco, California;
Honolulu, Hawaii; Seattle, Washington; Kansas City, Missouri; Flint, Michigan;
Pompton Plains, New Jersey; Detroit, Michigan; and Pittsburgh, Pennsylvania. The
Company develops, sells, installs, and supports computerized practice management
software systems and provides related services to medical and dental practices.
The Company is building a national distribution network by acquiring established
regional healthcare practice management systems companies to sell and support
its new generation software and services.
Subsequent to September 1999, the Company executed agreements to acquire the
following companies: (i) Pepware Software, Inc., based in Utah,
(ii) Computerized Doctors Systems, based in Alabama, (iii) Medical Digital
Technologies, Inc., based in California, (iv) CSS, Inc., based in North Carolina
and (v) Data Decisions, Inc., based in Arkansas. The acquisitions were accounted
for using the purchase method of accounting. The aggregate consideration paid
was 439,936 shares of common stock valued at $6.9 million, 17,756 stock options
valued at $126,000, $772,000 in notes payable and $608,000 in cash. The pro
forma effects of these acquisitions have been included in the accompanying pro
forma consolidated financial statements.
In November 1999, the Company filed a registration statement with the
Securities and Exchange Commission that would permit the Company to sell shares
of the Company's common stock in connection with a proposed initial public
offering (IPO).
2. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS:
ISSUANCE OF SECURED CONVERTIBLE PROMISSORY NOTE
(A) Records the October issuance of a secured convertible promissory note to
a private investor in the amount of $3.0 million. The note is automatically
convertible into shares of the Company's common stock at 50% of the IPO price
upon completion of the IPO.
The beneficial conversion feature is recorded as a debt discount of
$3.0 million with a corresponding increase to paid in capital. The debt discount
will be amortized straight-line to interest expense at $500,000 per month
through March 2000. The note was extended in November to July 2000. The
remaining amortization will be taken over the remaining period. Upon the
completion of the initial public offering any unamortized balance will be
expensed.
OFFERING ADJUSTMENTS
(B) Records the proceeds from the issuance of 3,000,000 shares of common
stock, net of estimated offering costs. Offering costs consist primarily of
underwriting discounts and commissions, legal fees, accounting fees and printing
expenses.
(C) Records (i) the conversion of a $3.0 million secured convertible
promissory note into 555,856 shares of common stock at a conversion price of
$5.50 per share, and (ii) the conversion of 1,795,300 shares of Series A-1
preferred stock into 599,425 shares of common stock at a conversion
F-161
<PAGE>
VANTAGEMED CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS: (CONTINUED)
ratio of 0.33386, and (iii) the conversion of 120,000 shares of Series B
preferred stock into 130,909 shares of common stock at a conversion price of
$11.00 per share.
3. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS:
ACQUISITION ADJUSTMENTS
(D) Records adjustment to amortization expense for the intangible assets
identified as part of the acquisitions and for goodwill which is the excess of
the purchase price over the identifiable intangible assets and the tangible
assets. Intangible assets include acquired software, covenants not to compete,
assembled workforce, customer lists and goodwill. Software is amortized over two
to four years depending on the estimated continued use of the software product
acquired. Covenants not to compete are amortized over two to five years, which
represents the life of such agreements. Assembled workforce is amortized over
one to ten years, depending upon the average length of employment for the
employees of those companies we have acquired. Customer lists are amortized over
two to ten years, representing the estimated future life of customer
relationships. Goodwill is amortized over two to ten years depending upon
whether the acquisition is established as a new regional office or is
consolidated into an existing one and whether or not there is continuing sales
of the software purchased in the acquisition.
Total intangible assets, net of accumulated amortization, were $7.3 million
and $24.2 million at December 31, 1998 and September 30, 1999, respectively.
The following table presents by acquisition, the allocation of the
acquisition purchase price, the number of shares issued, the value assigned to
all consideration, the purchase price allocation to specific tangible and
intangible assets and liabilities, and the related amortization periods for each
intangible asset associated with each acquired company. All intangibles are
amortized on a straight-line basis.
F-162
<PAGE>
<TABLE>
<CAPTION>
ATEK AMERICAN
COMPUTER PROPHASE PATRIOT VOICE PACIFIC DOT
DISTRIBUTORS, TREND SYSTEM, HEALTHCARE, MEDSOFT, COMPUTER, SOFTWARE, MEDICAL,
INC. SIERRA INC. INC. INC. INC. INC. INC.
------------- -------- ---------- ----------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
August September December January February April
Acquisition date July 1997 1997 1997 1997 1998 1998 1998 May 1998
Common shares issued (in
shares)..................... 193,487 -- -- -- 19,409 -- 264,517 16,923
Preferred shares issued (in
shares)..................... -- -- -- -- -- -- -- --
Stock options (in shares)..... -- -- -- -- -- -- -- --
CONSIDERATION
Common shares (in dollars).... $ 801 $ -- $ -- $ -- $ 92 $ -- $ 1,254 $ 132
Preferred shares (in
dollars).................... -- -- -- -- -- -- -- --
Stock options................. -- -- -- -- -- -- -- --
Notes payable................. -- 1,525 40 20 -- 350 -- --
Cash.......................... 175 75 10 5 -- 25 -- --
-------- ------ --------- -------- ------- -------- -------- -------
TOTAL CONSIDERATION......... $ 976 $1,600 $ 50 $ 25 $ 92 $ 375 $ 1,254 $ 132
======== ====== ========= ======== ======= ======== ======== =======
PURCHASE PRICE ALLOCATION
Cash.......................... $ 28 $ 9 $ -- $ -- $ 21 $ -- $ 23 $ --
Accounts receivable........... 242 106 -- -- 3 -- 120 15
Inventories................... 91 22 -- -- -- -- 31 --
Prepaid expenses and other.... -- -- -- -- 6 -- 5 --
Property and equipment........ 72 23 -- -- 51 -- 358 2
Goodwill...................... 1,225 530 10 10 354 201 1,039 36
Assembled workforce........... 17 14 -- -- 4 -- 20 --
Customer lists................ 247 706 45 20 123 18 113 237
Covenants not to compete...... 4 19 1 -- 2 -- 2 5
Acquired software............. 260 353 -- -- -- 172 37 --
Accounts payable.............. (146) (26) -- -- (81) -- (30) (112)
Accrued liabilities........... (86) (79) (6) (5) (40) (16) (27) (51)
Customer deposits and deferred
revenue..................... (323) (77) -- -- (212) -- (110) --
Long-term debt................ (443) -- -- -- (87) -- (258) --
Deferred tax liability........ (212) -- -- -- (52) -- (69) --
-------- ------ --------- -------- ------- -------- -------- -------
NET ASSETS ACQUIRED......... $ 976 $1,600 $ 50 $ 25 $ 92 $ 375 $ 1,254 $ 132
======== ====== ========= ======== ======= ======== ======== =======
USEFUL LIVES OF INTANGIBLES
(IN YEARS)
Goodwill...................... 10 10 -- 2 5 3 10 2
Assembled workforce........... 4 5 2 -- 3 -- 4 --
Customer lists................ 10 6 4 2 3 2 10 8
Covenants not to compete...... 2 5 3 -- 2 -- 2 3
Acquired software............. 2 2 -- -- -- 2 2 --
<CAPTION>
CM CIVITEC
HEALTHCARE HEALTHCARE
MEDICOM TECHNOLOGIES, COMPUTERS, ACROTREX
CORPORATION INC. INC. CORPORATION
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Acquisition date July 1998 August 1998 April 1999 April 1999
Common shares issued (in
shares)..................... -- 174,095 88,667 53,958
Preferred shares issued (in
shares)..................... 100,000 -- -- --
Stock options (in shares)..... -- -- -- --
CONSIDERATION
Common shares (in dollars).... $ -- $ 1,671 $ 851 $ 518
Preferred shares (in
dollars).................... 1,000 -- -- --
Stock options................. -- -- -- --
Notes payable................. -- -- 408 73
Cash.......................... -- -- 127 --
-------- -------- ------- -------
TOTAL CONSIDERATION......... $ 1,000 $ 1,671 $ 1,386 $ 591
======== ======== ======= =======
PURCHASE PRICE ALLOCATION
Cash.......................... $ 41 $ 210 $ 234 $ 13
Accounts receivable........... 133 112 18 69
Inventories................... 5 4 3 --
Prepaid expenses and other.... 1 74 7 --
Property and equipment........ 69 83 24 --
Goodwill...................... 712 1,286 735 368
Assembled workforce........... 14 29 9 4
Customer lists................ 168 232 969 320
Covenants not to compete...... 3 -- 19 6
Acquired software............. -- 346 249 69
Accounts payable.............. (28) (71) (56) (9)
Accrued liabilities........... (43) (296) (38) (26)
Customer deposits and deferred
revenue..................... -- -- (289) (63)
Long-term debt................ (1) (95) -- --
Deferred tax liability........ (74) (243) (498) (160)
-------- -------- ------- -------
NET ASSETS ACQUIRED......... $ 1,000 $ 1,671 $ 1,386 $ 591
======== ======== ======= =======
USEFUL LIVES OF INTANGIBLES
(IN YEARS)
Goodwill...................... 10 10 10 10
Assembled workforce........... 4 7 8 4
Customer lists................ 10 2 10 7
Covenants not to compete...... 3 -- 3 3
Acquired software............. -- 2 2 2
</TABLE>
163
<PAGE>
<TABLE>
<CAPTION>
MEDICAL METROPOLITAN CARE
SOFTWARE INFORMATION BRAND INFORMATION MARINER HEALTH
SOLUTIONS, SERVICES, SOFTWARE, SYSTEMS, SYSTEMS, INFORMATION
INC. INC. INC. INC. INC. NETWORK
---------- ------------ --------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
May June July July August September
Acquisition date................... 1999 1999 1999 1999 1999 1999
Common shares issued (in shares)... 85,156 17,605 160,804 47,751 873,770 10,417
Preferred shares issued (in
shares).......................... -- -- 20,000 -- -- --
Stock options (in shares).......... -- -- 67,506 -- 241,834 --
CONSIDERATION
Common shares (in dollars)......... $ 818 $ 169 $ 1,544 $ 458 $ 9,699 $ 100
Preferred shares (in dollars)...... -- -- 240 -- -- --
Stock options...................... -- -- 423 -- 688 --
Notes payable...................... 460 33 -- 142 190 300
Cash............................... -- 25 -- -- -- --
-------- --------- --------- ------- ----------- --------------
TOTAL CONSIDERATION.............. $ 1,278 $ 227 $ 2,207 $ 600 $ 10,577 $ 400
======== ========= ========= ======= =========== ==============
PURCHASE PRICE ALLOCATION
Cash............................... $ 18 $ 2 $ 56 $ 2 $ 3,962 $ --
Accounts receivable................ 92 3 -- 51 177 --
Inventories........................ -- 8 -- 3 3 --
Prepaid expenses and other......... 225 3 -- -- 424 --
Property and equipment............. -- 20 115 21 324 --
Goodwill........................... 493 110 2,214 578 5,387 360
Assembled workforce................ 10 2 19 6 23 3
Customer lists..................... 776 232 419 474 176 --
Covenants not to compete........... 15 5 8 9 3 --
Acquired software.................. 313 2 650 75 2,466 73
Accounts payable................... (34) (16) (130) (94) (68) --
Accrued liabilities................ (81) (15) (110) (81) (688) (6)
Customer deposits and deferred
revenue.......................... (64) -- (546) (16) (379) (30)
Long-term debt..................... (13) (33) (50) (202) (166) --
Deferred tax liability............. (472) (96) (438) (226) (1,067) --
-------- --------- --------- ------- ----------- --------------
NET ASSETS ACQUIRED.............. $ 1,278 $ 227 $ 2,207 $ 600 $ 10,577 $ 400
======== ========= ========= ======= =========== ==============
USEFUL LIVES OF INTANGIBLES (IN
YEARS)
Goodwill........................... 10 2 10 10 10 10
Assembled workforce................ 7 10 2 6 3 1
Customer lists..................... 10 10 3 4 10 --
Covenants not to compete........... 3 3 3 3 3 --
Acquired software.................. 2 2 4 4 4 4
<CAPTION>
MEDICAL
LOGOS PEPWARE COMPUTERIZED DIGITAL DATA
SYSTEMS, SOFTWARE, DOCTORS TECHNOLOGIES, DECISIONS
INC. CSS, INC. INC. SYSTEMS, INC. INC. INC.
----------- ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
August October October October October October
Acquisition date................... 1999 1999 1999 1999 1999 1999
Common shares issued (in shares)... 83,645 71,089 20,000 113,413 96,491 138,943
Preferred shares issued (in
shares).......................... -- -- -- -- -- --
Stock options (in shares).......... -- -- -- 17,756 -- --
CONSIDERATION
Common shares (in dollars)......... $ 803 $ 1,120 $ 315 $ 1,786 $ 1,520 $ 2,188
Preferred shares (in dollars)...... -- -- -- -- -- --
Stock options...................... -- -- -- 126 -- --
Notes payable...................... -- -- 50 -- 500 222
Cash............................... -- 230 -- -- 300 78
----------- ------------ ------------ ------------ ------------ ------------
TOTAL CONSIDERATION.............. $ 803 $ 1,350 $ 365 $ 1,912 $ 2,320 $ 2,488
=========== ============ ============ ============ ============ ============
PURCHASE PRICE ALLOCATION
Cash............................... $ 65 $ 13 $ 4 $ 277 $ 321 $ 16
Accounts receivable................ 102 57 23 171 132 126
Inventories........................ -- 102 -- 6 28 41
Prepaid expenses and other......... -- 4 -- 14 61 --
Property and equipment............. 16 11 -- 20 37 82
Goodwill........................... 566 565 181 761 1,010 1,528
Assembled workforce................ 7 8 2 17 13 13
Customer lists..................... 564 638 141 674 1,153 804
Covenants not to compete........... 11 12 3 13 23 16
Acquired software.................. 213 55 24 297 76 159
Accounts payable................... (13) (41) (13) (28) (139) (85)
Accrued liabilities................ (185) (12) -- (89) (178) (39)
Customer deposits and deferred
revenue.......................... -- (62) -- (202) (217) (43)
Long-term debt..................... (225) -- -- (19) -- (116)
Deferred tax liability............. (318) -- -- -- -- (14)
----------- ------------ ------------ ------------ ------------ ------------
NET ASSETS ACQUIRED.............. $ 803 $ 1,350 $ 365 $ 1,912 $ 2,320 $ 2,488
=========== ============ ============ ============ ============ ============
USEFUL LIVES OF INTANGIBLES (IN
YEARS)
Goodwill........................... 10 10 2 10 10 10
Assembled workforce................ 6 8 1 6 4 4
Customer lists..................... 10 10 10 10 10 10
Covenants not to compete........... 3 3 3 2 3 3
Acquired software.................. 2 2 2 2 2 2
</TABLE>
164
<PAGE>
3. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS:
(CONTINUED)
(E) Adjusts the benefit for income taxes based on other pro forma audit
adjustments.
(F) Common equivalent shares from stock options and warrants, and
convertible notes in the amount of 542,173 for the year ended December 31, 1998
and 1,311,932 for the nine months ended September 30, 1999 have been excluded
from the computation of diluted loss per share in all loss periods, as their
effect is antidilutive.
(G) Records the interest expense related to the debt discount in the amount
of $3.0 million. Also records the effect to the warrant issued to purchase
13,333 shares of common stock at a price equal to 60% of the IPO share price, in
the amount of $90,000, which also increases additional paid in capital.
4. UNAUDITED PRO FORMA EARNINGS PER SHARE:
Proforma basic and diluted loss per share has been calculated as if all of
the acquisitions had occurred as of the beginning of the immediately preceding
period and as if the conversion of Series A-1 and Series B preferred stock into
common shares had occurred on the dates of their issuance. Series A-1 and
Series B preferred shares convert into 0.33386 and 1.09 shares of common stock,
respectively, assuming a conversion price of $11.00 per share.
The number of weighted-average shares used in the basic and diluted loss per
share calculations were calculated as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Weighted-average shares per financial statements............ 2,158,314 2,873,550
Additional weighted-average shares assuming all acquisitions
prior to September 30, 1999 occurred at the beginning of
1998...................................................... 433,514 97,466
Weighted-average shares assuming all acquisitions subsequent
to September 30, 1999 occurred at the beginning of 1998... 439,936 439,936
Weighted-average shares assuming conversion of Series A-1
preferred stock on the dates of their issuance............ 137,901 599,425
Weighted-average shares assuming conversion of Series B
preferred stock on the dates of their issuance............ 130,909 130,909
--------- ---------
Total................................................... 3,300,574 4,141,286
========= =========
</TABLE>
As all of the Series B preferred stock was issued in connection with
acquisitions, its date of issuance was assumed to be the beginning of 1998.
5. PRO FORMA EFFECT OF ACQUISITIONS:
The following schedules disclose the effect of the significant acquisitions
on the pro forma consolidated balance sheet as of September 30, 1999 and the pro
forma consolidated statements of operations for the year ended December 31, 1998
and the nine months ended September 30, 1999.
165
<PAGE>
VANTAGEMED CORPORATION
PRO FORMA EFFECT OF ACQUISITIONS
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RECENT ACQUISITIONS
--------------------------------------------------------
OTHER PRO FORMA
DATA RECENT EFFECT OF
CSS CDS MDT DECISIONS ACQUISITION ACQUISITIONS
-------- -------- -------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........... $ -- $ 277 $ 21 $ -- $ 4 $ 302
Accounts Receivable, net............ 57 171 132 127 23 510
Notes Receivable, current portion... -- 5 -- -- -- 5
Inventories......................... 102 6 28 41 -- 177
Prepaid Expenses and other.......... 3 9 61 -- -- 73
------ ------ ------ ------ ------ ------
Total current assets.............. 162 468 242 168 27 1,067
NOTE RECEIVABLE, net of current
portion............................. -- -- -- -- -- --
PROPERTY AND EQUIPMENT, net........... 11 20 37 82 -- 150
INTANGIBLES, net...................... 1,278 1,762 2,275 2,520 351 8,186
------ ------ ------ ------ ------ ------
Total assets...................... $1,451 $2,250 $2,554 $2,770 $ 378 $9,403
====== ====== ====== ====== ====== ======
CURRENT LIABILITIES:
Book overdraft...................... $ 217 $ -- $ -- $ 62 $ -- $ 279
Current portion of long-term debt... 2 5 -- -- 50 57
Accounts payable.................... 41 28 139 85 13 306
Accrued liabilities................. 10 89 178 53 -- 330
Customer deposits and deferred
revenue........................... 62 202 217 43 -- 524
------ ------ ------ ------ ------ ------
Total current liabilities......... 332 324 534 243 63 1,496
LONG-TERM DEBT, net of current
portion............................. -- 14 500 338 -- 852
Total liabilities................. 332 338 1,034 581 63 2,348
STOCKHOLDERS' EQUITY:
Preferred Stock--Series A-1......... -- -- -- -- -- --
Preferred Stock--Series B........... -- -- -- -- -- --
Common stock........................ -- -- -- -- -- --
Additional paid-in-capital.......... 1,119 1,912 1,520 2,189 315 7,055
Accumulated deficit................. -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total stockholders' equity........ 1,119 1,912 1,520 2,189 315 7,055
Total liabilities and
stockholders' equity............ $1,451 $2,250 $2,554 $2,770 $ 378 $9,403
====== ====== ====== ====== ====== ======
</TABLE>
166
<PAGE>
VANTAGEMED CORPORATION
PRO FORMA EFFECT OF ACQUISITION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 ACQUISITIONS 1999 ACQUISITIONS
---------------------------------- PRO FORMA -----------------------------------------
ALL OTHER EFFECT OF
1998 1998
MEDICOM CMHT ACQUISITIONS ACQUISITIONS CIVITEC MSS BRAND MARINER
-------- -------- ------------ ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Software and systems.... $ 8 $ 758 $ 138 $ 904 $ 500 $ 521 $ 894 $ 648
Customer support and
electronic services... 647 506 215 1,368 692 501 378 360
---- ------ ----- ------ ------ ------ ------ -------
Total revenues........ 655 1,264 353 2,272 1,192 1,022 1,272 1,008
OPERATING COSTS AND
EXPENSES:
Software and systems.... -- 503 58 561 225 247 88 37
Customer support and
electronic services... 542 300 182 1,024 345 341 -- 33
Selling, general and
administrative........ 94 395 195 684 586 517 1,340 2,065
Product development..... -- -- -- -- 22 27 105 1,267
Depreciation and
amortization.......... 26 15 2 43 17 -- 15 231
---- ------ ----- ------ ------ ------ ------ -------
Total operating costs
and expenses........ 662 1,213 437 2,312 1,195 1,132 1,548 3,633
INCOME (LOSS) FROM
OPERATIONS.............. (7) 51 (84) (40) (3) (110) (276) (2,625)
INTEREST INCOME AND
EXPENSE:
Interest income......... 5 -- -- 5 -- -- -- 12
Interest income......... -- (10) (21) (31) -- -- -- (53)
---- ------ ----- ------ ------ ------ ------ -------
Total interest income
(expense)........... 5 (10) (21) (26) -- -- -- (41)
INCOME (LOSS) BEFORE
INCOME TAXES............ (2) 41 (105) (66) (3) (110) (276) (2,666)
PROVISION (BENEFIT) FOR
INCOME TAXES............ 8 -- -- 8 1 (13) -- --
---- ------ ----- ------ ------ ------ ------ -------
Net income (loss)....... $(10) $ 41 $(105) $ (74) $ (4) $ (97) $ (276) $(2,666)
==== ====== ===== ====== ====== ====== ====== =======
<CAPTION>
1999 ACQUISITIONS RECENT ACQUISITIONS
--------------- PRO FORMA --------------------------------------------------------
ALL OTHER EFFECT OF OTHER
1999 1999 DATA RECENT
ACQUISITIONS ACQUISITIONS CSS DECISIONS CDS MDT ACQUISITION
------------ ------------ -------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Software and systems.... $ 804 $ 3,367 $271 $ 435 $ 604 $ 441 $ 88
Customer support and
electronic services... 1,456 3,387 697 771 872 674 136
------ ------- ---- ------ ------ ------ ----
Total revenues........ 2,260 6,754 968 1,206 1,476 1,115 224
OPERATING COSTS AND
EXPENSES:
Software and systems.... 309 906 148 190 245 235 33
Customer support and
electronic services... 612 1,331 193 405 442 328 25
Selling, general and
administrative........ 1,245 5,753 348 543 606 471 63
Product development..... 133 1,554 52 -- 130 88 6
Depreciation and
amortization.......... 53 316 5 60 15 13 --
------ ------- ---- ------ ------ ------ ----
Total operating costs
and expenses........ 2,352 9,860 746 1,198 1,438 1,135 127
INCOME (LOSS) FROM
OPERATIONS.............. (92) (3,106) 222 8 38 (20) 97
INTEREST INCOME AND
EXPENSE:
Interest income......... -- 12 -- -- -- -- --
Interest income......... -- (53) -- -- -- -- --
------ ------- ---- ------ ------ ------ ----
Total interest income
(expense)........... -- (41) -- -- -- -- --
INCOME (LOSS) BEFORE
INCOME TAXES............ (92) (3,147) 222 8 38 (20) 97
PROVISION (BENEFIT) FOR
INCOME TAXES............ -- (12) -- 5 9 -- --
------ ------- ---- ------ ------ ------ ----
Net income (loss)....... $ (92) $(3,135) $222 $ 3 $ 29 $ (20) $ 97
====== ======= ==== ====== ====== ====== ====
<CAPTION>
PRO FORMA
EFFECT OF PRO FORMA
RECENT EFFECT OF
ACQUISITIONS ACQUISITIONS
------------ ------------
<S> <C> <C>
REVENUES:
Software and systems.... $1,839 $ 6,110
Customer support and
electronic services... 3,150 7,905
------ -------
Total revenues........ 4,989 14,015
OPERATING COSTS AND
EXPENSES:
Software and systems.... 851 2,318
Customer support and
electronic services... 1,393 3,748
Selling, general and
administrative........ 2,031 8,468
Product development..... 276 1,830
Depreciation and
amortization.......... 93 452
------ -------
Total operating costs
and expenses........ 4,644 16,816
INCOME (LOSS) FROM
OPERATIONS.............. 345 (2,801)
INTEREST INCOME AND
EXPENSE:
Interest income......... -- 17
Interest income......... -- (84)
------ -------
Total interest income
(expense)........... -- (67)
INCOME (LOSS) BEFORE
INCOME TAXES............ 345 (2,868)
PROVISION (BENEFIT) FOR
INCOME TAXES............ 14 10
------ -------
Net income (loss)....... $ 331 $(2,878)
====== =======
</TABLE>
167
<PAGE>
VANTAGEMED CORPORATION
PRO FORMA EFFECT OF ACQUISITION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 ACQUISITIONS
-------------------------------------------------------- PRO FORMA
ALL OTHER EFFECT OF
1999 1999
CIVITEC MSS BRAND MARINER ACQUISITIONS ACQUISITIONS
-------- -------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Software and systems...................... $222 $318 $ 670 $ 308 $ 416 $ 1,934
Customer support and electronic
services................................ 130 250 364 175 700 1,619
---- ---- ------ ------- ------ -------
Total revenues.......................... 352 568 1,034 483 1,116 3,553
OPERATING COSTS AND EXPENSES:
Software and systems...................... 85 123 44 13 197 462
Customer support and electronic
services................................ 87 156 -- 78 237 558
Selling, general and administrative....... 180 170 958 619 645 2,572
Product development....................... -- 9 67 481 100 657
Depreciation and amortization............. -- -- 8 177 27 212
---- ---- ------ ------- ------ -------
Total operating costs and expenses...... 352 458 1,077 1,368 1,206 4,461
INCOME (LOSS) FROM OPERATIONS............... -- 110 (43) (885) (90) (908)
INTEREST INCOME AND EXPENSE:
Interest income........................... -- -- -- 10 4 14
Interest income........................... -- -- -- (55) (24) (79)
---- ---- ------ ------- ------ -------
Total interest income (expense)......... -- -- -- (45) (20) (65)
INCOME (LOSS) BEFORE INCOME TAXES........... -- 110 (43) (930) (110) (973)
PROVISION (BENEFIT) FOR INCOME TAXES........ -- 17 -- -- -- 17
---- ---- ------ ------- ------ -------
Net income (loss)......................... $ -- $ 93 $ (43) $ (930) $ (110) $ (990)
==== ==== ====== ======= ====== =======
<CAPTION>
RECENT ACQUISITIONS
-------------------------------------------------------- PRO FORMA
OTHER EFFECT OF PRO FORMA
DATA RECENT RECENT EFFECT OF
CSS CDS MDT DECISIONS ACQUISITION ACQUISITIONS ACQUISITIONS
-------- -------- -------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Software and systems...................... $229 $ 671 $ 517 $ 433 $119 $1,969 $3,903
Customer support and electronic
services................................ 486 486 776 699 82 2,529 4,148
---- ------ ------ ------ ---- ------ ------
Total revenues.......................... 715 1,157 1,293 1,132 201 4,498 8,051
OPERATING COSTS AND EXPENSES:
Software and systems...................... 62 185 235 189 67 738 1,200
Customer support and electronic
services................................ 101 95 323 381 36 936 1,494
Selling, general and administrative....... 477 790 469 489 97 2,322 4,894
Product development....................... -- -- 89 -- -- 89 746
Depreciation and amortization............. -- 7 15 46 -- 68 280
---- ------ ------ ------ ---- ------ ------
Total operating costs and expenses...... 640 1,077 1,131 1,105 200 4,153 8,614
INCOME (LOSS) FROM OPERATIONS............... 75 80 162 27 1 345 (563)
INTEREST INCOME AND EXPENSE:
Interest income........................... -- -- -- -- -- -- 14
Interest income........................... -- -- -- -- -- -- (79)
---- ------ ------ ------ ---- ------ ------
Total interest income (expense)......... -- -- -- -- -- -- (65)
INCOME (LOSS) BEFORE INCOME TAXES........... 75 80 162 27 1 345 (628)
PROVISION (BENEFIT) FOR INCOME TAXES........ -- 24 26 3 -- 53 70
---- ------ ------ ------ ---- ------ ------
Net income (loss)......................... $ 75 $ 56 $ 136 $ 24 $ 1 $ 292 $ (698)
==== ====== ====== ====== ==== ====== ======
</TABLE>
168
<PAGE>
[LOGO]
Through and including , 2000, (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered are:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 10,930
National Association of Securities Dealers, Inc. filing
fee....................................................... $ 4,640
Nasdaq National Market listing fee.......................... 71,875
Accountants' fees and expenses.............................. *
Legal fees and expenses..................................... *
Blue Sky fees and expenses.................................. *
Transfer Agent's fees and expenses.......................... *
Printing and engraving expenses............................. *
Miscellaneous............................................... *
Total Expenses.......................................... $1,400,000
==========
</TABLE>
- ------------------------
* To be filed by amendment. In each case estimated, except SEC, NASD and
Nasdaq fees
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits indemnification
by a company of any director, officer, employee or agent of the company or
person who is serving or was serving at the company's request as a director,
officer, employee or agent of another corporation or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him in connection with the
defense of any threatened, pending or completed action (whether civil, criminal,
administrative or investigative), to which he is or may be a party by reason of
having been such director, officer, employee or agent provided that he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the company, and, with respect to any criminal action or
proceeding had no reasonable cause to believe his conduct was unlawful. We also
has the power under Section 145 to indemnify persons set forth above from
threatened, pending or completed actions or suits by or in the right of the
company to procure a judgment in its favor by reason of the fact that such
person was a director, officer, employee or agent of the company or is or was
serving at the request of the company as a director, officer, employee or agent
of another corporation or enterprise against expenses actually and reasonably
incurred by him in connection with the defense or settlement of the action if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the company, except that no indemnification can
be made with regard to any claim, issue or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the company unless and only to the extent that the Delaware Court of
Chancery or the court in which the action was brought determines that the person
was fairly and reasonably entitled to indemnity. Any indemnification (unless
ordered by a court) must be made by us only as authorized in the specific case
upon a determination that indemnification of the person is proper in the
circumstances because he has met the applicable standards of conduct. The
determination must be made by the Board of Directors by a majority vote of a
quorum consisting of directors who are not parties to the action, or if a quorum
is not obtainable or, even if obtainable, a quorum of disinterested directors so
directs, by independent counsel in a written opinion, or by the stockholders.
The Company may pay the expenses of an action in advance of final disposition if
authorized by the Board of Directors in a specific case, upon receipt
II-1
<PAGE>
of an undertaking by the person to be indemnified to repay any such advances
unless it shall ultimately be determined that such person is entitled to be
indemnified as authorized by law.
We have entered into Indemnification Agreements with each of our directors
to give such directors additional contractual assurances regarding the scope of
the indemnification set forth in our Amended and Restated Certificate of
Incorporation and to provide additional procedural protections. At present,
there is no pending litigation or proceeding involving a director, officer or
employee of the company regarding which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by us from our inception in
April 9, 1997 through the date hereof involving sales of our securities that
were not registered under the Securities Act.
(1) In May 1997, the Registrant effected a migratory merger from California
to Delaware and in connection therewith issued an aggregate of
2,840,100 shares of Common Stock to the stockholders of the California
corporation in exchange for 2,840,100 shares of the California
corporation. The shares were issued in a transaction not involving a
public offering pursuant to the exemption from registration afforded by
Section 4(2) of the Securities Act.
(2) In July 1997 and December 1998, the Registrant issued an aggregate of
413,018 shares of its Series A Preferred Stock to QuadraMed
Corporation, an accredited investor, for $1,075,000 in cash and
cancellation of $125,000 in indebtedness owing to QuadraMed. These
shares were issued under Section 4(2) of and Regulation D under the
Securities Act. In January 1999, the shares were converted into 413,018
shares of the Registrant's Series A-1 Preferred Stock in a transaction
exempt from registration under Section 3(a)(9) of the Securities Act.
In addition, the Registrant issued an additional 1,382,282 shares of
Series A-1 Preferred Stock to QuadraMed for $3,000,000 in cash and
cancellation of $500,000 in indebtedness owing to QuadraMed. These
shares were issued under Section 4(2) of and Regulation D under the
Securities Act.
(3) In July 1998, the Registrant issued 100,000 shares of Series B
Preferred Stock to the stockholders of Medicom Corporation in
connection with the acquisition of the shares of Medicom by the
Registrant valued at $10.00 per share of Series B Preferred. These
shares were issued under Section 4(2) of and Regulation D under the
Securities Act in a transaction not involving a public offering.
(4) In July 1999, the Registrant acquired the assets of Brand Software,
Inc. in exchange for the issuance of 20,000 shares of Series B
Preferred Stock and 482,412 shares of Common Stock to Brand Software,
Inc., an accredited investor. The Common shares were valued at $3.20
per share and the Series B Preferred shares were valued at $12.00 per
share. These shares were issued under Section 4(2) of and Regulation D
under the Securities Act in a transaction not involving a public
offering.
(5) Between December 1, 1997 and December 30, 1997, the Registrant issued
an aggregate of 252,000 shares of its Common Stock to accredited
investors at $1.50 per share for a total of $378,000 in cash. In
April 1998 the Registrant issued 120,096 shares of its Common Stock to
Caribou Investments, an accredited investor, at $2.78 per share for a
total of $333,867 in cash. From December 1998 through August 1999, the
Registrant issued an aggregate of 495,962 shares of its Common Stock to
accredited investors at $2.50 per share for a total of $1,239,905 in
cash. All of these shares were issued under Section 4(2) of and
Regulation D under the Securities Act solely to accredited investors in
transactions not involving a public offering.
II-2
<PAGE>
(6) In November 1998, the Registrant issued a convertible promissory note
in an aggregate principal amount of $300,000 to John Hunkeler, an
accredited investor, pursuant to Section 4(2) of the Securities Act.
(7) In August 1999, the Registrant issued a convertible promissory note in
an aggregate principal amount of $180,000 to Friedli Corporate Finance
and Registrant also issued warrants for 90,000 shares exercisable at a
price of $3.70 per share to Pine, Inc. in consideration for assistance
with the acquisition of Mariner Systems, Inc. The note and warrants
were issued to an accredited investor pursuant to Section 4(2) of the
Securities Act.
(8) In October 1999, the Registrant issued two secured convertible
promissory notes in an aggregate principal amount of $3,190,000 and
warrants for 40,000 shares exercisable at a price equal to 60% of the
initial price of shares of the Registrant's common stock sold in this
offering to Friedli Corporate Finance, an accredited investor. The
notes and warrants were issued pursuant to Section 4(2) of the
Securities Act.
(9) In July 1997, the Registrant issued an aggregate of 580,460 shares of
its common stock to the stockholders of Atek Computer
Distributors, Inc. in its acquisition of the shares of Atek valued at
approximately $801,000. The shares were issued in a transaction not
involving a public offering pursuant to the exemption from registration
afforded by Section 3(b) of and Rule 504 under the Securities Act.
(10) In January 1998, the Registrant acquired the outstanding shares of
Medsoft, Inc. in exchange for the issuance of 58,228 shares of its
Common Stock valued at $1.58 per share and the assumption of
approximately $472,000 of Medsoft liabilities. The shares were issued
in a transaction not involving a public offering pursuant to the
exemption from registration afforded by Section 3(b) of and Rule 504
under the Securities Act.
(11) In April 1998, the Registrant acquired the outstanding shares of
Pacific Software, Inc. in exchange for the issuance of 793,551 shares
of its Common Stock to the stockholders of Pacific Software in a
transaction valued at $1,254,000. The shares were issued in a
transaction not involving a public offering pursuant to the exemption
from registration afforded by Section 4(2) of the Securities Act.
(12) In April 1998, the Registrant acquired the outstanding shares of
Healthcare Information Systems, Inc. in exchange for the issuance of
1,154,087 shares of its Common Stock to the stockholders of Healthcare
Information Systems and the assumption of options to purchase an
additional 51,066 shares of its common stock held by an employee of
Health Information Systems in a transaction valued at $3,050,000. The
shares were issued in a transaction not involving a public offering
pursuant to the exemption from registration afforded by Section
4(2) of the Securities Act.
(13) In May 1998, the Registrant acquired the assets of DOT Medical, Inc. in
exchange for the issuance of 50,770 shares of its Common Stock valued
at $2.60 per share to the stockholder of DOT Medical, as well as
assumption of approximately $163,000 of DOT Medical liabilities. The
shares were issued in a transaction not involving a public offering
pursuant to the exemption from registration afforded by Section
3(b) of and Rule 504 under the Securities Act.
(14) In August 1998, the Registrant acquired the outstanding shares of CM
Healthcare Technologies, Inc. in exchange for the issuance of 522,284
shares of its Common Stock to the stockholders of CM Healthcare at a
value of $3.20 per share. The shares were issued in a transaction not
involving a public offering pursuant to the exemption from registration
afforded by Section 4(2) under the Securities Act.
II-3
<PAGE>
(15) In December 1998, the Registrant acquired the outstanding shares of
Northern Health Solutions, Inc. in exchange for the issuance of 631,250
shares of its Common Stock to the stockholder of Northern Health at a
value of $3.20 per share. The shares were issued in a transaction not
involving a public offering pursuant to the exemption from registration
afforded by Section 4(2) under the Securities Act.
(16) In April 1999, the Registrant acquired the assets of Acrotrex
Corporation in exchange for the issuance of 161,875 shares of its
Common Stock to Acrotrex at a value of $3.20 per share, plus a
promissory note in principal amount of $73,000. The shares were issued
in a transaction not involving a public offering pursuant to the
exemption from registration afforded by Section 3(b) and Rule 504 under
the Securities Act.
(17) In April 1999, the Registrant acquired the outstanding shares of
Civitec Healthcare Computers, Inc. in exchange for the issuance of
266,000 shares of its Common Stock to the stockholders of Civitec at a
value of $3.20 per share, plus promissory notes in aggregate principal
amount of $408,000 and $127,680 in cash. The shares were issued in a
transaction not involving a public offering pursuant to the exemption
from registration afforded by Section 4(2) under the Securities Act.
(18) In May 1999, the Registrant acquired the outstanding shares of Medical
Software Solutions, Inc. in exchange for the issuance of 255,469 shares
of its Common Stock to the stockholders of Medical Software Solutions
at a value of $3.20 per share, plus a promissory note in the principal
amount of $460,000. The shares were issued in a transaction not
involving a public offering pursuant to the exemption from registration
afforded by Section 3(b) and Rule 504 under the Securities Act.
(19) In June 1999, the Registrant acquired the assets of Metropolitan
Information Systems, Inc. in exchange for the issuance of 52,813 shares
of its Common Stock to Metropolitan Information Systems at a value of
$3.20 per share. The shares were issued in a transaction not involving
a public offering pursuant to the exemption from registration afforded
by Section 3(b) and Rule 504 under the Securities Act.
(20) In July 1999, the Registrant acquired the outstanding shares of Care
Information Systems, Inc. in exchange for the issuance of an aggregate
of 143,251 shares of its Common Stock a value of $3.20 per share and
promissory notes in the aggregate of $142,096 to the stockholders of
Care Information Systems. The shares were issued in a transaction not
involving a public offering pursuant to the exemption from registration
afforded by Section 3(b) and Rule 504 under the Securities Act.
(21) In August 1999, the Registrant acquired the outstanding shares of
Mariner Systems, Inc. in exchange for the issuance of an aggregate of
2,572,661 shares of its Common Stock to the stockholders of Mariner
Systems at a value of $3.70 per share and options to purchase an
additional 241,834 shares of its common stock to the employees and
directors of Mariner Systems. The shares were issued in a transaction
not involving a public offering pursuant to the exemption from
registration afforded by Section 4(2) under the Securities Act.
(22) In August 1999, the Registrant acquired the assets of Logos
Systems, Inc. in exchange for the issuance of an aggregate of 250,938
shares of its Common Stock to Logos Systems at $3.20 per share and the
assumption of $741,000 of liabilities to Logos Systems. The shares were
issued in a transaction not involving a public offering pursuant to the
exemption from registration afforded by Section 4(2) under the
Securities Act.
(23) In September 1999, the Registrant acquired the assets of Health
Information Network in exchange for the issuance of an aggregate of
31,250 shares of its Common Stock to stockholders of Health Information
Network at a value of $3.20 per share plus a promissory
II-4
<PAGE>
note for $300,000 to Health Information Network. The shares were issued
in a transaction not involving a public offering pursuant to the
exemption from registration afforded by Section 4(2) under the
Securities Act.
(24) In October 1999, the Registrant acquired the assets of Pepware
Software, Inc. in exchange for the issuance of an aggregate of 60,000
shares of its Common Stock at a value of $5.25 per share and a
promissory note for $50,000 to Pepware Software. The shares were issued
in a transaction not involving a public offering pursuant to the
exemption from registration afforded by Section 4(2) under the
Securities Act.
(25) In October 1999, the Registrant acquired the assets of CSS, Inc. in
exchange for the issuance of an aggregate of 213,266 shares of its
Common Stock at a value of $5.25 per share and $230,000 cash to the
stockholders of CSS. The shares were issued in a transaction not
involving a public offering pursuant to the exemption from registration
afforded by Section 4(2) under the Securities Act.
(26) In October 1999, the Registrant acquired the assets of Data
Decisions, Inc. in exchange for the issuance of an aggregate of 416,878
shares of its Common Stock at a value of $5.25 per share, $78,000 in
cash and promissory notes in principal amount of $222,000 to the
stockholders of Data Decisions. The shares were issued in a transaction
not involving a public offering pursuant to the exemption from
registration afforded by Section 4(2) under the Securities Act.
(27) In October 1999, the Registrant acquired the assets of Computerized
Doctors Systems, Inc. in exchange for the issuance of 340,239 shares of
its Common Stock to the stockholder of Computerized Doctors Systems.
The shares were issued in a transaction not involving a public offering
pursuant to the exemption from registration afforded by Section 4(2)
under the Securities Act.
(28) In October 1999, the Registrant acquired the assets of Medical Digital
Technologies, Inc. in exchange for the issuance of 289,474 shares of
its Common Stock at as value of $5.25 per share, $300,000 in cash and a
promissory note for $500,000 to the stockholders of Medical Digital
Technologies. The shares were issued in a transaction not involving a
public offering pursuant to the exemption from registration afforded by
Section 4(2) under the Securities Act.
(29) Registrant has granted options to purchase an aggregate of 545,978
shares of Common Stock to directors, employees and consultants with
exercise prices ranging from $.02 to $20.94 per share pursuant to
VantageMed's 1998 Stock Option/Stock Issuance Plan. These options were
issued without registration under the Securities Act pursuant to the
exemption afforded by Rule 701 under the Securities Act.
(30) On November 22, 1999, Registrant's Board of directors approved a
1-for-3 reverse stock split of its outstanding Common Stock, which is
not reflected in items (1) through (29) above.
In the acquisitions discussed above the Registrant issued its Common Stock
to the stockholders of the acquired companies in isolated, private transactions
structured with various combinations of common stock, preferred stock,
promissory notes and cash following meaningful negotiations. Beginning in April
1998, the Registrant provided potential stockholders with a then current
40-page disclosure statement that included among other things a complete
description of the Registrant's business, risk factors, financial statements and
management's discussion and analysis of financial conditions and results of
operations. Neither the Registrant nor any person acting on the Registrant's
behalf offered or sold such Common Stock by any form of general solicitation or
general advertising.
II-5
<PAGE>
Registrant took reasonable care to assure, including through the use of
investor questionnaires and subscription agreements, (i) that purchasers were
acquiring the capital stock for their own account, for investment purposes only,
and not with a view to resale, (ii) that purchasers received written disclosure
that such capital stock was not registered under the Securities Act and could
not be resold without registration (or an available exemption therefrom), and
(iii) that all certificates representing shares of Registrant's capital stock
included a legend setting forth the above restrictions on transfer.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------------- ------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement by and among Registrant,
Advest, Inc. and J.C. Bradford & Co.
2.1** -- Merger Agreement with Mariner Systems, Inc.
2.2** -- Assignment and Assumption Agreement (Mariner Systems, Inc.)
by and between VM1 Acquisition Corp. (Assignor) and VM4
Acquisition Corp. (Assignee).
3.1 -- Form of Registrant's Amended and Restated Form of
Certificate of Incorporation.
3.2 -- Form of Registrant's Amended and Restated Bylaws.
4.1 -- Form of Registrant's Specimen Stock Certificate.
5.1 -- Form of Legal Opinion of Gray Cary Ware & Freidenrich LLP,
counsel for Registrant.
10.1** -- Lease Agreement, dated November 1, 1996 between Registrant
and Dr. Jun Hasegawa and Noriko Hasegawa, as Trustees for
the Hasegawa Family Trust, dated June 8, 1999.
10.2** -- Lease Agreement between Registrant and Jun and Noriko
Hasegawa, as Trustees for the Hasegawa Family Trust dated
January 18, 1999.
10.3** -- Lease Agreement between Registrant and Jun and Noriko
Hasegawa, as Trustees for the Hasegawa Family Trust dated
August 20, 1999.
10.4 -- Employment Agreement dated August 6, 1999 entered into
between Registrant and James Seiler.
10.5** -- Secured Convertible Promissory Note, dated October 7, 1999,
issued to Friedli Corporate Finance.
10.6** -- Convertible Promissory Note dated October 7, 1999 issued to
Friedli Corporate Finance.
10.7 -- Secured Promissory Note, dated January 3, 2000 issued to
Friedli Corporate Finance.
10.8 -- Warrant dated August 6, 1999, issued to Pine, Inc.
10.9 -- Warrant dated August 6, 1999, issued to Pine, Inc.
10.10** -- Warrant dated October 7, 1999, issued to Peter Friedli.
10.11** -- Promissory Note dated July 15, 1997, issued to Richard
Pendleton.
10.12** -- Consulting Agreement dated July 27, 1998, entered into
between Registrant and Peter Friedli.
10.13 -- VantageMed's Amended and Restated 1998 Stock Option/Stock
Issuance Plan.
10.14** -- Form of Indemnity Agreement entered into by Registrant with
each of its officers and directors.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------------- ------------------------------------------------------------
<S> <C> <C>
10.15 -- Non-Exclusive Software License Agreement, dated
December 30, 1998 between Registrant and QuadraMed
Corporation.
10.16 -- Change in Control Agreement dated July 23, 1998, between
Registrant and with Thomas A. McCreery.
10.17 -- Employment Agreement dated April 30, 1998, between
Registrant and with Gregory Vap.
21.1** -- Subsidiaries.
23.2 -- Consent of Independent Public Accountants.
23.3* -- Consent of Counsel (see Exhibit 5.1).
24.4** -- Power of Attorney (included on signature page).
27.1** -- Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by Amendment.
** Previously filed
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required
by the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant as been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of the registration statement as of the time it was declared
effective.
(ii) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SCHEDULE II--FINANCIAL DATA SCHEDULES
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement (File No.
333-91657) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sacramento, State of California, on the 13th day of
January, 2000.
<TABLE>
<S> <C> <C>
VANTAGEMED CORPORATION
By: /s/ JAMES L. SEILER
-----------------------------------------
James L. Seiler,
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement (File No. 333-91657) has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chief Executive Officer and
/s/ JAMES L. SEILER Chairman of the Board
- ------------------------------------------- (Principal Executive January 13, 2000
James L. Seiler Officer)
- ------------------------------------------- Senior Vice President and January 13, 2000
Richard Pendleton Director
/s/ JOEL HARRIS
- ------------------------------------------- President and Director January 13, 2000
Joel Harris
- ------------------------------------------- Director January 13, 2000
Peter Friedli
- ------------------------------------------- Director January 13, 2000
John Stevens
/s/ THOMAS MCCREERY Chief Financial Officer
- ------------------------------------------- (Principal Financial and January 13, 2000
Thomas McCreery Accounting Officer)
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ JOEL HARRIS
--------------------------------------
Joel Harris
ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------------- ------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement by and among Registrant,
Advest, Inc. and J.C. Bradford.
2.1** Merger Agreement with Mariner Systems, Inc.
2.2** Assignment and Assumption Agreement (Mariner Systems, Inc.)
by and between VM1 Acquisition Corp. (Assignor) and VM4
Acquisition Corp. (Assignee).
3.1 Form of Registrant's Amended and Restated Form of
Certificate of Incorporation.
3.2 Form of Registrant's Amended and Restated Bylaws.
4.1 Form of Registrant's Specimen Stock Certificate.
5.1 Form of Legal Opinion of Gray Cary Ware & Freidenrich LLP,
counsel for Registrant.
10.1** Lease Agreement, dated November 1, 1996 between Registrant
and Dr. Jun Hasegawa and Noriko Hasegawa, as Trustees for
the Hasegawa Family Trust, dated June 8, 1999.
10.2** Lease Agreement between Registrant and Jun and Noriko
Hasegawa, as Trustees for the Hasegawa Family Trust, dated
January 18, 1999.
10.3** Lease Agreement between Registrant and Jun and Noriko
Hasegawa, as Trustees for the Hasegawa Family Trust, dated
August 20, 1999.
10.4 Employment Agreement dated August 6, 1999, entered into
between Registrant and James Seiler.
10.5** Secured Convertible Promissory Note, dated October 7, 1999,
issued to Friedli Corporate Finance.
10.6** Convertible Promissory Note, dated October 7, 1999, issued
to Friedli Corporate Finance, Inc.
10.7 Secured Promissory Note, dated January 3, 2000 issued to
Friedli Corporate Finance
10.8 Warrant dated August 6, 1999, issued to Pine, Inc.
10.9 Warrant dated August 6, 1999, issued to Pine, Inc.
10.10** Warrant dated October 7, 1999, issued to Peter Friedli.
10.11** Promissory Note dated July 15, 1997, issued to Richard
Pendleton.
10.12** Consulting Agreement, dated July 27, 1998, entered into
between Registrant and Peter Friedli
10.13 VantageMed's Amended and Restated 1998 Stock Option/Stock
Issuance Plan.
10.14** Form of Indemnity Agreement entered into by Registrant with
each of its officers and directors.
10.15 Non-Exclusive Software License Agreement, dated
December 30, 1998, entered into between Registrant and
QuadraMed Corporation
10.16 Change in Control Agreement dated July 23, 1998, between
Registrant and Thomas A. McCreery.
10.17 Employment Agreement dated April 30, 1998, between
Registrant and Gregory Vap.
21.1** Subsidiaries.
23.2 Consent of Independent Public Accountants.
23.3* Consent of Counsel (see Exhibit 5.1)
24.4** Power of Attorney (included on signature page).
27.1** Financial Data Schedule
</TABLE>
- --------------------------
* To be filed by Amendment.
** Previously filed.
<PAGE>
EXHIBIT 1.1
VantageMed Corporation
Common Stock, per value $.001 per share
UNDERWRITING AGREEMENT
________ , 19__
ADVEST, INC.
J. C. BRADFORD & COMPANY
As Representative(s) (the "Representative(s)")
of the Several Underwriters
Named in SCHEDULE I hereto
c/o Advest, Inc.
90 State House Square
Hartford, CT 06103
Dear Sirs and Mesdames:
VantageMed Corporation, a Delaware corporation (the
"Company"), proposes, subject to the terms and conditions stated herein, to
sell to the several Underwriters named in SCHEDULE I hereto (the
"Underwriters"), an aggregate of 3,000,000 shares (the "Firm Shares") of the
Company's common stock, par value $.001 per share (the "Common Stock").
In addition, in order to cover over-allotments in the sale
of the Firm Shares, the Underwriters may, at the Underwriters' election and
subject to the terms and conditions stated herein, purchase ratably in
proportion to the amounts set forth opposite their respective names in
SCHEDULE I hereto, up to 450,000 additional shares of Common Stock from the
Company (such additional shares of Common Stock, the "Optional Shares"). The
Firm Shares and the Optional Shares are referred to collectively as the
"Shares."
As part of the offering of 3,000,000 Firm Shares
contemplated by this Agreement, Advest, Inc. ("Advest") has agreed to reserve
out of the Firm Shares set forth opposite its name on SCHEDULE I hereto, up
to [ ] Shares, for sale to the Company's employees, officers and directors
and other parties associated with the Company (collectively, the
"Participants"), as set forth in the Prospectus in the section entitled
"Underwriting" (the "Directed Share Program"). The Shares to be sold by
Advest pursuant to the Directed Share Program (the "Directed Shares") will be
sold by Advest pursuant to this Agreement at the public offering price. Any
Directed Shares not orally confirmed for purchase by any Participants by the
end of the first business day after the date on which this Agreement is
executed will be offered to the public by Advest as set forth in the
Prospectus.
<PAGE>
The Company intending to be legally bound, hereby confirms
its agreement with the Underwriters as follows:
Section 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement on Form S-1 (File No. [ ])
with respect to the Shares, including a prospectus subject to completion, has
been filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), and
one or more amendments to such registration statement may have been so filed.
After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have been
amended, has become effective under the Act and information has been omitted
therefrom in accordance with Rule 430A under the Act, a prospectus in the
form most recently included in an amendment to such registration statement
(or, if no such amendment shall have been filed, in such registration
statement) with such changes or insertions as are required by Rule 430A or
permitted by Rule 424(b) under the Act and as have been provided to and
approved by the Representative(s), or (ii) if such registration statement, as
it may have been amended, has not become effective under the Act, an
amendment to such registration statement, including a form of prospectus, a
copy of which amendment has been provided to and approved by the
Representative(s) prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such registration
statement, as amended at the time when it was or is declared effective,
including (A) all financial statements, schedules and exhibits thereto, (B)
all documents (or portions thereof) incorporated by reference therein, and
(C) any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion included in such
registration statement or any amendment or post-effective amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement at the time it was or is declared effective),
including all documents (or portions thereof) incorporated by reference
therein; and the term "Prospectus" means the prospectus first filed with the
Commission pursuant to Rule 424(b) under the Act or, if no prospectus is
required to be so filed, such term means the prospectus included in the
Registration Statement, in either case, including all documents (or portions
thereof) incorporated by reference therein. Any registration statement filed
by the Corporation pursuant to Rule 462(b) under the Securities Act is called
the "Rule 462(b) Registration Statement," and from and after the time of the
filing of the Rule 462(b) Registration Statement, the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. As used
herein, any reference to any statement or information as being "made,"
"included," "contained," "disclosed" or "set forth" in any Preliminary
Prospectus, a Prospectus or any amendment or supplement thereto, or the
Registration Statement or any amendment thereto (or other similar references)
shall refer both to information and statements actually appearing in such
document as well as information and statements incorporated by reference
therein.
(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued and no proceeding for that purpose has
been instituted or threatened by the Commission or the securities authority
of any state or other jurisdiction. If the Registration
-2-
<PAGE>
Statement has become effective under the Act, no stop order suspending the
effectiveness of the Registration Statement or any part thereof has been
issued and no proceeding for that purpose has been instituted or threatened
or, to the knowledge of the Company, contemplated by the Commission or the
securities authority of any state or other jurisdiction.
(c) When any Preliminary Prospectus was filed with the
Commission it contained all statements required to be stated therein in
accordance with, and complied in all material respects with the requirements
of, the Act and the rules and regulations of the Commission thereunder. When
the Registration Statement or any amendment thereto was or is declared
effective, and at each Time of Delivery (as hereinafter defined), it (i)
contained and will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with
the requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not and will not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus or any amendment or
supplement thereto is filed with the Commission pursuant to Rule 424(b) (or,
if the Prospectus or such amendment or supplement is not required to be so
filed, when the Registration Statement or the amendment thereto containing
such amendment or supplement to the Prospectus was or is declared effective)
and at each Time of Delivery, the Prospectus, as amended or supplemented at
any such time, (i) contained and will contain all statements required to be
stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (ii) did not and will not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (c) do not apply to statements or omissions made
in the Registration Statement or any amendment thereto or the Prospectus or
any amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through you
specifically for use therein. It is understood that the statements set forth
in the Registration Statement or any amendment thereto or the Prospectus or
any amendment or supplement thereto (W) in the last paragraph of the cover
page of the Prospectus, (X) on the inside cover page with respect to
stabilization and passive market making, and (Y) in the third, ninth and
tenth paragraphs and the list of Underwriters under the section entitled
"Underwriting," constitute the only written information furnished to the
Company by or on behalf of any Underwriter through you specifically for use
in the Registration Statement or any amendment thereto or the Prospectus and
any amendment or supplement thereto, as the case may be.
(d) There are no legal or governmental proceedings pending
or threatened to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any subsidiary is subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations, contracts
or other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required.
(e) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of
-3-
<PAGE>
incorporation and has full power and authority (corporate and other) to own
or lease its properties and conduct its business as described in the
Prospectus. The Company has full power and authority (corporate and other) to
enter into this Agreement and to perform its obligations hereunder. Each of
the Company and its subsidiaries is duly qualified to transact business as a
foreign corporation and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any business,
so as to require such qualification, except where the failure to so qualify
would not have a material adverse effect on the financial position, results
of operations or business of the Company and its subsidiaries taken as a
whole.
(f) The Company's authorized, issued and outstanding
capital stock is as disclosed in the Prospectus. All of the issued shares of
capital stock of the Company, have been duly authorized and validly issued,
are fully paid and nonassessable and conform to the descriptions of the
Common Stock contained in the Prospectus. None of the issued shares of
capital stock of the Company or any of its subsidiaries has been issued or is
owned or held in violation of any statutory (or to the knowledge of the
Company, any other) preemptive rights of shareholders, and no person or
entity (including any holder of outstanding shares of capital stock of the
Company or its subsidiaries) has any statutory (or to the knowledge of the
Company, any other) preemptive or other rights to subscribe for any of the
Shares. None of the capital stock of the Company has been issued in violation
of applicable federal or state securities laws.
(g) All of the issued shares of capital stock of each
subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable and are owned beneficially by the Company or one of its
subsidiaries, free and clear of all liens, security interests, pledges,
charges, encumbrances, defects, shareholders' agreements, voting agreements,
proxies, voting trusts, equities or claims of any nature whatsoever. Other
than the subsidiaries listed on Exhibit 21 to the Registration Statement, the
Company does not own, directly or indirectly, any capital stock or other
equity securities of any other corporation or any ownership interest in any
partnership, joint venture or other association.
(h) Except as disclosed in the Prospectus, there are no
outstanding (i) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of the
Company or any of its subsidiaries, (ii) warrants, rights or options to
subscribe for or purchase from the Company or any of its subsidiaries any
such capital stock or any such convertible or exchangeable securities or
obligations or (iii) obligations of the Company or any of its subsidiaries to
issue any shares of capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or options.
(i) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) neither the
Company nor any of its subsidiaries has incurred any liabilities or
obligations, direct or contingent, or entered into any transactions, not in
the ordinary course of business, that are material to the Company and its
subsidiaries, (ii) the Company has not purchased any of its outstanding
capital stock or declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock, (iii) there has not been any
change in the capital stock, long-term debt or short-term debt of the Company
or any of its subsidiaries, and (iv) there has not been any material adverse
change, or any development involving a prospective material adverse change,
in or affecting the financial position, results of
-4-
<PAGE>
operations or business of the Company and its subsidiaries, in each case
other than as disclosed in or contemplated by the Prospectus.
(j) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to require
the Company to file a registration statement under the Act with respect to
any securities of the Company owned or to be owned by such person or,
requiring the Company to include such securities in the securities registered
pursuant to the Registration Statement (or any such right has been
effectively waived) or requiring the registration of any securities pursuant
to any other registration statement filed by the Company under the Act.
Neither the filing of the Registration Statement nor the offering or sale of
Shares as contemplated by this Agreement gives any security holder of the
Company any rights for or relating to the registration of any shares of
Common Stock or any other capital stock of the Company, except such as have
been satisfied or waived.
(k) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or passage of time or both would be, in violation
of its Articles of Incorporation or Bylaws or in default under any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party or to
which any of their respective properties or assets are subject.
(l) The Company and its subsidiaries have good and
marketable title in fee simple to all real property, if any, and good title
to all personal property owned by them, in each case free and clear of all
liens, security interests, pledges, charges, encumbrances, mortgages and
defects, except such as are disclosed in the Prospectus or such as would not
have a material adverse effect on the financial position, results of
operations or business of the Company and its subsidiaries taken as a whole
and do not interfere with the use made or proposed to be made of such
property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company or any of its subsidiaries are held
under valid, subsisting and enforceable leases, with such exceptions as are
disclosed in the Prospectus or are not material and do not interfere with the
use made or proposed to be made of such property and buildings by the Company
or any subsidiary.
(m) The Company does not require any consent, approval,
authorization, order or declaration of or from, or registration,
qualification or filing with, any court or governmental agency or body in
connection with the sale of the Shares or the consummation of the
transactions contemplated by this Agreement, except the registration of the
Shares under the Act (which, if the Registration Statement is not effective
as of the time of execution hereof, shall be obtained as provided in this
Agreement) and of the Common Stock under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or under state
securities or blue sky laws in connection with the offer, sale and
distribution of the Shares by the Underwriters.
(n) Other than as disclosed in the Prospectus, there is no
litigation, arbitration, claim, proceeding (formal or informal) or
investigation pending or, to the Company's knowledge, threatened in which the
Company or any of its subsidiaries is a party or of which any of their
respective properties or assets are the subject which, if determined
adversely to the
-5-
<PAGE>
Company or any subsidiary, would individually or in the aggregate have a
material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries taken as a whole. Neither the
Company nor any subsidiary is in violation of, or in default with respect to,
any law, statute, rule, regulation, order, judgment or decree, except as
described in the Prospectus or such as do not and will not individually or in
the aggregate have a material adverse effect on the financial position,
results of operations or business of the Company and its subsidiaries taken
as a whole, and neither the Company nor any subsidiary is required to take
any action in order to avoid any such violation or default.
(o) Arthur Andersen LLP, which has certified certain
financial statements of the Company and its consolidated subsidiaries
included in the Registration Statement and the Prospectus, are independent
public accountants as required by the Act, the Exchange Act and the
respective rules and regulations of the Commission thereunder.
(p) The consolidated financial statements and schedules
(including the related notes) of the Company and its consolidated
subsidiaries included or incorporated by reference in the Registration
Statement, the Prospectus and/or any Preliminary Prospectus were prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved and fairly present the financial position and
results of operations of the Company and its subsidiaries, on a consolidated
basis, at the dates and for the periods presented. The selected financial
data set forth under the captions "Summary Consolidated Financial Data,"
"Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Prospectus
fairly present, on the basis stated in the Prospectus, the information
included therein, and have been compiled on a basis consistent with that of
the audited financial statements included in the Registration Statement. The
supporting notes and schedules included in the Registration Statement, the
Prospectus and/or any Preliminary Prospectus fairly state in all material
respects the information required to be stated therein in relation to the
financial statements taken as a whole. The unaudited interim consolidated
financial statements included or incorporated by reference in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of Rule 10-01 of Regulation S-X under the
Act.
(q) This Agreement has been duly authorized, executed and
delivered by the Company and, assuming due execution by the Representative(s)
of the Underwriters, constitutes the valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general equitable
principles and except as the enforceability of rights to indemnity and
contribution under this Agreement may be limited under applicable securities
laws or the public policy underlying such laws.
(r) The sale of the Shares and the performance of this
Agreement and the consummation of the transactions herein contemplated will
not (with or without the giving of notice or the passage of time or both) (i)
conflict with or violate any term or provision of the articles of
incorporation or bylaws or other organizational documents of the Company or
any subsidiary, (ii) result in a breach or violation of any of the terms or
provisions of, or constitute a
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default under, any indenture, mortgage, deed of trust, loan agreement, lease
or other agreement or instrument to which the Company or any subsidiary is a
party or to which any of their respective properties or assets is subject,
(iii) conflict with or violate any law, statute, rule or regulation or any
order, judgment or decree of any court or governmental agency or body having
jurisdiction over the Company or any subsidiary or any of their respective
properties or assets or (iv) result in a breach, termination or lapse of the
corporate power and authority of the Company or any subsidiary to own or
lease and operate their respective assets and properties and conduct their
respective business as described in the Prospectus.
(s) When the Shares to be sold by the Company hereunder
have been duly delivered against payment therefor as contemplated by this
Agreement, the Shares will be validly issued, fully paid and nonassessable,
and the holders thereof will not be subject to personal liability solely by
reason of being such holders. The certificates representing the Shares are in
proper legal form under, and conform in all respects to the requirements of,
the laws of the State of Delaware and the requirements of The Nasdaq Stock
Market.
(t) The Company has not distributed and will not distribute
any offering material in connection with the offering and sale of the Shares
other than the Registration Statement, a Preliminary Prospectus, the
Prospectus and other material, if any, permitted by the Act.
(u) Neither the Company nor any of its officers, directors
or affiliates has (i) taken, directly or indirectly, any action designed to
cause or result in, or that has constituted or might reasonably be expected
to constitute, the stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Shares or (ii) since
the filing of the Registration Statement (A) sold, bid for, purchased or paid
anyone any compensation for soliciting purchases of, the Shares or (B) paid
or agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(v) The operations of the Company and its subsidiaries with
respect to any real property currently leased or owned or by any means
controlled by the Company or any subsidiary (the "Real Property") are in
compliance in all material respects with all federal, state, and local laws,
ordinances, rules, and regulations relating to occupational health and safety
and the environment (collectively, "Laws"), and the Company and its
subsidiaries have not violated any Laws in a way which would have a material
adverse effect on the financial position, results of operations or business
of the Company and its subsidiaries taken as a whole. Except as disclosed in
the Prospectus, there is no pending or, to the Company's knowledge,
threatened claim, litigation or any administrative agency proceeding, nor has
the Company or any subsidiary received any written or oral notice from any
governmental entity or third party, that: (i) alleges a violation of any Laws
by the Company or any subsidiary or (ii) alleges the Company or any
subsidiary is a liable party under the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 ET SEQ. or any state
superfund law.
(w) Neither the Company nor any subsidiary owns or has the
right to use patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises, trade
secrets, proprietary or other confidential information and intangible
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properties and assets (collectively, "Intangibles"), the loss of any of which
would have a material adverse effect on the financial position, results of
operations or business of the Company and its subsidiaries taken as a whole;
and, to the best knowledge of the Company, neither the Company nor any
subsidiary has infringed or is infringing, and neither the Company nor any
subsidiary has received notice of infringement with respect to, asserted
Intangibles of others.
(x) Each of the Company and its subsidiaries makes and
keeps accurate books and records reflecting its assets and maintains internal
accounting controls which provide reasonable assurance that (i) transactions
are executed in accordance with management's authorization, (ii) transactions
are recorded as necessary to permit preparation of the Company's consolidated
financial statements in accordance with generally accepted accounting
principles and to maintain accountability for the assets of the Company,
(iii) access to the assets of the Company and each of its subsidiaries is
permitted only in accordance with management's authorization, and (iv) the
recorded accountability for assets of the Company and each of its
subsidiaries is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(y) The Company and its subsidiaries have filed all
foreign, federal, state and local tax returns that are required to be filed
by them and have paid all taxes shown as due on such returns as well as all
other taxes, assessments and governmental charges that are due and payable;
and no material deficiency with respect to any such return has been assessed
or proposed.
(z) Except for such plans that are expressly disclosed in
the Prospectus, the Company and its subsidiaries do not maintain, contribute
to or have any material liability with respect to any employee benefit plan,
profit sharing plan, employee pension benefit plan, employee welfare benefit
plan, equity-based plan or deferred compensation plan or arrangement
("Plans") that are subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended, or the rules and regulations
thereunder ("ERISA"). All Plans are in compliance in all material respects
with all applicable laws, including but not limited to ERISA and the Internal
Revenue Code of 1986, as amended (the "Code"), and have been operated and
administered in all material respects in accordance with their terms. No Plan
is a defined benefit plan or multi employer plan. The Company does not
provide retiree life and/or retiree health benefits or coverage for any
employee or any beneficiary of any employee after such employee's termination
of employment, except as required by Section 4980B of the Code or under a
Plan which is intended to be "qualified" under Section 401(a) of the Code. No
material liability has been, or could reasonably be expected to be, incurred
under Title IV of ERISA or Section 412 of the Code by any entity required to
be aggregated with the Company or any of the Subsidiaries pursuant to Section
4001(b) of ERISA and/or Section 414(b) or (c) of the Code (and the
regulations promulgated thereunder) with respect to any "employee pension
benefit plan" which is not a Plan. As used in this subsection, the terms
"defined benefit plan," "employee benefit plan," "employee pension benefit
plan," "employee welfare benefit plan" and "multiemployer plan" shall have
the respective meanings assigned to such terms in Section 3 of ERISA.
(aa) No material labor dispute exists with the Company's or
any subsidiary's employees, and no such labor dispute is threatened. The
Company has no knowledge of any
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existing or threatened labor disturbance by the employees of any of its
principal agents, suppliers, contractors or customers that would have a
material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries taken as a whole.
(bb) The Company and its subsidiaries have received all
permits, licenses, franchises, authorizations, registrations, qualifications
and approvals (collectively, "Permits") of governmental or regulatory
authorities as may be required of them to own their properties and conduct
their businesses in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus; and the Company and its
subsidiaries have fulfilled and performed all of their material obligations
with respect to such Permits, and no event has occurred which allows or,
after notice or lapse of time or both, would allow revocation or termination
thereof or result in any other material impairment of the rights of the
holder of any such Permit, subject in each case to such qualification as may
be set forth in the Prospectus; and, except as described in the Prospectus,
such Permits contain no restrictions that materially affect the ability of
the Company and its subsidiaries to conduct their businesses.
(cc) The Company and each of its subsidiaries has filed, or
has had filed on its behalf, on a timely basis, all materials, reports,
documents and information, except where the failure to have timely filed such
materials, reports, documents and information would not have a material
adverse effect on the financial position, results of operations or business
of the Company and its subsidiaries taken as a whole.
(dd) Neither the Company, nor any subsidiary is an
"investment company" or a company "controlled" by an investment company as
such terms are defined in Sections 3(a) and 2(a)(9), respectively, of the
Investment Company Act of 1940, as amended (the "Investment Company Act"),
and, if the Company or any subsidiary conducts its business as set forth in
the Registration Statement and the Prospectus, will not become an "investment
company" and will not be required to register under the Investment Company
Act.
(ee) The Registration Statement, the Prospectus, the
Preliminary Prospectus and any amendment or supplement thereto comply with
any applicable laws or regulations of foreign jurisdictions in which the
Prospectus or Preliminary Prospectus, as amended or supplemented, are
distributed in connection with the Directed Share Program; and no
authorization, approval, consent, license, order, registration or
qualification of or with any government, governmental instrumentality or
court, other than such as have been obtained, is necessary under the
securities laws and regulations of foreign jurisdictions in which the
Directed Shares are offered outside the United States.
(ff) The Company has not offered, or caused the
Underwriters to offer, Shares to any person pursuant to the Directed Share
Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or type
of business with the Company, or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its products.
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Section 2. PURCHASE AND SALE OF SHARES.
(a) Subject to the terms and conditions herein set forth,
the Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price of [ ] Dollars and [ ] cents ($[ ]) per share (the "Per
Share Price"), the number of Firm Shares (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number
of Firm Shares to be sold by the Company as set forth in the first paragraph
of this Agreement by a fraction, the numerator of which is the aggregate
number of Firm Shares to be purchased by such Underwriter as set forth
opposite the name of such Underwriter in SCHEDULE I hereto, and the
denominator of which is the aggregate number of Firm Shares to be purchased
by the several Underwriters hereunder.
(b) The Company hereby grants to the Underwriters the right
to purchase at their election in whole or in part from time to time up to [ ]
Optional Shares, at the Per Share Price, for the sole purpose of covering
over-allotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised by written notice from the Representative(s)
to the Company, given from time to time within a period of 30 calendar days
after the date of this Agreement and setting forth the aggregate number of
Optional Shares to be purchased and the date on which such Optional Shares
are to be delivered, as determined by you but in no event earlier than the
First Time of Delivery (as hereinafter defined) or, unless the
Representative(s) otherwise agree in writing, earlier than two or later than
ten business days after the date of such notice. In the event the
Underwriters elect to purchase all or a portion of the Optional Shares, the
Company agrees to furnish or cause to be furnished to the Representative(s)
the certificates, letters and opinions, and to satisfy all conditions, set
forth in Section 7 hereof at each Subsequent Time of Delivery (as hereinafter
defined).
(c) In making this Agreement, each Underwriter is
contracting severally, and not jointly, and except as provided in Section
2(b) and 9 hereof, the agreement of each Underwriter is to purchase only that
number of shares specified with respect to that Underwriter in SCHEDULE I
hereto. No Underwriter shall be under any obligation to purchase any Optional
Shares prior to an exercise of the option with respect to such Shares granted
pursuant to Section 2(b) hereof.
Section 3. OFFERING BY THE UNDERWRITERS. Upon the authorization by
the Representative(s) of the release of the Shares, the several Underwriters
propose to offer the Shares for sale upon the terms and conditions disclosed
in the Prospectus.
Section 4. DELIVERY OF SHARES; CLOSING. Certificates in definitive
form for the Shares to be purchased by each Underwriter hereunder, and in
such denominations and registered in such names as the Representative(s) may
request upon at least 48 hours' prior notice to the Company, shall be
delivered by or on behalf of the Company to the Representative(s) for the
account of such Underwriter, against payment by such Underwriter on its
behalf of the purchase price therefor by wire transfer of immediately
available funds to such accounts as the Company shall designate in writing.
The closing of the sale and purchase of the Shares shall be held at the
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offices of McDermott, Will & Emery, Boston, Massachusetts except that
physical delivery of such certificates shall be made at the office of The
Depository Trust Company, 55 North Water Street, New York, New York 10041.
The time and date of such delivery and payment shall be, with respect to the
Firm Shares, at 10:00 a.m., New York, New York time, on the third (3rd) full
business day after this Agreement is executed or at such other time and date
as the Representative(s) and the Company may agree upon in writing, and, with
respect to the Optional Shares, at 10:00 a.m., New York, New York time, on
the date specified by the Representative(s) in the written notice given by
the Representative(s) of the Underwriters' election to purchase all or part
of such Optional Shares, or at such other time and date as the
Representative(s) and the Company may agree upon in writing. Such time and
date for delivery of the Firm Shares is herein called the "First Time of
Delivery," such time and date for delivery of any Optional Shares, if not the
First Time of Delivery, is herein called a "Subsequent Time of Delivery," and
each such time and date for delivery is herein called a "Time of Delivery."
The Company will make such certificates available for checking and packaging
at least 24 hours prior to each Time of Delivery at the office of The
Depository Trust Company, 55 North Water Street, New York, New York 10041 or
at such other location specified by you in writing at least 48 hours prior to
such Time of Delivery.
Section 5. COVENANTS OF THE COMPANY. The Company covenants and
agrees with each of the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective prior to the execution and delivery
of this Agreement, to become effective. If the Registration Statement has
been declared effective prior to the execution and delivery of this
Agreement, the Company will file the Prospectus with the Commission pursuant
to and in accordance with subparagraph (1) (or, if applicable and if
consented to by you, subparagraph (4)) of Rule 424(b) within the time period
required under Rule 424(b) under the Act. The Company will advise you
promptly of any such filing pursuant to Rule 424(b). The Company will file
timely all reports and any definitive proxy or information statements
required to be filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act.
(b) The Company will not file with the Commission the
prospectus or the amendment referred to in Section 1(a) hereof, any amendment
or supplement to the Prospectus or any amendment to the Registration
Statement unless you have received a reasonable period of time to review any
such proposed amendment or supplement and consented to the filing thereof and
will use its best efforts to cause any such amendment to the Registration
Statement to be declared effective as promptly as possible. Upon the request
of the Representative(s) or counsel for the Underwriters, the Company will
promptly prepare and file with the Commission, in accordance with the rules
and regulations of the Commission, any amendments to the Registration
Statement or amendments or supplements to the Prospectus that may be
necessary or advisable in connection with the distribution of the Shares by
the several Underwriters and will use its best efforts to cause any such
amendment to the Registration Statement to be declared effective as promptly
as possible. If required, the Company will file any amendment or supplement
to the Prospectus with the Commission in the manner and within the time
period required by Rule 424(b) under the Act. The Company will advise the
Representative(s),
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promptly after receiving notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared effective or
the Prospectus or any amendment or supplement thereto has been filed and will
provide evidence to the Representative(s) of each such filing or
effectiveness.
(c) The Company will advise the Representative(s) promptly
after receiving notice or obtaining knowledge of (i) when any post-effective
amendment to the Registration Statement is filed with the Commission, (ii)
the receipt of any comments from the Commission concerning the Registration
Statement, (iii) when any post-effective amendment to the Registration
Statement becomes effective, or when any supplement to the Prospectus or any
amended Prospectus has been filed, (iv) the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or any
part thereof or any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, (v) the
suspension of the qualification of the Shares for offer or sale in any
jurisdiction or of the initiation or threatening of any proceeding for any
such purpose, (vi) any request made by the Commission or any securities
authority of any other jurisdiction for amending the Registration Statement,
for amending or supplementing the Prospectus or for additional information.
The Company will use its best efforts to prevent the issuance of any such
stop order or suspension and, if any such stop order or suspension is issued,
to obtain the withdrawal thereof as promptly as possible.
(d) If the delivery of a prospectus relating to the Shares
is required under the Act at any time prior to the expiration of nine months
after the date of the Prospectus and if at such time any events have occurred
as a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any
reason it is necessary during such same period to amend or supplement the
Prospectus, the Company will promptly notify the Representative(s) and upon
their request (but at the Company's expense) prepare and file with the
Commission an amendment or supplement to the Prospectus that corrects such
statement or omission or effects such compliance and will furnish without
charge to each Underwriter and to any dealer in securities as many copies of
such amended or supplemented Prospectus as the Representative(s) may from
time to time reasonably request.
(e) The Company promptly from time to time will take such
action as the Representative(s) may reasonably request to qualify the Shares
for offering and sale under the securities or blue sky laws of such
jurisdictions as the Representative(s) may request and will continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the Company
shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction. The Company will
file such statements and reports as may be required by the laws of each
jurisdiction in which the Shares have been qualified as above provided.
(f) The Company will promptly provide the
Representative(s), without charge, (i) three manually executed copies of the
Registration Statement as originally filed with the Commission and of each
amendment thereto, including all exhibits and all documents or
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information incorporated by reference therein, (ii) for each other
Underwriter, a conformed copy of the Registration Statement as originally
filed and of each amendment thereto, without exhibits but including all
documents or information incorporated by reference therein and (iii) so long
as a prospectus relating to the Shares is required to be delivered under the
Act, as many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Representative(s) may reasonably
request.
(g) As soon as practicable, but not later than the
Availability Date (as defined below), the Company will make generally
available to its security holders an earnings statement of the Company and
its subsidiaries, if any, covering a period of at least 12 months beginning
after the effective date of the Registration Statement (which need not be
audited) complying with Section 11(a) of the Act and the rules and
regulations thereunder. "Availability Date" means the forty-fifth (45th) day
after the end of the fourth fiscal quarter following the fiscal quarter in
which the Registration Statement went effective, except that if such fourth
fiscal quarter is the last quarter of the Company's fiscal year,
"Availability Date" means the ninetieth (90th) day after the end of such
fourth fiscal quarter.
(h) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, the Company will not, and will cause its officers and directors
not to, without the prior written consent of Advest, Inc., as representative
of the Underwriters, directly or indirectly (i) offer, sell, contract to sell
or otherwise dispose of, any shares of Common Stock or securities convertible
into or exercisable or exchangeable for shares of Common Stock or (ii) enter
into any swap or other agreement or any transaction that transfers, in whole
or in part, the economic consequences of ownership of shares of Common Stock
whether any such swap or other agreement is to be settled by delivery of
shares of Common Stock, other securities, cash or otherwise; except for the
sale of the Shares hereunder and except for the issuance of Common Stock upon
the exercise of stock options or warrants or the conversion of convertible
securities outstanding on the date of this Agreement to the extent that such
stock options, warrants and convertible securities are disclosed in the
Prospectus or except for the grant to employees of stock options to purchase
Common Stock which are not exercisable within such 180 days.
(i) During the period of three years after the effective
date of the Registration Statement, the Company will furnish to the
Representative(s) and, upon request, to each of the other Underwriters,
without charge, (i) copies of all reports or other communications (financial
or other) furnished to shareholders and (ii) as soon as they are available,
copies of any reports and financial statements furnished to or filed with the
Commission, the NASD or any national securities exchange.
(j) Prior to the termination of the underwriting syndicate
contemplated by this Agreement, neither the Company nor any of its officers,
directors or affiliates will (i) take, directly or indirectly, any action
designed to cause or to result in, or that might reasonably be expected to
cause or result in, the stabilization or manipulation of the price of any
security of the Company or (ii) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of, the Shares.
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(k) In case of any event, at any time within the period
during which a prospectus is required to be delivered under the Act, as a
result of which any Preliminary Prospectus or the Prospectus, as then amended
or supplemented, would contain an untrue statement of a material fact, or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or, if it is necessary at any time to amend any Preliminary
Prospectus or the Prospectus to comply with the Act or any applicable
securities or blue sky laws, the Company promptly will prepare and file with
the Commission, and any applicable state securities commission, an amendment,
supplement or document that will correct such statement or omission or effect
such compliance and will furnish to the several Underwriters such number of
copies of such amendment(s), supplement(s) or document(s) as the
Representative(s) may reasonably request. For purposes of this subsection
(k), the Company will provide such information to the Representative(s), the
Underwriters' counsel and counsel to the Company as shall be necessary to
enable such persons to consult with the Company with respect to the need to
amend or supplement the Registration Statement, any Preliminary Prospectus or
the Prospectus or file any document, and shall furnish to the
Representative(s) and the Underwriters' counsel such further information as
each may from time to time reasonably request.
(l) The Company will use its best efforts to obtain, and
thereafter maintain, the qualification or listing of the shares of Common
Stock (including, without limitation, the Shares) on The Nasdaq National
Market.
(m) In connection with the Directed Share Program, the
Company will ensure that the Directed Shares will be restricted, to the
extent required by the NASD or the NASD rules and regulations, including but
not limited to, the "Free-Riding and Withholding" Interpretation[, from sale,
transfer, assignment, pledge or hypothecation for a period of three months
following the date of the effectiveness of the Registration Statement. Advest
will notify the Company as to which Participants will need to be so restricted.
At the request of Advest, the Company will direct the transfer agent to place
stop transfer restrictions upon such securities for such period of time.
(n) The Company will pay (i) all fees and disbursements
incurred by counsel for the Underwriters and (ii) all stamp duties, similar
taxes or duties or other taxes, if any, incurred by the Underwriters in
connection with the Directed Share Program.
Section 6. EXPENSES.
(a) The Company will pay all costs and expenses incident to
the performance of the obligations of the Company under this Agreement,
whether or not the transactions contemplated hereby are consummated or this
Agreement is terminated pursuant to Section 10 hereof, including, without
limitation, all costs and expenses incident to (i) the printing of and
mailing expenses associated with the Registration Statement, the Preliminary
Prospectus and the Prospectus and any amendments or supplements thereto, this
Agreement, the Agreement among Underwriters, the Underwriters' Questionnaire
submitted to each of the Underwriters by the Representative(s) in connection
herewith, the power of attorney executed by each of the Underwriters in favor
of Advest, Inc. in connection herewith, the Dealer Agreement and related
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documents (collectively, the "Underwriting Documents") and the preliminary
Blue Sky memorandum relating to the offering prepared by McDermott, Will &
Emery, counsel to the Underwriters (collectively with any supplement thereto,
the "Preliminary Blue Sky Memorandum"); (ii) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation and, if applicable, filing of the Registration Statement
(including all amendments thereto), any Preliminary Prospectus, the
Prospectus and any amendments and supplements thereto, the Underwriting
Documents and the Preliminary Blue Sky Memorandum; (iii) the delivery of
copies of the foregoing documents to the Underwriters; (iv) the filing fees
of the Commission and the NASD relating to the Shares; (v) the preparation,
issuance and delivery to the Underwriters of any certificates evidencing the
Shares, including transfer agent's and registrar's fees; (vi) the
qualification of the Shares for offering and sale under state securities and
blue sky laws, including filing fees and fees and disbursements of counsel
for the Underwriters (and local counsel therefor) relating thereto; (vii) any
listing of the Shares on The Nasdaq National Market; (viii) any expenses for
travel, lodging and meals incurred by the Company and any of its officers,
directors and employees in connection with any meetings with prospective
investors in the Shares; (ix) the costs of advertising the offering,
including, without limitation, with respect to the placement of "tombstone"
advertisements in publications selected by the Representative(s); (x) all
other costs and expenses reasonably incident to the performance of the
Company's obligations hereunder that are not otherwise specifically provided
for in this Section; and (xi) any fees and disbursements incurred by counsel
for the Underwriters and all stamp duties, similar taxes or duties or other
taxes, if any, incurred by the Underwriters in connection with the Directed
Share Program if the Issuer decides to reserve shares pursuant to such
program.
Section 7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Underwriters hereunder to purchase and pay for the Shares
to be delivered at each Time of Delivery shall be subject, in their
discretion, to the accuracy of the representations and warranties of the
Company, contained herein as of the date hereof and as of such Time of
Delivery, to the accuracy of the statements of the Company's officers made
pursuant to the provisions hereof, to the performance by the Company of its
covenants and agreements hereunder, and to the following additional
conditions precedent:
(a) If the registration statement as amended to date has
not become effective prior to the execution of this Agreement, such
registration statement shall have been declared effective not later than
11:00 a.m., Hartford, Connecticut time, on the date of this Agreement or such
later date and/or time as shall have been consented to by you in writing. If
required, the Prospectus and any amendment or supplement thereto shall have
been filed with the Commission pursuant to Rule 424(b) within the applicable
time period prescribed for such filing and in accordance with Section 5(a) of
this Agreement; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceedings for that purpose shall have been instituted, threatened or, to
the knowledge of the Company and the Representative(s), contemplated by the
Commission; and all requests for additional information on the part of the
Commission shall have been complied with to your reasonable satisfaction.
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(b) The Representative(s) shall have received a copy of an
executed lock-up agreement from the Company and each of the Company's
officers and directors and certain shareholders of Common Stock.
(c) You shall have received an opinion, dated such Time of
Delivery, of GrayCary Ware & Friedenrich LLP, counsel for the Company, in
form and substance satisfactory to you and your counsel, to the effect that:
(i) The Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
State of Delaware and has the corporate power and authority to own or lease
its properties and conduct its business as described in the Registration
Statement and the Prospectus and to enter into this Agreement and perform its
obligations hereunder. The Company is duly qualified to transact business as
a foreign corporation and is in good standing under the laws of each other
jurisdiction in which it owns or leases property, or conducts any business,
so as to require such qualification, except where the failure to so qualify
would not have a material adverse effect on the financial position, results
of operations or business of the Company and its subsidiaries taken as a
whole.
(ii) Each of the Company's "significant
subsidiaries" as defined in Regulation S-X (each a "Subsidiary" and
collectively the "Subsidiaries") is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and has the
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement and the Prospectus. Each
Subsidiary is duly qualified to transact business as a foreign corporation
and is in good standing under the laws of each other jurisdiction in which it
owns or leases property, or conducts any business, so as to require such
qualification, except where the failure to so qualify would not have a
material adverse effect on the financial position, results of operations or
business of the Company and its subsidiaries taken as a whole.
(iii) The Company's authorized, issued and
outstanding capital stock is as disclosed in the Prospectus. All of the
issued shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable and conform to the
description of the Common Stock contained in the Prospectus. None of the
issued shares of Common Stock of the Company or capital stock of any of its
subsidiaries has been issued or is owned or held in violation of any
statutory (or, to the knowledge of such counsel, any other) preemptive rights
of shareholders, and no person or entity (including any holder of outstanding
shares of Common Stock of the Company or capital stock of its subsidiaries)
has any statutory (or, to the knowledge of such counsel, any other)
preemptive or other rights to subscribe for any of the Shares.
(iv) All of the issued shares of capital stock of
each of the Company's subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable, and, to such counsel's knowledge,
are owned beneficially by the Company or its subsidiaries, free and clear of
all liens, security interests, pledges, charges, encumbrances, shareholders'
agreements, voting agreements, proxies, voting trusts, defects, equities or
claims of any nature whatsoever (collectively, "Encumbrances"), including,
without limitation, any Encumbrance arising or
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resulting from any indenture, mortgage, deed of trust, loan agreement, lease
or other agreement of or entered into by the Company or its subsidiaries. To
such counsel's knowledge, other than the subsidiaries listed on Exhibit 21 to
the Registration Statement, the Company does not own, directly or indirectly,
any capital stock or other equity securities of any other corporation or any
ownership interest in any partnership, joint venture or other association.
(v) Except as disclosed in the Prospectus, there
are, to such counsel's knowledge, no outstanding (A) securities or
obligations of the Company or any of its subsidiaries convertible into or
exchangeable for any capital stock of the Company or any subsidiary, (B)
warrants, rights or options to subscribe for or purchase from the Company or
any of its subsidiaries any such capital stock or any such convertible or
exchangeable securities or obligations or (C) obligations of the Company or
any of its subsidiaries to issue any shares of capital stock, any such
convertible or exchangeable securities or obligations, or any such warrants,
rights or options.
(vi) When the Shares to be sold by the Company
have been duly delivered against payment therefor as contemplated by this
Agreement, the Shares will be duly authorized, validly issued and fully paid
and nonassessable, the holders thereof will not be subject to personal
liability solely by reason of being such holders and the Shares will conform
to the description of the Common Stock contained in the Prospectus; the
certificates evidencing the Shares will comply with all applicable
requirements of Delaware law.
(vii) There are no contracts, agreements or
understandings known to such counsel between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned
or to be owned by such person or, requiring the Company to include such
securities in the securities registered pursuant to the Registration
Statement (or any such right has been effectively waived) or requiring the
registration of any securities pursuant to any other registration statement
filed by the Company under the Act.
(viii) To such counsel's knowledge, neither the
Company nor any of its subsidiaries is, or with the giving of notice or
passage of time or both, would be, in violation of its articles of
incorporation or bylaws, in each case as amended to date, or, in default in
any material respect under any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to such counsel to
which the Company or any of its subsidiaries is a party or to which any of
their respective properties or assets is subject.
(ix) The sale of the Shares being sold at such
Time of Delivery and the performance of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or violate any
provision of the articles of incorporation or bylaws of the Company or any of
its subsidiaries, in each case as amended to date, or to such counsel's
knowledge, any existing law, statute, rule or regulation, or in any material
respect, conflict with, or (with or without the giving of notice or the
passage of time or both) result in a breach or violation of any of the terms
or provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument known
to such counsel to which the Company or any of its subsidiaries is a party or
to which any of their
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respective properties or assets is subject, or, conflict with or violate any
order, judgment or decree known to such counsel, of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties or assets.
(x) To such counsel's knowledge, no consent,
approval, authorization, order or declaration of or from, or registration,
qualification or filing with, any court or governmental agency or body is
required for the sale of the Shares or the consummation of the transactions
contemplated by this Agreement, except such as have been or will have been
obtained and are or will be in effect, and except the registration of the
Shares under the Act, of Common Stock under the Exchange Act and such as may
be required by the NASD or under state securities or blue sky laws in
connection with the offer, sale and distribution of the Shares by the
Underwriters.
(xi) To such counsel's knowledge and other than as
disclosed in or contemplated by the Prospectus, there is no litigation,
arbitration, claim, proceeding (formal or informal) or investigation pending
or threatened, in which the Company or any of its subsidiaries is a party or
of which any of their respective properties or assets is the subject which,
if determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
financial position, results of operations or business of the Company and its
subsidiaries taken as a whole; and, to such counsel's knowledge, neither the
Company nor any of its subsidiaries is in violation of, or in default with
respect to, any law, statute, rule, regulation, order, judgment or decree,
except as described in the Prospectus or such as do not and will not
individually or in the aggregate have a material adverse effect on the
financial position, results of operations or business of the Company and its
subsidiaries taken as a whole, nor is the Company or any of its subsidiaries
required to take any action in order to avoid any such violation or default.
(xii) The statements in the Prospectus under
"Business -- Regulation," "Business -- Legal Proceedings," "Description of
Capital Stock" and "Shares Eligible for Future Sale" have been reviewed by
such counsel, and insofar as they refer to statements of law, descriptions of
statutes, licenses, rules or regulations, or legal conclusions, are correct
in all material respects.
(xiii) This Agreement has been duly authorized,
executed and delivered by the Company and, assuming due execution by the
Representative(s) of the Underwriters, constitutes the valid and binding
agreement of the Company against the Company in accordance with its terms,
subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general equitable
principles and except as the enforceability of rights to indemnity and
contribution under this Agreement may be limited under applicable securities
laws or the public policy underlying such laws.
(xiv) Neither the Company nor any of its
subsidiaries is an "investment company" or a company "controlled" by an
investment company as such terms are defined in Sections 3(a) and 2(a)(9),
respectively, of the Investment Company Act.
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(xv) To such counsel's knowledge, the Company and
its subsidiaries have received all permits, licenses, franchises,
authorizations, registrations, qualifications and approvals (collectively,
"permits") of governmental or regulatory authorities (including, without
limitation, state and/or other insurance regulatory authorities) as may be
required of them to own their properties and to conduct their businesses in
the manner described in the Prospectus, subject to such qualification as may
be set forth in the Prospectus; to such counsel's knowledge, the Company and
its subsidiaries have fulfilled and performed all of their material
obligations with respect to such permits and no event has occurred which
allows, or after notice or lapse of time or both would allow, revocation or
termination thereof or result in any other material impairment of the rights
of the holder of any such permits, subject in each case to such
qualifications as may be set forth in the Prospectus; and other than as
described in the Prospectus, such permits contain no restrictions that
materially affect the ability of the Company and its subsidiaries to conduct
their businesses.
(xvi) The Registration Statement and the
Prospectus and each amendment or supplement thereto (other than the financial
statements, the notes and schedules thereto and other financial data included
therein, to which such counsel need express no opinion), as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the respective rules and
regulations thereunder. The descriptions in the Registration Statement and
the Prospectus of contracts and other documents are accurate and fairly
present the information required to be shown; and such counsel do not know of
any contracts or documents of a character required to be described in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as required.
Such counsel shall also state that they have participated
in the preparation of the Registration Statement and the Prospectus and in
conferences with officers and other representatives of the Company,
representatives of the independent public accountants for the Company, and
representatives of and counsel to the Underwriters at which the contents of
the Registration Statement, the Prospectus and related matters were discussed
and, although such counsel has not passed upon or assumed any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, and although such counsel has not
undertaken to verify independently the accuracy or completeness of the
statements in the Registration Statement or the Prospectus, nothing has come
to such counsel's attention to lead them to believe that the Registration
Statement, or any further amendment thereto made prior to such Time of
Delivery, on its effective date and as of such Time of Delivery, contained or
contains any untrue statement of a material fact or omitted or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, not misleading, or that the Prospectus, or any amendment
or supplement thereto made prior to such Time of Delivery, as of its issue
date and as of such Time of Delivery, contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (provided that such
counsel need express no belief regarding the financial statements, the notes
and schedules thereto and other financial data contained in the Registration
Statement, any amendment thereto, or the Prospectus, or any amendment or
supplement thereto).
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In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deem proper, on certificates of
officers of the Company, public officials and letters from officials of the
NASD. Copies of such certificates of officers of the Company and other
opinions shall be addressed and furnished to the Underwriters and furnished
to counsel for the Underwriters.
(d) McDermott, Will & Emery counsel for the Underwriters,
shall have furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to the incorporation of the Company, the validity of
the Shares being delivered at such Time of Delivery, the Registration
Statement, the Prospectus, and other related matters as you may reasonably
request, and the Company shall have furnished to such counsel such documents
as they request for the purpose of enabling them to pass upon such matters.
(e) The Representative(s) shall have received, on each of
the date hereof and the Closing Date, as the case may be, in form and
substance satisfactory to the Representative(s), from Arthur Andersen LLP,
independent public accountants, a letter or letters, as the case may be,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to Underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and Prospectus; provided that the letter or letters, as the case
may be, delivered on the Closing Date shall use a "cut-off date" not earlier
than the date hereof.
(f) Since the date of the latest audited financial
statements included in the Prospectus, neither the Company nor any of the
Subsidiaries shall have sustained any change, or any development involving a
prospective change (including, without limitation, a change in management or
control of the Company), in or affecting the position (financial or
otherwise), results of operations, net worth or business prospects of the
Company and its subsidiaries, otherwise than as disclosed in or contemplated
by the Prospectus, the effect of which, in either such case, in your sole
judgment makes it impracticable or inadvisable to proceed with the purchase,
sale and delivery of the Shares being delivered at such Time of Delivery as
contemplated by the Registration Statement, as amended as of the date hereof.
(g) Subsequent to the date hereof, there shall not have
occurred any of the following: (i) any suspension or limitation in trading in
securities generally on the New York Stock Exchange, and/or the American
Stock Exchange or any setting of minimum prices for trading on such exchange,
or in the Common Stock of the Company by the Commission or The Nasdaq
National Market (ii) a moratorium on commercial banking activities in New
York, Delaware or Connecticut declared by either federal or state
authorities; or (iii) any outbreak or escalation of hostilities involving the
United States, declaration by the United States of a national emergency or
war or any other national or international calamity or emergency if the
effect of any such event specified in this clause (iii) in your sole judgment
makes it impracticable or inadvisable to proceed with the purchase, sale and
delivery of the Shares being delivered at such Time of Delivery as
contemplated by the Registration Statement, as amended as of the date hereof.
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(h) The Company shall have furnished to you at such Time of
Delivery certificates of the chief executive and chief financial officers of
the Company satisfactory to you, as to the accuracy of the respective
representations and warranties of the Company herein at and as of such Time
of Delivery with the same effect as if made at such Time of Delivery, as to
the performance by the Company of all of its respective obligations hereunder
to be performed at or prior to such Time of Delivery, and as to such other
matters as you may reasonably request, and the Company shall have furnished
or caused to be furnished certificates of such officers as to such matters as
you may reasonably request.
(i) The representations and warranties of the Company in
this Agreement and in the certificates delivered by the Company pursuant to
this Agreement shall be true and correct in all material respects when made
and on and as of each Time of Delivery as if made at such time, and the
Company shall have performed all covenants and agreements and satisfied all
conditions contained in this Agreement required to be performed or satisfied
by the Company at or before such Time of Delivery.
(j) The Shares shall continue to be listed on the The
Nasdaq National Market.
Section 8. INDEMNIFICATION AND CONTRIBUTION.
(a) (I) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon: (i) any untrue statement
or alleged untrue statement made by the Company in Section 1 of this
Agreement; (ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (B) any application or other document, or amendment or
supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order
to qualify the Shares under the securities or blue sky laws thereof or filed
with the Commission or any securities association or securities exchange
(each an "Application"); or (iii) the omission of or alleged omission to
state in the Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or any
Application of a material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating, defending against or appearing
as a third-party witness in connection with any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability
or action arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or any Application in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through you expressly for use therein (which
information is solely as set forth in Section 1(c) hereof). The Company will
not, without the prior written consent of the Representative(s) of the
Underwriters, settle or compromise or
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consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding (or related cause of action or portion thereof) in
respect of which indemnification may be sought hereunder (whether or not any
Underwriter is a party to such claim, action, suit or proceeding), unless
such settlement, compromise or consent includes an unconditional release of
each Underwriter from all liability arising out of such claim, action, suit
or proceeding (or related cause of action or portion thereof).
(II) The Company agrees to indemnify and hold harmless
Advest and each person, if any, who controls Advest within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act
("Advest Entities"), against any and all losses, claims, damages or
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim): (i) that arises out of or is based upon any untrue
statement or alleged untrue statement of any material fact contained in the
prospectus wrapper material prepared by or with the consent of the Company
for distribution in foreign jurisdictions in connection with the Directed
Share Program attached to the Prospectus or Preliminary Prospectus or any
amendment or supplement thereto or caused by any omission of or alleged
omission to state in the Prospectus or Preliminary Prospectus or any
amendment or supplement thereto, a material fact required to be stated
therein or necessary to make the statements therein not misleading; (ii)
caused by the failure of any Participant to pay for and accept delivery of
the Shares which, immediately following the effectiveness of the Registration
Statement, were subject to a properly confirmed agreement to purchase; or
(iii) related to, arising out of, or in connection with the Directed Share
Program, provided that the Company shall not be responsible under this
subsection 8(b) for any losses, claims, damages or liabilities (or expenses
relating thereto) that are finally judicially determined to have resulted
from the bad faith or gross negligence of Advest Entities.
(b) Each Underwriter, severally but not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages
or liabilities to which the Company may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or any Application or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter through you
expressly for use therein (which information is solely as set forth in
Section 1(c) hereof); and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating
or defending any such loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party
in writing of the commencement thereof; but the omission so to notify the
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indemnifying party shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under
such subsection (a) or (b). In case any such action shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with
the consent of the indemnified party, be counsel to the indemnifying party);
PROVIDED, HOWEVER, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses
available to it or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action on behalf
of such indemnified party and such indemnified party shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party. After such notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof. Nothing in this Section 8(c) shall preclude an
indemnified party from participating at its own expense in the defense of any
such action so assumed by the indemnifying party. Notwithstanding anything
contained herein to the contrary, if indemnity may be sought pursuant to
Section 8(a)(II) hereof in respect of such action or proceeding, then in
addition to such separate firm for the indemnified parties, the indemnifying
party shall be liable for the reasonable fees and expenses of counsel for
Advest for the defense of any losses, claims, damages and liabilities arising
out of the Directed Share Program, and all persons, if any, who control
Advest within the meaning of either Section 15 of the Act or Section 20 of
the Exchange Act.
(d) If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares. If, however,
the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party
shall contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the
Underwriters on the other hand shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses)
received by the Company bear to the total underwriting
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discounts and commissions received by the Underwriters. The relative fault
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (d) were determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this subsection (d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this
subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8
shall be in addition to any liability which the Company may otherwise have
and shall extend, upon the same terms and conditions, to each officer,
director and employee of the Underwriters and to each person, if any, who
controls any Underwriter within the meaning of the Act or the Exchange Act;
and the obligations of the Underwriters under this Section 8 shall be in
addition to any liability which the respective Underwriters may otherwise
have and shall extend, upon the same terms and conditions, to each officer,
trustee and director of the Company and to each person, if any, who controls
the Company within the meaning of the Act or the Exchange Act.
Section 9. DEFAULT OF UNDERWRITERS.
(i) If any Underwriter defaults in its obligation
to purchase Shares at a Time of Delivery, you may in your discretion arrange
for you or another party or other parties to purchase such Shares on the
terms contained herein within thirty-six (36) hours after such default by any
Underwriter. In the event that, within the respective prescribed period, you
notify the Company that you have so arranged for the purchase of such Shares,
you shall have the right to postpone a Time of Delivery for a period of not
more than seven (7) days in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any
other documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus that in your
opinion may thereby be made necessary. The cost of preparing, printing and
filing any such amendments shall be paid for by the Underwriters. The term
"Underwriter" as used in this Agreement shall
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include any person substituted under this Section with like effect as if such
person had originally been a party to this Agreement with respect to such
Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you as
provided in subsection (a) above, if any, the aggregate number of such Shares
which remains unpurchased does not exceed one-eleventh (1/11) of the
aggregate number of Shares to be purchased at such Time of Delivery, then the
Company shall have the right to require each non-defaulting Underwriter to
purchase the number of Shares which such Underwriter agreed to purchase
hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the
number of Shares which such Underwriter agreed to purchase hereunder) of the
Shares of such defaulting Underwriter or Underwriters for which such
arrangements have not been made.
Section 10. TERMINATION.
(a) This Agreement may be terminated in the sole discretion
of the Representative(s) by notice to the Company given prior to the First
Time of Delivery or any Subsequent Time of Delivery, respectively, in the
event that (i) any condition to the obligations of the Underwriters set forth
in Section 7 hereof has not been satisfied, or (ii) the Company shall have
failed, refused or been unable to deliver such party's respective Shares or
the Company shall have failed, refused or been unable to perform all
obligations and satisfy all conditions on their respective parts to be
performed or satisfied hereunder at or prior to such Time of Delivery, in
either case other than by reason of a default by any of the Underwriters. If
this Agreement is terminated pursuant to this Section 10(a), the Company will
reimburse the Underwriters severally upon demand for all out-of-pocket
expenses (including counsel fees and disbursements) that shall have been
incurred by them in connection with the proposed purchase and sale of the
Shares.
(b) If, after giving effect to any arrangements for the
purchase of the Shares of a defaulting Underwriter or Underwriters by you as
provided in Section 9(a), the aggregate number of such Shares which remains
unpurchased exceeds one-eleventh (1/11) of the aggregate number of Shares to
be purchased at such Time of Delivery, then this Agreement (or, with respect
to a Subsequent Time of Delivery, the obligations of the Underwriters to
purchase and of the Company to sell the Optional Shares) shall thereupon
terminate, without liability on the part of any non-defaulting Underwriter or
the Company except for the expenses to be borne by the Company and the
Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve
a defaulting Underwriter from liability for its default.
Section 11. SURVIVAL. The respective indemnities, agreements,
representations, warranties and other statements of the Company, its officers
and the several Underwriters, as set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement, shall remain in
full force and effect, regardless of any investigation (or any statement as
to the results thereof) made by or on behalf of any Underwriter or any
controlling person referred to in Section 8(e) or the Company, or any
officer, trustee or director or controlling person of the Company referred to
in Section 8(e), and shall survive delivery of and payment for
-25-
<PAGE>
the Shares. The respective agreements, covenants, indemnities and other
statements set forth in Sections 6 and 8 hereof shall remain in full force
and effect, regardless of any termination or cancellation of this Agreement.
Section 12. NOTICES. All communications hereunder shall be in
writing and, if sent to any of the Underwriters, shall be mailed, delivered
or telegraphed and confirmed in writing to you in care of Advest, Inc., 90
State House Square, Hartford, CT 06103, Attention: David Minot (with a copy
to McDermott, Will & Emery, Attention: John B. Steele, Esq.; if to the
Company shall be sufficient in all respects if mailed, delivered or
telegraphed and confirmed in writing to Vantage Corporation, Attention: James
Seiler (with a copy to Gray Cary Ware & Freidenrich, Attention: Kevin Coyle,
Esq.
Section 13. BINDING EFFECT. This Agreement shall be binding upon,
and inure solely to the benefit of, the Underwriters, the Company and to the
extent provided in Sections 8 and 10 hereof, the officers, trustees,
directors and employees and controlling persons referred to therein and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Shares from any Underwriter shall be
deemed a successor or assign by reason merely of such purchase.
Section 14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to any provisions regarding conflicts of laws.
Section 15. COUNTERPARTS. This Agreement may be executed by any one
or more of the parties hereto in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts shall together
constitute one and the same instrument.
-26-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us one of the counterparts hereof, and upon the
acceptance hereof by Advest, Inc., on behalf of each of the Underwriters,
this letter will constitute a binding agreement among the Underwriters, the
Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in the
Agreement among Underwriters, a copy of which shall be submitted to the
Company for examination, upon request, but without warranty on your part as
to the authority of the signers thereof.
Very truly yours,
VANTAGEMED CORPORATION
By:
------------------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first written above at
Hartford, Connecticut.
ADVEST, INC.
J. C. BRADFORD & CO.
By: ADVEST, INC.
By:
------------------------------------
Name:
Title:
On behalf of each of the Underwriters
-27-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Number of Optional
Shares to be
Total Number Purchased if
of Firm Shares Maximum Option
Underwriter to be Purchased Exercised
- ----------- --------------- ---------
<S> <C> <C>
Advest, Inc.
J.C. Bradford & Co.
</TABLE>
<PAGE>
Exhibit 3.1
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
VANTAGEMED CORPORATION
The undersigned, Joel M. Harris, being the President of VantageMed
Corporation, a corporation organized and existing under the laws of the State of
Delaware, incorporated on April 9, 1997, on behalf of said corporation, hereby
certify as follows:
FIRST: The name of the corporation (hereinafter the "Corporation") is
VantageMed Corporation.
SECOND: The Certificate of Incorporation of the Corporation as in
effect on the date hereof is hereby restated to read in its entirety as set
forth on EXHIBIT A hereto.
THIRD: That said Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, we have executed this Certificate this ______ day
of February 2000.
/s/ Joel M. Harris
-------------------------------------
Joel M. Harris, President
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
VANTAGEMED CORPORATION
ARTICLE I
NAME
The name of the Corporation is VantageMed Corporation (hereinafter
sometimes referred to as the "Corporation").
ARTICLE II
NATURE OF BUSINESS
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE III
AUTHORIZED CAPITAL STOCK
The total number of shares of capital stock which the Corporation has
authority to issue is (i) twenty million (20,000,000) shares of Common Stock,
par value $0.001 per share (the "Common Stock"), and (ii) five million
(5,000,000) shares of Preferred Stock, par value $0.001 per share (the
"Preferred Stock"). The Board of Directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance of shares of
Preferred Stock in Series and, by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such Series and any
qualifications, limitations or restrictions thereon. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock without a vote of the holders of the
Preferred Stock, or of any Series thereof, unless a vote of any such holders is
required pursuant to the certificate or certificates establishing the Series of
Preferred Stock.
Effective at the time of the filing with the Secretary of State of the
State of Delaware of this Restated Certificate of Incorporation (the "Effective
Time"), each three (3) shares of the Corporation's Common Stock, par value
$0.001 per share, issued and outstanding or held in treasury at the Effective
Time shall, automatically and without any action on the part of the respective
holders thereof, be combined, converted and changed into one (1) share of Common
1
<PAGE>
Stock, par value $0.001 per share, of the Corporation (the "Reverse Stock
Split"). Unless otherwise requested by the holders thereof, the share
certificates representing the shares outstanding prior to the filing of this
Restated Certificate of Incorporation shall represent such number of new
shares as split and converted following the filing hereof. No fractional
shares of Common Stock will be issued and, in lieu thereof, any holder of
less than one (1) share of Common Stock shall be entitled to receive cash for
such holder's fractional share based on the initial offering price per share
of the Corporation's Common Stock as listed on the Nasdaq National Stock
Market.
I. COMMON STOCK
SECTION 1
VOTING RIGHTS
The holders of shares of Common Stock shall be entitled to one vote for
each share held with respect to all matters voted on by the stockholders of the
Corporation.
SECTION 2
LIQUIDATION RIGHTS
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation, the holders of Common Stock shall be entitled to
receive that portion of the funds to be distributed based on the number of
shares of Common Stock held by each of them.
SECTION 3
DIVIDENDS
Dividends may be paid on the Common Stock as and when declared by the Board
of Directors.
ARTICLE IV
MANAGEMENT
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
2
<PAGE>
C. The number of directors shall initially be five (5) and thereafter
shall be fixed from time to time exclusively by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption). The directors shall be divided into three classes with the term of
office of the first class to expire at the first annual meeting of the
stockholders following the filing date hereof, the term of office of the second
class to expire at the second annual meeting of stockholders held following the
filing date hereof, the term of office of the third class to expire at the third
annual meeting of stockholders following the filing date hereof, and thereafter
for each such term to expire at each third succeeding annual meeting of
stockholders after such election. All directors shall hold office until the
expiration of the term for which elected, and until their respective successors
are elected, except in the case of the death, resignation, or removal of any
director.
D. Subject to the rights of the holders of any Series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation or other cause (including removal from office
by a vote of the stockholders) may be filled only by a majority vote of the
directors then in office, though less than a quorum, or by sole remaining
director, and directors so chosen shall hold office for a term expiring at the
next annual meeting of stockholders at which the term of office of the class to
which they have been elected expires, and until their respective successors are
elected, except in the case of the death, resignation, or removal of any
director.
E. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
F. Special meetings of stockholders of the Corporation may be called only
by the Board of Directors, the Chairman of the Board of Directors, the President
or the Chief Executive Officer.
ARTICLE V
BYLAWS
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation. The stockholders shall also have power to adopt,
amend or repeal the Bylaws of the Corporation. Any adoption, amendment or
repeal of Bylaws of the Corporation by the stockholders shall require, in
addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least sixty-six and two thirds percent (66
2/3%) of the voting power of all of the then outstanding shares of the capital
stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
3
<PAGE>
ARTICLE VI
LIMITATION ON LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended. Any repeal or modification of the foregoing
provisions of this Article VI by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
ARTICLE VII
AMENDMENTS
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware and all rights conferred upon stockholders are
granted subject to this reservation; PROVIDED, HOWEVER, that, notwithstanding
any other provision of this Certificate of Incorporation or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to any
vote of the holders of any class or series of the stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least sixty-six and two thirds percent (66 2/3%) of the voting
power of all of the then outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to amend or repeal this
Article VII, Article IV, Article V or Article VI.
ARTICLE VIII
REGISTERED OFFICE; REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Avenue in the City of Wilmington, County of New Castle.
The name of the registered agent at that address is The Corporation Trust
Company.
4
<PAGE>
Exhibit 3.2
FORM OF
AMENDED AND RESTATED
BYLAWS
OF
VANTAGEMED CORPORATION
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article 1. Stockholders . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Place of Meetings. . . . . . . . . . . . . . . . . .1
1.2 Annual Meeting.. . . . . . . . . . . . . . . . . . .1
1.3 Special Meetings.. . . . . . . . . . . . . . . . . .1
1.4 Notice of Meetings.. . . . . . . . . . . . . . . . .1
1.5 Voting List. . . . . . . . . . . . . . . . . . . . .1
1.6 Quorum.. . . . . . . . . . . . . . . . . . . . . . .2
1.7 Adjournments.. . . . . . . . . . . . . . . . . . . .2
1.8 Voting and Proxies.. . . . . . . . . . . . . . . . .2
1.9 Action at Meeting. . . . . . . . . . . . . . . . . .2
1.10 Notice of Stockholder Business.. . . . . . . . . . .3
1.11 Conduct of Business. . . . . . . . . . . . . . . . .3
1.12 No Stockholder Action Without Meeting. . . . . . . .4
Article 2. Board of Directors . . . . . . . . . . . . . . . . . . . . .4
2.1 General Powers . . . . . . . . . . . . . . . . . . .4
2.2 Number and Term of Office. . . . . . . . . . . . . .4
2.3 Vacancies and Newly Created Directorships. . . . . .5
2.4 Resignation. . . . . . . . . . . . . . . . . . . . .5
2.5 Regular Meetings.. . . . . . . . . . . . . . . . . .5
2.6 Special Meetings.. . . . . . . . . . . . . . . . . .5
2.7 Notice of Special Meetings.. . . . . . . . . . . . .5
2.8 Participation in Meetings by Telephone Conference
Calls. . . . . . . . . . . . . . . . . . . . . . .6
2.9 Quorum.. . . . . . . . . . . . . . . . . . . . . . .6
2.10 Action at Meeting. . . . . . . . . . . . . . . . . .6
2.11 Action by Consent. . . . . . . . . . . . . . . . . .6
2.12 Removal. . . . . . . . . . . . . . . . . . . . . . .6
2.13 Committees.. . . . . . . . . . . . . . . . . . . . .6
2.14 Compensation of Directors. . . . . . . . . . . . . .7
2.15 Nomination of Director Candidates. . . . . . . . . .7
Article 3. Officers . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.1 Enumeration. . . . . . . . . . . . . . . . . . . . .8
3.2 Election.. . . . . . . . . . . . . . . . . . . . . .8
3.3 Qualification. . . . . . . . . . . . . . . . . . . .8
3.4 Tenure.. . . . . . . . . . . . . . . . . . . . . . .8
3.5 Resignation and Removal. . . . . . . . . . . . . . .8
3.6 Chairman of the Board. . . . . . . . . . . . . . . .8
3.7 Chief Executive Officer. . . . . . . . . . . . . . .9
3.8 President. . . . . . . . . . . . . . . . . . . . . .9
3.9 Vice Presidents. . . . . . . . . . . . . . . . . . .9
3.10 Secretary and Assistant Secretaries. . . . . . . . .9
3.11 Chief Financial Officer. . . . . . . . . . . . . . .9
3.12 Salaries.. . . . . . . . . . . . . . . . . . . . . 10
i
<PAGE>
TABLE OF CONTENTS
(continued)
<CAPTION>
PAGE
----
<S> <C>
3.13 Delegation of Authority. . . . . . . . . . . . . . 10
Article 4. Capital Stock . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Issuance of Stock. . . . . . . . . . . . . . . . . 10
4.2 Certificates of Stock. . . . . . . . . . . . . . . 10
4.3 Transfers. . . . . . . . . . . . . . . . . . . . . 10
4.4 Lost, Stolen or Destroyed Certificates.. . . . . . 11
4.5 Record Date. . . . . . . . . . . . . . . . . . . . 11
Article 5. General Provisions . . . . . . . . . . . . . . . . . . . . 11
5.1 Fiscal Year. . . . . . . . . . . . . . . . . . . . 11
5.2 Corporate Seal.. . . . . . . . . . . . . . . . . . 11
5.3 Waiver of Notice.. . . . . . . . . . . . . . . . . 11
5.4 Actions with Respect to Securities of Other
Corporations.. . . . . . . . . . . . . . . . . . 12
5.5 Evidence of Authority. . . . . . . . . . . . . . . 12
5.6 Certificate of Incorporation.. . . . . . . . . . . 12
5.7 Severability.. . . . . . . . . . . . . . . . . . . 12
5.8 Pronouns.. . . . . . . . . . . . . . . . . . . . . 12
5.9 Notices. . . . . . . . . . . . . . . . . . . . . . 12
5.10 Reliance Upon Books, Reports and Records.. . . . . 12
5.11 Time Periods.. . . . . . . . . . . . . . . . . . . 13
5.12 Facsimile Signatures.. . . . . . . . . . . . . . . 13
Article 6. Amendments . . . . . . . . . . . . . . . . . . . . . . . . 13
6.1 By the Board of Directors. . . . . . . . . . . . . 13
6.2 By the Stockholders. . . . . . . . . . . . . . . . 13
Article 7. Indemnification of Directors and Officers. . . . . . . . . 13
7.1 Right to Indemnification.. . . . . . . . . . . . . 13
7.2 Right of Claimant to Bring Suit. . . . . . . . . . 14
7.3 Indemnification of Employees and Agents. . . . . . 14
7.4 Non-Exclusivity of Rights. . . . . . . . . . . . . 15
7.5 Indemnification Contracts. . . . . . . . . . . . . 15
7.6 Insurance. . . . . . . . . . . . . . . . . . . . . 15
7.7 Effect of Amendment. . . . . . . . . . . . . . . . 15
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED
BYLAWS OF VANTAGEMED CORPORATION
Article 1. STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President and Chief Executive
Officer or, if not so designated, at the registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Board of Directors or the President and Chief Executive Officer at the time
and place to be fixed by the Board of Directors or the President and stated in
the notice of the meeting. If no annual meeting is held in accordance with the
foregoing provisions, the Board of Directors shall cause the meeting to be held
as soon thereafter as convenient.
1.3 SPECIAL MEETINGS. Special meetings of Stockholders may be called
at any time by the Chairman of the Board, the President or the Chief Executive
Officer at the request, in writing, of one or more stockholders holding not less
than 20% of the voting power of the corporation.
1.4 NOTICE OF MEETINGS. Written notice of each meeting of
stockholders, whether annual or special, shall be given not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or as required by law (meaning here and hereafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation). The notices of all meetings shall state the place, date and
hour of the meeting. The notice of a special meeting shall state, in addition,
the purpose or purposes for which the meeting is called. If mailed, notice is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of
the corporation shall prepare, at least ten (10) days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time of the meeting, and may be inspected by any stockholder who is
present. This list shall preemptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
1
<PAGE>
1.6 QUORUM. Except as otherwise provided by law or these Bylaws, the
holders of a majority of the shares of the capital stock of the corporation
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares of stock entitled to vote who are present, in person or
by proxy, may adjourn the meeting to another place, date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these Bylaws by the holders of a majority of the shares of stock present
or represented at the meeting and entitled to vote, although less than a quorum,
or, if no stockholder is present, by any officer entitled to preside at or to
act as Secretary of such meeting. When a meeting is adjourned to another place,
date or time, written notice need not be given of the adjourned meeting if the
place, date and time thereof are announced at the meeting at which the
adjournment is taken; provided, however, that if the date of any adjourned
meeting is more than thirty (30) days after the date for which the meeting was
originally noticed, or if a new record date is fixed for the adjourned meeting,
written notice of the place, date, and time of the adjourned meeting shall be
given in conformity herewith. At the adjourned meeting, the corporation may
transact any business which might have been transacted at the original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law. Each stockholder of record entitled to vote at a meeting of
stockholders, may vote in person or may authorize any other person or persons to
vote or act for him by written proxy executed by the stockholder or his
authorized agent or by a transmission permitted by law and delivered to the
Secretary of the corporation. No stockholder may authorize more than one proxy
for his shares. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this Section may
be substituted or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile transmission or other reproduction shall be a
complete reproduction of the entire original writing or transmission.
1.9 ACTION AT MEETING. When a quorum is present at any meeting, any
election shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election, and all other matters shall be
determined by a majority of the votes cast affirmatively or negatively on the
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, a majority of each such
class present or represented and voting affirmatively or negatively on the
matter) shall decide such matter, except when a
2
<PAGE>
different vote is required by express provision of law, the Certificate of
Incorporation or these Bylaws.
All voting, including on the election of directors, but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting. The corporation may, and to the
extent required by law, shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written report
thereof. The corporation may designate one or more persons as an alternate
inspector to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting may, and to the extent required by law, shall, appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his or
her ability.
1.10 NOTICE OF STOCKHOLDER BUSINESS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) properly brought before an annual meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder proposal to be presented at an
annual meeting shall be received at the Corporation's principal executive
offices not less than 120 calendar days in advance of the date that the
Corporation's (or the Corporation's predecessor's) proxy statement was released
to stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been advanced by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
notice by the stockholders to be timely must be received not later than the
close of business on the tenth day following the day on which the date of the
annual meeting is publicly announced.
A stockholder's notice to the Secretary of the Corporation shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting, (ii) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business, (iii) the class and number of
shares of the Corporation which are beneficially owned by the stockholder, and
(iv) any material interest of the stockholder in such business.
1.11 CONDUCT OF BUSINESS. At every meeting of the stockholders, the
Chairman of the Board, if there is such an officer, or if not, the person
appointed by the Board of Directors, shall act as Chairman. The Secretary of
the corporation or a person designated by the Chairman of the
3
<PAGE>
meeting shall act as Secretary of the meeting. Unless otherwise approved by
the Chairman of the meeting, attendance at the stockholders' meeting is
restricted to stockholders of record, persons authorized in accordance with
Section 1.8 of these Bylaws to act by proxy, and officers of the corporation.
The Chairman of the meeting shall call the meeting to order, establish
the agenda, and conduct the business of the meeting in accordance therewith or,
at the Chairman's discretion, it may be conducted otherwise in accordance with
the wishes of the stockholders in attendance. The date and time of the opening
and closing of the polls for each matter upon which the stockholders will vote
at the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of, and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the Bylaws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.11 and
Section 1.10 above. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that any proposed item of business was not
brought before the meeting in accordance with the provisions of this
Section 1.11 and Section 1.10, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted/
1.12 NO STOCKHOLDER ACTION WITHOUT MEETING. Any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
a duly called annual or special meeting of stockholders of the Corporation and
may not be effected by any consent in writing by such stockholders.
Article 2. BOARD OF DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 NUMBER AND TERM OF OFFICE. The number of directors shall
initially be five (5) and, thereafter, shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). The directors shall be
divided into three classes, with the term of office of the first class to expire
at the first annual meeting of stockholders held after the date of the filing of
the Corporation's Restated Articles of Incorporation implementing a classified
bond (the "Filing Date"); the term of office of the second class to expire at
the second
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annual meeting of stockholders held after the Filing Date; the term of office
of the third class to expire at the third annual meeting of stockholders held
after the Filing Date; and thereafter for each such term to expire at each
third succeeding annual meeting of stockholders after such election. All
directors shall hold office until the expiration of the term for which
elected and until their respective successors are elected, except in the case
of the death, resignation or removal of any director.
2.3 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification or other cause (including removal from office by a
vote of the stockholders) may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the next annual meeting of stockholders at which
the term of office of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
2.4 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.5 REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at such time and place, either within or without the
State of Delaware, as shall be determined from time to time by the Board of
Directors; provided that any director who is absent when such a determination is
made shall be given notice of the determination. A regular meeting of the Board
of Directors may be held without notice immediately after and at the same place
as the annual meeting of stockholders.
2.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board, the President and Chief
Executive Officer, two or more directors, or by one director in the event that
there is only a single director in office. Any of such persons must call a
special meeting if requested in writing by holders of shares of common stock
representing at least 20% of the issued and outstanding shares, within
fifteen (15) days after receipt of such request.
2.7 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone or
electronic voice message system at least 24 hours in advance of the meeting,
(ii) by sending a telegram, telecopy or telex, or delivering written notice by
hand, to his last known business or home address at least 24 hours in advance of
the meeting, or (iii) by mailing written notice to his last known business or
home address at least three (3) day in advance of the meeting. A notice or
waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
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2.8 PARTICIPATION IN MEETINGS BY TELEPHONE CONFERENCE CALLS.
Directors or any members of any committee designated by the directors may
participate in a meeting of the Board of Directors or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation by
such means shall constitute presence in person at such meeting.
2.9 QUORUM. A majority of the total number of authorized directors
shall constitute a quorum at any meeting of the Board of Directors. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third (1/3)
of the number so fixed constitute a quorum. In the absence of a quorum at any
such meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice other than announcement at the meeting,
until a quorum shall be present. Interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
at a meeting of a committee which authorizes a particular contract or
transaction.
2.10 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these Bylaws.
2.11 ACTION BY CONSENT. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing. Any such
written consents shall be filed with the minutes of proceedings of the Board or
committee.
2.12 REMOVAL. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least a majority of the voting
power of all of the outstanding shares of capital stock entitled to vote
generally in the election of directors, voting together as a single class.
2.13 COMMITTEES. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation, with such lawfully delegated powers and duties as it therefor
confers, to serve at the pleasure of the Board. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
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committee shall keep minutes and make such reports as the Board of Directors
may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by such rules, its business shall be
conducted as nearly as possible in the same manner as is provided in these
Bylaws for the Board of Directors.
2.14 COMPENSATION OF DIRECTORS. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
2.15 NOMINATION OF DIRECTOR CANDIDATES. Subject to the rights of
holders of any class or series of Preferred Stock then outstanding, nominations
for the election of Directors may be made by the Board of Directors or a proxy
committee appointed by the Board of Directors or by any stockholder entitled to
vote in the election of Directors generally. However, any stockholder entitled
to vote in the election of Directors generally may nominate one or more persons
for election as Directors at a meeting only if timely notice of such
stockholder's intent to make such nomination or nominations has been given in
writing to the Secretary of the Corporation. To be timely, a stockholder
nomination for a director to be elected at an annual meeting shall be received
at the Corporation's principal executive offices not less than 120 calendar days
in advance of the date that the Corporation's (or the Corporation's
predecessor's) proxy statement was released to stockholders in connection with
the previous year's annual meeting of stockholders, except that if no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than 30 calendar days from the date contemplated at the time of
the previous year's proxy statement, or in the event of a nomination for
director to be elected at a special meeting, notice by the stockholders to be
timely must be received not later than the close of business on the tenth day
following the day on which such notice of the date of the special meeting was
mailed or such public disclosure was made. Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
for the election of directors on the date of such notice and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated, or intended to be nominated, by the
Board of Directors; and (e) the consent of each nominee to serve as a director
of the Corporation if so elected.
In the event that a person is validly designated as a nominee in
accordance with this Section 2.15 and shall thereafter become unable or
unwilling to stand for election to the Board of Directors, the Board of
Directors or the stockholder who proposed such nominee, as the case may
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be, may designate a substitute nominee upon delivery, not fewer than five
days prior to the date of the meeting for the election of such nominee, of a
written notice to the Secretary setting forth such information regarding such
substitute nominee as would have been required to be delivered to the
Secretary pursuant to this Section 2.15 had such substitute nominee been
initially proposed as a nominee. Such notice shall include a signed consent
to serve as a director of the Corporation, if elected, of each such
substitute nominee.
If the chairman of the meeting for the election of Directors determines
that a nomination of any candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 2.15,
such nomination shall be void; provided, however, that nothing in this Section
2.15 shall be deemed to limit any voting rights upon the occurrence of dividend
arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock.
Article 3. OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of a
Chief Executive Officer, a President, a Secretary, a Chief Financial Officer and
such other officers with such other titles as the Board of Directors shall
determine, including, at the discretion of the Board of Directors, a Chairman of
the Board, and one or more Vice Presidents and Assistant Secretaries. The Board
of Directors may appoint such other officers as it may deem appropriate.
3.2 ELECTION. Officers shall be elected annually by the Board of
Directors at its first meeting following the annual meeting of stockholders.
Officers may be appointed by the Board of Directors at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate
of Incorporation or by these Bylaws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote appointing him, or until his earlier death, resignation or removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event. Any officer may be removed at any time, with or without cause, by
the Board of Directors.
3.6 CHAIRMAN OF THE BOARD. The Board of Directors may appoint a
Chairman of the Board. If the Board of Directors appoints a Chairman of the
Board, he shall perform such duties and possess such powers as are assigned to
him by the Board of Directors. Unless otherwise provided by the Board of
Directors, he shall preside at all meetings of the stockholders, and, if he is a
director, at all meetings of the Board of Directors.
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3.7 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall,
subject to the direction of the Board of Directors, have responsibility for the
general management and control of the business and affairs of the Corporation
and shall perform all duties and have all powers which are commonly incident to
the office of chief executive or which are delegated to him or her by the Board
of Directors. The Chief Executive Officer shall perform such other duties and
shall have such other powers as the Board of Directors may from time to time
prescribe. He or she shall have power to sign stock certificates, contracts and
other instruments of the Corporation which are authorized and shall have general
supervision and direction of all of the other officers, employees and agents of
the Corporation, other than the Chairman of the Board.
3.8 PRESIDENT. Should there exist an office of President which is
held by a person other than the Chief Executive Officer and which differs from
the office of Chief Executive Officer, the President shall have the
responsibilities delegated to him or her by the Board of Directors.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the President, the Vice President (or if there shall be more than one,
the Vice Presidents in the order determined by the Board of Directors) shall
perform the duties of the Chief Executive Officer and when so performing shall
have at the powers of and be subject to all the restrictions upon the Chief
Executive Officer. The Board of Directors may assign to any Vice President the
title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
the Secretary, including, without limitation, the duty and power to give notices
of all meetings of stockholders and special meetings of the Board of Directors,
to keep a record of the proceedings of all meetings of stockholders and the
Board of Directors, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Secretary, the Assistant Secretary (or if there shall be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 CHIEF FINANCIAL OFFICER. Unless otherwise designated by the Board
of Directors, the Chief Financial Officer shall be the Treasurer. The Chief
Financial Officer shall perform
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such duties and shall have such powers as may from time to time be assigned
to him by the Board of Directors or the Chief Executive Officer. In
addition, the Chief Financial Officer shall perform such duties and have such
powers as are incident to the office of chief financial officer, including
without limitation, the duty and power to keep and be responsible for all
funds and securities of the corporation, to maintain the financial records of
the Corporation, to deposit funds of the corporation in depositories as
authorized, to disburse such funds as authorized, to make proper accounts of
such funds, and to render as required by the Board of Directors accounts of
all such transactions and of the financial condition of the corporation.
3.12 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
3.13 DELEGATION OF AUTHORITY. The Board of Directors may from time to
time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
Article 4. CAPITAL STOCK.
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or
in the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Chief
Financial Officer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the Bylaws, applicable
securities laws or any agreement among any number of shareholders or among such
holders and the corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or authenticity of signature as the corporation or its transfer agent
may reasonably require. Except as may be otherwise required by
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law, by the Certificate of Incorporation or by the Bylaws, the corporation
shall be entitled to treat the record holder of stock as shown on its books
as the owner of such stock for all purposes, including the payment of
dividends and the right to vote with respect to such stock, regardless of any
transfer, pledge or other disposition of such stock until the shares have
been transferred on the books of the corporation in accordance with the
requirements of these Bylaws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may issue
a new certificate of stock in place of any previously saved certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as
a record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, concession or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than sixty (60) nor less than ten
(10) days before the date of such meeting, nor more than sixty (60) days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Article 5. GENERAL PROVISIONS
5.1 FISCAL YEAR. The fiscal year of the corporation shall be as fixed
by the Board of Directors.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required to
be given by law, by the Certificate of Incorporation or by these Bylaws, a
waiver of such notice either in
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writing signed by the person entitled to such notice or such person's duly
authorized attorney, or by telecopy, telegraph, cable or any other available
method, whether before, at or after the time stated in such waiver, or the
appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 ACTIONS WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Except
as the Board of Directors may otherwise designate, the President or any officer
of the corporation authorized by the President shall have the power to vote and
otherwise act on behalf of the corporation, in person or proxy, and may waive
notice of, and act as, or appoint any person or persons to act as, proxy or
attorney-in-fact to this corporation (with or without power of substitution) at
any meeting of stockholders or shareholders (or with respect to any action of
stockholders) of any other corporation or organization, the securities of which
may be held by this corporation and otherwise to exercise any and all rights and
powers which this corporation may possess by reason of this corporation's
ownership of securities in such other corporation or other organization.
5.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 CERTIFICATE OF INCORPORATION. All references in these Bylaws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 SEVERABILITY. Any determination that any provision of these
Bylaws is for any reason inapplicable, illegal or ineffective shall not affect
or invalidate any other provision of these Bylaws.
5.8 PRONOUNS. All pronouns used in these Bylaws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
5.9 NOTICES. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by prepaid
telegram, mailgram, telecopy or commercial courier service. Any such notice
shall be addressed to such stockholder, director, officer, employee or agent at
his or her last known address as the same appears on the books of the
Corporation. The time when such notice shall be deemed to be given shall be the
time such notice is received by such stockholder, director, officer, employee or
agent, or by any person accepting such notice on behalf of such person, if hand
delivered, or the time such notice is dispatched, if delivered through the mails
or be telegram or mailgram.
5.10 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each
member of any committee designated by the Board of Directors, and each officer
of the Corporation shall, in the performance of his duties, be fully protected
in relying in good faith upon the books of account
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or other records of the Corporation, including reports made to the
Corporation by any of its officers, by an independent certified public
accountant, or by an appraiser selected with reasonable care.
5.11 TIME PERIODS. In applying any provision of these Bylaws which
require that an act be done or not done a specified number of days prior to an
event or that an act be done during a period of a specified number of days prior
to an event, calendar days shall be used, the day of the doing of the act shall
be excluded, and the day of the event shall be included.
5.12 FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Article 6. AMENDMENTS
6.1 BY THE BOARD OF DIRECTORS. Except as is otherwise set forth in
these Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may
be adopted by the affirmative vote of a majority of the directors present at any
regular or special meeting of the Board of Directors at which a quorum is
present.
6.2 BY THE STOCKHOLDERS. Except as otherwise set forth in these
Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may be
adopted by the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote at any annual meeting
of stockholders, or at any special meeting of stockholders, provided notice
of such alteration, amendment, repeal or adoption of new Bylaws shall have
been stated in the notice of such special meeting.
Article 7. INDEMNIFICATION OF DIRECTORS AND OFFICERS
7.1 RIGHT TO INDEMNIFICATION. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation, or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer or employee or in any other capacity while serving as a
director, officer or employee, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by Delaware Law, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide prior
to such amendment) against all expenses, liability and loss reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer or
employee and shall inure to the benefit of his
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or her heirs, executors and administrators; PROVIDED, however, that, except
as provided in Section 7.2 of this Article 7, the Corporation shall indemnify
any such person seeking indemnity in connection with an action, suit or
proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit
or proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation, (c) such indemnification is provided by the Corporation, in
its sole discretion, pursuant to the powers vested in the Corporation under
the Delaware General Corporation Law, or (d) the action, suit or proceeding
(or part thereof) is brought to establish or enforce a right to
indemnification under an indemnity agreement or any other statute or law or
otherwise as required under Section 145 of the Delaware General Corporation
Law. Such right shall be a contract right and shall include the right to be
paid by the Corporation expenses incurred in defending any such proceeding in
advance of its final disposition; PROVIDED, HOWEVER that, unless the Delaware
General Corporation Law then so prohibits, the payment of such expenses
incurred by a director or officer of the Corporation in his or her capacity
as a director or officer (and not in any other capacity in which service was
or is tendered by such person while a director or officer, including, without
limitation. service to an employee benefit plan) in advance of the final
disposition of such proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it should be determined ultimately that
such director or officer is not entitled to be indemnified under this Section
or otherwise.
7.2 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 7.1 is
not paid in full by the Corporation within ninety (90) days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if such suit is not frivolous or brought in bad faith, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other then an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any, has been
tendered to this Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
7.3 INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation may, to
the extent authorized from time to time by the Board of Directors, grant rights
to indemnification, and to the advancement of related expenses, to any employee
or agent of the Corporation to the fullest extent of the provisions of this
Article with respect to the indemnification of and advancement of expenses to
directors and officers of the Corporation.
14
<PAGE>
7.4 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
in Sections 7.1 and 7.2 shall not be exclusive of any other right which such
persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
7.5 INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article 7.
7.6 INSURANCE. The Corporation shall maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against
any such expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
7.7 EFFECT OF AMENDMENT. Any amendment, repeal or modification of
any provision of this Article 7 by the stockholders and the directors of the
Corporation shall not adversely affect any right or protection of a director
or officer of the Corporation existing at the time of such amendment, repeal
or modification.
15
<PAGE>
<TABLE>
<S> <C>
______________________________________ ____________________________________________________
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: MARY TARTAGLIA: 215-784-8621
55TH & SANSOM STREET PROOF OF JANUARY 11, 2000
PHILADELPHIA, PA 19139 VANTAGEMED CORPORATION
(215) 764-8600 H 64822 Fc
______________________________________ ____________________________________________________
SALES: M. SANDHU: 415-543-8585 OPERATOR: MT
______________________________________ ____________________________________________________
HOME15/LIVE JOBS/V/VANTAGEMED/ H 64822 NEW
______________________________________ ____________________________________________________
</TABLE>
NUMBER (LOGO TO COME) SHARES
VMD
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 99208W 10 6
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $0.001 PAR VALUE, OF
- ------------------------------- VantageMed Corporation -------------------------
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney on surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Richard W. Pendleton [SEAL] /s/ Joel Harris
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock of
the Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made
to the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ............ Custodian .............
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act.................................
in common (State)
UNIF TRF MIN ACT -- .......... Custodian (until age....)
(Cust)
............ under Uniform Transfers
(Minor)
to Minors Act.......................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, ______________________________ hereby sell(s), assign(s)
and transfer(s) unto
_______________________
PLEASE INSERT SOCIAL SECURITY OR OTHER
_______________________ IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated __________________________________
X _______________________________________
X _______________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By__________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-18.
<TABLE>
<S> <C>
______________________________________ ____________________________________________________
AMERICAN BANK NOTE COMPANY PRODUCTION COORDINATOR: MARY TARTAGLIA: 215-784-8621
55TH & SANSOM STREET PROOF OF JANUARY 11, 2000
PHILADELPHIA, PA 19139 VANTAGEMED CORPORATION
(215) 764-8600 H 64822 Bk
______________________________________ ____________________________________________________
SALES: M. SANDHU: 415-543-8585 OPERATOR: MT
______________________________________ ____________________________________________________
HOME15/LIVE JOBS/V/VANTAGEMED/ H 64822 NEW
______________________________________ ____________________________________________________
</TABLE>
<PAGE>
Exhibit 5.1
[LETTERHEAD]
Our File No.: 104940-158098
January __, 2000
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: VANTAGEMED CORPORATION REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
As counsel to VantageMed Corporation, a Delaware corporation (the
"Company"), we are rendering this opinion in connection with a proposed sale of
those certain shares of the Company's newly-issued Common Stock, par value
$0.001 per share (the "Shares"), as set forth in the Registration Statement on
Form S-1 to which this opinion is being filed as Exhibit 5.1 (the "Registration
Statement"). We have examined all instruments, documents and records which we
deemed relevant and necessary for the basis of our opinion hereinafter
expressed. In such examination, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals
and the conformity to the originals of all documents submitted to us as copies.
We express no opinion with respect to (i) the availability of equitable
remedies, including specific performance, or (ii) the effect of bankruptcy,
insolvency, reorganization, moratorium or equitable principles relating to or
limiting creditors' rights generally.
Based on such examination, and expressly subject to the assumptions and
limitations set forth above, we are of the opinion that the Shares will be, upon
effectiveness of the Registration Statement and receipt by the Company of
payment therefor, validly authorized, legally issued, fully paid, and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever it appears in said
Registration Statement, including the Prospectus constituting a part thereof, as
originally filed or as subsequently amended.
Respectfully submitted,
GRAY CARY WARE & FREIDENRICH LLP
<PAGE>
Exhibit 10.4
MANAGEMENT EMPLOYMENT AGREEMENT
(JAMES L. SEILER)
THIS MANAGEMENT EMPLOYMENT AGREEMENT (this "Agreement") is made as of
August 6, 1999, by and between VantageMed Corporation, a Delaware corporation
(the "Company"), and James L. Seiler ("Employee").
WHEREAS, the Company desires to employ the Employee to perform the
duties of Chief Executive Officer of the Company.
WHEREAS, the Company has informed Employee that it maintains a cap on
the base salary compensation of employees, which cap is currently set at
$120,000 (the "Compensation Cap').
WHEREAS, Employee has expressed, to the Company, his willingness to
adhere to the Compensation Cap, subject to his entitlement to an increase in his
compensation commensurate with any increases in the Compensation Cap which are
authorized by the Company.
WHEREAS, the Employee desires to be employed by the Company to perform
such duties upon the terms and conditions herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the parties agree as follows:
1 . SALARY. The Company shall employ the Employee as its Chief
Executive Officer to perform the above described duties on a three-year basis
starting on the Effective Date as defined in Section 19 and ending August 1,
2002, at an annual base salary of $120,000 per annum payable in accordance with
the customary practices of the Company, plus such salary increases and bonuses
as are approved by the Board of Directors from time to time. The annual base
salary, which excludes all benefits, paid and/or reimbursed expenses and
incentive and/or bonus plan payments, as in effect from time to time, is
referred to herein as the "Base Salary". After such three-year period, this
Agreement will continue on a month-to-month basis until terminated as provided
herein. Employee agrees to accept the above amount and the benefits described in
Section 5 in full payment for the services to be rendered by him hereunder,
provided, however, that the Board of Directors Compensation Committee and
Employee will meet no later than six (6) months after the date of this
Agreement, and at each anniversary of this Agreement, and determine if an
increase in Base Salary is appropriate, and if appropriate agree upon the new
Base Salary, with the view to setting Employee's Base Salary to the base salary
that would be paid to a similarly skilled and experienced executive in similar
companies performing at comparable levels, taking into consideration the skills
and experience of Employee and the achievement of milestones, financial results,
performance, growth, and profits of the Company, as determined by the Board of
Directors (or its Compensation Committee) in its sole and absolute discretion,
and subject to the Company's Compensation Cap. At no time during the term of the
Agreement shall Employee receive a Base Salary of less than the greatest of (1)
$120,000 per annum; (2) the Company's Compensation Cap then in effect as
<PAGE>
determined by the Board of Directors of the Company; or (3) the base salary of
the highest paid officer and/or employee of the Company at any given time.
2. DUTIES. The Employee shall during the term of his employment
hereunder:
A. devote his full normal working time, energies and
attention to the duties of his employment, as they may be reasonably established
from time to time by the Board of Directors consistent with the position and
office occupied by Employee, provided, however, that (1) Subject to disclosure
to and approval by the Board of Directors, which approval shall not be
unreasonably withheld, Employee shall have the right, in his discretion, to
accept and carry out the duties associated with his membership on the Board of
Directors of other companies as consistent with the terms of this Agreement, as
well as on industry standard committees and similar organizations; (2) Employee
shall be responsible for direction of the overall affairs of the Company
(subject to general direction from the Board of Directors); and (3) all officers
and/or employees of the Company shall either report to Employee or to another
officer who shall then report to Employee;
B. comply with all reasonable rules, regulations and
administrative directions now or hereafter established by the Board of Directors
of the Company;
C. be reimbursed by the Company from time to time (but
at least monthly) for all reasonable and necessary business expenses incurred by
him in the performance of his duties hereunder, provided that Employee shall
render to the Company such accounts and vouchers covering expenditures as the
Company reasonably requires and as are necessary for tax purposes, and shall
follow normal Company policy on expenses; and
D. not engage in any activity or employment which would
reasonably be expected to materially conflict with or have a material adverse
affect on, the present or prospective business of the Company.
3. TERMINATION.
A. MUTUAL AGREEMENT. This Agreement may be terminated at
any time by the mutual agreement of the Company and Employee, expressed in
writing.
B. VOLUNTARY. Employee may terminate this Agreement
with or without the consent of the Company by giving written notice of his
intent to terminate with the effective date of termination at least one hundred
(100) days after the effective date of the notice of termination. Subject to the
Company's payment of all compensation (including Base Salary and accrued
benefits, bonuses, and incentives) due to Employee through the end of the one
hundred (100) day notice period, the Company may accelerate the effective date
of termination without being in breach hereof.
C. WITHOUT CAUSE. Subject to the conditions set forth
in Section 4 of this Agreement, the Company may terminate this Agreement at
any time without Cause upon twenty (20) days prior written notice or upon
Employee's death.
<PAGE>
D. DISABILITY. The Company may terminate this
Agreement upon the disability of Employee. For purposes of this Agreement,
Employee shall be considered disabled if he is unable to perform his duties
under this Agreement as a result of injury, illness or other disability for a
period of one hundred eighty (180) consecutive days, or one hundred eighty
(180) days in a three hundred sixty-five (365) day period, and the Board of
Directors of the Company reasonably determines that Employee has been unable
to perform his duties for the one hundred eighty (180) day period as a result
of injury, illness or other disability.
E. FOR CAUSE BY THE COMPANY
The Company may terminate this Agreement for "Cause", as
defined below, immediately upon written notice to Employee. "Cause" shall mean:
(i) If Employee materially violates any term of
this Agreement or his Employee Proprietary Information and Inventions Agreement,
and such action or failure is not substantially remedied or reasonable steps to
effect such substantial remedy are not commenced within twenty (20) days of
written notice from the Company to Employee.
(ii) A conviction or a final, nonappealable
judgment by a court of competent jurisdiction involving a charge or claim of
dishonesty;
(iii) A conviction or a final, nonappealable
judgment by a court of competent jurisdiction involving a charge or claim of
willful misfeasance or nonfeasance of duty by Employee intended to injure or
having the effect of injuring in some material fashion the reputation, business
or business relationships of the Company or any of its subsidiaries or any of
their respective officers, directors or employees;
(iv) Conviction of Employee upon a felony charge.
(v) Willful or prolonged absence from work by
the Employee (other than by reason of disability due to physical or mental
illness) or failure, neglect or refusal by the Employee to perform his duties
and responsibilities without the same being corrected upon twenty (20) days
prior written notice.
F. FOR CAUSE BY THE EMPLOYEE. If the Company materially
violates any term of this Agreement and such failure is not remedied upon twenty
(20) days prior written notice, or if Employee is removed from the Company's
board of directors other than for Cause, Employee may terminate this Agreement
immediately upon a confirming written notice to the Company. Such termination is
a termination for Cause by Employee.
3
<PAGE>
4. PAYMENTS AT TERMINATION
A. Upon (i) termination of this Agreement by the
Company under Subsection 3.C. titled "Without Cause," (ii) termination of
this Agreement by Employee under Subsection 3.F. titled "For Cause by the
Employee," or (iii) termination of this Agreement by the Company or by the
Employee under Subsection 14 of this Agreement, Employee shall receive
monthly payments equal to his last Base Salary prior to termination
("Applicable Base Salary") through August 1, 2002, beginning in the month
next following such Employee termination. In addition, Employee shall receive
all accrued compensation, benefits, and unreimbursed expenses to the date of
termination as provided herein. The monthly payments provided for in this
Subsection shall be paid on a monthly basis on the first of each month and
shall not be reduced by compensation the Employee may receive from other
sources. In addition, in the event of such termination all unexercised stock
options granted hereunder or otherwise granted to Employee during the term of
this Agreement, as well as any non-qualified stock options assumed by the
Company in connection with the merger (the "Merger") of Mariner Systems, Inc.
with a subsidiary of the Company (the "Assumed Options"), shall vest and
become exercisable on the date of termination. For any Assumed Options, the
period for exercise of such options shall continue for the greater of the
maximum length of time the options are exercisable under the terms of the
original option grant(s), as though the employment of Employee had not
terminated, and two (2) years after the date of termination of Employee's
employment.
B. If the Company terminates this Agreement due to
disability, pursuant to Subsection 3.D., Employee shall receive the disability
payments provided for by the Company's disability insurance policy. The Company
shall maintain a disability insurance policy providing for payments at the rate
of sixty percent (60%) of his Applicable Base Salary or the maximum legal
amount, whichever is less, until the earlier of the end of disability,
Employee's death or the date Employee attains 65 years of age. If the Company
terminates this Agreement due to disability, pursuant to Subsection 3.D., the
Company shall also pay all accrued compensation and unreimbursed expenses to the
date of termination as provided herein. The monthly payments provided for in
this Subsection shall be paid at such times payments are made under the
disability policy provided for in this Subsection. Except as required by such
policy or applicable law, payments shall not be reduced by compensation the
Employee may receive from other sources.
C. If Employee terminates this Agreement without cause
under Subsection 3.B. titled "Voluntary", or if this Agreement is terminated
under Subsection 3.A., titled "Mutual Agreement," or if this Agreement is
terminated by the Company under Subsection 3.E. titled "For Cause by the
Company" or if this Agreement is terminated for any reason following August 1,
2002, Employee shall not be entitled to any further payments except unreimbursed
expenses to the date of termination as provided herein and any accrued benefits
(including vacation) and compensation, and the stock options granted by the
Company to Employee not fully vested will be canceled.
D. In each of the foregoing cases, termination is the
date of actual termination, not the date notice of termination is given. Other
than payments owing under a provision providing
4
<PAGE>
for payments at a different time, all payments for accrued unpaid monthly
compensation, including accrued benefits and vacation, and for unreimbursed
expenses, shall be made on the date of termination.
E. Unless specified otherwise in an applicable bonus
plan or bonus agreement with Employee, if termination occurs during a
specified bonus period pursuant to Subsection 3.C. titled "Without Cause" or
Subsection 3.F. titled "For Cause by the Employee," or Subsection 3.D. titled
"Disability," and based upon the results of the full bonus period for which
the bonus would have been earned, the payment of any bonus which would have
been earned shall be calculated based upon the number of calendar days in
such bonus period which have elapsed at the date of termination. Unless
specified otherwise in the bonus plan or bonus agreement, if Employee is
terminated "For Cause by the Company" (Subsection 3.E.), or Employee
terminates without Cause (Subsection 3.B.) or Employee after termination
violates a confidentiality, covenant not to compete, or "no hire" or "no
raid" agreement with the Company, its parent (if any) or a direct or indirect
Company subsidiary, then the Company shall have no obligation to pay any
earned or unearned bonus or the payments provided for in the first sentence
of Section 4.A. hereof.
F. If this Agreement is operating under the
month-to-month provision of Section 1, any payment for unpaid future
compensation shall in any case be limited to the remainder of the month in
which termination occurs, except as provided in Subsections 4.B. or 4.E.
G. The foregoing rights in this Section 4 are Employee's
exclusive rights to payment from the Company in the event of termination of this
Agreement except for amounts which the Company is required to pay under
applicable statute or regulation, payments under insurance policies, and
payments owing under other written agreement(s) (if any) between the Company and
Employee.
5. VACATION; BENEFITS; LOCATION.
A. Employee shall be entitled to accrual of vacation
time in accordance with the Company's vacation policy. For purposes of
determining accrual of benefits, Employee's beginning service date shall be
made retroactive to September 1, 1993.
B. In addition to the insurance provided for by
Subsection 4.B., Employee will receive insurance (to the extent not redundant
of the insurance provided for by Subsection 4.B.), benefits, perquisites, and
any other forms of compensation as are received by other officers of the
Company including, but not limited to, participation in stock option plans
(taking into account the aggregate of all options from time to time granted
to Employee and acknowledging the option grants to Employee on or about the
date hereof do not preclude future grants), and any cash and/or stock bonus
and/or incentive plans.
C. In connection with the execution of this Agreement,
the Company as of the Effective Date hereby grants 300,000 stock options to
Employee pursuant to the Company's Stock
5
<PAGE>
Option Plans (the "Option Plans"). Such stock options shall vest on a monthly
basis, as of the 1st day of each month, over a period of three years from the
date of this grant, in the amount of 8,333 options per month each month for
35 months and 8,345 for the 36th month, have a term of ten years, and be
exercisable for two years after the end of employment. The exercise price for
the stock options granted hereby is $3.70 per share. To the maximum extent
possible such options are incentive stock options with the balance being
non-qualified stock options.
D. The company acknowledges and agrees that Employee
shall continue to reside in Boulder, Colorado. The Company shall maintain for
Employee an office in Boulder commensurate with normal Company business
practices and befitting Employee's executive position. All expenses for such
office shall be paid by Company and shall be considered business expenses of
Company. It is anticipated that Employee may travel to and from and spend
extended periods of time at various Company offices, customer sites and investor
sites and may travel for other business purposes and, therefore, will incur
costs such as travel, lodging, food, rental car and other miscellaneous expenses
("Travel Expenses"), The Company will either pay for directly, or reimburse
Employee for, all Travel Expenses that Employee shall incur and shall consider
these as normal business expenses to Company in accordance with the Company's
expense reimbursement policies and procedures. Under no circumstances shall such
Travel Expenses be recorded as compensation to Employee; however, should any of
these expenses be deemed as taxable to Employee, the Company will gross up the
reimbursement to Employee for the taxes incurred.
E. Should the need arise for Employee to relocate
outside of Boulder, Colorado, and provided that such relocation is mutually
agreeable between the parties, Employee will negotiate in good faith for such a
relocation. Company agrees that such a relocation would be for the convenience
of Company and accordingly, Company would agree to negotiate with Employee for
payment of all expenses related to the relocation and personal income taxes
incurred by Employee in such a relocation. Should the parties not be able to
agree to the amount of the reimbursement, Employee would be under no requirement
to relocate.
6. NON-COMPETITION. Employee acknowledges that he has gained and
will gain extensive and valuable experience and knowledge in the business
conducted by the Company and will have extensive contacts with customers of the
Company. Accordingly, Employee covenants and agrees with the Company that, (a)
during the term of this Agreement and (b) in any event for the period ending on
the earlier of (i) one (1) year after the termination or expiration of his
employment with the Company or (ii) three years after the date of this
Agreement, he shall not compete, directly or indirectly, with the Company in
such business of the Company as Employee is actively involved in (the
"Business"). For the purposes of Sections 6 and 7, the term "the Company" shall
be deemed to include subsidiaries and parents of the Company. Competing directly
or indirectly with the Company shall mean having a material interest, directly
or indirectly, as a shareholder, member, partner, officer, director, or
employee, either alone or in association with others, in the operation of any
individual or entity engaged in the Business within the continental United
States. Competing directly or indirectly with the Company, as used in this
Agreement, shall be deemed not to include an ownership interest as an inactive
investor, which for purposes of this Agreement shall mean the
6
<PAGE>
beneficial ownership of less than five (5) percent of the outstanding shares of
any series or class of securities of any direct competitor of the Company, which
shares are publicly traded in the securities markets. This Section 6 shall no
longer apply if both (A) (i) Employee has terminated this Agreement for Cause
pursuant to Section 3.F, or if the Company has terminated this Agreement without
Cause pursuant to Section 3.C. and (ii) the Company has obligations to make
post-termination payments under this Agreement and (B) after twenty (20) days
prior written notice by Employee to the Company that the Company has failed to
make such post-termination payments as provided for in this Agreement the
Company has not cured such failure to make payments.
7. NON-RAID. Employee acknowledges that he has had and will have
extensive contacts with employees and/or customers of the Company. Accordingly,
Employee covenants and agrees that, during the term of this Agreement and for
one year thereafter, he will not (1) solicit or encourage any employee of the
Company to leave the Company, (if) interfere in the relationship of the Company
with any employee, or (iii) personally target or solicit, or assist another to
target or solicit, customers of the Company, for purposes which would compete
with the Business of the Company.
8. BLUE PENCIL PROVISION. Employee acknowledges that the periods,
scope and geographic area of restriction imposed by Section 6 and Section 7 are
fair and reasonable and are reasonably required for the protection of the
Company. If any part or parts of Section 6 or Section 7 shall be held to be
unenforceable or invalid, the remaining parts thereof shall nevertheless
continue to be valid and enforceable as though the invalid portion or portions
were not a part hereof. If any of the provisions of Section 6 or Section 7
relating to the scope, periods of time or geographic area of restriction shall
be deemed to exceed the maximum scope, periods of time or geographic area which
a court of competent jurisdiction would deem enforceable, the scope, times and
geographic area shall, for the purposes of Section 6 and Section 7, be deemed to
be the maximum scope, time periods and geographic area which a court of
competent jurisdiction would deem valid and enforceable in any state in which
such court of competent jurisdiction shall be convened. The invalidity or
unenforceability of any provision of Section 6 or 7 in one jurisdiction shall
not affect its validity or enforceability in another jurisdiction.
9. RIGHT TO INJUNCTIVE RELIEF. Employee agrees and acknowledges
that a violation of the covenants contained in Sections 6 and 7 of this
Agreement will cause irreparable damage to the Company, and that it is and may
be impossible to estimate or determine the damage that will be suffered by the
Company in the event of a breach by Employee of any such covenant. Therefore,
Employee further agrees that in the event of any violation or threatened
violation of such covenants, the Company shall be entitled as a matter of course
to an injunction out of any court of competent jurisdiction restraining such
violation or threatened violation by Employee, such right to an injunction to be
cumulative and in addition to whatever other remedies the Company may have.
10. EXCEPTIONS. Employee may continue his current activities as a
shareholder, officer, director and/or member of certain companies and
industry-related organizations, and, subject to disclosure to and approval by
the Board of Directors of the Company, which approval shall not be unreasonably
withheld, may invest and/or serve as an officer, director and/or member of any
other
7
<PAGE>
company or industry-related organization, provided that such activities do
not materially interfere with Employee's duties and responsibilities
hereunder and such activities do not otherwise violate this Agreement.
11. DELIVERY OF FILES. At or immediately after termination hereof
Employee will deliver all files, records, disks, and other media with Company
information, to the Company.
12. INTEGRATION. This agreement shall constitute the entire
Agreement relating to the employment of Employee. This Agreement shall be
governed by the laws of California, excluding laws on choice of law.
13. UNENFORCEABILITY. If any paragraph or subparagraph of this
Agreement or any part thereof shall be unenforceable under any applicable laws,
notwithstanding such unenforceability the remainder of this Agreement shall
remain in full force and effect.
14. BINDING. This Agreement shall inure to the benefit of, and be
binding upon, the Company. It may be terminated by the Employee upon any merger,
consolidation, sale of 50% or more of the outstanding voting capital stock of
the Company to one other person and its affiliates, or a sale of 80% or more, by
fair market value, of the assets of the Company, and such termination shall be
considered to be a termination by the Company without Cause; provided, however,
that this Agreement shall not terminate upon a merger or consolidation, sale of
assets, sale of shares, or share exchange (i) pursuant to which shareholders of
the Company receive or hold in respect of their Company voting capital stock,
50% or more of the voting capital stock of the combined entities or purchaser,
and (ii) Employee assumes the position of CEO in the acquiring parent
organization.
15. NON-BINDING ARBITRATION. In the event a dispute arises in
connection with this Agreement, the parties hereto agree to submit the matter
for resolution to non-binding arbitration or mediation before the American
Arbitration Association offices in San Francisco, California. In the event
either party is dissatisfied with the decision reached by the arbitrators or
mediators, such party may pursue adjudication of the dispute in a court of law.
Each party shall be responsible for his or its own attorneys' fees and costs,
and the fees and costs of the arbitrator or mediator shall be paid equally by
each party.
16. ATTORNEYS' FEES. In the event of any legal or arbitration
action or proceeding to enforce or interpret the provisions hereof, each party
shall be responsible for his or its own attorneys' fees and costs.
17. SURVIVAL. Terms which by their terms or sense are to survive
termination hereof shall so survive.
8
<PAGE>
18. NOTICE. Notices hereunder shall be in writing and sent to the
residence address of the Employee last provided to the Company, and to the then
current business address of the Company. Notices may be sent by first class U.S.
mail and shall be effective three (3) days after deposit. Notices sent by other
means shall be effective when actually delivered to the above-described address.
19. EFFECTIVE DATE. This Agreement and the grant of options
contemplated herein is conditioned upon the effectiveness of the Merger, the
date of such effectiveness being the "Effective Date."
IN WITNESS WHEREOF, the parties have executed this Management
Employment Agreement as of the date in 1999 first above written.
VantageMed Corporation
By: /s/ Joel Harris
------------------------------
Title:
---------------------------
EMPLOYEE
/s/ James L. Seiler
- ---------------------------------
James L. Seiler
9
<PAGE>
Exhibit 10.7
SECURED PROMISSORY NOTE
Principal: $700,000 Issue Date: January 3, 2000
Interest: 10%
FOR VALUE RECEIVED, VantageMed Corporation, a Delaware
corporation (the "Company"), hereby promises to pay to Friedli Corporate Finance
(the "Lender"), or its transferee or assign (the "Holder") of this Secured
Promissory Note (the "Note"), in accordance with the terms hereof, the aggregate
principal sum of Seven Hundred Thousand Dollars ($700,000), together with
interest thereon from the date of this Note on the unpaid principal balance.
Simple interest shall accrue at a rate equal to ten percent (10%) per annum and
be payable monthly on or before the third business day of each month. Principal
plus a premium payment equal to 7% of the outstanding principal amount of the
Note will be due and payable to the Holder at the earlier to occur of the
completion of VantageMed's contemplated initial public offering, or July 1,
2000.
This Note may be transferred or assigned at any time upon
notice to the Company of such transfer or assignment. No such transfer or
assignment shall be effective until notice of such, including the name and
address of the assignee, has been received by the Company. Notwithstanding the
foregoing, this Note may not be transferred or assigned in violation of any
laws, including United States securities laws, and the Company shall refuse to
recognize any such purported transfer or assignment.
All payments shall be made in lawful money of the United
States of America and in immediately available funds at the principal office of
the Lender, or at such other place as the Lender or any Holder hereof may from
time to time designate in writing to the Company. Payment shall be credited
first to the accrued interest then due and payable and the remainder applied to
principal. Prepayment of principal, together with accrued interest, may be made
at any time without penalty.
This Note shall be governed by and construed in accordance
with the laws of the State of California, without considering State of
California choice of law provisions. Holder shall surrender this Note, duly
endorsed, at the principal offices of the Company or any transfer agent for the
Company upon receipt of a check payable to Holder for any cash amounts payable
as described above.
This Note shall be secured with all tangible and intangible
assets of the Company and shall be senior to all other obligations, except for
the following three notes:
<TABLE>
<CAPTION>
PARTY/(COMMENTS) ORIGINAL AMOUNT BALANCE DUE
<S> <C> <C>
Former Shareholders of Civitec $ 383,040 $ 204,000
Mike Kipp (Trend Sierra former owner) $ 1,400,000 $ 1,100,000
Friedli Corporate Finance, Inc. $ 3,000,000 $ 3,000,000
</TABLE>
<PAGE>
The Company shall take all reasonable and customary actions to
assist Lender in perfecting Lender's security interest as set forth above,
including filing appropriate UCC-1's within five (5) days after request therefor
by Lender, subject to Lender executing and delivering to the Company all
necessary documents.
No course of dealing and no delay on the part of any Lender in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such person's rights, powers or remedies. No right, power or
remedy conferred by the Note shall be exclusive of any other right, power or
remedy referred to herein or hereafter accessible at law, in equity, by statute
or otherwise.
No waiver or modification of the terms of this Note shall be
valid unless in a writing referring to this Note and signed by the Lender.
VANTAGEMED CORPORATION
/s/ James Seiler
-------------------------------
By: James Seiler
Its: Chief Executive Officer
<PAGE>
Exhibit 10.8
WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
No. WB - 2 Warrant to Purchase 30,000 Shares of Common Stock
(subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
VANTAGEMED CORPORATION
Void after August 6, 2003
This certifies that, for value received, Pine Inc., or
registered assigns ("Holder") is entitled, subject to the terms set forth
below, to purchase from VantageMed Corporation (the "Company"), a Delaware
corporation, thirty thousand (30,000) shares of Common Stock of the Company,
as constituted on the date hereof (the "Warrant Issue Date"), upon surrender
hereof, at the principal office of the Company referred to below, with the
subscription form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant, which is one of a Series of warrants issued for the Common
Stock of the Company, and any warrants delivered in substitution or exchange
therefor as provided herein.
1. TERM OF WARRANT. Subject to the terms and conditions
set forth herein, this Warrant shall be exercisable, in whole or in part,
during the term commencing on the Warrant Issue Date and ending at 5:00 p.m.,
Pacific Standard Time, on August 6, 2003, and shall be void thereafter.
2. EXERCISE PRICE. The Exercise Price at which this Warrant
may be exercised shall be Three Dollars and Seventy Cents ($3.70) per share
of Common Stock, as adjusted from time to time pursuant to Section 11 hereof.
3. EXERCISE OF WARRANT.
(a) The purchase rights represented by this
Warrant are exercisable by the Holder in whole or in part, but not for less
than 100 shares at a time (or such lesser number of shares which may then
constitute the maximum number purchasable; such number being subject to
adjustment as provided in Section 11 below), at any time, or from time to
time, during the term hereof as described in Section 1 above, by the
surrender of this Warrant and the Notice of
1.
<PAGE>
Exercise annexed hereto duly completed and executed on behalf of the Holder,
at the office of the Company (or such other office or agency of the Company
as it may designate by notice in writing to the Holder at the address of the
Holder appearing on the books of the Company), upon payment (i) in cash or by
check acceptable to the Company, (ii) by cancellation by the Holder of
indebtedness of the Company to the Holder, or (iii) by a combination of (i)
and (ii), of the purchase price of the shares to be purchased.
(b) This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive
the shares of Common Stock issuable upon such exercise shall be treated for
all purposes as the holder of record of such shares as of the close of
business on such date. As promptly as practicable on or after such date and
in any event within ten (10) days thereafter, the Company at its expense
shall issue and deliver to the person or persons entitled to receive the same
a certificate or certificates for the number of shares issuable upon such
exercise. In the event that this Warrant is exercised in part, the Company at
its expense will execute and deliver a new Warrant of like tenor exercisable
for the number of shares for which this Warrant may then be exercised.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of
this Warrant. In lieu of any fractional share to which the Holder would
otherwise be entitled, the Company shall make a cash payment equal to the
Exercise Price multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of loss, theft, or destruction,
on delivery of an indemnity agreement reasonably satisfactory in form and
substance to the Company or, in the case of mutilation, on surrender and
cancellation of this Warrant, the Company at its expense shall execute and
deliver, in lieu of this Warrant, a new warrant of like tenor and amount.
6. RIGHTS OF STOCKHOLDERS. This Warrant shall not entitle
its holder to any of the rights of a stockholder of the Company. Subject to
Sections 9 and 11 of this Warrant, the Holder shall not be entitled to vote
or receive dividends or be deemed the holder of Common Stock or any other
securities of the Company that may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Holder, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issuance
of stock, reclassification of stock, change of par value, or change of stock
to no par value, consolidation, merger, conveyance, or otherwise) or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise until the Warrant shall have been exercised and the shares of
Common Stock purchasable upon the exercise hereof shall have been issued, as
provided herein.
2.
<PAGE>
7. TRANSFER OF WARRANT.
(a) WARRANT REGISTER. The Company will maintain a
register (the "Warrant Register") containing the names and addresses of the
Holder or Holders. Any Holder of this Warrant or any portion thereof may
change his address as shown on the Warrant Register by written notice to the
Company requesting such change. Any notice or written communication required
or permitted to be given to the Holder may be delivered or given by mail to
such Holder as shown on the Warrant Register and at the address shown on the
Warrant Register. Until this Warrant is transferred on the Warrant Register
of the Company, the Company may treat the Holder as shown on the Warrant
Register as the absolute owner of this Warrant for all purposes,
notwithstanding any notice to the contrary.
(b) WARRANT AGENT. The Company may, by written
notice to the Holder, appoint an agent for the purpose of maintaining the
Warrant Register referred to in Section 7(a) above, issuing the Common Stock
or other securities then issuable upon the exercise of this Warrant,
exchanging this Warrant, replacing this Warrant, or any or all of the
foregoing. Thereafter, any such registration, issuance, exchange, or
replacement, as the case may be, shall be made at the office of such agent.
(c) TRANSFERABILITY AND NONNEGOTIABILITY OF
WARRANT. This Warrant may not be transferred or assigned in whole or in part
without compliance with all applicable federal and state securities laws by
the transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). Subject to the provisions of
this Warrant with respect to compliance with the Securities Act of 1933, as
amended (the "Act"), title to this Warrant may be transferred by endorsement
(by the Holder executing the Assignment Form annexed hereto) and delivery in
the same manner as a negotiable instrument transferable by endorsement and
delivery.
(d) EXCHANGE OF WARRANT UPON A TRANSFER. On
surrender of this Warrant for exchange, properly endorsed on the Assignment
Form and subject to the provisions of this Warrant with respect to compliance
with the Act and with the limitations on assignments and transfers and
contained in this Section 7, the Company at its expense shall issue to or on
the order of the Holder a new warrant or warrants of like tenor, in the name
of the Holder or as the Holder (on payment by the Holder of any applicable
transfer taxes) may direct, for the number of shares issuable upon exercise
thereof.
(e) COMPLIANCE WITH SECURITIES LAWS.
(i) The Holder of this Warrant, by acceptance
hereof, acknowledges that this Warrant and the shares of Common Stock to be
issued upon exercise hereof or conversion thereof are being acquired solely
for the Holder's own account and not as a nominee for any other party, and
for investment, and that the Holder will not offer, sell, or otherwise
dispose of this Warrant or any shares of Common Stock to be issued upon
exercise hereof or conversion thereof except under circumstances that will
not result in a violation of the Act or any state securities laws. Upon
exercise of this Warrant, the Holder shall, if requested by the Company,
confirm in writing, in a form satisfactory to the Company, that the shares of
3.
<PAGE>
Common Stock so purchased are being acquired solely for the Holder's own account
and not as a nominee for any other party, for investment, and not with a view
toward distribution or resale.
(ii) This Warrant and all shares of Common
Stock issued upon exercise hereof or conversion thereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SECURITIES AND ANY SECURITIES OR SHARES
ISSUED HEREUNDER OR THEREUNDER MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE
OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD HEREOF TO THE SECRETARY OF THE COMPANY AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
8. RESERVATION OF STOCK. The Company covenants that during the
Term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant (and shares of its
Common Stock for issuance on conversion of such Common Stock) and, from time to
time, will take all steps necessary to amend its Certificate of Incorporation
(the "Certificate") to provide sufficient reserves of shares of Common Stock
issuable upon exercise of the Warrant (and shares of its Common Stock for
issuance on Conversion of such Common Stock). The Company further covenants that
all shares that may be issued upon the exercise of rights represented by this
Warrant, upon exercise of the rights represented by this Warrant and payment of
the Exercise Price, all as set forth herein, will be free from all taxes, liens,
and charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). The Company
agrees that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon the
exercise of this Warrant.
9. NOTICES.
(a) Whenever the Exercise Price or number of shares
purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated and the
Exercise Price and number of shares purchasable hereunder after giving effect to
such adjustment, and shall cause a copy of such certificate to be mailed (by
first class mail, postage prepaid) to the Holder of this Warrant.
4.
<PAGE>
(b) In case:
(i) the Company shall take a record of
the holders of its Common Stock (or other stock or securities at the time
receivable upon the exercise of this Warrant) for the purpose of entitling
them to receive any dividend or other distribution, or any right to subscribe
for or purchase any shares of stock of any class or any other securities, or
to receive any other right, or
(ii) of any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another corporation, or
any conveyance of all or substantially all of the assets of the Company to
another corporation, or
(iii) of any voluntary dissolution,
liquidation or winding-up of the Company, then, and in each such case, the
Company will mail or cause to be mailed to the Holder or Holders a notice
specifying, as the case may be, (A) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, or (B) the
date on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record of Common
Stock (or such stock or securities at the time receivable upon the exercise
of this Warrant) shall be entitled to exchange their shares of Common Stock
(or such other stock or securities) for securities or other property
deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up. Such notice shall
be mailed at least 15 days prior to the date therein specified.
(c) All such notices, advices and communications
shall be deemed to have been received (i) in the case of personal delivery,
on the date of such delivery and (ii) in the case of mailing, on the third
business day following the date of such mailing.
10. AMENDMENTS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought.
11. ADJUSTMENTS. The Exercise Price and the number of
shares purchasable hereunder are subject to adjustment from time to time as
follows:
11.1 MERGER, SALE OF ASSETS, ETC.
(a) If at any time, while this Warrant, or any portion
thereof, is outstanding and unexpired there shall be (i) a reorganization
(other than a combination, reclassification, exchange or subdivision of
shares otherwise provided for herein), (ii) a merger or consolidation of the
Company with or into another corporation in which the Company is not the
surviving entity, or a reverse triangular merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash, or otherwise, or
(iii) a sale or transfer of the Company's properties and assets as, or
substantially as, an entirety to any other person, then, as a part of such
reorganization, merger, consolidation, sale or transfer,
5.
<PAGE>
lawful provision shall be made so that the holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Exercise Price then in
effect, the number of shares of stock or other securities or property of the
successor corporation resulting from such reorganization, merger,
consolidation, sale or transfer which a holder of the shares deliverable upon
exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had
been exercised immediately before such reorganization, merger, consolidation,
sale or transfer, all subject to further adjustment as provided in this
Section 11. The foregoing provisions of this Section 11.1 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation which are
at the time receivable upon the exercise of this Warrant. If the per share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors. In all events, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant with respect to the
rights and interests of the Holder after the transaction, to the end that
the provisions of this Warrant shall be applicable after that event, as near
as reasonably may be, in relation to any shares or other property deliverable
after that event upon exercise of this
(b) NOTICES OF RECORD DATE, In the event that the Company
shall propose at any time to merge with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or
to liquidate, dissolve or wind up, then the Company shall send to the holder
of this Warrant at least 20 days' prior written notice of the date on which a
record shall be taken for determining rights to vote in respect of such event.
11.2 RECLASSIFICATION, ETC. If the Company at any time
while this Warrant, or any portion thereof, remains outstanding and unexpired
shall, by reclassification of securities or otherwise, change any of the
securities as to which purchase rights under this Warrant exist into the same
or a different number of securities of any other class or classes, this
Warrant shall thereafter represent the right to acquire such number and kind
of securities as would have been issuable as the result of such change with
respect to the securities which were subject to the purchase rights under
this Warrant immediately prior to such reclassification or other change and
the Exercise Price therefor shall be appropriately adjusted, all subject to
further adjustment as provided in Section 11.
11.3 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
Company at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired shall split, subdivide or combine the securities as
to which purchase rights under this Warrant exist, into a different number of
securities of the same class, the Exercise Price for such securities shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination
11.4 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES
OR PROPERTY. If while this Warrant, or any portion hereof, remains
outstanding and unexpired the holders of the securities as to which purchase
rights under this Warrant exist at the time shall have received, or, on or
after the record date fixed for the determination of eligible Stockholders,
shall have
6.
<PAGE>
become entitled to receive, without payment therefor, other or additional
stock or other securities or property (other than cash) of the Company by way
of dividend, then and in each case, this Warrant shall represent the right to
acquire, in addition to the number of shares of the security receivable upon
exercise of this Warrant, and without payment of any additional consideration
therefor, the amount of such other or additional stock or other securities or
property (other than cash) of the Company which such holder would hold on the
date of such exercise had it been the holder of record of the security
receivable upon exercise of this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date
of such exercise, retained such shares and/or all other additional stock
available by it as aforesaid during such period, giving effect to all
adjustments called for during such period by the provisions of this Section
11.
11.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment pursuant to this Section 11, the Company at
its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of this Warrant a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request, at any time, of any such holder,
furnish or cause to be furnished to such holder a like certificate setting
forth: (i) such adjustments and readjustments; (ii) the Exercise Price at the
time in effect; and (iii) the number of shares and the amount, if any, of
other property which at the time would be received upon the exercise of the
Warrant.
11.6 NO IMPAIRMENT. The Company will not, by any voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 11 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of this Warrant
against impairment.
12. REGISTRATION RIGHTS. Upon exercise of this Warrant, the
Holder shall have and be entitled to exercise, together with all other
holders of Registrable Securities possessing registration rights under
Section 3.8 of that certain Merger Agreement, dated July 23, 1999, among the
Company, VM1 Acquisition Corp., a Delaware corporation ("VM1"), and Mariner
Systems, Inc., a Colorado corporation, as amended by that certain Assignment
and Assumption Agreement, dated August 2, 1999, by and between VM1 and VM4
Acquisition Corp., a Delaware corporation (as amended, the "Merger
Agreement"), the rights of registration granted under Section 3.8 of the
Merger Agreement to Registrable Securities (with respect to the Shares issued
on exercise of this Warrant). By its execution of this Agreement, Holder
agrees to be bound by the terms of Section 3.8 of the Merger Agreement upon
exercise of this Warrant as a party thereto.
13. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
(b) ATTORNEYS' FEES. If any party to this Agreement shall take any
action to enforce this Agreement or bring any action or commence any
arbitration for any relief against
7.
<PAGE>
any other party, declaratory or otherwise, arising out of this Agreement, the
losing party shall pay to the prevailing party a reasonable sum for
attorneys' and experts' fees and costs incurred in taking such action,
bringing such suit and/or enforcing any judgment granted therein, all of
which shall be deemed to have accrued upon the commencement of such action
and shall be paid whether or not such action is prosecuted to judgment. Any
judgment or order entered in such action shall contain a specific provision
providing for the recovery of attorneys' and experts' fees and costs due
hereunder shall be determined by a court of competent jurisdiction and not by
a jury. For the purposes of this Section, attorneys' and experts' fees and
costs shall include, without limitation, fees incurred in the following: (a)
postjudgment motions; (b) contempt proceedings; (c) garnishment, levy, and
debtor and third party examinations; (d) discovery; and (e) bankruptcy
litigation.
IN WITNESS WHEREOF, Company has caused this warrant to be executed by its
officers thereunto duly authorized
Dated: August 6, 1999
By /s/ Joel Harris
------------------------------
PRESIDENT & CEO
HOLDER:
------------------------------
8.
<PAGE>
Exhibit 10.9
WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
No. WB - 1 Warrant to Purchase 60,000 Shares of Common Stock (subject to
---- adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
VANTAGEMED CORPORATION
Void after August 6, 2003
This certifies that, for value received, Pine Inc., or
registered assigns ("Holder") is entitled, subject to the terms set forth below,
to purchase from VantageMed Corporation (the "Company"), a Delaware corporation,
sixty thousand (60,000) shares of Common Stock of the Company, as constituted on
the date hereof (the "Warrant Issue Date"), upon surrender hereof at the
principal office of the Company referred to below, with the subscription form
attached hereto duly executed, and simultaneous payment therefor in lawful money
of the United States or otherwise as hereinafter provided, at the Exercise Price
as set forth in Section 2 below. The number, character and Exercise Price of
such shares of Common Stock are subject to adjustment as provided below. The
term "Warrant" as used herein shall include this Warrant, which is one of a
Series of warrants issued for the Common Stock of the Company, and any warrants
delivered in substitution or exchange therefor as provided herein.
1. TERM OF WARRANT. Subject to the terms and conditions set
forth herein, this Warrant shall be exercisable, in whole or in part, during the
term commencing on the Warrant Issue Date and ending at 5:00 p.m., Pacific
Standard Time, on August 6, 2003, and shall be void thereafter.
2. EXERCISE PRICE. The Exercise Price at which this Warrant
may be exercised shall be Three Dollars and Seventy Cents ($3.70) per share of
Common Stock, as adjusted from time to time pursuant to Section 11 hereof.
3. EXERCISE OF WARRANT.
(a) The purchase rights represented by this Warrant
are exercisable by the Holder in whole or in part, but not for less than 100
shares at a time (or such lesser number of shares which may then constitute the
maximum number purchasable; such number being subject to adjustment as provided
in Section 11 below), at any time, or from time to time, (during the term hereof
as described in Section 1 above, by the surrender of this Warrant and the Notice
of
1.
<PAGE>
Exercise annexed hereto duly completed and executed on behalf of the Holder, at
the office of the Company (or such other office or agency of the Company as it
may designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company), upon payment (i) in cash or by check
acceptable to the Company, (ii) by cancellation by the Holder of indebtedness of
the Company to the Holder, or (iii) by a combination of (i) and (ii), of the
purchase price of the shares to be purchased.
(b) This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive the
shares of Common Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. As promptly as practicable on or after such date and in any event
within ten (10) days thereafter, the Company at its expense shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of shares issuable upon such exercise. In the event
that this Warrant is exercised in part, the Company at its expense will execute
and deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of loss, theft, or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
6. RIGHTS OF STOCKHOLDERS. This Warrant shall not entitle its
holder to any of the rights of a stockholder of the Company. Subject to Sections
9 and 11 of this Warrant, the Holder shall not be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company that may at any time be issuable on tile exercise hereof for any
purpose, nor shall anything contained herein be construed to confer upon the
Holder, as such, any of the rights of a stockholder of the Company or any right
to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value, or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the shares of Common Stock purchasable
upon the exercise hereof shall have been issued, as provided herein.
2.
<PAGE>
7. TRANSFER OF WARRANT
(a) WARRANT REGISTER. The Company will maintain a
register (the "Warrant Register") containing the names and addresses of the
Holder or Holders. Any Holder of this Warrant or any portion thereof may change
his address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
(b) WARRANT AGENT. The Company may, by written notice
to the Holder, appoint an agent for the purpose of maintaining the Warrant
Register referred to in Section 7(a) above, issuing the Common Stock or other
securities then issuable upon the exercise of this Warrant, exchanging this
Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter, any
such registration, issuance, exchange, or replacement, as the case may be, shall
be made at the office of such agent.
(c) TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT.
This Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). Subject to the provisions of
this Warrant with respect to compliance with the Securities Act of 1933, as
amended (the "Act"), title to this Warrant may be transferred by endorsement (by
the Holder executing the Assignment Form annexed hereto) and delivery in the
same manner as a negotiable instrument transferable by endorsement and delivery.
(d) EXCHANGE OF WARRANT UPON A TRANSFER. On surrender
of this Warrant for exchange, properly endorsed on the Assignment Form and
subject to the provisions of this Warrant with respect to compliance with the
Act and with the limitations on assignments and transfers and contained in this
Section 7, the Company at its expense shall issue to or on the order of the
Holder a new warrant or warrants of like tenor, in the name of the Holder or as
the Holder (on payment by the Holder of any applicable transfer taxes) may
direct, for the number of shares issuable upon exercise thereof.
(e) COMPLIANCE WITH SECURITIES LAW.
(i) The Holder of this Warrant, by
acceptance hereof, acknowledges that this Warrant and the shares of Common Stock
to be issued upon exercise hereof or conversion thereof are being acquired
solely for the Holder's own account and not as a nominee for any other party,
and for investment, and that the Holder will not offer, sell, or otherwise
dispose of this Warrant or any shares of Common Stock to be issued upon exercise
hereof or conversion thereof except under circumstances that will not result in
a violation of the Act or any state securities laws. Upon exercise of this
Warrant, the Holder shall, if requested by the Company, confirm in writing, in
a form satisfactory to the Company, that the shares of
3.
<PAGE>
Common Stock so purchased are being acquired solely for the Holder's own account
and not as a nominee for any other party, for investment, and not with a view
toward distribution or resale.
(ii) This Warrant and all shares of Common
Stock issued upon exercise hereof or conversion thereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, SUCH SECURITIES AND ANY
SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF
THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR
SALE MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY
OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF
THE COMPANY.
8. RESERVATION OF STOCK. The Company covenants that during the
Term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant (and shares of its
Common Stock for issuance on conversion of such Common Stock) and, from time to
time, will take all steps necessary to amend its Certificate of Incorporation
(the "Certificate") to provide sufficient reserves of shares of Common Stock
issuable upon exercise of the Warrant (and shares of its Common Stock for
issuance on Conversion of such Common Stock). The Company further covenants that
all shares that may be issued upon the exercise of rights represented by this
Warrant, upon exercise of the rights represented by this Warrant and payment of
the Exercise Price, all as set forth herein, will be free from all taxes, liens,
and charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein). The Company
agrees that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon the
exercise of this Warrant.
9. NOTICES.
(a) Whenever the Exercise Price or number of shares
purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated and the
Exercise Price and number of shares purchasable hereunder after giving effect to
such adjustment, and shall cause a copy of such certificate to be mailed (by
first class mail, postage prepaid) to the Holder of this Warrant.
4.
<PAGE>
(b) In case:
(i) the Company shall take a record of the
holders of its Common Stock (or other stock or securities at the time receivable
upon the exercise of this Warrant) for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or purchase
any shares of stock of any class or any other securities, or to receive any
other right, or
(ii) of any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to another
corporation, or
(iii) of any voluntary dissolution,
liquidation or winding-up of the Company, then, and in each such case, the
Company will mail or cause to be mailed to the Holder or Holders a notice
specifying, as the case may be, (A) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (B) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or such stock or
securities at the time receivable upon the exercise of this Warrant) shall be
entitled to exchange their shares of Common Stock (or such other stock or
securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the date therein specified.
(c) All such notices, advices and communications
shall be deemed to have been received (i) in the case of personal delivery, on
the date of such delivery and (ii) in the case of mailing, on the third business
day following the date of such mailing.
10. AMENDMENTS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.
11. ADJUSTMENT. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
11.1 MERGER, SALE OF ASSETS, ETC.
(a) If at any time, while this Warrant, or any portion
thereof, is outstanding and unexpired there shall be (i) a reorganization (other
than a combination, reclassification, exchange or subdivision of shares
otherwise provided for herein), (ii) a merger or consolidation of the Company
with or into another corporation in which the Company is not the surviving
entity, or a reverse triangular merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding immediately
prior to the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash, or otherwise, or (iii) a sale or
transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer,
5.
<PAGE>
lawful provision shall be made so that the holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Exercise Price then in effect,
the number of shares of stock or other securities or property of the successor
corporation resulting from such reorganization, merger, consolidation, sale or
transfer which a holder of the shares deliverable upon exercise of this Warrant
would have been entitled to receive in such reorganization, consolidation,
merger, sale or transfer if this Warrant had been exercised immediately before
such reorganization, merger, consolidation, sale or transfer, all subject to
further adjustment as provided in this Section 11. The foregoing provisions of
this Section 11.1 shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation which are at the time receivable upon the exercise of this
Warrant. If the per share consideration payable to the holder hereof for shares
in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined
in good faith by the Company's Board of Directors. In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the transaction, to the end that
the provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this
(b) NOTICES OF RECORD DATE. In the event that the Company
shall propose at any time to merge with or into any other corporation, or sell,
lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up, then the Company shall send to the holder of
this Warrant at least 20 days' prior written notice of the date on which a
record shall be taken for determining rights to vote in respect of such event.
11.2 RECLASSIFICATION, ETC. If the Company at any time while
this Warrant, or any portion thereof remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in Section 11.
11.3 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
Company at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired shall split, subdivide or combine the securities as to
which purchase rights under this Warrant exist, into a different number of
securities of the same class, the Exercise Price for such securities shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
11.4 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have
6.
<PAGE>
become entitled to receive, without payment therefor, other or additional stock
or other securities or property (other than cash) of the Company by way of
dividend, then and in each case, this Warrant shall represent the right to
acquire, in addition to the number of shares of the security receivable upon
exercise of this Warrant, and without payment of any additional consideration
therefor, the amount of such other or additional stock or other securities or
property (other than cash) of the Company which such holder would hold on the
date of such exercise had it been the holder of record of the security
receivable upon exercise of this Warrant on the date hereof and had thereafter,
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock available by it
as aforesaid during such period, giving effect to all adjustments called for
during such period by the provisions of this Section 11.
11.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such holder, furnish or cause to be
furnished to such holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property which at the time
would be received upon the exercise of the Warrant.
11.6 NO IMPAIRMENT. The Company will not, by any voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 11
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holders of this Warrant against impairment.
12. REGISTRATION RIGHTS. Upon exercise of this Warrant, the
Holder shall have and be entitled to exercise, together with all other holders
of Registrable Securities possessing registration rights under Section 3.8 of
that certain Merger Agreement, dated July 23, 1999, among the Company, VM1
Acquisition Corp., a Delaware corporation ("VM1"), and Mariner Systems, Inc., a
Colorado corporation, as amended by that certain Assignment and Assumption
Agreement, dated August 2, 1999, by and between VM1 and VM4 Acquisition Corp., a
Delaware corporation (as amended, the "Merger Agreement"), the rights of
registration granted under Section 3.8 of the Merger Agreement to Registrable
Securities (with respect to the Shares issued on exercise of this Warrant). By
its execution of this Agreement, Holder agrees to be bound by the terms of
Section 3.8 of the Merger Agreement upon exercise of this Warrant as a party
thereto.
13. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(b) ATTORNEYS' FEES. If any party to this Agreement shall
take any action to enforce this Agreement or bring any action or commence any
arbitration for any relief against
7.
<PAGE>
any other party, declaratory or otherwise, arising out of this Agreement, the
losing party shall pay to the prevailing party a reasonable sum for attorneys'
and experts' fees and costs incurred in taking such action, bringing such suit
and/or enforcing any judgment granted therein, all of which shall be deemed to
have accrued upon the commencement of such action and shall be paid whether or
not such action is prosecuted to judgment. Any judgment or order entered in
such action shall contain a specific provision providing for the recovery of
attorneys' and experts' fees and costs due hereunder shall be determined by a
court of competent jurisdiction and not by a jury. For the purposes of this
Section, attorneys' and experts' fees and costs shall include, without
limitation, fees incurred in the following: (a) postjudgment motions; (b)
contempt proceedings; (c) garnishment, levy, and debtor and third party
examinations; (d) discovery; and (e) bankruptcy litigation.
IN WITNESS WHEREOF, COMPANY has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated: August 6, 1999
HOLDER: By: /s/ Joel Harris
----------------------- -------------------------
PRESIDENT & CEO
8.
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Exhibit 10.13
VANTAGEMED CORPORATION
1998 STOCK OPTION/STOCK ISSUANCE PLAN
(Amended and Restated Effective November 22,1999)
ARTICLE ONE
GENERAL PROVISIONS
I. ESTABLISHMENT AND PURPOSE OF THE PLAN
The 1998 Stock Option/Stock Issuance Plan initially was adopted by
the Board in 1998 and subsequently amended and restated effective July 29,
1999 (the "INITIAL PLAN"). The Initial Plan is hereby amended and restated in
its entirety effective as of November 22, 1999 (the "EFFECTIVE DATE"), with
the exception of the California Corporations Code Amendments, which shall be
effective as of the effective date of the initial registration by the
Corporation of its Stock under Section 12 of the Exchange Act.
Notwithstanding any provision herein to the contrary, each Award granted
prior to the Effective Date shall continue to be governed by the terms of the
Initial Plan as in effect at the time such Award was granted, except to the
extent that an Award is otherwise amended in writing as provided by the
Initial Plan.
The Plan is intended to promote the interests of VantageMed
Corporation, a Delaware corporation, by providing eligible persons in the
Corporation's employ or service with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to continue in such employ or service.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two (2) separate equity
programs:
(i) the Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted Options to
purchase shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued
shares of Common Stock directly, either through the immediate purchase
of such shares or as a bonus for services rendered to the Corporation
(or any Parent or Subsidiary).
B. The provisions of Articles One and Four shall apply to both
equity programs under the Plan and shall accordingly govern the interests of
all persons under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any
or all administrative functions otherwise exercisable by the Board may be
delegated to the Committee. Members of the Committee shall serve for such
period of time as the Board may determine and shall be subject to removal by
the Board at any time. The Board may also at any time terminate the functions
of the Committee and reassume all powers and authority previously delegated
to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for proper administration of the Plan
and to make such determinations under, and issue such interpretations of, the
Plan and any outstanding Award thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan or any Award.
C. With respect to participation by Insiders in the Plan, at
any time that any class of equity security of the Corporation is registered
pursuant to Section 12 of the Exchange Act, the Plan shall be administered in
compliance with the requirements, if any, of Rule 16b-3.
D. In addition to such other rights of indemnification as they
may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or
employees of the Participating Company Group to whom authority to act for the
Board or the Corporation is delegated shall be indemnified by the Corporation
against all reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or
in connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Corporation) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such
action, suit or proceeding that such person is liable for gross negligence,
bad faith or intentional misconduct in duties; provided, however, that within
sixty (60) days after the institution of such action, suit or proceeding,
such person shall offer to the Corporation, in writing, the opportunity at
its own expense to handle and defend the same.
IV. ELIGIBILITY
A. Employees, Directors and Consultants are eligible to
participate in the Plan.
B. The Plan Administrator shall have full authority to
determine, (i) with respect to the grants made under the Option Grant
Program, which eligible persons are to receive the Option grants, the time or
times when those grants are to be made, the number of shares to be covered by
each such grant, the status of the granted Option as either an Incentive
Option or a Non-Statutory Option, the time or times when each Option is to
become exercisable, the vesting schedule (if any) applicable to Option shares
and the maximum term for which the Option is to remain outstanding, and (ii)
with respect to stock issuances made under the Stock Issuance
2.
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Program, which eligible persons are to receive such stock issuances, the time
or times when those issuances are to be made, the number of shares to be
issued to each Participant, the vesting schedule (if any) applicable to the
issued shares and the consideration to be paid by the Participant for such
shares.
C. The Plan Administrator shall have the absolute discretion
either to grant Options in accordance with the Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall
not exceed one million (1,000,000) shares cumulatively increased on January
1, 2001 and each January 1 thereafter by a number of shares (the "ANNUAL
INCREASE") equal to five percent (5%) of the number of shares of Common Stock
issued and outstanding on the immediately preceding December 31, and shall
consist of authorized but unissued or reacquired shares of Common Stock or
any combination thereof. Notwithstanding the foregoing, except as adjusted
pursuant to Section V.C of this Article One, the maximum aggregate number of
shares of Common Stock that may be issued pursuant to the exercise of
Incentive Options (the "ISO SHARE LIMIT") shall not exceed one million
(1,000,000), cumulatively increased on January 1, 2001 and each January 1
thereafter until and including January 1, 2010 by that portion of the Annual
Increase effective on such date which does not exceed one million (1,000,000)
shares. If an outstanding Option for any reason expires or is terminated or
canceled or shares of Stock acquired, subject to repurchase, upon the
exercise of an Option are repurchased by the Corporation, the shares of Stock
allocable to the unexercised portion of such Option, or such repurchased
shares of Stock, shall again be available for issuance under the Plan.
B. Shares of Common Stock subject to outstanding Options shall
be available for subsequent issuance under the Plan to the extent the Options
expire or terminate for any reason prior to exercise in full. Unvested shares
issued under the Plan and subsequently repurchased by the Corporation, at the
Option exercise or direct issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and
shall accordingly be available for reissuance through one or more subsequent
Option grants or direct stock issuances under the Plan.
C. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as
a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the ISO Share Limit, (iii) the
number and/or class of securities and the purchase price per share in effect
under each outstanding stock issuance award and (iv) the number and/or class
of securities and the exercise price per share in effect under each
outstanding Option in order to prevent the dilution or enlargement of
benefits thereunder. The adjustments determined by the Plan Administrator
shall be final, binding and conclusive. In
3.
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no event shall any such adjustments be made in connection with the conversion
of one or more outstanding shares of the Corporation's preferred stock into
shares of Common Stock.
4.
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ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each Option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such
document shall comply with the terms specified below. No Option or purported
option shall be a valid and binding obligation of the Corporation unless
evidenced by a fully executed document. Each document evidencing an Incentive
Option shall, in addition, be subject to the provisions of the Plan
applicable to Incentive Options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the
Plan Administrator in accordance with the following provisions:
(i) The exercise price per share shall not be
less than one hundered percent (100%) of the Fair Market Value per
share of Common Stock on the Option grant date.
(ii) If the person to whom an Option is granted
is a 10% Stockholder, then the exercise price per share for an
Incentive Option shall not be less than one hundred ten percent (110%)
of the Fair Market Value per share of Common Stock on the Option grant
date.
2. The exercise price shall become immediately due
upon exercise of the Option and shall, subject to the provisions of Section I
of Article Four and the documents evidencing the Option, be payable in cash
or check made payable to the Corporation. Should the Common Stock be
registered under Section 12 of the 1934 Act at the time the Option is
exercised, then the exercise price may also be paid as follows:
(i) in shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(ii) to the extent the Option is exercised for
vested shares, through a special sale and remittance procedure pursuant
to which the Optionee shall concurrently provide irrevocable
instructions (A) to a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate exercise price payable for the
purchased shares plus all applicable Federal, state and local income
and employment taxes required to be withheld by the Corporation by
reason of such exercise and (B) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
5.
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Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each Option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the Option grant. However, no Option shall have a term
in excess of ten (10) years measured from the Option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise
of any Option held by the Optionee at the time of cessation of Service or
death:
(i) Should the Optionee cease to remain in
Service for any reason other than death, Disability or Misconduct, then
the Optionee shall have a period of three (3) months following the date
of such cessation of Service during which to exercise each outstanding
Option held by such Optionee.
(ii) Should Optionee's Service terminate by
reason of Disability, then the Optionee shall have a period of twelve
(12) months following the date of such cessation of Service during
which to exercise each outstanding Option held by such Optionee.
(iii) If the Optionee dies while holding an
outstanding Option, then the personal representative of his or her
estate or the person or persons to whom the Option is transferred
pursuant to the Optionee's will or the laws of inheritance shall have a
twelve (12)-month period following the date of the Optionee's death to
exercise such Option.
(iv) Under no circumstances, however, shall any
such Option be exercisable after the specified expiration of the Option
term.
(v) During the applicable post-Service exercise
period, the Option may not be exercised in the aggregate for more than
the number of vested shares for which the Option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
Option term, the Option shall terminate and cease to be outstanding for
any vested shares for which the Option has not been exercised. However,
the Option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding with respect to any and all
Option shares for which the Option is not otherwise at the time
exercisable or in which the Optionee is not otherwise at that time
vested.
(vi) Should Optionee's Service be terminated for
Misconduct, then all outstanding Options held by the Optionee shall
terminate immediately and cease to remain outstanding.
6.
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2. The Plan Administrator shall have the discretion,
exercisable either at the time an Option is granted or at any time while the
Option remains outstanding, to:
(i) extend the period of time for which the
Option is to remain exercisable following Optionee's cessation of
Service or death from the limited period otherwise in effect for that
Option to such greater period of time as the Plan Administrator shall
deem appropriate, but in no event beyond the expiration of the Option
term, and/or
(ii) permit the Option to be exercised, during
the applicable post-Service exercise period, not only with respect to
the number of vested shares of Common Stock for which such Option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested under the Option had the Optionee continued
in Service.
D. STOCKHOLDER RIGHTS. The holder of an Option shall have no
stockholder rights with respect to the shares subject to the Option until
such person shall have exercised the Option, paid the exercise price and
become the recordholder of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the
discretion to grant Options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, an Option shall be exercisable only by the Optionee or the
Optionee's guardian or legal representative. No Option shall be assignable or
transferable by the Optionee, except by will or by the laws of descent and
distribution. Notwithstanding the foregoing, to the extent permitted by the
Board, in its discretion, and set forth in the document evidencing such
Option, a Nonstatutory Option shall be assignable or transferable subject to
the applicable limitations, if any, described in Section 260.140.41 of Title
10 of the California Code of Regulations, Rule 701 under the Securities Act,
and the General Instructions to Form S-8 Registration Statement under the
Securities Act.
G. WITHHOLDING. The Corporation's obligation to deliver shares
of Common Stock upon the exercise of any Option granted under the Plan shall
be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Four
7.
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shall be applicable to Incentive Options. Options which are specifically
designated as Non-Statutory Options shall NOT be subject to the terms of this
Section II.
A. ELIGIBILITY. Incentive Options only may be granted to
Employees.
B. EXERCISE PRICE. The exercise price per share shall not be
less than one hundred percent (100%) of the Fair Market Value per share of
Common Stock on the grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more Options granted to any Employee under the Plan
(or any other option plan of the Corporation or any Parent or Subsidiary) may
for the first time become exercisable as Incentive Options during any one (1)
calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more such Options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such Options as Incentive
Options shall be applied on the basis of the order in which such Options are
granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive
Option is granted is a 10% Stockholder, then the option term shall not exceed
five (5) years measured from the option grant date.
III. CHANGE IN CONTROL
A. The shares subject to each Option outstanding under the
Plan at the time of a Change in Control shall automatically vest in full so
that each such Option shall, immediately prior to the effective date of the
Change in Control, become fully exercisable for all of the shares of Common
Stock at the time subject to that Option and may be exercised for any or all
of those shares as fully-vested shares of Common Stock. However, the shares
subject to an outstanding Option shall NOT vest on such an accelerated basis
if and to the extent: (i) such Option is assumed by the surviving,
continuing, successor, or purchasing corporation or parent corporation
thereof, as the case may be (the "ACQUIRING CORPORATION") in the Change in
Control and any repurchase rights of the Corporation with respect to the
unvested Option shares are concurrently assigned to the Acquiring
Corporation, (ii) the Acquiring Corporation substitutes substantially
equivalent options for the Acquiring Corporation's stock for outstanding
Options, (iii) such outstanding Option is to be replaced with a cash
incentive program of the Acquiring Corporation which preserves the spread
existing on the unvested Option shares at the time of the Change in Control
and provides for subsequent payout in accordance with the same vesting
schedule applicable to those unvested Option shares or (iv) the acceleration
of such Option is subject to other limitations imposed by the Plan
Administrator at the time of the Option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated
rights shall immediately vest in full, in the event of any Change in Control,
except to the extent: (i) those repurchase rights are assigned to the
Acquiring Corporation in connection with such Change in Control or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
8.
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C. Immediately following the consummation of the Change in
Control, all outstanding Options shall terminate and cease to be outstanding,
except to the extent assumed by the Acquiring Corporation.
D. Each Option which is assumed in connection with a Change in
Control shall be appropriately adjusted, immediately after such Change in
Control, to apply to the number and class of securities which would have been
issuable to the Optionee in consummation of such Change in Control, had the
Option been exercised immediately prior to such Change in Control.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation
of such Change in Control and (ii) the exercise price payable per share under
each outstanding Option, PROVIDED the aggregate exercise price payable for
such securities shall remain the same.
E. The Plan Administrator shall have the discretion,
exercisable either at the time the Option is granted or at any time while the
Option remains outstanding, to structure one or more Options so that those
Options shall automatically accelerate and vest in full (and any repurchase
rights of the Corporation with respect to the unvested shares subject to
those Options shall immediately terminate) upon the occurrence of a Change in
Control, whether or not those Options are to be assumed or substituted for in
connection with the Change in Control.
F. The Plan Administrator shall also have full power and
authority, exercisable either at the time the Option is granted or at any
time while the Option remains outstanding, to structure such Option so that
the shares subject to that Option will automatically vest on an accelerated
basis should the Optionee's Service terminate by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Change in Control in which the Option is
assumed or substituted for and the repurchase rights applicable to those
shares do not otherwise terminate. Any Option so accelerated shall remain
exercisable for the fully-vested Option shares until the expiration or sooner
termination of the Option term. Notwithstanding the foregoing, if the
exercise of an Option is prevented by the provisions of any statute or
regulation, the Option shall remain exercisable until thirty (30) days (or
such longer period of time as determined by the Board, in its discretion)
after the date the Optionee is notified by the Corporation that the Option is
exercisable, but in any event no later than the Option Expiration Date. In
addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by
the Optionee at the time of such Involuntary Termination shall immediately
terminate on an accelerated basis, and the shares subject to those terminated
rights shall accordingly vest at that time.
G. The portion of any Incentive Option accelerated in
connection with a Change in Control shall remain exercisable as an Incentive
Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation
is exceeded, the accelerated portion of such Option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
H. The grant of Options under the Plan shall in no way affect
the right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure
9.
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or to merge, consolidate, dissolve, liquidate or sell or transfer all or any
part of its business or assets.
10.
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening Option
grants. No Stock Issuance Agreement shall be a valid and binding obligation
of the Corporation unless evidenced by a fully executed Stock Issuance
Agreement. Stock Issuance Agreements may incorporate all or any of the terms
of the Plan by reference and shall comply with and be subject to the
following terms and conditions:
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the
Plan Administrator but shall not be less than one hundred percent (100%) of
the Fair Market Value per share of Common Stock on the issue date.
2. Subject to the provisions of Section I of Article
Four, shares of Common Stock may be issued under the Stock Issuance Program
for any of the following items of consideration which the Plan Administrator
may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to a Participating
Company.
3. Except as adjusted pursuant to Section V.C of
Article One, the aggregate number of shares of Common Stock that may be
issued under the Stock Issuance Program in consideration of past services
rendered to the Corporation (or any Parent or Subsidiary) shall not exceed
one hundred thousand (100,000) shares.
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan Administrator, be fully
and immediately vested upon issuance or may vest in one or more installments
over the Participant's period of Service or upon attainment of specified
performance objectives.
2. Any new, substituted or additional securities or
other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to the
Participant's unvested shares of Common Stock by reason of any stock
dividend, stock split, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be issued subject to
(i) the same vesting requirements applicable to the Participant's unvested
shares of Common Stock and (ii) such escrow arrangements as the Plan
Administrator shall deem appropriate.
11.
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3. The Participant shall have full stockholder rights
with respect to any shares of Common Stock issued to the Participant under
the Stock Issuance Program, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such
shares.
4. Should the Participant cease to remain in Service
while holding one or more unvested shares of Common Stock issued under the
Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash equivalent (including
the Participant's purchase-money indebtedness), the Corporation shall repay
to the Participant the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding purchase-money
note of the Participant attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive
the surrender and cancellation of one or more unvested shares of Common Stock
(or other assets attributable thereto) which would otherwise occur upon the
non-completion of the vesting schedule applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
II. CHANGE IN CONTROL
A. Upon the occurrence of a Change in Control, all outstanding
repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated
rights shall immediately vest in full, except to the extent: (i) those
repurchase rights are assigned to the Acquiring Corporation (or parent
thereof) in connection with such Change in Control or (ii) such accelerated
vesting is precluded by other limitations imposed by the Plan Administrator
at the time the repurchase right is issued.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or
any time while the Corporation's repurchase rights with respect to those
shares remain outstanding, to provide that those rights shall automatically
terminate on an accelerated basis, and the shares of Common Stock subject to
those terminated rights shall immediately vest, in the event the
Participant's Service should subsequently terminate by reason of an
Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Change in Control in which
those repurchase rights are assigned to the Acquiring Corporation (or parent
thereof).
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends
on the certificates evidencing those unvested shares.
12.
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ARTICLE FOUR
MISCELLANEOUS
I. FINANCING
The Plan Administrator has the sole discretion to permit an Employee
to pay the Option exercise price under the Option Grant Program or the
purchase price for shares issued under the Stock Issuance Program by
delivering a promissory note. However, no promissory note shall be permitted
if the use of a promissory note would be a violation of any law. Any
permitted promissory note shall be due and payable not more than ten (10)
years after the Option is exercised or after the Common Stock has been
purchased, and interest shall be payable at least annually and at a rate at
least equal to the minimum interest rate necessary to avoid imputed interest
pursuant to all applicable sections of the Code. The Plan Administrator shall
have the authority to permit or require an Employee to secure any promissory
note with Common Stock or with other collateral acceptable to the
Corporation. Unless otherwise provided by the Plan Administrator, if the
Corporation at any time is subject to the regulations promulgated by the
Board of Governors of the Federal Reserve System or any other governmental
entity affecting the extension of credit in connection with the Corporation's
securities, any promissory note shall comply with such applicable
regulations, and the Employee shall pay the unpaid principal and accrued
interest, if any, to the extent necessary to comply with such applicable
regulations.
II. TERMINATION OF PLAN
A. The Plan shall become effective when adopted by the Board,
but no Option granted under the Plan may be exercised, and no shares shall be
issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the date of the Board's adoption of the Plan, then all Options
previously granted under the Plan shall terminate and cease to be
outstanding, and no further Options shall be granted and no shares shall be
issued under the Plan. Subject to such limitation, the Plan Administrator may
grant Options and issue shares under the Plan at any time after the effective
date of the Plan and before the date fixed herein for termination of the Plan.
B. The Plan shall terminate upon the EARLIEST to occur of the
(i) the date ten (10) years following the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as vested shares or (iii) the termination of all
outstanding Options in connection with a Change in Control. All Options and
unvested stock issuances outstanding at the time of a termination event shall
continue to have full force and effect in accordance with the provisions of
the documents evidencing those Options or issuances.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no
such amendment or modification shall adversely affect the rights and
obligations with respect to Options or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such
13.
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amendment or modification. In addition, certain amendments may require
stockholder approval pursuant to applicable laws and regulations.
B. The Plan was amended and restated by the Board on February
1, 1999 to increase the maximum number of shares of Common Stock authorized
for issuance over the term of the Plan from 600,000 shares to 1,200,000
shares, subject to stockholder approval of the share reserve within the
succeeding twelve (12) months.
C. On July 29, 1999 the Board further amended and restated the
Plan to increase the maximum number of shares of Common Stock authorized for
issuance over the term of the Plan from 1,200,000 to 2,400,000 shares,
subject to stockholder approval of the share reserve within the succeeding
twelve (12) months.
D. On November 22, 1999 the Board further amended and restated
the Plan to increase the maximum number of shares of Common Stock authorized
for issuance over the term of the Plan from 2,400,000 to 3,00,000 shares and
to reflect a one (1) for three (3) reverse stock split with a resulting
1,000,000 shares of Common Stock authorized for issuance over the term of the
Plan, subject to stockholder approval of the share reserve within the
succeeding twelve (12) months.
E. Options may be granted under the Option Grant Program and
shares may be issued under the Stock Issuance Program which are in each
instance in excess of the number of shares of Common Stock then available for
issuance under the Plan, provided any excess shares actually issued under
those programs shall be held in escrow until there is obtained stockholder
approval of an amendment sufficiently increasing the number of shares of
Common Stock available for issuance under the Plan. If such stockholder
approval is not obtained within twelve (12) months after the date the first
such excess grants or issuances are made, then (i) any unexercised Options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees
and the Participants the exercise or purchase price paid for any excess
shares issued under the Plan and held in escrow, together with interest (at
the applicable Short Term Federal Rate) for the period the shares were held
in escrow, and such shares shall thereupon be automatically cancelled and
cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon
the exercise of any Options or upon the issuance or vesting of any shares
issued under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
14.
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VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any Options under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise
of any Option or (ii) under the Stock Issuance Program shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the Options granted
under it and the shares of Common Stock issued pursuant to it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person)
or of the Optionee or the Participant, which rights are hereby expressly
reserved by each, to terminate such person's Service at any time for any
reason, with or without cause.
VIII. FINANCIAL REPORTS
Each Optionee and Particiapnt shall be given access to information
concerning the Corporation equivalent to that information generally made
available to the Corporation's common stockholders.
15.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. AWARD shall mean an Option or Stock Issuance Agreement
granted under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CALIFORNIA CORPORATIONS CODE AMENDMENTS shall mean the
amendments made to the Initial Plan effective as of the effective date of the
initial registration by the Corporation of its Stock under Section 12 of the
Exchange Act. Such amendments, which are reflected in the Plan, include
modifications to the following provisions of the Initial Plan:
(i) Article Two, Section I.A.1.;
THE EXERCISE PRICE PER SHARE SHALL BE FIXED BY THE
PLAN ADMINISTRATOR IN ACCORDANCE WITH THE FOLLOWING PROVISIONS:
(ii) THE EXERCISE PRICE PER SHARE SHALL NOT BE
LESS THAN EIGHTY-FIVE PERCENT (85%) OF THE FAIR MARKET VALUE PER SHARE
OF COMMON STOCK ON THE OPTION GRANT DATE.
(iii) IF THE PERSON TO WHOM THE OPTION IS GRANTED
IS A 10% STOCKHOLDER, THEN THE EXERCISE PRICE PER SHARE SHALL NOT BE
LESS THAN ONE HUNDRED TEN PERCENT (110%) OF THE FAIR MARKET VALUE PER
SHARE OF COMMON STOCK ON THE OPTION GRANT DATE.
(i) Article Two, Section Section I.E;
THE PLAN ADMINISTRATOR SHALL HAVE THE DISCRETION TO GRANT
OPTIONS WHICH ARE EXERCISABLE FOR UNVESTED SHARES OF COMMON STOCK.
SHOULD THE OPTIONEE CEASE SERVICE WHILE HOLDING SUCH UNVESTED SHARES,
THE CORPORATION SHALL HAVE THE RIGHT TO REPURCHASE, AT THE EXERCISE
PRICE PAID PER SHARE, ANY OR ALL OF THOSE UNVESTED SHARES. THE TERMS
UPON WHICH SUCH REPURCHASE RIGHT SHALL BE EXERCISABLE (INCLUDING THE
PERIOD AND PROCEDURE FOR EXERCISE AND THE APPROPRIATE VESTING SCHEDULE
FOR THE PURCHASED SHARES) SHALL BE ESTABLISHED BY THE PLAN
ADMINISTRATOR AND SET FORTH IN THE DOCUMENT EVIDENCING SUCH REPURCHASE
RIGHT. THE PLAN ADMINISTRATOR MAY NOT IMPOSE A VESTING SCHEDULE UPON
ANY OPTION GRANT OR THE SHARES OF COMMON STOCK SUBJECT TO THAT OPTION
WHICH IS MORE RESTRICTIVE THAN TWENTY PERCENT (20%) PER YEAR VESTING,
WITH THE INITIAL VESTING TO OCCUR NOT LATER THAN ONE (1) YEAR AFTER THE
OPTION GRANT DATE. HOWEVER, SUCH LIMITATION SHALL NOT BE APPLICABLE TO
ANY OPTION GRANTS MADE TO INDIVIDUALS WHO ARE OFFICERS OF THE
CORPORATION, NON-EMPLOYEE BOARD MEMBERS OR INDEPENDENT CONSULTANTS.
A-1.
<PAGE>
(ii) Article Three, Section I.A.1;
THE PURCHASE PRICE PER SHARE SHALL BE FIXED BY THE PLAN
ADMINISTRATOR BUT SHALL NOT BE LESS THAN EIGHTY-FIVE PERCENT (85%) OF
THE FAIR MARKET VALUE PER SHARE OF COMMON STOCK ON THE ISSUE DATE.
HOWEVER, THE PURCHASE PRICE PER SHARE OF COMMON STOCK ISSUED TO A 10%
STOCKHOLDER SHALL NOT BE LESS THAN ONE HUNDRED AND TEN PERCENT (110%)
OF SUCH FAIR MARKET VALUE.
(iii) Article Three, Section I.B.1;
SHARES OF COMMON STOCK ISSUED UNDER THE STOCK ISSUANCE PROGRAM
MAY, IN THE DISCRETION OF THE PLAN ADMINISTRATOR, BE FULLY AND
IMMEDIATELY VESTED UPON ISSUANCE OR MAY VEST IN ONE OR MORE
INSTALLMENTS OVER THE PARTICIPANT'S PERIOD OF SERVICE OR UPON
ATTAINMENT OF SPECIFIED PERFORMANCE OBJECTIVES. HOWEVER, THE PLAN
ADMINISTRATOR MAY NOT IMPOSE A VESTING SCHEDULE UPON ANY STOCK ISSUANCE
EFFECTED UNDER THE STOCK ISSUANCE PROGRAM WHICH IS MORE RESTRICTIVE
THAN TWENTY PERCENT (20%) PER YEAR VESTING, WITH INITIAL VESTING TO
OCCUR NOT LATER THAN ONE (1) YEAR AFTER THE ISSUANCE DATE. SUCH
LIMITATION SHALL NOT APPLY TO ANY COMMON STOCK ISSUANCES MADE TO THE
OFFICERS OF THE CORPORATION, NON-EMPLOYEE BOARD MEMBERS OR INDEPENDENT
CONSULTANTS.
(iv) Article Four, Section VIII.
THE CORPORATION SHALL DELIVER A BALANCE SHEET AND AN INCOME
STATEMENT AT LEAST ANNUALLY TO EACH INDIVIDUAL HOLDING AN OUTSTANDING
OPTION UNDER THE PLAN, UNLESS SUCH INDIVIDUAL IS A KEY EMPLOYEE WHOSE
DUTIES IN CONNECTION WITH THE CORPORATION (OR ANY PARENT OR SUBSIDIARY)
ASSURE SUCH INDIVIDUAL ACCESS TO EQUIVALENT INFORMATION.
B. CHANGE IN CONTROL shall mean the consummation of any of the
following transactions:
(i) a merger or consolidation approved by the
Corporation's stockholders in which securities possessing more than
fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction,
(ii) any stockholder-approved sale, transfer or
other disposition of all or substantially all of the Corporation's
assets in complete liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by
any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total
A-2.
<PAGE>
combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the
Corporation's stockholders.
In no event shall any of the following transactions be
deemed to constitute a Change in Control:
- the initial public offering of the Common
Stock or any secondary offerings of the Common Stock in the
open market; or
- any other direct issuance of securities by the Corporation
effected primarily for the purpose of raising additional capital or funding
for the business operations of the Corporation or any Parent or Subsidiary.
C. CODE shall mean the Internal Revenue Code of 1986, as
amended.
D. COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to exercise one or more administrative
functions under the Plan.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CONSULTANT means a person engaged to provide consulting or
advisory services (other than as an Employee or a Director) to a
Participating Company, provided that the identity of such person, the nature
of such services or the entity to which such services are provided would not
preclude the Company from offering or selling securities to such person
pursuant to the Plan in reliance on either the exemption from registration
provided by Rule 701 under the Securities Act or, if the Company is required
to file reports pursuant to Section 13 or 15(d) of the Exchange Act,
registration on a Form S-8 Registration Statement under the Securities Act.
G. CORPORATION shall mean VantageMed Corporation, a Delaware
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of VantageMed Corporation which shall by appropriate
action adopt the Plan.
H. DIRECTOR means a non-Employee member of the Board or of the
board of directors of any other Participating Company.
I. DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined
by the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances.
J. EMPLOYEE shall mean an individual who is in the employ of
the Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
K. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the Option exercise.
A-3.
<PAGE>
L. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither
listed on any Stock Exchange nor traded on the Nasdaq National Market,
then the Fair Market Value shall be determined by the Plan
Administrator after taking into account such factors as the Plan
Administrator shall deem appropriate.
M. INCENTIVE OPTION shall mean an Option which satisfies the
requirements of Code Section 422.
N. INSIDER means an officer or a Director of the Corporation
or any other person whose transactions in Common Stock are subject to Section
16 of the Exchange Act.
O. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the Corporation
which materially reduces his or her duties and responsibilities or the
level of management to which he or she reports, (B) a reduction in his
or her level of compensation (including base salary, fringe benefits
and target bonuses under any corporate-performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a
relocation of such individual's place of employment by more than fifty
(50) miles, provided and only if such change, reduction or relocation
is effected without the individual's consent.
A-4.
<PAGE>
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized
use or disclosure by such person of confidential information or trade secrets
of the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds
for the dismissal or discharge of any Optionee, Participant or other person
in the Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
R. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
S. OPTION means a right to purchase Common Stock (subject to
adjustment as provided in Article One) pursuant to the terms and conditions
of Article Two of the Plan. An Option may be either an Incentive Option or a
Nonstatutory Option.
T. OPTION GRANT PROGRAM shall mean the option grant program in
effect under the Plan.
U. OPTIONEE shall mean any person to whom an Option is granted
under the Plan.
V. PARENT shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the
Corporation, provided each corporation in the unbroken chain (other than the
Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
W. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
X. PARTICIPATING COMPANY means the Corporation or any Parent
or Subsidiary.
Y. PARTICIPATING COMPANY GROUP means, at any point in time,
all corporations collectively which are then Participating Companies.
Z. PLAN shall mean the Corporation's 1998 Stock Option/Stock
Issuance Plan, as set forth in this document.
AA. PLAN ADMINISTRATOR shall mean either the Board or the
Committee acting in its capacity as administrator of the Plan.
BB. RULE 16b-3 means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
A-5.
<PAGE>
CC. SERVICE means an Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. Unless otherwise determined by the Board, an
Optionee's Service shall not be deemed to have terminated merely because of a
change in the capacity in which the Optionee renders Service to the
Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no
interruption or termination of the Optionee's Service. Furthermore, an
Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Corporation; provided,
however, that if any such leave exceeds ninety (90) days, on the one hundred
eighty-first (181st) day following the commencement of such leave any
Incentive Option held by the Optionee shall cease to be treated as an
Incentive Option and instead shall be treated thereafter as a Nonstatutory
Option unless the Optionee's right to return to Service with the
Participating Company Group is guaranteed by statute or contract.
Notwithstanding the foregoing, unless otherwise designated by the Corporation
or required by law, a leave of absence shall not be treated as Service for
purposes of determining vesting under the Optionee's Option. An Optionee's
Service shall be deemed to have terminated either upon an actual termination
of Service or upon the corporation for which the Optionee performs Service
ceasing to be a Participating Company. Subject to the foregoing, the
Corporation, in its discretion, shall determine whether an Optionee's Service
has terminated and the effective date of such termination.
DD. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
B. STOCK ISSUANCE AGREEMENT shall mean the agreement entered
into by the Corporation and the Participant at the time of issuance of shares
of Common Stock under the Stock Issuance Program.
A. STOCK ISSUANCE PROGRAM shall mean the stock issuance
program in effect under the Plan.
B. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
C. 10% STOCKHOLDER shall mean the owner of stock (as
determined under Code Section 424(d)) possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Corporation
(or any Parent or Subsidiary).
A-6.
<PAGE>
Exhibit 10.15
NON-EXCLUSIVE SOFTWARE LICENSE AGREEMENT
This Software License Agreement ("Agreement") is entered as of,
December 30, 1998 ("Effective Date"), by and between QuadraMed Corporation., a
Delaware corporation, with its principal place of business at 1003 West Cutting
Boulevard, 2nd Floor, Richmond, California 94804 (hereafter "QuadraMed"), and
VantageMed Corporation, with its principal place of business at 3017 Kilgore
Road, Suite 180, Rancho Cordova, CA 95670 (hereafter "Licensee").
The parties agree as follows:
1. LICENSE GRANT
a. Subject to the terms of this Agreement, QuadraMed grants to
Licensee, and only Licensee, under all intellectual property rights of QuadraMed
applicable to QuadraMed's existing software modules described in Exhibit A in
source code form and Exhibit B in object code only (collectively the "Licensed
Software"), a worldwide, non-exclusive, non-transferable, non-sublicensable
(except as expressly authorized below), fully paid-up, irrevocable, royalty free
license solely to:
(i) incorporate the Licensed Software into Licensee
Products;
(ii) reproduce and distribute (subject to Section 1.b) the
Licensed Software, but only in object code form, and only as integrally
incorporated by Licensee into or with Licensee Products; and
(iii) make modifications, enhancements and improvements to
the Licensed Software listed in Exhibit A.
"Licensee Product" shall mean any Licensee products that include or incorporate
any portion of the Licensed Software.
b. Upon the signing of this Agreement, QuadraMed will promptly
deliver to Licensee two (2) copies of the Licensed Software listed in Exhibit A
in source and object code forms and two (2) copies of the Licensed Software
listed in Exhibit B in object code form only.
c. The Licensee Product shall be sub-licensed only pursuant to
end-user license agreements in the name of Licensee that are as protective as
those used by Licensee for its own products and, that at a minimum (and for
QuadraMed's benefit), (i) provide that the Licensed Software (and any copy) is
licensed (and not sold) and that reverse engineering (by disassembly,
decompilation or otherwise) is prohibited and (ii) effectively disclaim all
warranties and exclude incidental and consequential damages with respect to
QuadraMed. QuadraMed shall have the right, at its own expense, to inspect the
relevant books and records of Licensee to insure compliance with this Agreement.
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<PAGE>
d. QuadraMed will defend and indemnify Licensee against a claim
that the software furnished and used within the scope of this Agreement infringe
a United States copyright or patent provided that: (a) Licensee notifies
QuadraMed in writing within 30 days of the claim; (b) QuadraMed has sole control
of the defense and all related settlement negotiations; and (c) Licensee
provides QuadraMed with the assistance, information and authority necessary to
perform QuadraMed's obligations under this section. Reasonable out-of-pocket
expenses actually incurred by Licensee in providing such assistance will be
reimbursed by QuadraMed.
QuadraMed shall have no liability for any claim of infringement based on; (a)
use of a superseded or altered release of Products if the infringement would
have been avoided by the use of a current unaltered release of the Products that
QuadraMed provides to Licensee; or (b) the combination, operation or use of any
Products furnished under this Agreement with software, hardware or other
materials not furnished by QuadraMed if such infringement would have been
avoided by the use of the Products without such software, hardware or other
materials.
In the event the Products are legally held or are believed by QuadraMed to
infringe, QuadraMed shall have the option, at its expense, to (a) modify the
Products to be non-infringing, (b) obtain for Licensee a license to continue
using the Products; or (c) terminate the license for the infringing Products and
refund the license fees paid for those Products prorated over a five year term,
QuadraMed's or QuadraMed's licensor's entire liability and Licensee's exclusive
remedy for infringement or any intellectual property warranty.
e. Licensee will defend and indemnify QuadraMed against a claim
that any Licensee product infringes a United States copyright or patent provided
that: (a)QuadraMed notifies Licensee in writing within 30 days of the claim; (b)
Licensee has sole control of the defense and all related settlement
negotiations; and (c) QuadraMed provides Licensee with the assistance,
information and authority necessary to perform Licensees obligations under this
section. Reasonable out-of-pocket expenses actually incurred by Quadramed in
providing such assistance will be reimbursed by Licensee.
f. The foregoing license does not allow any sublicense,
distribution or disclosure to any third party of source code or source
documentation in any circumstance or manner and Licensee agrees that it will not
engage in any such sublicensing, disclosure or distribution.
g. As between the parties, QuadraMed retains all title to, and,
except as unambiguously licensed herein, all rights to the Licensed Software (in
source code and object code form) and any intellectual property rights thereto
and all copies thereof (by whomever produced) and all related documentation and
materials.
2. UP-FRONT PAYMENT. As consideration for this Agreement,
VantageMed shall pay an up-front fee of $(U.S.) 1,500,000 to QuadraMed upon the
execution of this Agreement for the software products listed in Exhibit A and B.
3. GRANT BACK. VantageMed agrees to negotiate, in good faith,
reasonable terms and condition for the grant to QuadraMed of the non-exclusive
right to use, reproduce,
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<PAGE>
modify, sublicense and/or distribute any modifications or improvements made to
the Licensed software by or for VantageMed, which modification or improvement is
made commercially available for licensing as a stand-alone item or as
incorporated in another product. In any event, VantageMed agrees to license such
modification or improvement to QuadraMed on terms and conditions which, taken as
a whole, are at least as favorable to QuadraMed as the most favorable terms and
conditions that VantageMed has or may grant from time to time to any third party
with respect to the modification or improvement. In determining whether the
terms and conditions offered to QuadraMed are at least as favorable as those
granted to a third party, (i) all terms and conditions will be considered as a
whole and (ii) only the value and consideration attributable to the modification
or improvement will be taken into account.
4. COPYRIGHT NOTICES. Licensee agrees to include QuadraMed's
copyright notice which appears on or in the Licensed Software on any
documentation or screen display associated with any Licensee Product that
includes or is derived from the Licensed Software to any extent. Other than to
comply with the foregoing, no right or license with respect to any QuadraMed
trademark, trade name or other designation is granted under this Agreement.
5. PROHIBITION AGAINST ASSIGNMENT. Licensee may not assign or
transfer, in whole or in part, this Agreement or its rights and obligations
hereunder without the prior written consent of QuadraMed which will not be
unreasonably withheld. QuadraMed may freely assign or transfer, in whole or in
part, this Agreement and its rights and obligations hereunder.
6. TERM AND TERMINATION.
a. This Agreement shall remain in effect unless otherwise
terminated in accordance with the provisions contained in Section 6.b.
b. This Agreement may be terminated by a party for cause
immediately upon the occurrence of any of the following events:
(i) if the other materially breaches any material
provision of this Agreement and fails to fully cure such breach within thirty
(30) days of written notice describing the breach; or
c. Termination is not the sole remedy under this Agreement and,
whether or not termination is effected, all other remedies will remain
available. The indemnity in Section 1 (c), Sections 1 (d), 1 (e), 3, 4, 5, 6, 7,
8, 9, 10, 11, 12 and 13 and, except as otherwise expressly provided herein, any
right of action for breach of this Agreement prior to termination shall survive
any termination of this Agreement. The license to Licensee will cease upon
termination; provided, however, that end user sublicenses granted pursuant to
this Agreement shall not be revoked by the termination of this Agreement.
7. NOTICES AND REQUESTS. All notices, consents, authorizations,
and requests in connection with this Agreement shall be deemed received if
personally delivered, delivered by confirmed telecopy or mailed by certified or
registered mail, return receipt requested, to either party at its address set
forth above or such other address as such party may provide by notice
3
<PAGE>
pursuant to this Section.
8. CONTROLLING LAW; ATTORNEYS FEES. This Agreement shall be
governed by and construed under the laws of the State of California and the
United States without regard to conflicts of laws provisions thereof. Unless
otherwise elected by QuadraMed in writing for the particular instance (which
QuadraMed may do at its option), the sole jurisdiction and venue for actions
related to the subject matter hereof shall be the California state and U.S.
federal courts having within their jurisdiction the location of QuadraMed's
principal place of business. Both parties consent to the jurisdiction of such
courts and agree that process may be served in the manner provided herein for
giving of notices or otherwise as allowed by California or federal law. If
either QuadraMed or Licensee employs attorneys to enforce any rights arising out
of or relating to this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees, costs and other expenses.
9. CONFIDENTIALITY. Licensee agrees that all source code,
inventions, algorithms, know-how and ideas it obtains from the other and all
other business, technical and financial information it obtains from QuadraMed
are the confidential property of QuadraMed if identified as such at or before
the time of disclosure ("Proprietary Information"). Except as expressly and
unambiguously allowed herein, Licensee will hold in confidence and not use or
disclose any Proprietary Information and shall similarly bind its employees and
contractors in writing.
10. WARRANTY DISCLAIMER.
THE LICENSED SOFTWARE IS PROVIDED "AS IS"; QUADRAMED MAKES NO
WARRANTIES TO ANY PERSON OR ENTITY WITH RESPECT TO THE SUBJECT MATTER OF THIS
AGREEMENT OR THE LICENSED SOFTWARE OR ANY DERIVATIVES THEREOF OR ANY SERVICES OR
LICENSES AND DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND
NONINFRINGEMINT.
11. LIMITED LIABILITY
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE,
QUADRAMED WILL NOT BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT OR TERMS AND CONDITIONS RELATED THERETO UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY (I) FOR ANY
AMOUNTS IN EXCESS IN THE AGGREGATE OF THE FEES PAID TO QUADRAMED HEREOF OR (II)
FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES INCLUDING, BUT NOT LIMITED
TO, LOSS OF REVENUES AND LOSS OF PROFITS OR FOR LOSS OR INACCURACY OF DATA OR
(III) FOR COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR SERVICES.
12. ASSIGNMENT. In the event that Licensee assigns the source code
granted
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<PAGE>
under this Agreement whether by operation of law or otherwise, including, but
not limited to, assignment by merger, consolidation, sale of more than fifty
percent (50%) of its stock or all or substantially all of its assets, in a
single transaction or in a series of related transactions, to an entity that
operates in a business that competes with QuadraMed such assignment shall not be
effective unless Licensee first pays to QuadraMed an "Assignment Fee" in the
amount of $ 500,000.
13. GENERAL.
a. Upon execution by both parties, this Agreement shall
constitute the entire agreement between the parties with respect to the subject
matter hereof and merges all prior and contemporaneous communications. It shall
not be modified except by a written agreement dated subsequent to the date of
this Agreement and signed on behalf of Licensee and QuadraMed by their
respective duly authorized representatives. If any provision of this Agreement
shall be held by a court of competent jurisdiction to be illegal invalid or
unenforceable, that provision shall be limited or eliminated to the minimum
extent necessary so that this Agreement shall otherwise remain in full force and
effect and enforceable. No waiver of any breach of any provision of this
Agreement shall constitute a waiver of any prior, concurrent or subsequent
breach of the same or any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized representative of
the waiving party.
b. Licensee agrees to comply with the U.S. Foreign
Corrupt Practices Act (regarding among other things, payments to government
officials) and all export laws, restrictions, national security controls and
regulations of the United States or other applicable foreign agency or
authority, and not to export or re-export, or allow the export or re-export of
the Licensed Software or any copy or direct product thereof in violation of any
such restrictions, laws or regulations, or to any Group D:1 or E:2 country (or
any national of such country) specified in the then current Supplement No. 1 to
Part 740, or, in violation of the embargo provisions in Part 746, of the U.S.
Export Administration Regulations (or any successor regulations or supplement),
except in compliance with and with all licenses and approvals required under
applicable export laws and regulations, including without limitation, those of
the U.S. Department of Commerce.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above. All signed copies of this Agreement shall be deemed
originals.
QUADRAMED CORPORATION
By:
Name: /s/ Bernie J. Murphy
-----------------------------
Title: VP of Finance
----------------------------
Date: 12/31/98
----------------------------
VantageMed Corporation
By /s/ Joel Harris
------------------------------
Name: Joel Harris
-----------------------------
Title: President & CEO
----------------------------
Date: 12/30/98
----------------------------
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<PAGE>
EXHIBIT A
LICENSED SOFTWARE
SOFTWARE
Claimstar EDI
7
<PAGE>
EXHIBIT B
LICENSED SOFTWARE
SOFTWARE
QuadraMed ERA
QuadraMed Eligibility
QuadraMed MSB
8
<PAGE>
EXHIBIT 10.16
T H O M A S A. M C C R E E R Y, J R.
July 23, 1998
Mr. Joel Harris
President and CEO
VantageMed
3017 Kilgore Road, Suite 180
Rancho Cordova, California 95670
Re: Chief Financial Officer Job Offer
Dear Joel:
I would like to accept your job offer as Chief Financial Officer of
Vantage Med. As we have discussed, you and the other members of the Board of
Directors plan to continue acquiring companies that develop and/or sell
medical and dental software products and take Vantage Med. I look forward to
joining your team as soon as possible to help with that effort. As we have
also discussed, my key job objectives as CFO will be as follows:
1) Obtain $3-5 million mezzanine round financing,
2) Complete the acquisition of 10-15 companies,
3) Obtain debt financing,
4) Complete an IPO,
5) Improve collections by implementing ACH transfer program,
6) Implement electronic daily balance reporting,
7) Develop daily cash forecasting,
8) Manage insurance program,
9) Obtain D&O coverage for a reasonable price, if possible,
10) Manage investor relations,
11) Build an accounting department,
12) Solve billing problems,
13) Clean up accounting records of acquired companies,
14) Complete an audit by a "Big Five" firm for reasonable price,
<PAGE>
15) Integrate accounting systems with other management information
systems,
16) Systematize offsite accounting and reporting,
17) Develop procedures for efficiently consolidating monthly financial
information,
18) Develop comprehensive model (balance sheet, income statement, cash
flow statement, schedules, assumptions), which is consistent with
budget,
19) Develop budget and budget procedures, which are consistent with
the company's financial model,
20) Develop weekly flash reports for managing the business,
21) Develop and implement standardized set of internal and external
financial statements,
22) Develop and implement standardized chart of accounts,
23) Develop and implement standard monthly closing entries.
Accordingly, I would very much like to join Vantage Med on the following
basis:
1) To help provide credibility in arranging the mezzanine round of
financing and the anticipated IPO, I would prefer the title of
Chief Financial Officer and Senior Vice President. As we
discussed, I will report to you in your capacity as Chief
Executive Officer and will work closely with the Company's
Chairman, Richard Pendleton and the other Senior Vice President,
Larry LeGate.
2) My employment will begin as soon as possible, with an annual
salary of $120,000, participation in Vantage Med's executive level
retirement and benefit plans, and three weeks vacation. Upon
completion of a public offering my salary will be adjusted upwards
to a market rate. Vantage Med acknowledges that my base
compensation at Falcon Systems was $150,000 per year and my
current compensation is averaging $15,000 per month.
3) I will have an option to purchase 85,000 shares of stock at a
price not to exceed $2.80 per share. The option will vest over a
three-year period. The vesting will occur pro-rata on a quarterly
basis over the three-year period unless the vesting is accelerated.
4) The vesting period will be accelerated if the following occurs in
advance of the pro-rata vesting described above:
- 25% will vest upon completion of a mezzanine round of financing
of at least $3 million,
- 25% will vest upon completion of an initial public offering, and
- 50% will vest pro-rata on a quarterly basis over the 18 months
following the initial public offering is completed.
5) A $30,000 bonus will be earned and paid upon completion of the
initial public offering.
<PAGE>
6) Six months termination notice will be required if the company is
sold. The notice period can begin no earlier than the day after
the company is sold. During the notice period I would be able to
look for a job and would assist the acquiring company with the
transition resulting from the sale.
Best regards,
/s/ Thomas A. McCreery, Jr.
Thomas A. McCreery, Jr.
Accepted and agreed to:
/s/ Joel Harris
- ---------------
Joel Harris, President and CEO
VantageMed
<PAGE>
Exhibit 10.17
VANTAGEMED CORPORATION
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of this 30th day of April, 1998 by and
between VantageMed Corporation ("Company"), and Gregory F. Vap ("Employee").
WHEREAS, the Company and Employee desire to enter into an employment
contract that will govern the terms and conditions of Employee's employment
with the Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. TITLE. Employee shall serve as Senior Vice President--Midwest
Operations for the Company.
2. DUTIES AND RESPONSIBILITIES. Employee shall have senior management
responsibilities in, among other areas, the areas of sales and marketing,
operations, support, and Regional operational responsibilities for profit and
loss for the Company's Midwest operations. In addition, Employee shall have
the responsibility to hire and fire Company employees, in addition to general
operational responsibilities as would ordinarily be entrusted to a
subsidiary's senior executive officer. Employee hereby agrees to perform in
good faith and to the best of his ability all services which may be required
of Employee in such position and to be available to render such services at
all reasonable times and places in accordance with such reasonable directions
and requests as the Company may from time to time reasonably specify.
Employee shall, during the Employment Period (as defined below), devote as
required his business time, ability, energy and skill to the performance of
his duties and responsibilities hereunder.
3. PERIOD OF EMPLOYMENT. The period of Employee's employment with the
Company pursuant to the provisions of this Agreement shall commence as of the
date hereof and shall, unless sooner terminated in accordance with Paragraph
10 herein, continue for three years from the date hereof, or until twelve
(12) months after the Company has been the subject of a successful initial
public offering ("IPO"), whichever shall occur first. Thereafter, employment
pursuant to this Agreement may be renewed as mutually agreed by the parties
hereto in writing.
4. COMPENSATION. During the Employment Period, Employee shall be paid
at a rate of $125,000 per year. Employee shall be paid in twice-monthly
intervals over the Employment Period, in accordance with the Company's
standard payroll practices. The Company shall deduct and withhold from
Employee's compensation payable hereunder any and all applicable federal
state and local income and employment withholding taxes and any other
amounts required to be deducted or withheld by the Company under applicable
statutes, regulations, ordinances or orders governing or requiring the
withholding or deduction of amounts otherwise payable as compensation or
wages to employees. Employee shall also be eligible for sales override
bonuses as determined by Employee's direct supervisor.
<PAGE>
5. BUSINESS EXPENSE REIMBURSEMENT. Employee shall be entitled, in
accordance with the reimbursement policies in effect from time to time, to
receive reimbursement from the Company for all travel and other reasonable
business expenses incurred by Employee in the performance of his duties
hereunder, provided Employee furnishes the Company with vouchers, receipts
and other details of such expenses in accordance with the Company policies.
6. BENEFITS. Company shall provide Employee all medical, dental, life
and other benefit plan coverage as provided in Section V.16 of the "Agreement
and Plan of Merger" executed by Company and Employee, among others. Employee
shall accrue 1.67 days of paid vacation per month of employment with Company.
Such accrued days of paid vacation may be carried over from month to month
and year to year until used by Employee. Employee shall receive seven paid
holidays per year, the timing of such holidays to be determined by the
Company. Employee shall also accrue four hours of sick leave per month for a
maximum of six days per year. For the purpose of determining any benefit, or
the amount of any benefit, to which Employee may be entitled, his period of
service with Healthcare Information Systems, Inc. shall be deemed to have
been service in the employ of Company.
7. RESTRICTIVE COVENANT. During the Employment Period:
A. Employee shall devote, as required, his business time, ability,
energy and skill to the performance of Employee's duties and responsibilities
described herein, except during periods of illness or vacation.
B. Employee shall not directly or indirectly provide services to or
through any person, firm or other entity except the Company, unless otherwise
authorized by the Company in writing.
C. Employee shall not render any services of any kind or character
for Employee's own account or for any other person, firm or entity without
first obtaining the Company's written consent.
D. Notwithstanding the foregoing, Employee shall have the right to
perform such incidental services as are necessary in connection with (i) his
private passive investments, but only if Employee is not obligated or
required to (and shall not in fact) devote any managerial efforts which
interfere with the services required to be performed by him hereunder, (ii)
his charitable or community activities, or (iii) participation in trade or
professional organizations, but only if such incidental services do not
significantly interfere with the performance of Employee's services
hereunder, subject to Section 8 below:
8. NON-COMPETITION.
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A. During the Employment Period, Employee shall not directly or
indirectly:
(i) own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or
connected in any manner with, any enterprise which is engaged in any business
competitive with that which the Company is at the time conducting or
proposing to conduct; PROVIDED, however, that such restriction shall not
apply to any passive investment representing an interest of less than two
percent (2%) of an outstanding class of publicly traded securities of any
corporation or other enterprise which is not, at the time of such investment,
engaged in a business geographically competitive with the Company's business;
or
(ii) encourage or solicit any Company employee to leave the
Company's employ for any reason or interfere in any material manner with
employment relationships at the time existing between the Company and its
current employees, except as may be required in any bona fide termination
decision regarding any Company employee.
B. Employee acknowledges that the services that he shall provide to
the Company under this Agreement are unique and that irreparable harm shall
be suffered by the Company in the event of the breach of Employee of any of
his obligations under this Paragraph 8 or under Paragraph 7, and that the
Company shall be entitled, in addition to its other right and remedies,
whether legal or equitable, to enforce such obligations by an injunction or
decree of specific performance. Any claims asserted by Employee against the
Company shall not constitute a defense in any injunction action brought by
the Company to obtain specific performance of such obligations.
9. PROPRIETARY INFORMATION. Concurrent with execution of this
Agreement, Employment shall execute the Company's standard form of employee
proprietary information and inventions agreement attached hereto as EXHIBIT A.
10. TERMINATION OF EMPLOYMENT.
A. Subject to applicable law and during the Employment Period,
Employee's service with the Company may only be terminated by the Company for
good and sufficient cause. For purposes of this Agreement, "cause" shall mean
(i) Employee's repeated failure or refusal to perform his duties and
responsibilities set forth herein, and upon thirty (30) days written notice
his failure to cure such failure or refusal, (ii) conviction of any felony
involving moral turpitude, fraud or misrepresentation, (iii) any willful or
intentional act with the intent to and having the effect of substantially and
materially injuring the reputation, business or business relationships of the
Company, or (iv) any material breach of any of the provisions of this
Agreement by Employee which is not cured within thirty (30) days after
written notice thereof to Employee.
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B. In the event Employee's employment with the Company is
terminated without good and sufficient cause, Employee's contract shall be
paid in full, including salary and all benefits, for the entire period of
employment set forth in paragraph 3 above. In the event that Employee's
employment with the Company terminates as a result of Employee's decision to
seek other employment, or as a result of death or disability or for any other
reason, Employee shall receive severance pay for a period of three months or
the remaining term of this Agreement, whichever is less.
11. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and shall be binding upon, the Company, its
successors and assigns, and Employee, the personal representative of his
estate and his heirs and legatees.
12. GOVERNING DOCUMENT. This Agreement constitutes the entire agreement
and understanding of the Company and Employee with respect to the terms set
forth herein and supersedes all prior and contemporaneous written or verbal
agreements and understandings between Employee and the Company relating to
such subject matter, other than as provided herein. This Agreement may only
be amended by written instrument signed by Employee and the Company's
President and Chief Executive Officer, Joel Harris. Any and all prior
agreements, understandings or representations relating to Employee's
employment with the Company are hereby terminated and cancelled in their
entirety and are of no further force or effect.
13. APPLICABLE LAW. This Agreement shall, in all respects, be governed
by the laws of the State of California applicable to agreements executed and
to be wholly performed within the State of California.
14. MEDIATION. Employee and the Company agree that before any dispute
between the two arising under or related to this Agreement is brought to
trial before a judge or jury each shall make a good-faith attempt to resolve
such dispute through non-binding mediation. However, failure to make such
good-faith attempt will not be a bar to initiating, pursuing or concluding
formal litigation in any court of competent jurisdiction.
15. COUNTERPARTS. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year written above.
VANTAGEMED CORPORATION
Date: April 30 , 1998. By: /s/ Joel Harris
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Title: PRESIDENT
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Date: April 30 , 1998. /s/ Gregory F. Vap
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Gregory F. Vap
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
January 13, 2000
