<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
Commission file number 0-17822
MEDICAL MANAGER CORPORATION
(formerly known as Synetic, Inc.)
(Exact name of registrant as specified in its charter)
Delaware 22-2975182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
669 River Drive 07407-1361
Elmwood Park, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (201) 703-3400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each Class
-------------------
Common Stock, $.01 par value
5% Convertible Subordinated Debentures due 2007
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's voting stock (based on
the last sale price of registrant's voting stock on the NASDAQ National Market
System on September 21, 1999 and, for the purpose of this computation only, the
assumption that all of the registrant's directors and executive officers are
affiliates) held by non-affiliates of the registrant was approximately
$1,464,861,000.
The number of shares of registrant's Common Stock, $.01 par value,
outstanding at September 21, 1999 was 34,912,263.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
Pursuant to General Instruction G(3) to the Annual Report on Form 10-K,
certain of the information regarding executive officers of the Company required
by Item 401 of Regulation S-K is included in Part I of this report.
The directors of the Company are as follows:
Director Principal
Name Age Since Occupation
---- --- -------- ----------
Thomas R. Ferguson(1)(2) 73 1989 Mr. Ferguson has been a member of
the law firm of Ferguson, Case, Orr,
Paterson & Cunningham for more than
five years.
Mervyn L. Goldstein, M.D. 62 1989 Dr. Goldstein has been a physician
in private practice, Associate
Clinical Professor of Medicine at
the Albert Einstein College of
Medicine in New York City and
Attending Physician in Medicine and
Oncology and Physician Director of
Utilization Management at Montefiore
Medical Center in New York City for
more than five years.
Ray E. Hannah 63 1989 Mr. Hannah has been Co-Chairman of
Porex Technologies Corp. ("Porex")
since January 1998 and was President
of Porex from September 1987 through
December 1997 and its Chief
Executive Officer from November 1992
through December 1997 and an
executive officer of the Company
from June 1989 through June 1998.
Courtney F. Jones 59 1999 Mr. Jones was a director of Medical
Manager Health Systems from April
1997 until July 1999. Mr. Jones was
Managing Director in charge of the
New World Banking Group of Bankers
Trust from December 1997 through
June 1999. From July 1989 to
December 1990, Mr. Jones was
Managing Director in the Investment
Banking Division of Merrill Lynch &
Co., Inc. From October 1985 until
July 1989, he served as Chief
Financial Officer, Executive Vice
President and a member of the Board
of Directors of Merrill Lynch. Prior
to that, Mr. Jones served as
Treasurer and Secretary of the
Finance Committee of the Board of
Directors of General Motors
Corporation. Mr. Jones is a director
of First Data Corporation, a
provider of transaction processing
services to businesses and
consumers, EM Solutions, a precision
metal enclosure supplier to the
electronics and telecommunications
industries and Outsourcing
Solutions, Inc., a receivables
management company.
John H. Kang(1) 36 1999 See "Part I. Executive Officers."
2
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Raymond Kurzweil 51 1999 Mr. Kurzweil was a director of
Medical Manager Health Systems from
April 1997 until July 1999. Mr.
Kurzweil was the founder of Kurzweil
Applied Intelligence, Inc. and
served as its Chief Technology
Officer from its inception in 1982
to 1997, when it was acquired by
Lernout & Hauspie ("L&H"). He
currently serves as a consultant to
L&H. Mr. Kurzweil served as the
Chairman and Chief Executive Officer
of Kurzweil Educational Systems,
Inc. until its acquisition by L&H in
1998. Mr. Kurzweil serves as
President and Chief Executive
Officer of Medical Learning Company,
Inc., a joint venture with the
American Board of Family Practice
that provides educational and
reference information to family
medicine doctors via the web and CD-
ROM.
.
Roger H. Licht 45 1989 Mr. Licht has been a member of the
law firm of Licht & Licht for more
than five years.
James V. Manning(1) 52 1989 Mr. Manning was Vice Chairman of the
Board of the Company from March 1998
to July 1999 and was Chief Executive
Officer of the Company from January
1995 to March 1998 and President of
the Company from July 1996 to March
1998. Mr. Manning was, until March
1998, an executive officer of the
Company for more than the last five
years and was, until December 1994,
an executive officer of Medco for
more than five years. He is also
Chairman of the Board of Group One
Software, Inc., a computer software
company.
Bernard A. Marden 80 1997 Mr. Marden has been a private
investor for more than five years.
He is also a director of
Organogenesis, Inc. of Canton,
Massachusetts, a biotech company.
Charles A. Mele 43 1989 See "Part I. Executive Officers."
Chris A. Peifer 51 1999 Mr. Peifer was a director of Medical
Manager Health Systems from April
1997 until July 1999. Mr. Peifer has
been the President of Tice Financial
Services, Inc. in Tampa, Florida
since 1987. Mr. Peifer is also a
director of PrimeSource of Dallas,
Texas and Bay Cities Bank of Tampa,
Florida.
Herman Sarkowsky(2) 74 1989 Mr. Sarkowsky has been Chairman of
the Board and Chief Executive
Officer of Sarkowsky Investment
Corporation, a diversified
investment company, for more than
five years. Mr. Sarkowsky is also
a director of Hollywood Park, Inc.,
a diversified gaming company.
Michael A. Singer(1) 52 1999 See "Part I. Executive Officers."
Paul C. Suthern 47 1993 See "Part I. Executive Officers."
3
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Albert M. Weis(1)(2) 72 1989 Mr. Weis has been President of A.M.
Weis & Co., Inc., a commodities
trading corporation, for more than
five years. Mr. Weis has been the
Chairman of the Board of the New
York Board of Trade since June 1998.
Mr. Weis is also a member of the
Board of the Commodities Clearing
Corporation.
Martin J. Wygod(1) 59 1989 See "Part I. Executive Officers."
- -----------------------
(1) Member of the Executive Committee.
(2) Member of the Stock Option, Compensation and Audit Committees.
Messrs. Manning, Mele, Singer, Suthern and Wygod are also directors of
CareInsite. No family relationship exists among any of the directors or
executive officers except that Martin J. Wygod, Chairman of the Board of the
Company, and Paul C. Suthern are brothers-in-law. Messrs. Singer, Kang, Jones,
Kurzweil and Peifer were elected to the Board of Directors of the Company
pursuant to the Agreement and Plan of Merger, dated as of May 16, 1999 among
Synetic, Inc., Marlin Merger Sub, Inc., and Medical Manager Corporation (the
"MMHS Acquisition Agreement"). Under the provisions of the employment
agreements between the Company and each of Mr. Singer and Mr. Kang, the Company
has agreed that during the terms of such agreements the Company will, subject to
its fiduciary duties, use its best efforts to include Mr. Singer and Mr. Kang in
management's nominees for election, and recommend the election of Mr. Singer and
Mr. Kang, as members of the Board of Directors. No other arrangement or
understanding exists between any director or executive officer and any other
person pursuant to which any director or executive officer was selected as a
director or executive officer of the Company. All executive officers are
elected annually by the Board of Directors and serve at the discretion of the
Board.
----------------------
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during the year ended June 30, 1999 and Forms 5 and
amendments thereto furnished to the Company for such year, no person failed to
file on a timely basis, as disclosed in the above forms, reports required by
Section 16(a) of the Securities Exchange Act of 1934, as amended, during such
year, except that Mr. Weis filed an amended Form 4 to reflect the exercise of a
stock option to purchase 30,000 shares of the Company's common stock and Mr.
Marden filed an amended Form 5 to reflect a gift of 50,000 shares of the
Company's common stock to a charitable trust.
4
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Item 11. Executive Compensation.
The following table presents information concerning compensation paid for
services to the Company and its subsidiaries during the last three fiscal years
with respect to the Company's Chief Executive Officer and its four most highly
compensated executive officers as of the fiscal year ended June 30, 1999 (the
"Named Executive Officers"):
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term
Compensation
Annual Compensation ----------------
-------------------------
Securities
Underlying
Name and Principle Other Annual Options/ All Other
Position Year Salary ($) Bonus ($) Compensation SARs (#)(1) Compensation ($)
- ------------------------- --------- ------------ ----------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Paul C. Suthern.............. 1999 200,000 ___ 237,750(3) 200,000 ___
President & Chief 1998 97,692 ___ ___ 194,000 ___
Executive Officer (2) 1997 ___ ___ ___ ___ ___
Kim A. Davis................. 1999 325,000 89,269 52,123(4) ___ 5,080(5)
Senior Vice President - 1998 158,750 ___ ___ 250,000 ___
Chief Executive 1997 ___ ___ ___ ___ ___
Officer and President
of Porex
Kirk G. Layman............... 1999 200,000 ___ ___ 75,000 5,846(6)
Senior Vice President - 1998 200,000 ___ ___ ___ ___
Finance - Chief 1997 15,385 ___ ___ 150,000 ___
Accounting Officer
and Secretary
Charles A. Mele.............. 1999 190,000 ___ 1,585,000(3) 160,000 5,178(6)
Executive Vice 1998 159,692 ___ ___ 85,000 3,163(6)
President and General 1997 150,000 ___ ___ 195,000 2,019(6)
Counsel
Anthony Vuolo................ 1999 190,000 ___ 158,500(3) 75,000 5,178(6)
Senior Vice President - 1998 159,692 ___ ___ 50,000 3,163(6)
Business Development 1997 150,000 ___ ___ 81,000 2,019(6)
</TABLE>
- ----------------------
(1) The options granted during the fiscal year ended June 30, 1999 were options
to purchase shares of CareInsite's common stock. For the prior years, the
options granted were options to purchase shares of the Company's common
stock.
(2) As of July 23, 1999, Mr. Suthern no longer serves as Chief Executive
Officer of the Company. He remains Chief Executive Officer of CareInsite.
As of such date, Mr. Wygod, as Chairman of the Board, became an executive
officer of the Company and Messrs. Singer and Kang became Co-Chief
Executive Officers of the Company. For a description of the employment
agreements for Messrs. Singer and Kang, see "Employment Agreements".
(3) Comprised of income from the exercise of Company stock options (the
excess of the fair market value on the date of exercise over the exercise
price).
(4) Comprised of reimbursement for relocation expenses and auto allowance
of $35,720 and $16,403, respectively.
(5) Comprised of Company matching contributions to the Porex Technologies
Corp. 401(k) Savings Plan ("Porex 401(k) Plan") and insurance premiums paid
on behalf of Mr. Davis of $4,688 and $392, respectively.
(6) Comprised of Company matching contributions to the Porex 401(k) Plan.
5
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The following table presents information concerning the options granted to
the Named Executive Officers during the last fiscal year. All options granted
during the last fiscal year to the Named Executive Officers were options to
purchase shares of CareInsite's common stock. No options to purchase shares of
the Company's common stock were granted to the Named Executive Officers during
the last fiscal year.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options/SARs Exercise
Options/ Granted to or Base
SARs Employees in Price Expiration Grant Date
Name Granted (#) Fiscal Year (2) ($/Sh) Date Present Value ($)(3)
- ----------------------- ------------------- ---------------- -------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Paul C. Suthern......... 200,000 4.3% 18.00 6/15/09 2,140,848
Kim A. Davis............ ___ ___ ___ ___ ___
Kirk G. Layman.......... 75,000 1.6% 18.00 6/15/09 802,818
Charles A. Mele......... 160,000 3.5% 18.00 6/15/09 1,712,678
Anthony Vuolo........... 75,000 1.6% 18.00 6/15/09 802,818
</TABLE>
____________
(1) These options vest and become exercisable as follows: 40% of the shares
subject to the options vest at the end of a 30 month period from the date
of grant, and 20% of such shares vest at the end of each subsequent 12-
month period, with the options being fully vested 66 months after the
date of grant.
(2) Based upon the total number of options to purchase shares of CareInsite's
common stock granted to all employees of the Company and its affiliates.
(3) The estimated grant date present value as of the most recent fiscal year
end reflected in the above table is determined using the Black-Scholes
model. The material assumptions and adjustments incorporated in the
Black-Scholes model in estimating the value of the options reflected in
the above table include the following: (i) the respective option exercise
price, specified above, equal to the fair market value of the underlying
stock on the date of grant; (ii) the exercise of options within three
years of the date that they become exercisable; (iii) a risk-free
interest rate of 5.65% per annum; and (iv) volatility of 0.5327 for
CareInsite calculated using a weighted historical average of comparable
companies. The ultimate values of the options will depend on the future
market price of CareInsite's common stock, which cannot be forecast with
reasonable accuracy. The actual value, if any, an optionee will realize
upon exercise of an option will depend on the excess of the market value
of CareInsite's common stock over the exercise price on the date the
option is exercised. There is no assurance that the value realized by an
optionee will be at or near the value estimated by the Black-Scholes
model or any other model applied to value the options.
6
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The following table presents information concerning the value realized upon
the exercise of options to purchase the Company's common stock and the fiscal
year-end value of options to purchase the Company's common stock and
CareInsite's common stock held by the Named Executive Officers.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/
Shares Options/SARs at FY-End (#) SARs at FY-End ($)(1)
Acquired Value ----------------------------- -------------------------------
Name On Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul C. Suthern 6,000 237,750 302,800 191,200 16,933,775 8,038,850 (2)
___ ___ ___ 200,000 ___ 4,462,500 (3)
Kim A. Davis ___ ___ 50,000 200,000 1,871,875 7,487,500 (2)
___ ___ ___ ___ ___ ___
Kirk G. Layman ___ ___ 60,000 90,000 2,343,750 3,515,625 (2)
___ ___ ___ 75,000 ___ 1,673,438 (3)
Charles A. Mele 40,000 1,585,000 125,000 185,000 5,664,813 7,397,688 (2)
___ ___ ___ 160,000 ___ 3,570,000 (3)
Anthony Vuolo 4,000 158,500 182,400 113,600 10,560,050 5,028,200 (2)
___ ___ ___ 75,000 ___ 1,673,438 (3)
</TABLE>
____________
(1) Based upon the fiscal year-end closing price of the Company's common
stock or CareInsite's common stock, as applicable, of $73.9375 and
$40.3125, respectively.
(2) All information on this line relates to options to purchase shares of the
Company's common stock.
(3) All information on this line relates to options to purchase shares of
CareInsite's common stock.
Compensation of Directors
Directors who are also employees of the Company or its subsidiaries do not
receive additional compensation for their service as directors. Those directors
who are not employees of the Company received no cash compensation for serving
as directors for the fiscal year ended June 30, 1999. The Company's 1991
Director Stock Option Plan (the "Director Plan") provides for an automatic
annual grant of an option to purchase 10,000 shares of common stock to each
director who is not an officer or employee of the Company. Such shares are
subject to vesting requirements in accordance with the terms of the Director
Plan. The Director Plan is administered by the Board of Directors or any
executive officer or officers designated by the Board. Non-employee directors
(other than those directors who serve on the Stock Option Committee) have also
received, in the past, options to purchase the Company's common stock under the
Company's 1989 Class A Stock Option Plan (the "Class A Plan"), and the Company
from time to time has granted options to purchase the Company's common stock to
certain of such directors outside the Company's stock option plans on terms
similar to those contained in the Class A Plan.
EMPLOYMENT AGREEMENTS
SINGER EMPLOYMENT AGREEMENT. On May 16, 1999, the Company entered into an
employment agreement with Michael A. Singer effective upon the consummation of
the Medical Manager Merger. The term of the agreement is five years subject to
automatic monthly renewal. The employment agreement provides for Mr. Singer's
appointment as the sole Vice Chairman and the Co-Chief Executive Officer of the
Company and as the most senior executive officer of Medical Manager Research and
Development Inc., a Florida corporation and a wholly owned subsidiary of the
Company. The employment agreement also provides that during the term of his
employment, the Company will use its best efforts to include Mr. Singer in
management's nominees for election, and recommend his election, as a member of
the Company's board of directors. The employment agreement provides for an
annual base salary of $250,000, subject to increase in the discretion of the
Board.
7
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Mr. Singer's employment agreement may be terminated at any time by the
Company for "cause". Upon such termination, Mr. Singer will receive only base
salary that was earned but unpaid as of the date of termination. "Cause" is
defined to include a willful failure by Mr. Singer to perform his duties under
his employment agreement, a material breach by Mr. Singer of the employment
agreement, Mr. Singer's willful misconduct relating, directly or indirectly, to
the Company, or his commission of a common law fraud against the Company or
conviction of a felony. With respect to failure to perform duties or a material
breach that is curable, Mr. Singer must be provided with written notice and an
opportunity to cure the alleged failure or breach.
If Mr. Singer's employment is terminated due to death or "disability" (as
defined in the employment agreement) he will be entitled to the following
severance benefits:
. continuation of his base salary (at the rate in effect at the time of
such termination) for the remainder of the original term under the
employment agreement (or later, if the employment agreement has been
extended);
. continued participation in the Company's health and welfare benefit plans
for the remainder of the original term under the employment agreement (or
later, if the employment agreement has been extended) or until he is
offered comparable coverage with a subsequent employer; and
. accelerated vesting of outstanding stock options granted under the
employment agreement which are not yet vested on the date of termination.
If Mr. Singer's employment is terminated by the Company without "cause", he
will be entitled to the following severance benefits:
. continuation of his base salary (at the rate in effect at the time of
such termination) for a period commencing on the date of termination and
ending on the later of (i) the second anniversary of the date of
termination and (ii) the fifth anniversary of the effective date of the
employment agreement;
. continued participation in the Company's health and welfare benefit plans
for a period commencing on the date of termination and ending on the
later of (i) the second anniversary of the date of termination and (ii)
the fifth anniversary of the effective date of the employment agreement,
or until he is offered comparable coverage with a subsequent employer;
and
. accelerated vesting of outstanding stock options granted under the
employment agreement which are not yet vested on the date of termination.
In the event that Mr. Singer resigns for "good reason" (as such term is
defined in the employment agreement, generally consisting of a material breach
by the Company of the employment agreement; a diminution of Mr. Singer's
responsibilities or title; a reduction in Mr. Singer's base salary; a relocation
of Mr. Singer's workplace; a notice of non-renewal of the employment agreement;
a "change in control" that is not approved by a majority of the incumbent
Company board of directors; or after Mr. Singer has remained employed by the
Company for six months following a "change in control" that is approved by a
majority of the incumbent Company board of directors), he will receive the same
severance benefits as if his employment had been terminated by the Company
without "cause". "Change in control" is defined to include the following
events:
. when any person becomes the beneficial owner of the Company's securities
representing more than 50% of the combined voting power of its then
outstanding securities;
. when, during any period of 24 consecutive months during the term of the
employment agreement, the individuals who, at the beginning of such
period, constitute the board of directors of the Company, cease for any
reason other than death to constitute at least a majority of such board;
. when there is a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation (i) which would result
in the voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent 50% or more of the
combined voting power of the securities of the Company or such surviving
entity or any parent thereof outstanding immediately after such merger or
consolidation, (ii) effected to implement a recapitalization of the
Company (or similar transaction) in which no person becomes the
beneficial owner
8
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of securities of the Company representing more than 50% of the combined
voting power of the then outstanding securities or (iii) where at least a
majority of the members of the board of directors of the corporation
resulting from such merger or consolidation were incumbent members of the
Company board of directors; or
. where there is a sale or disposition of all or substantially all of the
Company's assets, or the Company adopts a plan of complete liquidation.
The employment agreement contains confidentiality obligations that survive
indefinitely and non-solicitation and non-competition obligations that end on
the later of the first anniversary of the date employment has ceased and the
fifth anniversary of the effective time of the Medical Manager Merger. The
employment agreement also contains provisions giving the Company exclusive
ownership of any inventions, discoveries, improvements and the like which were
developed or conceived by Mr. Singer as a result of his employment with the
Company.
KANG EMPLOYMENT AGREEMENT. On May 16, 1999, the Company entered into an
employment agreement with John H. Kang effective upon the consummation of the
Medical Manager Merger. The employment agreement with Mr. Kang is substantially
similar to that for Mr. Singer except that the employment agreement with Mr.
Kang provides:
. for Mr. Kang's appointment as the Co-Chief Executive Officer of the
Company;
. that during the term of the employment Mr. Kang will be eligible to
participate in an annual incentive bonus plan to be established by the
Company for selected senior executives; and
. that in the event of termination of Mr. Kang's employment by the Company
other than for "cause", or if Mr. Kang resigns for "good reason" in
addition to the benefits described above under Mr. Singer's employment
agreement, he will be entitled to a bonus equal to the maximum bonus that
would have been payable for the fiscal year in which his employment
terminates.
Singer and Kang Option Grants. At the effective time of the Medical
Manager Merger, pursuant to each of their employment agreements, Mr. Singer and
Mr. Kang were each granted an option to purchase 650,000 shares of the Company's
common stock at an exercise price equal to the fair market value at the
effective time of the Merger. Subject to certain events, the options will vest
in five equal installments, commencing on the first anniversary of the date of
grant. The options will not be exercisable following the tenth anniversary of
the date of grant and are subject to earlier termination under the circumstances
described above. The employment agreements provide that Messrs. Singer's and
Kang's outstanding and unvested options will immediately become fully vested and
exercisable upon any of the following:
. the six-month anniversary of a change in control that is approved by a
majority of the incumbent members of the Company board of directors if
Mr. Singer or Mr. Kang, as the case may be, is still employed by the
Company, or if prior to the six-month anniversary of a change in control,
the date when his employment is terminated by the Company without cause
or Mr. Singer or Mr. Kang, as the case may be, resigns for good reason;
. a change in control that is not approved by a majority of the incumbent
members of the Company board of directors that occurs during the term of
the employment agreement; or
. prior to the occurrence of a change in control, a material reduction in
Mr. Singer's or Mr. Kang's, as the case may be, title or responsibilities
or a relocation of his workplace which remains in effect for 30 days
following his written notice of such event to the Company.
DAVIS EMPLOYMENT AGREEMENTS. Each of the Company and Porex entered into an
employment agreement with Kim Davis, effective as of January 1, 1998, pursuant
to which he serves as Senior Vice President of the Company and Chief Executive
Officer of Porex. Each of Mr. Davis's agreements provides for an employment
period of five years, subject to monthly renewal thereafter. Under Mr. Davis's
employment agreements, he will be entitled to:
. an aggregate base salary of $325,000;
. participation in Porex's EVA/TM/ Incentive Plan;
. certain perquisites; and
9
<PAGE>
. compensation based upon the performance of business units acquired during
his employment period (the "Transaction Based Compensation"), as more
fully described in the following paragraph.
The maximum amount of Transaction-Based Compensation, if any, will be 1% of
the aggregate consideration paid by Porex (whether in cash, property or
securities) for each acquisition. Such compensation is payable as follows: 33%
after the determination of operating profits for the acquired entity for the
first full year following the closing date of any such acquisition, 50% after
such determination for the second full year, and 17% after such determination
for the third year. Notwithstanding the foregoing, not more than $200,000 in a
given year shall be payable to Mr. Davis in respect of Transaction-Based
Compensation with respect to all acquisitions and Transaction-Based Compensation
applicable to an acquisition will only be payable if the projections that had
been presented to the Board in connection with the approval of such acquisition
have been met for the applicable year.
In the event that Mr. Davis's employment is terminated either (i) by the
Company or Porex without cause (as defined in Mr. Davis's agreement with Porex,
which generally includes willful failure to perform his duties, willful
misconduct relating to the Company, breach of a material policy of the Company
or material provision of his agreement, commission of a fraud against the
Company or conviction of a felony involving moral turpitude), (ii) by Mr. Davis
as a result of an unremedied material reduction in his duties or (iii) upon 30
days' notice at any time after a 12-month period following the occurrence of a
change in control (as generally described below) (or such shorter period to the
extent the acquiring company does not request his services during such 12-month
period) (a "Change in Control Termination"), Mr. Davis will receive
. two years continuation of base salary;
. one year continuation of welfare benefits (or, if earlier, until he
obtains comparable coverage from a subsequent employer),
. amounts held in the "bank" under the Incentive Plan,
. the pro rata portion of his bonus under the Incentive Plan for the year
of termination, if any, and
. any remaining unpaid installment payments of Transaction-Based
Compensation that would be made assuming Mr. Davis had remained employed
for two additional years, if any (subject to the $200,000 limit and the
achievement of projections).
A "Change in Control" will occur if:
. any person, entity or group (excluding Mr. Martin J. Wygod) acquires at
least 50% of the voting power of the outstanding voting securities of
Porex and following such acquisition Mr. Wygod ceases to hold one or more
of the positions of the Chairman of the Board of Directors, Chief
Executive Officer or a senior executive officer of the acquirer of the
50% voting power (in each case, with duties and responsibilities
substantially equivalent to those prior to such acquisition);
. the occurrence of a reorganization, merger or consolidation or sale of or
other disposition of all or substantially all of Porex's assets and
following such an event Mr. Wygod ceases to hold the positions described
above; or
. the occurrence of a complete liquidation or dissolution of Porex.
Mr. Davis will also be entitled to the payments described above in the
event his employment terminates by reason of his death or disability, except
that he will be entitled to all remaining unpaid installments of Transaction-
Based Compensation (subject to the $200,000 limit and the achievement of
projections) and he is not entitled to continuation of welfare benefits. In the
event of the expiration of the employment period by mutual agreement, he will be
entitled to:
. amounts held in the bank under the Incentive Plan, and
. any unpaid installment payments of Transaction-Based Compensation,
(subject to the $200,000 limit and the achievement of projections).
10
<PAGE>
In the event that Mr. Davis's employment is terminated for cause or his
resignation (other than for reasons described above), Mr. Davis will receive
earned and unpaid compensation through the effective date of termination and
will forfeit amounts held in the "bank" under the Incentive Plan and any unpaid
installment payments of Transaction-Based Compensation.
In connection with his entering into the employment agreements, the Company
granted Mr. Davis options to purchase 250,000 shares of the Company's common
stock. The option shares vest in five equal installments on January 1, 1999 and
each of the next four anniversaries of such date, subject generally to continued
employment. In the event of a termination of Mr. Davis's employment by the
Company without Cause, as a result of his disability, by Mr. Davis due to an
unremedied material reduction in duties or responsibilities or a Change in
Control Termination, Mr. Davis's options will continue to vest as if he remained
in the employ of the Company for two years following the date of termination.
11
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of October 15, 1999
(except as otherwise indicated) concerning the beneficial ownership of the
Company's common stock by each person known by the Company to own more than 5%
of its common stock.
<TABLE>
<CAPTION>
Amount
Name and Address of and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (1)
---------------- -------------------- ---------
<S> <C> <C>
Martin J. Wygod....................... 5,651,183(2)(3) 16.0%
P.O. Box 7188
Rancho Santa Fe, California 92067
SN Investors, L.P..................... 5,061,857(2) 14.5%
818 Washington Street
Wilmington, Delaware 19801
Michael A. Singer..................... 3,681,250(4)(5) 10.5%
15151 Northwest 99/th/ Street
Alachua, Florida 32615
MAS 1997 Family Limited Partnership... 3,668,750(4) 10.5%
8989 Westheimer, Suite 228E
Houston, Texas 77063
</TABLE>
- -------------------
(1) The number of shares of the Company's common stock deemed outstanding
includes: (i) 34,968,411 shares of common stock outstanding as of
October 15, 1999, (ii) the number of shares, if any, of the Company's
common stock that the respective persons named in the above table have
the right to acquire presently or within 60 days of October 15, 1999
upon exercise of stock options and (iii) the number of shares, if any,
of the Company's common stock, which the respective persons named in the
above table have the right to acquire upon conversion of the Company's
5% Convertible Subordinated Debentures due 2007 ("Convertible
Debentures").
(2) SN Investors, the general partner of which is controlled by Mr. Wygod,
is the record and beneficial owner of 5,061,857 shares of the Company's
common stock. Mr. Wygod is an indirect beneficial owner of such shares
and they are included in the total of 5,651,183 shares listed as
beneficially owned by Mr. Wygod. See "Item 13. Certain Relationships and
Related Transactions-Investment Agreement" for additional information
regarding SN Investors.
(3) Includes 249,333 shares of the Company's common stock that Mr. Wygod has
the right to acquire presently or within 60 days of October 15, 1999
upon exercise of stock options or upon conversion of Convertible
Debentures. Includes 2,000 shares of the Company's common stock
beneficially owned by Mr. Wygod's spouse, as to which shares Mr. Wygod
disclaims beneficial ownership. Includes 3,500 shares of the Company's
common stock and shares of the Company's common stock issuable upon
conversion of $1,500,000 principal amount of Convertible Debentures
owned by Synetic Foundation, Inc. ("Synetic Foundation"), a charitable
foundation of which Messrs. Manning, Suthern and Wygod are trustees and
share voting and dispositive power, and 186,961 shares of the Company's
common stock and shares of the Company's common stock issuable upon
conversion of $500,000 principal amount of Convertible Debentures owned
by the Rose Foundation ("Rose Foundation"), a private charitable
foundation of which Messrs. Wygod and Mele are trustees and share voting
and dispositive power.
(4) MAS 1997 Family Limited Partnership ("MAS Family Partnership"), the
general partner of which is a company controlled by Mr. Singer, and the
sole limited partner of which is Mr. Singer, is the record and
beneficial owner of 3,668,750 shares of the Company's common stock. Mr.
Singer is an indirect beneficial owner of such shares and they are
included in the total of 3,681,250 shares listed as beneficially owned
by Mr. Singer.
(5) Includes 12,500 shares of the Company's common stock owned by MDDS
Partnership Ltd. ("MDDS Ltd."), the general partner of which is
controlled by Mr. Singer and the limited partners of which are Mr.
Singer and certain of his family members.
12
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information, as of October 15, 1999,
concerning the ownership of the Company's and CareInsite's common stock by each
of the directors, each of the Named Executive Officers, and by all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Medical Manager CareInsite
------------------------------------------- ---------------------------------------
Amount and Percent of Amount and Percent of
Nature of Beneficial Class (3) Nature of Beneficial Class (4)
Name of Beneficial Owner Ownership (1)(2) Ownership (1)
------------------------ ---------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Kim A. Davis............................... 50,080 * 7,000 *
Thomas R. Ferguson......................... 126,116 * 6,000 *
Mervyn L. Goldstein........................ 124,716(5) * 9,900 *
Ray E. Hannah.............................. 139,067 * 10,000 *
Courtney F. Jones.......................... 21,250 * 0 *
John H. Kang............................... 328,508 * 0 *
Raymond Kurzweil........................... 15,000 * 0 *
Kirk G. Layman............................. 60,113 * 5,000 *
Roger H. Licht............................. 84,333 * 3,000 *
James V. Manning........................... 333,299(6) * 22,500 *
Bernard A. Marden.......................... 356,001 1.02% 22,500 *
Charles A. Mele............................ 387,359(7) 1.10% 10,000 *
Chris A. Peifer............................ 101,647(8) * 8,000 *
Herman Sarkowsky........................... 269,339(9) * 22,500 *
Michael A. Singer.......................... 3,681,250(10) 10.53% 15,000(10) *
Paul C. Suthern............................ 378,298(6)(11) 1.07% 22,500 *
Anthony Vuolo.............................. 218,604 * 10,000 *
Albert M. Weis............................. 166,888(12) * 22,950 *
Martin J. Wygod............................ 5,651,183(6)(7)(13) 16.05% 38,000(13) *
All directors and executive officers
as a group (21 persons).................. 12,521,968 33.93% 270,850 *
</TABLE>
- --------------------------------
* Less than one percent.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
unless otherwise indicated in the following footnotes.
(2) Includes the following number of shares of the Company's common stock that
the following persons have the right to acquire presently or within 60 days
of October 15, 1999 upon exercise of stock options or upon conversion of
Convertible Debentures: Mr. Davis, 50,000; Mr. Ferguson, 81,666; Dr.
Goldstein, 81,666; Mr. Hannah, 46,166; Mr. Jones, 21,250; Mr. Kang, 6,250;
Mr. Kurzweil, 15,000; Mr. Layman, 60,000; Mr. Licht, 80,333; Mr. Manning,
223,333; Mr. Marden, 89,333; Mr. Mele, 173,166; Mr. Peifer, 15,000; Mr.
Sarkowsky, 105,000; Mr. Suthern, 368,300; Mr. Vuolo, 214,433; Mr. Weis,
54,166; Mr. Wygod, 249,333; and all directors and executive officers as a
group, 1,934,395. Includes 80 shares of the Company's common stock
allocated to the account of Mr. Davis, 1,595 shares of the Company's common
stock allocated to the account of Mr. Hannah, 113 shares of the Company's
common stock allocated to the account of Mr. Layman, 275 shares of the
Company's common stock allocated to the account of Mr. Mele and 270 shares
of the Company's common stock allocated to the account of Mr. Vuolo under
the Porex 401(k) Plan as of June 30, 1999.
(3) The number of shares of the Company's common stock deemed outstanding
includes: (i) 34,968,411 shares of the Company's common stock outstanding
as of October 15, 1999, (ii) the number of shares of the Company's common
stock that the respective persons named in the above table have the right
to acquire presently or within 60 days of October 15, 1999 upon exercise of
stock options and (iii) the number of shares of the Company's common stock
that the respective persons named in the above table have the right to
acquire upon conversion of Convertible Debentures.
(4) The number of shares of CareInsite's common stock deemed outstanding
includes 70,410,134 shares of CareInsite's common stock outstanding as of
October 15, 1999. As of October 15, 1999, none of the CareInsite stock
options granted to the respective persons named in the above table is
exercisable within 60 days.
(5) Includes 200 shares of the Company's common stock owned by Dr. Goldstein's
spouse, as to which Dr. Goldstein disclaims beneficial ownership.
13
<PAGE>
(6) Includes 3,500 shares of the Company's common stock and shares of the
Company's common stock issuable upon conversion of $1,500,000 principal
amount of Convertible Debentures owned by the Synetic Foundation.
(7) Includes 186,961 shares of the Company's common stock and shares of the
Company's common stock issuable upon conversion of $500,000 principal
amount of Convertible Debentures owned by the Rose Foundation.
(8) Includes 25,974 shares of the Company's common stock held in trust for Mr.
Peifer's family members.
(9) Includes 15,000 shares of the Company's common stock owned by a
charitable foundation of which Mr. Sarkowsky is a director.
(10) Includes 3,668,750 shares of the Company's common stock owned by MAS
Family Partnership and 12,500 shares of the Company's common stock owned
by MDDS Ltd. MDDS Ltd. also owns 15,000 shares of CareInsite's common
stock.
(11) Includes 1,200 shares of the Company's common stock held in custodial
accounts for Mr. Suthern's children.
(12) Includes 3,250 shares of the Company's common stock owned by a corporation
of which Mr. Weis is the sole stockholder, sole director and president and
3,200 shares of the Company's common stock held in trust for Mr. Weis's
children.
(13) Includes 5,061,857 shares of the Company's common stock owned beneficially
and of record by SN Investors. Mr. Wygod is an indirect beneficial owner
of such shares. See "Footnote 2 to the Principal Stockholders Table".
Includes 2,000 shares of the Company's common stock beneficially owned by
Mr. Wygod's spouse, as to which shares Mr. Wygod disclaims beneficial
ownership. Mr. Wygod's spouse also beneficially owns 2,000 shares of
CareInsite's common stock which are in a trust for Mr. Wygod's stepson, as
to which shares Mr. Wygod disclaims beneficial ownership.
14
<PAGE>
Item 13. Certain Relationships and Related Transactions.
Investment Agreement. On December 14, 1994, pursuant to the Purchase and
Sale Agreement dated as of May 24, 1994 between the Company and Merck & Co.,
Inc. (the "Purchase and Sale Agreement"), the Company purchased 5,268,463 shares
of the Company's Common Stock from Merck for an aggregate purchase price of
$37,764,019. At the time of the purchase by the Company, SN Investors purchased
5,061,857 shares of the Company's Common Stock (the "Wygod Shares") from Merck
for an aggregate purchase price of $36,283,079. The purchase by SN Investors
was made pursuant to an assignment by the Company to Mr. Wygod of the right to
purchase the Wygod Shares pursuant to the Investment Agreement between Mr. Wygod
and the Company, dated as of September 13, 1994 (the "Investment Agreement").
Mr. Wygod, as permitted under the Investment Agreement, further assigned to SN
Investors his right to purchase the Wygod Shares.
The Investment Agreement also provides certain demand registration rights
to Mr. Wygod at Mr. Wygod's expense that are assignable to any permitted
transferee of the Wygod Shares. Mr. Wygod has not assigned such registration
rights to SN Investors. While Mr. Wygod currently intends to assign such
registration rights to SN Investors in the event the General Partner determines
to sell or otherwise transfer the Wygod Shares under circumstances in which
registration would be required, Mr. Wygod is under no obligation to do so. The
Investment Agreement also provided for certain restrictions on voting and
disposition of shares of the Company's common stock. Under the terms of the
Investment Agreement, such restrictions are no longer in effect.
Registration Rights of Messrs. Singer, Kang and Merlich. The MMHS
Acquisition Agreement provides certain demand registration rights to Messrs.
Singer, Kang and Richard Merlich, a former director of Medical Manager Health
Systems.
CareInsite. As of October 15, 1999, the Company owned 72.1% of the
outstanding common stock of CareInsite. The Company and CareInsite have entered
into or will enter into a number of agreements for the purpose of defining the
ongoing relationship between the two companies. Additional or modified
agreements, arrangements and transactions may be entered into by CareInsite and
the Company in the future. Any such future agreements, arrangements and
transactions will be determined through negotiations between the Company and
CareInsite, as the case may be. The following is a summary of certain existing
agreements between the Company and CareInsite:
Tax sharing agreement
Effective June 16, 1999, the Company no longer files a consolidated federal
income tax return with CareInsite, but will continue to file a combined tax
return with CareInsite for California income tax purposes. The Company and
CareInsite entered into a tax sharing agreement providing, among other things,
that, for periods prior to CareInsite's initial public offering (the "Offering")
and during which the Company was included in the Company's consolidated federal
income tax returns, CareInsite will be required to pay the Company an amount
equal to CareInsite's federal income tax liabilities for these periods,
determined as if the Company had filed federal income tax returns on a separate
company basis. Additionally, for periods both before and after the Offering, in
situations where CareInsite files a combined return with the Company for state
income tax purposes, such as for California, CareInsite will be required to pay
the Company an amount equal to CareInsite's state income tax liabilities,
determined as if the Company had filed state income tax returns on a separate
company basis. If the CareInsite experiences a net operating loss resulting in
no federal or state income tax liability for a taxable period in which it was
included in the Company's consolidated federal or combined state income tax
returns, CareInsite will be entitled to a payment from the Company equal to the
reduction, if any, in the federal or state income tax liability of the Company
consolidated group by reason of the use of the CareInsite's net operating loss.
Further, under the tax sharing agreement, if CareInsite receives a net tax
benefit for certain equity based compensation arrangements involving Medical
Manager stock, or for the payment by Medical Manager of certain litigation
expenses and damages pursuant to the terms of an indemnification agreement
between CareInsite and the Company as described below, then CareInsite is
required to pay an amount equal to those tax benefits to the Company when they
are actually realized by CareInsite. The tax sharing agreement also provides for
the Company to conduct tax audits and tax controversies on CareInsite's behalf
for periods, and with respect to returns, in which CareInsite is included in
the Company's consolidated or combined returns.
15
<PAGE>
Services agreement
The Company and CareInsite entered into a services agreement dated as of
January 1, 1999, pursuant to which the Company will provide CareInsite with
certain administrative services which may include payroll, accounting, business
development, legal, tax, executive services and information processing and other
similar services. CareInsite pays the actual costs of providing these services.
Such costs include an allocable portion of the compensation and other related
expenses of employees of the Company who serve as officers of CareInsite. This
agreement is terminable by either party upon 60 days prior written notice in
certain events, or by the Company, at any time, if the Company ceases to own at
least 50% of the voting stock of CareInsite. The services agreement shall
terminate by its terms, if not previously terminated or renewed, on January 1,
2004.
Allocations from the Company to CareInsite were $1,050,000, $836,000 and
$230,000 for the fiscal years ended June 30, 1999 and 1998 and for the period
from Inception (December 24, 1996) through June 30, 1997, respectively. The
allocation was calculated based on the estimated time the employees of the
Company worked providing services to CareInsite. As of June 30, 1999, CareInsite
owes the Company an aggregate of $853,000 associated with services agreement,
reimbursable expenses and certain costs related to the Offering.
Indemnification agreement
The Company and CareInsite entered into an indemnification agreement, under
the terms of which CareInsite will indemnify and hold harmless the Company, on
an after tax basis, with respect to any and all claims, losses, damages,
liabilities, costs and expenses that arise from or are based on the operations
of the business of CareInsite before or after the Offering. Similarly, the
Company will indemnify and hold harmless CareInsite, on an after tax basis, with
respect to any and all claims, losses, damages, liabilities, costs and expenses
that arise from or are based on the operations of the Company other than the
business of CareInsite before or after the Offering.
With respect to the Merck litigation (see "Item 3. Legal Proceedings"),
this agreement provides that the Company will bear both the actual costs of
conducting the litigation and any monetary damages that may be awarded to Merck
and Merck-Medco in the litigation. CareInsite records amounts funded by the
Company as a capital contribution, which was $4,300,000 through June 30, 1999.
The agreement further provides that any damages awarded to CareInsite and the
Company in the litigation will be for the account of the Company. Finally, the
agreement provides that Medical Manager shall not be responsible for any losses
suffered by CareInsite resulting from any equitable relief obtained by Merck-
Medco against CareInsite, including, but not limited to, any lost profits, other
losses, damages, liabilities, or costs or expenses arising from such equitable
relief.
Medical Manager Health Systems/CareInsite Agreement.
Medical Manager Health Systems has an agreement with CareInsite, under
which the CareInsite will be the exclusive provider to Medical Manager Health
Systems of certain network, web hosting and transaction services. Under this
agreement, CareInsite will pay certain fees to Medical Manager Health Systems on
transactions performed on behalf of Medical Manager Health Systems' customers.
Medical Manager Health Systems and CareInsite may, from time to time, also
engage in certain transactions relating to their respective businesses and
activities in mutual support of each other's businesses outside of this
agreement. The agreement became effective on July 23, 1999, the date on which
the Medical Manager Merger was consummated. The agreement has a term of five
years, which can be renewed for two successive five year terms subject to the
parties reaching agreement on certain renewal terms. The agreement is also
subject to early termination in the event either party breaches its material
obligations under the agreement, in the case of bankruptcy of either party, in
the event that a competitor of Medical Manager Health Systems acquires more than
50% ownership interest of CareInsite resulting in a change of control of
CareInsite or by mutual consent of Medical Manager Health Systems and
CareInsite.
Other. The Company was reimbursed approximately $113,972 by a corporation
controlled by Mr. Wygod for the partial use of the Company's office facilities
and for services rendered by Company employees during the fiscal year ended June
30, 1999.
Medical Manager Research and Development leases property in Alachua,
Florida that is owned by a company controlled by Mr. Singer and a member of his
family. Medical Manager Research and Development is responsible for all real
estate taxes, insurance and maintenance relating to the property. The term of
the lease is through March 31, 2004. The lease commenced on April 1, 1996 and
provides for annual rentals of approximately $550,000. The Company believes that
the rent for such property does not exceed the fair market rental value thereof.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MEDICAL MANAGER CORPORATION
October 27, 1999 By: /s/ James R. Love
------------------------
Name: James R. Love
Title: Executive Vice President - Finance
and Administration and Chief
Financial Officer
