As filed with the Securities and Exchange Commission on January 31, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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MEDICAL MANAGER CORPORATION
(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.)
Medical Manager Corporation
669 River Drive, River Drive Center 2
Elmwood Park, New Jersey 07407
(201) 703-3400
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
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Charles A. Mele, Esq.
Medical Manager Corporation
Executive Vice President -- General Counsel
669 River Drive, River Drive Center 2
Elmwood Park, New Jersey 07407
(201) 703-3400
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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Copies to:
Stephen T. Giove, Esq. Jonathan L. Freedman, Esq.
Shearman & Sterling Frederick W. Kanner, Esq.
599 Lexington Avenue Dewey Ballantine LLP
New York, New York 10022 1301 Avenue of the Americas
(212) 848-4000 New York, New York 10019
(212) 259-8000
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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 the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
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 statement 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 statement 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,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed maximum Proposed maximum
Title of each class Amount to be offering price aggregate Amount of
of securities to be registered registered (1) per share (2) offering price (2) registration fee
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value ................... 2,656,466 shares $76,468 $203,136,634 $53,628.00
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</TABLE>
(1) The number of shares of Common Stock being registered represents (i) the
number of shares of Common Stock that may be issued to fund the redemption
of $159,388,000 aggregate principal amount of the Company's outstanding 5%
Convertible Subordinated Debentures Due 2007 that are subject to a Standby
Agreement and (ii) such number of additional shares of Common Stock that may
be issued to the Purchasers upon conversion of Debentures purchased by the
Purchasers on or prior to the Conversion Expiration Date.
(2) Estimated solely for the purpose of calculating the registration fee;
computed in accordance with Rule 457(c) on the basis of the average of the
high and low sales prices for the Common Stock on January 28, 2000.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
The information in this prospectus is not complete and may be changed without
notice. Medical Manager Corporation 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 these securities and Medical
Manager Corporation is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
MEDICAL MANAGER CORPORATION
COMMON STOCK
2,656,466 Shares
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On January 31, 2000, we called for redemption on February 15, 2000,
which we refer to in this prospectus as the Redemption Date, all of our 5%
Convertible Subordinated Debentures due 2007 at a redemption price of $1,028.57
for each $1,000 principal amount of Debentures, plus accrued interest of $25 per
$1,000 principal amount of Debentures from August 15, 1999 to the Redemption
Date, for a total amount payable of $1,053.57 for each $1,000 principal amount
of Debentures. We refer to the total amount payable for each $1,000 principal
amount of Debentures in this prospectus as the Redemption Price.
The Debentures are convertible into shares of our common stock at a
conversion price of $60 per share, or approximately 16.667 shares for each
$1,000 principal amount of Debentures. Cash will be paid for fractional shares
of common stock, and no payment or adjustment will be made on conversion of any
Debentures for interest accrued thereon or for dividends on any common stock
issued. Including the redemption premium and accrued interest, the Redemption
Price per share is $63.214. The conversion right expires at 5:00 p.m., New York
City time, on February 14, 2000, which is the last business day prior to the
Redemption Date. We refer to this date in this prospectus as the Conversion
Expiration Date. On and after the Redemption Date, registered holders of the
Debentures shall be entitled only to the Redemption Price and interest shall
cease to accrue.
Our common stock is traded on the Nasdaq National Market under the
symbol "MMGR". The closing price of our common stock on January 28, 2000 was $76
3/4.
We have entered into a standby purchase agreement with Warburg Dillon
Read LLC. In this prospectus, we refer to Warburg Dillon Read LLC in its role as
standby purchaser pursuant to the standby purchase agreement as the Purchaser.
Under the terms of the standby purchase agreement, the Purchaser has agreed,
subject to certain conditions, to purchase from us a maximum number of shares of
our common stock equal to the amount that would be issuable upon conversion of
up to $159,388,000 aggregate principal amount of the Debentures, which is the
total aggregate principal amount outstanding. The actual number of shares to be
purchased by the Purchaser will be the number of shares that otherwise would
have been issuable upon conversion of Debentures that are either (i) duly
surrendered for redemption or (ii) not duly surrendered for conversion by the
Conversion Expiration Date or for redemption by the Redemption Date by persons
other than the Purchaser. The Debentures referred to above in clauses (i) and
(ii) are referred to in this prospectus as the Redeemed Debentures. We refer to
the shares of common stock that may be purchased by the Purchaser pursuant to
the standby purchase agreement in this prospectus as the Shares. You should read
the remainder of this prospectus for more information.
An investment in these shares involves certain risks. See "Risk
Factors" beginning on page 7.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
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Warburg Dillon Read LLC
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The date of this prospectus is January 31, 2000.
<PAGE>
TABLE OF CONTENTS
About This Prospectus..........................................................3
Where You Can Find More Information............................................3
Our Businesses.................................................................5
Forward-Looking Statements May Prove Inaccurate................................6
Risk Factors...................................................................7
Use Of Proceeds...............................................................21
Description Of Capital Stock..................................................22
Standby Arrangements..........................................................23
Legal Matters.................................................................25
Experts .....................................................................25
Unaudited Pro Forma Combined Condensed
Consolidated Financial Statements...................................P-1
Index To Financial Statements................................................F-1
This prospectus incorporates important business and financial
information about our company that is not included in or delivered with this
prospectus. This information is available without charge upon written or oral
request. See the information described under the heading "Where You Can Find
More Information" for the name, address, and telephone number to which you can
make this request.
The Medical ManagerTM, CareInsiteTM, Porex(R), MEDPOR(R),
Squeeze-Mark(R) and TLS(R) are registered, pending or licensed trademarks of the
Company.
2
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the U.S. Securities and Exchange Commission, which we refer to as the SEC, using
a "shelf" registration process. This means that under this prospectus, we may
offer and issue from time to time the Shares to the Purchaser in connection with
the standby arrangements described in this prospectus in the section entitled
"Standby Arrangements."
The aggregate purchase price paid by the Purchaser for the Shares will
be an amount equal to the aggregate Redemption Price of the Redeemed Debentures.
We will use the proceeds from the sale to pay the aggregate Redemption Price of
the Redeemed Debentures. In addition, the Purchaser may purchase Debentures in
the open market or otherwise on or prior to the Conversion Expiration Date and
has agreed to convert into common stock all the Debentures which it owns on the
Conversion Expiration Date, but will not be compensated by us upon any
subsequent sale of such shares of common stock. See the section in this
prospectus entitled "Standby Arrangements" for a description of the Purchaser's
compensation arrangements with our company. The Purchaser has not been retained,
and will receive no renumeration, with respect to:
o the redemption of the Debentures; or
o the issuance of our common stock to holders of Debentures who
elect to surrender their Debentures for conversion; or
o to solicit conversions of the Debentures.
Prior to and after the Redemption Date, the Purchaser may offer to the
public shares of our common stock, including shares acquired through conversion
of Debentures purchased by the Purchaser as described above, at prices set by
them from time to time and to dealers at such prices less a selling concession
to be determined by the Purchaser. Sales of common stock by the Purchaser may be
made on the Nasdaq National Market, in block trades, in the over-the-counter
market, in privately negotiated transactions or otherwise, from time to time. In
effecting such sales, the Purchaser may realize profits or incur losses
independent of the compensation referred to under "Standby Arrangements." Any
shares of common stock so offered by the Purchaser will be subject to prior
sale, to receipt and acceptance by it and to approval of certain legal matters
by its legal counsel. The Purchaser reserves the right to reject any order in
whole or in part and withdraw, cancel or modify the offer without notice. We
have agreed to indemnify the Purchaser against, and to provide contribution with
respect to, certain liabilities, including liabilities arising under the
Securities Act of 1933, as amended.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. Our SEC filings are available to the public over
the Internet at the SEC's web site at www.sec.gov. You may also read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information about the operation of the public reference room. Our SEC filings
are also available to the public from the SEC's Website at http://www.sec.gov.
In addition, our common stock is quoted on the Nasdaq National Market System. As
a result, you can also read documents we file at the offices of the Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
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<PAGE>
For this offering, we have filed a registration statement on Form S-3
with the SEC under the Securities Act. This prospectus does not contain all of
the information set forth in the registration statement, certain portions of
which the SEC permits us to omit. If you would like to review those portions,
including exhibits, please visit the SEC's web site or call the SEC at the
number mentioned above.
If we make statements in this prospectus that refer to the contents of
any omitted document, such statements may be incomplete. In those cases, we
refer you to the omitted document for a more complete description. Such
reference modifies any statements made in this prospectus.
The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information.
We incorporate by reference the documents and reports listed below and
any future filings with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended. Future filings include filings made
after the date of the initial registration statement and prior to effectiveness
of the registration statement and after the date of this prospectus and prior to
the termination of this offering. Documents incorporated by reference include
the following:
o Annual Report on Form 10-K for the fiscal year ended June 30,
1999, as amended by the Form 10- K/A filed on October 28,
1999;
o Quarterly Report on Form 10-Q for the quarter ended September
30, 1999;
o Current Reports on Form 8-K dated:
July 29, 1998 (with respect only to the financial
statements of Point Plastics, Inc. and subsidiary
included in the Form 8-K);
June 4, 1999 (with respect only to the financial
statements of The KippGroup included in that report
on Form 8-K);
July 21, 1999(this filing was made to announce the
closing of the acquisition of Medical Manager Health
Systems, Inc., formerly Medical Manager Corporation);
July 27, 1999, as amended on August 10, 1999, as
further amended on September 20 1999;
August 24, 1999;
December 8, 1999;
January 25, 2000 (which includes our historical
consolidated financial statements for the years ended
June 30, 1999, 1998 and 1997 as restated to account
for the merger with Medical Manager Health Systems,
Inc., formerly Medical Manager Corporation, accounted
for by the pooling of interests method); and
January 31, 2000
You may request a free copy of these filings, other than exhibits
(unless such exhibits are specifically incorporated by reference into such
documents) by writing or telephoning us at the following address:
Medical Manager Corporation
669 River Drive
River Drive Center II
Elmwood Park, New Jersey 07407
Attention: Executive Vice President -- Finance and Administration
(201) 703-3400
4
<PAGE>
You should rely only on the information contained in this prospectus
or that we have referred you to. We have not authorized anyone to provide you
with information that is different. We are not making an offer of these
securities in any state or country where the offer is not permitted.
This prospectus is not an offer to sell and it is not soliciting an
offer to buy any securities other than those offered by this document; however,
this prospectus is not an offer to sell and it is not soliciting an offer to buy
any securities offered by this document in any circumstances in which such offer
or solicitation is unlawful.
You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of this document.
OUR BUSINESSES
Our company is a Delaware corporation and was incorporated in 1989. We
changed our name from Synetic, Inc. to Medical Manager Corporation on July 23,
1999, upon the completion of our acquisition of Medical Manager Health Systems,
Inc., formerly known as Medical Manager Corporation. In this prospectus,
"Medical Manager", "we", "us", and "our" refer to Medical Manager Corporation
and its subsidiaries. We are engaged in three principal business activities:
o Healthcare Electronic Commerce Business. This business
involves the development and provision of an Internet-based
healthcare electronic commerce network that links physicians,
payers, suppliers and patients, and is conducted through our
majority-owned subsidiary, CareInsite, Inc., which we refer to
in this prospectus as CareInsite. This network is designed to
provide physicians with relevant clinical, administrative and
financial information from payers and suppliers. We believe
CareInsite's integration of payer-specific rules and
healthcare guidelines with patent-specific information at the
point of care will improve the quality of patient care, lead
to more appropriate use of healthcare resources, gain
compliance with benefit plan guidelines and control healthcare
costs.
o Physician Practice Management Information Systems Business.
This business involves the development and provision of
comprehensive physician practice management information
systems to independent physicians, independent practice
associations, management service organizations, physician
practice management organizations and other providers of
healthcare services in the United States, and is conducted
through Medical Manager Health Systems and its subsidiaries.
Medical Manager Health Systems develops, markets and supports
The Medical Manager (R) practice management system, which
addresses the financial, administrative, clinical and practice
management needs of physician practices. The system has been
implemented in a wide variety of practice settings from small
physician groups to multi-provider independent practice
associations and management service organizations. These
proprietary systems enable physicians and their administrative
staffs to efficiently manage their practices while delivering
quality patient care in a constantly changing health care
environment. Since the development of The Medical Manager
software in 1982, Medical Manager Health Systems' installed
base has grown to over 130,000 providers in approximately
25,000 client sites, representing more than 80 practice
specialties. Medical Manager Health Systems believes that The
Medical Manager system is the most widely installed physician
practice management system in the United States.
o Plastics and Filtration Technologies Business. This business
involves the design, manufacture and distribution of porous
and solid plastic components and products for use in life
sciences, healthcare, industrial and consumer applications,
and is conducted through Porex Technologies Corporation and
our other plastic and filtration technologies subsidiaries,
which we refer to collectively in this prospectus as "Porex."
We believe that Porex's principal competitive strengths are
its manufacturing processes, quality control, relationship
with its customers and distribution of its proprietary health
care products.
5
<PAGE>
We believe we will be distinguished by our ability to integrate the
products and services offered by our Physician Practice Management Information
Systems Business with those of our Healthcare Electronic Commerce Business into
a suite of products that can comprehensively address all of the needs of a
medical practice. This integration will enable a medical practice to more
effectively and efficiently serve the needs of patients by utilizing innovative
healthcare network and e-commerce services that leverage Internet technology.
Our services and network facilities more efficiently exchange confidential
clinical, administrative and financial information between physicians and their
affiliated patients, payers, providers and suppliers. We also believe that
physicians are more likely to appreciate and adopt the additional web-based
services that will be provided by our Healthcare Electronic Commerce Business as
a result of its cooperation with our Physician Practice Management Information
Systems Business and the efforts of its sales and support personnel.
On December 7, 1999, we entered into a definitive agreement to acquire
certain assets of Physician Computer Network, Inc. for a purchase price of $53
million plus the assumption of certain liabilities. Physician Computer Network
is one of the nation's largest providers of physician practice management
information systems. Physician Computer Network provides physician practice
management information systems to more than 55,000 providers in approximately
8,000 sites. We believe that the acquisition of Physician Computer Network will
provide opportunities for more comprehensive and efficient customer support as
well as significant cross-selling opportunities when combined into our Physician
Practice Management Information Systems Business. With the acquisition of
Physician Computer Network, we will now provide practice management systems to
over 185,000 physicians throughout the United States. As contemplated by the
agreement, Physician Computer Network filed a petition under Chapter 11 of the
U.S. Bankruptcy Code and a plan of reorganization that provides for the sale of
the assets of the company to us. Completion of the acquisition is subject to
confirmation of the plan of reorganization and certain other customary closing
conditions. We expect to complete the acquisition in the quarter ending June 30,
2000, but we cannot assure you that the acquisition will be consummated at that
time, if ever. See the Consolidated Financial Statements of Physician Computer
Network and the notes thereto and the "Unaudited Pro Forma Combined Condensed
Consolidated Financial Statements" included elsewhere in this prospectus for
additional information about Physician Computer Network.
The address of our principal executive office is: River Drive Center
2, 669 River Drive, Elmwood Park, New Jersey 07407; our telephone number is:
(201) 703-3400. Medical Manager's Internet address is www.medicalmanager.com.
The information on our Web site is not a part of this prospectus.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This prospectus contains and incorporates by reference forward-looking
statements and information relating to our company that are based on the beliefs
of our company's management as well as assumptions made by and information
currently available to our company's management. When used in this prospectus,
the words "anticipate", "believe", "estimate", "expect" and similar expressions,
as they relate to our management, or the management of any of our businesses,
are intended to identify forward-looking statements. Such statements reflect the
current view of our company with respect to future events and are subject to
certain risks, uncertainties and assumptions. These risks and uncertainties may
include:
o implementation of or changes in the laws, regulations or
policies governing the healthcare and healthcare electronic
commerce, or e-commerce, industries;
o commercialization and technological difficulties we may face
in the deployment of our products and services;
o our ability to continue to attract and retain qualified
personnel;
o expected benefits from the integration of our Healthcare
Electronic Commerce business and our Physician Practice
Management Information Systems business and our pending
acquisition of
6
<PAGE>
Physician Computer Network and of other businesses we may
acquire in the future, as discussed further in the section
entitled "Risk Factors" in this prospectus, not being fully
realized or not being realized within the expected time
frames;
o the ability to achieve sufficient levels of physician
penetration and market acceptance of our services;
o the ability to quickly and successfully deploy CareInsite's
system;
o revenues of our company being lower than expected;
o costs or operational difficulties related to integrating the
businesses of our company and Medical Manager Health Systems,
Physician Computer Network and other businesses we may acquire
in the future, into one combined company being greater than
expected;
o demands placed on management by the substantial increase in
our size as a result of the acquisition of Medical Manager
Health Systems and our pending acquisition of Physician
Computer Network and of other businesses we may acquire in the
future;
o increases in financing and financing-related costs;
o general economic or business conditions affecting the
healthcare, healthcare e-commerce and porous plastics
industries being less favorable than expected;
o adverse outcomes to any litigation we are currently, or may in
the future become, involved in, as discussed further in the
section entitled "Risk Factors" in this prospectus;
o the inability to accomplish our strategic objectives for
external expansion, including through acquisitions and
strategic partnerships, and internal expansion, including
through sales and marketing activities; and
o other developments described more fully under the caption
"Risk Factors".
Should one or more of these risks or uncertainties materialize, or
should our underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. We do not intend to update these forward-looking statements.
RISK FACTORS
Investing in our common stock will provide you with an equity
ownership in Medical Manager. The value of an investment in our common stock is
subject to the significant risks inherent in our businesses and risks relating
to the securities market and ownership of common stock. Investors should
consider carefully the risks and uncertainties described below and the other
information in this prospectus and the information incorporated by reference in
this prospectus before deciding whether to invest. Such risks may materially and
adversely affect our business, financial condition or results of operations. In
such case, the trading price of our common stock could decline, and you could
lose all or part of your investment.
Risks Inherent in Our Businesses
Each of our three principal businesses involves significant risks and
uncertainties specific to that business, as well as risks and uncertainties
common to all of these businesses. The risks and uncertainties of each of these
businesses individually present risks and uncertainties to our company as a
whole.
7
<PAGE>
Risks Inherent In Our Healthcare Electronic Commerce Business
CareInsite is engaged in a new business that provides healthcare
electronic commerce services and that only recently began to generate revenues
and has incurred net losses since inception. CareInsite is a development stage
company. CareInsite began operations in December 1996 and is now in the process
of deploying its healthcare e-commerce services. CareInsite did not generate its
first revenues until the quarter ended March 31, 1999. As of September 30, 1999,
CareInsite had an accumulated deficit of $82.8 million. We expect that
CareInsite will continue to incur significant development, deployment and sales
and marketing expenses and that CareInsite will continue to incur operating
losses for at least the next two fiscal years. We caution you that CareInsite
may never achieve or sustain profitability. The provision of services using
Internet technology in the healthcare e-commerce industry is a developing
business that is inherently riskier than businesses in industries where
companies have established operating histories.
CareInsite will not become profitable unless it achieves sufficient
levels of physician penetration and market acceptance of its services.
CareInsite's business model depends on its ability to generate usage by a large
number of physicians with a high volume of healthcare transactions and to sell
healthcare e-commerce services to payers and other healthcare constituents. The
acceptance by physicians of CareInsite's transaction, messaging and content
services will require adoption of new methods of conducting business and
exchanging information. We cannot assure you that physicians will integrate
CareInsite's services into their office workflow, or that the healthcare market
will accept its services as a replacement for traditional methods of conducting
healthcare transactions. Failure to achieve broad physician penetration or
successfully contract with healthcare participants would have a material adverse
effect on our business prospects.
Achieving market acceptance for CareInsite's services will require
substantial marketing efforts and expenditure of significant funds to create
awareness and demand by participants in the healthcare industry. We cannot
assure you that CareInsite will be able to succeed in positioning its services
as a preferred method for healthcare e-commerce, or that any pricing strategy
that CareInsite develops will be economically viable or acceptable to the
market. Failure to successfully market its services would have a material
adverse affect on our business prospects.
Our business prospects will suffer if CareInsite is not able to
quickly and successfully deploy its CareInsite system. We believe that, in order
to attain the objectives we have set, CareInsite must gain significant market
share with its services before its competitors introduce alternative services
with features similar to CareInsite's. We believe that our business prospects
will suffer if CareInsite does not widely deploy its services before its
competitors deploy alternative services. CareInsite must integrate its
architecture with physicians', payers' and suppliers' systems. CareInsite will
need to expend substantial resources to integrate its CareInsite system with the
existing computer systems of large healthcare organizations. CareInsite has
limited experience in doing so, and may experience delays in the integration
process. These delays would, in turn, delay CareInsite's ability to generate
revenue from its services and may have a material adverse effect on our
business, financial condition and results of operations. As CareInsite deploys
its CareInsite system, it may need to expand and adapt it to accommodate
additional users, increased transaction volumes and changing customer
requirements. This expansion and adaptation could be expensive. CareInsite may
be unable to expand or adapt its network infrastructure to meet additional
demand or its customers' changing needs on a timely basis and at a commercially
reasonable cost, or at all. Any failure to deploy, expand or adapt the
CareInsite system quickly could have a material adverse effect on our business
prospects.
CareInsite does not currently have a substantial customer base and its
revenues will initially come from a few payers in one geographic market.
CareInsite does not currently have a substantial customer base. In addition,
CareInsite expects that initially it will generate a significant portion of its
revenue from providing its products and services in the New York metropolitan
area and from a small number of payers. CareInsite's failure to generate as much
revenue in this market or from these payers as it expects, could have a material
adverse effect on our business prospects.
8
<PAGE>
CareInsite may experience significant delays in generating revenues
from its services because potential customers could take a long time to evaluate
the purchase of its services. A key element of CareInsite's strategy is to
market its services directly to large healthcare organizations. CareInsite does
not control many of the factors that will influence payers', physicians' and
suppliers' buying decisions. CareInsite expects that the sales and
implementation process will be lengthy and will involve a significant technical
evaluation and commitment of capital and other resources by payers, physicians
and suppliers. The sale and implementation of CareInsite's services are subject
to delays due to payers', physicians' and suppliers' internal budgets and
procedures for approving large capital expenditures and deploying new
technologies within their networks.
CareInsite's business will suffer if the integrity of its systems is
inadequate. CareInsite's business could be harmed if CareInsite or its present
or future customers were to experience any system delays, failures or loss of
data. Although CareInsite has safeguards and backup systems in the case of an
emergency, the occurrence of a catastrophic event or other system failure at its
facilities could interrupt its operations or result in the loss of stored data.
In addition, CareInsite depends on the efficient operation of Internet
connections from customers to its systems. These connections, in turn, depend on
the efficient operation of Web browsers, Internet service providers and Internet
backbone service providers. In the past, Internet users have occasionally
experienced difficulties with Internet and online services due to system
failures. Any disruption in Internet access provided by third parties could have
a material adverse effect on our business, results of operations and financial
condition. Furthermore, CareInsite depends on hardware suppliers for prompt
delivery, installation and service of equipment used to deliver its services.
CareInsite's operations are also dependent on the development and
maintenance of software. Although CareInsite believes that it uses all necessary
means to ensure the efficient and effective development and maintenance of
software, both activities are extremely complex and thus frequently
characterized by unexpected problems and delays.
CareInsite's business will suffer if the security of its systems is,
or is perceived to be, inadequate. CareInsite will retain confidential customer
and patient information in its processing center. Therefore, it is critical that
CareInsite's facilities and infrastructure remain and are perceived by the
marketplace to be secure. However, despite the implementation of security
measures, CareInsite's infrastructure may be vulnerable to damage from physical
break-ins, computer viruses, programming errors, attacks by hackers or similar
disruptive problems. If an experienced computer user is able to access
CareInsite's computer systems he or she could gain access to confidential
patient and company information. Furthermore, CareInsite may not have a timely
remedy to secure its system against any hacker who has been able to penetrate
its system. A material security breach could result in:
o damage to CareInsite's reputation or
o liability to CareInsite or
o the interruption, delay or cessation of service
Any of these events could have a material adverse effect on our business,
results of operations and financial condition.
A significant barrier to e-commerce and communications are the issues
presented by the secure transmission of confidential information over public
networks. Concerns over the security of the Internet and other online
transactions and the privacy of users may inhibit the growth of the Internet and
other online services generally, and CareInsite's services in particular,
especially as a means of conducting commercial and/or healthcare-related
transactions. CareInsite relies on encryption and authentication technology
licensed from third parties to secure Internet transmission of and access to
confidential information. We cannot assure you that advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments will not result in a compromise or breach of the methods CareInsite
uses to protect customer transaction data. A party who is able to circumvent
CareInsite's security measures could misappropriate or alter proprietary
information or cause
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interruptions in CareInsite's operations. If any such compromise of CareInsite's
security or misappropriation of proprietary information were to occur, it could
have a material adverse effect on our business, financial condition and results
of operations. CareInsite may be required to expend significant capital and
other resources to protect against such security breaches or to alleviate
problems caused by security breaches. CareInsite may also be required to spend
significant resources and encounter significant delays in upgrading its systems
to incorporate more advanced encryption and authentication technology as it
becomes available. We cannot assure you that CareInsite's security measures will
prevent security breaches or that failure to prevent such security breaches will
not have a material adverse effect on our business, prospects, financial
condition and results of operations.
Risks Inherent in our Physician Practice Management Information Systems Business
Medical Manager Health Systems may not be able to successfully
implement its acquisition strategy. As part of its growth strategy, Medical
Manager Health Systems intends to continue to acquire additional independent
dealers of The Medical Manager physician practice management system,
complementary technologies outside the dealer network and other complementary
companies and technologies. Medical Manager Health Systems may not be able to
identify, acquire or profitably integrate and manage additional dealers or
complementary technologies, if any, into Medical Manager Health Systems without
substantial costs, delays or other operational or financial problems. Further,
acquisitions may have adverse effects, including:
o negative impact on Medical Manager Health Systems' operating
results,
o diversion of management's attention from ongoing operations,
o failure to retain key personnel of acquired entities,
o amortization of acquired intangible assets and
o risks associated with unanticipated events or liabilities.
Some or all of these events could have a material adverse effect on
our results of operations, financial condition or business. Customer
dissatisfaction or performance problems at a single acquired company could have
an adverse effect on the reputation of Medical Manager Health Systems and render
ineffective Medical Manager Health Systems' national sales and marketing
initiatives. In addition, we cannot assure you that dealers or complementary
technologies acquired in the future will achieve anticipated revenue and
earnings. In addition, the existing dealer network may not continue to be
receptive to Medical Manager Health Systems' acquisition program and we cannot
assure you that dealers which are not acquired by Medical Manager Health Systems
will adhere to Medical Manager Health Systems' marketing, training and support
guidelines. The occurrence of one or more of these events would impair Medical
Manager Health Systems' plans to rationalize its distribution network.
We are dependent on our principal products and we are exposed to risks
related to problems with any of these products. Medical Manager Health Systems
currently derives a significant percentage of its revenue from sales of The
Medical Manager core system. As a result, any event adversely affecting its core
product could have a material adverse effect on our results of operations,
financial condition or business. Although Medical Manager Health Systems has
experienced increasing annual sales, on a pro forma basis, revenue associated
with existing products could decline as a result of several factors, including
price competition. We cannot assure you that Medical Manager Health Systems will
continue to be successful in marketing its current products or any new or
enhanced products.
If we are unable to ensure that our products meet or surpass
appropriate quality standards, our business could suffer. Healthcare providers
demand the highest level of reliability and quality from their information
systems. Although Medical Manager Health Systems devotes substantial resources
to meeting these demands, its products may, from time to time, contain errors.
Such errors may result in a loss of, or delay in, market acceptance of its
products. Delays or difficulties associated with meeting Medical Manager Health
Systems'
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customers' required levels of reliability and quality in its new product
introductions or product enhancements could cause health care providers to
choose competing information systems, which would have a material adverse effect
on our results of operations, financial condition or business.
If our systems and products experience significant failure, we could be
exposed to liability claims or litigation. Any failure of Medical Manager Health
Systems' products to provide accurate, confidential and timely information could
result in product liability or breach of contract claims against Medical Manager
Health Systems by its clients, their patients or others. Certain of Medical
Manager Health Systems' products provide applications that relate to financial
records, patient medical records and treatment plans, or manage and report on
financial data, and any errors in such applications and financial data could
result in liability to Medical Manager Health Systems. In addition, because
Medical Manager Health Systems' products facilitate electronic claims
submissions, any resulting loss of financial data could result in delays in
claims submission and extra administrative costs leading to liability to Medical
Manager Health Systems. Medical Manager Health Systems maintains insurance to
protect against such claims, but we cannot assure you that such insurance
coverage will be available or, if available, will adequately cover any claim
asserted against Medical Manager Health Systems. A successful claim brought
against Medical Manager Health Systems in excess of its insurance coverage could
have a material adverse effect on our results of operations, financial condition
or business. Even unsuccessful claims could result in the expenditure of funds
in litigation, as well as diversion of management time and resources.
Risks Inherent in Our Plastics and Filtration Technologies Business
The nature of Porex's products exposes it to product liability claims
and may make it difficult to get adequate insurance coverage. The products sold
by Porex expose it to potential risk for product liability claims, particularly
with respect to Porex's life sciences, clinical, surgical and medical products.
We believe that Porex carries adequate insurance coverage against product
liability claims and other risks. We cannot assure you, however, that claims in
excess of Porex's insurance coverage will not arise. In addition, Porex's
insurance policies must be renewed annually. Although Porex has been able to
obtain adequate insurance coverage at an acceptable cost in the past and
believes that it is adequately indemnified for products manufactured by others
and distributed by it, we cannot assure you that in the future it will be able
to obtain such insurance at an acceptable cost or be adequately protected by
such indemnification. For example, as described further in "-- Risks Common to
each of Our Businesses -- Our Principal Businesses Are Subject to Litigation --
Mammary Implant Litigation" below, Porex was notified in 1994 that its insurance
carrier would not renew its then-existing insurance coverage after December 31,
1994 with respect to actions and claims arising out of Porex's distribution of
silicone mammary implants. However, Porex has exercised its right to purchase
extended reporting period coverage with respect to such actions and claims. See
also "Legal Proceedings" in our Form 10-K, as amended, for the fiscal year ended
June 30, 1999, which is incorporated by reference in this prospectus.
Risks Common to Each of Our Businesses
Our inability to implement our ongoing acquisition program may
negatively affect our existing businesses. We have an active acquisition program
and intend to concentrate our efforts on businesses which are complementary to
our core businesses. Such emphasis is not, however, intended to limit in any
manner our ability to pursue acquisition opportunities in other related
businesses or in other industries. In addition to the acquisition of Medical
Manager Health Systems and the pending acquisition of Physician Computer Network
discussed above, we acquired nine independent dealers of The Medical Manager
physician practice management systems in the second half of calendar 1999. We
anticipate that we may enter into further acquisitions, joint ventures,
strategic alliances or other business combinations. These transactions may
materially change the nature and scope of our business.
Although our management evaluates the risks inherent in any particular
transaction, we cannot assure you that we will properly ascertain all such
risks. In addition, we cannot assure you that we will succeed in consummating
any such transactions, that such transactions, including the business
combination between Synetic and Medical Manager as discussed above and the
pending acquisition of Physician Computer Network, will
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ultimately provide us with the ability to offer the products and services
described or that we will be able to successfully manage or integrate any
resulting business.
The success of our acquisition program will depend on, among other
things:
o the availability of suitable acquisition candidates,
o the availability of funds to finance transactions, and
o the availability of management resources to oversee the
operation of resulting businesses.
Financing for such transactions may come from several sources,
including, without limitation:
o cash and cash equivalents on hand,
o marketable securities,
o proceeds from new indebtedness, or
o proceeds from the issuance of additional common stock,
preferred stock, convertible debt or other securities.
The issuance of additional securities, including common stock, could
result in:
o substantial dilution of the percentage ownership of our
stockholders at the time of any such issuance, and
o substantial dilution of our earnings per share.
The proceeds from any financing may be used for costs associated with
identifying and evaluating prospective candidates, and for structuring,
negotiating, financing and consummating any such transactions and for other
general corporate purposes. We do not intend to seek stockholder approval for
any such transaction or security issuance unless required by applicable law or
regulation.
Integrating our business operations with those businesses that we have
recently acquired or may acquire in the future may be difficult and may have a
negative impact on our business. We are in the process of integrating our
Healthcare Electronic Commerce Business and our Physician Practice Management
Information Systems Business. In addition, on December 7, 1999 we entered into a
definitive agreement to acquire Physician Computer Network. As contemplated by
that agreement, Physician Computer Network voluntarily filed a petition under
Chapter 11 of the U.S. Bankruptcy Code and a plan or reorganization that
provides for the sale of the assets of the company to us. Integrating this
business into our company will, therefore, be subject to approval of the plan of
reorganization in the bankruptcy proceedings in addition to the other
difficulties described below. We may also acquire additional businesses in the
future. Our combination with Medical Manager Health Systems and the integration
of other companies or business we may acquire in the future, including Physician
Computer Network if the acquisition is consummated, involves the integration of
separate companies that have previously operated independently and have
different corporate cultures. The process of combining such companies may be
disruptive to their businesses and may cause an interruption of, or a loss of
momentum in, such businesses as a result of the following difficulties, among
others:
o loss of key employees or customers;
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o possible inconsistencies in standards, controls, procedures
and policies among the companies being combined and the need
to implement and harmonize company-wide financial, accounting,
information and other systems;
o failure to maintain the quality of services that such
companies have historically provided;
o the need to coordinate geographically diverse organizations;
and
o the diversion of management's attention from our day-to-day
business and that of Medical Manager Health Systems, or of any
other company that we may acquire, as a result of the need to
deal with the above disruptions and difficulties and/or the
possible need to add management resources to do so.
Such disruptions and difficulties, if they occur, may cause our
company to fail to realize the benefits that it currently expects to result from
such integration and may cause material adverse short- and long-term effects on
the operating results and financial condition of our company.
Our acquisitions may not produce the anticipated benefits. Even if we
are able to integrate the operations of Medical Manager Health Systems into our
company, or the operations of other companies or businesses we may acquire in
the future, successfully, we cannot assure you that such integration will result
in the realization of the full benefits that we currently expect to result from
such integration or that such benefits will be achieved within the time frame
that we currently expect.
o Revenue enhancements from cross-selling complementary services
may not materialize as expected.
o The benefits from the combination may be offset by costs
incurred in integrating the companies.
o The benefits from the transaction may also be offset by
increases in other expenses, by operating losses or by
problems in the business unrelated to the transaction.
Our principal businesses are subject to litigation. Our company and
each of its businesses are subject to the risk of litigation and we are
currently engaged in the following matters.
Litigation by Merck & Co., Inc. and Merck-Medco Managed Care, L.L.C.
against Medical Manager, CareInsite and certain of our executives. On February
18, 1999, Merck & Co., Inc. and Merck-Medco Managed Care, L.L.C. filed a
complaint in the Superior Court of New Jersey against Synetic (as noted above,
since renamed Medical Manager Corporation), CareInsite, Martin J. Wygod, our
Chairman, and three of our officers and/or directors, Paul C. Suthern, Roger C.
Holstein and Charles A. Mele. The plaintiffs assert that CareInsite, Medical
Manager and the individual defendants are in violation of certain
non-competition, non-solicitation and other agreements with Merck and
Merck-Medco, and seek to enjoin the defendants from conducting a healthcare e-
commerce business and from soliciting Merck-Medco's customers. The agreements
with respect to our company and Mr. Wygod expired May 24, 1999. Mr. Suthern's
agreement expired in December 1999. The other individuals' agreements provide
for expiration in March 2000, in the case of Mr. Mele, and September 2002, in
the case of Mr. Holstein.
A hearing was held on March 22, 1999 on an application for a
preliminary injunction filed by Merck and Merck-Medco. On April 15, 1999, the
Superior Court denied this application. We believe that Merck's and
Merck-Medco's positions in relation to our company and the individual defendants
are without merit and we intend to vigorously defend the litigation. However,
the outcome of complex litigation is uncertain and cannot be predicted at this
time. Any unanticipated adverse result could have a material adverse effect on
our financial condition and results of operations.
Mammary Implant Litigation. During the year ended June 30, 1988, Porex
began distributing silicone mammary implants in the United States pursuant to a
distribution arrangement with a Japanese manufacturer.
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Because of costs associated with increased government regulation and
examination, Porex's supplier determined to withdraw its implants from the
United States market. On July 9, 1991, the FDA mandated a recall of all implants
manufactured by companies that elected not to comply with certain FDA
regulations regarding data collection. Accordingly, Porex notified all of its
customers not to use any implants sold by Porex and to return such implants to
Porex for a full refund. Porex had ceased offering implants for sale prior to
the recall date. Porex believes that after accounting for implants returned to
it, the aggregate number of recipients of implants distributed by Porex under
the Distribution Agreement in the United States totals approximately 2,500.
Since March 1991, Porex has been named as one of many co-defendants in
a number of actions brought by recipients of implants. Certain of the actions
against Porex have been dismissed where it was determined that the implant in
question was not distributed by Porex. In addition, as of January 20, 2000, 201
actions and 44 out-of-court claims were pending against Porex. Of the 201
actions, 82 involve implants identified as distributed by Porex and 86 cases
involve implants identified as not having been distributed by Porex. In the
remaining 33 actions, the implants have not been identified. During the fiscal
year ended June 30, 1999, there were 36 implant-related claims made against
Porex by individuals as compared with 16 claims made during the fiscal year
ended June 30, 1998 and 24 claims made during the fiscal year ended June 30,
1997. For the six months ended December 31, 1999, 8 claims were made.
The typical case or claim alleges that the individual's mammary
implants caused one or more of a wide range of ailments. These implant cases and
claims generally raise difficult and complex factual and legal issues and are
subject to many uncertainties and complexities, including, but not limited to,
the facts and circumstances of each particular case or claim, the jurisdiction
in which each suit is brought, and differences in applicable law. We do not have
sufficient information to evaluate each case and claim.
In 1994, Porex was notified that its insurance carrier would not renew
its then-existing insurance coverage after December 31, 1994 with respect to
actions and claims arising out of Porex's distribution of implants. However,
Porex has exercised its right, under such policy, to purchase extended reporting
period coverage with respect to such actions and claims. Such coverage provides
insurance, subject to existing policy limits but for an unlimited time period,
with respect to actions and claims made after December 31, 1994 that are based
on events that occurred during the policy period. In addition, Porex has
purchased extended reporting period coverage with respect to other excess
insurance. This coverage also extends indefinitely, replacing coverage which
would by its terms have otherwise expired by December 31, 1997. We will continue
to evaluate the need to purchase further extended reporting period coverage from
excess insurers to the extent such coverage is reasonably available. We believe
that our present coverage, together with Porex's insurance policies in effect on
or before December 31, 1994, should provide adequate coverage against
liabilities that could result from actions or claims arising out of Porex's
distribution of implants. To the extent that certain of such actions and claims
seek punitive and compensatory damages arising out of alleged intentional torts,
if awarded such damages may or may not be covered, in whole or in part, by
Porex's insurance policies. In addition, Porex's recovery from its insurance
carriers is subject to policy limits and certain other conditions.
We believe that Porex has a valid claim for indemnification under the
distribution agreement with respect to any liabilities that could result from
pending actions or claims by recipients of implants or any similar actions or
claims that may be commenced in the future. However, Porex's right to
indemnification is subject to a disagreement with the manufacturer. Pending the
resolution of such disagreement, the manufacturer has been paying a portion of
the costs of the settled claims.
Based on the foregoing, we believe that the possibility is remote that
pending actions and claims that may be commenced or made in the future could,
individually or in the aggregate, pose a material risk to the financial position
of our company or our results of operations, although we cannot assure you of
this.
Medical Manager Health Systems Year 2000 Litigation. A class action
lawsuit was brought against Medical Manager Health Systems alleging Year 2000
issues regarding The Medical Manager software in versions prior to Version 9.0.
Seven additional lawsuits were also brought against Medical Manager Health
Systems, each
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purporting to sue on behalf of those similarly situated and raising essentially
the same issues. In March 1999, we entered into an agreement to settle the class
action lawsuit, as well as five of the seven other similar cases. The settlement
created a settlement class of all purchasers of Version 7 and 8 and upgrades to
Version 9 of The Medical Manager software, and released Medical Manager Health
Systems from Year 2000 claims arising out of the sales of these versions of our
product. Under the terms of the settlement, Version 8.12, containing our Version
of 8.11 software with a Year 2000 patch, will be licensed without a license fee
to Version 7 and 8 users who participate in the settlement. In addition, the
settlement also provided that participating users who purchased a Version 9
upgrade had the option to obtain one of four optional modules from us without a
license fee, or to elect to take a share of a settlement cash fund. The
settlement required Medical Manager Health Systems to make a cash payment of
$1,455,000. Pursuant to the settlement, we were released from liability due to
the Year 2000 non-compliance of Versions 7 and 8 by all users of Version 7 and 8
except 29 users who opted-out of the class settlement and could potentially
still bring lawsuits against our company.
Medical Manager Health Systems Securities Laws Litigation. A lawsuit
was filed against Medical Manager Health Systems and certain of its officers and
directors, among other parties, on October 23, 1998 in the United States
District Court for the Middle District of Florida. The class period is alleged
to be between April 23, 1998 and August 5, 1998. The lawsuit, styled George
Ehlert, et al. vs. Michael A. Singer, et al., purports to bring an action on
behalf of the plaintiffs and others similarly situated to recover damages for
alleged violations of the federal securities laws and Florida laws arising out
of our issuance of allegedly materially false and misleading statements covering
our business operations, including the development and sale of our principal
product, during the class period. An amended complaint was served on March 2,
1999. The amended complaint was dismissed on a motion to dismiss but this
dismissal is currently being appealed. The lawsuit seeks, among other things,
compensatory damages in favor of the plaintiffs and the other purported class
members and reasonable costs and expenses. We believe that this lawsuit is
without merit and intend to vigorously defend against it.
Each of our businesses is subject to significant competition.
Healthcare Electronic Commerce Business. The market for healthcare
e-commerce is in its infancy and is undergoing rapid technological change.
Competition will potentially come from several areas, including traditional
healthcare software vendors, electronic data interchange network providers,
emerging e-commerce companies or others. Traditional healthcare software vendors
typically provide some form of physician office practice management system.
These organizations focus primarily on the administrative functions in the
healthcare setting and include companies like Medic and IDX. Electronic data
interchange network providers and claims clearinghouses like Envoy and National
Data Corporation (NDC) provide connectivity to edit and transmit data on medical
and pharmacy claims. These competitors offer services which may be competitive
with CareInsite's healthcare e-commerce services. Companies like
Healtheon/WebMD, which recently announced the signing of a definitive agreement
to acquire Envoy, and other emerging e-commerce companies offer a range of
services which compete with CareInsite's services. Some of CareInsite's
competitors have services that are currently in operation. Some of CareInsite's
competitors also have greater financial, technological and marketing resources
than CareInsite. We cannot assure you that future competition will not have a
material adverse effect on CareInsite, and thus our company's, results of
operations, financial condition or business.
Physician Practice Management Information Systems Business. The market
for practice management systems such as The Medical Manager practice management
system is highly competitive. Medical Manager Health Systems' competitors vary
in size and in the scope and breadth of the products and services that they
offer. Medical Manager Health Systems competes with different companies in each
of its target markets. Many of Medical Manager Health Systems' competitors have
greater financial, development, technical, marketing and sales resources than
Medical Manager Health Systems. In addition, other entities not currently
offering products and services similar to those offered by Medical Manager
Health Systems, including claims processing organizations, hospitals,
third-party administrators, insurers, healthcare organizations and others, may
enter certain markets in which Medical Manager Health Systems competes. We
cannot assure you that future competition will not have a material adverse
effect on Medical Manager Health Systems', and thus our company's, results of
operations, financial condition or business.
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Plastics and Filtration Technologies Business. Competition in Porex's
plastic products business is characterized by the introduction of competitive
products at lower prices. We believe that Porex's principal competitive
strengths are its manufacturing processes, quality control, relationship with
its customers and distribution of its proprietary health care products.
In the porous plastics area, Porex's competitors include other
producers of porous plastic materials as well as companies that manufacture and
sell products made from materials other than porous plastics which can be used
for the same purposes as Porex's products. In this field, Porex has several
direct competitors in the United States, Europe and Asia. Porex's porous plastic
pen nibs compete with felt and fiber tips manufactured by a variety of suppliers
worldwide. Other Porex industrial products made of porous plastic compete,
depending on the industrial application, with porous metals, metal screens,
fiberglass tubes, pleated paper, resin-impregnated felt, ceramics and other
substances and devices.
The market for Porex's injection molded solid plastic components and
products, including its medical products, is highly competitive and highly
fragmented. Porex's pipette tips and racks also compete with similar products
manufactured by domestic and foreign manufacturers. Porex's injection molding
and mold making services compete with services offered by several foreign and
domestic companies. The MEDPOR(R) Biomaterial products compete for surgical use
against autogenous and allograph materials and alloplastic biomaterials. Porex's
surgical drains and markers compete against a variety of products from several
manufacturers.
Rapidly changing technology may adversely affect our healthcare
businesses. All businesses which rely on technology, including the healthcare
e-commerce business that we are developing, are subject to, among other risks
and uncertainties:
o rapid technological change;
o changing customer needs;
o frequent new product introductions; and
o evolving industry standards.
Internet technologies are evolving rapidly, and the technology used by
any e-commerce business is subject to rapid change and obsolescence. These
market characteristics are exacerbated by the emerging nature of the market and
the fact that many companies are expected to introduce new Internet products and
services in the near future. In addition, use of the Internet may decrease if
alternative protocols are developed or if problems associated with increased
Internet use are not resolved. As the communications, computer and software
industries continue to experience rapid technological change, we must be able to
quickly and successfully modify our services so that they adapt to such changes.
We cannot assure you that we will not experience difficulties that could delay
or prevent the successful development and introduction of our healthcare
e-commerce services or that we will be able to respond to technological changes
in a timely and cost-effective manner. Moreover, technologically superior
products and services could be developed by competitors. These factors could
have a material adverse effect upon our business prospects.
The market for Medical Manager Health Systems' products is also
characterized by rapid change and technological advances requiring ongoing
expenditures for research and development and the timely introduction of new
products and enhancements of existing products. Medical Manager Health Systems'
future success will depend, in part, upon its ability to enhance its current
products, to respond effectively to technological changes, to sell additional
products to its existing client base and to introduce new products and
technologies that address the increasingly sophisticated needs of its clients.
Medical Manager Health Systems is devoting significant resources to the
development of enhancements to its existing products and the migration of
existing products to new software platforms. We cannot assure you that Medical
Manager Health Systems will successfully complete the development of new
products or the migration of products to new platforms or that Medical Manager
Health Systems' current or
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future products will satisfy the needs of the market for practice management
systems. Further, we cannot assure you that products or technologies developed
by others will not adversely affect Medical Manager Health Systems' competitive
position or render its products or technologies noncompetitive or obsolete.
These factors could have a material adverse effect upon our business prospects.
Our business could suffer if we are unable to protect our intellectual
property. The success of our businesses is dependent to a significant extent on
each business's ability to protect the proprietary and confidential aspects of
its technology. With certain exceptions relating to Porex, the technology
relating to our operating subsidiaries is not patented and existing copyright
laws offer only limited practical protection. Our businesses rely on a
combination of trade secret, copyright and trademark laws, license agreements,
nondisclosure and other contractual provisions and technical measures to
establish and protect their proprietary rights. We cannot assure you that the
legal protections afforded to our businesses or the steps taken by our
businesses will be adequate to prevent misappropriation of their technology. In
addition, these protections do not prevent independent third-party development
of competitive products or services. We believe that our businesses' products,
services, trademarks and other proprietary rights do not infringe upon the
proprietary rights of third parties. We cannot assure you that, however, that
third parties will not assert infringement claims against our businesses or that
any such assertion will not require our businesses to enter into a license
agreement or royalty arrangement with the party asserting the claim. As
competing healthcare information systems increase in complexity and overall
capabilities and the functionality of these systems further overlap, providers
of such systems may become increasingly subject to infringement claims.
Responding to and defending any such claims may distract the attention of our
management and otherwise have a material adverse effect on our results of
operations, financial condition or business.
Government regulation of our principal businesses could adversely
affect our financial condition and results of operations. Each of our businesses
is subject to government regulation.
Healthcare Electronic Commerce Business. Participants in the
healthcare industry are subject to extensive and frequently changing regulation
at the federal, state and local levels. The Internet and its associated
technologies are also subject to government regulation. Many existing laws and
regulations, when enacted, did not anticipate the types of healthcare e-commerce
services that CareInsite is deploying. Our company believes, however, that these
laws and regulations may nonetheless be applied to CareInsite's healthcare
e-commerce business. Application of present or future laws or regulations to
CareInsite's business could have a material adverse effect on our business,
financial condition or results of operations.
Current laws and regulations which may affect the healthcare
e-commerce industry relate to the following:
o confidential patient medical record information;
o the electronic transmission of information from physicians'
offices to pharmacies, laboratories and other healthcare
industry participants;
o the use of software applications in the diagnosis, cure,
treatment, mitigation or prevention of disease;
o health maintenance organizations, insurers, healthcare service
providers and/or employee health benefit plans; and
o the relationships between or among healthcare providers.
We expect CareInsite to conduct its healthcare e-commerce business in
substantial compliance with all material federal, state and local laws and
regulations governing its operations. However, the impact of regulatory
developments in the healthcare industry is complex and difficult to predict, and
we cannot assure you that CareInsite will not be materially adversely affected
by existing or new regulatory requirements or interpretations. It is also
possible that such requirements or interpretations could limit the effectiveness
of the use of the Internet for the types of healthcare e-commerce services that
CareInsite is deploying or even prohibit the sale of these services.
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Healthcare service providers, payers, and plans are also subject to a
wide variety of laws and regulations that could affect the nature and scope of
their relationships with CareInsite. Laws regulating health insurance, health
maintenance organizations and similar organizations, as well as employee benefit
plans, cover a broad array of subjects, including licensing requirements,
grievance and appeal procedures, and others. Laws governing healthcare
providers, payers and plans are often not uniform between states, and could
require CareInsite to undertake the expense and difficulty of tailoring
CareInsite's business procedures, information systems, or financial
relationships in order for its customers to be in compliance with applicable
laws and regulations. Compliance with such laws could also interfere with the
scope of CareInsite's services, or make them less cost-effective for
CareInsite's customers.
CareInsite and its customers and suppliers are subject to numerous
federal and state laws and regulations that govern the financial relationships
between entities in the healthcare industry. A federal law commonly known as the
Federal Health Care Programs antikickback law, and several similar laws,
prohibit payments that are intended to induce physicians or others either to
refer patients or to purchase, order or arrange for or recommend the purchase of
healthcare products or services, including laboratory services and
pharmaceuticals. Another federal law, commonly known as the "Stark" law,
prohibits physicians from referring Medicare and Medicaid patients for
designated health services to entities with which they have a financial
relationship, unless that relationship qualifies for an explicit exception to
the referral ban. We cannot assure you that CareInsite's present or future
arrangements will not be challenged, required to be changed, or subject to
sanctions under these laws and any future laws or regulations. Any such
challenge or change, including any related sanctions which might be assessed,
could have a material adverse effect on our operations, revenue and earnings.
Because of the Internet's popularity and increasing use, new laws and
regulations with respect to the Internet are becoming more prevalent. Such laws
and regulations have covered, or may cover in the future, issues such as:
o security, privacy and encryption;
o pricing;
o content;
o copyrights and other intellectual property;
o contracting and selling over the Internet;
o distribution; and
o characteristics and quality of services.
Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve. Any new legislation or regulation regarding the Internet, or the
application or existing laws and regulation to the Internet, could adversely
affect our business.
CareInsite is subject to extensive federal and state laws and
regulations relating to the transmission, disclosure and use of confidential
medical information, including, among others, the Health Insurance Portability
and Accountability Act of 1996 and related rules proposed by the Health Care
Financing Administration, state privacy and confidentiality laws, Medicare and
Medicaid laws, state pharmacy laws, and Health Care Financing Administration
standards for the Internet transmission of data. New laws and regulations
governing confidential medical information may be adopted at both the state and
federal level, including proposed regulations pursuant to the Health Insurance
Portability and Accountability Act of 1996. The Secretary of Health and Human
Services is promulgating rules governing the use and disclosure of individually
identifiable healthcare information, in the event
18
<PAGE>
that Congress does not enact measures designed to comply with any new
legislation. Laws and regulations governing confidential medical information may
restrict CareInsite's ability to conduct its business under certain
circumstances or for certain purposes, or in a particular format, such as
electronically.
Other legislation currently being considered at the federal level
could affect CareInsite's business. For example, the Health Insurance
Portability and Accountability Act of 1996 also mandates the use of standard
transactions, standard identifiers, security and other provisions by the year
2000, for healthcare information that is electronically transmitted, processed,
or stored. CareInsite is designing its services to comply with these proposed
regulations; however, these regulations are subject to significant modification
prior to becoming final, which could cause CareInsite to use additional
resources and lead to delays in order to revise its services. In addition,
CareInsite's ability to electronically transmit information in carrying out
business activities depends on other healthcare providers and payers complying
with these regulations.
Physician Practice Management Information Systems Business. The Food
and Drug Administration has jurisdiction under the 1976 Medical Device
Amendments to the Federal Food, Drug and Cosmetic Act, which we refer to in this
prospectus as the FDA 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. The FDA has issued a final rule
under which manufacturers of medical image storage devices and related software
are required to submit to the FDA premarket notification applications, which are
each referred to in this document as a 510(k) Application, and otherwise comply
with the requirements of the FDA Act applicable to medical devices. Medical
Manager Health Systems is distributing in the United States a medical image
management device, which is referred to in this document as the "image module",
which was cleared by the FDA on April 4, 1997 and is manufactured by a third
party in accordance with specifications set forth in the cleared 510(k)
Application. Medical Manager Health Systems has created an interface between The
Medical Manager practice management system and the image module and is marketing
the interface and the image module as the Document Image Module System. Medical
Manager Health Systems believes that the addition of its practice management
system to the image module does not change the image module's intended use or
significantly change the safety or efficacy of the product such that a new
510(k) Application is required. The FDA is currently reviewing its policy for
the regulation of computer software, and there is a risk that The Medical
Manager software could in the future become subject to some or all of the above
requirements, which could have a material adverse effect on our results of
operations, financial condition or business.
Plastics and Filtration Technologies Business. Porex manufactures and
distributes certain medical/surgical devices, such as plastic and reconstructive
surgical implants and tissue expanders, which are subject to government
regulations, under the Medical Device Amendments of 1976 to the FDA Act, which
is referred to in this document as "the FDA Act", and additional regulations
promulgated by the Food and Drug Administration. Future healthcare products may
also be subject to such regulations and approval processes. Compliance with such
regulations and the process of obtaining approvals can be costly, complicated
and time-consuming, and we cannot assure you that such approvals will be granted
on a timely basis, if ever.
Government healthcare reform proposals may have a negative effect on
our Healthcare Electronic Commerce Business and our Physician Practice
Management Information Systems Business. The healthcare industry in the United
States is subject to changing political, economic and regulatory influences that
may affect the procurement practices and operations of healthcare organizations.
The products and services of our Healthcare Electronic Commerce Business and our
Physician Practice Management Information Systems Business are designed to
function within the structure of the healthcare financing and reimbursement
system currently being used in the United States. During the past several years,
the healthcare industry has been subject to increasing levels of government
regulation of, among other things, reimbursement rates and certain capital
expenditures. From time to time, certain proposals to reform the healthcare
system have been considered by Congress. These proposals, if enacted, may
increase government involvement in healthcare, lower reimbursement rates and
otherwise change the operating environment for participants in the healthcare
industry, including providers and payers. Healthcare organizations may react to
these proposals, and the uncertainty surrounding such proposals, by curtailing
or deferring investments and expenditures, including those for products and
services of our Healthcare Electronic
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<PAGE>
Commerce Business and our Physician Practice Management Information Systems
Business. We cannot predict with any certainty what impact, if any, such
proposals or healthcare reforms might have on our results of operations,
financial condition or business.
Our business could still be negatively affected by year 2000 computer
problems. Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries for the year in the date
code field. This problem is often referred to as the Year 2000 problem. These
systems and software products need to accept four digit year entries to
distinguish 21st century dates from 20th century dates. Though we did not
experience any year 2000 problems on January 1, 2000, additional year 2000
problems may become evident after that date.
We believe that the systems of our CareInsite, Medical Manager Health
Systems, and Porex businesses are year 2000 compliant and, to date, those
systems have not experienced any year 2000 problems. Although each of our
businesses continues to have contingency plans in place for operational problems
which may arise as a result of a year 2000 problem, we cannot assure you that
year 2000 issues will not potentially pose significant operational problems or
have a material adverse effect on our business, financial condition and results
of operations in the future.
We are not aware of any material year 2000 problems encountered by
suppliers or customers of our businesses to date but have not yet obtained
confirmations from such suppliers and customers that they did not experience
year 2000 problems. Accordingly, we cannot determine whether any suppliers have
experienced year 2000 problems that may impact their ability to supply us with
equipment and services or any customers have experienced disruptions to their
business. Further, we cannot determine the state of their year 2000 readiness on
a going forward basis. We cannot assure you that our suppliers and customers
will be successful in ensuring that their systems have been and will continue to
be or will be year 2000 compliant or that their failure to do so will not have
an adverse effect on our business, financial condition and results of
operations.
Risks Relating to the Securities Market and Ownership of Our Common Stock
Certain Antitakeover Effects Could Affect the Market Price of Our
Common Stock. Provisions in our Certificate of Incorporation relating to the
delegation of rights to issue preferred stock may have the effect not only of
discouraging tender offers or other stock acquisitions but also of deterring
existing stockholders from making management changes. In addition, if we do not
redeem the Debentures as we have described in this prospectus, the requirement
that we repurchase up to the aggregate $159.4 million principal amount of our
Debentures, at the option of the holder, upon the occurrence of a designated
event may, in certain circumstances, make more difficult or discourage a
takeover of our company. Further, as of December 31, 1999, Messrs. Wygod, Singer
and Kang collectively beneficially owned approximately 27.3% of the outstanding
shares of our common stock. Due to their ownership of these shares, these
individuals may be in a position to influence the election of our board of
directors, as well as the direction and future operations of our company. Their
ownership could also make more difficult or discourage a takeover of our
company. Each of these factors could affect the market price of our common
stock.
20
<PAGE>
USE OF PROCEEDS
The proceeds, if any, received by our company from the sale of common
stock to the Purchasers pursuant to standby arrangements described in this
prospectus in the section entitled "Standby Arrangements" will be used to pay
the Redemption Price of Debentures not duly tendered for conversion. Any other
amounts received by our company from the Purchasers pursuant to the standby
arrangements described in this prospectus will be used for general corporate
purposes. The amount of the proceeds, if any, to be received by our company from
the Purchasers is not determinable at this time, as neither the number of
shares, if any, that will be sold to the Purchasers nor the amount of any
profit, if any, that the Purchasers will realize upon resale of such shares and
will be required to share with our company can be determined at this time. We
will not receive any proceeds from the issuance of common stock upon conversion
of Debentures.
21
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is subject to the
Delaware General Corporation Law and to provisions contained in our Certificate
of Incorporation and By-laws. Copies of our Certificate of Incorporation and
By-laws are exhibits to our Current Report on Form 8-K dated July 27, 1999,
which is incorporated by reference in this prospectus. You should refer to such
exhibits for a detailed description of the provisions that are summarized below.
Authorized Capital
Our authorized capital stock consists of 300,000,000 shares of common
stock, $.01 par value, and 10,000,000 shares of preferred stock, $.01 par value.
Holders of our common stock have no preemptive or other subscription rights.
Common Stock
On December 31, 1999, there were 35,248,810 outstanding shares of our
common stock. We believe that our common stock is beneficially held by at least
400 stockholders.
The holders of our common stock are entitled to one vote per share on
all matters submitted to a vote of the stockholders. Holders of our common stock
do not have cumulative voting rights. Therefore, holders of more than 50% of the
shares of our common stock are able to elect all directors eligible for election
each year. The holders of common stock are entitled to dividends and other
distributions out of assets legally available if and when declared by our board
of directors. Upon our liquidation, dissolution or winding up, the holders of
our common stock are entitled to share pro rata in the distribution of all of
our assets remaining available for distribution after satisfaction of all
liabilities, including any prior rights of any preferred stock which may be
outstanding. There are no redemption or sinking fund provisions applicable to
our common stock.
The transfer agent and registrar for the common stock is Registrar &
Transfer Company.
Preferred Stock
There are no shares of preferred stock outstanding. Series of the
preferred stock may be created and issued from time to time by our board of
directors, with such rights and preferences as they may determine. Because of
its broad discretion with respect to the creation and issuance of any series of
preferred stock without stockholder approval, our board of directors could
adversely affect the voting power of our common stock. The issuance of preferred
stock may also have the effect of delaying, deferring or preventing a change in
control of the company.
Section 203 of the Delaware General Corporation Law
Generally, Section 203 of the Delaware General Corporation Law
prohibits a publicly held Delaware corporation from engaging in any business
combination with an interested stockholder for a period of three years following
the time that such stockholder became an interested stockholder, unless:
o prior to such time either the business combination or the
transaction which resulted in the stockholder becoming an
interested stockholder is approved by our board of directors;
o upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding, for purposes of determining the number of shares
outstanding, those shares owned (A) by persons who are both
directors and officers and (B) certain employee stock plans;
or
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<PAGE>
o at or after such time the business combination is approved by
the board and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the interested stockholder.
A business combination includes certain mergers, consolidations, asset sales,
transfers and other transactions resulting in a financial benefit to the
interested stockholder. An interested stockholder is a person who, together with
affiliates and associates, owns (or within the preceding three years, did own)
15% or more of the corporation's voting stock.
Indemnification
Our By-laws require us to indemnify each of our directors and officers
to the fullest extent permitted by law and limits the liability of our directors
and officers for monetary damages in certain circumstances.
Article Thirteen of our Certificate of Incorporation provides that no
director shall have any personal liability to the company or its stockholders
for any monetary damages for breach of fiduciary duty as a director, provided
that such provision does not limit or eliminate the liability of any director:
o for breach of such director's duty of loyalty to our company
or our stockholders;
o for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
o under Section 174 of the Delaware General Corporation Law
(involving certain unlawful dividends or stock repurchase); or
o for any transaction from which such director derived an
improper personal benefit. Amendment to such article does not
affect the liability of any director for any act or omission
occurring prior to the effective time of such amendment.
STANDBY ARRANGEMENTS
Our company and the Purchaser have entered into a standby purchase
agreement pursuant to which the Purchaser has agreed, subject to certain
conditions, to purchase from us the shares of common stock that are not issued
due to the decision of certain holders of Redeemed Debentures not to convert
those Debentures into common stock. The aggregate purchase price paid by the
Purchaser for the Shares will be equal to the aggregate Redemption Price of the
Redeemed Debentures. Up to 2,656,466 shares of Common Stock are subject to
purchase under the Standby Agreement. The actual number of shares to be
purchased by the Purchaser will be the number of shares that otherwise will have
been issuable upon conversion of Debentures that are either (i) duly surrendered
for redemption or (ii) not duly surrendered for conversion by the Conversion
Expiration Date or for redemption by the Redemption Date by persons other than
the Purchaser. The Debentures referred to in clauses (i) and (ii) are referred
to in this prospectus as the Redeemed Debentures. We refer to the shares of
common stock that may be purchased by the Purchaser pursuant to the standby
purchase agreement in this prospectus as the Shares.
The Purchaser also may acquire Debentures for its own account in the
open market or otherwise on or prior to the Conversion Expiration Date in the
amounts and at the prices as the Purchaser deems advisable. For the purpose of
stabilizing the price of the common stock, engaging in certain hedging
transactions or otherwise, the Purchaser may make purchases and sales of common
stock or Debentures, in the open market or otherwise, for long or short account,
on such terms as the Purchaser deems advisable, and may over-allot in arranging
sales, all subject to applicable provisions of the 1934 Act. Such transactions
involving Debentures may occur prior to or on the Conversion Expiration Date,
and the Purchaser has agreed to surrender for conversion into common stock any
Debentures beneficially owned by it on the Conversion Expiration Date, but
will not be compensated by us upon
23
<PAGE>
any subsequent sale of such shares of common stock. The Purchaser has not been
retained with respect to the redemption of the Debentures or the issuance of
common stock to holders of Debentures who elect to surrender their Debentures
for conversion or to solicit conversion of the Debentures and will receive no
remuneration in connection therewith.
Prior to and after the Redemption Date, the Purchaser may offer to the
public shares of common stock, including shares acquired through conversion of
Debentures purchased by the Purchaser as described above, at prices set by it
from time to time and to dealers at such prices less a selling concession to be
determined by the Purchaser. Sales of common stock by the Purchaser may be made
on the Nasdaq National Market, in block trades, in the over the counter market,
in privately negotiated transactions or otherwise, from time to time. In
effecting such sales, the Purchaser may realize profits or incur losses
independent of the compensation described below. Any common stock offered by the
Purchaser will be subject to prior sale, to receipt and acceptance by them and
to the approval of certain legal matters by legal counsel. The Purchaser
reserves the right to reject any order in whole or in part and to withdraw,
cancel or modify the offer without notice.
Pursuant to the terms of the standby purchase agreement and in
consideration of the Purchaser's obligations thereunder, we have agreed to pay
to the Purchaser the sum of $2,000,000 plus an additional 3.5% of the purchase
price for each Share purchased by the Purchaser pursuant to the standby
agreement. Pursuant to the foregoing arrangements, the Purchaser would receive
minimum compensation aggregating $2,000,000 and maximum compensation aggregating
$7,578,580. We have agreed to reimburse the Purchaser for its reasonable
out-of-pocket expenses in connection with the transaction contemplated by the
standby purchase agreement and to indemnify the Purchaser against, and to
provide contribution with respect to, certain liabilities, including liabilities
under the 1933 Act. Our chairman, Mr. Wygod, has agreed to convert all of the
$6,000,000 of Debentures held by him and his immediate family prior to the
Conversion Expiration Date.
We have agreed to bear all expenses (other than any commissions or
discounts of underwriters, dealers or agents or brokers' fees and the fees and
expenses of their counsel) in connection with the registration of the shares
being offered by the Purchaser hereby.
Pursuant to the standby purchase agreement, our company has agreed,
subject to certain exceptions, that, if the Purchaser actually purchases any
shares under the standby purchase agreement, for a period of 90 days from
January 28, 2000, the date of execution of the standby purchase agreement, it
will not, without the prior written consent of the Purchaser, directly or
indirectly offer to sell, sell, grant any option (exercisable before 90 days
after January 28, 2000), for the sale of or otherwise dispose of any shares of
our common stock or securities convertible into or exchangeable for any shares
of our common stock or any right or option ot acquire any of our shares or
securities.
These restrictions do not apply to:
24
<PAGE>
o any shares of our common stock or other securities convertible
into or exchangeable for our common stock that are granted
pursuant to any director or employee benefit or stock option
plans;
o any shares of our common stock issued pursuant to any
outstanding options or warrants or other convertible
securities; and
o any shares of our common stock or other securities convertible
into or exchangeable for our common stock that our company
issues as a consideration in an acquisition of the stock or
assets of another entity (including an acquisition or
licensing of intellectual property or other intangible
rights).
During and after the offering, the Purchaser may purchase and sell the
common stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. The Purchaser also may impose a penalty
bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the common stock sold in the offering for their
account may be reclaimed by the syndicate if such securities are repurchased by
the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market of the common stock which may
be higher than the price that might otherwise prevail in the open market. These
transactions may be effected on The Nasdaq National Market, in the
over-the-counter market or otherwise, and these activities, if commenced, may be
discontinued at any time.
In order to comply with certain states' securities laws, if
applicable, the common stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
common stock may not be sold unless the common stock has been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of
the common stock offered hereby will be passed upon for our company by Shearman
& Sterling, New York, New York. Certain legal matters will be passed upon for
the Purchasers by Dewey Ballantine LLP, New York, New York. Shearman & Sterling
is a limited partner in SN Investors. SN Investors is a limited partnership, the
general partner of which is SYNC, Inc., whose sole stockholder is Martin J.
Wygod, Chairman of Medical Manager. SN Investors currently holds 5,061,857
shares of Medical Manager common stock.
EXPERTS
The consolidated financial statements of Medical Manager Corporation,
formerly known as Synetic, Inc., as of June 30, 1999 and 1998 and the three
years in the period ended June 30, 1999, the consolidated financial
25
<PAGE>
statements and schedule of The KippGroup as of and for the year ended December
31, 1998 and 1997, incorporated by reference in this prospectus, and the
consolidated financial statements of Physician Computer Network, Inc. as of
September 30, 1999 and December 1998 and for the nine months ended September 30,
1999 and the years ended December 31, 1998 and 1997, included in this
prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, and are incorporated or included herein in reliance upon the
reports of said firm, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Point Plastics, Inc. and
subsidiaries that are incorporated by reference into this prospectus have been
audited by Linkenheimer LLP, independent public accountants, indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the report of and the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Medical Manager Health
Systems, Inc., formerly Medical Manager Corporation, as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998,
incorporated by reference in this prospectus, have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in accounting and auditing.
26
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
On December 7, 1999, we entered into a definitive agreement to acquire
certain assets of Physician Computer Network, Inc. for a purchase price of $53
million plus the assumption of certain liabilities. Completion of the
acquisition is subject to confirmation of a plan of reorganization and certain
other customary closing conditions. We expect to complete the acquisition in the
quarter ending June 30, 2000, however, we cannot assure you that the acquisition
will be consummated. If consummated, the acquisition will be accounted for using
the purchase method of accounting. This transaction will be considered a taxable
transaction for federal, state and local income tax purposes.
The Unaudited Pro Forma Combined Condensed Consolidated Statements of
Operations have been presented as if the proposed acquisition had been
consummated at the beginning of the earliest period presented in the respective
Statements of Operations. Also presented is the Unaudited Pro Forma Combined
Condensed Consolidated Balance Sheet as of September 30, 1999 as if the proposed
acquisition had been completed on September 30, 1999.
Our fiscal year ends June 30, while Physician Computer Network's year
ends on December 31. For purposes of combining our historical financial data
with Physician Computer Network's historical financial data in the unaudited pro
forma combined condensed consolidated statements of operations: (a) the audited
financial data of our company for the fiscal year ended June 30, 1999 has been
combined with Physician Computer Network's unaudited financial data for the year
ended September 30, 1999; and (b) our unaudited financial data for the three
months ended September 30, 1999 has been combined with Physician Computer
Network's unaudited financial data for the three months ended September 30,
1999.
We have included this unaudited pro forma combined condensed
consolidated financial data only for the purpose of illustration, and it does
not necessarily indicate what the operating results or financial position would
have been if the proposed acquisition between our company and Physician Computer
Network had been completed at the dates indicated. Moreover, this data does not
necessarily indicate what the future operating results or financial position of
the combined company will be.
The total estimated purchase price of Physician Computer Network has
been allocated on a preliminary basis to the assets and liabilities based on
management's best estimates of their fair value with the excess over the net
tangible assets acquired allocated to goodwill. These allocations are subject to
change pending a final determination and analysis of the total purchase price
and the fair value of the assets acquired and liabilities assumed.
P-1
<PAGE>
Medical Manager Corporation
Pro Forma Combined Condensed Consolidated Statement of Operations
(Unaudited)
(in thousands, except per share data)
-------------------------------------
<TABLE>
<CAPTION>
Medical Manager Physician Computer
Corporation Historical Network, Inc. Historical
- Year Ended - Year Ended Pro Forma Pro Forma
June 30, 1999 September 30, 1999 Adjustments Combined
------------- ------------------ ----------- -----------
<S> <C> <C> <C> <C>
Net Sales................................... $ 258,032 $ 75,727 $ - $ 333,759
--------- ----------- ----------- -----------
Cost and expenses:
Cost of sales............................ 128,422 49,048 177,470
Selling, general and administrative...... 71,084 28,371 99,455
Litigation costs......................... 6,666 0 6,666
Research and development................. 18,597 4,589 23,186
Depreciation and amortization............ 14,680 5,983 (4,045)(2) 30,118
13,500 (1)
Interest and other income................ (20,454) (19,631) 1,010 (3) (29,237)
9,838 (6)
Interest and other expense............... 9,093 1,574 10,667
--------- ----------- ----------- -----------
Total costs and expenses............ 228,088 69,934 20,303 318,325
Income before provision for taxes........... 29,944 5,793 (20,303) 15,434
Provision for taxes......................... 12,258 100 (4,186)(4) 8,172
--------- ----------- ----------- -----------
Income before loss on equity investment..... $ 17,686 $ 5,693 $ (16,117) $ 7,262
Loss on equity investment................... - (627) -- (627)
--------- ----------- ----------- -----------
Net income.................................. $ 17,686 $ 5,066 $ (16,117) $ 6,635
========= =========== =========== ===========
Income per share - basic:
Net income (loss) per share.............. $ 0.53 $ 0.20
========= ===========
Weighted average shares outstanding...... 33,419 532 (5) 33,951
========= =========== ===========
Income per share - diluted:
- --------------------------
Net income (loss) per share.............. $ 0.48 $ 0.18
========= ===========
Weighted average shares outstanding...... 36,538 532 (5) 37,070
========= ============ ===========
</TABLE>
P-2
<PAGE>
Medical Manager Corporation
Pro Forma Combined Condensed Consolidated Statement of Operations
(Unaudited)
(in thousands, except per share data)
-------------------------------------
<TABLE>
<CAPTION>
Medical Manager Physician Computer
Corporation Historical Network, Inc. Historical
- 3 Months Ended - 3 Months Ended Pro Forma Pro Forma
September 30, 1999 September 30, 1999 Adjustments Combined
------------------ ------------------ ------------- ---------
<S> <C> <C> <C> <C>
Net Sales................................... $ 76,660 $ 17,328 $ - $ 93,988
-------------- ---------- ------------- ---------
Cost and expenses:
Cost of sales............................ 38,640 10,206 48,846
Selling, general and administrative...... 20,631 7,627 28,258
Litigation costs......................... 650 0 650
Merger expenses.......................... 17,991 0 17,991
Research and development................. 5,340 866 6,206
Depreciation and amortization............ 5,375 1,306 (787)(2) 9,269
3,375 (1)
Interest and other income................ (6,973) (9,859) 252 (3) (6,742)
9,838 (6)
Interest and other expense............... 2,279 190 2,469
-------------- ---------- ------------- ---------
Total costs and expenses............ 83,933 10,336 12,678 106,947
Income before provision for taxes........... (7,273) 6,992 (12,678) (12,959)
Provision for taxes......................... 2,809 100 (1,136)(4) 1,773
-------------- ---------- ------------- ---------
Income before loss on equity investment..... $ (10,082) $ 6,892 $ (11,542) $ (14,732)
Loss on equity investment................... - (13) -- (13)
-------------- ---------- ------------- ---------
Net income.................................. $ (10,082) $ 6,879 $ (11,542) $ (14,745)
============== ========== ============= =========
Income per share - basic:
Net income (loss) per share.............. ($ 0.29) ($0.42)
============== =========
Weighted average shares outstanding...... 34,907 532 (5) 35,439
============== ============= =========
Income per share - diluted:
Net income (loss) per share.............. ($0.29) ($0.42)
============== =========
Weighted average shares outstanding...... 34,907 532 (5) 35,439
============== ============= =========
</TABLE>
P-3
<PAGE>
Medical Manager Corporation
Pro Forma Combined Condensed Consolidated Balance Sheet
As of September 30, 1999
(Unaudited)
(in thousands)
-------------
<TABLE>
<CAPTION>
Medical Manager Physician Computer
Corporation Network, Inc. Pro Forma Pro Forma
Historical Historical Adjustments Combined
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Assets:
Currents assets:
Cash & cash equivalents................ $ 73,661 $ 2,146 $ (15,327)(7) $ 60,480
Marketable securities.................. 67,414 0 0 67,414
Accounts receivable, net............... 55,863 7,672 0 63,535
Other current assets................... 39,839 4,257 (1,150)(8) 42,946
------------- -------------- ------------ ----------
Total current assets........................ 236,777 14,075 (16,477) 234,375
Property, plant, and equipment, net......... 62,765 2,024 0 64,789
Marketable securities....................... 294,967 0 0 294,967
Capitalized software development costs...... 31,330 0 0 31,330
Goodwill and other intangibles.............. 187,773 21,101 (21,101)(10) 255,273
67,500 (9)
Other assets................................ 12,038 286 0 12,324
------------- -------------- ----------- ----------
Total assets................................ $ 825,650 $ 37,486 $ 29,922 $ 893,058
============= ============== =========== ==========
Liabilities and stockholders' equity:
Current liabilities......................... $ 78,497 $ 39,870 $ 1,500 (11) $ 107,826
(12,041)(8)
Long-term debt, less current portion........ 168,101 931 0 169,032
Minority interest in consolidated
subsidiary.............................. 65,709 0 0 65,709
Other liabilities........................... 33,382 0 0 33,382
37,148 (12)
Stockholders' equity........................ 479,961 (3,315) 3,315 (13) 517,109
------------- -------------- ---------- ----------
Total liabilities and stockholders' equity.. $ 825,650 $ 37,486 $ 29,922 $ 893,058
============= ============== =========== ==========
</TABLE>
P-4
<PAGE>
Notes to Pro Forma Combined Condensed Consolidated
Financial Statements
(unaudited)
The Unaudited Pro Forma Combined Condensed Consolidated Statements of
Operations have been prepared to reflect the acquisition as if it had occurred
at the beginning of the respective periods presented. The acquisition will be
accounted for under the purchase method of accounting. The excess of the
purchase price over the fair value of the net assets acquired will be amortized
over 5 years.
The following is a summary of the adjustments reflected in the
Unaudited Pro Forma Combined Condensed Consolidated Statements of Operations (in
thousands):
1. Represents the amortization of the excess of the purchase
price over the net assets acquired of Physician Computer
Network.
2. Represents the elimination of historical amortization of
goodwill.
3. Represents the decrease in interest income to reflect (a) the
payment of the cash portion of the purchase price and (b) the
estimated expenses associated with the acquisition.
4. Represents the tax effect of the adjustments to the Unaudited
Pro Forma Combined Condensed Consolidated Statements of
Operations (excluding the elimination of the gain on the sale
of the Wismer Martin division of Physician Computer Network to
Medical Manager Corporation in July 1999), based on a
combined federal and state effective tax rate of 40% for all
periods presented.
5. Represents the increase in the number of outstanding shares of
our common stock to reflect the payment of the stock portion
of the purchase price. The market price used in the
calculation represents the average of the closing sale price
of a share of our common stock (referred to in this prospectus
as the Sale Price) for the seven days including the date of
the Asset Purchase Agreement and the three days before and the
three days after the date of the Asset Purchase Agreement. The
final calculation will be based on the average closing Sale
Price during the ten trading days immediately preceding (and
not including) the Trigger Date (the third business day prior
to the closing date).
6. Represents the elimination of the gain on the sale of the
Wismer Martin division of Physician Computer Network to
Medical Manager Corporation in July 1999.
The Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet
was prepared to reflect the acquisition as of September 30, 1999.
The following is a summary of the adjustments reflected in the
Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet (in
thousands):
7. Represents the decrease in Cash and Cash Equivalents to
reflect the payment of the cash portion of the purchase price.
8. Represents assets and liabilities retained by Physician
Computer Network pursuant to the Asset Purchase Agreement.
9. Represents the preliminary estimate of the excess purchase
price over the net assets acquired as follows:
Purchase price (including $1,500 of transaction
expenses) $54,500
Book value of acquired net liabilities 13,525
P-5
<PAGE>
Less: excess of net liabilities over the permitted
amount (525)
-------
Sum of purchase price plus net liabilities
acquired $67,500
=======
The purchase price is subject to adjustment at the
time of closing. If the net liabilities acquired at the time
of closing as calculated pursuant to the Asset Purchase
Agreement is greater than $13,000 (referred to in the
prospectus as the Permitted Amount), then the purchase price
will be reduced by the excess over the Permitted Amount. The
purchase price will be reduced proportionately by one-third in
cash and two-thirds in stock. If the net liabilities at the
time of closing is less than the Permitted Amount (the amount
less being referred to as the Excess Amount), then the
adjustment to the purchase price will be increased based on
the following formula:
(i) if Excess Amount is $250 or less, there will be no
adjustment to the purchase price, or
(ii) if Excess Amount is greater than $250 but less than
$500 then the purchase price will be increased by the
excess over $250, or
(iii) if Excess Amount is greater than $500 then the
purchase price will be increased by $250 plus 50% of
the excess over $500;
provided, however, that the increase in the purchase price is
limited to the amount of Excess Cash, as calculated pursuant
to the Asset Purchase Agreement, included in the assets
acquired pursuant to the Asset Purchase Agreement.
10. Represents the elimination of Physician Computer Network's
historical goodwill.
11. Represents the amount of estimated costs for legal and
accounting services and other expenses associated with the
acquisition.
12. Represents the issuance of our common stock to reflect the
payment of the stock portion of the purchase price.
13. Represents the elimination of Physician Computer Network's
historical deficit.
P-6
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Physician Computer Network, Inc. -- A company we have agreed to acquire
Report of Independent Public Accountants..................................F-2
Consolidated Balance Sheets -- September 30, 1999 and December 31,
1998...................................................................F-4
Consolidated Statements of Operations for the nine months ended
September 30, 1999 and the years ended December 31, 1998 and 1997......F-5
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
for the nine months ended September 30, 1999 and the years ended
December 31, 1998 and 1997.............................................F-6
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and the years ended December 31, 1998 and 1997......F-7
Notes to Consolidated Financial Statements................................F-9
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors of
Physician Computer Network, Inc.:
We have audited the accompanying consolidated balance sheets of Physician
Computer Network, Inc. (a New Jersey corporation) and subsidiaries as of
September 30, 1999 and December 31, 1998, and the related consolidated
statements of operations, changes in shareholders' equity (deficit) and cash
flows for the nine months ended September 30, 1999 and the years ended December
31, 1998 and 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Physician Computer
Network, Inc. and subsidiaries as of September 30, 1999 and December 31, 1998
and the results of their operations and their cash flows for the nine months
ended September 30, 1999 and the years ended December 31, 1998 and 1997 in
conformity with generally accepted accounting principles.
F-2
<PAGE>
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, a working capital deficiency and is in default under its debt
obligations that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
December 6, 1999
F-3
<PAGE>
<TABLE>
<CAPTION>
PHYSICIAN COMPUTER NETWORK, INC.
--------------------------------
CONSOLIDATED BALANCE SHEETS - SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
----------------------------------------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents (Notes 2 and 6).................................. $ 2,146,000 $ 3,597,000
Accounts receivable, net of allowance for doubtful accounts of
$300,000 at September 30, 1999 and $500,000 at December 31, 1998....... 7,672,000 11,159,000
Inventories (Notes 2 and 4)................................................ 1,670,000 1,498,000
Prepaid expenses and other current assets.................................. 2,587,000 1,096,000
Restricted cash (Note 6)................................................... -- 1,000,000
----------------- -----------------
Total current assets.............................................. 14,075,000 18,350,000
INTANGIBLE ASSETS, net (Notes 2 and 3).......................................... 21,101,000 25,634,000
PROPERTY AND EQUIPMENT, net (Notes 2 and 5)..................................... 2,024,000 2,796,000
INVESTMENTS (Note 6)............................................................ 161,000 200,000
OTHER ASSETS.................................................................... 125,000 470,000
----------------- -----------------
Total assets.................................................. $ 37,486,000 $ 47,450,000
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
CURRENT LIABILITIES:
Line of credit (Note 8).................................................... $ 9,082,000 $ 15,412,000
Current portion of long-term debt (Note 8)................................. 473,000 984,000
Current portion of obligations under capital leases (Note 9)............... 185,000 478,000
Accounts payable........................................................... 5,260,000 6,662,000
Accrued expenses and other liabilities (Note 3)............................ 14,416,000 18,921,000
Customer deposits.......................................................... 8,000 867,000
Unearned income (Note 2)................................................... 10,446,000 10,096,000
----------------- -----------------
Total current liabilities..................................... 39,870,000 53,420,000
Long-term debt, net of current portion of obligations (Note 8)............. -- 392,000
Long-term capital leases, net of current portion (Note 9).................. 931,000 1,251,000
----------------- -----------------
Total liabilities............................................. 40,801,000 55,063,000
----------------- -----------------
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY (DEFICIT) (Notes 2 and 13):
Preferred stock, $0.01 par value; 11,000 shares issued and
outstanding at September 30, 1999 and December 31, 1998........... 10,291,000 8,998,000
Common stock, $0.01 par value, 75,000,000 authorized;
55,846,918 shares issued and 53,521,918 shares outstanding as of
September 30, 1999; 55,846,918 shares issued and 53,521,918 shares
outstanding at December 31, 1998.................................. 558,000 558,000
Additional paid-in capital............................................. 200,507,000 200,507,000
Accumulated deficit.................................................... (203,976,000) (206,981,000)
Treasury stock, 2,325,000 shares held at cost in 1999 and 1998......... (10,695,000) (10,695,000)
----------------- -----------------
Shareholders' equity (deficit).................................... (3,315,000) (7,613,000)
----------------- -----------------
Total liabilities and shareholders' equity (deficit).............. $ 37,486,000 $ 47,450,000
================= =================
</TABLE>
The accompanying notes to financial statements are an integral part of
these consolidated balance sheets.
F-4
<PAGE>
<TABLE>
<CAPTION>
PHYSICIAN COMPUTER NETWORK, INC.
--------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
1999 1998 1997
-------------------- --------------------- -----------------
<S> <C> <C> <C>
NET REVENUES (Note 2) $ 52,818,000 $ 86,922,000 $ 78,082,000
COST OF REVENUES (Note 4) 35,907,000 56,421,000 56,504,000
--------------- ---------------- ---------------
Gross margin 16,911,000 30,501,000 21,578,000
OPERATING EXPENSES:
Research and development 3,192,000 7,075,000 9,605,000
Selling, general and administrative 21,724,000 41,393,000 37,011,000
Restructuring charges 0 1,090,000 0
Impairment of assets writedowns (Notes 2,
3 and 6) 0 8,292,000 30,861,000
--------------- ---------------- ---------------
Total operating expenses 24,916,000 57,850,000 77,477,000
--------------- ---------------- ---------------
Loss from operations (8,005,000) (27,349,000) (55,899,000)
INTEREST AND OTHER (INCOME)
EXPENSE:
Gain on sales of businesses (13,199,000) 0 0
Other income (Note 6) 0 (6,360,000) (2,029,000)
Interest income (38,000) (206,000) (485,000)
Interest expense 795,000 2,394,000 3,574,000
--------------- ----------------- ---------------
(12,442,000) (4,172,000) 1,060,000
--------------- ---------------- ---------------
Income (loss) before income tax
provision (benefit), loss on
equity investment and
extraordinary item 4,437,000 (23,177,000) (56,959,000)
INCOME TAX PROVISION (BENEFIT)
(Note 7) 100,000 0 (89,000)
--------------- ---------------- ---------------
Income (loss) before loss on
equity investment and
extraordinary item 4,337,000 (23,177,000) (56,870,000)
LOSS ON EQUITY INVESTMENT (39,000) (2,351,000) (2,645,000)
--------------- ---------------- ---------------
Income (loss) before extraordinary
item 4,298,000 (25,528,000) (59,515,000)
EXTRAORDINARY ITEM 0 0 1,031,000
-------------- ---------------- --------------
Net income (loss) $ 4,298,000 $ (25,528,000) $ (58,484,000)
--------------- ---------------- ---------------
BASIC AND DILUTED INCOME
(LOSS) PER SHARE (Notes 2, 10 and 13):
Income (loss) available to common
shareholders $ 0.06 $ (0.50) $ (1.14)
Extraordinary item 0.00 0.00 0.02
--------------- ---------------- --------------
Income (loss) per share $ 0.06 $ (0.50) $ (1.12)
-------------- ---------------- --------------
Weighted average number of common 53,521,918 53,323,507 52,018,761
-------------- ---------------- --------------
shares outstanding - Basic and Diluted
</TABLE>
The accompanying notes to financial statements
are an integral part of these consolidated
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
PHYSICIAN COMPUTER NETWORK, INC.
--------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
-------------------------------------------------------------------------------------------
Preferred Stock Common Stock Additional
------------------------- -------------------------- Paid-in
Shares Amount Shares Amount Capital
-------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996.............. 1,000 $ -- 52,982,484 $ 529,000 $192,618,000
Exercise of stock options.......... -- -- 29,670 -- 126,000
Exercise of value added reseller options -- -- 1,350 -- 7,000
Conversion of preferred stock into
common stock................... (1,000) -- 187,424 2,000 2,000)
Purchase of 2,325,000 shares of common
stock as treasury.............. -- -- -- -- --
Common stock issued for acquisition -- -- 450,990 5,000 3,120,000
Exercise of warrants............... -- -- 775,000 8,000 (8,000)
Net loss -- -- -- -- --
-------- ----------- ---------- --------- ------------
BALANCE, December 31, 1997.............. -- -- 54,426,918 544,000 195,861,000
Issuance of preferred stock........ 11,000 7,760,000 -- -- 3,240,000
Preferred stock dividend........... -- 1,238,000 -- -- --
Exercise of warrants............... -- -- 1,420,000 14,000 1,406,000
Net loss........................... -- -- -- -- --
-------- ----------- ---------- --------- ------------
BALANCE, December 31, 1998.............. 11,000 8,998,000 55,846,918 558,000 200,507,000
Preferred stock dividend........... -- 1,293,000 -- -- --
Net income......................... -- -- -- -- --
-------- ----------- ---------- --------- ------------
BALANCE, September 30, 1999............. 11,000 $10,291,000 55,846,918 $ 558,000 $200,507,000
======== =========== ========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
Shareholders'
Accumulated Treasury Equity
Deficit Stock (Deficit)
------------ ---------- ---------------
<S> <C> <C> <C>
BALANCE, December 31, 1996.............. $(121,731,000) $ -- $ 71,416,000
Exercise of stock options.......... -- -- 126,000
Exercise of value added reseller options -- -- 7,000
Conversion of preferred stock into
common stock................... -- -- --
Purchase of 2,325,000 shares of common
stock as treasury.............. -- (10,695,000) (10,695,000)
Common stock issued for acquisition -- -- 3,125,000
Exercise of warrants............... -- -- --
Net loss (58,484,000) -- (58,484,000)
------------- ------------ ---------------
BALANCE, December 31, 1997.............. (180,215,000) (10,695,000) 5,495,000
Issuance of preferred stock........ -- -- 11,000,000
Preferred stock dividend........... (1,238,000) -- --
Exercise of warrants............... -- -- 1,420,000
Net loss........................... (25,528,000) -- (25,528,000)
------------- ------------ ---------------
BALANCE, December 31, 1998.............. (206,981,000) (10,695,000) (7,613,000)
Preferred stock dividend........... (1,293,000) -- --
Net income......................... 4,298,000 -- 4,298,000
------------- ------------ ---------------
BALANCE, September 30, 1999............. $(203,976,000) $(10,695,000) $ (3,315,000)
</TABLE>
The accompanying notes to financial statements are an integral part of
these consolidated statements.
F-6
<PAGE>
PHYSICIAN COMPUTER NETWORK, INC.
--------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- --------------------- ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 4,298,000 $ (25,528,000) $ (58,484,000)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization 3,894,000 7,139,000 8,853,000
Write-down of assets and other charges 0 8,292,000 30,861,000
Noncash restructuring change 0 1,090,000 0
Gain on sale of assets (13,199,000) (6,060,000) 0
Loss on equity investment 39,000 2,351,000 2,645,000
Extraordinary gain on forgiveness of long-
term debt and other income 0 0 (3,060,000)
(Increase) decrease in assets
Restricted cash 1,000,000 (1,000,000) 0
Accounts receivable, net 2,377,000 754,000 3,693,000
Inventories (172,000) 2,317,000 (392,000)
Prepaid expenses and other assets (1,146,000) 1,758,000 6,733,000
Increase (decrease) in liabilities
Accounts payable (1,358,000) (1,853,000) 1,028,000
Accrued expenses and other liabilities (4,505,000) 6,902,000 888,000
Customer deposits and unearned
income 1,087,000 (5,894,000) (5,286,000)
------------ ------------- --------------
Net cash used in operating
activities (7,685,000) (9,732,000) (12,521,000)
------------ ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (268,000) (483,000) (578,000)
Acquisition of licensing rights and other
intangible assets 0 (320,000) (214,000)
Purchase of business, net of cash acquired 0 64,000 (7,086,000)
Cash received in sale of business, land and
buildings 14,000,000 6,414,000 0
Investment in joint venture and related costs 0 (700,000) (4,044,000)
------------ ------------- --------------
Net cash provided by (used 13,732,000 4,975,000 (11,922,000)
------------ ------------- --------------
in) investing activities
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- --------------------- ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
<S> <C> <C> <C>
Principal borrowings (payments) of long-term
debt, net $(7,233,000) $ (6,479,000) $ 11,547,000
Principal payments under capital lease
obligations (265,000) (476,000) (731,000)
Net proceeds (payments) from issuance of
common stock, preferred stock and warrants
and purchase of treasury stock 0 12,420,000 (10,562,000)
----------- ------------- ---------------
Net cash provided by (used in)
financing activities (7,498,000) 5,465,000 254,000
------------ ------------- --------------
Net increase (decrease) in cash and
cash equivalents (1,451,000) 708,000 (24,189,000)
CASH AND CASH EQUIVALENTS, beginning of
period 3,597,000 2,889,000 27,078,000
----------- ------------ --------------
CASH AND CASH EQUIVALENTS, end of
period $ 2,146,000 $ 3,597,000 $ 2,889,000
------------ ------------- -------------
</TABLE>
The accompanying notes to financial statements
are an integral part of these consolidated
statements.
F-8
<PAGE>
PHYSICIAN COMPUTER NETWORK, INC.
--------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
(1) ORGANIZATION AND BUSINESS:
-------------------------
Physician Computer Network, Inc. (PCN or the Company) is a leading
provider of information technology to the office-based physician
market. The Company's flagship practice management software product,
the PCN Health Network Information System (PCN Health Network), is a
multi-functional, advanced system which automates scheduling,
billing, financial reporting and other "back-office" functions, and
provides electronic links to payors and other parties providing
services to a physician's practice. In order to supplement its
practice management product offerings with knowledge-based clinical
products and services, in January 1996, the Company and Glaxo
Wellcome, Inc. (Glaxo Wellcome) formed a joint venture, Healthmatics
G.P. (formerly Healthpoint G.P.) (Healthmatics). The Company's
interest in this venture was sold during 1998 (see Note 6).
Beginning in 1993, the Company instituted a strategy of developing
and expanding its business by acquiring practice management software
businesses having an installed base of physician practice customers
and developing a common software platform to which such customers
could migrate over time. In execution of this strategy, the Company
made a series of acquisitions through 1998 in order to expand various
software and support services.
In 1996 and 1997, the Company sold support obligations for various
customer sites using legacy systems in order to concentrate on its
three major software platforms. In 1998, the Company announced the
need to restate financial information previously issued to the
public. Instead of the reported profits during the first three
quarters of 1997, the Company would be reporting a substantial loss
and was in default of its bank agreement. The negative effects of
publicity surrounding the Company's announcements affected operating
results in 1998.
During 1998 and 1999, the Company undertook significant restructuring
efforts to mitigate the losses incurred in 1997. Personnel levels
around the Company were reduced, various offices were closed and
overall capital investment and expense spending levels were reduced.
Certain non-core assets and business units were sold.
Although the Company continues to show a negative cash flow as a
result of spending for the issues relating to its financial reporting
problems, management is continuing to control costs and grow the core
business. There is no assurance that such efforts will be successful
or that additional financing can be obtained to meet working capital
needs. These factors raise substantial doubt about the ability of the
Company to continue as a going concern.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has
suffered recurring losses from operations, has a working capital
deficiency, is in default under certain of its debt obligations for
which a forbearance has been obtained (see Note 8) and has an
accumulated deficit. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
F-9
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Basis of Presentation
---------------------
The consolidated financial statements include the consolidated
accounts of PCN for the nine months ended September 30, 1999 and the
years ended December 31, 1998 and 1997, and its wholly-owned
subsidiaries, Medical Network Systems Corp. (MNS) from May 1998,
Solion Corporation (Solion) from September 1997 (MNS and Solion were
merged into and became divisions of PCN in August 1999), the business
of Software Banc Incorporated (SBI) from May 1997, the Healthcare
Division of Data Systems of Texas (Data Systems) from April 1997,
Wismer-Martin from September 1996 through July 1999 and the
Healthcare business of CUSA Technologies, Inc. (CTI) from July 1996.
All significant intercompany transactions have been eliminated.
Revenue Recognition
-------------------
The Company recognizes revenue in accordance with Statement of
Position 97-2, "Software Revenue Recognition". The Company's software
related revenue includes: (i) license fees for internally developed
and acquired practice management software products; (ii) support and
update agreements on the practice management software products; (iii)
hardware sales and the sale of hardware service agreements; and (iv)
customer training, installation and consulting services. Sales of
licenses for internally developed and acquired software products are
made to independent resellers and directly to office based physicians
and other healthcare providers. Revenues from sales of such software
packages are primarily recognized upon shipment of the product, since
no significant vendor and/or post contract support obligations remain
outstanding at the time of revenue recognition. In certain cases,
independent resellers were sold, for a single fixed-price
non-refundable fee, multi-copy licenses which permit resale of the
Company's software. In those cases, the software license fee was
recognized as revenue when the master copy of the software was
delivered to the independent reseller since the fee charged, and
payment thereof, was not contractually tied to subsequent sales by
the reseller. The cost to distribute additional copies of the
software is insignificant. Revenue from software support and update
and hardware service agreements is deferred at the time the agreement
is executed and recognized ratably over the term of the agreement,
which typically does not exceed one year. Revenue from peripheral
hardware sales is recognized at the time of shipment. Revenue from
customer training, installation and consulting services is recognized
when the earnings process is substantially completed, which generally
coincides with performance. All costs associated with licensing of
software products, support and update services, and training and
consulting services are expensed as incurred.
Fees from health care institutions and clinical laboratories for
communication links to the Company's systems and physicians are
billed monthly or annually and recognized as revenues over the term
of the related agreements, generally one year.
Research and Development Costs and
Capitalized Software Development Costs
--------------------------------------
Research and development costs are expensed as incurred. Such costs
generally include software development costs of new products and
enhancements up to the date upon which technological feasibility is
achieved. Costs incurred to develop new software products after
technological feasibility is achieved are capitalized in accordance
with Statement of Financial Accounting Standards (SFAS) No. 86
"Accounting for the Costs of Computer Software to Be Sold, Leased or
Otherwise Marketed." Capitalized software development costs obtained
as part of Company acquisitions are amortized using the straight-line
method over the estimated product lives of three years. Net
capitalized software reflected in intangible assets at September 30,
1999 and December 31, 1998 was $10,000 and $264,000, respectively.
Capitalized software amortization expense was $254,000, $237,000 and
$211,000 for the
F-10
<PAGE>
nine months ended September 30, 1999 and the years ended December 31,
1998 and 1997, respectively. There were no additional costs
capitalized during 1999 and 1998.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Inventories
-----------
Inventories, consisting principally of computer hardware for resale
and computer maintenance parts held to repair customers' hardware
under maintenance contracts between the Company and certain of its
customers, are stated at lower of cost or market with costs
determined on a first-in, first-out basis.
Intangible Assets
-----------------
Intangible assets consist primarily of goodwill related to the
Company's acquisitions (see Note 3) and capitalized software
development costs. Amortization is computed using the straight-line
method over a period of three years for computer software and up to
15 years for goodwill. Amortization expense for computer software and
goodwill was $2,864,000, $4,758,000 and $7,278,000 for the nine
months ended September 30, 1999 and the years ended December 31, 1998
and 1997, respectively.
The Company has adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(SFAS No. 121). The adoption of this statement requires that
long-lived assets, certain identifiable intangible assets and
goodwill related to those assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company's policy is to
evaluate the realizability of acquisition-related intangible assets
and certain other long-lived assets at each balance sheet date based
upon the expectations of nondiscounted cash flows and operating
income (loss) for each subsidiary or acquired business. Based upon
its analyses, the Company concluded that no impairment related to any
of its long-lived assets had occurred as of September 30, 1999. For
the years ended December 31, 1998 and 1997, the Company recorded a
write-down of certain intangible assets and investments of $8,292,000
and $30,861,000, respectively (see Note 3).
Property and Equipment
----------------------
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
ranging from three to seven years. Equipment under capital leases is
amortized on the straight-line method over the shorter of the useful
lives of the leased assets or the term of the related lease, ranging
from three to five years. Repair and maintenance costs are expensed
as incurred. Gains and losses on disposal of property and equipment
are reflected in operations.
Fair Value of Financial Instruments
-----------------------------------
SFAS No. 107 "Disclosure About Fair Value of Financial Instruments"
defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction
between willing parties. Cash and cash equivalents, accounts
receivable, notes payable, debt, obligations under capital leases,
and accounts payable reported in the consolidated balance sheets
equal or approximate fair value.
F-11
<PAGE>
Income Taxes
------------
The Company has adopted SFAS No. 109 "Accounting for Income Taxes"
(SFAS No. 109). Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets or liabilities of a change in tax rates
is recognized in the period that the tax change occurs.
Accounting for Stock Based Compensation
---------------------------------------
The Company has adopted SFAS No. 123, "Accounting for Stock-based
Compensation" (SFAS No. 123). This statement requires companies to
make pro forma disclosures as if the fair value based method of
accounting for stock options, as defined in the statement, had been
applied (see Note 13).
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income (Loss) Per Share
-----------------------
The Company calculates income (loss) per share in accordance with
SFAS No. 128, "Earnings per Share" (SFAS No. 128). This standard
requires the presentation of basic earnings per share (EPS) and
diluted EPS. Basic EPS is calculated by dividing income available to
common shareholders by the weighted average number of shares of
common stock outstanding during the period. Diluted EPS is calculated
by dividing income available to common shareholders by the weighted
average number of common shares outstanding adjusted to reflect
potentially dilutive securities.
Segment Reporting
-----------------
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related
Information." This statement establishes standards for the way public
business enterprises report information about operating segments in
annual financial statements and requires that those enterprises
report selected information about operating segments in interim
financial reports issued to shareholders. This statement is effective
for the December 31, 1998 financial statements. Comparative
information for earlier years presented is to be restated. The
Company does not believe it operates in more than one segment.
New Accounting Pronouncements
-----------------------------
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1).
SOP 98-1 is effective for fiscal years beginning after December 15,
1998. The adoption of SOP 98-1 did not have a material effect on its
financial position or results of operations.
F-12
<PAGE>
(3) ACQUISITIONS AND DISPOSITIONS AND RESTRUCTURING CHARGES:
-------------------------------------------------------
Acquisitions and Dispositions
-----------------------------
On May 31, 1998, the Company, through a newly formed wholly-owned
subsidiary, Medical Network Systems Corp. (MNS), acquired the
business of Medical Network Systems Inc., a reseller of the Company's
products. As part of this acquisition, the Company forgave certain
accounts receivable of approximately $585,000 which were recorded as
goodwill. In accordance with SFAS No. 121, the Company determined
that an impairment occurred with respect to this intangible asset as
of December 31, 1998. Accordingly, the goodwill was expensed at
December 31, 1998 and is included in impairment of assets writedown
in the accompanying statements of operations.
On September 23, 1997, the Company acquired Solion. Solion provides
printed products, forms and computer supplies to the healthcare
industry. The purchase price was $6,250,000 and was paid for with
$3,125,000 in cash, 450,990 shares of common stock valued at
$3,125,000 and the Company assumed $1,628,000 of liabilities. The
resulting goodwill is being amortized over 15 years.
On May 1, 1997, the Company acquired the assets of SBI. SBI is a
provider of integrated information technology for the healthcare
industry, providing these organizations with hardware, software,
installation, training, software support and hardware maintenance.
The Company paid $2,613,000 in cash and assumed $75,000 of
liabilities. The resulting goodwill is being amortized over 15 years.
At December 31, 1997, the Company recorded a writedown as a result of
an impairment of this intangible asset in the amount of $2,186,000.
On April 1, 1997, the Company acquired the assets of the Healthcare
Division of Data Systems of Texas (Data Systems), a value added
reseller of the Company's products. Data Systems is a provider of
integrated information technology for the healthcare and credit union
industries, providing these organizations with hardware, software,
installation, training, software support, and hardware maintenance.
The acquisition agreement with Data Systems was for the purchase of
the assets of the healthcare division only, which is located in
Texas. The Data Systems business was acquired for $1,070,000 in cash,
a $600,000 note payable and the assumption of $168,000 in
liabilities. The resulting goodwill is being amortized over 15 years.
At December 31, 1997, the Company recorded a writedown as a result of
an impairment of goodwill in the amount of $1,344,000.
On September 10, 1996, the Company acquired Wismer-Martin, a provider
of practice management systems and healthcare information systems.
Wismer-Martin was acquired for $1,980,000 in cash, 935,000 shares of
common stock valued at $9,366,000 and the assumption of $3,872,000 in
liabilities. The resulting intangible asset was $11,049,000 at the
date of acquisition. At December 31, 1998 and 1997, the Company
recorded a writedown as a result of an impairment of this intangible
asset in the amount of $2,782,000 and $6,661,000, respectively. On
July 9, 1999, the Company sold substantially all of the assets and
assigned certain of the liabilities of Wismer-Martin to a third
party. In addition, the Company sold certain other assets related to
the Wismer-Martin business and assigned certain other related
liability to that third party. Contemporaneous with the consummation
of that transaction, the Company entered into an agreement (the "Web
Agreement") granting the third party the right to provide, for a term
of 11 months, certain web-based physician portal services and
clinical e-commerce transaction services, to the Company's customers
on an exclusive basis (which services are not currently offered by
the Company). The aggregate consideration received by the Company and
its subsidiary for such sale and for entering into the Web Agreement
was $10 million in cash. The Web Agreement may be terminated early by
the Company under certain circumstances. After payment of certain
expenses and $4.0 million of bank indebtedness, the Company retained
approximately $5.5 million. Revenues from the Wismer-Martin business
were approximately $4.4 million in 1998.
F-13
<PAGE>
On July 2, 1996, pursuant to an asset purchase agreement, the
Company, through a wholly owned subsidiary, purchased substantially
all of the assets of the medical practice management software
business and certain other software businesses of CTI for $9,200,000
in cash, the assumption of $4,131,000 in liabilities and the
cancellation of outstanding debt owed by CTI to the Company. The
resulting intangible asset was $10,737,000 at the date of
acquisition. At December 31, 1997, the Company recorded a writedown
as a result of an impairment of this intangible asset in the amount
of $4,696,000.
On October 27, 1995, the Company acquired all of the issued and
outstanding capital stock of VERSYSS Incorporated (VERSYSS), a
developer of practice management software products, pursuant to a
merger agreement, for $12,333,000 in cash and $11,750,000 in the form
of a two year promissory note bearing interest at the rate of 11% per
annum issued by VERSYSS, as the surviving corporation of the merger,
to the VERSYSS Liquidating Trust, a liquidating trust formed for the
benefit of the former shareholders of VERSYSS. In addition, the
Company assumed VERSYSS liabilities aggregating $39,686,000
consisting of $14,367,000 in debt, $14,199,000 in deferred
maintenance revenue, and $11,120,000 in accrued expenses derived from
operations. At December 31, 1998 and 1997, the Company recorded a
writedown as a result of an impairment of this intangible asset of
$3,605,000 and $11,128,000, respectively. On April 26, 1999, the
Company sold the assets and liabilities of the commercial division of
VERSYSS. The purchase price was $3.6 million. After payment of
approximately $600,000 in expenses and $1.7 million of indebtedness,
the remaining $1.3 million was retained by the Company. In connection
with the sale, the Company entered into a 3-year agreement to provide
hardware services for the purchaser. Revenues from this business were
approximately $11 million in 1998.
In addition to the impairment charges discussed above, the Company
recorded an additional writeoff of $4,846,000 during 1997 related to
acquisitions made prior to the VERSYSS acquisition in 1995.
The Company's acquisitions have all been accounted for by the
purchase method of accounting and, consistent with the requirements
of Accounting Principles Board No. 16, the tangible assets acquired
and liabilities assumed have been recorded at their fair values at
the respective acquisition dates. The following represents a detail
of the Company's significant acquisition, Solion, since January 1,
1997.
Consideration:
Cash $3,125,000
PCN common stock 3,125,000
Liabilities assumed 1,628,000
Legal and accounting costs 73,000
-----------
Total purchase price $7,951,000
===========
Allocation of Purchase Price:
Tangible assets including receivables,
inventories and equipment $1,480,000
Other intangible assets (includes
noncompete agreements, trade name and
goodwill) (amortized over fifteen years) 6,471,000
-----------
Total purchase price $7,951,000
===========
Restructuring Charges
---------------------
During 1998, as a result of the financial difficulties discussed in
Note 1, the Company announced a restructuring plan (the 1998
Restructuring Plan) designed to eliminate duplicate facilities and
responsibilities in order to improve operating efficiencies and cash
flow. The following is a summary of the activity in the 1998
Restructuring Plan:
F-14
<PAGE>
1998 Provision for restructuring $1,365,000
Cash outflows from reductions in
workforce, lease terminations,
and moving costs 790,000
-----------
Balance at December 31, 1998 575,000
Lease terminations and moving costs 303,000
-----------
Balance at September 30, 1999 $272,000
===========
The balance at September 30, 1999 primarily relates to lease and
relocation costs and is included in accrued expenses and other
liabilities in the accompanying balance sheets.
In the fourth quarter of 1995, after the completion of the VERSYSS
acquisition, management completed a review of the Company's
operations and announced a restructuring plan (the 1995 Restructuring
Plan) designed to eliminate duplicate administrative
responsibilities, consolidate warehousing and distribution of the
Company's products and streamline other core business in order to
improve operating efficiencies and increase shareholder value. The
1995 Restructuring Plan does not include additional costs associated
with the consolidation of operations such as retraining, consulting,
purchases of equipment and relocation of employees and equipment.
These costs were charged to operations or capitalized, as
appropriate, when incurred. Since implementation of the 1995
Restructuring Plan, the 1995 accrual has decreased principally due to
expenditures related to headcount reduction and lease termination
costs from the consolidation and centralization of financial and
administrative functions to the Company's corporate headquarters in
Morris Plains, New Jersey, the centralization of purchasing,
warehousing and order fulfillment to the Company's Torrance,
California service center and other functional downsizing. The
following is a summary of the activity in the 1995 Restructuring
Plan:
Balance at December 31, 1997 $615,000
Lease termination costs 195,000
Noncash recovery from change in
estimated requirements 275,000
-----------
Balance at December 31, 1998 145,000
Lease termination costs 110,000
-----------
Balance at September 30, 1999 $35,000
===========
(4) INVENTORIES:
-----------
Inventories were as follows:
September 30, December 31,
1999 1998
------------ -------------
Computer hardware and peripherals $1,205,000 $958,000
Customer maintenance parts 465,000 540,000
---------- ------------
$1,670,000 $1,498,000
========== ============
(5) PROPERTY AND EQUIPMENT, NET:
---------------------------
September 30, December 31,
1999 1998
------------ -------------
Property and equipment $7,206,000 $8,837,000
Leasehold improvements 475,000 1,230,000
F-15
<PAGE>
Leased equipment 1,485,000 1,560,000
----------- -----------
9,166,000 11,627,000
Less: Accumulated depreciation
and amortization (7,142,000) (8,831,000)
------------ -----------
Property and equipment, net $2,024,000 $2,796,000
============ ===========
Accumulated amortization in connection with equipment under capital
leases included in the above amounts was approximately $567,000 and
$626,000 as of September 30, 1999 and December 31, 1998,
respectively. Depreciation and amortization for the nine months
ending September 30, 1999 and the years ending December 31, 1998 and
1997 was $776,000, $2,474,000 and $2,743,000, respectively.
(6) INVESTMENTS:
-----------
Healthmatics Joint Venture
--------------------------
In January 1996, the Company and Glaxo Wellcome, through wholly
owned subsidiaries, formed Healthmatics, a joint venture
partnership, to design and market clinical information
technology products and services. Healthmatics was a general
partnership owned equally by, and operated independently of, the
parent companies. Both the Company and Glaxo Wellcome agreed to
contribute product development assets to Healthmatics and at
least $50 million in cash to the venture, of which $43 million
was contributed by Glaxo Wellcome and $7 million was to be
contributed by the Company. Losses incurred by Healthmatics were
allocated between Glaxo Wellcome and the Company in proportion
to their respective cash contributions (approximately 85% to
Glaxo Wellcome and 15% to the Company).
On December 4, 1998, the Company sold its entire interest in
Healthmatics to Glaxo Wellcome for gross proceeds of $5,000,000.
The Company's share of allocated losses was in excess of its
investment at the time of sale resulting in a funding
requirement by the Company. The gain on the sale is
approximately $5,600,000 which represents the gross proceeds
plus the forgiveness of the funding of losses to the date of
sale, less transaction costs. In connection with this
transaction, $1,000,000, reflected as restricted cash, was
deposited in escrow with the Company's Lenders to be returned to
the Company if certain events occurred. During 1999, this amount
was applied against the outstanding borrowings under the
Company's line of credit.
Purchases by the Company from Healthmatics were considered
immaterial for the years ended December 31, 1998 and 1997.
Investment in HCC Communication, Inc.
-------------------------------------
During 1997, the Company made a 19.9% investment in HCC
Communications, Inc. (HCC) in exchange for $2,000,000. The Company is
entitled to elect one member to HCC's board of directors. The Company
accounts for this investment using the equity method. The Company's
share of net losses was $39,000, $137,000 and $131,000 for the nine
months ended September 30, 1999 and the years ending December 31,
1998 and 1997, respectively. Also, during 1997, HCC sold certain
assets to which the Company was entitled to a portion of the
proceeds. Approximately $212,000 was received and recorded as a
return of the Company's initial investment.
During 1998, the Company determined that an impairment had occurred
with respect to the value of this investment. As a result, the
Company recorded a writedown of $1,320,000 at December 31, 1998 which
is included in impairment of assets writedown in the accompanying
statements of operations. The Company does not believe that an
impairment exists with respect to the value of this investment at
September 30, 1999.
F-16
<PAGE>
(7) INCOME TAXES:
------------
Income tax provision (benefit) for each period is summarized as
follows:
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended December 31,
September 30, ----------------------------------
1999 1998 1997
--------------------- --------------- ------------------
Current:
<S> <C> <C> <C>
Federal $80,000 $0 ($89,000)
State 20,000 0 0
----------- ---------- ----------
100,000 0 (89,000)
----------- ---------- ----------
Deferred:
Federal 0 0 0
State 0 0 0
----------- ---------- ----------
0 0 0
----------- ---------- ----------
Income tax provision (benefit) $100,000 $0 ($89,000)
----------- ---------- ----------
</TABLE>
The income tax benefit differs from applying the Federal income tax
rate of 35% for the nine months ended September 30, 1999 and for
fiscal years 1998 and 1997 loss before income tax provision, loss on
equity investment and extraordinary item due to the following:
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended December 31,
September 30, ----------------------------
1999 1998 1997
--------------------- --------------- ----------
<S> <C> <C> <C>
Tax benefit at statutory rate 35.0% (35.0%) (35.0%)
Change in the valuation allowance for
deferred tax assets (35.0%) 35.0% 35.0%
State taxes, net of Federal benefit 0 0 0
Other 2.2% 0 (0.1%)
------------ ---------- ----------
Effective tax rate 2.2% 0.0% (0.1%)
------------ ---------- ---------
</TABLE>
Temporary differences and carryforwards which give rise to deferred
tax assets and liabilities at September 30, 1999 and December 31,
1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- -------------------------
Deferred Tax Assets:
<S> <C> <C>
Net operating loss carryforward $49,058,000 $54,328,000
Restructuring provisions 165,000 304,000
Operating accruals 1,778,000 1,490,000
Allowance for doubtful accounts 120,000 215,000
SFAS No. 121 writeoffs 15,661,000 16,836,000
------------ ------------
66,783,000 73,173,000
Valuation allowance (66,783,000) (73,173,000)
------------ ------------
Net deferred tax asset $ 0 $ 0
============ ===========
</TABLE>
At September 30, 1999, the Company had net operating loss
carryforwards for Federal income tax purposes of approximately $120
million which expire at various dates through 2013. Any reduction
F-17
<PAGE>
of the valuation allowance attributable to net operating loss
carryforwards from VERSYSS and Wismer-Martin of up to $15,000,000 and
$4,500,000, respectively, will be treated as a reduction of
intangible assets. The Company believes it has previously experienced
ownership changes, which under the provisions of Section 382 of the
Internal Revenue Code of 1986, as amended (IRC), have resulted in
certain limitations on the Company's ability to utilize its net
operating losses in the future.
(8) DEBT
-----
Line of Credit
--------------
In September 1997, the Company entered into a Credit Agreement
(the Agreement) with Fleet Bank, N.A. as an administrative
agent for a syndicate of banks (the Lenders). The Agreement
provided for borrowings of up to $110,000,000 and was to
expire in September 2001. Borrowings under the agreement bear
interest at the bank's base rate or LIBOR, as applicable, plus
the applicable margin, as defined in the Agreement.
On April 22, 1998, as a result of certain events of default,
the Company and the Lenders entered into a forbearance and
amendment agreement in which the Lenders agreed to forbear
their remedies under the Agreement until September 30, 1998,
increased the interest to base rate plus two percent,
terminated availability, charged a restructuring fee and
modified and added covenants. Pursuant to this agreement, the
Company repaid $6,000,000 principal from the proceeds of the
Series B Preferred Stock (see Note 13) and the Investor
guaranteed $2,000,000 of the remaining balance (see Note 11).
As of September 30, 1998, the Company and the Lenders entered
into a second forbearance and amendment agreement which
extended the forbearance and which required, among other
things, the delivery of audited financial statements and a
commitment to provide either refinancing of outstanding
borrowings, or a definitive purchase agreement, as defined, by
certain dates. In consideration for the second forbearance
agreement, the Company paid $750,000 principal, a
restructuring fee of $250,000 and agreed to an extension fee
of $1,000,000 due on the extended maturity date of the
refinancing or sale of the Company.
On April 26, 1999, the Company and the Lenders entered into a
third forbearance and amendment agreement which provided the
Company with additional time to meet performance criteria
established in the second agreement. In addition, the Lenders
agreed to extend the maturity date of the borrowings to August
15, 1999, and they agreed to release their security interests
in the Commercial Division. In consideration for the third
forbearance agreement the Company agreed to apply to principal
$1,000,000 of the escrowed proceeds from the sale of
Healthmatics in December 1998 and to apply 50% of the net
proceeds from the sale of the Commercial Division against the
principal due under the line of credit. The remaining 50% was
available for use by the Company for working capital and
general corporate purposes.
On July 9, 1999, the Company and the Lenders entered into a
fourth forbearance and amendment agreement, which, among other
things, extended the forbearance from September 30, 1999 to
December 31, 1999. In consideration for the fourth forbearance
agreement, the Company agreed to an extension fee of $500,000
due on the extended maturity date of the refinancing or sale
of the Company. The $500,000 and the $1,000,000 from the
second forbearance agreement are reflected in accrued
liabilities on the accompanying balance sheet as of September
30, 1999.
F-18
<PAGE>
Outstanding borrowings under the line of credit were
$9,082,000 and $15,412,000 as of September 30, 1999 and
December 31, 1998, respectively. The line of credit is secured
by all of the assets of the Company (See Note 18).
<TABLE>
<CAPTION>
Long-term Debt September 30, December 31,
- -------------- 1999 1998
------------ ------------
<S> <C> <C>
Term note due monthly March 1995 through February
2001 at 8% assumed from VERSYSS acquisition (a) $139,000 $785,000
Subordinated promissory note payable to Gordon J.
Romer, President of Solion, with an interest rate of 6%
per annum payable annually, maturing and payable in
full on March 2, 1999, assumed in connection with the
Solion acquisition (b) 63,000 188,000
Note Payable to Data Systems in two equal payments on
February 15, 1998 and February 15, 1999, including
interest at a rate of 6% per annum incurred in connection
with the Data Systems acquisition (c) 77,000 250,000
Other 194,000 153,000
-------- ----------
473,000 1,376,000
Less: Current portion of long-term debt 473,000 984,000
-------- ----------
Long-term debt $ 0 $392,000
-------- ----------
</TABLE>
(a) As part of the VERSYSS acquisition, the Company assumed a note
payable to a former landlord that was part of a settlement. As
security for the note, the landlord has a lien on substantially
all of VERSYSS' assets. The note had an aggregate outstanding
balance of approximately $139,000 at September 30, 1999, and is
due in equal monthly installments of principal and interest (at
8% per year). In April 1999, as part of the sale of the
commercial assets, a repayment of $400,000 was made with the
balance to be repaid over a one-year period.
(b) In September 1997, as part of the Solion acquisition, the
Company assumed a note payable to Solion's President, Gordon J.
Romer. In March 1999, this note was restructured whereby the
Company paid $68,000 and entered into a new note for the
remaining $120,000 which is payable in monthly installments of
principal and interest with a final maturity in March 2000.
(c) The note payable to Data Systems was incurred as part of the
acquisition in 1997. $250,000 of the note was repaid in 1998.
The remaining $250,000, which was due in February 1999, was
restructured whereby the Company paid $90,000 and entered into a
new note for the remaining $160,000 which is payable in monthly
installments of principal and interest with a final maturity in
March 2000.
F-19
<PAGE>
(9) LEASING TRANSACTIONS:
--------------------
Future minimum lease payments under all leases with initial or
remaining non-cancelable lease terms, in excess of one year at
September 30, 1999 for calendar years ended after September 30,
1999, are as follows-
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
--------- -----------
<S> <C> <C>
1999 $ 105,000 $ 557,000
2000 324,000 1,352,000
2001 807,000 920,000
2002 58,000 666,000
2003 0 558,000
---------- -----------
Total minimum lease payments 1,294,000 $ 4,053,000
===========
Less: Amount representing interest 178,000
----------
Present value of future minimum lease payments 1,116,000
Less: Current portion 185,000
----------
Long-term portion $ 931,000
----------
</TABLE>
Rent expense for the nine months ended September 30, 1999 and the
years ended December 31, 1998 and 1997 was approximately $2,449,000,
$4,511,000 and $3,639,000, respectively.
On December 6, 1994, the Company entered into a rental agreement with
a company wholly-owned by the Company's largest shareholder and
Chairman of the Board of Directors (the Investor). The ten-year
sublease consists of 44,725 square feet of office space at 1200 The
American Road, Morris Plains, New Jersey, to serve as the Company's
corporate headquarters and executive offices. The Company believes
that the terms of the lease were no less favorable than a lease that
could have been obtained by the Company from an unrelated third party
in a transaction negotiated at an arm's-length basis. On September 1,
1996, the Company amended its agreement to sublease an additional
14,170 square feet of office space. The landlord's interest was
assigned to an unrelated third party partnership on February 27,
1998. By amendment dated August 2, 1998, the Company relinquished all
rights to the 14,170 square feet of office space and increased the
remaining 44,725 square feet to 46,222 square feet. The amendment
reduced the term of the lease to July 31, 2001 and restructured the
monthly rent. On September 24, 1999, the landlord exercised its right
to terminate the lease effective September 30, 2000. On September 29,
1999, the landlord and the Company entered into a second amendment to
the lease which reduces the amount of space leased to 39,000 square
feet and reduced the monthly rent. In addition, the Company granted
the landlord the further right to terminate the lease at any time
after March 31, 2000, upon receipt of three months advance notice.
In conjunction with the Company's various acquisitions, the Company
assumed operating leases for facilities and equipment.
(10) INCOME (LOSS) PER SHARE:
-----------------------
In accordance with SFAS No. 128, the following table reconciles net
income (loss) and share amounts used to calculate net income (loss)
per share:
<TABLE>
<CAPTION>
September 30, December 31,
---------------------------------------
1999 1998 1997
--------------------- --------------------- -----------------
<S> <C> <C> <C>
Numerator:
Net income (loss) before
extraordinary item $ 4,298,000 ($25,528,000) ($59,515,000)
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Less: Dividends on preferred
stock (1,293,000) (1,238,000) 0
---------- ----------- -----------
Income (loss) available to
common shareholders 3,005,000 (26,766,000) (59,515,000)
Extraordinary item 0 0 1,031,000
---------- ------------ -----------
Net income (loss) - Basic
and Diluted $3,005,000 ($26,766,000) ($58,484,000)
========== ============ ===========
Denominator:
Weighted average number of
common shares
outstanding - Basic and
Diluted 53,521,918 53,323,507 52,018,761
---------- ------------ -----------
Basic and Diluted-earning
(loss) per share:
Income (loss) available
to common
shareholders $0.06 ($0.50) ($1.14)
Extraordinary item 0 0 0.02
---------- ------------ -----------
Net income (loss) $0.06 ($0.50) ($1.12)
---------- ------------ -----------
</TABLE>
Outstanding options of 1,816,431, 2,338,631 and 2,620,231 as of
September 30, 1999 and December 31, 1998 and 1997, respectively, have
been excluded from the above calculations as they are antidilutive.
(11) TRANSACTIONS WITH RELATED PARTIES:
---------------------------------
In April 1998, in connection with a Stock Purchase Agreement, the
Investor guaranteed $2,000,000 of the outstanding debt owed to the
Lenders (see Notes 8 and 13).
(12) COMMITMENTS AND CONTINGENCIES:
-----------------------------
Employment Agreements
---------------------
As of September 30, 1999, the Company has employment
arrangements with several employees which provide for the
continuation of salary and other compensation aggregating
approximately $1,096,000 for the nine months ended September 30,
1999. Upon the occurrence of certain events, varying amounts of
compensation would be due under these arrangements. In addition,
as part of the 1998 Restructuring Plan, the Company entered into
severance and "stay put" arrangements with certain key
personnel. These programs obligate the Company to pay
approximately $810,000 in December 1999.
Marketing Agreement
-------------------
On January 25, 1995, the Company entered into an Exclusive
Marketing Agreement (the Marketing Agreement) with Equifax EDI,
an electronic claims clearinghouse and a wholly-owned subsidiary
of Equifax, to establish "PCN Link", a communication link
between Equifax EDI and users of the Company's practice
management software products. On January 12, 1996, the Company
and Equifax entered into an amended and restated Marketing
Agreement, which, among other things, revised the exclusive
coverage of the services provided by Equifax EDI to claims
submission and related services, on-line eligibility and benefit
inquiries for indemnity plans, credit card and check guarantee
and verification services and electronic remittance services. In
connection with such
F-21
<PAGE>
amendment, which had an initial term of four years, the Company
agreed to share with Equifax EDI certain of the costs and
expenses associated with the further development and enhancement
of PCN Link. Further, the Company agreed to pay Equifax $125,000
per month for forty-eight months in order to offer, as a
marketing incentive, introductory free service for one year,
with certain limitations, to physician practices who subscribed
to the services offered under the Marketing Agreement.
During the third quarter of 1996, NDC acquired all of the
outstanding capital stock of Equifax EDI. On September 3, 1996,
the Company, Equifax EDI, Equifax and NDC entered into an
agreement whereby, among other things, the Company waived its
right to terminate the Marketing Agreement, and received cash
consideration of $4.5 million. The Company recorded this amount
as deferred revenue in 1996 and reduced this amount as payments
were made under the Marketing Agreement. The acquisition of
Equifax EDI by NDC did not result in any changes to the
Marketing Agreement except that the Company and NDC agreed that
the Company could, in its sole unrestricted discretion,
terminate the Marketing Agreement, on not less than ninety days'
written notice, at any time on or after July 1, 1997.
The Company terminated the Marketing Agreement effective
September 30, 1997. As a result, the Company, in September 1997
recognized $2,029,000 which represented the remaining
unamortized deferred revenue amount. This amount is reflected as
other income in the consolidated statement of operations for the
year ended December 31, 1997.
Litigation
----------
Subsequent to the Company's announcements in early 1998
concerning the delay in its annual audit and its expected
restatement of previously issued reports, numerous purported
class actions were filed against the Company, certain directors
and former officers. These matters were consolidated into one
action in the United States District Court for the District of
New Jersey. This Securities Class Action charges the defendants
with various violations of the Federal securities laws and
regulations through the alleged overstatement of corporate
earnings.
Although the Securities Class Action is pending and motions to
dismiss have been filed by all defendants, the Company and its
directors have entered into a Memorandum of Understanding (MOU)
with the Class Action Plaintiffs, as amended, pursuant to which
all issues in the case may be resolved, at the Company's option,
for the payment of $25.25 million to the Class Plaintiffs by
January 10, 2000, or at a later date if the Company has
consummated an agreement of sale with an acceptable purchaser by
December 31, 1999 for a sale price as defined in the MOU. The
Company is currently renegotiating the MOU with the Class Action
Plaintiffs. As a result, the Securities Class Action Litigation
is substantially held in abeyance. Any settlement with the Class
Action Plaintiffs is contingent upon approval of the Court after
notice and hearing.
The Company's former Chief Executive Officer has filed a suit
against the Company alleging, among other things, wrongful
termination. The Company is unable to predict the ultimate
outcome of the suit at this time but believes it has meritorious
defenses to all claims. The consolidated financial statements do
not reflect any adjustments with respect to this matter due to
its uncertainty.
In September 1997, the owner of Printed Products Group (PPG)
agreed to merge his company with and into Solion and became an
officer of Solion. In June 1998, this individual served the
Company, its subsidiary Solion and certain current and former
officers and directors of the Company with a complaint which
asserts claims for breech of contract, negligent
misrepresentation, and a violation of Massachusetts General Law.
The compliant alleges that the individual received misleading
information about the Company's financial condition and
prospects in connection with his
F-22
<PAGE>
agreement of the merger (the "Merger") of his company, PPG, with
and into Solion. The individual seeks rescission of the Merger
and/or compensatory and treble damages, as well as attorneys'
fees and costs.
On October 23, 1998, the individual amended the complaint to add
the Company's Chairman as a defendant, and to add a claim for a
violation of the Massachusetts Uniform Securities Act. The
individual has also served a document request on all defendants,
and has taken a deposition of the Company.
In August 1999, the individual moved for a preliminary
injunction to restrain the Company and Solion from, inter alia:
(i) selling, transferring, assigning, pledging or otherwise
disposing of or encumbering the assets of Solion (except as
required in the ordinary course of Solion's business); (ii)
transferring assets, including cash from Solion to PCN, except
to reimburse PCN for certain expenses it pays on behalf of
Solion, and (iii) ordered to otherwise preserve the status quo
with respect to the operation of Solion, pending further order
of the Court. That motion was granted on September 29, 1999. The
Company subsequently noticed the appeal of the grant of the
preliminary injunction.
In addition, the individual has moved for partial summary
judgment which, among other things, declares that rescission of
the Merger is the appropriate remedy and orders the Company to
advance the individual his legal fees in connection with the
action. That motion is currently scheduled to be argued on
December 7, 1999. The Company intends to vigorously defend the
action.
The Company, during the normal course of business, has become
involved in certain litigation. During 1998, the Company was
named in numerous lawsuits resulting from matters described
above related to the Securities Class Action. The Company is
unable to predict the outcome of these cases at this time. As a
result, the consolidated financial statements do not reflect any
adjustments with respect to these matters.
(13) SHAREHOLDERS' EQUITY (DEFICIT):
------------------------------
Placement of Securities
-----------------------
During 1995, the Company completed a placement of securities
pursuant to Regulation S of the Securities Act of 1933. In
connection with such placement, the Company received net
proceeds of approximately $25 million through the issuance of
1,902,748 shares of its common stock and 18,500 shares of its
Series A non-dividend paying convertible preferred stock. The
preferred stock, which was issued at $1,000 per share was, at
the option of the holder, convertible into shares of common
stock at a conversion price based on certain minimum and maximum
conversion prices. During the year ended December 31, 1997,
1,000 shares of the Series A non-dividend paying convertible
preferred stock issued pursuant to such offering were converted
into 187,424 shares of common stock. As of September 30, 1999
and December 31, 1998 there were no shares of the Series A
preferred stock outstanding.
Issuance of Preferred Stock
---------------------------
On April 1, 1998, in a single transaction, the Company entered
into a Stock Purchase Agreement (the Agreement) with an
affiliate of the Investor. Under the Agreement, the Company
agreed to sell such affiliate 11,000 shares of Series B
Cumulative Preferred Stock (the Series B Preferred Stock) and
grant and modify certain warrants in exchange for $11,000,000
and a $2,000,000 guarantee by the Investor on the Company's
indebtedness to the Lenders. The Series B Preferred Stock
accumulates dividends at a rate of 15% per year through March
31, 1999, increases 1% per year up
F-23
<PAGE>
to 18% and has a liquidation preference of $1,000 per share plus
accumulated dividends. The Series B Preferred Stock is senior to
all common stock and has no voting rights. It is redeemable at
the Company's option, subject to certain conditions, none of
which were met as of September 30, 1999 and December 31, 1998.
In connection with the Agreement, the Company granted a warrant
to purchase 6,000,000 shares of common stock at an exercise
price of $1.00. Also, the Company modified the terms and
exercise price of warrants previously issued in 1995 (see
Warrants).
Based upon an independent valuation of the Series B Preferred
Stock on April 1, 1998, the value of the 11,000 shares was
determined to be $7,760,000. As a result, the Series B Preferred
Stock is reflected in the accompanying balance sheet at the fair
value of $7,760,000 plus accumulated dividends of $1,293,000 and
$1,238,000 as of September 30, 1999 and December 31, 1998,
respectively. The remaining $3,240,000 is attributable to the
value of the Warrants described above and has been reflected as
a credit to additional paid-in capital. The Company determined
that the Guarantee had terms comparable to outstanding
borrowings of the Company.
Stock Options
-------------
At September 30, 1999 and December 31, 1998 and 1997, the
Company had reserved 1,816,431, 2,338,631 and 2,620,231 shares
of Common Stock, respectively, for issuance upon exercise of
stock options issued to Directors, officers, employees of the
Company as well as to independent value-added resellers of the
Company's practice management software products.
The following is a summary of each of the Company's stock option
plans:
1989 Incentive and Non-Incentive Stock Option Plan (the 1989
Plan): Under the 1989 Plan, as amended, 167,000 shares of
Common Stock are reserved for issuance upon exercise of
options granted thereunder. Incentive stock options may be
granted to employees and non-incentive stock options may be
granted to employees, directors and such other persons as
the Compensation Committee of the Company's Board of
Directors (the Compensation Committee) determines will
assist the Company's business endeavors, at exercise prices
equal to at least 100% of the fair market value of the
Common Stock on the date of grant with respect to incentive
stock options (110% of fair market value in the case of
incentive stock options granted to any person who, at the
time the incentive stock option is granted, owns or is
considered as owning within the meaning of Section 425(d) of
the IRC stock possessing more than 10% of the total combined
voting powers of all classes of stock of the Company or any
subsidiary (10% Owner)), and at least 85% of the fair market
value of the Common Stock on the date of grant with respect
to non-incentive stock options. Incentive stock options are
granted for a term of five years; those granted prior to
April 30, 1989 may be exercised by their respective holders
two months after the date of grant, while incentive stock
options granted thereafter are exercisable cumulatively at
the rate of 50% per year commencing one year from the date
of grant. Generally options granted under the 1989 Plan
prior to April 1992 expire six months after the holders'
separation from service with the Company. The 1989 Plan
terminated on March 31, 1999.
1990 Incentive and Non-Incentive Stock Option Plan (the 1990
Plan): Under the 1990 Plan, 167,000 shares of Common Stock
are reserved for issuance upon exercise of options granted
thereunder. Incentive stock options may be granted to
employees and non-incentive stock options may be granted to
employees, directors and other such persons as the
Compensation Committee determines will assist the Company's
business endeavors, at exercise prices equal to at least
100% of the fair market value of the Common Stock on the
date of grant with respect to
F-24
<PAGE>
non-incentive stock options (100% of fair market value in
the case of incentive stock options granted to any person
who, at the time the incentive stock option is granted, is a
10% Owner), and at least 50% of the fair market value of the
Common Stock on the date of grant with respect to
non-incentive stock options. In addition to selecting the
optionees, the Compensation Committee determines the number
of shares of Common Stock subject to each option, the term
of each non-incentive stock option, the time when the
non-incentive stock option becomes exercisable, though,
pursuant to board resolution, no option granted after April
7, 1992 may be exercisable within six months of the date of
the grant, and otherwise administers the 1990 Plan.
Incentive stock options are granted for a term of five years
and are exercisable cumulatively at the rate of 50% per year
commencing one year from the date of grant. Options expire
six months from the date of the holder's termination of
employment with the Company by reason of retirement at age
65, disability or death, or on the date of termination of
employment for any other reason. The 1990 Plan terminates on
March 26, 2000.
Amended and Restated 1993 Incentive and Non-Incentive Stock
Option Plan (the Employee Plan): The Employee Plan, as
amended, reserves 3,300,000 shares of Common Stock for
issuance upon exercise of options to be granted thereunder.
Under the Employee Plan, incentive stock options qualifying
under Section 422 of the IRC may be granted to employees of
the Company, and non-incentive stock options may be granted
to employees, officers and directors and such other persons
as the Compensation Committee appointed by the Board of
Directors determines will assist the Company's business
endeavors. Options to purchase more than 250,000 shares of
Common Stock may not be awarded to any employee in any
calendar year. The Compensation Committee selects the
optionees and determines: (i) whether the respective option
is to be a non-incentive stock option or an incentive stock
option; (ii) the number of shares of Common Stock
purchasable under the option; (iii) the exercise price,
which cannot be less than 100% of the fair market value of
the Common Stock on the date of grant (110% of fair market
value in the case of incentive stock options granted to any
person who, at the time the incentive stock option is
granted, is a 10% Owner); (iv) the time or times when the
option becomes exercisable; and (v) its duration, which may
not exceed ten years from the date of grant (or five years
for any incentive stock option granted to a 10% Owner). The
Employee Plan terminates on July 13, 2003.
Amended and Restated 1993 Non-Employee Directors'
Non-Incentive Stock Option Plan (the Directors' Plan): The
Directors' Plan, as amended, reserves 200,000 shares of
Common Stock for issuance upon exercise of options to be
granted thereunder. Under the Directors' Plan, options can
only be granted to a director of the Company who is not an
employee nor an officer of the Company. Such options are
non-incentive and are non-qualified under Section 422 of the
IRC. The Directors' Plan is administered by a special
committee consisting of employee directors and officers. The
committee has no authority to grant non-qualified stock
options, as, immediately following the effective date of the
Directors' Plan, options to purchase 10,000 shares of Common
Stock were granted automatically to each non-employee
director and will be granted on the next succeeding business
day following a director's election or appointment to the
Board of Directors. In addition to the initial option
grants, non-qualified stock options to purchase 10,000
shares of Common Stock shall be granted automatically to
each non-employee director on the third anniversary date of
his initial option grant and every three years thereafter
during the term of the Directors' Plan. The Directors' Plan
terminates on July 13, 2003.
Value Added Reseller Stock Option Plan (the VAR Plan): The
VAR Plan reserves an aggregate of 3,500,000 shares of Common
Stock for issuance upon the exercise of options to be
granted thereunder. Under the VAR Plan, options can only be
granted to independent resellers of the PCN Health Network
Information System who are not also members of the Board of
Directors, officers, or employees of the Company. The VAR
Plan was adopted by the Board to provide
F-25
<PAGE>
incentives to the independent resellers of the Company. The
VAR Plan was adopted by the Board to provide incentives to
the independent resellers of the Company to market the PCN
Health Network Information System to current users of the
Company's other practice management software products as
well as others, and became effective September 30, 1994. The
VAR Plan is administered by a committee appointed by the
Board consisting of no less than two individuals, and,
unless otherwise determined, includes the chief executive
officer and chief financial officer of the Company. Under
the VAR Plan on September 30, 1994 and in January 1995 and
January 1996, independent resellers were granted options
based upon the product of: (i) 300; and (ii) the number of
existing licenses of the Company's practice management
software products in the independent reseller's installed
base as of such dates; or, for an independent reseller first
becoming an independent reseller after September 30, 1994,
the number of licenses of the Company's practice management
software products in the general geographic region in which
such new independent reseller conducts its business. The
exercise price of options granted under the VAR Plan is the
market value of a share of Common Stock on the business day
immediately preceding the date on which an option is
granted. The terms of options granted under the VAR Plan may
not exceed 10 years. Options vest based upon the number of
licenses for the PCN Health Network Information System sold
to existing customers of the Company (200 shares) and to new
customers (100 shares) during 1994, 1995 and 1996. In
addition, options vest for an additional 50 shares for each
license sold by the independent reseller during such periods
in excess of the minimum performance standard set forth in
the independent reseller's agreement with the Company. No
option shall be granted pursuant to the VAR Plan after
December 31, 1997, but options theretofore granted may
extend beyond that date.
Stock option activity for all option plans is summarized as follows:
Weighted
Number of Average
Shares Exercise Price
---------- ----------------
Balance outstanding, December 31, 1997 2,620,231 $7.54
Granted 550,000 1.50
Forfeited (831,600) 8.51
Exercised 0 -
---------
Balance outstanding, December 31, 1998 2,338,631 8.07
Granted 0 -
Forfeited (522,200) 8.70
Exercised 0 -
---------
Balance outstanding, September 30, 1999 1,816,431 $7.76
---------
Options to purchase 1,816,431 shares of Common Stock were exercisable
at September 30, 1999 and the weighted average exercise price of
those options was $7.76.
The Company has adopted the disclosure provisions of SFAS No. 123 and
applies APB Opinion 25 in accounting for its plans and, accordingly,
records no compensation cost for stock option plans and stock
purchase plans in its financial statements. Had the Company
determined compensation cost based on the fair value at the grant
date consistent with the provisions of SFAS No. 123, the Company's
net income (loss) would have been adjusted to the pro forma amounts
indicated below:
F-26
<PAGE>
<TABLE>
<CAPTION>
September 30, Years Ended December 31,
------------- ---------------------------------------
1999 1998 1997
------------- ------------- -----------
<S> <C> <C> <C>
Net income (loss) available to common
shareholders - as reported $3,005,000 ($26,766,000) ($58,484,000)
Net income (loss) available to common
shareholders - pro forma $1,028,000 ($30,976,000) ($62,248,000)
Income (loss) per share - as reported $0.06 ($0.50) ($1.12)
Income (loss) per share - pro forma $0.02 ($0.58) ($1.20)
</TABLE>
The pro forma amounts as noted above may not be representative of the
effects on reported income for future years. Pro forma net loss
reflects only options granted since January 1, 1995. Therefore, the
full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net loss amounts
presented above because compensation cost is reflected over the
options' vesting period of 5 years and compensation cost for options
granted prior to January 1, 1995 is not considered.
The fair value of the stock options granted is estimated at grant
date using the Black-Scholes option pricing model with the following
weighted average assumptions: for 1997, 1998 and 1999 - expected
dividend yield 0.0%, risk free interest rate of 6.0%, expected
volatility of 75%, and an expected life of 7.5 years. The weighted
average grant date fair value of options granted in 1998 was $6.03.
There were no options granted during 1999.
Stock Warrants
--------------
In September 1995, the Investor purchased from the Company, for
$1,500,000, a warrant to purchase, in a single transaction, 5,000,000
shares of common stock for an aggregate exercise price of $5.00 per
share exercisable beginning September 14, 1997. The proceeds from the
issuance of such warrant were determined to be within the range of
fair value, as determined by an investment banking firm, and
therefore resulted in no expense charge in the consolidated
statements of operations. On April 1, 1998, under a Stock Purchase
Agreement (see Issuance of Preferred Stock) the Company adjusted the
exercise price from $5.00 to $0.70 per share. In addition, the
options are not exercisable until September 2002.
Also, on April 1, 1998, the Company granted to the Investor a warrant
to purchase 6,000,000 shares of common stock at a price of $1.00 per
share. The warrants may be exercised at any time after the first to
occur of (i) April 1, 1999 and (ii) a Trigger Event, as defined in
the warrant agreement. The warrant expires on March 31, 2003.
In return for the above warrant grants and modifications and the
11,000 shares of the Series B Preferred Stock, the Company received
$11,000,000 in cash and a $2,000,000 guarantee (Note 11). Based on an
independent valuation of the Series B Preferred Stock, the value of
the 11,000 shares was determined to be $7,760,000. The remaining
$3,240,000 is attributable to the value of the warrants and has been
reflected as a credit to additional paid-in capital.
In July 1998, the Company retained and granted a warrant to a
professional services firm. The warrant allows the holder to purchase
250,000 shares of common stock at an exercise price of $1.50 per
share. The warrant vests at various dates through May 31, 1999. The
warrant may become exercisable upon a Trigger Event, as defined
within the agreement. The Company utilized the Black-Scholes pricing
model on the date of grant to determine the value of the warrant in
accordance with SFAS No. 123. As a result of the calculation, no
value was ascribed to the warrant in the accompanying consolidated
financial statements.
F-27
<PAGE>
In connection with the retention of this firm, the Company granted to
such firm a lien on substantially all the assets of the Company.
The table below details all warrants outstanding at September 30,
1999:
<TABLE>
<CAPTION>
Warrants
Exercise Warrants Exercised/
Date of Grant Price Granted Canceled Outstanding
------------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
November 20, 1990 $1.00 417,500 (417,500) 0 Exercised February 20, 1998
June 11, 1991 $1.00 19,038 (19,038) 0 Exercised February 20, 1998
July 1, 1991 $9.00 10,000 (10,000) 0 Terminated June 30, 1996
September 17, 1991 $1.00 983,462 (983,462) 0 Exercised February 20, 1998
December 30, 1993 $1.00 775,000 0 775,000 Expires December 30, 2003
February 1, 1994 $2.50 100,000 0 100,000 Expires February 1, 2004
September 13, 1995 $0.70(a) 5,000,000 0 5,000,000 (b) Expires September 13, 2002
April 1, 1998 $1.00 6,000,000 0 6,000,000 (c) Expires April 1, 2003
July 22, 1998 $1.50 250,000 0 250,000 Expires March 31, 2003
------------ ---------- ----------
13,555,000 (1,430,000) 12,125,000
------------ ---------- ----------
</TABLE>
The number of warrants exercisable at September 30, 1999 was
1,125,000.
(a) Represents adjusted exercise price due to the
amendment on April 1, 1998 discussed above.
(b) The Investor warrants granted in September 1995 are
not considered exercisable as they vest after the
first of September 12, 2002, or a Trigger Event, as
defined.
(c) The Common Stock Purchase Warrants, granted on April
1, 1998, are not considered exercisable as they vest
after the first of April 1, 2003 or a Trigger Event,
as defined.
(14) EMPLOYEE BENEFIT PLAN:
---------------------
The Physician Computer Network, Inc. 401(k) Plan (the Plan) is
a participant directed, defined contribution plan in which
eligible employees, as defined, of the Company may become
participants in the Plan on the first day of the month
immediately following the date on which they have attained age
21 and after six months following the employees' employment
commencement dates, as defined. Employees who are eligible
under an existing 401(k) plan of an entity that the Company
acquires are automatically eligible to participate in the
Plan. Eligible employees include substantially all employees
of the Company. The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974. Contribution
expense amounted to $307,000, $464,000 and $602,000 for the
nine months ended September 30, 1999 and the years ended
December 31, 1998 and 1997, respectively. As of September 30,
1999, the 1999 and 1998 employer contributions in the amount
of $771,000 remained unpaid and are reflected in accrued
liabilities.
(15) INDUSTRY SEGMENT DATA:
---------------------
The Company's operations are conducted within one business
segment. There are no material revenues attributable to
foreign customers.
F-28
<PAGE>
(16) SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION:
------------------------
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended December 31,
Supplemental Disclosure of September 30, ----------------------------------
Cash Flow Information 1999 1998 1997
-------------------------- ------------------ ---------------- ------------
<S> <C> <C> <C>
Cash paid for interest $1,145,000 $2,517,000 $3,125,000
Cash paid for income taxes 49,000 49,000 412,000
</TABLE>
(17) CONCENTRATION OF CREDIT RISK:
----------------------------
The Company's customers, in general, are primarily dependent
upon the healthcare sector of the economy. The Company's
concentration of credit risk with customers is largely
dependent on its revenue mix which, at September 30, 1999 and
December 31, 1998 and 1997, was primarily from physician
practices and independent resellers.
(18) SUBSEQUENT EVENTS (UNAUDITED):
-----------------------------
In October 1999, the Company sold all of its interests in a
certain practice management software product that was not part
of its core business. The rights were sold to a reseller of
the Company's products and the Company received, as
consideration, $1 million and the assignment of certain
physician practices whose support billings generate
approximately $500,000 per year offset by obligations to
fulfill the remaining portion of support contracts as of the
date of the transaction. In consideration for the Lenders
releasing their liens on the assets, the cash consideration
was applied as a paydown on the line of credit.
In November, a nonbank third party agreed to purchase $2
million of the amounts outstanding under the line of credit.
This transaction resulted in the banks agreeing to fund an
additional $1 million under the line of credit, on a
subordinated basis. As part of the above transaction, the
Company signed a non-solicitation agreement while it is
negotiating the sale of substantially all of its assets to
this third party. In contemplation of the sale, the Company
expects to file a petition under Chapter 11 of the bankruptcy
code in Federal court in Newark, New Jersey. It is anticipated
that the bankruptcy process will facilitate the sale while
settling the claims of the creditors and shareholders.
F-29
<PAGE>
- --------------------------------------------------------------------------------
[Logo]
2,656,466 Shares
MEDICAL MANAGER CORPORATION
Common Stock
---------------------------
PROSPECTUS
---------------------------
Warburg Dillon Read LLC
January 31, 2000
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses, other than the Securities and Exchange
Commission registration fee, are estimated. All expenses of the offering will be
paid by the Company.
SEC Registration Fee................................................. $ 53,628
Printing and Engraving............................................... 100,000
Legal Fees and Expenses.............................................. 400,000
Accounting Fees and Expenses......................................... 150,000
Blue Sky Fees and Expenses........................................... 15,000
Miscellaneous........................................................ 181,372
--------
Total....................................................... $900,000
========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and the By-laws of Medical Manager
Corporation (the "Company") provide for the indemnification of directors and
officers to the fullest extent permitted by the General Corporation Law of the
State of Delaware, the state of incorporation of the Company.
Section 145 of the General Corporation Law of the State of Delaware
authorizes indemnification when a person is made a party or is threatened to be
made a party to any proceeding by reason of the fact that such person is or was
a director, officer, employee or agent of the corporation or is or was serving
as a director, officer, employee or agent of another enterprise, at the request
of the corporation, and if such person acted in good faith and in a manner
reasonably believed by him or her to be in, or not opposed to, the best
interests of the corporation. With respect to any criminal proceeding, such
person must have had no reasonable cause to believe that his or her conduct was
unlawful. If it is determined that the conduct of such person meets these
standards, he or she may be indemnified for expenses incurred (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such proceeding.
If such a proceeding is brought by or in the right of the corporation
(i.e., a derivative suit), such person may be indemnified against expenses
actually and reasonably incurred if he or she acted in good faith and in a
manner reasonably believed by him or her to be in, or not opposed to, the best
interests of the corporation. There can be no indemnification with respect to
any matter as to which such person is adjudged to be liable to the corporation;
however, a court may, even in such case, allow such indemnification to such
person for such expenses as the court deems proper.
Where such person is successful in any such proceeding, he or she is
entitled to be indemnified against expenses actually and reasonably incurred by
him or her. In all other cases, indemnification is made by the corporation upon
determination by it that indemnification of such person is proper because such
person has met the applicable standard of conduct.
Reference is made to the Form of Indemnification Agreement between the
Company and its directors and officers filed as Exhibit 10.1 to this
Registration Statement pursuant to which the Company has agreed to indemnify
such directors and officers to the fullest extent permitted by Delaware law, as
the same may be amended from time to time.
II-1
<PAGE>
The Company maintains an errors and omissions liability policy for the
benefit of its officers and directors, which may cover certain liabilities of
such individuals to the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following exhibits are filed as part of this
registration statement.
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
1.1 Form of Standby Agreement (filed herewith)
4.1 Specimen Common Stock Certificate of the Registrant.
Incorporated by reference to
Exhibit 4.1 to the July 27, 1999 form 8-K.
5.1 Opinion of Shearman & Sterling as to the legality of the
securities being registered (filed herewith)
10.1 Form of Indemnification Agreement between Medical Manager
Corporation and the directors and officers of Medical Manager
Corporation. Incorporated by reference to Exhibit 10.6 of the
Company's Registration Statement on Form S-1 (No. 33-28854).
23.1 Consent of Shearman & Sterling (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, New York, New York (filed
herewith)
23.3 Consent of Arthur Andersen LLP, Orange County, California
(filed herewith)
23.4 Consent of Arthur Andersen LLP, Roseland, New Jersey (filed
herewith)
23.5 Consent of Linkenheimer LLP (filed herewith)
23.6 Consent of PricewaterhouseCoopers LLP (filed herewith)
24.1 Power of Attorney (included on signature page to this
registration statement)
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission (the "Commission") by the registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement 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.
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 has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. 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 Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Borough of Elmwood
Park, State of New Jersey, on this 31st day of January, 2000.
MEDICAL MANAGER CORPORATION
By: /s/ James R. Love
--------------------------------------------------------
James R. Love
Executive Vice President -- Finance and Administration
and Chief Financial Officer
Power of Attorney
The undersigned Directors and Officers of Medical Manager Corporation
hereby constitute and appoint Marvin P. Rich, James R. Love and Charles A. Mele,
and each of them acting singly, as true and lawful attorneys-in-fact for the
undersigned, with full power of substitution and resubstitution, or and in the
name, place and stead of the undersigned, to sign and file with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), any and all amendments (including post-effective amendments)
and exhibits to this Registration Statement, any related registration statement
and its amendments and exhibits filed pursuant to Rule 462(b) under the
Securities Act and any and all applications and other documents to be filed with
the Securities and Exchange Commission pertaining to the registration of the
securities covered hereby or under any related registration statement or any
amendment hereto or thereto, with full power and authority to do and perform
each and every act and thing requisite and necessary or desirable, hereby
ratifying and confirming all that each of such attorneys-in-fact or their
substitutes shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated below on this 31st day of January, 2000.
II-4
<PAGE>
Signature Title
--------- ------
Director; Chairman of the Board
- ----------------------------------
Martin J. Wygod
/s/ Michael A. Singer Director; Co-Chief Executive Officer and
- ---------------------------------- Vice Chairman
Michael A. Singer (Principal Executive Officer)
/s/ John H. Kang Director; Co- Chief Executive Officer
- ---------------------------------- (Principal Executive Officer)
John H. Kang
/s/ Marvin P. Rich Director
- ----------------------------------
Marvin P. Rich
/s/ James R. Love Executive Vice President -- Finance and
- ---------------------------------- Administration and Chief Financial Officer
James R. Love (Principal Financial Officer)
/s/ Kirk G. Layman Senior Vice President -- Finance, Chief
- ---------------------------------- Accounting Officer and Assistant Secretary
Kirk G. Layman (Principal Accounting Officer)
/s/ Thomas R. Ferguson Director
- ----------------------------------
Thomas R. Ferguson
/s/ Mervyn L. Goldstein Director
- ----------------------------------
Mervyn L. Goldstein
Director
- ----------------------------------
Ray E. Hannah
/s/ Courtney F. Jones Director
- ----------------------------------
Courtney F. Jones
Director
- ----------------------------------
Raymond Kurzweil
/s/ Roger H. Licht Director
- ----------------------------------
Roger H. Licht
/s/ James V. Manning Director
- ----------------------------------
James V. Manning
/s/ Bernard A. Marden Director
- ----------------------------------
Bernard A. Marden
/s/ Charles A. Mele Director
- ----------------------------------
Charles A. Mele
Director
- ----------------------------------
Chris A. Peifer
Director
- ----------------------------------
Herman Sarkowsky
Director
- ----------------------------------
Paul C. Suthern
Director
- ----------------------------------
Albert M. Weis
II-5
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1.1 Form of Standby Agreement (filed herewith)
4.1 Specimen Common Stock Certificate of the Registrant. Incorporated
by reference to Exhibit 4.1 to the July 27, 1999 Form 8-K
5.1 Opinion of Shearman & Sterling as to the legality of the securities
being registered (filed herewith)
10.1 Form of Indemnification Agreement between Medical Manager
Corporation and the directors and officers of Medical Manager
Corporation. Incorporated by reference to Exhibit 10.6 of the
Company's Registration Statement on Form S-1 (No. 33-28854).
23.1 Consent of Shearman & Sterling (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, New York, New York (filed herewith)
23.3 Consent of Arthur Andersen LLP, Orange County, California (filed
herewith)
23.4 Consent of Arthur Andersen LLP, Roseland, New Jersey (filed
herewith)
23.5 Consent of Linkenheimer LLP (filed herewith)
23.6 Consent of PricewaterhouseCoopers LLP (filed herewith)
24.1 Power of Attorney (included on signature page to this registration
statement)
MEDICAL MANAGER CORPORATION
Common Stock Issuable upon Conversion of
5% Convertible Subordinated Debentures Due 2007
FORM OF STANDBY UNDERWRITING AGREEMENT
January 28, 2000
Warburg Dillon Read LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
Medical Manager Corporation, a Delaware corporation (the "Company"),
proposes to call for redemption (the "Redemption") on February 15, 2000 (the
"Redemption Date") all of its outstanding 5% Convertible Subordinated Debentures
Due February 15, 2007 (the "Debentures") at a redemption price of $1,028.57 for
each $1,000 principal amount thereof, plus accrued interest thereon from August
15, 1999 to the Redemption Date (the "Redemption Price"). The Debentures are
convertible into shares of the Company's Common Stock, par value $0.01 per share
(the "Common Stock"). The right to convert the Debentures into Common Stock will
terminate at 5:00 p.m., New York City time, on February 14, 2000 (the
"Conversion Expiration Date"). The Company desires to make arrangements with you
(the "Purchaser") pursuant to which the Purchaser will, if the Company proceeds
with the Redemption, purchase a number of shares of the authorized but unissued
shares of Common Stock equal to the number of shares of Common Stock that would
have been delivered upon conversion (the "Purchased Shares") of those Debentures
that are either (i) duly surrendered for redemption or (ii) not duly surrendered
for conversion or redemption prior to 5:00 p.m., New York City time, on the
Conversion Expiration Date (collectively, the "Subject Debentures"), at a
purchase price equal to $63.213 per share (the "Purchase Price").
Notwithstanding any provision in this Agreement to the contrary, if the
closing price of the Common Stock on the Nasdaq Stock Market on the Conversion
Expiration Date is at least $66.37, then the Company shall redeem for cash
unconverted Debentures representing up to 2% of the principal amount of
Debentures outstanding at the Execution Time, and release the Purchaser from the
obligation to acquire the number of Purchased Shares underlying such Debentures.
1. Representations and Warranties. The Company represents and warrants to,
and agrees with, the Purchaser as set forth below in this Section 1. Certain
terms used in this Section 1 are defined in paragraph (c) hereof.
(a) The Company meets the requirements for use of Form S-3 under the
Securities Act of 1933, as amended (the "Act"), and has prepared and will file
with the Securities and Exchange Commission (the "Commission") a registration
statement on such Form for the registration under the Act of the offering and
sale of the Common Stock issuable by the Company in accordance with this
Agreement. The Company will file with the Commission a final prospectus with
regard to the transactions contemplated by this Agreement in accordance
<PAGE>
with Rules 415 and 424(b)(2) or (5). As filed, such final prospectus shall
contain all Rule 430A Information, together with all other such required
information, with respect to the Shares and the offering thereof and, except to
the extent the Purchaser shall agree in writing to a modification, shall be in
all substantive respects in the form furnished to you prior to the Execution
Time or, to the extent not completed at the Execution Time, shall contain only
such specific additional information and other changes as the Company has
advised you, prior to the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement will, and when the
Prospectus is first filed in accordance with Rule 424(b)(2) or (5), as the case
may be, and on the Closing Date (as hereinafter defined), the Prospectus (and
any supplements thereto) will, comply in all material respects with the
applicable requirements of the Act and the Exchange Act and the rules
thereunder; on the Effective Date, the Registration Statement did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading; on the Effective Date, the Prospectus will not, and on
the date of any filing pursuant to Rule 424(b)(2) or (5), as the case may be,
and on the Closing Date, the Prospectus (together with any supplement thereto)
will not, include any untrue statement of a material fact or omit 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, however,
that the Company makes no representations or warranties as to the information
contained in or omitted from the Registration Statement or the Prospectus (or
any supplement thereto) in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of the Purchaser
specifically for inclusion in the Registration Statement or the Prospectus (or
any supplement thereto).
(c) The terms which follow, when used in this Agreement, shall have the
meanings indicated. The term "the Effective Date" shall mean each date that the
Registration Statement and any post-effective amendment or amendments thereto
became or become effective and each date after the date hereof on which a
document incorporated by reference in the Registration Statement is filed.
"Execution Time" shall mean the date and time that this Agreement is executed
and delivered by the parties hereto. "Prospectus" shall mean the prospectus
relating to the Shares that is first filed pursuant to Rule 424(b) after the
Execution Time, and, unless the context otherwise requires, shall also include
any supplements or amendments thereto. "Registration Statement" shall mean the
registration statement referred to in paragraph (a) above, including
incorporated documents, exhibits and financial statements, as amended at the
Execution Time and, in the event any post-effective amendment thereto becomes
effective prior to the Closing Date, shall also mean such registration statement
as so amended. "Rule 415," "Rule 424," "Rule 430A" and "Regulation S-K" refer to
such rules or regulation under the Act. "Rule 430A Information" means
information with respect to the Shares and the offering thereof which would have
been permitted to be omitted from the Registration Statement if it had become
effective pursuant to Rule 430A. Any reference herein to the Registration
Statement or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
which were filed under the Exchange Act on or before the Effective Date or the
issue date of the Prospectus, as the case may be; and any reference herein to
the terms "amend", "amendment" or "supplement" with respect to the Registration
Statement or the Prospectus shall be deemed to refer to and include the filing
of any document under the Exchange Act after the Effective Date of the
Registration Statement, or the issue date of the Prospectus, as the case may be,
that is incorporated therein by reference.
2
<PAGE>
(d) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(e) Each Significant Subsidiary (as defined below) has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its Significant Subsidiaries, taken as a
whole; all of the issued shares of capital stock of each Significant Subsidiary
of the Company have been duly and validly authorized and issued, are fully paid
and non-assessable and except as disclosed in the Prospectus are owned directly
by the Company, free and clear of all liens, encumbrances, equities or claims.
"Significant Subsidiaries" shall mean Medical Manager Health Systems, Inc.,
CareInsite, Inc., Porex Technologies Corporation, Point Plastics, Inc. and The
Kipp Group.
(f) This Agreement has been duly authorized, executed and delivered by the
Company.
(g) The Company has an authorized equity capitalization as set forth in the
Prospectus, and all of the issued and outstanding shares of capital stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable and conform to the description thereof contained in the
Prospectus or incorporated by reference therein; all of the shares of Common
Stock to be issued by the Company pursuant to this Agreement have been duly
authorized and, where applicable, reserved for issuance upon conversion of the
Debentures and, when issued and delivered as contemplated hereby, will be
validly issued, fully paid and non-assessable and will conform to the
description of the Common Stock contained in the Prospectus; and the
stockholders of the Company have no preemptive rights with respect to the
Debentures or the Common Stock.
(h) At the close of business on January 30, 2000, $159,388,000 aggregate
principal amount of the Debentures remained outstanding; the Debentures are
convertible in accordance with the terms of the Indenture between the Company
and United States Trust Company of New York, as trustee (the "Trustee"), dated
as of February 15, 1997, until 5:00 p.m., New York City time, on the Conversion
Expiration Date, into Common Stock at a conversion price of $60.00 of principal
amount of Debentures per share of Common Stock; and from and after the date
hereof until the close of business on the Redemption Date, the Company will take
no action which would result in any change in the conversion price.
(i) The execution and delivery by the Company of, and the performance by
the Company of its obligations under this Agreement, including, without
limitation, the call of the Debentures for redemption, the redemption of the
Debentures, and the issue and sale of the
3
<PAGE>
shares of Common Stock by the Company as contemplated by this Agreement, will
not contravene any provision of the certificate of incorporation or by-laws of
the Company or any agreement or other instrument binding upon the Company or any
of its Significant Subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, except such as would not, or could not be
reasonably expected to, either singly or in the aggregate, have a material
adverse effect upon the Company and its subsidiaries, taken as a whole, or, to
the knowledge of the Company, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any Significant
Subsidiary. The Company has full power and authority to authorize, issue and
sell the shares of Common Stock as contemplated by this Agreement; and all
taxes, if any, required to be paid by the Company with respect to the redemption
of the Debentures and the issuance of shares of Common Stock upon conversion of
the Debentures or otherwise pursuant to this Agreement, have been or will be
paid by the Company.
(j) There are no material legal or governmental proceedings pending or, to
the knowledge of the Company, threatened to which the Company or any of its
Significant Subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and are not so described or any
material contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed or incorporated by
reference as exhibits to the Registration Statement that are not described,
filed or incorporated as required.
(k) No holder of outstanding shares of Common Stock has any rights to the
registration of shares of Common Stock or other securities of the Company which
would or could require such securities to be included in the Registration
Statement, except for such registration rights as have been waived in a manner
reasonably satisfactory to the Purchaser and its counsel.
(l) The Company has neither paid nor given, nor will pay or give, directly
or indirectly, any commission or other remuneration for soliciting the
conversion of any Debentures into Common Stock, except as may be contemplated by
this Agreement.
(m) The Company has instructed, or will promptly instruct, the Trustee to
cooperate with you in order to facilitate the conversion of Debentures acquired
by you until 5:00 p.m., New York City time, on the Conversion Expiration Date.
(n) The Shares have been, subject to notice of issuance, or will be listed
(prior to the Closing Date) on the Nasdaq National Market.
(o) Except for this Agreement, the Company has not entered into, and will
not enter into, any standby, underwriting or similar agreement with any person
relating to the Redemption.
4
<PAGE>
2. Purchase and Sale. On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees, if the Company proceeds with the Redemption, to issue
and sell to you, and you agree to purchase from the Company, all of the
Purchased Shares at the Purchase Price.
3. Delivery and Payment. Promptly after the close of business on the
Conversion Expiration Date, the Company shall notify the Purchaser in writing
after conferring with the Trustee of the principal amount of Debentures that
have been converted.
The closing (the "Closing") of the purchase and sale of the Purchased
Shares shall occur at 10:00 A.M. (New York City time) on February 15, 2000, or
at such other time not later than seven full business days thereafter as the
Purchaser and the Company determine (the "Closing Date"), at the offices of
Dewey Ballantine LLP, New York, New York. Payment for the Purchased Shares shall
be by wire transfer in immediately available funds. The Company will deliver to
you certificates evidencing the Purchased Shares (in definitive form and
registered in such names and in such denominations as you shall request by
written notice to the Company). A "business day" shall be a day on which the
Commission's office in Washington, D.C., and banks and securities exchanges in
New York, New York, are open for business. Delivery of the certificates
evidencing the Purchased Shares is to be made at your office at 299 Park Avenue,
New York, New York 10171, or as you may otherwise designate in writing.
For purposes of expediting the checking and packaging of any certificates
to be delivered at the Closing, the Company shall make certificates available
for inspection at the office of the Purchaser, 299 Park Avenue, New York, New
York 10171, at least 24 hours prior to the Closing.
If the Company proceeds with the Redemption, as compensation to you for
your commitment hereunder the Company will pay to you, by wire transfer in
immediately available funds, (a) $2,000,000 as a standby fee (the "Standby Fee")
and (b) at the Closing an additional amount per Share purchased (the "Take-up
Amount") equal to 3.5% of the Purchase Price. The Standby Fee shall be paid on
the Redemption Date at the Closing.
4. Agreements. The Company agrees with the Purchaser that:
(a) Prior to the payment for the Purchased Shares, the Company will not
file any amendment of the Registration Statement or supplement to the Prospectus
unless the Company has furnished you a copy for your review prior to filing and,
except as set forth in subparagraph (b) hereof, will not file any such proposed
amendment or supplement to which you reasonably object. Subject to the foregoing
sentence, if the Registration Statement has become or becomes effective pursuant
to Rule 430A, or filing of the Prospectus is otherwise required under Rule
424(b), the Company will cause the Prospectus, properly completed, and any
supplement thereto to be filed with the Commission pursuant to the applicable
paragraph of Rule 424(b) within the time period prescribed and will provide
evidence satisfactory to the Purchaser of such timely filing. The Company will
promptly advise the Purchaser (i) when the Prospectus, and any supplement
thereto, shall have been filed (if required) with the Commission pursuant to
Rule 424(b), (ii) when, prior to payment for the Shares, any amendment to the
Registration Statement shall have been filed or become effective, (iii) of any
request by the Commission for any amendment of the Registration Statement or
supplement to the Prospectus or for any additional information, (iv) of the
issuance by the Commission of any stop order suspending the
5
<PAGE>
effectiveness of the Registration Statement or the institution or threatening of
any proceeding for that purpose and (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Shares
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose. The Company will use all commercially reasonable efforts to
prevent the issuance of any such stop order and, if issued, to obtain as soon as
possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Shares is required to
be delivered under the Act, any event occurs as a result of which the Prospectus
as then supplemented would include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein in the
light of the circumstances under which they were made not misleading, or if it
shall be necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Act or the Exchange Act or the respective rules
thereunder, the Company promptly will (i) prepare and file with the Commission,
subject to the second sentence of subparagraph (a) of this Section 4, an
amendment or supplement which will correct such statement or omission or an
amendment which will effect such compliance and (ii) supply any supplemented
Prospectus to you in such quantities as you may reasonably request.
(c) As soon as practicable, the Company will make generally available to
its security holders and to the Purchaser an earnings statement or statements of
the Company and its subsidiaries which will satisfy the provisions of Section
11(a) of the Act and Rule 158 under the Act.
(d) The Company will furnish to the Purchaser and counsel for the
Purchaser, without charge, signed copies of the Registration Statement
(including exhibits thereto), as well as such number of conformed copies of the
Registration Statement, excluding exhibits thereto, as the Purchaser may
reasonably request and, so long as delivery of a prospectus by the Purchaser or
a dealer may be required by the Act, as many copies of the Prospectus and any
supplement thereto as the Purchaser may reasonably request. The Company will pay
the expenses of printing or other production of all documents relating to
transactions contemplated by this Agreement.
(e) The Company, at its expense, will arrange for the qualification of the
Common Stock for sale under the laws of such jurisdictions as the Purchaser may
designate and will maintain such qualifications in effect so long as required
for the distribution of the Common Stock, provided, that in connection therewith
the Company shall not be required to qualify as a foreign corporation, file a
general consent to service of process in any state other than in Florida, or
subject itself to taxation in any jurisdiction. The Company will pay the fees
and expenses of counsel to the Purchaser in connection with such qualifications.
The Company will pay the fee of the National Association of Securities Dealers,
Inc., in connection with its review of the transactions contemplated by this
Agreement, if applicable.
(f) If the Purchaser actually purchases any Purchased Shares under the
terms of this Agreement, the Company will not, for a period of 90 days following
the Execution Time, without the prior written consent of the Purchaser (which
consent shall not be unreasonably withheld), directly or indirectly, offer to
sell, sell, grant any option (exercisable before 90 days after the Execution
Time) for the sale of or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for any shares of Common Stock, or
any right or option to acquire any such shares or securities, provided, however,
that the Company may issue
6
<PAGE>
and sell Common Stock and other securities convertible into or exchangeable for
Common Stock (i) pursuant to any director or employee benefit plan, stock option
plan or dividend reinvestment plan, (ii) pursuant to any outstanding options or
warrants or other convertible securities, and (iii) as a consideration in an
acquisition of the stock or assets of another entity (including an acquisition
or licensing of intellectual property or other intangible rights). Sales by the
Company to the Purchaser are exempt from the foregoing restriction.
(g) To promptly mail or cause to be mailed or otherwise delivered to
holders of Debentures a notice of redemption (the "Notice of Redemption") of all
the Debentures on the Redemption Date in accordance with the terms of the
Indenture, the time of the first such mailing being called herein the "Time of
Mailing"; and the Company will cause notice of redemption to be given by press
release at such times as you and the Company may mutually agree.
(h) To advise you daily or direct the Trustee to advise you daily of the
respective principal amount of Debentures surrendered for conversion into Common
Stock and surrendered for redemption on the preceding day.
(i) To supplement the Prospectus, or file a post-effective amendment to the
Registration Statement, after the Redemption Date to set forth the results of
the call for redemption and other information that may be required to comply
with the rules of the Commission, if applicable.
(j) To not engage in any additional financings prior to the close of
business on the Redemption Date.
(k) If the Purchaser actually purchases any Purchased Shares under the
terms of this Agreement, then for a period of 90 days after the Closing Date, to
not directly or indirectly purchase, redeem or otherwise acquire any shares of
Common Stock or otherwise reduce the number of issued and outstanding shares of
Common Stock from the number of shares of Common Stock issued and outstanding on
the Closing Date, after giving effect to the purchase of Shares by the Purchaser
pursuant hereto.
5. Conditions to the Obligations of the Purchaser. The obligations of the
Purchaser to purchase the Purchased Shares shall be subject to the accuracy in
all material respects of the representations and warranties on the part of the
Company contained herein as of the Execution Time and the Closing Date, to the
accuracy in all material respects of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company in all material respects of its obligations hereunder and to the
following additional conditions:
(a) The Company shall have furnished to the Purchaser the opinion of
Shearman & Sterling, special counsel for the Company, dated the Closing Date, in
form and substance substantially in the form of Exhibit A hereto.
(b) The Purchased Shares shall be duly listed on the Nasdaq National Market
prior to the Closing Date.
(c) The Purchaser shall have received from Dewey Ballantine LLP, counsel
for the Purchaser, such opinion or opinions, dated the Closing Date, with
respect to (i) the due
7
<PAGE>
incorporation of the Company, (ii) the due authorization, valid issuance and
fully paid and nonassessable status of the Shares, (iii) the Registration
Statement, (iv) the Prospectus (together with any supplement thereto) and (v)
such other related matters as the Purchaser may reasonably require, 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.
(d) The Company shall have furnished to the Purchaser a certificate of the
Company, signed by the Chairman of the Board or a Co-Chief Executive Officer, or
the President and the principal financial or accounting officer of the Company,
dated the Closing Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Prospectus, any supplement to
the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company in this Agreement
are true and correct in all material respects on and as of the Closing
Date with the same effect as if made on the Closing Date and the
Company has complied in all material respects with all the agreements
and satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, are threatened; and
(iii) since the date of the most recent financial statements included
or incorporated by reference in the Prospectus, there has been no
material adverse change in the condition (financial or other),
earnings, business or properties of the Company and its subsidiaries,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus.
(e) At the Closing Date, Arthur Anderson LLP and PricewaterhouseCoopers LLP
shall have furnished to the Purchaser a letter or letters, dated as of the
Closing Date, in form and substance satisfactory to the Purchaser, 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 or incorporated by reference into the
Prospectus.
(f) Subsequent to the Execution Time or, if earlier, the dates as of which
information is given in the Registration Statement (exclusive of any amendment
thereof) and the Prospectus (exclusive of any supplement thereto), there shall
not have been (i) any change or decrease specified in the letter or letters
referred to in paragraph (e) of this Section 5 or (ii) any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company and its subsidiaries the effect of which, in any case
referred to in clause (i) or (ii) above, is, in the reasonable judgment of the
Purchaser, so material and adverse as to make it impractical or inadvisable to
proceed with the offering or delivery of the Shares as contemplated by the
Registration Statement (exclusive of any amendment thereof) and the Prospectus.
(g) Prior to the Closing Date, the Company shall have furnished to the
Purchaser such further information, certificates and documents as the Purchaser
may reasonably request.
8
<PAGE>
(h) Prior to the opening of trading on the Nasdaq Stock Market on January
31, 2000, the Company shall have filed the Registration Statement with the
Commission and issued its earnings announcement for the quarter ended December
31, 1999; shortly thereafter the Company shall have issued its press release
announcing its intention to call the Debentures for redemption, the Commission
shall have declared the Registration Statement effective and the Company shall
have irrevocably called the Debentures for redemption.
If any of the conditions specified in this Section 5 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Purchaser and counsel for the Purchaser, this Agreement and
all obligations of the Purchaser hereunder may be canceled at, or at any time
prior to, the Closing Date by the Purchaser. Notice of such cancellation shall
be given to the Company in writing or by telephone or telegraph confirmed in
writing.
The documents required to be delivered by this Section 5 shall be delivered
at the office of counsel for the Company on the Closing Date.
6. Additional Purchases. Until 5:00 p.m., New York City time, on the
Conversion Expiration Date, you may (but shall be under no obligation to)
purchase Debentures in such amounts and at such prices as you may deem
advisable. The Common Stock acquired by you on conversion of the Debentures
purchased by you pursuant to this Section may be sold at any time or from time
to time by you. It is also understood that, for the purpose of stabilizing the
price of the Common Stock or otherwise, you may make purchases and sales of
Common Stock, Debentures or options therefor, in the open market or otherwise,
for long or short account, on such terms as you deem advisable, and may
over-allot in arranging sales, all subject to applicable provisions of the
Exchange Act and the rules and regulations of the Commission thereunder.
7. Reimbursement of Expenses. The Company will reimburse the Purchaser
severally upon demand for all out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by it in connection
with the proposed purchase and sale of the Purchased Shares. The Purchaser shall
provide the Company with invoices or other reasonable evidence of such expenses
at or prior to the time of reimbursement.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Purchaser, the
directors, officers, employees and agents of the Purchaser and each person who
controls the Purchaser within the meaning of either the Act or the Exchange Act
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law 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 a material fact contained in the registration statement for the
registration of the Shares as originally filed or in any amendment thereof, or
in the Prospectus, or in any amendment thereof or supplement thereto, 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, and agrees to reimburse each such indemnified party, as
incurred, for any legal or
9
<PAGE>
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of the Purchaser through the Purchaser specifically
for inclusion therein. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) The Purchaser severally agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signs the Registration
Statement, and each person who controls the Company within the meaning of either
the Act or the Exchange Act, to the same extent as the foregoing indemnity from
the Company to the Purchaser, but only with reference to written information
relating to the Purchaser furnished to the Company by or on behalf of the
Purchaser through the Purchaser specifically for inclusion in the documents
referred to in the foregoing indemnity. This indemnity agreement will be in
addition to any liability which the Purchaser may otherwise have. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page and under the heading "Standby Arrangements" in the Prospectus constitute
the only information furnished in writing by or on behalf of the Purchaser for
inclusion in the Prospectus, and you, as the Purchaser, confirm that such
statements are correct.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ not
more than one separate counsel (including local counsel), and the indemnifying
party shall bear the reasonable fees, costs and expenses of such separate
counsel if (i) the use of counsel chosen by the indemnifying party to represent
the indemnified party would present such counsel with a conflict of interest,
(ii) the actual or potential defendants in, or targets of, any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at the
10
<PAGE>
expense of the indemnifying party. An indemnifying party will not, without the
prior written consent of the indemnified parties, which consent shall not be
unreasonably withheld, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 8 is unavailable to or insufficient to hold harmless an indemnified
party for any reason, the Company and the Purchaser agree to contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company and one or more of the Purchaser
may be subject in such proportion as is appropriate to reflect the relative
benefits received by the Company and by the Purchaser from the offering of the
Shares); provided, however, that in no case shall the Purchaser be responsible
for any amount in excess of the aggregate Take-up Amount applicable to the
Purchased Shares purchased by the Purchaser hereunder. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the Company and the Purchaser shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and of the Purchaser in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be equal to
the total net proceeds from the offering (before deducting expenses), and
benefits received by the Purchaser shall be deemed to be equal to the total
Take-up Amount relating to the Purchased Shares purchased by the Purchaser
hereunder, in each case as set forth on the cover page of the Prospectus.
Relative fault shall be determined by reference to whether any alleged untrue
statement or omission relates to information provided by the Company or the
Purchaser. The Company and the Purchaser agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph (d), 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. For purposes of this Section 8,
each person who controls the Purchaser within the meaning of either the Act or
the Exchange Act and each director, officer, employee and agent of the Purchaser
shall have the same rights to contribution as the Purchaser, and each person who
controls the Company within the meaning of either the Act or the Exchange Act,
each officer of the Company who shall have signed the Registration Statement and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and provisions of this
paragraph (d).
11
<PAGE>
9. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Purchaser, by notice given to the Company prior to
delivery of and payment for the Purchased Shares, if prior to such time (i)
trading in the Company's Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities generally on
the New York Stock Exchange or the American Stock Exchange shall have been
suspended or limited or minimum prices shall have been established on either of
such Exchanges, (ii) a banking moratorium shall have been declared either by
Federal or New York State authorities or (iii) there shall have occurred any
outbreak or escalation of hostilities, declaration by the United States of a
national emergency or war or any other calamity or crisis the effect of which on
financial markets is such as to make it, in the judgment of the Purchaser,
impracticable or inadvisable to proceed with the offering or delivery of the
Shares as contemplated by the Prospectus.
10. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Company or
its officers and of the Purchaser set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Purchaser or the Company or any of the officers,
directors or controlling persons referred to in Section 8 hereof, and will
survive delivery of and payment for the Shares. The provisions of Sections 7 and
8 hereof shall survive the termination or cancellation of this Agreement.
11. Notices. All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Purchaser, will be mailed, delivered or
telecopied and confirmed to the Purchaser at Warburg Dillon Read LLC, 299 Park
Avenue, New York, New York 10171, Attention: General Counsel; or, if sent to the
Company, will be mailed, delivered or telecopied and confirmed to it at 669
River Drive, River Drive Center II, Elmwood Park, New Jersey 07407, Attn:
Executive Vice President - Finance and Administration.
12. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 8 hereof, and no other
person will have any right or obligation hereunder. No purchaser of any of the
Purchased Shares from the Purchaser shall be deemed a successor or assign by
reason merely of such purchase.
13. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS.
14. Counterparts. This Agreement may be executed by 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.
12
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the Purchaser.
Very truly yours,
MEDICAL MANAGER CORPORATION
By:
---------------------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
WARBURG DILLON READ LLC
By: _______________________________
Kevin Cameron
Managing Director
By: _______________________________
David Stowell
Managing Director
<PAGE>
EXHIBIT A
February 15, 2000
Warburg Dillon Reed LLC
299 Park Avenue
New York, New York 10171
Call for Redemption of
5% Convertible Subordinated Debentures Due 2007
of Medical Manager Corporation
-----------------------------------------------
Ladies and Gentlemen:
We are acting as counsel to Medical Manager Corporation, a Delaware
corporation (the "Company"), in connection with the preparation of the
registration statement on Form S-3, filed by the Company with the Securities and
Exchange Commission (the "Commission") on January 31, 2000 (the registration
statement at the time when it became effective, including the exhibits and
schedules thereto and the documents incorporated by reference therein, being
hereinafter referred to as the "Registration Statement"), relating to the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of 2,656,466 shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), in connection with an underwritten call for
redemption of the Company's 5% Convertible Subordinated Debentures Due 2007 (the
"Debentures"). The shares may be either issued to you upon conversion of the
Debentures purchased by you on or prior to the Conversion Expiration Date in
accordance with the terms of the indenture dated as of February 15, 1997 (the
"Indenture") between the Company and United States Trust Company of New York, as
Trustee, or purchased by you in your role as standby purchaser pursuant to the
Standby Agreement dated as of January 28, 2000 between you and the Company (the
"Standby Agreement").
This opinion is being delivered pursuant to Section 5(a) of the
Standby Agreement. Capitalized terms used herein without definition shall have
the meanings assigned to them in the Standby Agreement.
In this capacity, we have examined a signed copy of the Registration
Statement and copies of the related prospectuses (the final prospectus, dated
January 31, 2000, in the form first filed by the Company with the Commission
pursuant to Rule 424(b) under the Securities
<PAGE>
Act, including the documents incorporated by reference therein, being
hereinafter referred to as the "Prospectus"). The documents incorporated by
reference in the Registration Statement and the Prospectus were prepared and
filed with the Commission without our participation.
A member of the Staff of the Commission advised us orally that the
Registration Statement became effective under the Securities Act at [9:30 a.m.],
New York City time, on January 31, 2000. On January 31, 2000, a member of the
Staff of the Commission advised us orally that there was no stop order
suspending the effectiveness of the Registration Statement. To our knowledge,
since that date no stop order suspending the effectiveness of the Registration
Statement has been issued under the Securities Act or proceedings thereof
initiated or threatened by the Commission.
We have also examined the Standby Agreement and the originals, or
copies, identified to our satisfaction, of such corporate records of the Company
and its subsidiaries, certificates of public officials, officers of the Company
and its subsidiaries and other persons, and such other documents, agreements and
instruments, as we have deemed necessary as a basis for the opinions hereinafter
expressed. In our examinations, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to originals of all documents submitted to us as copies thereof.
In rendering the opinions expressed below, we have relied as to certain factual
matters, to the extent we deem proper, upon the representations and warranties
of the Company and statements contained in or made pursuant to the Standby
Agreement, certificates of officers of the Company and certificates of public
officials.
We have not conducted any independent review of the stock transfer
ledger of the Company or its subsidiaries. In addition, for purposes of the
opinion set forth in paragraph (iv), we have, with your approval, not conducted
searches of lien, judgment or litigation records maintained by local, state or
federal government agencies.
Our opinions set forth below are limited to the law of the State of
New York, the federal laws of the United States of America and the General
Corporation Law of the State of Delaware, and we do not express any opinions
herein concerning any other laws. In addition, with your approval, we express no
opinion with respect to any laws, rules or regulations (whether at a federal,
state or local level) pertaining to (i) the sale and distribution of medical
devices, including, but not limited to, the Medical Device Amendments of 1976 to
the federal Food, Drug and Cosmetic Act and regulations promulgated by the Food
and Drug Administration or pertaining to the health care industry generally or
(ii) United States Telecommunications law. Accordingly, matters involving such
laws, rules or regulations are excluded from this opinion.
2
<PAGE>
Based on the foregoing, we are of the opinion that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority under such laws to own,
lease and operate its properties and conduct its business as described
in the Prospectus.
(ii) Each of Medical Manager Health Systems, Inc., CareInsite,
Inc., Porex, and Point Plastics, Inc. are corporations duly
incorporated and validly existing in good standing under the laws of
the State of Delaware.
(iii) The shares of Common Stock issuable upon the conversion
of the Debentures have been duly and validly authorized and reserved
for issuance upon such conversion by all necessary corporate action and
such shares, when issued as provided in the Indenture, will be duly and
validly issued and fully paid and nonassessable, and shareholders of
the Company will have no preemptive rights with respect to the issuance
thereof upon conversion. The shares of Common Stock to be sold by the
Company pursuant to the provisions of the Standby Agreement have been
duly and validly authorized by all necessary corporate action, and such
shares, when issued and sold as contemplated by the Standby Agreement,
will be duly and validly issued and fully paid and nonassessable, and
shareholders of the Company will have no preemptive rights with respect
to the issuance thereof.
(iv) All of the outstanding shares of capital stock of Medical
Manager Health Systems, Inc., CareInsite, Inc., Porex, and Point
Plastics, Inc. have been duly authorized and validly issued and are
fully paid and nonassessable; except as otherwise disclosed in the
Prospectus, all of such shares are, to our knowledge, owned by the
Company directly, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind.
(v) The Common Stock conforms in all material respects as to
legal matters to the description thereof in the Prospectus under the
heading "Description of Capital Stock."
(vi) The Standby Agreement has been duly authorized, executed
and delivered by the Company.
(vii) The execution and delivery by the Company of the Standby
Agreement, the consummation by the Company of the transactions
contemplated in the Standby Agreement, and compliance by the Company
with the terms thereof will not result in any violation of the
Certificates of Incorporation or By-laws of the Company, Medical
Manager Health Systems, Inc., CareInsite, Inc., Porex or Point
Plastics, Inc., and will
3
<PAGE>
not conflict with, or constitute default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company, Medical Manager Health Systems,
Inc., CareInsite, Inc., Porex or Point Plastics, Inc. pursuant to (A)
any of the agreements set forth on Schedule 1 to the Officer's
Certificate attached hereto as Annex A (except for such conflicts,
defaults or liens, charges or encumbrances that would not, individually
or in the aggregate, have a material adverse effect on the Company and
its subsidiaries, considered as one enterprise), (B) any existing
applicable law, rule or regulation (subject to the provisions of the
fourth paragraph on page 2 of this opinion letter), other than the
securities or blue sky laws of the various states, as to which, in each
case, we express no opinion or (C) any judgment, order or decree known
to us of any U.S. or New York State government or governmental
instrumentality or court having jurisdiction over the Company, Medical
Manager Health Systems, Inc., CareInsite, Inc., Porex or Point
Plastics, Inc. or any of their respective properties (except for such
conflicts, defaults or liens, charges or encumbrances that would not,
individually or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, considered as one enterprise).
(viii) To our knowledge, no authorization, approval, consent
or license of any government, governmental instrumentality or court is
necessary for the redemption of the Debentures or conversion of the
Debentures into Common Stock or for the valid authorization, issuance,
sale and delivery by the Company of the Common Stock pursuant to the
Standby Agreement, except such as may be required by the Securities Act
and the securities or blue sky laws of the various states.
(ix) The statements made in the Prospectus under "Risk Factors
--Our principal businesses are subject to litigation," to the extent
that they constitute matters of law or legal conclusions, have been
reviewed by us and fairly present the information disclosed therein in
all material respects.
(x) No holders of securities of the Company have rights to the
registration of such securities under the Registration Statement
pursuant to any of the agreements set forth in Schedule 1 to the
officer's Certificate attached hereto as Annex B.
(xi) The redemption of all of the outstanding Debentures on
the Redemption Date has been duly authorized and all action required by
the terms of the Debentures or the Indenture to call the Debentures for
redemption on the Redemption Date has been duly taken in accordance
with the terms of the Indenture.
4
<PAGE>
This opinion is furnished to you solely for your benefit, and is not
to be used, circulated, quoted or otherwise referred to for any other purpose.
Very truly yours,
<PAGE>
ANNEX A
MEDICAL MANAGER CORPORATION
Officer's Certificate
---------------------
I, James R. Love, Executive Vice President--Finance and Administration
and Chief Financial Officer of Medical Manager Corporation, a Delaware
corporation (the "Company"), do hereby certify that I am duly authorized to
execute and deliver this Officer's Certificate on behalf of the Company, and I
do further certify to Shearman & Sterling that:
1. I am familiar with the transactions contemplated by the Standby
Agreement, dated January 31, 2000, between the Company and Warburg Dillon Reed
LLC (the "Standby Agreement") and understand that Shearman & Sterling will be
relying on this certificate in rendering the opinion required by Section 5(a) of
the Standby Agreement.
2. Set forth on Schedule I hereto is a complete and accurate list of
(I) all contracts, indentures, mortgages, loan agreements, notes, leases or any
other agreements or instruments that are material to the Company and its
subsidiaries, considered as one enterprise and (ii) certain other agreements
that are not material to the Company and its subsidiaries, considered as one
enterprise.
IN WITNESS WHEREOF, the undersigned has executed this Officer's
Certificate as of February 15, 2000
--------------------------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
[To be provided]
<PAGE>
ANNEX B
MEDICAL MANAGER CORPORATION
Officer's Certificate
---------------------
I, James R. Love, Executive Vice President--Finance and Administration
and Chief Financial Officer of Medical Manager Corporation, a Delaware
corporation (the "Company"), do hereby certify that I am duly authorized to
execute and deliver this Officer's Certificate on behalf of the Company, and I
do further certify to Shearman & Sterling that:
1. I am familiar with the transactions contemplated by the Standby
Agreement, dated January 31, 2000, between the Company and Warburg Dillon Reed
LLC (the "Standby Agreement") and understand that Shearman & Sterling will be
relying on this certificate in rendering the opinion required by Section 5(a) of
the Standby Agreement.
2. Set forth on Schedule I hereto is a complete and accurate list of
all agreements or instruments pursuant to which any holders of securities of the
Company have rights to the registration of securities of the Company and its
subsidiaries.
IN WITNESS WHEREOF, the undersigned has executed this Officer's
Certificate as of February 15, 2000
--------------------------------------------------
Name:
Title:
<PAGE>
SCHEDULE I
[To be provided]
<PAGE>
February 15, 2000
Warburg Dillon Reed LLC
299 Park Avenue
New York, New York 10171
Call for Redemption of
5% Convertible Subordinated Debentures Due 2007
of Medical Manager Corporation
-----------------------------------------------
Ladies and Gentlemen:
We are acting as counsel to Medical Manager Corporation, a Delaware
corporation (the "Company"), in connection with the preparation of the
registration statement on Form S-3, filed by the Company with the Securities and
Exchange Commission (the "Commission") on January 31, 2000 (the registration
statement at the time when it became effective, including the exhibits and
schedules thereto and the documents incorporated by reference therein, being
hereinafter referred to as the "Registration Statement"), relating to the
registration under the Securities Act of 1933, as amended (the "Securities
Act"), of 2,656,466 shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), in connection with a partially underwritten call for
redemption of the Company's 5% Convertible Subordinated Debentures Due 2007 (the
"Debentures"). The shares may be either issued to you upon conversion of the
Debentures purchased by you on or prior to the Conversion Expiration Date in
accordance with the terms of the indenture dated as of February 15, 1997 (the
"Indenture") between the Company and United States Trust Company of New York, as
Trustee, or purchased by you in your role as standby purchasers pursuant to the
Standby Agreement dated as of January 31, 2000 between you and the Company (the
"Standby Agreement").
<PAGE>
2
In this capacity, we have examined a signed copy of the Registration
Statement and copies of the related prospectuses (the final prospectus, dated
January 31, 2000, in the form first filed by the Company with the Commission
pursuant to Rule 424(b) under the Securities Act, including the documents
incorporated by reference therein, being hereinafter referred to as the
"Prospectus"). The documents incorporated by reference in the Registration
Statement and the Prospectus were prepared and filed with the Commission without
our participation.
We also reviewed and participated in discussions concerning the
preparation of the Registration Statement and the Prospectus with certain
officers or employees of the Company, with its counsel and its auditors, and
with representatives of the standby purchasers pursuant to the Standby
Agreement. The limitations inherent in the independent verification of factual
matters and in the role of outside counsel are such, however, that we cannot and
do not assume any responsibility for the accuracy, completeness or fairness of
any of the statements made in the Registration Statement and the Prospectus,
except as set forth in paragraphs (v) and (ix) of our opinion addressed to you,
dated the date hereof.
Subject to the limitations set forth in the immediately preceding
paragraph, we advise you that, on the basis of the information we gained in the
course of performing the services referred to above, in our opinion, the
documents incorporated by reference in the Prospectus (other than the financial
statements and other financial or statistical data contained therein or omitted
therefrom, to which we express no view), at the time they were filed with the
Commission, appear on their face to have been appropriately responsive in all
material respects to the requirements of the Securities Exchange Act of 1934, as
amended, and the applicable rules and regulations of the Commission thereunder.
We further advise you that, subject to the limitations set forth in
the second preceding paragraph, on the basis of the information we gained in the
course of performing the services referred to above, (I) in our opinion, the
Registration Statement and the Prospectus (other than the financial statements
and other financial or statistical data contained therein or omitted therefrom,
as to which we express no view), excluding the documents incorporated by
reference therein, appear on their face to be appropriately responsive in all
material respects to the requirements of the Securities Act and the applicable
rules and regulations of the Commission thereunder; (ii) no facts came to our
attention which gave us reason to believe that (a) the Registration Statement
(other than the financial statements and other financial or statistical data
contained therein or omitted therefrom, as to which we have not been requested
to comment), at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (b) the
Prospectus (other than the financial statements and other financial or
statistical data contained therein or omitted therefrom, as to which we have not
been requested to comment), as of its date or the date hereof, contained an
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; (iii) we do not
<PAGE>
3
know of any statutes or regulations, or any pending or threatened legal or
governmental proceedings of a character required to be described in the
Prospectus that are not so described; and (iv) we do not know of any contract or
other document of a character required to be filed as an exhibit to the
Registration Statement that is not so filed.
This letter is being furnished to you solely for your benefit, and is
not to be used, circulated, quoted or otherwise referred to for any other
purpose.
Very truly yours,
[Letterhead of SHEARMAN & STERLING]
January 31, 2000
Medical Manager Corporation
669 River Drive
River Drive Center II
Elmwood Park, New Jersey 07407-1361
Ladies and Gentlemen:
We have acted as counsel to Medical Manager Corporation, a Delaware
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-3 of the Company, filed with the Securities and
Exchange Commission on January 31, 2000 (the "Registration Statement"), relating
to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of 2,656,466 shares of the Company's Common Stock, par value
$.01 per share (the "Shares"), in connection with a partially underwritten call
for redemption of the Company's 5% Convertible Subordinated Debentures Due 2007
(the "Debentures"). The Shares may be either issued to Warburg Dillon Read LLC
acting as standby purchaser (the "Standby Purchaser") upon conversion of the
Debentures purchased by the Standby Purchaser on or prior to the Conversion
Expiration Date in accordance with the terms of the indenture governing the
Debentures (the "Indenture") or purchased by the Standby Purchaser pursuant to
the Standby Agreement dated as of January 31, 2000 between the Standby Purchaser
and the Company (the "Standby Agreement"), as the case may be.
In this connection, we have reviewed (i) the Certificate of
Incorporation and By-Laws of the Company as currently in effect, (ii) the
Registration Statement, (iii) certain resolutions adopted by the Board of
Directors of the Company, and (iv) such other documents and corporate records as
we have deemed necessary or appropriate in order to give the opinions set forth
herein. We have relied as to factual matters on certificates or other documents
furnished by the Company or its officers and by governmental authorities and
upon such other documents and data that we have deemed appropriate. We have
assumed the authenticity and genuineness of all documents examined by us and all
signatures thereon, the legal capacity of all persons executing such
<PAGE>
documents, the conformity to original documents of all copies of documents
submitted to us and the truth and correctness of any representations and
warranties contained therein.
The opinion expressed below is limited to the General Corporation Law
of Delaware. We express no opinion herein concerning any other law.
Based on such examination and review and subject to the foregoing, we
are of the opinion that the Shares, when issued upon the conversion of the
Debentures as provided in the Indenture or sold in accordance with the
provisions of the Standby Agreement, will be duly and validly issued, fully paid
and non-assessable.
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus that is a part of the Registration Statement.
Very truly yours,
/s/ SHEARMAN & STERLING
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated August 27, 1999
included in Medical Manager Corporation's (formerly known as Synetic, Inc.) Form
10-K for the fiscal year ended June 30, 1999 and Form 8-K dated January 25, 2000
and to all references to our Firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
New York, New York
January 28, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report for The KippGroup dated
March 19, 1999 included in Medical Manager Corporation's (formerly known as
Synetic, Inc.) Form 8-K dated June 4, 1999 and to all references to our Firm
included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Orange County, California
January 28, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated December 6, 1999 related to the consolidated financial statements of
Physician Computer Network, Inc. and subsidiaries included in or made part of
this registration statement and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 28, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated April 2, 1998 on our audit of the consolidated
financial statements of POINT PLASTICS, INC. AND SUBSIDIARY included in Medical
Manager Corporation's (formerly known as Synetic, Inc.) Form 8-K dated July 29,
1998, into this registration statement on Form S-3 and to all references to our
Firm included in this registration statement.
Very truly yours,
/s/ LINKENHEIMER LLP
------------------------
By: /s/ R. John Jones
Santa Rosa, California
January 27, 2000
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this
registration statement on Form S-3 of Medical Manager Corporation (formerly
Synetic, Inc.) of our report dated February 5, 1999, except for the second
paragraph of Note 13, the third paragraph of Note 14, the first and second
paragraphs of Note 14 and the fourth paragraph of Note 14 as to which the dates
are March 2, 1999, March 15, 1999, July 20, 1999 and July 23, 1999,
respectively, relating to the financial statements of Medical Manager Health
Systems, Inc. (formerly Medical Manager Corporation), which appears in the
Current Report of Form 8-K of Medical Manager Corporation (formerly Synetic,
Inc.) dated July 27, 1999, as amended on August 10, 1999, as further amended on
September 20, 1999. We also consent to the reference to us under the heading
"EXPERTS" in such registration statement.
/s/ PRICEWATERHOUSECOOPERS LLP
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PRICEWATERHOUSECOOPERS LLP
January 28, 2000
