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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
Commission File Number 0-17822
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.)
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (201) 703-3400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes_X_ No___
The number of shares of the Registrant's Common Stock, $.01 par value,
outstanding at February 4, 2000 was 35,353,397.
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<PAGE>
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
Index
-----
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets --
December 31, 1999 and June 30, 1999 3
Consolidated Statements of Operations --
Three and Six Months Ended December 31, 1999 and 1998 5
Consolidated Statements of Cash Flows --
Six Months Ended December 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 19
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 20
Item 6. Exhibits and Reports on Form 8-K 21
Disclosure Regarding Forward Looking Information
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this report, the words "anticipate",
"believe", "estimate", "expect" and similar expressions, as they relate to the
Company, CareInsite, Medical Manager Health Systems, Porex, or the Company's
management, or the management of any of the Company's businesses, are intended
to identify forward-looking statements. Such statements reflect the current view
of the Company with respect to future events, are not guarantees of future
performance and are subject to certain risks and uncertainties. These risks and
uncertainties may include: product demand and market acceptance risks; the
feasibility of developing commercially profitable Internet healthcare services;
the effect of economic conditions; user acceptance; success of transactions with
third parties; the impact of competitive products, services and pricing; product
development, commercialization and technological difficulties; the effect of
government regulation of the Internet on healthcare e-commerce services; outcome
of litigation and other risks described elsewhere herein including those set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," below and in the Company's Current Report on Form 8-K
dated January 25, 2000, which was filed in connection with the Company's merger
with Medical Manager Health Systems, Inc. (formerly Medical Manager
Corporation). Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated or
expected. The Company does not intend to update these forward-looking
statements.
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<PAGE>
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
----------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 100,564 $ 152,899
Marketable securities........................................ 45,270 55,345
Accounts receivable, net of allowances for doubtful
accounts and sales returns of $3,467 and $4,107 at
December 31, 1999 and June 30, 1999, respectively 58,934 52,363
Inventories ................................................. 17,527 15,807
Other current assets......................................... 35,782 23,891
---------- ---------
Total current assets....................................... 258,077 300,305
---------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements........................................ 3,558 3,563
Building and improvements .................................. 21,232 20,888
Machinery and equipment...................................... 64,474 60,415
Furniture and fixtures....................................... 6,900 6,050
Construction in progress..................................... 11,515 5,031
--------- ---------
Property, plant and equipment, gross........................ 107,679 95,947
Less: accumulated depreciation............................... (42,618) (37,811)
--------- ---------
Property, plant and equipment, net......................... 65,061 58,136
--------- ---------
OTHER ASSETS:
Marketable securities........................................ 294,578 241,447
Capitalized software development costs, net of accumulated
amortization of $523 and $0 at December 31, 1999 and
June 30, 1999, respectively............................... 30,807 31,330
Goodwill and other intangible assets,
net of accumulated amortization of $13,386 and $8,535 at
December 31, 1999 and June 30, 1999, respectively 189,804 170,578
Other........................................................ 11,061 7,035
--------- ---------
Total other assets......................................... 526,250 450,390
--------- ---------
$ 849,388 $ 808,831
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
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<PAGE>
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------ ----------
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable....................................................... $ 3,003 $ 2,649
Accounts payable.................................................... 9,682 12,172
Accrued liabilities and other....................................... 38,398 31,732
Customer deposits and deferred maintenance revenue.................. 12,818 12,316
Income taxes payable................................................ 11,725 5,899
--------- ----------
Total current liabilities......................................... 75,626 64,768
--------- ----------
LONG-TERM DEBT, LESS CURRENT PORTION................................... 168,175 168,996
--------- ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY........................... 69,344 57,205
--------- ----------
OTHER LIABILITIES...................................................... 33,382 33,382
--------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
10,000,000 shares authorized; none issued......................... - -
Common stock, $.01 par value; 300,000,000 shares
authorized;40,517,273 and 40,239,031 shares issued;
35,248,810 and 34,970,568 shares issued and outstanding
at December 31, 1999 and June 30, 1999, respectively 405 401
Paid-in capital..................................................... 469,382 455,199
Retained earnings................................................... 73,046 68,088
Treasury stock, at cost; 5,268,463 shares at
December 31, 1999 and at June 30, 1999............................ (38,287) (38,287)
Accumulated other comprehensive loss................................ (1,685) (921)
--------- ---------
Total stockholders' equity........................................ 502,861 484,480
--------- ---------
$ 849,388 $ 808,831
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
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<PAGE>
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended December 31, 1999 and 1998
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues....................................... $ 79,932 $ 65,056 $159,295 $126,107
Costs and expenses:
Cost of revenues................................. 40,810 30,844 81,047 60,550
Selling, general and administrative.............. 27,359 19,628 51,120 37,423
Research and development......................... 7,112 6,784 12,545 9,028
Minority interest in CareInsite.................. 3,814 - 1,787 -
Net gain on sale of investments.................. (24,887) - (24,887) -
Litigation expenses.............................. 450 2,366 1,100 2,366
Merger and related expenses...................... - - 17,991 -
Depreciation and amortization.................... 5,970 3,370 11,365 6,526
Interest and other income........................ (6,510) (5,059) (13,489) (10,199)
Interest expense................................. 2,328 2,163 4,610 4,330
-------- -------- -------- --------
56,446 60,096 143,189 110,024
-------- -------- -------- --------
Income before provision for income taxes .......... 23,486 4,960 16,106 16,083
Provision for income taxes......................... 6,041 2,127 8,895 6,576
-------- -------- -------- --------
Net income......................................... $ 17,445 $ 2,833 $ 7,211 $ 9,507
======== ======== ======== ========
Net income per share - basic:
Net income per share............................ $ 0.50 $ 0.09 $ 0.21 $ 0.29
======== ======== ======== ========
Weighted average shares outstanding............. 35,159 32,761 35,096 32,594
======== ======== ======== ========
Net income per share - diluted:
Net income per share............................ $ 0.43 $ 0.08 $ 0.18 $ 0.27
======== ======== ======== ========
Weighted average shares outstanding............. 38,677 35,257 38,724 35,223
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
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<PAGE>
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31 ,
--------------------------
1999 1998
------ ------
<S> <C> <C>
Cash flows (used in) provided by operating activities:
Net income................................................................... $ 7,211 $ 9,507
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Net gain on sale of investments ....................................... (24,887) -
Depreciation and amortization.......................................... 11,365 6,526
Write-off of capitalized software costs................................ - 2,381
Minority interest in net income of consolidated subsidiary............. 1,787 -
Net loss from investment in unconsolidated affiliate................... 895 -
Changes in operating assets and liabilities:
Accounts receivable, net............................................... (5,363) (5,050)
Inventories............................................................ (1,186) (864)
Other assets........................................................... (17,929) 5,342
Accounts and notes payable............................................. (3,733) (725)
Accrued liabilities and other.......................................... 5,577 770
Income taxes payable................................................... 5,806 2,210
Customer deposits and deferred maintenance revenue..................... (2,150) (1,547)
-------- --------
Net cash (used in) provided by operating activities................ (22,607) 18,550
-------- --------
Cash flows used in investing activities:
Maturities and redemptions of marketable securities.......................... 22,123 3,515
Purchases of marketable securities........................................... (89,460) (3,538)
Capitalized software......................................................... - (7,763)
Capital expenditures......................................................... (13,330) (6,921)
Proceeds from sale of investment............................................. 50,394 -
Net cash paid for acquired businesses........................................ (15,784) (33,354)
-------- --------
Net cash used in investing activities.............................. (46,057) (48,061)
-------- --------
Cash flows provided by financing activities:
Proceeds from exercises of stock options, warrants and 401(k)
issuances, including related tax benefits.................................. 9,286 1,098
Proceeds from CareInsite's sale of convertible redeemable preferred stock.... 10,000 -
Repayments of long-term debt................................................. (801) -
Purchases of treasury stock ................................................. (2,156) (364)
-------- --------
Net cash provided by financing activities.............................. 16,329 734
-------- --------
Net decrease in cash and cash equivalents....................................... (52,335) (28,777)
Cash and cash equivalents, beginning of period.................................. 152,899 136,405
-------- --------
Cash and cash equivalents, end of period........................................ $100,564 $107,628
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
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<PAGE>
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Financial statement presentation:
The accompanying unaudited consolidated financial statements of Medical
Manager Corporation and subsidiaries ("Medical Manager" or the "Company") have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The results of the interim periods presented herein are not
necessarily indicative of the results to be expected for any other interim
period or the full year. In the opinion of management, the information furnished
reflects all the adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation of the results for the reported
interim periods. For further information refer to the consolidated historical
financial statements for the years ended June 30, 1999, 1998 and 1997 and notes
thereto included in the Company's Current Report on Form 8-K, dated January 25,
2000, which was filed in connection with the Company's merger with Medical
Manager Health Systems, Inc. (formerly Medical Manager Corporation).
Principles of Consolidation--
The accompanying unaudited consolidated financial statements include
the accounts of the Company and its wholly-owned operating subsidiaries, Medical
Manager Health Systems, Inc. ("MMHS"), Porex Corporation (collectively with the
Company's other plastics and filtration technology subsidiaries referred to
herein as "Porex"), and its majority owned operating subsidiary, CareInsite,
Inc. ("CareInsite"), after elimination of all material intercompany accounts and
transactions.
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
(2) Business combinations:
The Merger--
On July 23, 1999 the Company (formerly known as Synetic, Inc.) acquired
all of the outstanding stock of MMHS (formerly known as Medical Manager
Corporation) in exchange for 14,109,455 newly issued shares of the Company's
common stock. In connection with this acquisition, the Company changed its name
to Medical Manager Corporation. The merger has been accounted for as a tax-free
pooling-of-interests. The financial statements reflect the historical operations
of the Company for all periods prior to the business combination, and have been
retroactively restated to include the financial position, results of operations
and cash flows of MMHS.
Pooling-of-Interests Transactions - -
During the three months ended September 30, 1999, the Company acquired
the following resellers of the Medical Manager Software: Computer Business
Solutions, Inc. based in Indianapolis, Indiana and Modern Business Machines,
Inc. based in Chadron, Nebraska. The Company also acquired LaPook Lear Systems,
Inc. located in New York, New York (the "First Quarter Acquired Companies"). The
aggregate consideration paid for the First Quarter Acquired Companies was 98,390
shares of the Company's common stock.
The acquisitions of the First Quarter Acquired Companies were accounted
for using the pooling-of-interests method of accounting. The Company's results
of operations and cash flows for the six months ended December 31, 1999 reflect
the results of operations and cash flows of the First Quarter Acquired Companies
as if they were acquired as of July 1, 1999. Prior periods have not been
restated as the combined results would not be materially different from
the results as previously presented.
During the three months ended December 31, 1999, the Company executed
and closed agreements to acquire the following companies: Clinical Management
Solutions, Inc. based in Norcross, Georgia; MicroSense, Inc. based in
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<PAGE>
Springfield, Missouri; Resource America, Inc. based in Louisville, Kentucky;
Service Dimensions, Inc. based in Overland Park, Kansas; Terry Kidd, Inc., d/b/a
TKI Computer Services based in Benton, Arkansas; and PSI Computer Systems based
in Highland, California (the "Second Quarter Acquired Companies"). The aggregate
consideration paid for the Second Quarter Acquired Companies was 125,486 shares
of the Company's common stock.
The acquisitions of the Second Quarter Acquired Companies were
accounted for using the pooling-of-interests method of accounting. The financial
statements reflect the historical operations of the Company for all periods
prior to the business combinations, and have been retroactively restated to
include the financial position, results of operations and cash flows of the
Second Quarter Acquired Companies.
Purchase Business Combinations--
During the six months ended December 31, 1999, the Company executed and
closed definitive agreements to acquire substantially all of the assets or all
of the outstanding equity securities of the following companies (the "Purchased
Companies"):
<TABLE>
<CAPTION>
Company Acquired Date of Acquisition Location
<S> <C> <C>
The Wismer Martin division of July 9, 1999 Spokane, Washington
Physician Computer Network
Hyperion Business Systems July 20, 1999 Oakland, California
Mooney Edward Enterprises, Inc.
d/b/a Medical Information Systems, Inc. July 28, 1999 Pensacola, Florida
Turnkey Business Systems, Inc. September 23, 1999 Nashville, Tennessee
Intellex Medical Manager Systems, Inc. September 24, 1999 Ft. Myers, Florida
Abacus Data Systems, Inc. September 27, 1999 Elkhart, Indiana
Health-Net Services of WA & AK, Inc. October 12, 1999 Eagle River, Alaska
Mupor LTD November 18, 1999 Scotland, United Kingdom
Micro Edge, Inc. December 16, 1999 Stamford, Connecticut
</TABLE>
The Purchased Companies were accounted for using the purchase method of
accounting. The aggregate consideration paid for the Purchased Companies was
$16,370,000 in cash and 78,663 shares of the Company's common stock. The results
of the Purchased Companies are reflected from their respective acquisition
dates. The impact of the Purchased Companies on revenue, net income and earnings
per share is not significant. Pro forma information has not been presented as
the pro forma results would not be materially different from the results as
presented.
For the three months ended September 30, 1999, the Company recorded
$17,991,000 of acquisition and related expenses primarily related to the
acquisition of MMHS. The major components of this charge are as follows:
$10,567,000 of transaction costs such as financial advisory fees, professional
fees and printing fees; $5,718,000 of amounts vested, as a result of the
acquisition, under certain MMHS employment agreements; $1,259,000 of acquisition
related severance costs attributable to employees terminated or notified of
termination as of September 30, 1999; and $447,000 of other related expenses.
On December 7, 1999 the Company signed an agreement to acquire
substantially all of the operating assets of Physician Computer Network, Inc.
for a purchase price of $53 million plus the assumption of certain liabilities.
The purchase price, consisting of $15.5 million in cash and $37.5 million in
stock, is subject to adjustment based on the net liabilities assumed at the time
of closing. Consummation of the acquisition is subject to confirmation of a plan
of
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<PAGE>
reorganization and certain other customary closing conditions. 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.
(3) Inventories:
Inventories consisted of the following (in thousands):
December 31, June 30,
1999 1999
----------- -----------
(unaudited)
Raw materials and supplies................ $ 5,662 $ 4,645
Work-in-process........................... 2,247 1,600
Finished goods............................ 7,462 6,515
Peripheral computer equipment............. 2,156 3,047
------- -------
$17,527 $15,807
======= =======
(4) Marketable securities:
Management determines the appropriate classification of its investments
in debt securities at the time of purchase and re-evaluates such determinations
at each balance sheet date. Debt securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are carried at cost, net of unamortized
premium or discount. Debt securities for which the Company does not have the
intent or ability to hold to maturity are classified as available-for-sale.
Available-for-sale securities are carried at fair value as of the balance sheet
date. At December 31, 1999, the Company's investments consisted principally of
U.S. Treasury Notes and Federal Agency Notes. Of the investments at December 31,
1999, $94,190,000 were debt securities classified as available-for-sale.
Unrealized losses on these securities were $445,000 at December 31, 1999 and
gross unrealized gains on marketable debt securities classified as
available-for-sale were $278,000 at June 30, 1999.
(5) Computation of net income per share:
Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted net
income per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock. The Company's 5% Convertible Subordinated Debentures due 2007 (the
"Convertible Debentures"), if converted, would not have had a dilutive effect on
net income per share for the periods presented.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income $17,445 $ 2,833 $ 7,211 $ 9,507
Impact of CareInsite dilutive securities (674) - (92) -
------- ------- ------- -------
Net income for diluted earnings per share $16,771 $ 2,833 $ 7,119 $ 9,507
======= ======= ======= =======
Weighted average shares outstanding (basic) 35,159 32,761 35,096 32,594
Common stock equivalents(a) 3,518 2,496 3,628 2,629
------- ------- ------- -------
Weighted average shares outstanding
assuming dilution (diluted) 38,677 35,257 38,724 35,223
======= ======= ======= =======
<FN>
-----------------------------------------------
(a) Issuable primarily under stock option plans
</FN>
</TABLE>
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<PAGE>
(6) Supplemental cash flow information:
Six Months Ended
December 31,
----------------
1999 1998
---- ----
(in thousands)
(unaudited)
Cash paid during the periods for:
Interest......................................... $4,245 $4,197
Income taxes..................................... 3,348 4,559
Noncash activity:
Issuance of Warrants by CareInsite........... 555 -
(7) Accumulated other comprehensive income:
Comprehensive income amounted to $16,828,000 and $2,749,000 for the
three months ended December 31, 1999 and 1998, respectively. Comprehensive
income amounted to $6,447,000 and $9,296,000 for the six months ended December
31, 1999 and 1998, respectively. The elements of accumulated other comprehensive
loss for the Company arise as a result of the change in foreign currency
translation adjustments and the change in unrealized gains and losses on
marketable securities.
(8) America Online agreement:
In September 1999, CareInsite entered into a strategic alliance with
America Online, Inc. ("AOL") for CareInsite to be AOL's exclusive provider of a
comprehensive suite of services that connect AOL's members, as well as
CompuServe members and visitors to AOL's Web-based services, Netcenter, AOL.COM
and Digital City (collectively, "AOL Members"), to physicians, health plans,
pharmacy benefit managers, covered pharmacies and labs. Under the agreement,
CareInsite and AOL have agreed to create co-branded sites which will enable AOL
Members to manage their healthcare through online communication with their
physicians, health plans, pharmacy benefit managers, covered pharmacies and
labs. The agreement has an initial term of four years, subject to termination by
AOL under certain conditions. Through this arrangement, AOL Members will have
access to CareInsite's secure, real-time services being developed that allow
them, among other things, to select and enroll in health plans, choose their
providers, schedule appointments, renew and refill plan-approved prescriptions,
view lab results, review claims status, receive explanations of benefits, review
patient education materials provided by their health plans, understand plan
policies and procedures and receive plan treatment authorizations. CareInsite
and AOL have also agreed to collaborate in sales and marketing to the healthcare
industry, and they intend to leverage their alliance into cross-promotional and
shared advertising revenue initiatives. Under the financial terms of the
arrangement, CareInsite has agreed to make $30,000,000 of guaranteed payments to
AOL over three years. CareInsite made the first payment of $10,000,000 in
September 1999.
CareInsite also entered into a four year agreement with Netscape
Communications Corporation ("Netscape") under which CareInsite acquired a
nonexclusive and nontransferable right and license for the use of an unlimited
quantity of the Netscape and Sun Microsystems software offered via the Sun
Microsystems-Netscape Alliance. The cost of the products was $3,750,000, with a
maintenance fee of $750,000 in the initial year, and an option to purchase
maintenance at $1,000,000 per year in the second, third and fourth years of the
agreement.
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<PAGE>
Under a separate agreement entered into in September 1999, AOL
purchased 100 shares of newly issued CareInsite Series A Convertible Redeemable
Preferred Stock ("CareInsite Preferred Stock") at a price of $100,000 per share,
or $10 million of CareInsite Preferred Stock in the aggregate, with an option to
purchase up to an additional 100 shares of CareInsite Preferred Stock in
September 2000 at the same price ("CareInsite Preferred Option"). At the option
of AOL, in March 2002, the CareInsite Preferred Stock is either redeemable in
whole for $100,000 per share in cash or convertible in whole, on a per share
basis, into (i) the number of shares of CareInsite's common stock equal to
$100,000 divided by $49.25 (or 2,030.5 shares) and (ii) a warrant exercisable
for the same number of shares of CareInsite's common stock, or 2,030.5 shares,
at a price of $49.25 per share. In the event that AOL elects to convert the 100
shares of CareInsite Preferred Stock it purchased in September 1999, it would
receive 203,046 shares of CareInsite's common stock and a warrant exercisable
into an additional 203,406 shares at a price of $49.25 per share. Prior to March
2002, AOL has the right to require CareInsite to redeem the CareInsite Preferred
Stock in whole at $100,000 per share in the event of a change in control of
CareInsite. The CareInsite Preferred Stock is non-voting except under certain
extraordinary circumstances and no dividend is payable on the CareInsite
Preferred Stock unless CareInsite declares a dividend on its common stock.
The proceeds received of $10,000,000 were allocated based on the
relative fair values of the CareInsite Preferred Stock and the CareInsite
Preferred Option, as determined by management. Accordingly, $7,608,000 was
allocated to the CareInsite Preferred Stock and $2,392,000 was allocated to the
CareInsite Preferred Option. Additionally, as the CareInsite Preferred Stock is
convertible into equity securities with a value in excess of $10,000,000 (the
"beneficial conversion feature"), a portion of the proceeds has been allocated
to the beneficial conversion feature and is reflected as a discount to the
CareInsite Preferred Stock. The value of the beneficial conversion feature, as
determined by management, was $5,268,000. The discount is being amortized
through March 2002 using the effective interest method and is reflected in
minority interest in net loss of consolidated subsidiary in the accompanying
statement of operations. The CareInsite Preferred Stock and CareInsite Preferred
Option are classified as a component of minority interest in the accompanying
balance sheets.
(9) Commitments and contingencies:
Legal proceedings--
In the normal course of business, the Company is involved in various
claims and legal proceedings. While the ultimate resolution of these matters has
yet to be determined, the Company does not believe that their outcome will have
a material adverse effect on its financial position.
On February 18, 1999, Merck & Co., Inc. ("Merck") and Merck-Medco
Managed Care, L.L.C. ("Merck-Medco") filed a complaint in the Superior Court of
New Jersey against the Company, CareInsite, Martin J. Wygod, Chairman of the
Company and CareInsite, and three officers and/or directors of the Company and
CareInsite, Paul C. Suthern, Roger C. Holstein and Charles A. Mele. The
plaintiffs assert that the Company, CareInsite and the individual defendants are
in violation of certain non-competition, non-solicitation and other agreements
with Merck and Merck-Medco, and seek to enjoin the Company and them from
conducting the Company's healthcare e-commerce business and from soliciting
Merck-Medco's customers. The Medical Manager and Mr. Wygod's agreements expired
in May 1999. Mr. Suthern's agreement expired in December 1999. Mr. Mele's and
Mr. Holstein's agreements expire in March 2000 and September 2002, respectively.
A hearing was held on March 22, 1999 on an application for a
preliminary injunction filed by Merck and Merck-Medco. On April 15, 1999, the
Superior Court denied this application. The Company believes that Merck's and
Merck-Medco's positions in relation to it and the individual defendants are
without merit and the Company intends to vigorously defend the litigation.
However, the outcome of complex litigation is uncertain and cannot be predicted
at this time. Any unanticipated adverse result could have a material adverse
effect on the Company's financial condition and results of operations.
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<PAGE>
The Company has recorded $450,000 and $1,100,000 in litigation costs
associated with the Merck and Merck-Medco litigation for the three and six
months ended December 31, 1999, respectively.
Porex Technologies Corp. has been named in a number of actions brought
by recipients of silicone mammary implants. Certain of the actions against Porex
have been dismissed or settled by the manufacturer of the implants or insurance
carriers of Porex without material cost to Porex. The Company believes its
insurance coverage provides adequate coverage against liabilities that could
arise from actions or claims arising out of Porex's distribution of silicone
mammary implants.
A class action lawsuit was brought against the Company alleging Year
2000 issues regarding the Medical Manager software in versions prior to Version
9.0. Seven additional lawsuits were also brought against the Company, each
purporting to sue on behalf of those similarly situated and raising essentially
the same issues. In March 1999, the Company entered into an agreement to settle
the class action lawsuit, as well as five of the seven other similar cases. The
other two cases were subsequently settled. 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 the Company from Year 2000 claims arising
out of the sales of these versions of the Company's product. Under the terms of
the settlement, Version 8.12, containing the Company's upgraded Version of 8.11
software in addition to the 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 will have the option to obtain one of four optional modules from the
Company without a license fee, or to elect to take a share of a settlement cash
fund. The settlement required the Company to make a cash payment of $1,455,000.
Pursuant to the settlement, the Company was 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.
A lawsuit was filed against the Company 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 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 the Company's issuance of allegedly materially false and misleading
statements covering its business operations, including the development and sale
of its principal product, during the class period. An amended complaint was
served on March 2, 1999. The class period is alleged to be between April 23,
1998 and August 5, 1998. The lawsuit seeks, among other things, compensatory
damages in favor of the plaintiffs and the other purported class members and
reasonable costs and expenses. The lawsuit was dismissed by the court on
December 17, 1999, and is currently on appeal to the Eleventh Circuit Court of
Appeals. The Company believes that this lawsuit is without merit and intends to
vigorously defend against it.
(10) Segment reporting:
The Company's operations have been classified into three operating
segments: physician practice management information systems, plastics and
filtration technologies and healthcare electronic commerce. The Company, through
its wholly-owned subsidiary, MMHS, is a leading provider of comprehensive
physician practice management information systems to independent physicians,
independent practice associations, management service organizations, physician
practice management organizations, management care organizations and other
providers of health care services in the United States. The Company, through its
wholly-owned Porex subsidiaries, designs, manufactures and distributes porous
and solid plastic components and products used in life sciences, healthcare,
industrial and consumer applications. Through its majority owned subsidiary
CareInsite, the Company is in the process of developing and deploying an
Internet-based healthcare electronic commerce, or e-commerce, network that links
physicians, payers, suppliers and patients and is developing a comprehensive set
of transaction, messaging and content services to the healthcare industry
participants.
The accounting policies of the reportable segments are the same as
those described in Note 1 to the consolidated financial statements. The Company
evaluates the performance of its operating segments based on pre-tax income.
Summarized financial information concerning the Company's reportable segments is
shown in the following tables (in thousands):
-12-
<PAGE>
<TABLE>
<CAPTION>
Physician
Practice
Management Plastics & Healthcare
Information Filtration Electronic Corporate
Three months ended December 31, 1999 Systems Technologies Commerce and Other Total
- ------------------------------------ ------------ ------------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Net revenues........................... $ 48,425 $ 30,006 $ 1,501 $ - $ 79,932
Cost of revenues....................... 26,113 13,729 968 - 40,810
Selling, general and administrative.... 10,930 6,107 8,397 1,925 27,359
Research and development............... 1,638 696 4,778 - 7,112
Minority interest in CareInsite........ - - 3,814 - 3,814
Litigation costs....................... - - 450 - 450
Merger expenses........................ - - - - -
--------- -------- -------- -------- --------
Earnings (loss) before interest, taxes,
depreciation and amortization........ 9,744 9,474 (16,906) (1,925) 387
Depreciation and amortization.......... (1,854) (2,569) (1,512) (35) (5,970)
Gain/(loss) on sale of investments..... (624) - 25,511 - 24,887
Interest income, net................... 352 496 1,588 1,746 4,182
--------- -------- -------- -------- --------
Income/(loss) before income taxes $ 7,618 $ 7,401 $ 8,681 $ (214) $ 23,486
========= ======== ======== ======== ========
Three months ended December 31, 1998
- ------------------------------------
Net revenues........................... $ 41,941 $ 23,115 $ - $ - $ 65,056
Cost of revenues....................... 20,945 9,899 - - 30,844
Selling, general and administrative 12,360 4,608 1,181 1,479 19,628
Research and development............... 1,140 464 5,180 - 6,784
Litigation costs ...................... 2,366 - - - 2,366
--------- -------- -------- -------- --------
Earnings (loss) before interest, taxes,
depreciation and amortization........ 5,130 8,144 (6,361) (1,479) 5,434
Depreciation and amortization.......... (1,184) (1,723) (435) (28) (3,370)
Interest income, net................... 541 398 47 1,910 2,896
--------- -------- -------- -------- --------
Income/(loss) before income taxes...... $ 4,487 $ 6,819 $ (6,749) $ 403 $ 4,960
========= ======== ======== ======== ========
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Physician
Practice
Management Plastics & Healthcare
Information Filtration Electronic Corporate
Six months ended December 31, 1999 Systems Technologies Commerce and Other Total
- ---------------------------------- ------------ ------------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Net revenues........................... $ 96,482 $ 59,655 $ 3,158 $ - $159,295
Cost of revenues....................... 51,754 27,194 2,099 - 81,047
Selling, general and administrative.... 22,447 12,152 12,865 3,656 51,120
Research and development............... 3,244 1,400 7,901 - 12,545
Minority interest in CareInsite........ - - 1,787 - 1,787
Litigation costs....................... - - 1,100 - 1,100
Merger expenses........................ 14,855 - - 3,136 17,991
--------- -------- -------- -------- --------
Earnings (loss) before interest, taxes,
depreciation and amortization........ 4,182 18,909 (22,594) (6,792) (6,295)
Depreciation and amortization.......... (3,545) (5,066) (2,685) (69) (11,365)
Gain/(loss) on sale of investments..... (624) - 25,511 - 24,887
Interest income, net................... 857 1,311 3,267 3,444 8,879
--------- -------- -------- -------- --------
Income/(loss) before income taxes...... $ 870 $ 15,154 $ 3,499 $ (3,417) $ 16,106
========= ======== ======== ======== ========
Six months ended December 31, 1998
- ----------------------------------
Net revenues........................... $ 82,446 $ 43,661 $ - $ - $126,107
Cost of revenues....................... 41,003 19,547 - - 60,550
Selling, general and administrative.... 23,892 8,388 2,323 2,820 37,423
Research and development............... 2,341 999 5,688 - 9,028
Litigation costs ...................... 2,366 - - - 2,366
--------- -------- -------- -------- --------
Earnings (loss) before interest, taxes,
depreciation and amortization........ 12,844 14,727 (8,011) (2,820) 16,740
Depreciation and amortization.......... (2,153) (3,434) (887) (52) (6,526)
Interest income, net................... 1,032 686 91 4,060 5,869
--------- -------- -------- -------- --------
Income/(loss) before income taxes...... $ 11,723 $ 11,979 $ (8,807) $ 1,188 $ 16,083
========= ======== ======== ======== ========
</TABLE>
-14-
<PAGE>
(11) Subsequent events:
THINC Acquisition -
In January 2000, CareInsite acquired the remaining 80% equity
interest in The Health Information Network Connection ("THINC") owned by Empire
Blue Cross and Blue Shield, Group Health Incorporated, HIP Health Plans and
Greater New York Hospital Association ("THINC's founding members") in a stock
transaction valued at approximately $45,000,000. The acquisition will be
accounted for using the purchase method of accounting. Concurrently with the
acquisition, warrants to purchase an aggregate 3,247,294 shares of CareInsite's
common stock, which represented the THINC founding members' interest in the
warrants issued by CareInsite to THINC in January 1999, were distributed to the
THINC founding members. Immediately following this transaction the THINC
founding members exercised their warrants in full. All shares including those
issued upon the exercise of the warrants are subject to certain restrictions on
transfer. Simultaneously, CareInsite acquired Cerner Corporation's ("Cerner") 2%
non-voting ownership interest in THINC for a note payable of $2,735,000. As a
result of the exercise by the THINC founding members of their warrants, Cerner
has a warrant to purchase 806,756 shares of CareInsite common stock at an
exercise price of $4.00 per share.
Subordinated Debentures -
On January 31, 2000, the Company called for redemption on February 15,
2000, the entire $159,388,000 aggregate principal amount of its outstanding 5%
Convertible Subordinated Debentures due 2007. As an alternative to redemption,
the outstanding debentures are convertible into the Company's common stock at
the rate of approximately 16.667 shares of common stock per $1,000 principal
amount of debentures, with cash to be paid in lieu of any fractional shares, for
debentures surrendered on or prior to February 14, 2000. Debentures not properly
submitted for conversion by February 14, 2000, or not tendered for redemption by
February 15, 2000 will be redeemed at a redemption price of $1,053.57 per $1,000
principal amount of debentures including accrued interest. Arrangements have
been made with Warburg Dillon Read LLC to purchase from the Company the number
of shares of common stock that otherwise would have been issuable upon
conversion of the $159,388,000 aggregate principal amount of debentures that are
either (i) duly surrendered for redemption or (ii) not duly surrendered for
conversion by February 14, 2000 or for redemption by February 15, 2000 by
persons other than Warburg Dillon Read LLC.
-15-
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
On July 23, 1999 Medical Manager Corporation (the "Company")
(formerly known as Synetic, Inc.) acquired all of the outstanding stock of
Medical Manager Health Systems, Inc. (formerly known as Medical Manager
Corporation) ("MMHS") in exchange for 14,109,455 newly issued shares of Medical
Manager Corporation common stock. In connection with the acquisition, Synetic,
Inc. changed its name to Medical Manager Corporation. The acquisition has been
accounted for as a tax-free pooling-of-interests. The Company's consolidated
financial statements have been restated to reflect the merger with MMHS.
Accordingly, management's discussion and analysis of financial condition and
results of operations reflect the historical operation of Medical Manager
Corporation, restated to reflect the acquisition of MMHS for all periods
presented. As discussed below, the Company has recorded a charge for the merger
and other related costs.
Consolidated Results of Operations
The Company's consolidated net revenues for the three and six months
ended December 31, 1999 increased 22.9% and 26.3%, respectively, from the
comparable prior year periods. Net revenues for the three and six months ended
December 31, 1999 at MMHS increased 15.5% and 17.0%, respectively, to
$48,425,000 and $96,482,000 from $41,941,000 and $82,446,000 in the comparable
prior year periods. MMHS' increase in net revenues for the three and six months
ended December 31, 1999 includes revenues from purchased companies acquired from
September 1, 1998 through December 16, 1999, for which there were no revenues in
the comparable prior year periods, offset by fewer sales by MMHS' enterprise
business group, which are typically larger high margin sales made to larger
national and regional clients ("EBG Sales"). Excluding the impact of these
acquisitions and EBG Sales, revenues increased $3,181,000 or 8.1% and $6,935,000
or 9.0%, respectively. These increases were due primarily to increases in MMHS'
network service revenues and new system sales and upgrades to version 9.0 of the
Medical Manager software. Net revenues for the three and six months ended
December 31, 1999 at Porex increased 29.8% and 36.6%, respectively, to
$30,006,000 and $59,655,000 from $23,115,000 and $43,661,000 in comparable prior
year periods. Included in these increases are revenues from Porex Bio Products,
Inc. (formerly known as Point Plastics, Inc.), Porex Medical Products, Inc.
(formerly known as The KippGroup) and Mupor LTD, which were acquired on July 21,
1998, January 22, 1999 and November 18, 1999, respectively. Excluding the impact
of these acquisitions, revenues for the three and six months ended December 31,
1999 remained constant versus the comparable prior year periods. Revenues for
CareInsite for the three and six months ended December 31, 1999 were $1,501,000
and $3,158,000, respectively. Of these revenues, $696,000 and $1,573,000,
respectively, were service revenues from the management services provided to
THINC. As a result of CareInsite's January 2000 acquisition of THINC, CareInsite
will no longer generate management service revenue related to services provided
to THINC. There were no revenues at CareInsite in the comparable prior year
periods.
The Company's consolidated cost of revenues as a percentage of revenues
for the three and six months ended December 31, 1999 increased to 51.1% and
50.9%, respectively, from 47.4% and 48.0% in the comparable prior year periods.
Cost of revenues as a percentage of revenues at MMHS for the three and six
months ended December 31, 1999 increased to 53.9% and 53.6%, respectively, from
49.9% and 49.7% in the comparable prior year periods. The increase relates to
fewer high margin EBG Sales and to a lesser extent, certain purchased companies
which experienced lower margins than historically reflected by MMHS. Cost of
revenues as a percentage of revenues for the three and six months ended December
31, 1999 at Porex increased to 45.8% and 45.6%, respectively, from 42.8% and
44.8% in the comparable prior year periods. The operations of The KippGroup,
which have lower margin sales, accounted for substantially all of the increase.
Cost of revenues at CareInsite were $968,000 and $2,099,000 for the three and
six months ended December 31, 1999, of which $696,000 and $1,573,000,
respectively, were cost of services to affiliates, consisting primarily of
employee and related expenses for those employees supporting the THINC business.
The Company's consolidated selling general and administrative
expenses for the three and six months ended
-16-
<PAGE>
December 31, 1999 increased to 34.2% and 32.1% of net revenues, respectively,
from 30.2% and 29.7% of net revenues in the comparable prior year periods.
Selling general and administrative expenses at MMHS decreased to 22.6% and 23.3%
of net revenues for the three and six months ended December 31, 1999, from 29.5%
and 29.0% in the comparable prior year periods. This decrease is principally due
to increased sales, which were not proportionately offset by expenses, since
these expenses do not vary directly with sales. Selling general and
administrative expenses at Porex increased to 20.4% of net revenues for the
three and six months ended December 31, 1999, from 19.9% and 19.2% of net
revenues in the comparable prior year periods. The increase over the prior year
is a result of an overall increase in marketing efforts at Porex, including
additional marketing personnel and increased advertising and trade show
activities. Selling, general and administrative expenses at CareInsite for the
three and six months ended December 31, 1999 increased $7,216,000 and
$10,542,000 over the comparable prior year periods. The increase is primarily
due to marketing expenses related to the AOL agreement for which there were no
comparable amounts in the prior year periods, increased salaries and benefits
due to increased staffing, increased promotional expenses and continued business
development efforts to develop the CareInsite business.
The Company's consolidated research and development expenses for the
three and six months ended December 31, 1999 increased $328,000 and $3,517,000
over the comparable prior year periods. Excluding the impact of (i) a $2,381,000
charge recorded by CareInsite related to the write-off of software and (ii) the
capitalization by CareInsite of $2,366,000 of internal research and development
expenditures during the six months ended December 31, 1998, consolidated
research and development expenses for the three and six months ended December
31, 1999 increased $2,709,000 and $3,532,000 over the comparable prior year
periods. The increase is principally due to the continued development of
CareInsite's physician portal, software products and data centers. Also
contributing to the increase were development projects at MMHS regarding future
versions of the Medical Manager software with graphical user interfaces and
relational database technologies, along with web-based access and services.
For the three and six months ended December 31, 1999, the Company
recorded a net gain of $24,887,000 primarily related to the sale by CareInsite
of common stock of a publicly held company. These shares were acquired through
the conversion of its $2,000,000 investment in Series B Preferred Stock of a
privately held company, which was subsequently merged into this publicly held
company.
The Company recorded $450,000 and $1,100,000 in litigation charges
for the three and six months ended December 31, 1999, related to its ongoing
defense against assertions that it violated certain agreements with Merck and
Co., Inc. and Merck-Medco Managed Care, L.L.C. For the three and six months
ended December 31, 1998, MMHS recorded $2,366,000 in litigation charges related
to the settlement of six lawsuits brought against the Company alleging Year 2000
issues with previous versions of The Medical Manager software.
For the six months ended December 31, 1999, the Company recorded
$17,991,000 of merger and related expenses primarily related to the merger with
MMHS. The major components of this charge are as follows: $10,567,000 of
transaction costs such as financial advisory fees, professional fees and
printing fees; $5,718,000 of amounts vested, as a result of the merger, under
certain MMHS employment agreements; $1,259,000 of merger related severance costs
attributable to employees terminated or notified of termination as of December
31, 1999; and $447,000 of other related expenses.
The Company's consolidated depreciation and amortization increased
$2,600,000 and $4,839,000 for the three and six months ended December 31, 1999
over the comparable prior year periods, primarily related to the acquisitions of
Porex Medical Products, Inc. and resellers acquired at MMHS through purchase
business combinations, for which there were no amounts in the comparable prior
year period, and the amortization related to CareInsite's capitalized software
costs and certain contracts and other intangibles.
The Company's consolidated interest and other income, net of interest
expense, increased by $1,286,000 and $3,010,000 for the three and six months
ended December 31, 1999, over the comparable prior year periods. This increase
was primarily due to increased investments from funds raised as a result of
CareInsite's initial public offering and interest income on the funds generated
by the sale of CareInsite's investment.
-17-
<PAGE>
The Company's effective tax rate was impacted by (1) the results of
operations at CareInsite which are no longer included in the Company's
consolidated federal income tax return as well as (2) a significant portion of
the merger expenses which are not deductible for federal or state income tax
purposes. Excluding the impact of these items, the Company's effective tax rate
for the three and six months ended December 31, 1999 was 40.8% and 39.3% versus
42.9% and 40.9% for the comparable prior year periods.
Capital Resources and Liquidity
As of December 31, 1999, the Company had $100,564,000 of cash and
cash equivalents and $339,848,000 of marketable securities. At December 31,
1999, the Company's marketable securities consisted primarily of U.S. Treasury
Notes and Federal Agency Notes.
Net cash used in operating activities for the six months ended
December 31, 1999 was $22,607,000, an increase of $41,157,000 from the
comparable prior year period. This increase was primarily related to the merger
expenses for the merger with MMHS, as well as higher expenditures related to the
development of CareInsite.
Net cash used in investing activities was $46,057,000 for the six
months ended December 31, 1999, reflecting purchases of marketable securities,
net of maturities and redemptions as well as the net cash paid for the
businesses acquired and capital expenditures during the past six months.
Net cash provided by financing activities was $16,329,000 for the six
months ended December 31, 1999, primarily a result of the issuance of
convertible redeemable preferred stock ("Preferred Stock") by CareInsite. The
funds generated from financing activities are reinvested in existing businesses
and are used to fund capital expenditures.
On January 31, 2000, the Company called for redemption on February
15, 2000, the entire $159,388,000 aggregate principal amount of its outstanding
5% Convertible Subordinated Debentures due 2007. As an alternative to
redemption, the outstanding debentures are convertible into the Company's common
stock at the rate of approximately 16.667 shares of common stock per $1,000
principal amount of debentures, with cash to be paid in lieu of any fractional
shares, for debentures surrendered on or prior to February 14, 2000. Debentures
not properly submitted for conversion by February 14, 2000, or not tendered for
redemption by February 15, 2000 will be redeemed at a redemption price of
$1,053.57 per $1,000 principal amount of debentures including accrued interest.
Arrangements have been made with Warburg Dillon Read LLC to purchase from the
Company the number of shares of common stock that otherwise would have been
issuable upon conversion of the $159,388,000 aggregate principal amount of
debentures that are either (i) duly surrendered for redemption or (ii) not duly
surrendered for conversion by February 14, 2000 or for redemption by February
15, 2000 by persons other than Warburg Dillon Read LLC.
As a result of the continuing efforts in developing the Company's
healthcare electronic commerce business, CareInsite has incurred substantial
operating losses since its inception and there can be no assurance that it will
generate significant revenues or profitability in the future. CareInsite intends
to significantly increase its expenditures primarily in the areas of
development, sales and marketing, data center operations and customer support.
Accordingly, CareInsite expects to continue to incur substantial operating
losses for at least the next two fiscal years.
The Company believes that its cash flow from operations, the income
earned on its investments, and the funds generated by CareInsite from the
issuance of its common stock and Preferred Stock are sufficient to meet the
anticipated working capital requirements of both the Company's and CareInsite's
business, including the anticipated increased expenditures related to CareInsite
noted above.
The Company continues to pursue an acquisition program pursuant to
which it seeks to affect one or more acquisitions or other similar business
combinations with businesses it believes have significant growth potential.
Financing for such acquisitions may come from several sources, including,
without limitation, (i) the Company's cash, cash equivalents and marketable
securities and (ii) proceeds from the incurrence of additional indebtedness or
the
-18-
<PAGE>
issuance of common stock, preferred stock, convertible debt or other securities.
There can be no assurance that the Company's acquisition program will be
successful.
Under the terms of the strategic alliance and agreement with AOL,
CareInsite is required to make guaranteed payments of $10,000,000 in August 2000
and $10,000,000 in August 2001.
Year 2000 Update
Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries for the year in the date
code field. This problem is often referred to as the "Year 2000 problem". These
systems and software products need to accept four digit year entries to
distinguish 21st century dates from 20th century dates. Though the Company did
not experience any Year 2000 problems on January 1, 2000, additional Year 2000
problems may become evident after that date.
The Company believes that the systems of its CareInsite, MMHS, and
Porex businesses are Year 2000 compliant and, to date, those systems have not
experienced any Year 2000 problems. Although each of the Company's 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 the Company's business, financial condition and
results of operations in the future.
To date, the Company has not incurred any material expenditures in
connection with identifying or evaluating Year 2000 compliance issues. The
Company does not expect its future costs related to Year 2000 to be material.
The Company is not aware of any material Year 2000 problems encountered
by suppliers or customers of the Company's businesses to date but has not yet
obtained confirmations from such suppliers and customers that they did not
experience Year 2000 problems. Accordingly, the Company cannot determine whether
any suppliers have experienced Year 2000 problems that may impact their ability
to supply the Company with equipment and services or any customers have
experienced disruptions to their business. Further, the Company cannot determine
the state of its suppliers' and customers' Year 2000 readiness on a going
forward basis. The Company cannot be assured that the Company's suppliers and
customers will be successful in ensuring that their systems have been or will be
Year 2000 compliant or that their failure to do so will not have an adverse
effect on the Company's business, financial condition and results of operations.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from potential changes in
interest rates and foreign exchange rates. The Company believes that the amount
of risk as it relates to its investments, debt obligations and change in foreign
exchange rates is not material to the Company's financial condition or results
of operations. The Company has taken the following steps to mitigate its risks:
the countries in which the Company owns assets and operates its foreign
operations are politically stable; the Company does not invest in derivative
financial instruments; the Company's investments consist primarily of high
liquid U.S. Treasury Notes and Federal Agency Notes; the Company's debt
obligations consist primarily of its 5% Convertible Subordinated Debentures due
2007 ("the Debentures"). On January 31, 2000, the Company called for redemption
on February 15, 2000, the entire aggregate principal amount of the Debentures.
-19-
<PAGE>
MEDICAL MANAGER CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the six months ended December 31, 1999 the Company issued a
total of 302,539 shares of common stock, par value $.01 per share ("Common
Stock") in connection with the acquisition of fourteen companies for the
Company's physician practice management information systems business. The
Common Stock was issued pursuant to the exemption from registration set forth
in Section 4(2) of the Securities Act of 1933, as amended. The details of
each such issuance are as follows:
On July 20, 1999 the Company issued 44,408 shares of Common Stock
to the shareholders of Hyperion Business Solutions ("Hyperion") in
consideration for the acquisition of substantially all of the assets of
Hyperion by the Company.
On August 27, 1999 the Company issued 85,456 shares of Common Stock
to the former shareholders of LaPook-Lear Systems, Inc. ("LLS") in
consideration for the acquisition of all of the capital stock of LLS by the
Company.
On September 22, 1999 the Company issued 5,337 shares of Common
Stock to the shareholders of Computer Business Solutions, Inc. ("CBS") in
consideration for the acquisition of substantially all of the assets of CBS
by the Company.
On September 23, 1999 the Company issued 8,247 shares of Common
Stock, together with $1,475,000 in cash, to the former shareholders of
Turnkey Business Systems, Inc. ("TBS") in consideration for the acquisition
of all of the capital stock of TBS by the Company.
On September 24, 1999 the Company issued 7,597 shares of Common
Stock to the shareholders of Modern Business Machines, Inc. ("MBM") in
consideration for the acquisition of substantially all of the assets of MBM
by the Company.
On September 24, 1999 the Company issued 12,136 shares of Common
Stock, together with $700,000 in cash, to the shareholders of Intellex
Medical Management Systems, Inc. ("Intellex") in consideration for the
acquisition of substantially all of the assets of Intellex by the Company.
On October 22, 1999, the Company issued 6,861 shares of Common Stock
to the shareholders of Health-Net Services of WA & AK, Inc. ("Healthnet") in
consideration for the acquisition of substantially all of the assets of
Healthnet by the Company.
On December 13, 1999, the Company issued 27,174 shares of Common
Stock to the shareholders of Clinical Management Solutions ("CMS") in
consideration for the acquisition of substantially all of the assets of CMS
by the Company.
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<PAGE>
On December 16, 1999, the Company issued 7,011 shares of Common
Stock to the shareholders of Micro Edge, Inc. ("Micro Edge") in consideration
for the acquisition of substantially all of the assets of Micro Edge by the
Company.
On December 23, 1999, the Company issued 30,024 shares of Common
Stock to the shareholders of Resource America, Inc. ("RA") in consideration
for the acquisition of substantially all of the assets of RA by the Company.
On December 23, 1999, the Company issued 32,420 shares of Common
Stock to the shareholders of Micro Sense, Inc. ("Micro Sense") in
consideration for the acquisition of substantially all of the assets of Micro
Sense by the Company.
On December 23, 1999, the Company issued 19,048 shares of Common
Stock to the shareholders of Service Dimensions, Inc. ("SD") in consideration
for the acquisition of substantially all of the assets of SD by the Company.
On December 28, 1999, the Company issued 5,175 shares of Common
Stock to the shareholders of PSI Computer Systems ("PSI") in consideration
for the acquisition of substantially all of the assets of PSI by the Company.
On December 28, 1999, the Company issued 11,645 shares of Common
Stock to the shareholders of Terry Kidd, Inc. ("TKI") in consideration for
the acquisition of substantially all of the assets of TKI by the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
10.1* Employment Agreement, dated as of January 4, 2000,
between the Company, CareInsite and Marvin P. Rich
10.2* Amendment, dated as of December 21, 1999, to the
Employment Agreement, dated as of May 16, 1999
between the Company and John H. Kang
10.3 Asset Purchase Agreement, dated as of December 7,
1999, by and among Physician Computer Network,
Inc., VERSYSS Incorporated, Wismer-Martin, Inc.,
Integrated Health Systems, Inc., PCN HP Venture
Corp., Medical Manager Corporation and Medical
Manager Health Systems, Inc., incorporated by
reference to Exhibit 2 of the Current Report on
Form 8-K of Physician Computer Network, Inc. dated
December 10, 1999
10.4* Secured Promissory Note dated as of December 21,
1999 between John Kang and Medical Manager
Corporation
27* Financial Data Schedule
* Attached hereto
(b) The Company filed a Current Report on Form 8-K dated December 7,
1999 regarding the Company's definitive agreement with Physician
Computer Network, Inc. providing for the acquisition by the
Company of substantially all of the operating assets of Physician
Computer Network, Inc.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDICAL MANAGER CORPORATION
/s/ James R. Love
------------------------------------------
James R. Love
Executive Vice President - Finance and
Administration and Chief Financial Officer
/s/ Kirk G. Layman
------------------------------------------
Kirk G. Layman
Senior Vice President - Finance
and Chief Accounting Officer
Dated: February 11, 2000
<PAGE>
EXHIBIT INDEX
Number Description
------ -----------
10.1 Employment Agreement,
dated as of January 4, 2000,
between the Company, CareInsite and Marvin P. Rich
10.2 Amendment, dated as of December 21, 1999, to the
Employment Agreement, dated as of May 16, 1999
between the Company and John H. Kang
10.3 Asset Purchase Agreement, dated as of December 7, 1999,
by and among Physician Computer Network, Inc., VERSYSS
Incorporated, Wismer-Martin, Inc., Integrated Health
Systems, Inc., PCN HP Venture Corp., Medical Manager
Corporation and Medical Manager Health Systems, Inc.,
incorporated by reference to Exhibit 2 of the Current
Report on Form 8-K of Physician Computer Network, Inc.
dated December 10, 1999
10.4 Secured Promissory Note dated as of December 21, 1999
between John Kang and Medical Manager Corporation
27 Financial Data Schedule
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated as of January 4,
2000, by and among MEDICAL MANAGER CORPORATION, a Delaware corporation (the
"Company"), CAREINSITE, INC., a Delaware corporation and majority-owned
subsidiary of the Company ("CareInsite"), and MARVIN P. RICH ("Executive").
WHEREAS, each of the Company and CareInsite desires to employ
Executive on a full-time basis and Executive desires to be so employed by the
Company and CareInsite;
NOW, THEREFORE, in consideration of the mutual covenants in
this Agreement, the parties agree as follows:
1. Effectiveness of Agreement and Employment of Executive.
1.1. Effectiveness of Agreement. This Agreement shall become
effective as of the date first written above (the "Effective Date").
1.2 Employment by the Company and CareInsite. (a) The Company
hereby employs Executive as its President and CareInsite hereby employs
Executive as its Chief Executive Officer and Executive hereby accepts such
employment with each of the Company and CareInsite. Executive shall report to,
and perform such duties and services for the Company, CareInsite, and their
respective subsidiaries and affiliates (such subsidiaries and affiliates,
collectively, "Affiliates") commensurate with such positions as may be
designated from time to time by, the Chairman of the Board of Directors of the
Company (the "Board") and of the Board of Directors of CareInsite (the
"CareInsite Board"), as the case may be. Each of the Company and CareInsite
shall, subject to its fiduciary duties, use its best efforts to appoint
Executive as a member of the Board and the CareInsite Board, respectively, as of
the Effective Date. During the Employment Period (as defined below), each of the
Company and CareInsite shall, subject to its fiduciary duties, use its best
efforts to include Executive in management's nominees for election, and
recommend the election of Executive, as a member of the Board and of the
CareInsite Board. In the event that the employment of Executive with the Company
or CareInsite (or both) is terminated for any reason, Executive agrees that he
will promptly resign from the Board or the CareInsite Board (or both), as the
case may be.
(b) Executive shall perform his duties hereunder at the
Company's and CareInsite's headquarters at 669 River Drive, Elmwood Park, New
Jersey; provided, however, that Executive shall be required to travel on
business on a reasonable basis in connection with the performance of his duties
hereunder. Executive shall use his best and most diligent efforts to promote the
interests of the Company, CareInsite and the Affiliates, and shall devote all of
his business time and attention to his employment under this Agreement.
<PAGE>
2. Compensation and Benefits.
2.1. Salary. The Company shall pay Executive for services
during his employment under this Agreement a base salary at the annual rate of
$250,000 (as it may be increased pursuant to this Section 2.1, the "Company Base
Salary"). In addition, CareInsite shall pay Executive for services during his
employment under this Agreement a base salary at the annual rate of $250,000 (as
it may be increased pursuant to this Section 2.1, the "CareInsite Base Salary").
Such Company Base Salary or CareInsite Base Salary may be increased (but not
decreased) from time to time in the sole discretion of (i) the Board or
Compensation Committee of the Board in the case of the Company Base Salary or
(ii) the CareInsite Board or Compensation Committee of the CareInsite Board in
the case of the CareInsite Base Salary. The Company Base Salary and CareInsite
Base Salary shall be payable in equal installments, no less frequently than
monthly, pursuant to the Company's or CareInsite's, as the case may be,
customary payroll policies in force at the time of payment, less any required or
authorized payroll deductions.
2.2. Benefits. During the Employment Period, Executive shall
be entitled to participate, on the same basis and at the same level as other
senior officers of the Company in any group insurance, hospitalization, medical,
health and accident, disability, fringe benefit and tax-qualified retirement
plans or programs of the Company now existing or hereafter established to the
extent that he is eligible under the general provisions thereof.
2.3. Expenses. Pursuant to the Company's or CareInsite's
customary policies in force at the time of payment, Executive shall be promptly
reimbursed, against presentation of vouchers or receipts therefor, for all
authorized expenses properly and reasonably incurred by him on behalf of the
Company, CareInsite or their Affiliates in the performance of his duties
hereunder.
2.4 Relocation. The Company and Executive understand that
Executive currently maintains a residence in New Canaan, Connecticut, but that
Executive will relocate to an area convenient to the corporate headquarters in
Elmwood Park, New Jersey. Upon the presentation of invoices, the Company shall
reimburse, on an after tax basis, Executive's reasonable out-of-pocket expenses
related to the relocation of him and his family to such area. In addition,
during the period while Executive is maintaining his current residence and his
new residence (which may be a temporary residence or hotel accommodations),
which period shall not exceed six months, the Company shall reimburse Executive
for the cost of the lower of (i) his monthly mortgage payment for his existing
home in New Canaan, Connecticut and (ii) his monthly mortgage or rental payment
on his new home or temporary living arrangement.
2.5 Vacation. Executive shall be entitled to vacation time
consistent with the Company's vacation policies. The date or dates of such
vacations shall be selected by Executive having reasonable regard to the
business needs of the Company and CareInsite.
2.6 Car Allowance. During the Employment Period, the Company
shall provide Executive with a car allowance in accordance with Company policy.
2
<PAGE>
2.7 Bonus. With respect to each 12 month period (the
"Performance Period") during the Employment Period, Executive shall be entitled
to receive (i) a bonus (the "Company Bonus") of up to $250,000 in the event that
the Company has attained certain specified performance goals and (ii) a bonus
(the "CareInsite Bonus") of up to $250,000 in the event that CareInsite has
attained certain specified performance goals. The performance goals shall be
established by the Compensation Committee of the Board or the Compensation
Committee of the CareInsite Board, as applicable, and shall be communicated to
Executive prior to the commencement of each Performance Period or, in the case
of the first Performance Period, within 30 days of the Effective Date. The
determination as to whether the performance goals have been attained shall be
made by the Compensation Committee of the Board or the Compensation Committee of
the CareInsite Board, as the case may be, (i) in its sole and absolute
discretion to the extent the performance goals are not quantifiable and (ii) on
the basis of a report prepared by the Chief Financial Officer of the Company or
CareInsite, as applicable, to the extent the performance goals are quantifiable.
Such report shall be presented to the applicable Compensation Committee within
30 days of the last day of the Performance Period. Payment of the Company Bonus
and the CareInsite Bonus, if any, shall be made as soon as practicable following
the presentation by the Chief Financial Officer; but in no event more than 30
days thereafter, provided, that, except as set forth in Section 5 below,
Executive remains in the employ of the Company or CareInsite on the payment
date. In the event that the Company or CareInsite reasonably determines that the
Company Bonus or the CareInsite Bonus may be subject to the limitation on
deductible compensation set forth in Section 162(m) of the Internal Revenue Code
of 1986, as amended, the Company or CareInsite may defer the payment of the
Company Bonus or CareInsite Bonus (or portion thereof) until the limitation no
longer applies to such payment (or portion thereof).
2.8 Loan. As soon as practicable following the Effective Date,
the Company or CareInsite shall make a full recourse loan (the "Loan") to
Executive in the principal amount of $600,000. The Loan shall be evidenced by a
promissory note to be executed by Executive in a form satisfactory to the
Company or CareInsite, as applicable, and shall be secured by any options to
purchase shares of the Company's or CareInsite's common stock held by Executive.
The Loan shall bear interest at a rate equal to the lowest rate necessary to
avoid characterization of the Loan as a "below-market loan" within the meaning
of Section 7872 of the Internal Revenue Code of 1986, as amended, and shall
become due and payable on the earlier of (i) any demand by the Company after 30
days following the termination of Executive's employment with the Company and
CareInsite for any reason and (ii) the second anniversary of the date on which
the Loan is made.
3. Employment Period.
Executive's employment under this Agreement shall commence as
of the Effective Date, and shall terminate on the fifth anniversary thereof,
unless terminated earlier pursuant to Section 5 (the "Employment Period").
Unless written notice of either party's desire to terminate the Employment
Period has been given to the other party at least 30 days prior to the
expiration of the Employment Period (or any one-month renewal thereof
contemplated by this sentence), the term of this Agreement shall be
automatically renewed for successive one-month periods.
3
<PAGE>
4. Stock Option.
4.1 Subject to obtaining the approval of the Stock Option
Committee of the Board, Executive shall be granted (i) an option (the "Company
Class A Stock Option") to purchase 250,000 shares of the Company's common stock
pursuant to the Company's Amended and Restated 1989 Class A Stock Option Plan
(the "Class A Plan") and the terms of a stock option agreement to be entered
into between the Company and Executive (the "Company Class A Stock Option
Agreement") and (ii) an option (the "Company Class B Stock Option" and
collectively with the Company Class A Stock Option, the "Company Stock Options")
to purchase 200,000 shares of the Company's common stock pursuant to the
Company's Amended and Restated 1989 Class B Stock Option Plan (the "Class B
Plan") and the terms of a stock option agreement to be entered into between the
Company and Executive (the "Company Class B Stock Option Agreement" and together
with the Company Class A Stock Option Agreement, the "Company Stock Option
Agreements"). The Company Stock Option Agreements shall contain the terms
described in this Section 4 and such other terms as are not any less favorable
than those applicable to other executive officers of the Company. Subject to
Executive's remaining in the employ of the Company or CareInsite (except as set
forth in Sections 4.3, 5.2, 5.3 and 5.5 below), the Company Stock Options shall
be exercisable in accordance with the following schedule:
Anniversary of % of Stock
Date of Grant Option Exercisable
------------- ------------------
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
In the event of a Change in Control (as defined below) of the Company or
CareInsite, notwithstanding anything to the contrary contained in the Class A
Plan or Class B Plan, the Company Stock Options shall be treated in the manner
described in Section 4.3 below. Executive will be eligible to receive future
grants of options to purchase shares of the Company's common stock at the
discretion of the Stock Option Committee of the Board.
4.2 Subject to obtaining the approval of the
Compensation Committee of CareInsite, Executive shall also be granted an option
(the "CareInsite Stock Option", collectively with the Company Stock Options, the
"Stock Options") to purchase 450,000 shares of the common stock of CareInsite
pursuant to the terms of CareInsite's 1999 Officer Stock Option Plan (the
"CareInsite Plan") and a stock option agreement to be entered into between
CareInsite and Executive (the "CareInsite Stock Option Agreement" and, together
with the Company Stock Option Agreements, the "Stock Option Agreements"). The
CareInsite Stock Option Agreement shall contain the terms described in this
Section 4 and such other terms as are not any less favorable than those
applicable to other executive officers of the Company. Subject to Executive's
remaining in the employ of the CareInsite or the Company (except as set forth in
4
<PAGE>
Sections 4.3, 5.2, 5.3 and 5.5 below), the CareInsite Stock Option shall be
exercisable in accordance with the following schedule:
Anniversary of % of
Date of Grant Stock Option Exercisable
------------- ------------------------
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
provided, however, that no portion of the CareInsite Stock Option shall become
vested and exercisable prior to December 15, 2001, (on such date, the portion of
the CareInsite Stock Option shall become vested and exercisable to the extent
that such portion would have become exercisable by virtue of the above vesting
schedule). In the event of a Change in Control of CareInsite or the Company,
notwithstanding anything to the contrary contained in the CareInsite Plan, the
CareInsite Stock Option shall be treated in the manner described in Section 4.3
below. Executive will be eligible to receive future grants of options to
purchase shares of CareInsite's common stock at the discretion of the
Compensation Committee of the CareInsite Board.
4.3 Change in Control. (a) In the event that (x) a Change in
Control (as defined below) of the Company or, to the extent set forth in Section
4.3(b)(B), CareInsite occurs during the Employment Period and (y)(i) except in
the case of an event specified in Section 4.3(b)(D), Executive is still employed
by the Company or CareInsite, as applicable, or the acquiring company on the one
year anniversary of the date on which such Change in Control occurs or (ii) the
Employment Period is terminated by CareInsite, the Company or the acquiring
company without Cause or by Executive for Good Reason during such one year
period, the Stock Options, to the extent not vested, shall become vested and
exercisable (x) on the one year anniversary of the date on which such Change in
Control occurs or the date of the Change in Control if the Change in Control is
an event specified in Section 4.3(b)(D) (in the case of clause (i) above) or (y)
on the effective date of such termination of the Employment Period (in the case
of clause (ii) above). In the event of the occurrence of the circumstances
described in the preceding sentence, the Company or CareInsite or the acquiring
company, as the case may be, shall also have the obligations specified in
Sections 5.3 and 5.5 of this Agreement.
(b) For purposes of this Agreement and the Stock Option
Agreements, a "Change in Control" of the Company or CareInsite, as the case may
be, shall be deemed to have occurred if:
(A) Both (i) any person, entity or group shall have
acquired, in one or more transactions, the beneficial
ownership of at least 50 percent of the voting power of
the outstanding voting securities of the Company,
excluding Martin J. Wygod and his affiliates, and (ii)
following such acquisition of 50 percent voting power,
Martin J. Wygod shall no longer be the Chairman of the
Board of the Company or CareInsite or a senior
executive
5
<PAGE>
officer of the acquiring company of 50 percent voting
power, in each case with duties and responsibilities
greater than or substantially equivalent to those prior
to such acquisition of 50 percent voting power; or
(B) Only in the event that CareInsite has assumed all of
the obligations under this Agreement, both (i) any
person, entity or group shall have acquired, in one or
more transactions, the beneficial ownership of at least
50 percent of the voting power of the outstanding
voting securities of CareInsite, excluding Martin J.
Wygod and his affiliates, and (ii) following such
acquisition of 50 percent voting power, Martin J. Wygod
shall no longer be the Chairman of the Board of
CareInsite or a senior executive officer of the
acquiring company of 50 percent voting power, in each
case with duties and responsibilities greater than or
substantially equivalent to those prior to such
acquisition of 50 percent voting power; or
(C) The sale of all or substantially all of the assets of
the Company or, if CareInsite assumes all of the
obligations under this Agreement, the sale of all or
substantially all of the assets of CareInsite
(including, without limitation, by way of merger,
consolidation, lease or transfer) to a person, entity
or group other than Martin J. Wygod or his affiliates
in a transaction (except for a sale-leaseback
transaction) (x) where the Company, CareInsite or the
holders of the common stock of the Company or
CareInsite, as the case may be, do not receive (i)
voting securities representing a majority of the voting
power entitled to vote on a regular basis for the board
of directors of the acquiring entity or of an affiliate
which controls the acquiring entity, or (ii) securities
representing a majority of the equity interest in the
acquiring entity or of an affiliate that controls the
acquiring entity, if other than a corporation and (y),
following such sale of assets, Martin J. Wygod shall no
longer be the Chairman of the Board of the Company or
CareInsite or a senior executive officer of the
acquiring entity, in each case with duties and
responsibilities greater than or substantially
equivalent to those prior to such sale of assets; or
(D) A complete liquidation or dissolution of the Company
and CareInsite shall have occurred.
4.4 Future Equity Grants. In the event that either the Company
or CareInsite effects a public offering of the securities of a subsidiary
thereof, Executive shall receive equity in such subsidiary on a basis which is
substantially similar to the equity participation of other senior executive
officers of the Company or CareInsite, as applicable (other than the Chairman of
the Board or of the CareInsite Board), as applicable.
5. Termination.
5.1. Termination by the Company for Cause. (a) The Employment
Period may be terminated at any time by the Company or CareInsite for Cause (as
defined below).
6
<PAGE>
Upon such a termination, the Company and CareInsite shall have no obligation to
Executive other than (i) the payment of Executive's earned and unpaid Company
Base Salary and CareInsite Base Salary to the effective date of such termination
and (ii) Executive shall not be entitled to any additional rights or vesting
with respect to the Stock Options following the effective date of such
termination
(b) For purposes of this Agreement, the term "Cause" shall
mean any of the following:
1. A willful failure of Executive to perform
his duties hereunder in any material respect which failure is not cured
by Executive within 30 days following written notice from the Company
or CareInsite detailing such failure;
2. Any willful misconduct by Executive
relating, directly or indirectly, to the Company, CareInsite or any of
their Affiliates, which misconduct, if susceptible to cure, is not
cured by Executive within 30 days following written notice from the
Company or CareInsite detailing such misconduct;
3. Any material breach by Executive of this
Agreement, including, without limitation, Section 6 hereof, which
breach, if susceptible to cure, is not cured by Executive within 30
days following written notice from the Company or CareInsite detailing
such breach; or
4. Executive's commission of a common law
fraud against the Company, CareInsite or any of their Affiliates or
conviction of a felony.
5.2 Death and Disability. (a) The Employment Period may be
deemed terminated by the Company and CareInsite upon the death of Executive or
Executive becoming Disabled (as defined below), and the Company and CareInsite
shall have the following obligations to Executive or Executive's estate (but no
other obligation to Executive or Executive's estate pursuant to this Agreement):
(i) a continuation of the Company Base Salary and
CareInsite Base Salary for a period (the "Applicable
Period") commencing on the date of termination and
ending on the fourth anniversary of the date of
termination, payable in accordance with the fourth
sentence of Section 2.1,
(ii) a continuation of the benefits to which Executive is
entitled pursuant to the Welfare Plans (as defined in
Section 5.3(a)(ii) below) for the Applicable Period,
(iii) the Company Bonus and CareInsite Bonus that would have
been payable to Executive pursuant to Section 2.7 for
each year (or portion thereof) during the Applicable
Period, payable at the time that such bonuses are
required to be paid pursuant to Section 2.7, such
Company Bonus and CareInsite Bonus to be equal to the
highest Company Bonus and
7
<PAGE>
CareInsite Bonus paid to Executive for any of the
prior three years or, if shorter, during the Employment
Period, and
(iv) the Stock Options shall remain outstanding and continue
to vest, and shall otherwise be treated for purposes of
the terms and conditions thereof, as if Executive
remained in the employ of the Company or CareInsite
during the Applicable Period
; provided, however, that the continuation of such salary, welfare benefits and
the continuation of vesting and exercisability of the Stock Options shall cease
on the occurrence of a material breach of the covenants contained in Section 6
below; and provided further, however, that Executive's eligibility to continue
to participate in the Welfare Plans shall cease at such time as Executive is
offered comparable coverage with a subsequent employer. Any payments that may be
required to be made by the Company or CareInsite pursuant to this Section 5.2
shall first be applied to the repayment of the principal amount of and interest
on the Loan.
(b) For purposes of this Agreement, Executive shall be
"Disabled" if (i) Executive becomes incapacitated by bodily injury or disease
(including as a result of mental illness) so as to be unable to regularly
perform the duties of his position for a period in excess of 180 days in any
consecutive twelve-month period, (ii) a qualified independent physician mutually
acceptable to the Company, CareInsite and Executive determines that Executive is
mentally or physically disabled so as to be unable to regularly perform the
duties of his position and such condition is expected to be of a permanent
duration or (iii) he is deemed "disabled" for purposes of the long term
disability insurance policy maintained by the Company for the Executive.
5.3 Termination by the Company or CareInsite Without Cause.
(a) The Employment Period may be terminated at any time by the Company or
CareInsite without Cause. If the Company or CareInsite (or both) terminates the
Employment Period without Cause, the Company or CareInsite, as the case may be,
shall have the following obligations to Executive (but excluding any other
obligation to Executive pursuant to this Agreement):
(i) a continuation of the Company Base Salary or CareInsite
Base Salary, as the case may be, for a period (the
"Severance Period") commencing on the date of
termination and ending on the third anniversary of the
date of termination, payable in accordance with the
fourth sentence of Section 2.1,
(ii) Executive shall be eligible to continue to participate
during the Severance Period on the same terms and
conditions that would have applied had he remained in
the employ of the Company or CareInsite during the
Severance Period in all health, medical, dental and
other welfare plans provided to Executive pursuant to
Section 2.2 at the time of such termination and which
are provided by the Company or CareInsite to its
employees following the date of termination ("Welfare
Plans"),
8
<PAGE>
(iii) the Company Bonus and CareInsite Bonus that would have
been payable to Executive pursuant to Section 2.7 for
each year (or portion thereof) during the Severance
Period, payable at the time that such bonuses are
required to be paid pursuant to Section 2.7, such
Company Bonus and CareInsite Bonus to be equal to the
highest Company Bonus and CareInsite Bonus paid to
Executive for any of the prior three years or, if
shorter, during the Employment Period, and
(iv) the Company Stock Options or the CareInsite Stock
Option, as the case may be, shall remain outstanding
and continue to vest, and shall otherwise be treated
for purposes of the terms and conditions thereof, as if
Executive remained in the employ of the Company or
CareInsite, as the case may be, during the Severance
Period, except that Section 4.3 shall apply in the
event that the Executive's termination of employment
without Cause occurs during the one year period
following a Change in Control
; provided, however, that the continuation of such salary, welfare benefits and
the vesting and exercisability of the Stock Options shall cease on the
occurrence of any material breach of the covenants contained in Section 6 below;
provided further, however, that Executive's eligibility to participate in the
Welfare Plans shall cease at such time as Executive is offered comparable
coverage with a subsequent employer. If Executive is precluded from
participating in any Welfare Plan by its terms or applicable law, the Company or
CareInsite shall provide Executive with benefits that are reasonably equivalent
in the aggregate to those which Executive would have received under such plan
had he been eligible to participate therein. Anything to the contrary herein
notwithstanding in Section 5.2 or this Section 5.3, the Company shall have no
obligation to continue to maintain any Welfare Plan solely as a result of the
provisions of this Agreement. Any payments that may be required to be made by
the Company or CareInsite pursuant to this Section 5.3 shall first be applied to
the repayment of the principal amount of and interest on the Loan.
(b) Notwithstanding anything to the contrary in this
Agreement, in the event that the Company determines that it is in the best
interest of the Company and its stockholders to terminate Executive's employment
with the Company due to a corporate transaction or the potential for a conflict
of interest with CareInsite, such a termination shall not constitute a
termination without Cause so long as CareInsite assumes the Company's
obligations to pay the Company Base Salary and Company Bonus and to provide the
other benefits contemplated in Section 2 in accordance with its plans and
policies.
5.4 Liquidated Damages. Executive acknowledges that the
payment of all amounts and benefits due to him under Section 5.3 or Section 5.5
resulting from a termination of the Employment Period by the Company or
CareInsite without Cause or by Executive for Good Reason (as defined below) are
in lieu of any and all claims that Executive may have against the Company,
CareInsite or any of their Affiliates (other than benefits under the Company's
or CareInsite's employee benefit plans that by their terms survive termination
of employment, benefits under the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended, and rights to indemnification under certain indemnification
arrangements for officers of the
9
<PAGE>
Company), and represent liquidated damages (and not a penalty). The Company may
request that Executive confirm such acknowledgment in writing prior to the
receipt of such benefits.
5.5 Termination by Executive for Good Reason. (a) Executive
may terminate his employment with the Company or CareInsite (and the Employment
Period with respect to the Company or CareInsite will be terminated) for Good
Reason. If Executive terminates his employment with the Company or CareInsite
for Good Reason, Executive shall be entitled to the same salary and welfare
benefit continuation, bonus, and the continuation of vesting and exercisability
of the Stock Options that he would have been entitled to receive under Section
5.3 if the Employment Period were terminated by the Company or CareInsite
without Cause.
(b) For purposes of this Agreement, the term "Good Reason"
shall mean any of the following conditions or events which condition(s) or
event(s) remain in effect 30 days after written notice is provided by Executive
to the Company or CareInsite, as the case may be, detailing such condition or
event:
1. A material reduction in Executive's title or
responsibilities with CareInsite or the Company or if he is required to
report to any person other than Martin J. Wygod (other than as a result
of the health of Mr. Wygod or his death); provided that Executive shall
not have Good Reason if the Company determines that as a result of a
corporate transaction or potential conflicts of interest with
CareInsite, it is not in the best interests of the Company and its
stockholders that Executive continue to serve as the President of the
Company or having the responsibilities associated with such position so
long as CareInsite assumes the Company's obligations to pay the Company
Base Salary and Company Bonus and to provide the other benefits
contemplated in Section 2 in accordance with its plans and policies;
2. Any reduction in the Company Base Salary or CareInsite
Base Salary or material fringe benefits provided by the Company;
3. Any material breach by the Company or CareInsite of
this Agreement (which shall not include the circumstance described in
the proviso in clause 1 above);
4. Executive's remaining in the employ of the Company and
CareInsite for a period of one year following the occurrence of a
Change in Control of the Company or CareInsite, as the case may be.
6. Covenants of Executive
6.1 Confidentiality. (a) Executive understands and
acknowledges that in the course of his employment, he will have access to and
will learn information that is proprietary to, or confidential to the Company,
CareInsite and their Affiliates that concerns the operation, methodology and
plans of the Company, CareInsite and their Affiliates, including, without
limitation, business strategy and plans, financial information, protocols,
proposals, manuals, clinical procedures and guidelines, technical data, computer
source codes, programs, software, know-how and specifications, copyrights, trade
secrets, market information, Developments (as
10
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defined in Section 6.4 below), information regarding acquisition and other
strategic partner candidates, and customer information (collectively,
"Proprietary Information"). Executive agrees that, (i) at all times (including
following termination of his employment with the Company or CareInsite) with
respect to Proprietary Information that is not financial information of the
Company or CareInsite and (ii) during his employment with the Company or
CareInsite and for three years thereafter, with respect to financial information
of the Company and CareInsite, he will keep confidential and will not disclose
directly or indirectly any such Proprietary Information to any third party,
except as required to fulfill his duties hereunder, and will not misuse,
misappropriate or exploit such Proprietary Information in any way. The
restrictions contained herein shall not apply to any information which Executive
can demonstrate (i) was already available to the public at the time of
disclosure, or subsequently becomes available to the public, otherwise than by
breach of this Agreement by Executive, (ii) was the subject of a court order for
Executive to disclose or (iii) was known by Executive prior to the Effective
Date. Upon any termination of Executive's employment, Executive shall
immediately return to the Company or CareInsite, as applicable, all copies of
any Proprietary Information in his possession.
(b) Executive agrees that at no time during his employment by
the Company, CareInsite or thereafter, shall he make, or cause or assist any
other person to make, any statement or other communication to any third party
which falsely impugns or falsely attacks, or is otherwise critical of, the
reputation, business or character of the Company, CareInsite or their Affiliates
or any of their respective officers or employees.
6.2. Restrictions on Solicitation. During the period beginning
on the Effective Date and ending on the second anniversary of the date of
cessation of the employment of Executive for any reason whatsoever (the
"Restricted Period"), Executive shall not, directly or indirectly, without the
prior written approval of the Company, solicit or contact any customer, or any
prospective customer, of the Company, CareInsite or any of their Affiliates for
any commercial pursuit which is in competition with the Company, CareInsite or
any of their Affiliates, or that is contemplated by the Business Plan (as
defined below) at the time of termination or take away or interfere or attempt
to interfere with any custom, trade, business or patronage of the Company,
CareInsite or any of their Affiliates. During the Restricted Period, Executive
shall not, directly or indirectly, without the prior written approval of the
Company, solicit or induce, or attempt to induce, any employees, agents or
consultants of or to the Company, CareInsite or any of their Affiliates to leave
the employ of the Company, CareInsite or such Affiliate or do anything from
which Executive is restricted by reason of this Agreement nor shall Executive,
directly or indirectly, offer or aid others to offer employment to or interfere
or attempt to interfere with any employees, agents or consultants of the
Company, CareInsite or any of their Affiliates. For purposes of this Agreement,
"Business Plan" shall mean, at any point in time, the then current business plan
of the Company, CareInsite or any of their Affiliates and any business plans of
the Company, CareInsite or any of their Affiliates in effect during the prior 18
months.
6.3. Restrictions on Competitive Employment. (a) During the
Restricted Period, Executive shall not, anywhere in the United States, directly
or indirectly, without the prior written approval of the Company, own an
interest in or, as principal, agent, employee,
11
<PAGE>
consultant or otherwise, engage in activities for or render services to, any
firm or business (i) engaged in competition with the Company, CareInsite or any
of their Affiliates, (ii) conducting a business of the type and character
engaged in by (or contemplated by the Business Plan of) the Company, CareInsite
or any of their Affiliates at the time of termination, or (iii) developing
products or services competitive with those of the Company, CareInsite or any of
their Affiliates (all of the businesses in clauses (i), (ii) and (iii)
collectively, "Competitive Business"). Notwithstanding the foregoing, Executive
may have an interest consisting of publicly traded securities constituting less
than 1 percent of any class of publicly traded securities in any public company
engaged in a Competitive Business so long as he is not employed by and does not
consult with, or become a director of or otherwise engage in any activities for,
such company.
(b) For purposes of the covenant not to compete set forth in
paragraph (a) above, Executive acknowledges that the Company, CareInsite and
their Affiliates presently conduct their businesses throughout the United
States. Executive agrees that the Restricted Period and the geographical areas
encompassed by such covenant are necessary and reasonable in order to protect
the Company, CareInsite and their Affiliates in the conduct of their businesses.
The parties intend that the foregoing covenant of Executive shall be construed
as a series of separate covenants, one for each geographic area specified.
Except for geographic coverage, each such separate covenant shall be deemed
identical in terms to the covenant set forth in paragraph (a) above. To the
extent that the foregoing covenant or any provision of this Section 1.5 shall be
deemed illegal or unenforceable by a court or other tribunal of competent
jurisdiction with respect to (i) any geographic area, (ii) any part of the time
period covered by such covenant, (iii) any activity or capacity covered by such
covenant or (iv) any other term or provision of such covenant, such
determination shall not affect such covenant with respect to any other
geographic area, time period, activity or other term or provision covered by or
included in such covenant.
6.4. Assignment of Developments. All Developments that are at
any time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, arising out of or as a result of Executive's employment
with the Company or CareInsite shall be the sole and absolute property of the
Company, CareInsite and the Affiliates, free of any reserved or other rights of
any kind on Executive's part. During Executive's employment and, if such
Developments were made, conceived or suggested by Executive during or as a
result of Executive's employment under this Agreement or any other employment
with the Company, CareInsite or the Affiliates, thereafter, Executive shall
promptly make full disclosure of any such Developments to the Company or
CareInsite, as applicable, and, at the Company's or CareInsite's cost and
expense, do all acts and things (including, among others, the execution and
delivery under oath of patent and copyright applications and instruments of
assignment) deemed by the Company or CareInsite to be necessary or desirable at
any time in order to effect the full assignment to the Company, CareInsite and
the Affiliates of Executive's right and title, if any, to such Developments. For
purposes of this Agreement, the term "Developments" shall mean all data,
discoveries, findings, reports, designs, inventions, improvements, methods,
practices, techniques, developments, programs, concepts, and ideas, whether or
not patentable, relating to the present or planned activities, or future
activities, or the products and services of the Company, CareInsite or any of
the Affiliates.
12
<PAGE>
6.5. Remedies. Executive acknowledges and agrees that damages
for a breach or threatened breach of any of the covenants set forth in this
Section 6 will be difficult to determine and will not afford a full and adequate
remedy, and therefore agrees that the Company or CareInsite, in addition to
seeking actual damages in connection therewith, may seek specific enforcement of
any such covenant in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction.
7. Notices.
Any notice or communication given by either party hereto to
the other shall be in writing and personally delivered or mailed by registered
or certified mail, return receipt requested, postage prepaid, to the following
addresses:
(a) if to the Company:
Medical Manager Corporation
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopier No.: (201) 703-3401
Attention: General Counsel
with a copy to CareInsite at the address in
subparagraph (b) below.
(b) if to CareInsite:
CareInsite, Inc.
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopier No.: (201) 703-3401
Attention: General Counsel
with a copy to the Company at the address in
subparagraph (a) above.
13
<PAGE>
(c) if to Executive at the address set forth below.
Any notice shall be deemed given when actually delivered to
such address, or three days after such notice has been mailed or sent by Federal
Express, whichever comes earliest. Any person entitled to receive notice may
designate in writing, by notice to the other, such other address to which
notices to such person shall thereafter be sent.
8. Miscellaneous.
8.1. Representations and Covenants. In order to induce the
Company to enter into this Agreement, Executive makes the following
representations and covenants to the Company and CareInsite and acknowledges
that the Company and CareInsite are relying upon such representations and
covenants:
(a) No agreements or obligations exist to which
Executive is a party or otherwise bound, in writing or otherwise, that
in any way interfere with, impede or preclude him from fulfilling all
of the terms and conditions of this Agreement.
(b) Executive, during his employment, shall use his
best efforts to disclose to the Chairman of the Board of the Company or
CareInsite in writing or by other effective method any bona fide
information known by him and not known to the Chairman of the Board of
the Company or CareInsite that he reasonably believes would have any
material negative impact on the Company, CareInsite or any of their
Affiliates.
8.2. Entire Agreement. This Agreement and the Stock Option
Agreements contain the entire understanding of the parties in respect of their
subject matter and supersede upon their effectiveness all other prior agreements
and understandings between the parties with respect to such subject matter.
8.3 Amendment; Waiver. This Agreement may not be amended,
supplemented, canceled or discharged, except by written instrument executed by
the party against whom enforcement is sought. No failure to exercise, and no
delay in exercising, any right, power or privilege hereunder shall operate as a
waiver thereof. No waiver of any breach of any provision of this Agreement shall
be deemed to be a waiver of any preceding or succeeding breach of the same or
any other provision.
8.4. Binding Effect; Assignment. The rights and obligations of
this Agreement shall bind and inure to the benefit of any successor of the
Company or CareInsite by reorganization, merger or consolidation, or any
assignee of all or substantially all of the Company's or CareInsite's business
and properties. The Company or CareInsite may assign its rights and obligations
under this Agreement to any of its Affiliates without the consent of Executive
so long as the Company or CareInsite remains responsible for the payment of the
obligations hereunder. Executive's rights or obligations under this Agreement
may not be assigned by Executive, except that the rights specified in Section
5.2 shall pass upon Executive's death to Executive's executor or administrator.
14
<PAGE>
8.5. Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
8.6. Governing Law; Interpretation. This Agreement shall be
construed in accordance with and governed for all purposes by the laws and
public policy (other than conflict of laws principles) of the State of New
Jersey applicable to contracts executed and to be wholly performed within such
State.
8.7. Further Assurances. Each of the parties agrees to
execute, acknowledge, deliver and perform, and cause to be executed,
acknowledged, delivered and performed, at any time and from time to time, as the
case may be, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be reasonably necessary to carry out
the provisions or intent of this Agreement.
8.8. Severability. The parties have carefully reviewed the
provisions of this Agreement and agree that they are fair and equitable.
However, in light of the possibility of differing interpretations of law and
changes in circumstances, the parties agree that if any one or more of the
provisions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Moreover, if any of the provisions contained in this Agreement are determined by
a court of competent jurisdiction to be excessively broad as to duration,
activity, geographic application or subject, it shall be construed, by limiting
or reducing it to the extent legally permitted, so as to be enforceable to the
extent compatible with then applicable law.
15
<PAGE>
8.9. Withholding Taxes. All payments hereunder shall be
subject to any and all applicable federal, state, local and foreign withholding
taxes.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
MEDICAL MANAGER CORPORATION
By: _____________________________
Name:
Title:
CAREINSITE, INC.
By: _____________________________
Name:
Title:
EXECUTIVE
_____________________________
Marvin P. Rich
1323 Ponus Ridge Road
New Canaan, CT 06840
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment No. 1 dated as of December 21, 1999 to the Employment
Agreement (the "Employment Agreement") dated as of May 16, 1999 between Medical
Manager Corporation (formerly Synetic, Inc., the "Company"), a Delaware
corporation, and John H. Kang ("Executive").
WHEREAS, concurrently with the execution of this Amendment, the Company
has made a loan (the "Loan") in favor of Executive;
WHEREAS, as an inducement for the Company to make the Loan to
Executive, the parties desire to amend the Employment Agreement upon the terms
and conditions set forth herein; and
NOW, THEREFORE, for valuable consideration, the sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. Amendments.
(a) Bonus. Section 2.6 is hereby amended in its entirety to read
as follows:
Executive may receive a bonus or bonuses during the Employment
Period at such times and in such amounts as the Compensation
Committee of the Board may determine in its sole discretion.
(b) Option Grant. Section 4(b) is hereby amended by deleting "six
month" each time it appears in such subparagraph and by
substituting therefor "one-year".
(c) Termination by the Company without Cause. Section 5.3(iii)
is hereby amended in its entirety to read as follows:
$600,000 of the principal amount payable under the Note (the
"Note") dated December 21, 1999 made by Executive in favor of
the Company in the principal amount of $2.4 million shall be
forgiven by the Company
(d) Liquidated Damages. The reference to "Section 5.3 or Section
5.5" contained in the second line of Section 5.4 shall be
amended to read as follows: "Section 5.3, Section 5.5 or
Section 5.6".
(e) Termination by Executive for Good Reason. (i) Section 5.5(a)
of the Employment Agreement is hereby amended by deleting the
word "bonus" in the fourth line thereof and substituting
therefor "the loan forgiveness in the amount of $600,000".
<PAGE>
(ii) Section 5.5(b)(6) is hereby amended by deleting "six
months" and substituting therefor "one-year".
(f) Special Payment. Section 5.6 is hereby amended in its entirety
to read as follows:
Special Payment. In the event of the occurrence of a Change in
Control that is not approved by a majority of the Incumbent
Directors on or prior to December 21, 2003, Executive shall be
entitled to receive an amount in cash equal to $2.4 million
less the amount of any discretionary bonus previously paid to
him pursuant to Section 2.6 of this Agreement (the "Special
Payment") on the date of the consummation of the Change in
Control. If a Change in Control occurs that is approved by a
majority of the Incumbent Directors on or prior to December
21, 2003, Executive shall be entitled to receive the Special
Payment (i) on the one-year anniversary of the date of the
Change in Control (or such earlier date as may be agreed to by
the successor), so long as he remains employed through such
date, or (ii) upon a termination of Executive's employment by
the Company without Cause or by Executive with Good Reason
during such one-year period.
2. Employment Agreement in Effect. Except as set forth herein, the
Employment Agreement remains in full force and effect.
3. Governing Law. This Amendment shall be construed in accordance with
and governed for all purposes by the laws of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MEDICAL MANAGER CORPORATION
By: ______________________________
Name:
Title:
EXECUTIVE
__________________________________
John H. Kang
SECURED PROMISSORY NOTE
-----------------------
("NOTE")
----
$2,400,000 Dated as of December 21, 1999
FOR VALUE RECEIVED, the undersigned, JOHN H. KANG, an individual
residing at the address set forth on the signature page hereof (the "Borrower"),
hereby promises to pay to MEDICAL MANAGER CORPORATION, a Delaware corporation
(the "Company"), or to the legal holder of this Note at the time of payment, the
principal sum of TWO MILLION, FOUR HUNDRED THOUSAND DOLLARS ($2,400,000) in
lawful money of the United States of America, payable as set forth below and to
pay simple interest (computed on the basis of a 365-day year) on the principal
amount hereof from and after the date of this Note until the entire principal
amount hereof has been paid in full, at a rate equal to the lowest rate
necessary to avoid characterization of this Note as a "below-market loan" within
the meaning of Section 7872 of the Internal Revenue Code of 1986, as amended.
Subject to Section 5 below, the principal amount of, and interest
on, this Note is due and payable on the earlier of (i) any demand by the Company
following 30 days after the termination of the Borrower's employment with the
Company and any of its affiliates for any reason, (ii) the expiration of the
Subject Options (as defined below) and (iii) the fourth anniversary of the date
hereof.
Payment of the principal of, and interest on, this Note is
secured pursuant to the terms of Section 4 of this Agreement, reference to which
is made for a description of the collateral provided thereby and the rights of
the holder of this Note in respect of such collateral. The Company shall have
full recourse to the Borrower or his estate in the event there is insufficient
collateral pledged to the Company under Section 4 of this Note to repay the
principal amount of and interest on this Note.
This Note is subject to the following further terms and
conditions:
1. Payment Generally. (a) All payments of principal of and interest on
this Note shall be made to the Company or its order, or to the legal holder of
this Note or such holder's order, in lawful money of the United States of
America at the principal offices of the Company (or at such other place as the
holder hereof shall notify the Borrower in writing). Upon final payment of
principal of and interest on this Note, it shall be cancelled.
(b) All payments under this Note shall be made by the Borrower
irrespective of, and without deduction for, any counterclaim, defense,
recoupment or set-off and shall be final and the
<PAGE>
Borrower will not seek to recover from the Company (or holder) for any reason
any such payment once paid.
2. Mandatory Repayment. In the event that the Borrower receives any bonus
payment from the Company or any of its subsidiaries, the amount of such payment
(up to the amount then outstanding and accrued under this Note) shall be
immediately applied to the payment of accrued interest on and principal of this
Note. In addition, the proceeds (up to the amount then outstanding and accrued
under this Note) from any exercise of Subject Options and any sale, assignment,
transfer or other disposition of the Shares (as defined below) received upon
such exercise (net of the applicable exercise price) shall be immediately
applied to the payment of accrued interest on and principal of this Note.
3. Notation. Concurrently with any repayment of any portion of the
principal amount of this Note pursuant to Sections 1 and 2, the Company (or
other holder of this Note) shall make a notation of such payment hereon. If full
payment of the principal of and accrued interest on this Note is made, this Note
shall be cancelled.
4. Security. To the extent permitted by law and by the applicable
instrument, as security for the Borrower's repayment obligations hereunder, the
Borrower hereby pledges, assigns, hypothecates, and delivers to the Company a
first lien on, and security interest in, the shares or other securities (the
"Shares") covered by any options or other right to purchase common stock of the
Company or CareInsite, Inc. ("Subject Options"), and in all proceeds thereof,
and, if requested, will deliver appropriate undated stock powers coupled with an
interest and assignments duly executed in blank. In the event that the Borrower
defaults on his repayment obligations hereunder, or the Borrower's employment
with the Company or any of its affiliates terminates for any reason, the Company
may cause the Borrower to exercise the Subject Options (but only those that are
"in the money" and then only up to that number of options which need to be
exercised to satisfy the unpaid obligations hereunder) and/or sell, assign,
transfer or otherwise dispose of the Shares, the proceeds of which (such
proceeds being net of the applicable exercise price) shall be applied to the
payment of such obligations. Any amounts remaining thereafter shall be returned
to the Borrower. The Borrower shall take all steps necessary in the Company's
reasonable judgment, to consummate any such exercise of the Subject Options
and/or disposition of the Shares. Until the full payment of all such amounts due
the Company, the Borrower shall not, without the prior written consent of the
Company, (i) sell, assign, transfer or otherwise dispose of, the Subject Options
or the Shares unless the net proceeds from such sale, assignment, transfer or
disposition are applied in full to the payment of interest on and principal of
this Note or (ii) incur any lien on the Subject Options or the Shares, except as
provided hereunder. The Company shall be entitled to all rights available to it
under the Uniform Commercial Code. In addition, the Company shall have the right
to offset amounts owed by the Borrower pursuant to this Note against the
Company's obligation to pay severance under the Employment Agreement dated as of
May 16, 1999 between the Borrower and the Company (the "Employment Agreement").
2
<PAGE>
5. Events of Default. Upon the occurrence of any of the following events
("Events of Default"):
(a) Failure to pay the principal of or accrued interest on this Note
when due, which failure to pay remains uncured after 5 days written notice of
such failure from the holder of this Note;
(b) Failure to comply with any of the Borrower's obligations under
this Note, which failure remains uncured after 5 days written notice of such
failure from the holder of this Note; or
(c) The termination of the Borrower's employment with the Company as
a result of any event that would constitute "Cause" as defined in the Employment
Agreement; then the holder of this Note may declare, by notice of default given
to the Borrower, the entire principal amount of this Note to be forthwith due
and payable, whereupon the entire principal amount of this Note outstanding and
any accrued and unpaid interest hereunder shall become due and payable without
presentment, demand, protest, notice of dishonor and all other demands and
notices of any kind, all of which are hereby expressly waived. Upon the
occurrence of an Event of Default, the accrued and unpaid interest hereunder
shall thereafter bear the same rate of interest as the principal hereunder, but
in no event shall such interest be charged which would violate any applicable
law. If an Event of Default shall occur hereunder, the Borrower shall pay costs
of collection, including reasonable attorneys' fees, incurred by the holder in
the enforcement hereof.
No delay or failure by the holder of this Note in the exercise of any
right or remedy shall constitute a waiver thereof, and no single or partial
exercise by the holder hereof of any right or remedy shall preclude any other or
future exercise thereof or the exercise of any other right or remedy.
6. Indemnity. The Borrower will upon demand pay to the Company (or the
then holder of this Note) the amount of any and all reasonable expenses,
including the reasonable fees and expenses of counsel and of any experts and
agents, that the Company (or such holder) may incur in connection with the
collection of the indebtedness of this Note, including, without limitation, (i)
the sale of, collection from or other realization upon, any of the collateral
pledged to the Company under Section 4 of this Note, (ii) the exercise or
enforcement of any of the rights of the Company (or holder) hereunder or (iii)
the failure by the Borrower to perform or observe any of the provisions hereof.
7. Further Assurances. The Borrower agrees that from time to time the
Borrower will promptly execute and deliver all further instruments and
documents, and take all further action that may be necessary or desirable, or
that the Company may reasonably request, in order to perfect and protect any
pledge, assignment or security interest granted or purported to be granted
hereby or to enable the Company (or holder) to exercise and enforce its rights
and remedies
3
<PAGE>
hereunder with respect to the collateral pledged to the Company pursuant to
Section 4 of this Note.
8. Miscellaneous. (a) The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of New York.
(b) All notices and other communications provided for hereunder shall
be in writing and personally delivered or mailed by overnight courier service or
registered or certified mail, return receipt requested, postage prepaid, if to
the Borrower, at his address as set forth on the signature page hereof; and if
to the Company, at 669 River Drive, Elmwood Park, New Jersey 07407, Attention:
Chief Financial Officer; or, as to each party at such other address and to such
other individual as shall be designated by such party in a written notice to the
other party. All such notices and communications shall be deemed given when
actually delivered to such address, or two days after such notice has been
mailed or sent by Federal Express, whichever comes earliest.
(c) The headings contained in this Note are for reference purposes
only and shall not affect in any way the meaning or interpretation of the
provisions hereof.
IN WITNESS WHEREOF, this Note has been duly executed and
delivered by the Borrower on the date first above written.
------------------------------
JOHN H. KANG
Address:
Witness
Name:
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Statement of Operations as reported
on the second quarter Form 10-Q and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000850436
<NAME> MEDICAL MANAGER CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 100,564
<SECURITIES> 0
<RECEIVABLES> 62,401
<ALLOWANCES> 3,467
<INVENTORY> 17,527
<CURRENT-ASSETS> 258,077
<PP&E> 107,679
<DEPRECIATION> 42,618
<TOTAL-ASSETS> 849,388
<CURRENT-LIABILITIES> 75,626
<BONDS> 0
0
0
<COMMON> 405
<OTHER-SE> 502,456
<TOTAL-LIABILITY-AND-EQUITY> 849,388
<SALES> 156,137
<TOTAL-REVENUES> 159,295
<CGS> 78,948
<TOTAL-COSTS> 81,047
<OTHER-EXPENSES> 43,001
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,610
<INCOME-PRETAX> 16,106
<INCOME-TAX> 8,895
<INCOME-CONTINUING> 7,211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,211
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.18
</TABLE>
