UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number: 0-22052
PROXYMED, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 65-0202059
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2555 DAVIE ROAD, SUITE 110, FT. LAUDERDALE, FLORIDA 33317
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 473-1001
-------------------------------
(Registrant's telephone number)
-------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
COMMON STOCK, $.001 PAR VALUE
18,193,102 SHARES AS OF NOVEMBER 9, 1999
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,243,656 $ 4,681,671
Accounts receivable - trade, net 6,780,657 6,383,996
Notes and other receivables 165,082 463,894
Inventory 3,112,787 2,970,210
Other current assets 608,576 254,979
------------ ------------
Total current assets 12,910,758 14,754,750
Property and equipment, net 5,042,001 4,335,944
Goodwill, net 12,238,057 15,539,821
Purchased technology, capitalized software
and other intangible assets, net 10,586,774 13,654,399
Other assets 488,617 551,660
------------ ------------
Total assets $ 41,266,207 $ 48,836,574
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 3,000,000 $ --
Current portion of long-term debt 718,120 498,453
Accounts payable and accrued expenses 5,616,926 6,244,631
Deferred revenue 613,888 447,178
------------ ------------
Total current liabilities 9,948,934 7,190,262
Long-term debt -- 667,193
Long-term deferred revenue 549,996 700,000
------------ ------------
Total liabilities 10,498,930 8,557,455
------------ ------------
Stockholders' equity:
Common stock - $.001 par value. Authorized
50,000,000 shares; issued and outstanding
18,171,307 and 17,808,172 shares, respectively 18,171 17,808
Additional paid-in capital 86,539,517 82,427,262
Accumulated deficit (55,530,611) (41,906,151)
Note receivable from stockholder (259,800) (259,800)
------------ ------------
Total stockholders' equity 30,767,277 40,279,119
------------ ------------
Total liabilities and stockholders' equity $ 41,266,207 $ 48,836,574
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Services and license fees $ 5,154,922 $ 5,700,937 $ 16,049,174 $ 13,754,618
Computer systems, prescription drugs
and other tangible goods 5,316,845 6,000,744 16,794,241 12,632,034
------------ ------------ ------------ ------------
10,471,767 11,701,681 32,843,415 26,386,652
------------ ------------ ------------ ------------
Costs and expenses:
Cost of services and license fees 682,382 483,249 1,682,705 1,613,119
Cost of tangible goods 4,027,358 4,653,247 12,237,557 9,636,310
Selling, general and
administrative expenses 7,612,201 6,626,156 22,093,025 16,229,007
Depreciation and amortization 3,671,723 3,273,224 10,467,507 6,003,466
In-process research and
development technology -- -- -- 859,830
------------ ------------ ------------ ------------
15,993,664 15,035,876 46,480,794 34,341,732
------------ ------------ ------------ ------------
Operating loss (5,521,897) (3,334,195) (13,637,379) (7,955,080)
Interest income (expense), net (22,159) (55,200) 12,919 (77,702)
------------ ------------ ------------ ------------
Net loss $ (5,544,056) $ (3,389,395) $(13,624,460) $ (8,032,782)
============ ============ ============ ============
Basic and diluted loss per share
of common stock $ (.31) $ (.19) $ (.76) $ (.54)
============ ============ ============ ============
Weighted average common
shares outstanding 18,159,063 17,755,121 17,963,929 14,922,470
============ ============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(13,624,460) $ (8,032,782)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 10,467,507 6,003,466
In-process research and development technology -- 859,830
Provision for doubtful accounts 192,145 223,902
Changes in assets and liabilities, net of
effect of acquisitions:
Accounts and other receivables (7,853) (2,306,754)
Inventory (142,577) (1,135,660)
Prepaid expenses (260,112) 15,098
Accounts payable and accrued expenses (626,422) (1,372,463)
Deferred revenue 16,706 1,264,379
Other, net (90,125) 9,773
------------ ------------
Net cash used in operating activities (4,075,191) (4,471,211)
------------ ------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (1,000,000) (20,529,340)
Acquisition contingency payment (500,000) (500,000)
Payments for acquisition-related costs (506,060) (458,331)
Capital expenditures (1,648,899) (963,655)
Capitalized software (631,121) (456,184)
------------ ------------
Net cash used in investing activities (4,286,080) (22,907,510)
------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock 2,940,000 29,011,999
Proceeds from exercise of stock options and warrants 241,055 1,365,929
Draw on line of credit 3,000,000 475,000
Payment of note payable and long-term debt (257,799) (1,065,662)
------------ ------------
Net cash provided by financing activities 5,923,256 29,787,266
------------ ------------
Net increase (decrease) in cash (2,438,015) 2,408,545
Cash and cash equivalents at beginning of period 4,681,671 3,249,429
------------ ------------
Cash and cash equivalents at end of period $ 2,243,656 $ 5,657,974
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION - The accompanying unaudited condensed
consolidated financial statements of ProxyMed, Inc. and subsidiaries
(the "Company") have been prepared in accordance with the instructions
to Form 10-Q and do not include all of the information and disclosures
required by generally accepted accounting principles. However, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of operations for the three and nine months ended September
30, 1999 are not necessarily indicative of the results to be expected
for the full year. Reference is made to ProxyMed's annual report on
Form 10-K for the year ended December 31, 1998. As a result of the
merger with Key Communications Service, Inc. ("Key") in December 1998,
the accounts of Key are included as of May 1, 1998 (due to a leveraged
buyout consummated on April 30, 1998 by Key`s shareholders). Certain
prior period amounts have been reclassified to conform with the current
period presentation.
(b) REVENUE RECOGNITION - Electronic transaction processing fee revenue is
recorded in the period the service is rendered. Revenue from sales of
software, software licenses, computer hardware and manufactured goods
is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the price is fixed or determinable and
collectibility is probable. The same criteria is applied to each
element of multiple element arrangements after allocating the revenues
to individual elements based on vendor-specific objective evidence of
fair value. Revenue from hardware leases, software rentals and
maintenance fees is recognized ratably over the applicable period.
Revenue from ProxyMed's prescription drug dispensing activities is
reported at net realizable amounts from insurance providers and
patients at the time the individual prescriptions are delivered to the
patients.
(c) NET LOSS PER SHARE - Basic loss per share of common stock is computed
by dividing net loss by the weighted average shares of common stock
outstanding during the period. Diluted per share results reflect the
potential dilution from the exercise or conversion of securities into
common stock; however, stock options and warrants totaling 3,549,480
shares and 2,750,762 shares at September 30, 1999 and 1998,
respectively, were excluded from the calculation of diluted per share
results because their effect was antidilutive.
5
<PAGE>
(2) ACQUISITION OF BUSINESS - In January, 1999, ProxyMed acquired the
electronic transaction processing business and assets of Specialized
Medical Management, Inc., a provider of healthcare financial electronic
transaction processing services primarily in the Southwestern United
States, for $1,000,000 in cash. Additionally, costs of $174,000 associated
with the acquisition were incurred, and 10,000 shares of unregistered
common stock and warrants to purchase 20,000 shares of ProxyMed's common
stock at $11.44 (together valued at $181,563) were issued to an unrelated
third-party as a finder's fee for this transaction. The value of the shares
was computed based on the fair market value of the common stock, and the
value of the warrant was computed using the Black-Scholes method, subject
in both cases to a discount due to restrictions on the marketability of the
securities for one year from the date of issuance. The acquisition was
accounted for as a purchase, and the purchase price was allocated as
follows: net working capital ($206,408), property and equipment ($38,546)
and other intangible assets ($111,060). The excess of the consideration
paid over the estimated fair value of the net assets acquired in the amount
of $999,549 was recorded as goodwill and is being amortized over three
years. Pro forma operating results from this acquisition are not
significantly different from historical results reported.
(3) CONTINGENCY PAYMENT - In July 1999, the Company paid $500,000 and issued
26,846 shares of unregistered common stock to the former owner of Hayes
Computer Systems, Inc. ("HCS") for meeting certain operating criteria in
the second 12-month period subsequent to the April 1997 acquisition of HCS,
as defined in the asset purchase agreement. Recently, in connection with
the Company's new initiative to develop proxyMed.com, our healthcare portal
website, management decided to adopt Microsoft technology for email, and
abandoned the Krypton Internet Messaging Server in-process research and
development technology acquired in its acquisition of HCS. Accordingly, the
contingent payment was recorded as goodwill, and is being amortized through
April 30, 2000.
(4) SALE OF COMMON STOCK - In June 1999, the Company sold 250,000 shares of
unregistered common stock at $12.00 per share in a private placement, plus
five-year warrants for the purchase of an aggregate of 120,000 shares of
common stock for $10.00 per share, resulting in net proceeds of $2,940,000
after costs of $60,000. As part of the sale, the Company issued a five-year
warrant to the private placement agent for the purchase of 35,000 shares of
the Company's common stock at $13.31 per share.
6
<PAGE>
(5) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Common stock issued for payment of long-term debt $ 250,000 $ --
============ ============
Acquisition of businesses:
Contingent common stock issued for prior year acquisition $ 500,000 $ 500,000
============ ============
Common stock and warrants issued for businesses acquired $ 181,563 $ 5,345,325
Other acquisition costs accrued 174,000 550,000
Details of acquisitions: --
Working capital components, other than cash (206,408) (386,586)
Property and equipment (38,546) (363,540)
Goodwill (999,549) (14,900,729)
Purchased technology -- (11,000,000)
Other intangible assets (111,060) --
Loans and notes payable -- 226,190
------------ ------------
Net cash used in acquisitions $ (1,000,000) $(20,529,340)
============ ============
</TABLE>
7
<PAGE>
(6) SEGMENT INFORMATION - ProxyMed operates in the following reportable
segments which are separately managed: healthcare electronic transaction
processing and communication devices, network engineering services, and
prescription drug dispensing. Intersegment sales are not material and there
were no foreign sales for any periods presented.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net revenues:
Healthcare electronic transaction
processing and communication devices $ 22,579,659 $ 15,959,254
Network engineering services 8,653,286 9,227,241
Prescription drug dispensing 1,610,470 1,200,157
------------ ------------
$ 32,843,415 $ 26,386,652
============ ============
Operating loss:
Healthcare electronic transaction
processing and communication devices $ (8,883,684) $ (4,540,286)
Network engineering services (372,421) (855,927)
Prescription drug dispensing (94,799) (29,554)
Corporate (4,286,475) (2,529,313)
------------ ------------
$(13,637,379) $ (7,955,080)
============ ============
Total assets:
Healthcare electronic transaction
processing and communication devices $ 32,441,618 $ 39,862,793
Network engineering services 3,777,896 5,566,310
Prescription drug dispensing 1,080,171 1,019,280
Corporate 3,966,522 6,922,184
------------ ------------
$ 41,266,207 $ 53,370,567
============ ============
</TABLE>
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
ProxyMed is a healthcare information services company providing
financial and clinical electronic transaction processing services and healthcare
technology software products to physicians and other healthcare providers such
as nursing homes, pharmacies, commercial and hospital laboratories, insurance
companies and managed care organizations. In addition, we derive revenues from
network engineering services and related computer hardware sales principally to
state government agencies, internet access services, sales and leasing of
computer peripheral equipment to various healthcare and non-healthcare
customers, contract manufacturing of circuit boards to non-healthcare customers,
and the dispensing of prescription drugs to patients who are residing in
long-term care facilities. Our products and services are provided from our four
principal operating facilities located in Fort Lauderdale and Tallahassee,
Florida; Santa Ana, California; and New Albany, Indiana.
We operate in the following reportable segments which are separately
managed: healthcare electronic transaction processing and communication devices,
network engineering services, and prescription drug dispensing. Business
combinations were consummated during the periods presented and are included in
the financial statements after their respective dates of acquisition.
Specialized Medical Management, Inc. was acquired by us in January 1999; Key
Communications Service, Inc. merged with us in December 1998 (accounts of Key
Communications are included as of May 1, 1998 due to a leveraged buy-out
consummated on April 30, 1998 by Key Communications' shareholders); and WPJ,
Inc. (d/b/a Integrated Medical Systems) was acquired in May 1998. These entities
are reportable under the healthcare electronic transaction processing and
communication devices segment.
In May 1999, we announced and commenced the development of
proxyMed.com, a healthcare portal website aimed at increasing the use of our
connectivity services through the use of the internet, and in November 1999, the
website was introduced. ProxyMed.com will offer a secure, single access point
through the web for all connectivity needs of physicians and other healthcare
providers. It will also facilitate healthcare e-commerce services, information
and provider directories. Microsoft Corporation and Renaissance Interactive,
Inc. continue to work with us to complete the functionality of this healthcare
portal website. ProxyMed.com will integrate our existing desktop products into a
single internet-based solution for healthcare providers. ProxyMed.com is
reportable under the healthcare electronic transaction processing and
communication devices segment.
9
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET REVENUES. Consolidated net revenue for the three months ended
September 30, 1999 decreased by $1,229,914, or 11%, to $10,471,767 from
consolidated net revenue of $11,701,681 for the three months ended September 30,
1998. Of this decrease, revenues from our healthcare electronic transaction
processing and communication devices segment decreased by $158,000 over the 1998
period primarily due to the net effect of: (i) increases in volume from internal
growth and the Specialized Medical Management acquisition ($1,349,000), (ii)
increases from the inclusion of internet service provider revenue in
proxyMed.com ($237,000), and (iii) decreases in revenue from ClinScan, our
laboratory ordering and results reporting software system, from a non-exclusive
source code license sale in the 1998 period ($1,750,000). Additionally, our
network engineering services segment revenue decreased by $1,234,000 due to
customers purchasing earlier in 1999 and the shifting of internet service
provider revenue to proxyMed.com ($237,000), while our drug dispensing segment
revenue increased by $162,000, compared to the 1998 period, due to new
customers.
COST OF SALES AND GROSS PROFIT MARGIN. Cost of services and license
fees includes labor and travel costs, third-party support arrangements,
third-party electronic transaction processing costs, certain telecommunication
costs and internet-related communication fees. Cost of sales for computer
systems, prescription drugs and other tangible goods includes hardware,
third-party software, prescription and non-prescription drugs and dispensing
supplies, manufactured goods and direct labor and consumable materials used in
contract manufacturing.
Consolidated gross profit margin for the three months ended September
30, 1999 was 55% which is comparable to 56% for the three months ended September
30, 1998. The gross margin in our healthcare electronic transaction processing
and communication devices segment was 68% in the 1999 period compared to 76% in
the 1998 period; this decrease was primarily due to the favorable impact in the
1998 period from the sale of a non-exclusive ClinScan(R) source code software
license. The gross profit margin in our network engineering services segment was
24% in the 1999 period compared to 19% in the 1998 period; this increase is
primarily due to lower margins on the higher hardware sales in the 1998 period.
The gross profit margin in our drug dispensing segment was 29% in the 1999
period compared to 34% in the 1998 period; this decrease is primarily due to a
shift in the mix of patients that we service from higher margin private-pay to
lower margin third-party insured patients.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling,
general and administrative expenses for the three months ended September 30,
1999 increased by $986,045, or 15%, to $7,612,201 from consolidated SG&A
expenses of $6,626,156 for the three months ended September 30, 1998. Of this
increase, SG&A expenses from our healthcare electronic transaction processing
and communication devices segment increased by $641,000 over the 1998 period due
primarily from (i) net increases in SG&A for internal growth primarily for
payroll and related costs (including costs to
10
<PAGE>
integrate Specialized Medical Management customers), and selling expenditures
($276,000), and (ii) development and marketing expenses related to proxyMed.com
($365,000). In addition, our corporate SG&A expenses increased primarily for
payroll, facility and telecommunication costs to support our growth ($362,000).
SG&A expenses in our network engineering services segment decreased by a net of
$55,000 primarily due to reductions in payroll costs partially offset by
increased selling expenses and bad debts; while SG&A expenses in our drug
dispensing segment increased by $38,000 primarily due to increased payroll costs
and bad debts.
DEPRECIATION AND AMORTIZATION. Consolidated depreciation and
amortization expense increased $398,499, or 12%, to $3,671,723 for the three
months ended September 30, 1999 from $3,273,224 for the three months ended
September 30, 1998. This increase was primarily due to amortization charges for
goodwill and other intangible assets associated with our acquisitions of
Specialized Medical Management and Hayes Computer Systems.
INTEREST, NET. The change in net interest was not significant.
NET LOSS. As a result of the foregoing, we recorded a net loss of
$5,544,056 for the three months ended September 30, 1999, as compared to a net
loss of $3,389,395 for the three months ended September 30, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
NET REVENUES. Consolidated net revenues for the nine months ended
September 30, 1999 increased by $6,456,763, or 24%, to $32,843,415 from
consolidated net revenues of $26,386,652 for the nine months ended September 30,
1998. Of this increase, revenues from our healthcare electronic transaction
processing and communication devices segment increased by $6,621,000 over the
1998 period primarily due to the net effect of: (i) increased volumes from
internal growth and our acquisitions of Key Communications, Specialized Medical
Management and Integrated Medical Systems ($10,503,000), which were all
consummated during or subsequent to the 1998 period, (ii) revenue from network
connectivity fees received from a pharmacy ($200,000), (iii) increases from the
inclusion of internet service provider revenue and the sale of a non-exclusive
source code license in proxyMed.com ($668,000), and (iv) decreases from the
sales of non-exclusive source code licenses for our clinical and laboratory
software products, which were sold in the 1998 period ($4,750,000).
Additionally, our network engineering services segment revenue decreased by
$574,000 due to changes in sales volumes and the shifting of internet service
provider revenue to proxyMed.com ($237,000), while our drug dispensing segment
revenue increased by $410,000 due to new customers.
COST OF SALES AND GROSS PROFIT MARGIN. Cost of services and license
fees includes labor and travel costs, third-party support arrangements,
third-party electronic transaction processing costs, certain telecommunication
costs and internet related communication fees. Cost of sales for computer
systems, prescription drugs and other tangible goods
11
<PAGE>
includes hardware, third-party software, prescription and non-prescription drugs
and dispensing supplies, manufactured goods and direct labor and consumable
materials used in contract manufacturing.
Consolidated gross profit margin for the nine months ended September
30, 1999 was 58% and was comparable to 57% for the nine months ended September
30, 1998. The gross margin in our healthcare electronic transaction processing
and communication devices segment was 72% in the 1999 period compared to 78% in
the 1998 period; this decrease was primarily due to the favorable impact in the
1998 period from higher sales of non-exclusive clinical and laboratory source
code software licenses. The gross profit margin in our network engineering
services segment was 26% in the 1999 period and was comparable to 24% in the
1998 period. The gross profit margin in our drug dispensing segment was 28% in
the 1999 period compared to 33% in the 1998 period; this decrease is primarily
due to a shift in the mix of patients that we service from higher margin
private-pay to lower margin third-party insured patients.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling,
general and administrative expenses for the nine months ended September 30, 1999
increased by $5,864,018, or 36%, to $22,093,025 from consolidated SG&A expenses
of $16,229,007 for the nine months ended September 30, 1998. Of this increase,
SG&A expenses from our healthcare electronic transaction processing and
communication devices segment increased by $4,226,000 over the 1998 period due
to the net effect of (i) increases in SG&A from our acquisitions of Key
Communications, Specialized Medical Management and Integrated Medical Systems
($3,662,000), all of which were acquired during or subsequent to the 1998
period, including costs associated with the integration of previously separate
processing networks for financial transactions and (ii) development and
marketing expenses related to proxyMed.com ($564,000). In addition, our
corporate SG&A expenses increased primarily for payroll, marketing, and facility
and telecommunication costs to support our growth ($1,428,000) and charges
related to the settlement of litigation and activities associated with our
announced engagement of Salomon Smith Barney to help us evaluate our strategic
alternatives ($282,000). SG&A expenses in our network engineering services
segment decreased by a net of $194,000 primarily due to reductions in payroll
costs partially offset by increased selling expenses and bad debts; while SG&A
expenses in our drug dispensing segment increased by $122,000 primarily due to
additional payroll costs and bad debts.
DEPRECIATION AND AMORTIZATION. Consolidated depreciation and
amortization expense increased $4,464,041, or 74%, to $10,467,507 for the nine
months ended September 30, 1999 from $6,003,466 for the nine months ended
September 30, 1998. This increase was primarily due to amortization charges for
goodwill and other intangible assets associated with our recent acquisitions and
the Hayes Computer Systems contingency payment described below.
IN-PROCESS RESEARCH AND DEVELOPMENT TECHNOLOGY. As a result of a
contingent payment made to the former owner of Hayes Computer Systems in 1998,
we recorded a charge of $859,830 in 1998 related to the expensing of in-process
research and development technology. In 1999, in connection with our new
initiative to develop proxyMed.com, management decided to adopt Microsoft
technology for email, and
12
<PAGE>
abandoned the Krypton Internet Messaging Server in-process research and
development technology acquired in its acquisition of Hayes Computer Systems.
Accordingly, the 1999 contingent payment was recorded as goodwill, and is being
amortized through April 30, 2000.
INTEREST, NET. The change in net interest was not significant.
NET LOSS. As a result of the foregoing, we recorded a net loss of
$13,624,460 for the nine months ended September 30, 1999, as compared to a net
loss of $8,032,782 for the nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
In the nine month period ended September 30, 1999, cash used in
operating activities totaled $4,075,191. This was primarily due to our net loss
partially offset by depreciation and amortization charges. In January 1999, we
purchased the healthcare electronic transaction processing assets of Specialized
Medical Management for $1,000,000 in cash. Additionally, we spent approximately
$2,280,000 for fixed assets and capitalized software development costs, $506,000
for acquisition-related costs, paid $500,000 in cash and issued 26,846 shares of
common stock in final payment for the Hayes Computer Systems acquisition, and
paid $250,000 in cash and issued 25,000 shares of common stock for our debt
obligation to the former owner of Clinical MicroSystems, Inc. These activities
were financed through available cash resources, a private placement sale of
250,000 shares of our common stock resulting in net proceeds of $2,940,000,
draws of $3,000,000 on our revolving line of credit, and $241,055 in proceeds
from the exercise of stock options and warrants. After these expenditures and
sales of equity, we had cash and cash equivalents totaling $2,243,656 as of
September 30, 1999.
These available funds continue to be used for operations, the further
development and marketing of our products and services (including proxyMed.com,
our healthcare portal website), equipment and other general corporate purposes.
As a result of acquisitions made in 1997 and 1998, we are obligated to pay
approximately $300,000 for a final assessment of a tax audit at Key
Communications, $750,000 in April 2000 to the former owner of Clinical
Microsystems, and $500,000 in June 2000 to the former owner of PreScribe. The
Clinical MicroSystems payment may be made at least 50% in cash and the balance,
if any, in common stock. In addition, we are continuously evaluating acquisition
opportunities and other strategic alternatives that add synergies to our product
offerings and business strategy.
In general, we believe that the long-term effects of our various
acquisitions will be accretive to our operating results and our liquidity. While
no assurances can be given that revenue synergies will occur, we expect that
there will be opportunities to increase revenues by cross-selling products and
services to the customers of the acquired entities, as well as revenue
opportunities from the development of new services from our product development
efforts, including proxyMed.com. In addition, we expect to experience cost
reduction synergies from the operations that have been or are planned to be
combined.
13
<PAGE>
These savings will occur primarily from elimination of facilities, duplicate
personnel in the areas of network operations, management and customer service,
duplicate marketing efforts and other general and administrative costs. For
example, we believe cost reductions have been achieved, or will be achieved,
from the following measures: the electronic transaction processing operations
relating to the acquisitions of Integrated Medical Systems, US HealthData
Interchange, Inc. and Specialized Medical Management have been merged into one
location; the lab operations relating to the Clinical MicroSystems products and
the Key Communications operations have been merged together; the PreScribe
technology has been merged with our pre-existing prescription electronic
transaction processing products; Hayes Computer Systems will continue to be
operated from its existing location as a separate segment, but we plan to
operate the proxyMed.com network operations from this location. However, on a
short-term basis, we generally incur additional expenses resulting from our
acquisitions due to stay-pay incentives during the transition period, moving
costs for employees that are retained, and the merging of different transaction
networks. We do not expect our interest costs to increase as a result of our
acquisitions, as most of the financing for the acquisitions resulted from
issuances of our equity securities, and debt carried by the acquired entities
was paid off. While amortization of goodwill and other intangible assets from
our acquisitions will not affect our future cash outflows, we expect that such
acquisition-related charges will approximate $3,100,000 per quarter through the
first quarter of 2000 and then decrease to $2,800,000 per quarter through the
second quarter of 2001.
In July 1999, we signed an accounts receivable-based revolving line of
credit agreement of up to $5,000,000. Borrowings are based on 85% of eligible
accounts receivable, repayable on July 31, 2000, collateralized by a lien on all
of our assets, and bear interest at the prime rate plus 2% payable monthly
(which has ranged from 10% to 10.25%). As of September 30, 1999, we borrowed
$3,000,000 under this credit facility. In connection with this new credit
facility, we have let an existing credit facility expire. Under that facility,
we were able to borrow up to $5,000,000, subject to availability of collateral
which consisted of certificates of deposit and U.S. Treasury Notes.
At the current time, we do not have any material commitments for
capital expenditures. However, our capital spending will increase over the next
several quarters as the infrastructure for proxyMed.com is completed. Although
these expenditures are not expected to have a significant impact on our
financial position, we may seek additional financing for these expenditures.
The ratio of current assets to current liabilities was 1.3 times at
September 30, 1999 and 2.1 times at December 31, 1998. This decrease is
primarily due to our use of cash for operations, the acquisition of Specialized
Medical Management, capital expenditures, and draws on our line of credit, as
described above. For the periods ended September 30, 1999 and 1998, accounts
receivable turnover for us was 6.1 times in the 1999 period compared to 7.2
times in the 1998 period and is attributable to higher sales made at the end of
the 1998 period in both the healthcare electronic transaction processing and
communication device and network engineering services segments. Our inventory
turnover was 5.6 times in the 1999 period compared to 3.7 times in the 1998
period and is attributable to higher inventory turnover at Key Communications
and in our network engineering services segment.
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We expect to continue to incur negative net cash flow from operations
until we begin receiving higher levels of revenues from our healthcare
electronic transaction processing and communication devices segment and/or from
cash generated by our network engineering services segment. Management is
committed to the strategy of investing funds in further marketing and
development of our products and services, specifically for proxyMed.com, our
healthcare web portal, which will integrate our existing desktop products into a
single internet-based solution. We may also pursue additional acquisitions which
are deemed to be in accordance with our business strategy. All of these plans
may require additional equity or debt financing. We believe that we have to
access sources of cash to continue to fund our operating needs, our research and
development activities, our acquisition obligations and our strategic needs. In
the recent past, we have raised cash to fund our operations and pay for
acquisitions from the private placement sales of our common stock. We believe
that we can continue to finance our short-term cash needs in this manner as well
as utilize our asset-based debt financing. However, we are currently evaluating
the long-term cash needs of proxyMed.com, and we may require cash through the
public equity markets.
FUTURE OUTLOOK
We continue to grow through concentration on our core healthcare
electronic transaction processing and communication devices segment, our
business relationships, our strategic acquisitions and other plans (such as
proxyMed.com) to increase the usage of our healthcare information technology
products and services to achieve requisite economies of scale. Prior to the
second quarter of 1999, we had successfully reduced our operating losses before
non-cash charges. Such non-cash charges are significant and result primarily
from amortization expenses related to our acquisitions. However, with the
announced development, marketing and implementation of proxyMed.com, we
anticipate that our operating losses may grow until we generate sufficient
recurring revenues from our products and services to cover the total of our cash
and non-cash expenses. There can be no assurance that we will realize an
adequate level of recurring revenues from the sale of our products and services,
or that revenues from our operations, the business plan for proxyMed.com, or
those of our recently acquired businesses and any future acquisitions will
ultimately result in achievement of profitability.
YEAR 2000 COMPLIANCE
GENERAL. Many currently installed computer systems and software
products are coded to accept only two digit dates. Such systems may not be able
to distinguish 20th century dates from 21st century dates. To address these and
any other Year 2000 operational issues which may affect us, in September 1998 we
appointed a Year 2000 Committee and hired a Year 2000 project manager to review
our internal computer systems and our products and services as well as review
the progress of our principal customers, vendors and resellers.
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The Committee developed a priority order list of our products and
services and commenced the Year 2000 project plan in accordance with this list.
Our Year 2000 project plan consists of four phases: assessment, remediation,
validation and distribution.
The primary purpose of the assessment phase is to list and analyze the
inventory of our products sold and supported. The major issues encountered
during this phase are the identification of language the software is written in,
the source code and any third-party libraries in a product. The remediation
phase is where changes to the programs and codes are actually made. The
validation phase is where the remediated products are tested and then submitted
for independent verification and validation. The distribution phase,
specifically for proprietary products, is where the remediated products are
provided to our customers.
PRODUCTS AND SERVICES. With respect to our products and services, we
met our expected completion date of September 1999 for distribution of
remediated proprietary laboratory, financial, and prescription software
applications. Remediation of our financial and clinical networks is expected to
be completed and Year 2000 ready by the end of the fourth quarter of 1999. All
new software application releases are being prepared in accordance with our Year
2000 readiness standards.
Concurrently, we have contacted all third party vendors whose
proprietary tools and library products are incorporated into our products in
order to determine their respective Year 2000 readiness status. Certain of those
third parties have required actions to be taken by us. Such actions have been
performed in accordance with instructions provided by the vendor. If for any
reason certain of these vendors will not be Year 2000 Ready in accordance with
our needs, we will address these issues in our Contingency Plan.
Finally, we have contacted our customers to inform them of our Year
2000 readiness status. Updates to that information are posted on our website.
ACQUISITIONS. The Committee is also responsible for identifying Year
2000 issues that may be present in acquisition candidates, as Year 2000
compliance is a factor in determining the suitability of an acquisition. Recent
acquisitions have included representations from the sellers regarding Year 2000
compliance so that we may have recourse in the event that unforeseen Year 2000
issues arise.
Based on representations made at time of our merger with Key
Communications, we believe that Key Communications' products and services will
operate satisfactorily in a Year 2000 environment. We have completed the
assessment, remediation and validation phases of their products and services to
verify those representations, and based on procedures performed, we do not
expect additional actions to be required.
Concerning our acquisition of Specialized Medical Management, we have
identified three potential Year 2000 issues. First, all of Specialized Medical
Management's customers require a software upgrade. We are in the process of
replacing their software with our Year 2000-ready products and expect that this
will be completed by the end of November 1999. Second, Specialized Medical
Management's financial
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transactions network is being combined with our existing financial transactions
network, which is Year 2000 compliant, by the end of November 1999. Third,
certain financial transaction services currently provided to a certain payer is
currently being remediated and is expected to be completed by the end of
November 1999.
INTERNAL SYSTEMS, VENDORS AND SUPPLIERS. We are continuing with the
assessment and remediation phases with respect to our internal administrative
systems. Risk assessment is being evaluated on all documentation received from
our vendors, suppliers, and clinical and financial transaction processing
partners. Final attempts to contact unresponsive requests were completed by the
end of October 1999. Alternatives are being explored on an as-needed basis by
the end of November 1999. Again, if for any reason certain of these vendors will
not be Year 2000 compliant in accordance with our needs, we will address these
issues in our Contingency Plan.
COSTS. Since the formation of the Year 2000 Committee in September
1998, we have spent approximately $242,000, through October 31, 1999, primarily
for personnel and hardware costs. The total estimated budget for expenditures
directly related to our Year 2000 effort is approximately $500,000. The budget
includes staffing costs for employees hired specifically to address Year 2000
issues; however, it does not include the internal staff costs incurred or to be
incurred as these costs are considered part of the normal release structure of
our products. The estimated budget also includes hardware upgrade costs, much of
which would have been incurred in our normal equipment replacement plans. As
such, anticipated total spending for the Year 2000 effort is expected to be
within our budget and is not expected to have a significant impact on our
ongoing results of operations.
CONTINGENCY PLAN. While some "worst case scenarios" are associated with
risks outside our control (including power and communications), we have started
assessing those scenarios within our control. The Year 2000 Committee has
identified the major areas of concern to be the handling of data formatting and
transmitting compliant data, and our customers' usage of our software products.
To deal with some of these concerns, we have informed our financial network
users of the availability of an algorithm to allow those with non-compliant
formats to continue transmitting to payers in a Year 2000 compatible format. Our
customer support departments are currently developing policies and procedures
and mock testing scenarios to assist our hardware and software customers with
Year 2000 related issues. While the development is ongoing, a permanent plan for
Year 2000 business continuity was completed in September 1999. These
contingencies plan for potential disruption and data corruption issues brought
about by the Year 2000.
In the event that there is a system problem due to a Year 2000 date, we
will immediately attempt to diagnose and fix the problem. Each particular
problem will dictate an alternate method of processing to maintain business
continuity. In the event that a Year 2000 problems occurs at an external entity,
that entity will be informed of the problem and we will continue to review and
repair the dates until the problem is fixed. However, due to the general
uncertainty inherent in the Year 2000 issue, there can be no assurance that all
Year 2000 problems will be foreseen and corrected on a timely basis or that the
costs to do so will not be material.
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CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This document contains "forward-looking statements" within the meaning
of the federal securities laws. These forward-looking statements include
assumptions, beliefs and opinions relating to ProxyMed's growth strategy based
upon ProxyMed's interpretation and analysis of healthcare industry trends, and
management's ability to successfully develop, implement, market and sell its
network transaction processing services, software programs, clinical and
financial transaction services, and e-commerce systems to physicians and other
healthcare providers. This strategy assumes that ProxyMed will be able to
successfully develop and execute its strategic relationships, especially with
the providers of healthcare information systems, with pharmacy chains and
independent pharmacy owners, and with clinical medical laboratories. Many known
and unknown risks, uncertainties and other factors, including general economic
conditions and risk factors detailed from time to time in ProxyMed's Securities
and Exchange Commission filings, may cause these forward-looking statements to
be incorrect and may cause actual results to be materially different from any
future results expressed or implied by these assumptions, opinions and beliefs.
ProxyMed expressly disclaims any intent or obligation to update any
forward-looking statements.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
2 - Employment Agreement dated September 8, 1999
between Michael Bedell and ProxyMed, Inc.
27 - Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
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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.
PROXYMED, INC.
(Registrant)
NOVEMBER 12, 1999 /S/ BENNETT MARKS
- ----------------- -----------------
(Date) Bennett Marks
Executive Vice-President, Chief
Financial Officer and Principal
Accounting Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
2 Employment Agreement dated September 8, 1999
between Michael Bedell and ProxyMed, Inc.
27 Financial Data Schedule.
EXHIBIT 2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
8th day of September, 1999, by and between PROXYMED, INC. ("Company") and
MICHAEL BEDELL residing at 357 Chestnut Hill Rd., Wilton, CT 06897 ("Employee").
WHEREAS, upon the terms and subject to the conditions of this
Agreement, the Company desires to employ the Employee and the Employee is
willing to accept employment by the Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth hereinafter and other good and valuable considerations, the receipt
and sufficiency of which is hereby acknowledged, the Company and the Employee
agree as follows:
1. TERM. The term of this Agreement shall commence on September 30,
1999 (the "Effective Date"), and shall continue until August 31, 2002 (hereafter
the "Term), and shall be automatically extended from year to year thereafter
unless (i) terminated by the Company by delivery of not less than ninety (90)
days written notice to Employee prior to the end of the initial Term or any
extension thereof, in which case the employment of Employee shall terminate on
the date specified for termination in such notice, or (ii) terminated by
Employee by delivery of not less than thirty (30) days written notice to the
Company, in which case the employment of Employee shall terminate on the date
which is thirty (30) days following the date notice is received by the Company.
2. POSITION; DUTIES; LOYALTY.
(a) POSITION. Employee will be employed as Executive Vice
President and Chief Marketing Officer by the Company and shall render exclusive
service to the Company as an employee pursuant to the terms, provisions and
conditions hereinafter set forth.
(b) DUTIES. Employee shall be employed by the Company on a
full-time exclusive basis. Employee shall perform the duties and have the
authority and responsibilities customarily accompanying responsibility for the
Company's.
(c) LOYALTY. Employee shall devote the full time required for
his/her position and shall give his best efforts to the business of the Company
and to the performance of the duties and obligations described in this
Agreement. Employee shall not, directly or indirectly, alone, or as a partner,
officer, director or shareholder of any other institution, be engaged in any
other commercial activities whatsoever, or continue or assume any other
corporate affiliations without the prior written consent of the Company, which
consent shall not be unreasonably withheld, except for (i) passive investments,
and (ii) minimal time utilized for business activities that do not compete with
the business of the Company or its subsidiaries.
3. COMPENSATION AND EXPENSES.
(a) SALARY. In consideration for the services rendered by the
Employee under this Agreement, the Company shall pay the Employee a monthly base
salary of $15,000 (the "Base Salary") in accordance with the Company's customary
payroll practices, plus a $500 per
<PAGE>
month car allowance, subject to federal and state taxes, if any. Employee
performance reviews (with or without a wage increase) will be conducted
annually.
(b) ADDITIONAL COMPENSATION. As a further incentive and
inducement to the Employee to accept employment by the Company and to devote his
best efforts to the business and affairs of the Company, the Employee shall be
entitled to such bonuses that may be awarded from time to time by the
Compensation Committee or the Board of Directors of the Company, and to
participate in any stock option or bonus plans which the Company may now have or
in the future develop. During Employee's first year of employment, he shall have
the opportunity to receive up to $100,000 in bonus awards of which $ 50,000 is
guaranteed at the end of his first year of employment so long as Employee is
employed by Company on such date and the other $50,000 subject to meeting
certain performance criteria to be agreed upon by Employee and the CEO of the
Company.
(c) OPTIONS. Employee will receive a stock option agreement
for a ten (10) year term to purchase up to 75,000 shares of the Company's common
stock at its fair market value defined as the price at which common stock is
reported to have traded on the NASDAQ System at the close of business on the day
before the Effective Date of this Agreement. The options will vest over a three
(3) year period as follows: 25,000 on the first anniversary of Employee's
employment, 25,000 on the second anniversary of Employee's employment, and
25,000 on the day before the third anniversary of Employee's employment. The
options will be as granted as new hire, restricted, non qualified options and
will also vest upon a "change of upon a "change of control", as defined in the
Company's 1999 Stock Option Agreement.
(d) EXPENSES. Company shall promptly pay or reimburse the
Employee for all reasonable business expenses actually incurred or paid by the
Employee in the performance of his services hereunder in accordance with the
policies and procedures of the Company for the reimbursement of business
expenses for its senior level executives, provided that the Employee properly
accounts therefor in accordance with the Company's policy.
(e) TAX WITHHOLDING. The Company shall have the right to
deduct or withhold from the compensation due Employee hereunder any and all sums
required for Federal income and social security taxes and all state or local
taxes now applicable or that may be enacted and become applicable in the future.
(f) RELOCATION. Within sixty (60) days after the Effective
Date, the Company and Employee will agree as to the location that Employee with
work out of. The Company shall pay Employee all reasonable, necessary and actual
costs for Employee's relocation, including actual moving expenses, travel
expenses for Employee and Employee's spouse to look for housing, rental expenses
in Florida until Employee's relocation, broker's commissions on the sale of
Employee's house, closing costs, including attorneys fees and points and
associated costs, as well as grossing up any such expenses taxable to Employee.
However, Employee agrees that in no event shall Company be obligated to pay
Employee for all relocation costs, including any gross up, more than $50,000.
All relocation expenses shall be submitted to the Company for its approval.
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4. BENEFITS.
(a) VACATION. Employee shall be entitled to three (3) weeks of
vacation with pay in the first year of his employment, and thereafter. Vacation
not taken during a calendar year does not accrue unless approved in writing by
the Company. Employee shall not be entitled to receive any additional
compensation from the Company on account of his failure to take a vacation.
(b) PARTICIPATION IN BENEFIT PLANS. Employee shall be entitled
to participate in whatever benefit plans, including health insurance, that are
extended to all executives of the Company, on the same terms that such benefits
are so extended. Employee shall be entitled to family health insurance coverage
beginning ninety (90) days from the commencement of employment from the
Company's insurance carrier (currently Prudential HMO). If Employee elects the
Prudential PPO option, any additional premium will be payable by Employee. The
Company agrees to reimburse Employee for actual expenses of COBRA coverage from
Employee's prior employer for the first ninety (90) days of employment, but not
to exceed the cost of the Company's HMO coverage. The Company shall not be
obligated to maintain any special or additional plans for Employee's benefit.
Employee shall also be entitled to participate in benefit plans extended to
other senior executives of the Company.
5. TERMINATION.
(a) TERMINATION WITHOUT CAUSE; DEATH; DISABILITY. In the event
of Employee's Disability (as defined herein), this Agreement may be terminated
at the election of the Company. Upon termination for death or Disability,
Employee or his/her beneficiary or estate or legal representative shall be
entitled to receive the amounts payable under Section 5(c). For purposes of this
Agreement, "Disability" is defined to mean the inability of Employee due to
illness or physical or mental infirmity (as determined by a physician selected
by Employee and acceptable to the Company) to perform his duties hereunder on a
basis for six consecutive months with reasonable accommodation by the Company.
(b) TERMINATION FOR CAUSE. The Company may terminate
Employee's employment hereunder for "cause", effective immediately upon giving
written notice thereof. For purposes of this Agreement, the term "cause" shall
be limited to (i) conviction of a felony or of any crime involving fraud or
misrepresentation; (ii) the continued failure by Employee to substantially
perform his duties to the Company after receipt of written notice from the
Company specifying any action or inaction by Employee which is deemed by the
Company to constitute a failure to perform his duties hereunder with
suggestions, where feasible, as to how Employee may remedy such failure, and
Employee has failed to correct the unsatisfactory performance within thirty (30)
days of such notice; (iii) Employee's gross negligence or willful misconduct
which is materially injurious to the Company, monetarily or otherwise; (iv)
proven dishonesty affecting the Company; (v) excessive use of alcohol or illegal
drugs interfering with the performance of Employee's duties and the continuance
thereof after written warning; or (vi) any material breach by Employee of the
Company's policies or of the covenants contained in Section 6 of this Agreement
regarding confidentiality. For purposes of the paragraph, no act or failure to
act on Employee's part shall be considered "willful" unless done, or omitted to
be done, by Employee not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company. If at any time the
Company shall determine that Employee has engaged in one
3
<PAGE>
or more activities constituting "cause" for termination hereunder, Employee's
employment shall be terminated for cause. Company shall pay Employee his full
Base Salary through the date of termination at the then current rate (including
any applicable bonus and accrued vacation pay), and all stock options, if any,
which have become vested and exercisable on or before the date of termination,
with such options remaining exercisable for such period of time specified as in
Employee's Stock Option Agreement(s). Company shall then have no further
obligations to Employee. Employee may give a written request to the Company
within thirty (30) days after such termination requesting an opportunity to be
heard by the Board of Directors of the Company. If Employee timely so requests
such an opportunity to be heard, such opportunity shall be made available to
Employee within thirty (30) days after such written request. If the Board, with
the advice of counsel, determines that there was cause for termination, its
determination shall be deemed to be conclusive and final. In the event Employee
is terminated for cause, Section 6.a) and 6.b) will be of no force or effect. If
it determines in its reasonable judgment that there was not sufficient basis to
terminate Employee for cause, Employee shall be reinstated with all back pay and
benefits restored.
(c) PAYMENT UPON TERMINATION WITHOUT CAUSE. In the event of
termination without cause, Employee shall be given ninety (90) days prior
written notice. Employee shall execute a full and complete release of any and
all claims against the Company in a form satisfactory to the Company, in which
event Employee (or his estate) shall be entitled to severance pay of (i) an
amount equal to Employee's Base Salary on the date of termination for six (6)
months commencing on the date of termination payable in accordance with the
Company's customary payroll practices, plus (ii) a pro rata portion of any bonus
compensation which would have been paid to Employee under any bonus plan which
is adopted by the Company's Compensation Committee or Board of Directors in such
year if the Company and Employee had met the targeted goals to the date of
termination, plus (iii) the continuation of all benefit (including, without
limitation, all insurance plans at no additional expense to the Employee) for 6
months after termination, plus (iv) any remaining unvested options shall vest. A
termination pursuant to Section 1 above shall not be deemed to be a termination
without cause under this Section or a termination for Good Reason under Section
5(f) or subject to this Section 5(c).
(d) ACCELERATION. If the Company defaults in the payment of
any amounts owed hereunder to Employee following written notice by Employee and
fails to cure such default within ten days from the date of such notice,
Employee shall be entitled to accelerate the entire amount due hereunder. The
Company shall have the opportunity to cure a monetary default one time after
which time, if another default occurs, Employee shall be entitled to accelerate
the entire amount due hereunder upon written notice by Employee without
affording the Company an opportunity to cure.
(e) RETURN OF COMPANY PROPERTY. Upon notice of termination by
the Company or resignation by Employee, Employee shall immediately return to the
Company all property of the Company in Employee's possession, including
Confidential Information (as defined below). Employee acknowledges that the
Company may withhold any compensation and benefits owed to Employee hereunder
until all such property is returned.
(f) EMPLOYEE TERMINATION FOR GOOD REASON. Employee may
terminate this Agreement for Good Reason by giving Company ninety (90) days
prior written notice. Good Reason means: (i)
4
<PAGE>
the assignment of any duties inconsistent in any respect with Employee's
position (including status, offices, titles and reporting requirements),
authority, duties or responsibilities hereunder, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose as isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of written notice from Employee; and (ii) any reduction
of Employee's Base Salary or the failure by the Company to provide Employee with
an incentive compensation program and health and the benefits hereunder no less
favorable than the benefits Employee was entitled to hereunder. In such event,
Employee's termination shall be treated as a termination without cause, and he
shall be entitled to the payments enumerated in Section 5(c) above.
(g) MITIGATION. If Employee becomes entitled to compensation
pursuant to Section 5(c) or 5(f) above, Employee shall use reasonable efforts to
seek other employment; provided, however, that he shall not be required to
accept a position of less importance or dignity or of a substantially different
character than the position held as of the date of termination or a position
that could require Employee to engage in activity in violation of the
non-competition provisions of Section 6 hereof nor shall he be required to
accept a position outside South Florida. The amount of any cash compensation
paid or payable from any such employment shall be reported to the Company on a
monthly basis and such amount shall be credited against amounts otherwise
payable by the Company to Employee under Sections 5(c) or 5(f) above. Other than
as provided in this Section 5(g), Employee shall have no duty to mitigate the
amount of any payment provided for in this Agreement.
6. COVENANTS OF EMPLOYEE.
(a) Employee agrees that during the Term and for one (1) year
following a termination of employment for any reason, he will not, directly or
indirectly, engage, assist or participate in, whether as a director, officer,
executive, agent, manager, consultant to vendors/sellers (but may consult to end
users/purchasers), partner, owner or independent contractor or other
participant, in any line of business which is the same as the Company or any of
its subsidiaries are engaged in as of the termination of this Agreement without
the written consent of the Company. Employee and Company agree that this clause
is to protect the interests of the Company while at the same time allowing the
Employee to pursue gainful employment with any other company Employee so
chooses, so long as such Employee does not, within the relevant time period
herein, engage in any line of business that directly competes with any line of
business engaged in by the Company or any of its subsidiaries as of the date
Employee terminates his employment with Company. Nothing contained herein shall
prevent Employee from acquiring less than 1% of any class of securities of any
company that competes with the Company that has any of its securities listed on
a national securities exchange or traded in the over-the-counter market,
provided Employee remains a passive investor.
(b) Employee agrees that during the Term and for one (1) year
after the termination of employment for any reason, he will not, directly or
indirectly, without the prior written consent of the Company, induce or solicit
any person employed or hereafter employed by the Company or any of its
subsidiaries to leave the employ of the Company or any of its subsidiaries or
solicit, recruit,hire or attempt to solicit, recruit or hire any person employed
by the Company. Further, Employee agrees that for a period of one year after the
termination of this Agreement, he will not, directly or indirectly, without the
prior written consent of the Company, solicit, divert away,
5
<PAGE>
take away, or attempt to take away any customer of the Company who was a
customer which Employee had, alone or in conjunction with others, served,
solicited or had material contacts with during his employment with the Company.
Regarding the latter sentence, Company and Employee agree that Employee may
contact and do business with those customers, however during the relevant time
period, he may not solicit or sell them any product or service in the lines of
business that were the same as then being offered by the Company or any of its
subsidiaries as of the termination of employee's employment.
(c) Employee agrees and acknowledges the he will disclose
promptly to the Company every discovery, improvement and invention made,
conceived or developed by Employee during the entire period of employment
(whether or not during working hours) which discoveries, improvements, or
inventions are capable of use in any way in connection with the business of
Company. To the fullest extent permitted by law, all such discoveries,
inventions and improvements will be deemed works made for hire. Employee grants
and agrees to convey to Company or its nominee the entire right, title and
interest, domestic and foreign, which he may have in such discoveries,
improvements or inventions, or a lesser interest therein, at the option of
Company. Employee further agrees to promptly, upon request, sign all
applications for patents, copyrights, assignments and other appropriate
documents, and to perform all acts and to do all things necessary and
appropriate to carry out the intent of this section, whether on not I am still
an employee of the Company at the time of such requests.
(d) Employee agrees and acknowledges that the Confidential
Information of the Company and its subsidiaries (as hereinafter defined) is
valuable, special and unique to its business, that such business depends on such
Confidential Information, and that the Company wishes to protect such
Confidential Information by keeping it confidential for the use and benefit of
the Company. Based on the foregoing, Employee agrees to undertake the following
obligations with respect to such Confidential Information.
(i) Employee agrees to keep any and all
Confidential Information in trust for the use and benefit of the Company;
(ii) Employee agrees that, except as required by
Employee's duties or authorized in writing by the Company and its subsidiaries,
he will not at any time during and for a period of 10 years after the
termination of his employment with the Company and its subsidiaries, disclose,
directly or indirectly, any Confidential Information of the Company or any of
its subsidiaries. except as maybe required by applicable law or court order, in
which case Employee shall promptly notify Company so as to allow it to seek a
protective order if it so elects;
(iii) Employee agrees to take all reasonable
steps necessary, or reasonably requested by the Company or its subsidiaries, to
ensure that all Confidential Information of the Company is kept confidential for
the use and benefit of the Company and its subsidiaries; and
(iv) Employee agrees that, upon termination of
his employment by the Company or any of its subsidiaries or at any other time
the Company may in writing so request, he will promptly deliver to the Company
all materials constituting Confidential Information (including all copies
thereof) that are in the possession of or under the control of Employee.
Employee further agrees that, if requested by the Company to return any
Confidential Information pursuant to this Subsection
(iv), he will not make or retain any copy or
extract from such materials.
6
<PAGE>
For the purposes of this Section 6(c), Confidential
Information means any and all information developed by or for the Company or any
of its subsidiaries of which Employee gained knowledge by reason of his
employment by the Company or any of its subsidiaries prior to the date hereof or
during his employment that is not generally known in any industry in which the
Company or its subsidiaries is or may become engaged, but does not apply to
information which is generally known to the public or the trade, unless such
knowledge results from an unauthorized disclosure by Employee. Confidential
Information includes, but is not limited to, any and all information developed
by or for the Company concerning plans, marketing and sales methods, materials,
processes, business forms, procedures, devices used by the Company, its
subsidiaries, suppliers and customers with which the Company had dealt with
prior to Employee's termination of employment with the Company and its
subsidiaries, plans for development of new products, services and expansion into
new areas or markets, internal operations, and any trade secrets, proprietary
information of any type owned by the Company and its subsidiaries, together with
all written, graphic and other materials relating to all or any part of the
same. The Company will receive all materials, including, software programs,
source code, object code, specifications, documents, abstracts, and summaries
developed in connection with Employee's employment. Employee acknowledges that
the programs and documentation developed in connection with Employee's
employment with the Company shall be the exclusive property of the Company, and
that the Company shall retain all right, title and interest in such materials,
including without limitation patent and copyright interests. Nothing herein
shall be construed as a license from the Company to make, use, sell or copy any
inventions, ideas, trade secrets, trademarks, copyrightable works, or other
intellectual property of the Company during the term of this Agreement or
subsequent to its termination.
(f) Employee confirms that he is not bound by the terms of any
agreement with any previous employer or other party which restricts in any way
his use or disclosure of information or his engagement in any business, except
as Employee may disclose in a separate schedule attached to this Agreement prior
to Company's and Employee's execution of this Agreement. Further, Employee
represents that he has delivered to the Company prior to executing this
Agreement true and complete copies of any agreements disclosed on such attached
schedule. Employee represents to the Company that his execution of this
Agreement, employment with the Company and the performance of his proposed
duties for the Company will not violate any obligations Employee may have to any
such previous employer or other party. In any work for the Company, Employee
will not disclose or make use of any information in violation of any agreements
with or rights of any such previous employer or other party, and will not bring
to the premises of the Company any copies or other tangible embodiments of
non-public information belonging to or obtained from any such previous
employment or other party.
(g) INJUNCTIVE RELIEF.
(i) Employee acknowledges and agrees that the
covenants and obligations contained in this Section 6 relate to special, unique
and extraordinary matters and that a violation of any of the terms of this
Section will cause the Company irreparable injury for which adequate remedies at
law are not available. Therefore, Employee agrees that the Company shall be
entitled (without having to post a bond or other surety) to an injunction,
restraining order, or other equitable relief from any court of competent
jurisdiction, restraining the Employee from committing any violation of the
covenants and obligations set forth in this Section 6.
7
<PAGE>
(ii) The Company's rights and remedies under
this Section are cumulative and are in addition to any other rights and remedies
the Company may have pursuant to the specific provisions of this Agreement and
at law or in equity.
7. MISCELLANEOUS.
(a) ATTORNEY'S FEES. In the event a proceeding is brought to
enforce or interpret any part of this Agreement or the rights or obligations of
any party to this Agreement each party shall pay its own - fees and expenses,
including reasonable attorney fees..
(b) SUCCESSORS AND ASSIGNS. This Agreement and the benefits
hereunder are personal to the Company and are not assignable or transferable by
the Employee without the written consent of the Company. Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
Company and the Employee and the Employee's heirs and legal representatives, and
the Company's successors and assigns.
(c) GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of Florida, without regard
to the application of principles of conflict of laws.
(d) NOTICES. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by certified mail,
return receipt requested, postage prepaid, to the parties to this Agreement
addressed to the Company at its then principal office, as notified to Employee,
or to the Employee at his address specified on page 1 of this Agreement, or to
either party hereto at such other address or addresses as he or it may from time
to time specify for such purposes in a notice similarly given. All notices and
communications shall be deemed to have been received on the date of delivery.
(e) MODIFICATION; WAIVER. No provisions of this Agreement may
be modified, waived or discharged unless such modification, waiver or discharge
is approved by a duly authorized officer of the Company and is agreed to in a
writing signed by the Employee and such officer. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
(f) COMPLETE UNDERSTANDING. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement.
(g) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not control or affect the meaning or
construction of this Agreement.
(h) VALIDITY. The invalidity or unenforceability of any one or
more provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
8
<PAGE>
(i) SEVERABILITY. The invalidity of any one or more of the
words, phrases, sentences, clauses or sections contained in this Agreement shall
not affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and if any one or more of the words, phrases, sentences, clauses or
sections contained in this Agreement shall be declared invalid, this Agreement
shall be construed as if such invalid word or words, phrase or phrases, sentence
or sentences, clause or clauses, or section or sections had not been inserted.
(j) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
(k) ARBITRATION. Except for disputes relating to Section 7 of
this Agreement, any and all disputes or controversies that shall arise under or
in connection with this Agreement or in any other way related to Employee's
employment by the Company, including termination of employment, shall be
submitted to a panel of three arbitrators under the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association then
in effect. The parties hereby acknowledge that the Federal Arbitration Act takes
precedence over any state arbitration statutes, rules and regulations. Each of
the arbitrators shall be qualified and experienced in employment related matters
with at least one arbitrator being a licensed attorney. The arbitrators must
base their determination solely on the terms and conditions of this Agreement
and the law in the State of Florida. The arbitrators shall have the authority to
award any remedies that a court may order or grant, except that they will have
no authority to award punitive damages or any other damages not measured by the
prevailing party's actual damages, and may not, in any event, make any ruling,
finding or award that does not conform to the terms and conditions of this
Agreement. Arbitration shall be held either in Broward County or Dade County,
Florida, and the parties hereby agree to accept service of process at the
address above written and in the personal jurisdiction and venue as set out
herein. Both parties expressly covenant and agree to be bound by the decision of
the arbitrators as the final determination of the matter in dispute. Judgment
upon the award rendered by the arbitrators may be entered into any court having
jurisdiction thereof. Each party shall pay its own attorney fees and costs.
(l) INDEMNIFICATION. In accordance with the Company's Articles
and Bylaws, the Company agrees to defend, indemnify and hold harmless the
Employee ("Indemnified Party") for acts in his capacity as Employee to the
fullest extent permitted by Florida corporate law at the present time (or as
such right of indemnity may be increased in the future) including in particular
and without limitation with respect to the execution and delivery of this
Agreement or Employee's accepting employment with the Company. The Company
agrees to reimburse the Indemnified Party in advance for any costs of defending
any action or investigation (including reasonable attorneys' fees and expenses)
regarding Employee's performance of his duties under this Agreement, subject to
an undertaking from the Indemnified Party to repay the Company if the
Indemnified Party is determined not to be entitled to such indemnity by a court
of competent jurisdiction; provided that, the Company shall first have the
opportunity to defend Employee so long as counsel hired by the Company does not
have a conflict with representation of both the Company and the Employee and
Employee approves of such counsel. Notwithstanding the foregoing, the Company
shall not be required to advance expenses for the defense of Employee for any
causes of action that relate to activities of Employee that the Company in good
faith determines are outside of the scope of the duties required of Employee
under this Agreement and not related to
9
<PAGE>
the execution and delivery of this Agreement or Employee's accepting employment
with the Company, including without limitation, for causes of action such as
sexual harassment, torts, etc.
(m) Sections 5(a) and 5(c); 6 and 7 shall survive the
termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first above written.
COMPANY:
PROXYMED, INC., EMPLOYEE:
a Florida corporation
By: /S/ HAROLD BLUE /S/ MICHAEL E. BEDELL
------------------- ---------------------
Harold Blue, Chairman and C.E.O.
10
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<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
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0
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