UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO.)
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VitalWorks Inc.
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[VitalWorks LOGO]
APRIL 28, 2004
Dear Stockholder:
We cordially invite you to attend the 2004 Annual Meeting of Stockholders
of VitalWorks Inc., to be held on Wednesday, June 9, 2004 at the Lounsbury
House, 316 Main Street, Ridgefield, Connecticut 06877. The meeting will begin
promptly at 10:00 a.m., local time, and we hope that it will be possible for you
to attend.
The items of business are listed in the following Notice of Annual Meeting
and are more fully addressed in the attached Proxy Statement.
Please date, sign, and return your proxy card in the enclosed envelope as
soon as possible or follow the instructions on the proxy card to vote over the
Internet to assure that your shares will be represented and voted at the Annual
Meeting, even if you cannot attend. If you attend the Annual Meeting, you may
vote your shares in person even though you have previously signed and returned
your proxy card or voted over the Internet.
On behalf of your Board of Directors, thank you for your continued support
and interest in VitalWorks.
Sincerely,
/s/ JOSEPH M. WALSH
Joseph M. Walsh
Chairman of the Board, President and
Chief Executive Officer
VITALWORKS INC.
239 ETHAN ALLEN HIGHWAY
RIDGEFIELD, CONNECTICUT 06877
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, JUNE 9, 2004
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
VitalWorks Inc. will be held on Wednesday, June 9, 2004 at 10:00 a.m., local
time, at the Lounsbury House, 316 Main Street, Ridgefield, Connecticut 06877,
for the following purposes:
1. To elect seven (7) members of the Board of Directors to hold office
until the 2005 Annual Meeting of Stockholders.
2. To ratify the selection by the Audit Committee of the Board of
Directors of BDO Seidman, LLP as independent auditors for VitalWorks
for the year ending December 31, 2004.
3. To transact such other business as may properly come before the meeting
or any adjournment of the meeting.
Only the holders of record of common stock of VitalWorks Inc. at the close
of business on April 22, 2004 are entitled to notice of and to vote at the
Annual Meeting of Stockholders and any adjournment thereof. A list of
stockholders as of the close of business on April 22, 2004 will be available,
during ordinary business hours, for ten (10) days prior to the meeting date for
examination by any stockholder, his, her or its agent, or his, her or its
attorney.
Your attention is directed to the Proxy Statement provided with this
Notice.
By Order of the Board of Directors,
/s/ JOSEPH M. WALSH
Joseph M. Walsh
Chairman of the Board, President and
Chief Executive Officer
April 28, 2004
Ridgefield, Connecticut
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE OR
FOLLOW THE INSTRUCTIONS ON THE PROXY CARD TO VOTE OVER THE INTERNET IN ORDER TO
ENSURE YOUR REPRESENTATION AT THE MEETING. NO POSTAGE NEED BE AFFIXED IF MAILED
IN THE UNITED STATES. IF YOU ARE ABLE TO ATTEND THE MEETING, YOU MAY REVOKE YOUR
PROXY AND VOTE YOUR SHARES IN PERSON. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES
ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT
THE MEETING, YOU MUST OBTAIN FROM THE RECORD OWNER A PROXY IN YOUR NAME.
VITALWORKS INC.
239 ETHAN ALLEN HIGHWAY
RIDGEFIELD, CONNECTICUT 06877
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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, JUNE 9, 2004
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The 2004 Annual Meeting of Stockholders of VitalWorks Inc. will be held on
Wednesday, June 9, 2004 at the Lounsbury House, 316 Main Street, Ridgefield,
Connecticut 06877, beginning promptly at 10:00 a.m., local time. The enclosed
form of proxy is solicited by our Board of Directors. It is anticipated that
this Proxy Statement and the accompanying proxy will first be mailed to holders
of our common stock on or about April 28, 2004.
As used in this Proxy Statement, the terms "VitalWorks," the "Company" and
"we" each refers to VitalWorks Inc. and shall include its subsidiaries, unless
the context otherwise requires.
GENERAL INFORMATION
WHY AM I RECEIVING THIS PROXY STATEMENT AND PROXY CARD?
You are receiving a Proxy Statement and proxy card because you own shares
of common stock in VitalWorks. This Proxy Statement describes issues on which we
would like you, as a stockholder, to vote. It also gives you information on
these issues so that you can make informed decisions.
When you sign the proxy card, you appoint Joseph M. Walsh, Michael A. Manto
and Stephen Hicks as your representatives at the meeting. Messrs. Walsh, Manto
and Hicks will vote your shares at the meeting as you have instructed them on
the proxy card. This way, your shares will be voted whether or not you attend
the Annual Meeting. Even if you plan to attend the meeting, it is a good idea to
complete, sign and return your proxy card in advance of the meeting in case your
plans change.
If an issue comes up for vote at the meeting that is not on the proxy card,
Messrs. Walsh, Manto and Hicks will vote your shares in accordance with their
best judgment.
WHAT AM I VOTING ON?
You are being asked to vote on:
- the election of seven (7) directors; and
- the ratification of the appointment of BDO Seidman, LLP as our
independent auditors.
No cumulative voting rights are authorized, and dissenters' rights are not
applicable to these matters.
WHO IS ENTITLED TO VOTE?
Only holders of record of common stock of VitalWorks as of the close of
business on April 22, 2004 are entitled to vote. This is referred to as the
"Record Date." Each share of common stock is entitled to one vote.
HOW DO I VOTE?
You may vote by mail. You do this by signing your proxy card and mailing
it in the enclosed, prepaid and addressed envelope. If you mark your voting
instructions on the proxy card, your shares will be voted as you instruct. If
you return a signed card but do not provide voting instructions, your shares
will be voted "FOR" the named nominees for directors and "FOR" the ratification
of the appointment of the independent auditors.
You may vote over the Internet. You can access the Internet voting system
at the Web address http://www.votestock.com. After you submit the log-in number
located on your proxy card, you will be able to vote your shares through an
electronic ballot.
You may vote in person at the meeting. Written ballots will be passed out
to anyone who wants to vote at the meeting. If you hold your shares in "street
name" (through a broker or other nominee), you must request a legal proxy from
your broker or other nominee in order to vote at the meeting.
HOW MANY VOTES DO YOU NEED TO HOLD THE MEETING?
Shares are counted as present at the meeting if the holder of those shares
either is present and votes in person at the meeting or has properly submitted a
proxy card.
As of the Record Date, 43,419,702 shares of our common stock were issued
and outstanding. One-third of our outstanding shares as of the Record Date,
equal to 14,473,234 shares, must be present at the meeting either in person or
by proxy in order to hold the meeting and conduct business. This is called a
"quorum."
Shares of common stock represented in person or by proxy (including broker
non-votes and shares that abstain or do not vote with respect to one or more of
the matters to be voted upon) will be counted for the purpose of determining
whether a quorum exists. "Broker non-votes" are shares that are held in a street
name by a bank or brokerage firm that indicates on its proxy that it does not
have discretionary authority to vote on a particular matter.
If a quorum is not present, the meeting will be adjourned until a quorum is
obtained.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
It means that you have multiple accounts at the transfer agent and/or with
brokers. Please sign and return all proxy cards to ensure that all your shares
are voted.
WHAT IF I CHANGE MY MIND AFTER I RETURN MY PROXY?
You may revoke your proxy and change your vote at any time before the polls
close at the meeting. You may do this by:
- sending written notice to our Corporate Secretary at 239 Ethan Allen
Highway, Ridgefield, Connecticut 06877;
- signing, and returning to us, another proxy with a later date; or
- voting in person at the meeting.
WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD?
If your shares are held in a street name, your brokerage firm may vote your
shares under certain circumstances. These circumstances include certain
"routine" matters, such as the election of directors. Therefore, if you do not
vote your proxy, your brokerage firm may either vote your shares on routine
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matters, or leave your shares unvoted. When a brokerage firm votes its
customers' unvoted shares on routine matters, these shares are counted for
purposes of establishing a quorum to conduct business at the meeting.
A brokerage firm cannot vote customers' shares on non-routine matters.
Therefore, if your shares are held in a street name and you do not vote your
proxy, your shares will not be voted on non-routine matters and will not be
counted in determining the number of shares necessary for approval. Shares
represented by such "broker non-votes" will, however, be counted in determining
whether there is a quorum.
HOW MANY VOTES MUST THE NOMINEES FOR ELECTION AS DIRECTORS RECEIVE TO BE
ELECTED?
The seven nominees receiving the highest number of affirmative votes will
each be elected as a director. This number is called a plurality.
If a nominee is unable to stand for election, the Board of Directors may,
by resolution, provide for a lesser number of directors or designate a
substitute nominee. In the latter event, shares represented by proxies may be
voted for a substitute nominee. Proxies cannot be voted for more than seven
nominees.
HOW MANY VOTES ARE REQUIRED TO APPROVE THE SELECTION OF THE INDEPENDENT
AUDITORS?
The selection of the independent auditors requires the affirmative vote of
a majority of shares present in person or represented by proxy at the meeting
and entitled to vote.
HOW WILL VOTES BE COUNTED?
Election of Directors. You may vote "FOR" or you may "WITHHOLD AUTHORITY"
on voting for each nominee. A properly executed proxy marked "WITHHOLD
AUTHORITY" will not be voted, although it will be counted for purposes of
determining whether there is a quorum. If you just sign your proxy card with no
further instructions, your shares will be counted as a vote "FOR" each of the
nominees for director. You may withhold authority to vote for a particular
nominee by marking the "FOR" box and striking a line through the name of the
nominee. Your shares will then be voted only for the remaining nominees.
Ratification of the Selection of Independent Auditors. You may vote "FOR"
or "AGAINST" the ratification of the selection of the independent auditors, or
you may "ABSTAIN" from voting on this issue. Abstentions are counted for
purposes of establishing a quorum. Because ratification of the selection of the
independent auditors requires a vote "FOR" such ratification by a majority of
shares voting, abstentions and "broker non-votes" will have no effect on the
outcome of voting on this matter. If you just sign your proxy card with no
further instructions, your shares will be counted as a vote "FOR" the
ratification of the selection of the independent auditors.
All votes will be tabulated by the inspector of elections appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and "broker non-votes."
IS MY VOTE CONFIDENTIAL?
Only the inspector of elections and certain employees of VitalWorks will
have access to your proxy card. They will tabulate and certify the vote. All
comments will remain confidential unless you ask that your name be disclosed.
WHERE DO I FIND THE VOTING RESULTS OF THE MEETING?
We will announce preliminary voting results at the meeting and will publish
the final results in our quarterly report on Form 10-Q for the second quarter of
2004. That report will be filed with the Securities
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and Exchange Commission, and you can obtain a copy on our website at
http://www.vitalworks.com/ investor_relations/html, by contacting our investor
relations department at (203) 894-1300, the Securities and Exchange Commission
at (800) SEC-0330 for the location of the nearest public reference room, or
through the Securities and Exchange Commission's EDGAR system at
http://www.sec.gov.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors has nominated the seven individuals currently
serving as directors to stand for election as directors at the Annual Meeting.
Each director elected at the Annual Meeting will serve until the 2005 Annual
Meeting of Stockholders, subject to the election and qualification of his or her
successor and to his or her earlier death, resignation or removal.
Except as otherwise provided herein, the proxy cannot be voted for the
election of a person to fill a directorship for which no nominee is named in
this Proxy Statement. The Board of Directors has no reason to believe that any
of the nominees for the office of director will be unavailable for election as a
director. However, if at the time of the Annual Meeting any of the nominees
should be unable to serve or, for good cause, will not serve, the persons named
in the proxy will vote as recommended by the Board of Directors to elect
substitute nominees recommended by the Board of Directors. In no event can a
proxy be voted to elect more than seven directors.
The following list sets forth the names of the nominees and also contains,
as to each nominee, certain biographical information, a brief description of
principal occupation and business experience, and certain other information.
This information has been furnished by the respective individuals. Each
individual's age is as of the date of this Proxy Statement.
Kenneth R. Adams, age 68, has served as a director since March 2001. From
1984 until his retirement in 1998, Mr. Adams served in various capacities with
SunGard Data Systems Inc., a provider of integrated information technology
solutions to the financial services industry. From October 1988 until December
1995, Mr. Adams was chairman and chief executive officer of the SunGard Disaster
Recovery business unit, and from January 1996 until December 1998, Mr. Adams
served as chief executive officer of SunGard Healthcare Systems Inc.
Stephen J. DeNelsky, age 36, has served as a director since March 2001. In
March 2003, Mr. DeNelsky joined Copper Arch Capital, LLC as a senior research
analyst. From November 2001 through March 2003, he served as the portfolio
manager of Forstmann-Leff Associates, LLC. In December 2000, Mr. DeNelsky
founded Sapphire Capital Management LLC, a New York-based investment fund, and
he served as its managing partner until November 2001. From June 1999 until
December 2000, he was a senior research analyst at Credit Suisse First Boston's
Health Care Equity Research Group, covering primarily the healthcare information
technology and e-health sectors. From January 1996 to June 1999, Mr. DeNelsky
occupied senior research analyst positions at Deutsche Banc Alex. Brown, ING
Barings Furman Selz and McDonald & Company Securities.
David B. Shepherd, age 53, has served as a director since June 2001. Since
1990, Mr. Shepherd served, and continues to serve, as a vice president and as
the chief financial officer of Louis Dreyfus Property Group Inc., an
international commercial property company owned by Louis Dreyfus S.A.S. Prior to
joining Louis Dreyfus, from 1975 until 1990, Mr. Shepherd was a certified public
accountant with the audit practice of Ernst & Young LLP.
Lisa W. Zappala, age 44, has served as a director since March 2004. Ms.
Zappala is a senior advisor of Aspen Technology, Inc., a supplier of software
and services to the process industries. From July 1998 to July 2003 Ms. Zappala
worked for Aspen Technology as chief financial officer followed by senior vice
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president through March 2004. From January 1993 to July 1998, she was director
of financial operations followed by treasurer at Aspen Technology. Prior to
joining Aspen Technology, Ms. Zappala practiced public accounting for more than
eleven years at Arthur Andersen & Co. as a certified public accountant. Ms.
Zappala also serves on the board of directors of Clark & Reid and Optimum
Logistics, two privately held companies.
Joseph M. Walsh, age 44, has served as our President and Chief Executive
Officer and as a director since March 2001 and Chairman since June 2001. From
April 2000 until March 2001, Mr. Walsh served as president of our then medical
software division. From 1987 until April 2000, Mr. Walsh served as president and
chief executive officer of Micro-Designs Software Corporation, a healthcare
practice management company specializing in oral and maxillofacial, and plastic
surgery practices. We acquired Micro-Designs in 1998.
Stephen N. Kahane, M.D., M.S., age 46, has served as our Vice Chairman and
Chief Strategy Officer and as a director since March 2001. From November 1999
until March 2001, Dr. Kahane served as President of E-Health and then as Chief
Strategy Officer of our then medical software division. From October 1996 until
November 1999, Dr. Kahane served as president and chief executive officer of
Datamedic Holding Corp., a practice management and clinical software company
specializing in ophthalmology and general medical practices. We acquired
Datamedic in 1999. Prior to joining Datamedic, Dr. Kahane was a co-founder and
senior executive at Clinical Information Advantages, Inc., a clinical software
company. Dr. Kahane also trained and served on the faculty at The Johns Hopkins
Medical Center.
Michael A. Manto, age 45, has served as our Executive Vice President and as
a director since March 2001 and as Chief Financial Officer since April 2001.
From July 2000 until March 2001, Mr. Manto served as Executive Vice President of
our then medical software division. From 1991 until 2000, Mr. Manto was with
Hyperion Solutions Corporation, a multinational business software company, where
he served as vice president and corporate controller. Mr. Manto also served as
interim chief financial officer of Hyperion Software Corporation. Prior to
joining Hyperion, Mr. Manto was a certified public accountant with Ernst & Young
LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NAMED NOMINEE.
THE BOARD OF DIRECTORS
Meetings. In 2003, the Board of Directors held twelve regular meetings and
acted five times by unanimous written consent. Each director that served on the
Board of Directors in 2003 attended more than 75% of the Board meetings and
those committees of which such director was a member. Directors are invited to
attend the annual meeting of stockholders but we have no specific policy
requiring attendance by directors at such meeting.
Independent Directors. The Board of Directors has determined that Mr.
Adams, Mr. Shepherd, Mr. DeNelsky and Ms. Zappala are each independent directors
as defined by the rules of the NASDAQ Stock Market. The independent directors
held four executive session meetings in 2003.
Communications. Stockholders interested in communicating with the Board of
Directors or any individual director may do so by writing to: VitalWorks Inc.
239 Ethan Allen Highway, Ridgefield Connecticut 06877 attn: Corporate Secretary,
or by email to vwksboard@vitalworks.com. These communications will be forwarded
to the appropriate director or directors.
Code of Business Conduct and Ethics. The Board of Directors adopted a Code
of Business Conduct and Ethics effective July 1, 2003 for our directors,
officers (including our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar
5
functions) and employees. This Code is available on our website at
http://www.vitalworks.com/ investor_relations/html. We intend to disclose any
amendments to, or waivers from, our Code on our website. Stockholders may
request a free copy of the Code by writing to Investor Relations, VitalWorks
Inc., 239 Ethan Allen Highway, Ridgefield, Connecticut 06877.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Board of Directors maintains a standing Audit
Committee. Throughout 2003 and until March 2004, the Audit Committee was
composed of Kenneth R. Adams, Stephen J. DeNelsky and David B. Shepherd. In
March 2004 Lisa W. Zappala replaced Mr. Adams on the Audit Committee. All Audit
Committee members are independent directors as defined by the rules of the
NASDAQ Stock Market, and both Mr. Shepherd, the chair of the Audit Committee,
and Ms. Zappala are audit committee financial experts as defined by the rules of
the Securities and Exchange Commission. As the chair of the Audit Committee, Mr.
Shepherd, along with the Company's general counsel, is a designated recipient
for any complaints or reported violations concerning the Company's Code of
Business Conduct and Ethics. The Audit Committee held nine meetings during 2003.
The Board of Directors adopted a revised written charter for the Audit
Committee. A copy of the Audit Committee charter is attached to this Proxy
Statement as Appendix A and is available on our website at
http://www.vitalworks.com/investor_relations/html. The principal functions of
the Audit Committee are set forth in its charter and the report of the Audit
Committee is set forth in this Proxy Statement.
Compensation Committee. The Board of Directors maintains a standing
Compensation Committee. In 2003, the Compensation Committee consisted of Messrs.
Adams, DeNelsky and Shepherd. All Compensation Committee members are independent
directors as defined by the rules of the NASDAQ Stock Market. The Compensation
Committee held three meetings during 2003.
The principal functions of the Compensation Committee are to establish the
compensation policies applicable to the executive officers and certain other
officers, and determine the annual compensation of each such officer, exercise
all rights, authority and functions of the Board of Directors under the various
stock incentive plans and perform such other duties as the Board of Directors
from time to time may direct.
Nominating Committee. The Board of Directors maintains a standing
Nominating Committee. In 2003, the Board of Directors formed a Special Committee
to identify and evaluate director candidates consisting of Messrs. Adams,
DeNelsky and Shepherd. Subsequently, the Board converted the Special Committee
to the Nominating Committee and adopted a charter. The written charter for the
Nominating Committee is available on our website at
http://www.vitalworks.com/investor_relations/html. All members of the Nominating
Committee are independent directors as defined by the rules of the NASDAQ Stock
Market. The Nominating Committee and its predecessor committee each held one
meeting during 2003.
The process followed by the Nominating Committee to identify and evaluate
director candidates includes requests to Board members and others for
recommendations, meetings from time to time to evaluate biographical information
and background material relating to potential candidates, and interviews of
selected candidates by members of the Committee and the Board.
In considering whether to recommend any particular candidate for inclusion
in the Board's slate of recommended director nominees, the Nominating Committee
will apply the criteria set forth in our Nominating Committee charter. These
criteria include the appropriate skills and characteristics required of Board
members in the context of the current make-up of the Board, including such
factors as independence, business experience, diversity, and personal skills in
software, other technology, finance, marketing, business, financial reporting,
accounting, health care and other areas that are expected to
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contribute to an effective Board. The Committee does not assign specific weights
to particular criteria and no particular criterion is a prerequisite for each
prospective nominee. The Company believes that the backgrounds and
qualifications of its directors, considered as a group, should provide a
composite mix of experience, knowledge and abilities that will allow the Board
to fulfill its responsibilities.
Stockholders may recommend individuals to the Nominating Committee for
consideration as potential director candidates by submitting their names,
together with appropriate biographical information and background materials and
a statement as to whether the stockholder or group of stockholders making the
recommendation has beneficially owned more than 5% of our common stock for at
least a year as of the date such recommendation is made, to: Nominating
Committee, c/o General Counsel, VitalWorks Inc 239 Ethan Allen Highway,
Ridgefield, CT 06877. Assuming that appropriate biographical and background
material has been provided on a timely basis, the Committee will evaluate
stockholder-recommended candidates by following substantially the same process,
and applying substantially the same criteria, as it follows for candidates
submitted by others.
Stockholders also have the right under our bylaws to directly nominate
director candidates, without any action or recommendation on the part of the
Committee or the Board, by following the procedures set forth under "Stockholder
Proposals" on page 21 of this Proxy Statement.
At the Annual Meeting, stockholders will be asked to consider the election
of Lisa W. Zappala, who has been nominated for election as director for the
first time. Ms. Zappala is an independent director as defined by the rules of
the NASADQ Stock Market. Ms. Zappala was originally proposed to the Nominating
Committee by our independent auditors, BDO Seidman, LLP and, upon the
recommendation of the Nominating Committee, the Board determined to include Ms.
Zappala among its nominees.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the directors, executive officers and the holders of
more than 10% of our common stock to file with the Securities and Exchange
Commission initial reports of ownership of our common stock and other equity
securities on a Form 3 and reports of changes in such ownership on a Form 4 or
Form 5. Officers, directors and 10% stockholders are required by Securities and
Exchange Commission regulations to furnish us with copies of all Section 16(a)
forms that they file. Based solely on our review of copies of filings made by
reporting persons with the Securities and Exchange Commission or written
representations from certain reporting persons that no Form 5 filing was
required for such person, we believe that during fiscal year 2003, all filings
required to be made by our reporting persons were timely made in accordance with
the requirements of the Exchange Act.
COMPENSATION OF DIRECTORS
We do not pay directors who are also VitalWorks employees any additional
compensation for their services as directors.
During 2003, non-employee directors Messrs. Adams, DeNelsky and Shepherd
received $1,500 per calendar quarter and in 2004 each of these directors will
receive a one time cash payment of $20,000. In addition, beginning in 2004 each
non-employee director will receive $4,000 for each calendar quarter, or a pro
rata portion thereof, of service as a director. Beginning in 2005 each director
shall receive an additional $10,000 in cash or equity based compensation on each
anniversary date of the director's election to the Board.
We also compensate our non-employee directors through our Directors Stock
Option Plan, adopted by our directors and approved by our stockholders in June
1998. The Directors Stock Option Plan provides to each director who is not an
employee of VitalWorks or its subsidiaries, at the time he or she is first
7
appointed or elected to the Board of Directors, an option to purchase 10,000
shares of common stock. On each anniversary of such director's service on the
Board, each non-employee director receives an annual grant of an option to
purchase 2,500 shares of common stock pursuant to the Directors Stock Option
Plan. The Directors Stock Option Plan also allows the Compensation Committee of
the Board of Directors to make additional grants of options to non-employee
directors; however, in practice, the Board of Directors approves, at its
discretion and upon the recommendation of the Compensation Committee, additional
grants of options to non-employee directors. All options granted under the
Directors Stock Option Plan vest at a rate of 50% upon completion of one year of
service as a director after the date of grant and 50% upon completion of the
second year of service as a director after the date of grant. Generally, no
option is transferable by the optionee other than by will or the laws of descent
and distribution, and each option is exercisable only by the optionee during his
or her lifetime. The exercise price of all options will be the fair market value
of the shares of common stock on the trading day immediately preceding the date
of grant, and the term of each option may not exceed ten years. Unless
terminated sooner by the Board of Directors, the Directors Stock Option Plan
will continue in effect for a period of ten years or until all options
outstanding thereunder have expired or been exercised. As of December 31, 2003,
there were 333,334 shares of common stock reserved for issuance under the
Directors Stock Option Plan. In addition, as of December 31, 2003, options to
acquire 66,250 shares of our common stock had been granted and were outstanding
pursuant to the Directors Stock Option Plan at a weighted average exercise price
of $3.03 per share.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning beneficial
ownership of our outstanding common stock as of April 12, 2004 by:
- each stockholder that we know is the beneficial owner of more than 5% of
our outstanding common stock;
- each of our directors;
- each individual named in the Summary Compensation Table; and
- all of our directors and executive officers as a group.
Information with respect to "beneficial ownership" shown in the table below
is based on information supplied by the respective beneficial owners. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. For purposes of calculating the percentage beneficially
owned by a particular beneficial owner, the shares of common stock deemed
outstanding include 43,419,702 shares outstanding as of April 12, 2004, plus all
common stock issuable on exercise of options within 60 days of April 12, 2004
held by the particular beneficial owner ("Presently Exercisable Options").
Presently Exercisable Options are deemed to be outstanding and to be
beneficially owned by the person holding such options for the purpose of
computing the percentage ownership of such person but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person. Unless otherwise noted, the mailing address of each beneficial owner is
c/o VitalWorks Inc., 239 Ethan Allen Highway, Ridgefield, Connecticut 06877.
8
<Table>
<Caption>
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED
- ------------------------ ------------ ------------
William Blair & Company, L.L.C.(1).......................... 4,038,530 9.3%
ValueAct Capital(2)......................................... 2,987,655 6.9%
Joseph M. Walsh(3).......................................... 2,884,280 6.4%
Corsair Capital(4).......................................... 2,750,709 6.3%
Stephen N. Kahane, M.D., M.S.(5)............................ 1,758,580 3.9%
Michael A. Manto(6)......................................... 1,409,823 3.2%
C. Daren McCormick(7)....................................... 289,430 *
Stephen Hicks(8)............................................ 245,721 *
Kenneth R. Adams(9)......................................... 230,650 *
David B. Shepherd(10)....................................... 46,250 *
Stephen J. DeNelsky(11)..................................... 38,750 *
Lisa Zappala................................................ -- *
All directors and executive officers as a group (11
persons)(12).............................................. 7,105,445 14.5%
</Table>
- ---------------
* Less than one percent.
(1) Based solely upon a Schedule 13G filed by William Blair & Company, L.L.C.
on February 6, 2004. The address of William Blair & Company, L.L.C. is 222
W. Adams Street, Chicago Illinois 60606.
(2) Based solely upon Amendment No. 3 to Schedule 13D filed jointly by ValueAct
Capital Partners, L.P., ValueAct Capital Partners II, L.P., ValueAct
Capital International, Ltd., VA Partners, L.L.C., Jeffrey W. Ubben, George
F. Hamel, Jr. and Peter H. Kamin (together, "ValueAct Capital"), on April
12, 2004. Includes 2,124,407 shares beneficially owned by ValueAct Capital
Partners, L.P., 269,910 shares beneficially owned by ValueAct Capital
Partners II, L.P. and 593,338 shares beneficially owned by ValueAct
International, Ltd. According to Amendment No. 3 to Schedule 13D filed by
ValueAct Capital, shares reported as beneficially owned by each of ValueAct
Capital Partners, L.P., ValueAct Capital Partners II, L.P. and ValueAct
Capital International, Ltd. are also reported as beneficially owned by VA
Partners, L.L.C. as investment manager of ValueAct Capital International,
Ltd. and as General Partner of ValueAct Capital Partners, L.P., and
ValueAct Capital Partners II, L.P., and by Jeffrey W. Ubben, George F.
Hamel, Jr. and Peter H. Kamin as controlling persons of the General
Partner. By reason of such relationships, each of these persons is reported
as having shared power to vote or to direct the vote, and shared power to
dispose or direct the disposition of such shares. The address of ValueAct
Capital is One Maritime Plaza, Suite 1400, San Francisco, California 94111.
(3) Includes 1,861,776 shares underlying options exercisable within 60 days of
April 12, 2004. Excludes 6,511 shares and 104,986 shares underlying options
exercisable within 60 days of April 12, 2004 held by Mr. Walsh's spouse, a
management employee of the Company.
(4) Based solely upon a Schedule 13G filed jointly by Corsair Capital Partners,
L.P. ("Corsair Capital"), Corsair Long Short International, Ltd. ("Corsair
International"), Corsair Select, L.P. ("Corsair Select"), Corsair Capital
Partners 100, L.P. ("Corsair 100"), Corsair Capital Investors, Ltd.
("Corsair Investors"), Corsair Capital Management, L.L.C. ("Corsair
Management"), Jay R. Petschek ("Mr. Petschek") and Steven Major ("Mr.
Major") (collectively, the "Reporting Persons"), on February 13. 2004.
According to the Schedule 13G: Corsair Capital beneficially owns 1,188,806
shares of Common Stock. Corsair International beneficially owns 94,500
shares of Common Stock. Corsair Select beneficially owns 742,368 shares of
Common Stock. Corsair 100 beneficially owns 50,933 shares of Common Stock.
Corsair Investors beneficially owns 78,702 shares of Common Stock. Corsair
Management, as the investment manager of each of Corsair Capital,
9
Corsair International, Corsair Select, Corsair 100 and Corsair Investors is
deemed to beneficially own the 2,155,309 shares of Common Stock
beneficially owned by them and an additional 462,200 shares of Common Stock
held in separate accounts managed by it. Mr. Petschek, as a controlling
person of Corsair Management, is deemed to beneficially own the 2,617,509
shares of Common Stock beneficially owned by Corsair Management and the
beneficial owner of an additional 52,300 shares of Common Stock that he
owns personally or through separate accounts managed by him. Mr. Major is a
controlling person of Corsair Management and is deemed to beneficially own
the 2,617,509 shares of Common Stock beneficially owned by Corsair
Management and the beneficial owner of an additional 80,900 shares of
Common Stock that he owns personally or through separate accounts managed
by him. Collectively, the Reporting Persons beneficially own 2,750,709
shares of Common Stock. The address for each of Corsair Capital, Corsair
Select, Corsair 100, Corsair Management, Mr. Petschek and Mr. Major is 350
Madison Avenue, 9th Floor, New York, New York 10017. The address for each
of Corsair International and Corsair Investors is c/o M&C Corporate
Services Limited, P.O. Box 309, Ugland House, 113 South Church Street,
George Town, Grand Cayman, Cayman Islands, British West Indies.
(5) Includes 1,723,324 shares underlying options exercisable within 60 days of
April 12, 2004.
(6) Includes 1,332,502 shares underlying options exercisable within 60 days of
April 12, 2004.
(7) Includes 284,669 shares underlying options exercisable within 60 days of
April 12, 2004.
(8) Includes 213,988 shares underlying options exercisable within 60 days of
April 12, 2004.
(9) Includes 5,000 shares underlying options exercisable within 60 days of
April 12, 2004 and includes 14,000 shares held by a private corporation
controlled by Mr. Adams. Excludes 200 shares held by Mr. Adams's spouse.
(10) Includes 26,250 shares underlying options exercisable within 60 days of
April 12, 2004.
(11) Includes 28,750 shares underlying options exercisable within 60 days of
April 12, 2004.
(12) Includes 5,664,376 shares underlying options exercisable within 60 days of
April 12, 2004.
10
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table sets forth information regarding total compensation
paid by VitalWorks for services rendered by the individuals who, as of December
31, 2003, served as our Chief Executive Officer and our four other most highly
compensated executive officers whose annual salary and bonus exceeded $100,000
during 2003 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG TERM COMPENSATION
-----------------------
ANNUAL COMPENSATION OTHER RESTRICTED SECURITIES
-------------------- ANNUAL STOCK UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#) ($)(2)
- --------------------------- ------ --------- -------- ------------ ---------- ---------- ------------
Joseph M. Walsh(3)............. 2003 310,000 -- -- -- -- 8,000
President and Chief Executive 2002 295,000 295,000 -- -- -- 11,000
Officer 2001 250,000 250,000 -- -- 200(4) 10,200
Stephen N. Kahane, M.D., M.S.(3). 2003 230,000 -- -- -- -- 8,000
Vice Chairman and Chief 2002 220,000 220,000 -- -- -- 11,000
Strategy Officer 2001 178,428 190,000 -- -- 200 10,200
Michael A. Manto(3)............ 2003 230,000 -- -- -- -- 8,000
Executive Vice President and 2002 220,000 220,000 -- -- -- 11,000
Chief Financial Officer 2001 190,000 190,000 -- -- 100 4,768
C. Daren McCormick(3).......... 2003 185,000 -- -- -- -- 5,450
Vice President, General 2002 175,000 175,000 -- -- 200 7,875
Manager 2001 136,250 140,000 -- -- 29,833 8,288
Stephen Hicks(3)............... 2003 190,000 -- -- -- -- 8,000
Vice President, General 2002 180,000 144,000 -- -- -- 11,000
Counsel and Corp. Secretary 2001 145,000 128,000 -- -- 100 10,200
</Table>
- ---------------
(1) Does not include compensation in the form of perquisites or other personal
benefits for Messrs. Walsh, Manto, McCormick and Hicks and Dr. Kahane
because such perquisites and other personal benefits did not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus for Messrs.
Walsh, Manto, McCormick or Hicks or Dr. Kahane during those years.
(2) Represents 401(k) savings plan contributions by VitalWorks. The 2001
contributions for some of the Named Executive Officers were adjusted in 2002
in accordance with applicable 401(k) rules.
(3) Messrs. Walsh, Manto, McCormick and Hicks and Dr. Kahane became executive
officers of VitalWorks in March 2001.
(4) Does not include options to purchase 15,016 shares of our common stock
granted to Mr. Walsh's spouse, a management employee of the Company.
OPTION GRANTS IN LAST FISCAL YEAR
During 2003 there were no stock option grants made to the Named Executive
Officers.
11
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
Shown below is information with respect to the number of VitalWorks shares
acquired upon exercise of stock options and the aggregate gains realized on
exercises during 2003 for the Named Executive Officers. The table also sets
forth the number of shares covered by exercisable and unexercisable options held
by these executive officers on December 31, 2003 and the aggregate gains that
would have been realized had these options been exercised on December 31, 2003,
even though these options were not exercised, and the unexercisable options
could not have been exercised at that time.
<Table>
<Caption>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END(#) FISCAL YEAR END($)(1)
ACQUIRED ON VALUE ------------------------------ ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ------------ -------------- ----------- -------------
Joseph M. Walsh(2)...... -- -- 1,861,776 623 $4,316,375 $ 1,458
Stephen N. Kahane, M.D.,
M.S. ................. -- -- 1,723,324 623 $2,906,965 $ 1,108
Michael A. Manto........ -- -- 1,332,502 100 $3,091,405 $ 192
C. Daren McCormick...... -- -- 280,542 98,614 $ 636,368 $231,352
Stephen Hicks........... -- -- 213,988 100 $ 496,452 $ 192
</Table>
- ---------------
(1) The closing price for our common stock as reported by the NASDAQ National
Market on December 31, 2003 was $4.42. The value is calculated on the basis
of the difference between the option exercise price and $4.42, multiplied by
the shares of common stock underlying the option.
(2) Does not include the following options held by Mr. Walsh's spouse, a
management employee of the Company: (i) exercisable options to purchase
103,134 shares of our common stock, of which 102,711 shares are
in-the-money, with a value at fiscal year end of $243,049 and (ii)
unexercisable options to purchase 50,841 shares of our common stock, all of
which are in-the-money with a value at fiscal year end of $119,957.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about the securities authorized
for issuance under our equity compensation plans as of December 31, 2003:
<Table>
<Caption>
(A) (B) (C)
----------------------- -------------------- ------------------------------
NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE AVAILABLE FOR FUTURE ISSUANCE
BE ISSUED UPON EXERCISE EXERCISE PRICE OF UNDER EQUITY COMPENSATION
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
- ------------- ----------------------- -------------------- ------------------------------
Equity compensation plans
approved by security
holders(1)................. 2,087,691 $4.88 7,100,843(2)
Equity compensation plans not
approved by security
holders(3)................. 7,044,287 $2.15 12,084,376
--------- ----------
Total........................ 9,131,978 $2.77 19,185,219(2)
========= ==========
</Table>
- ---------------
(1) Consists of our:
- 2002 Employee Stock Purchase Plan
- 1996 Stock Option Plan
12
- Length-of-Service Nonqualified Stock Option ("LOSSO") Plan
- Directors Stock Option Plan
(2) Includes 1,269,175 shares issuable under our LOSSO Plan. Effective July 1,
2002, we discontinued granting options under the LOSSO Plan. Also includes
404,759 shares issuable under our 2002 Employee Stock Purchase Plan.
(3) Consists of our 2000 Broad-Based Stock Plan (the "2000 Plan"), for which
stockholder approval was neither sought nor obtained, and which was adopted
by the Board of Directors effective June 13, 2000. The 2000 Plan has
21,166,700 shares of common stock of the Company reserved for nonqualified
option grants, stock appreciation right grants or stock grants. As of
December 31, 2003, 12,084,376 shares remain available for grant under the
2000 Plan.
Directors and employees are eligible to receive grants under the 2000 Plan,
which is administered by our Compensation Committee. The Compensation
Committee approves options, rights or stock grants under the 2000 Plan,
including (i) the number of shares of common stock covered by such options,
rights or stock grants, (ii) the dates upon which such options, rights or
stock grants become exercisable (which is typically over a three-to
four-year period), (iii) the exercise price of such options, rights or stock
grants (which may not be less than the fair market value of a share of stock
on the date the option or right is granted), and (iv) the duration of the
options, rights or stock grants (which may not exceed ten years). The
Compensation Committee has delegated to our Chief Executive Officer the
authority to grant options under the 2000 Plan to new and current employees,
other than executive officers and certain other officers. As of December 31,
2003, our Chief Executive Officer had the authority to grant options for up
to 173,000 shares.
No options, rights or stock grants may be awarded under the 2000 Plan after
June 13, 2010.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The following are descriptions of the employment and change of control
arrangements with our Named Executive Officers.
We entered into a new one year employment agreement with Mr. Walsh on April
26, 2004 which employment agreement is effective as of January 1, 2004 and
supersedes the prior employment agreement executed July 2000. The agreement
provides for an annual base salary of $310,000 and the grant of options to
purchase 150,000 shares of our common stock at fair market value on the grant
date that vest on the sixth anniversary of the grant date.
We entered into a new one year employment agreement with Dr. Kahane on
April 26, 2004 which employment agreement is effective as of January 1, 2004 and
supersedes the prior employment agreement executed July 2000. The agreement
provides for an annual base salary of $236,000 and the grant of options to
purchase 115,000 shares of our common stock at fair market value on the grant
date that vest on the sixth anniversary of the grant date.
We entered into a new one year employment agreement with Mr. Manto on April
26, 2004 which employment agreement is effective as of January 1, 2004 and
supersedes the prior employment agreement executed July 2000. The agreement
provides for an annual base salary of $230,000 and the grant of options to
purchase 105,000 shares of our common stock at fair market value on the grant
date that vest on the sixth anniversary of the grant date.
We entered into a new one year employment agreement with Mr. Hicks on April
26, 2004 which employment agreement is effective as of January 1, 2004 and
supersedes the prior employment agreement executed August 2000. The agreement
provides for an annual base salary of $195,000 and the grant of
13
options to purchase 90,000 shares of our common stock at fair market value on
the grant date that vest on the sixth anniversary of the grant date.
Each of the agreements with the Named Executive Officers provides for
incentive compensation pursuant to a program established by the Compensation
Committee in the event that certain performance goals are met and includes a
cash bonus payment and the acceleration of vesting for a certain percentage of
the options granted to purchase shares of our common stock. The agreements also
include a severance payment, upon the termination of employment by VitalWorks
without cause or upon non-renewal of the employment agreement, payable in
accordance with our normal payroll procedure, equal to one and one-half times
the then-current annual base salary, payment of the cash bonus if we meet
certain performance goals, and the payment of health insurance premiums for
eighteen months. The agreements also include a severance payment, payable in
accordance with our normal payroll procedure, equal to two times the
then-current annual base salary and the payment of health insurance premiums for
eighteen months in the event of a change in control of VitalWorks. The
agreements provide for an additional gross-up payment to be made to the Named
Executive Officers in the event that, upon a change in control of VitalWorks,
any payments to such Named Executive Officers would be subject to an excise tax
under Section 4999 of the Internal Revenue Code of 1986, as amended. The
agreements contain certain non-compete, non-solicit and non-disclosure
provisions to protect the Company's interests, and permit the Named Executive
Officers to participate in our employee benefit programs.
REPORT OF THE COMPENSATION COMMITTEE
In 2003, the Compensation Committee consisted of Messrs. Adams, DeNelsky
and Shepherd. It is the Compensation Committee's responsibility to:
- establish the compensation policies applicable to the executive officers
and certain other officers and determine the annual compensation,
including the grant of stock awards intended to be sec.162(m) compliant,
of each executive officer;
- exercise all rights, authority and functions of the Board of Directors
under the various stock incentive plans; and
- perform such other duties as the Board of Directors from time to time may
direct.
In performing these duties, we consider recommendations from management
along with other factors.
THE COMPENSATION COMMITTEE'S PHILOSOPHY
Our philosophy on establishing executive compensation is to:
- foster a high-performance culture that motivates and retains
high-performing executives; and
- create a comprehensive incentive compensation plan which may include a
combination of stock-based and cash compensation.
In implementing this philosophy, we establish executive compensation
policies based on current corporate performance, the potential for future
performance gains, whether stockholder value has been or will be enhanced, and
competitive market conditions for executives in similar positions at local,
regional and national companies having similar revenues and number of employees.
We evaluate these factors for each executive officer on an annual basis,
including consideration of the contribution made by each officer over the prior
fiscal year. The compensation package for officers of VitalWorks includes a
combination of salary, bonus and stock option grants with vesting acceleration
based on attainment of specified financial goals. We believe that stock-based
compensation in the form of stock option grants is beneficial in aligning
management's and stockholders' interests in the enhancement of stockholder value
and presents the best
14
opportunity for us to establish executive compensation that will foster the
overall development of VitalWorks.
Our executive compensation provides an overall level of compensation
opportunity that the Compensation Committee believes is competitive with
companies in our industry of comparable size and complexity. In 2003, the
Compensation Committee considered third-party survey data in setting the 2003
base salaries and bonus targets for our top executives. Our objective in setting
base salaries is to provide total cash compensation at a level that is at the
median range for comparable companies.
Bonus. In 2003, we did not award our executive officers performance-based
year-end bonuses. With respect to executive officer bonuses for 2004, the
Compensation Committee adopted a specific income and revenue target-based bonus
plan.
Stock Option Grants. Options granted to our executive officers have an
exercise price equal to at least 100% of the fair market value of VitalWorks
common stock on the date of grant and expire not later than ten years from the
date of grant. It is currently the practice of the Compensation Committee to
grant to our executive officers stock options which generally vest six years
from the date of the grant and an acceleration of the vesting period if specific
income and revenue targets are met. Option awards for our executive officers are
based on the Compensation Committee's assessment of the contributions to
VitalWorks of each officer and recommendations of the Chief Executive Officer
for officers other than the Chief Executive Officer. There were no options
granted to executive officers by the Compensation Committee in 2003.
Chief Executive Officer Compensation. We followed the same policies
described above in setting the compensation package for our Chief Executive
Officer in 2003. During 2003 Mr. Walsh served as our Chief Executive Officer
under an employment contract dated July 24, 2000, which was approved by a
previous Compensation Committee. Mr. Walsh's compensation for 2003 consisted of
an annual base salary of $310,000.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Code generally disallows a tax deduction to public
companies for certain compensation in excess of $1 million paid to the Company's
Chief Executive Officer and the four other most highly compensated executive
officers. Certain compensation, including qualified performance-based
compensation, will not be subject to the deduction limit if certain requirements
are met. The Compensation Committee reviews the potential effect of Section
162(m) periodically and generally seeks to structure the long-term incentive
compensation granted to its executive officers through option issuances under
the Company's stock incentive plans in a manner that is intended to avoid
disallowance of deductions under Section 162(m). However, because our stock
incentive plans do not satisfy the requirements necessary to treat compensation
attributable to stock options as qualified performance-based compensation, it is
possible that such compensation may be subject to the Section 162(m) limit in
future periods. In addition, the Compensation Committee reserves the right to
use its judgment to authorize compensation payments that may be subject to the
limit when the Compensation Committee believes such payments are appropriate and
in the best interests of the Company and its stockholders, after taking into
consideration changing business conditions and the performance of its employees.
As noted above, there were no stock options granted to executive officers in
2003.
By the Compensation Committee:
Kenneth R. Adams
Stephen J. DeNelsky
David B. Shepherd
15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 2003, the Compensation Committee consisted of Messrs. Adams, DeNelsky
and Shepherd. None of Messrs. Adams, DeNelsky or Shepherd has had any
relationship with the Company requiring disclosure under Item 404 of Regulation
S-K under the Exchange Act.
None of the Company's executive officers has served as a director or member
of the compensation committee (or other committee serving an equivalent
function) of any other entity, one of whose executive officers served as a
director of the Company or member of the Compensation Committee.
REPORT OF THE AUDIT COMMITTEE
Throughout 2003 and until March 2004, the Audit Committee was composed of
Kenneth R. Adams, Stephen J. DeNelsky and David B. Shepherd. In March 2004 Lisa
W. Zappala replaced Mr. Adams on the Audit Committee. The Audit Committee acts
under a written charter first adopted and approved by the Board of Directors in
April 2001 and subsequently amended in March 2004. A copy of the Audit Committee
charter is attached to this Proxy Statement as Appendix A. The members of the
Audit Committee are independent directors, as defined by its charter and the
rules of the NASDAQ Stock Market, and Mr. Shepherd and Ms. Zappala are audit
committee financial experts as defined by the rules of the Securities and
Exchange Commission.
The Audit Committee reviewed the Company's audited financial statements for
the fiscal year ended December 31, 2003 and independently discussed those
financial statements with the Company's management and with the Company's
independent auditors, BDO Seidman, LLP. Furthermore, the Audit Committee
reviewed and discussed with the Company's independent auditors the extended
audit procedures conducted quarterly by the independent auditors regarding the
Company's recognition of revenues and capitalized software costs.
Management is responsible for the Company's internal controls and the
financial reporting process. The Company's independent auditors are responsible
for performing an independent audit of the Company's financial statements in
accordance with generally accepted auditing standards and for issuing a report
on those financial statements. The Company's independent auditors also perform
timely reviews of the Company's unaudited quarterly financial statements and
issue a separate review report on those financial statements. The Audit
Committee is solely and directly responsible for appointing, evaluating,
retaining, compensating, overseeing and, when necessary, terminating the
engagement of the independent auditor. The Audit Committee pre-approves all
audit services and all other services (review, attest and non-audit) to be
provided to the Company by the independent auditor. As appropriate, the Audit
Committee reviews and evaluates, and discusses with the Company's management,
internal accounting and financial personnel and the independent auditors, the
following:
- the plan for, and the independent auditors' report on, each audit and
review of the Company's financial statements;
- the Company's financial disclosure documents, including all financial
statements and reports filed with the Securities and Exchange Commission
or sent to our stockholders;
- management's selection, application and disclosure of critical accounting
policies;
- changes in the Company's accounting practices, principles, controls or
methodologies;
- the Audit Committee's charter;
- significant developments or changes in accounting rules applicable to the
Company; and
- the adequacy of the Company's internal controls and accounting and
financial personnel.
16
The Audit Committee also reviewed and discussed the audited financial
statements and the matters required by Statement on Auditing Standards No. 61
(Communication with Audit Committees) with BDO Seidman, LLP, the Company's
independent auditors.
The Company's independent auditors also provided the Audit Committee with
the written disclosures and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). Independence
Standards Board Standard No. 1 requires auditors annually to disclose in writing
all relationships that in the auditors' professional opinion may reasonably be
thought to bear on independence, confirm their perceived independence and engage
in a discussion of independence. The Audit Committee discussed with the
independent auditors the matters disclosed in this letter and their independence
from the Company. The Audit Committee also considered whether the independent
auditors' provision of the other, non-audit related services to the Company,
which are described in "Independent Accountant Fees and Other Matters" below, is
compatible with maintaining such auditors' independence.
Based on its discussions with management and the independent auditors, and
its review of the representations and information provided by management and the
independent auditors, the Audit Committee recommended to the Company's Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003.
By the Audit Committee:
David B. Shepherd
Stephen J. DeNelsky
Kenneth R. Adams
Lisa W. Zappala
INDEPENDENT ACCOUNTANT FEES AND OTHER MATTERS
The following table summarizes the fees of BDO Seidman, LLP, our
independent auditor, billed to us for each of the last two fiscal years for
audit services and billed to us in each of the last two fiscal years for other
services:
<Table>
<Caption>
FEE CATEGORY 2003 2002
- ------------ -------- --------
Audit Fees(1)............................................... $309,900 $241,000
Audit-Related Fees(2)....................................... 300,400 24,000
Tax Fees(3)................................................. 95,000 --
All Other Fees.............................................. -- --
-------- --------
Total Fees................................................ $705,300 $265,000
======== ========
</Table>
- ---------------
(1) Audit fees consist of fees for the audit of our financial statements
including quarterly testing regarding the Company's recognition of revenues
and capitalized software costs, the review of the interim financial
statements included in our quarterly reports on Form 10-Q, and other
professional services provided in connection with statutory and regulatory
filings or engagements.
(2) Audit-related fees consist of fees for assurance and related services that
are reasonably related to the performance of the audit and the review of our
financial statements and which are not reported under "Audit Fees". These
services relate to due diligence related to mergers and acquisitions,
employee benefit audits, accounting consultations and audits in connection
with acquisitions, internal control reviews, and consultations concerning
financial accounting and reporting standards.
(3) Tax fees consist of fees for tax compliance, tax advice and tax planning
services. Tax compliance services, which relate to preparation of original
and amended tax returns, claims for refunds and tax
17
payment-planning services, accounted for $51,000 of the total tax fees paid
for 2003. Tax advice and tax planning services relate to, tax advice related
to mergers and acquisitions, employee benefit plans and assistance with tax
audits and appeals.
PRE-APPROVAL POLICY AND PROCEDURES
The Audit Committee's policy on the pre-approval of services provided by
the independent auditors is set forth in its charter. A copy of the Audit
Committee charter is attached to this Proxy Statement as Appendix A.
18
STOCK PRICE PERFORMANCE GRAPH
The graph below compares the cumulative total return on our common stock
with the NASDAQ National Market index (U.S. companies) and Russell 2000 index
for the period from December 31, 1998 to December 31, 2003. The comparison
assumes that $100 was invested on December 31, 1998 in our common stock and in
each of the comparison indices, and assumes reinvestment of dividends, where
applicable. The comparisons shown in the graph below are based upon historical
data and the Company cautions that the stock price performance shown in the
graph below is not indicative of, nor intended to forecast, the potential future
performance of the Company's common stock. Information used in the graph was
obtained from Research Data Group, a source believed to be reliable, but the
Company is not responsible for any errors or omissions in such information.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG VITALWORKS INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE RUSSELL 2000 INDEX
(PERFORMANCE GRAPH)
<Table>
<Caption>
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
-------- -------- -------- -------- -------- --------
VitalWorks common stock $100 $190 $ 23 $ 35 $24 $ 27
NASDAQ National Market
index 100 191 128 70 65 91
Russell 2000 index 100 121 118 121 96 141
</Table>
- ---------------
* $100 invested on 12/31/98 in stock or index -- including reinvestment of
dividends. Fiscal year ending December 31.
19
PROPOSAL 2
SELECTION OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders at the Annual Meeting, the
Audit Committee of the Board of Directors has selected the firm of BDO Seidman,
LLP as independent auditors for VitalWorks for the year ending December 31,
2004. If the stockholders do not ratify the selection of BDO Seidman, LLP, the
Audit Committee will reconsider the matter. Representatives of BDO Seidman, LLP
are expected to be present at the Annual Meeting. They will have an opportunity
to make a statement if they desire to do so, and will also be available to
respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION
OF BDO SEIDMAN, LLP AS INDEPENDENT AUDITORS FOR VITALWORKS FOR THE YEAR ENDING
DECEMBER 31, 2004.
OTHER MATTERS
ANNUAL REPORT TO STOCKHOLDERS
The Annual Report of VitalWorks for the year ended December 31, 2003,
including audited financial statements, accompanies this Proxy Statement. The
Annual Report does not form any part of the material for the solicitation of
proxies.
ANNUAL REPORT ON FORM 10-K
OUR INTERNET ADDRESS IS HTTP://WWW.VITALWORKS.COM. THE INFORMATION ON OUR
WEBSITE IS NOT A PART OF, OR INCORPORATED INTO, THIS PROXY STATEMENT PURSUANT TO
SECTION 14(A) OF THE EXCHANGE ACT. WE MAKE AVAILABLE ON OUR WEBSITE, AND WE WILL
PROVIDE WITHOUT CHARGE AT THE WRITTEN REQUEST OF ANY HOLDER OF OUR COMMON STOCK
OF RECORD AS OF THE CLOSE OF BUSINESS ON APRIL 22, 2004, A COPY OF OUR ANNUAL
REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, EXCEPT EXHIBITS
THERETO. WE WILL PROVIDE COPIES OF THE EXHIBITS UPON WRITTEN REQUEST BY ELIGIBLE
STOCKHOLDERS, FOR WHICH WE MAY IMPOSE A FEE, LIMITED TO OUR REASONABLE EXPENSES
IN PROVIDING SUCH EXHIBITS. REQUESTS FOR COPIES OF THE EXHIBITS TO OUR ANNUAL
REPORT ON FORM 10-K SHOULD BE MAILED TO:
VITALWORKS INC.
ATTN: INVESTOR RELATIONS
239 ETHAN ALLEN HIGHWAY
RIDGEFIELD, CONNECTICUT 06877
NO INCORPORATION BY REFERENCE OF COMMITTEE REPORTS OR STOCK PRICE PERFORMANCE
GRAPH
The information in this Proxy Statement under the captions "Report of the
Compensation Committee," "Report of the Audit Committee" and "Stock Price
Performance Graph" should not be deemed to have been filed with the Securities
and Exchange Commission and such information shall not be deemed incorporated by
reference into any prior or future filings made by us under the Securities Act
of 1933, as amended, or under the Exchange Act, except to the extent that we
specifically incorporate such information by reference.
20
STOCKHOLDER PROPOSALS
Proposals to be included in the Proxy Statement. We expect to hold our
2005 Annual Meeting of Stockholders in June 2005 and we expect to mail our Proxy
Statement in connection therewith by April 2005. Accordingly, proposals of
stockholders that are intended to be presented at our 2005 Annual Meeting of
Stockholders must comply with Rule 14a-8 under the Exchange Act and our bylaws.
Proposals must be submitted in writing and received by the Corporate Secretary
at the address above on or before December 29, 2004 in order to be considered
for inclusion in the Proxy Statement and form of proxy to be distributed by the
Board of Directors in connection with such meeting.
Other Proposals (not to be included in the Proxy Statement). According to
our Second Amended and Restated Bylaws, a stockholder proposal may only be acted
upon at an annual meeting of stockholders if the stockholder gives us notice of
such proposal at least 90 but not less than 60 days before such annual meeting;
provided, however, that if we give less than 60 days notice or prior public
disclosure of the date of the annual meeting, notice by the stockholder must be
given to us not later than the tenth day following the earlier of the date on
which such notice of the meeting was mailed or the date on which such public
disclosure was made. Accordingly, any stockholder proposals intended to be
presented from the floor at our 2005 Annual Meeting of Stockholders must be
submitted in writing at least 90 but not less than 60 days from such meeting,
except as noted above, or the persons appointed as proxies may exercise their
discretionary voting authority with respect to the stockholder proposal.
OTHER MATTERS TO BE BROUGHT BEFORE THE ANNUAL MEETING
The Board of Directors knows of no other matters which may properly be and
are likely to be brought before the meeting, other than the matters discussed
herein. However, if any other matters properly come before the meeting, the
persons named in the enclosed proxy will vote in accordance with their best
judgment.
EXPENSES OF SOLICITATION
VitalWorks will bear the entire cost of solicitation of proxies, including
the preparation, assembly, printing and mailing of this Proxy Statement and the
accompanying proxy card. Copies of solicitation materials will be furnished to
banks, brokerage houses, fiduciaries and custodians holding in their names
shares of common stock beneficially owned by others so that they may forward
such materials to such beneficial owners. VitalWorks may reimburse persons
representing beneficial owners of common stock for their costs of forwarding
solicitation materials to such beneficial owners.
HOUSEHOLDING
Some banks, brokers and other nominee record holders may be participating
in the practice of "householding" proxy statements and annual reports. This
means that only one copy of our proxy statement or annual report may have been
sent to multiple stockholders in your household. We will promptly deliver a
separate copy of either document to you if you call or write us at the following
address or phone number:
VitalWorks Inc.
Attn: Investor Relations
239 Ethan Allen Highway
Ridgefield, Connecticut 06877
Telephone: (203) 894-1300
If you want to receive separate copies of the annual report and proxy
statement in the future, or if you are receiving multiple copies and would like
to receive only one copy for your household, you should
21
contact your bank, broker, or other nominee record holder, or you may contact us
at the above address and phone number.
By Order of the Board of Directors,
/s/ JOSEPH M. WALSH
Joseph M. Walsh
Chairman of the Board, President and
Chief Executive Officer
Ridgefield, Connecticut
April 28, 2004
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE OR VOTE OVER THE
INTERNET. PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING,
AND YOUR COOPERATION WILL BE APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING
MAY VOTE THEIR STOCK PERSONALLY EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES OR
VOTED OVER THE INTERNET.
22
APPENDIX A
VITALWORKS INC.
AUDIT COMMITTEE CHARTER
A. PURPOSE
The purpose of the Audit Committee is to assist the Board of Directors'
oversight of the Company's accounting and financial reporting processes and the
audits of the Company's financial statements.
B. STRUCTURE AND MEMBERSHIP
1. Number. Except as otherwise permitted by the applicable NASDAQ rules,
the Audit Committee shall consist of at least three members of the Board of
Directors.
2. Independence. Except as otherwise permitted by the applicable NASDAQ
rules, each member of the Audit Committee shall be independent as defined by
NASDAQ rules, meet the criteria for independence set forth in Rule 10A-3(b)(1)
under the Exchange Act (subject to the exemptions provided in Rule 10A-3(c)),
and not have participated in the preparation of the financial statements of the
Company or any current subsidiary of the Company at any time during the past
three years.
3. Financial Literacy. Each member of the Audit Committee must be able to
read and understand fundamental financial statements, including the Company's
balance sheet, income statement, and cash flow statement, at the time of his or
her appointment to the Audit Committee. In addition, at least one member must
have past employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities. Unless otherwise determined
by the Board of Directors (in which case disclosure of such determination shall
be made in the Company's annual report filed with the SEC), at least one member
of the Audit Committee shall be an "audit committee financial expert" (as
defined by applicable SEC rules).
4. Chair. Unless the Board of Directors elects a Chair of the Audit
Committee, the Audit Committee shall elect a Chair by majority vote.
5. Compensation. The compensation of Audit Committee members shall be as
determined by the Board of Directors. No member of the Audit Committee may
receive, directly or indirectly, any consulting, advisory or other compensatory
fee from the Company or any of its subsidiaries, other than fees paid in his or
her capacity as a member of the Board of Directors or a committee of the Board.
6. Selection and Removal. Members of the Audit Committee shall be
appointed by the Board of Directors. The Board of Directors may remove members
of the Audit Committee from such committee, with or without cause.
C. AUTHORITY AND RESPONSIBILITIES
1. General. The Audit Committee shall discharge its responsibilities, and
shall assess the information provided by the Company's management and the firm
of independent auditors and the engagement executive(s) ("Independent Auditor"),
in accordance with its business judgment. Management is responsible for the
preparation, presentation, and integrity of the Company's financial statements
and for the appropriateness of the accounting principles and reporting policies
that are used by the Company. The Independent Auditor is responsible for
auditing the Company's financial statements and for reviewing the Company's
unaudited interim financial statements. The authority and responsibilities set
forth in this Charter do not reflect or create any duty or obligation of the
Audit Committee to plan or conduct any audit, to determine or certify that the
Company's financial statements are complete, accurate,
A-1
fairly presented, or in accordance with generally accepted accounting principles
or applicable law, or to guarantee the Independent Auditor's report.
2. Oversight of Independent Auditors.
i. Selection. The Audit Committee shall be solely and directly
responsible for appointing, evaluating, retaining and, when necessary,
terminating the engagement of the Independent Auditor. The Audit Committee
may, in its discretion, seek stockholder ratification of the Independent
Auditor it appoints.
ii. Independence. The Audit Committee shall take, or recommend that
the full Board of Directors take, appropriate action to oversee the
independence of the Independent Auditor. In connection with this
responsibility, the Audit Committee shall obtain and review a formal
written statement from the Independent Auditor describing all relationships
between the Independent Auditor and the Company, including the disclosures
required by Independence Standards Board Standard No. 1. The Audit
Committee shall actively engage in dialogue with the Independent Auditor
concerning any disclosed relationships or services that might impact the
objectivity and independence of the Independent Auditor.
iii. Compensation. The Audit Committee shall have sole and direct
responsibility for setting the compensation of the Independent Auditor. The
Audit Committee is empowered, without further action by the Board of
Directors, to cause the Company to pay the compensation of the Independent
Auditor established by the Audit Committee.
iv. Pre-approval of Services. The Audit Committee shall pre-approve
all audit services to be provided to the Company, whether provided by the
principal auditor or other firms, and all other services (review, attest
and non-audit) to be provided to the Company by the Independent Auditor;
provided, however, that de minimis non-audit services may instead be
approved in accordance with applicable SEC rules.
v. Oversight. The Independent Auditor shall report directly to the
Audit Committee, and the Audit Committee shall have direct responsibility
for overseeing the work of the Independent Auditor, including resolution of
disagreements between Company management and the Independent Auditor
regarding financial reporting. In connection with its oversight role, the
Audit Committee shall, from time to time as appropriate, receive and
consider the reports required to be made by the Independent Auditor
regarding:
a) critical accounting policies and practices;
b) alternative treatments within generally accepted accounting
principles for policies and practices related to material items that
have been discussed with Company management, including ramifications of
the use of such alternative disclosures and treatments, and the
treatment preferred by the independent auditor; and
c) other material written communications between the Independent
Auditor and Company management.
vi. The Audit Committee should review with the Independent Auditor:
a) any audit problems or difficulties the Independent Auditor
encountered in the course of the audit work and management's response,
including any restrictions on the scope of the Independent Auditor's
activities or on access to requested information and any significant
disagreements with management;
b) major issues as to the adequacy of the Company's internal
controls and any special audit steps adopted in light of material
control deficiencies;
A-2
c) analyses prepared by management and/or the Independent Auditor
setting forth significant financial reporting issues and judgments made
in connection with the preparation of the financial statements,
including analyses of the effects of alternative GAAP methods on the
financial statements; and
d) the effect of regulatory and accounting initiatives on the
financial statements of the Company.
vii. In connection with its oversight role, the Audit Committee should
also review with the Independent Auditor, from time to time as appropriate:
a) any accounting adjustments that were noted or proposed by the
Independent Auditor but were "passed" (as immaterial or otherwise);
b) any "management" or "internal control" letter issued, or
proposed to be issued, by the audit firm to the Company;
c) accounting for unusual transactions; and
d) any recent SEC comments on the Company's SEC reports, including
in particular any unresolved or future-compliance comments.
viii. The Audit Committee should meet with the Independent Auditor
prior to the audit to discuss the planning and staffing of the audit.
ix. The Audit Committee should obtain and review a copy of the most
recent inspection report of the independent audit firm issued by the Public
Company Accounting Oversight Board pursuant to Section 104 of the
Sarbanes-Oxley Act.
3. Audited Financial Statements.
i. Review and Discussion. The Audit Committee shall review and
discuss with the Company's management and Independent Auditor the Company's
audited financial statements, including the matters about which Statement
on Auditing Standards No. 61 (Codification of Statements on Auditing
Standards, AU sec. 380) requires discussion.
ii. Recommendation to Board Regarding Financial Statements. The Audit
Committee shall consider whether it will recommend to the Board of
Directors that the Company's audited financial statements be included in
the Company's Annual Report on Form 10-K.
iii. Audit Committee Report. The Audit Committee shall prepare an
annual committee report for inclusion where necessary in the proxy
statement of the Company relating to its annual meeting of security
holders.
4. Review of Other Financial Disclosures.
i. Independent Auditor Review of Interim Financial Statements. The
Audit Committee shall direct the Independent Auditor to use its best
efforts to perform all reviews of interim financial information prior to
disclosure by the Company of such information and to discuss promptly with
the Audit Committee and the Chief Financial Officer any matters identified
in connection with the Independent Auditor's review of interim financial
information which are required to be discussed by applicable auditing
standards. The Audit Committee shall direct management to advise the Audit
Committee if the Company proposes to disclose interim financial information
and the status of the Independent Auditor's review of interim financial
information to be disclosed.
ii. Quarterly Financial Statements. The Audit Committee shall discuss
with the Company's management and Independent Auditor the Company's
quarterly financial statements, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and endeavor to review each 10-Q prior to filing.
A-3
5. Controls and Procedures.
i. Oversight. The Audit Committee shall coordinate the Board of
Directors' oversight of the Company's internal control over financial
reporting, disclosure controls and procedures and code of conduct. The
Audit Committee shall receive and review the certifications of the CEO and
CFO required by Rule 13a-14 of the Exchange Act.
ii. Procedures for Complaints. The Audit Committee shall establish
procedures for (i) the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls
or auditing matters; and (ii) the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting or
auditing matters.
iii. Related-Party Transactions. The Audit Committee shall review all
"related party transactions" (defined as transactions required to be
disclosed pursuant to Item 404 of Regulation S-K) on an ongoing basis, and
all such transactions must be approved by the Audit Committee.
iv. Additional Powers. The Audit Committee shall have such other
duties as may be delegated from time to time by the Board of Directors.
D. PROCEDURES AND ADMINISTRATION
1. Meetings. The Audit Committee shall meet as often as it deems necessary
in order to perform its responsibilities. The Audit Committee may also act by
unanimous written consent in lieu of a meeting. The Audit Committee shall
periodically meet separately with the Independent Auditor and Company
management. The Audit Committee shall keep such records of its meetings as it
shall deem appropriate.
2. Subcommittees. The Audit Committee may form and delegate authority to
one or more subcommittees (including a subcommittee consisting of a single
member), as it deems appropriate from time to time under the circumstances. Any
decision of a subcommittee to pre-approve audit, review, attest or non-audit
services shall be presented to the full Audit Committee at its next scheduled
meeting.
3. Reports to Board. The Audit Committee shall report regularly to the
Board of Directors.
4. Charter. At least annually, the Audit Committee shall review and
reassess the adequacy of this Charter and recommend any proposed changes to the
Board of Directors for approval.
5. Independent Advisors. The Audit Committee is authorized, without
further action by the Board of Directors, to engage such independent legal,
accounting and other advisors as it deems necessary or appropriate to carry out
its responsibilities. Such independent advisors may be the regular advisors to
the Company. The Audit Committee is empowered, without further action by the
Board of Directors, to cause the Company to pay the compensation of such
advisors as established by the Audit Committee.
6. Investigations. The Audit Committee shall have the authority to conduct
or authorize investigations into any matters within the scope of its
responsibilities as it shall deem appropriate, including the authority to
request any officer, employee or advisor of the Company to meet with the Audit
Committee or any advisors engaged by the Audit Committee.
7. Funding. The Audit Committee is empowered, without further action by
the Board of Directors, to cause the Company to pay the ordinary administrative
expenses of the Audit Committee that are necessary or appropriate in carrying
out its duties.
A-4
PROXY
VITALWORKS INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS ON WEDNESDAY, JUNE 9, 2004
The undersigned hereby appoints JOSEPH M. WALSH, MICHAEL A. MANTO and
STEPHEN HICKS, and each of them, proxies, with full power of substitution and
resubstitution, for and in the name of the undersigned, to vote all shares of
common stock of VitalWorks Inc., which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Stockholders to be held on
Wednesday, June 9, 2004 at 10:00 a.m., local time, at the Lounsbury House, 316
Main Street, Ridgefield, Connecticut 06877, or at any adjournment thereof, upon
matters described in the accompanying Notice of Annual Meeting of Stockholders
and Proxy Statement, receipt of which is hereby acknowledged, and upon any other
business that may properly come before the Annual Meeting of Stockholders or any
adjournment thereof. Said proxies are directed to vote on the matters described
in the Notice of Annual Meeting and Proxy Statement as follows, and otherwise in
their discretion upon such other business as may properly come before the
meeting or any adjournment thereof.
(1) To elect the seven (7) directors listed below to serve until the 2005
Annual Meeting of Stockholders:
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
to vote for all nominees listed
Joseph M. Walsh
Kenneth R. Adams
Stephen J. DeNelsky
Stephen N. Kahane, M.D., M.S.
Michael A. Manto
David B. Shepherd
Lisa W. Zappala
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.
(Continued, and to be signed, on the other side)
(Continued from the other side)
(2) To ratify the appointment of BDO Seidman, LLP as independent auditors for
VitalWorks Inc. for the year ending December 31, 2004:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS INDICATED, THE
PROXY WILL BE VOTED FOR THE PROPOSALS LISTED ON BOTH SIDES OF THIS PROXY.
Date _______________, 2004
________________________________________
________________________________________
________________________________________
Please sign exactly as your name or
names appear hereon. Where more than one
owner is shown above, each should sign.
When signing in a fiduciary or
representative capacity, please give
full title. If this proxy is submitted
by a corporation, it should be executed
in the full corporate name by a duly
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING ON
WEDNESDAY, JUNE 9, 2004. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN
PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.