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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 2001
REGISTRATION NO. 333-49712
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INFOCURE CORPORATION
PRACTICEWORKS, INC.
(Exact name of Registrants as specified in its charter)
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DELAWARE 7372 58-2271614
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
INFOCURE CORPORATION PRACTICEWORKS, INC.
239 ETHAN ALLEN HIGHWAY 1765 THE EXCHANGE, SUITE 200
RIDGEFIELD, CT 06877 ATLANTA, GEORGIA 30339
(203) 894-1300 (770) 850-5006
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JOSEPH M. WALSH JAMES A. COCHRAN
PRESIDENT AND CHIEF SENIOR VICE PRESIDENT AND
EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
INFOCURE CORPORATION PRACTICEWORKS, INC.
239 ETHAN ALLEN HIGHWAY 1765 THE EXCHANGE, SUITE 200
RIDGEFIELD, CT 06877 ATLANTA, GEORGIA 30339
(203) 894-1300 (770) 850-5006
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
JOHN J. KELLEY III RICHARD L. HAURY, JR. HERRICK K. LIDSTONE, JR.
KING & SPALDING MORRIS, MANNING & MARTIN, L.L.P. NORTON LIDSTONE, P.C.
191 PEACHTREE STREET 1600 ATLANTA FINANCIAL CENTRE THE QUADRANT, SUITE 850
ATLANTA, GEORGIA 30303 3343 PEACHTREE ROAD, N.E. 5445 DTC PARKWAY
(404) 572-4600 ATLANTA, GEORGIA 30326 ENGLEWOOD, COLORADO 80111
(404) 504-7713 (303) 221-5552
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
effective time of the merger of Medical Dynamics with and into a wholly owned
subsidiary of PracticeWorks, Inc., which merger shall occur as soon as
practicable following the effectiveness of this Registration Statement.
If any securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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InfoCure Corporation ("InfoCure") common stock,
$.001 par value per share...................... 878,000(1) N/A $2,888,160.00(2) $762.47(2)(3)
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PracticeWorks, Inc. ("PracticeWorks") common
stock, $.01 par value per share................ 219,500(1)(5) N/A
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PracticeWorks Series B Convertible Redeemable
Preferred Stock, $.01 par value per share
(liquidation preference $5.44 per share)....... 965,000(4)(5) N/A
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(1) These amounts represent the maximum number of shares of InfoCure common
stock and PracticeWorks common stock issuable upon consummation of the
transactions contemplated by the Amended and Restated Agreement and Plan of
Reorganization, dated as of October 10, 2000, as amended on October 30,
2000, December 19, 2000, March 5, 2001, April 16, 2001 and modified by
letter agreement on May 30, 2001 by and among Medical Dynamics, Inc.,
InfoCure Corporation and CADI Acquisition Corporation (the "Merger
Agreement").
(2) Pursuant to the Merger Agreement, InfoCure will issue the shares of InfoCure
common stock and PracticeWorks will issue the shares of PracticeWorks common
stock and series B preferred stock registered by this Registration Statement
in exchange for all of the outstanding shares of Medical Dynamics common
stock and all outstanding options or warrants to purchase shares of Medical
Dynamics common stock. The registration fee was computed pursuant to Rules
457(f)(1) and 457(c) of the Securities Act of 1933, as amended, based on the
market value of the shares of Medical Dynamics common stock that were
outstanding or were issuable upon exercise of such outstanding options or
warrants as of November 8, 2000. The market value of these shares of Medical
Dynamics common stock was estimated for the purpose of calculating the
registration fee based on the average of the high and low sale prices of
Medical Dynamics common stock on The Over-the-Counter Bulletin Board System
on November 3, 2000 ($.2188).
(3)Previously paid in connection with the filing of this Registration Statement
on November 13, 2000.
(4) Represents the maximum number of shares of Series B Convertible Redeemable
Preferred Stock issuable upon consummation of the transactions contemplated
by the Merger Agreement.
(5)PracticeWorks is also registering such indeterminate number of shares of
PracticeWorks common stock as may be issuable upon conversion of the
PracticeWorks series B convertible redeemable preferred stock. Such shares of
PracticeWorks common stock will, if issued, be issued for no additional
consideration, and no registration fee is required.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 18, 2001.
MEDICAL DYNAMICS, INC.
400 INVERNESS DRIVE SOUTH, SUITE 200
ENGLEWOOD, COLORADO 80112
Dear Stockholder:
The Medical Dynamics, Inc. board of directors has unanimously approved a
merger which will result in the acquisition of Medical Dynamics by
PracticeWorks, Inc., a publicly traded company headquartered in Atlanta,
Georgia. Medical Dynamics and InfoCure originally entered into a merger
agreement relating to the acquisition on December 21, 1999. Medical Dynamics
then scheduled a stockholders' meeting on August 15, 2000 to approve the merger
agreement and mailed a proxy statement-prospectus relating to the meeting to its
stockholders. Prior to the stockholders' meeting, InfoCure and Medical Dynamics
agreed to discuss potential amendments to the terms of the original merger
agreement. As a result, Medical Dynamics adjourned and then cancelled the August
15, 2000 stockholders' meeting. InfoCure and Medical Dynamics entered into an
amended and restated merger agreement on October 10, 2000 and entered into
amendments to the amended and restated merger agreement on October 30, 2000,
December 19, 2000, March 5, 2001, April 16, 2001 and modified by letter
agreement on May 30, 2001. The amended and restated merger agreement, as
amended, is described in this proxy statement-prospectus and is attached as
Appendix A.
On March 5, 2001, InfoCure spun off the operations of its wholly owned
subsidiary, PracticeWorks, Inc., through a pro rata distribution to InfoCure's
stockholders of all of the issued and outstanding stock of PracticeWorks. At
this time, PracticeWorks became an independent, publicly-traded company
operating what was previously InfoCure's dental business. This business includes
the dental, orthodontic and oral and maxillofacial surgery business lines. In
the amended and restated merger agreement, as amended, InfoCure and Medical
Dynamics have agreed to, among other things, provide that the consideration to
be paid to the stockholders of Medical Dynamics will include securities of both
InfoCure and PracticeWorks. On August 7, 2001, Medical Dynamics will hold a
special meeting of its stockholders to vote to approve the amended and restated
merger agreement, as amended.
In the merger, if you own more than 100 shares of Medical Dynamics common
stock, each share of Medical Dynamics common stock you own will be exchanged
for:
- 0.06873 shares of InfoCure common stock,
- 0.017183 shares of PracticeWorks common stock, and
- 0.07558 shares of PracticeWorks Series B convertible redeemable preferred
stock.
Dividends will accrue on each share of PracticeWorks preferred stock from the
date of original issuance at a rate equal to 6% per annum on the liquidation
preference per share (initially $5.44 per share) then in effect. Each share of
preferred stock will be convertible into PracticeWorks common stock at the
conversion price then in effect (initially $36.387), subject to certain
anti-dilution adjustments. PracticeWorks must redeem all of the outstanding
preferred stock on the fifth anniversary of the date of original issuance at the
redemption price described in this proxy statement-prospectus.
In the merger, if you own 100 or fewer shares of Medical Dynamics common
stock, you will receive $0.75 in cash in exchange for each share of Medical
Dynamics common stock you own.
InfoCure common stock is traded on The Nasdaq National Market under the
symbol "VWKS," and on June 14, 2001, InfoCure common stock closed at $1.92 per
share. PracticeWorks common stock is traded on the American Stock Exchange under
the symbol "PRW," and on June 14, 2001, PracticeWorks common stock closed at
$7.06 per share.
The merger cannot be completed unless the holders of a majority of Medical
Dynamics' outstanding shares of common stock approve the amended and restated
merger agreement, as amended. Only stockholders who held shares of Medical
Dynamics at the close of business on May 29, 2001 will be entitled to vote at
the special meeting. In connection with the merger, certain stockholders of
Medical Dynamics who hold approximately 17% of the outstanding shares of Medical
Dynamics common stock have agreed to vote their shares in favor of the merger.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY DETERMINED
THAT THE MERGER IS CONSISTENT WITH AND IN FURTHERANCE OF THE LONG-TERM BUSINESS
STRATEGY OF MEDICAL DYNAMICS AND FAIR TO, AND IN THE BEST INTERESTS OF, MEDICAL
DYNAMICS AND ITS STOCKHOLDERS. MEDICAL DYNAMICS' BOARD OF DIRECTORS APPROVED AND
DECLARED ADVISABLE THE AMENDED AND RESTATED MERGER AGREEMENT, AS AMENDED, AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THE MERGER AGREEMENT.
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This proxy statement-prospectus provides you with detailed information
concerning InfoCure, PracticeWorks Medical Dynamics and the merger. Please give
all of the information contained in the proxy statement-prospectus your careful
attention. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE
SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 24 OF THIS PROXY
STATEMENT-PROSPECTUS.
The special meeting of Medical Dynamics stockholders will be held on August
7, 2001 at 10:00 a.m. at the offices of Medical Dynamics, 400 Inverness Drive
South, Suite 200, Englewood, Colorado 80112.
Please use this opportunity to take part in the affairs of Medical Dynamics
by voting on the approval of the amended and restated merger agreement, as
amended. Whether or not you plan to attend the meeting, please complete, sign,
date and return the accompanying proxy in the enclosed self-addressed stamped
envelope. Returning the proxy does NOT deprive you of your right to attend the
meeting and to vote your shares in person. YOUR VOTE IS VERY IMPORTANT.
Proxies submitted in connection with the August 15, 2000 stockholders'
meeting will not be counted at the special meeting on August 7, 2001. Therefore,
even if you voted on the original merger agreement, you must vote again on the
amended and restated merger agreement, as amended, or your vote will not be
counted.
We appreciate your consideration of this matter.
/s/ Van A. Horsley
Van A. Horsley
President, Medical Dynamics, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement-prospectus is dated June 20, 2001 and is first being
mailed to stockholders on or about June 20, 2001.
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REFERENCES TO ADDITIONAL INFORMATION
This proxy statement-prospectus incorporates important business and
financial information about Medical Dynamics and InfoCure from other documents
that are not included in or delivered with this proxy statement-prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain those documents incorporated by reference in this proxy
statement-prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses and telephone numbers:
Medical Dynamics, Inc. InfoCure Corporation PracticeWorks, Inc.
400 Inverness Drive South, 239 Ethan Allen Highway 1765 The Exchange, Suite 200
Suite 200 Ridgefield, Connecticut Atlanta, Georgia 30339
Englewood, Colorado 80112 06877 Attention: Investor
Attention: President Attention: Investor Relations Department
Telephone: (303) 486-5818 Relations Department Telephone: (770) 850-5006
Telephone: (203) 894-1300
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY JULY 20, 2001 IN
ORDER TO RECEIVE THEM BEFORE THE MEDICAL DYNAMICS SPECIAL MEETING.
See "Where You Can Find More Information" beginning on page 185.
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MEDICAL DYNAMICS, INC.
400 INVERNESS DRIVE SOUTH, SUITE 200
ENGLEWOOD, COLORADO 80112
NOTICE OF SPECIAL MEETING OF MEDICAL DYNAMICS STOCKHOLDERS
JUNE 20, 2001
To Medical Dynamics Stockholders:
Notice is hereby given that a special meeting of stockholders of Medical
Dynamics, Inc. will be held on August 7, 2001 at 10:00 a.m. local time at the
offices of Medical Dynamics, 400 Inverness Drive South, Suite 200, Englewood,
Colorado 80112, for the following purposes:
1. To consider and vote upon a proposal to approve the Amended and
Restated Agreement and Plan of Merger and Reorganization, dated as of
October 10, 2000, as amended on October 30, 2000, December 19, 2000, March
5, 2001, April 16, 2001 and modified by letter agreement on May 30, 2001, by
and among InfoCure Corporation, CADI Acquisition Corporation, a wholly owned
subsidiary of PracticeWorks, Inc., and Medical Dynamics, pursuant to which
Medical Dynamics will merge with and into CADI and CADI will survive the
merger and continue as a wholly owned subsidiary of PracticeWorks. In the
merger, stockholders who own more than 100 shares of Medical Dynamics common
stock will receive in exchange for each share of Medical Dynamics common
stock owned 0.06873 shares of InfoCure common stock, 0.017183 shares of
PracticeWorks common stock and 0.07558 shares of PracticeWorks series B
convertible redeemable preferred stock. The terms of the preferred stock are
described in detail in this proxy statement-prospectus. In the merger,
stockholders who own 100 or fewer shares of Medical Dynamics common stock
will receive $0.75 in cash in exchange for each share of Medical Dynamics
common stock owned. Approval of the merger agreement will also constitute
approval of the merger and the other transactions contemplated by the merger
agreement.
2. To transact such other business as may properly come before the
special meeting or any adjournment thereof.
These items of business are described in the attached proxy
statement-prospectus. Only holders of record of Medical Dynamics shares at the
close of business on May 29, 2001, the record date, are entitled to vote at the
special meeting or any adjournment of the special meeting. You may vote in
person at the Medical Dynamics special meeting even if you have returned a
proxy.
By Order of the Board of Directors
of Medical Dynamics, Inc.
/s/ Van A. Horsley
Van A. Horsley
President
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE.
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TABLE OF CONTENTS
PAGE
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Questions and Answers About the Merger...................... 1
Summary..................................................... 6
Risk Factors................................................ 24
The Special Meeting......................................... 63
Description of the Merger................................... 70
The Merger Agreement........................................ 92
The Stockholders Agreement.................................. 98
Description of the PracticeWorks Common Stock............... 98
Description of the PracticeWorks Series B Convertible
Redeemable Preferred Stock................................ 98
Comparative Stock Prices and Dividends...................... 99
Ratios of Earnings to Combined Fixed Charges and Preferred
Stock Dividends........................................... 101
Security Ownership of Beneficial Owners and Management of
Medical Dynamics.......................................... 102
Effect of the Merger on Rights of Stockholders.............. 103
Business of PracticeWorks, Inc.............................. 110
Management's Discussion and Analysis of Financial Condition
and Results of Operations of PracticeWorks................ 134
Management of PracticeWorks................................. 154
PracticeWorks Executive Compensation........................ 156
Security Ownership of Beneficial Owners and Management of
PracticeWorks............................................. 162
Description of Capital Stock of PracticeWorks............... 163
Anti-Takeover Provisions of PracticeWorks' Certificate of
Incorporation, Bylaws and Delaware Law.................... 180
Stockholder Proposals....................................... 184
Other Matters............................................... 184
Experts..................................................... 184
Legal Matters............................................... 185
Where You Can Find More Information......................... 185
Financial Statements........................................ F-1
APPENDIX A -- Amended and Restated Agreement and Plan of
Merger and Reorganization, as amended..................... A-1
APPENDIX B -- Article 113 of the Colorado Business
Corporation Act........................................... B-1
(i)
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Unless stated otherwise, all references in this proxy statement-prospectus
to the merger agreement refer to the amended and restated merger agreement dated
as of October 10, 2000 between InfoCure and Medical Dynamics, as amended on
October 30, 2000, December 19, 2000, March 5, 2001, April 16, 2001 and modified
by letter agreement on May 30, 2001 and all references to the merger refer to
the transactions contemplated by the merger agreement.
Q: WHY IS MEDICAL DYNAMICS BEING ACQUIRED BY PRACTICEWORKS?
A: The Medical Dynamics board believes that the merger is in the best interests
of the company and will provide significant benefits to its stockholders,
customers and employees. The board believes that the merger will create a
company which will be better positioned to be a strong competitor in the
rapidly changing and consolidating healthcare information technology
services industry. To review the background and reasons for the merger in
greater detail, see pages 80 through 91.
Q: HOW DOES INFOCURE'S SPINOFF OF PRACTICEWORKS AFFECT THE MERGER?
A: Pursuant to the December 19, 2000 amendment to the merger agreement,
effective on the date of InfoCure's spin-off of PracticeWorks, InfoCure
assigned all of its rights under the merger agreement to PracticeWorks, and
PracticeWorks assumed all of InfoCure's obligations under the merger
agreement, except for InfoCure's obligation to issue shares of its common
stock to the stockholders of Medical Dynamics upon completion of the merger.
As a result, if you own more than 100 shares of Medical Dynamics common
stock you will now receive shares of InfoCure common stock, PracticeWorks
common stock and PracticeWorks preferred stock in the merger.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If you own more than 100 shares of Medical Dynamics common stock, in
exchange for each share of Medical Dynamics common stock you own, you will
receive 0.06873 shares of InfoCure common stock, 0.017183 shares of
PracticeWorks common stock and 0.07558 shares of PracticeWorks series B
convertible redeemable preferred stock.
Q: WHAT WILL I RECEIVE IN THE MERGER IF I OWN 100 OR FEWER SHARES OF MEDICAL
DYNAMICS?
A: If you own 100 or fewer shares of Medical Dynamics common stock, you will
receive $0.75 in cash in exchange for each share of Medical Dynamics common
stock you own.
Q: WHAT ARE THE TERMS OF THE PRACTICEWORKS PREFERRED STOCK?
A: The terms of the preferred stock include the following:
- The preferred stock has an initial liquidation preference of $5.44 per
share.
- Each share of preferred stock may be converted at any time at the option
of the holder into the number of shares of PracticeWorks common stock
equal to the liquidation preference in effect at the time divided by the
conversion price, which initially will be $36.387, subject to certain
anti-dilution adjustments. As of June 14, 2001, each share of preferred
stock would have been convertible into approximately 0.1495 shares of
PracticeWorks common stock.
- Dividends will accrue on each share of preferred stock from the date of
original issuance at a rate equal to 6% per annum on the liquidation
preference per share then in effect and shall be paid quarterly in
arrears on March 31, June 30, September 30 and December 31. At its
option, PracticeWorks may pay dividends either in cash or shares of
PracticeWorks common stock equal in value to the
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amount of the dividend based on the average of the closing prices of
PracticeWorks common stock for the 20 trading days immediately prior to
the dividend payment date. Any dividends not paid on the applicable
payment date in respect of any share of preferred stock will be added to
the liquidation preference in effect with respect to such share.
- PracticeWorks must redeem all outstanding shares of preferred stock in
cash on the fifth anniversary of the date of original issuance at a
redemption price equal to the liquidation preference plus all accrued and
unpaid dividends through the redemption date.
- Holders of shares of preferred stock generally do not have the right to
vote on any matters or to receive notice of any meetings of stockholders.
Q: WILL I RECEIVE FRACTIONAL SHARES IN THE MERGER?
A: InfoCure will not issue fractional shares of common stock in the merger. As
a result, the number of shares of InfoCure common stock you will receive in
the merger will be rounded down to the nearest whole number. You will
receive a cash payment, without interest, for the value of any fraction of a
share of InfoCure common stock you otherwise would have been entitled to
receive equal to the fraction multiplied by $4.93.
PracticeWorks will not issue any fractional shares of common stock in the
merger. As a result, the number of shares of PracticeWorks common stock you
will receive in the merger will be rounded down to the nearest whole number.
You will receive a cash payment, without interest, for the value of any
fraction of a share of PracticeWorks common stock you otherwise would have
been entitled to receive equal to the fraction multiplied by $19.72.
PracticeWorks will not issue any fractional shares of preferred stock in the
merger. As a result, the number of shares of PracticeWorks preferred stock
you will receive in the merger will be rounded down to the nearest share of
preferred stock. You will receive a cash payment, without interest, for the
value of a fraction of a share of PracticeWorks preferred stock representing
less than a share you otherwise would have been entitled to receive in an
amount equal to the fraction multiplied by $5.44.
Q: AM I ENTITLED TO DISSENTERS' RIGHTS?
A: If you own 100 or fewer shares of Medical Dynamics common stock, you will be
entitled to dissenters' rights under Colorado law. If you own more than 100
shares of Medical Dynamics common stock, you will not be entitled to
dissenters' rights.
If applicable, dissenters' rights would entitle you to receive the "fair
value" of your shares of Medical Dynamics common stock in lieu of receiving
the merger consideration, provided that you comply with the requirements of
Colorado law. These rights, as well as the procedures for perfecting these
rights under Colorado law, are described under "Dissenters' Rights"
beginning on page 63. In addition, the full text of the relevant sections of
the Colorado statute is attached hereto as Appendix B to this proxy
statement-prospectus.
Q: WHAT RISKS SHOULD I CONSIDER?
A: You should review "Risk Factors" on pages 24 through 62.
You should also review the factors considered by the Medical Dynamics board
of directors. See "Description of the Merger -- Background of and Reasons
for the Merger" beginning on page 80.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger on or before September 30, 2001.
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Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The merger has been structured to qualify as a "reorganization" for federal
income tax purposes. If the merger qualifies as a reorganization and you own
more than 100 shares of Medical Dynamics common stock, then, for U.S.
federal income tax purposes, you generally will recognize any gain, but not
any loss, that you realize in the exchange. The amount of gain that you
recognize should be limited to the fair market value of the preferred stock
you receive in the merger, plus the fair market value of the InfoCure common
stock you receive in the merger, plus any cash you receive in lieu of
fractional shares of PracticeWorks preferred stock or InfoCure common stock,
although these tax consequences of the receipt of the preferred stock are
not entirely clear as a matter of law. If you receive any cash in lieu of a
fractional share of PracticeWorks common stock, you generally will be
treated as if you had received the fractional share in the merger and then
as if PracticeWorks had redeemed it for cash, and you will recognize gain or
loss equal to the difference between the cash received for the fractional
share and your tax basis in the fractional share.
If you own more than 100 shares of Medical Dynamics common stock and the
merger fails to qualify as a reorganization, you generally will recognize
gain or loss in an amount equal to the difference between the aggregate fair
market value of the consideration you receive in the merger (PracticeWorks
common stock, PracticeWorks preferred stock, InfoCure common stock, and
cash) and the tax basis of the Medical Dynamics common stock that you
surrender in the merger.
Medical Dynamics, InfoCure and PracticeWorks cannot predict with certainty
whether or not the merger will qualify as a reorganization for federal
income tax purposes. If the Medical Dynamics stockholders approve the merger
agreement, Medical Dynamics, InfoCure and PracticeWorks intend to consummate
the merger, regardless of whether or not the merger qualifies as a tax free
reorganization and regardless of whether opinions of counsel to that effect
are obtained. If you vote to approve the merger agreement, the merger is
completed, and the merger fails to qualify as a reorganization, you should
understand that you may recognize more taxable gain in the merger than you
would recognize if the merger qualified as a reorganization.
If you own 100 or fewer shares of Medical Dynamics common stock, then you
generally will recognize gain or loss equal to the difference between the
cash received for your shares and your tax basis in such shares.
To review the tax consequences in greater detail, see pages 74 through 80.
YOUR TAX CONSEQUENCES WILL DEPEND ON YOUR PERSONAL SITUATION. YOU SHOULD
CONSULT YOUR TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES
OF THE MERGER TO YOU.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to approve the merger agreement which provides for the
acquisition of Medical Dynamics through a merger of Medical Dynamics with
and into a PracticeWorks subsidiary. The subsidiary will survive the merger
and remain a wholly owned subsidiary of PracticeWorks. Approval of the
merger agreement requires the affirmative vote of a majority of the
outstanding shares of Medical Dynamics common stock.
THE MEDICAL DYNAMICS BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS VOTING FOR THE APPROVAL OF THE MERGER AGREEMENT.
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Q: WHY AM I RECEIVING A SECOND PROXY STATEMENT-PROSPECTUS RELATING TO THE
MERGER?
A: Medical Dynamics and InfoCure originally entered into a merger agreement
relating to the acquisition on December 21, 1999. Medical Dynamics then
scheduled a stockholders' meeting on August 15, 2000 to approve the merger
agreement and mailed a proxy statement-prospectus relating to the meeting to
its stockholders. Prior to the stockholders' meeting, InfoCure and Medical
Dynamics agreed to discuss potential amendments to the terms of the original
merger agreement. As a result, Medical Dynamics adjourned and then cancelled
the August 15, 2000 stockholders' meeting. InfoCure and Medical Dynamics
entered into an amended and restated merger agreement on October 10, 2000
and entered into additional amendments to the amended and restated merger
agreement on October 30, 2000, December 19, 2000, March 5, 2001, April 16,
2001 and modified by letter agreement on May 30, 2001. On March 5, 2001,
InfoCure spun off the operations of its wholly owned subsidiary,
PracticeWorks, Inc., through a pro rata distribution to InfoCure's
stockholders of all of the issued and outstanding stock of PracticeWorks. At
this time, PracticeWorks became an independent, publicly-traded company
operating what was previously InfoCure's dental business. This business
includes the dental, orthodontic and oral and maxillofacial surgery business
lines. The merger agreement is described in this proxy statement-
prospectus. In the amended and restated merger agreement, InfoCure and
Medical Dynamics agreed to, among other things, provide that the
consideration to be paid to the stockholders of Medical Dynamics will
include securities of both InfoCure and PracticeWorks. On August 7, 2001,
Medical Dynamics will hold a special meeting of its stockholders to vote to
approve the amended and restatement merger agreement.
The amended and restated merger agreement has material differences from the
original merger agreement, so you should read this proxy-statement
prospectus carefully. In particular, under the terms of the original merger
agreement you would have received only shares of InfoCure common stock in
exchange for your shares of Medical Dynamics common stock, regardless of how
many shares you own. Under the amended and restated merger agreement, if you
own more than 100 shares of Medical Dynamics common stock, you will receive
shares of InfoCure common stock, PracticeWorks common stock and
PracticeWorks preferred stock in exchange for your shares and, if you own
100 or fewer shares of Medical Dynamics common stock, you will receive $0.75
in cash for each share of Medical Dynamics common stock you own.
See pages 70 through 97 for a more detailed description of the background of
the original merger agreement and the amended and restated merger agreement.
Q: DO I NEED TO VOTE AGAIN IF I VOTED ON THE MERGER WHEN I RECEIVED THE
PREVIOUS PROXY STATEMENT?
A: Yes. You may have received a proxy statement-prospectus relating to the
original merger agreement. However, votes for or against the approval of the
original merger agreement will not be counted at the special meeting. If you
previously voted on the original merger agreement, you must vote again on
the amended and restated merger agreement or your vote will not be counted.
You may vote for or against the approval of the amended and restated merger
agreement, regardless of whether you voted for, against or abstained from
voting with respect to the original merger agreement.
Q: WHAT DO I NEED TO DO NOW?
A: After you review the proxy statement-prospectus and resolve any questions
you may have, please indicate on your proxy
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card how you want to vote, and sign and mail it in the enclosed envelope as
soon as possible, so that your shares will be represented at the special
meeting of Medical Dynamics stockholders. Specific instructions regarding
procedures to be followed in voting are set forth on your proxy card.
If you sign and send in your proxy and do not indicate how you want to vote,
your proxy will be voted in favor of the proposal to approve the merger
agreement. If you do not sign and send in your proxy or you abstain, it will
have the effect of a vote against the proposal to approve the merger
agreement.
The special meeting of Medical Dynamics stockholders will take place on
August 7, 2001 at 10:00 a.m. local time at the offices of Medical Dynamics,
400 Inverness Drive South, Suite 200, Englewood, Colorado 80112. You may
attend the special meeting and vote your shares in person, rather than
voting by proxy. In addition, you may withdraw your proxy up to and
including the day of the special meeting by following the directions on page
62 and either change your vote or attend the special meeting and vote in
person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares of Medical Dynamics common stock only if
you provide instructions on how to vote. You should instruct your broker how
to vote your shares, following the directions your broker provides. If you
do not provide instructions to your broker, your shares will not be voted
and will count as a vote AGAINST the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, InfoCure and PracticeWorks will send you
written instructions for exchanging your Medical Dynamics common stock
certificates representing InfoCure common stock, PracticeWorks common stock,
PracticeWorks preferred stock and/or any cash consideration to which you are
entitled.
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SUMMARY
This summary highlights selected information from this proxy
statement-prospectus and may not contain all of the information that is
important to you. You should carefully read this entire proxy
statement-prospectus and the other documents we refer to for a more complete
understanding of the merger. In particular, you should read the documents
attached to this proxy statement-prospectus. In addition, we incorporate
important business and financial information about InfoCure and Medical Dynamics
into this proxy statement-prospectus by reference. You may obtain the
information incorporated into this proxy statement-prospectus by reference
without charge by following the instructions in the section entitled "Where You
Can Find More Information" on page 185 of this proxy statement-prospectus.
THE COMPANIES
INFOCURE CORPORATION
239 ETHAN ALLEN HIGHWAY
RIDGEFIELD, CONNECTICUT 06877
(203) 894-1300
InfoCure is a national provider of information management technology and
services targeted to both large and small healthcare practices that operate in
general medicine, as well as a variety of specialties, including:
- anesthesiology,
- dermatology,
- emergency medicine,
- pathology,
- ophthalmology,
- radiology and
- enterprise-wide medical entities.
InfoCure's wide range of technological solutions automate the
administrative, financial and clinical information management functions for
doctors and other healthcare providers. InfoCure provides its customers with
ongoing software services, training and electronic data interchange, or "EDI"
services. These products and services are designed to increase the quality and
reduce the cost of providing care by enabling physicians to manage their
practices more efficiently.
In December 1999, InfoCure reorganized its business to consist of a medical
division, named VitalWorks, and a dental division, named PracticeWorks. This
reorganization was intended to facilitate changes in the pricing of practice
management software products, the delivery of those products and the scope of
InfoCure's products offerings. InfoCure is also developing Internet-based
applications and services and wireless solutions designed to allow its customers
to utilize new technology to enhance office workflow.
For the year ended December 31, 2000, InfoCure generated revenues of $101.0
million and a net loss from continuing operations of $48.7 million. For the
three months ended March 31, 2001, InfoCure generated revenues of $25.4 million
and a net loss from continuing operations of $13.7 million, which included a
doubtful allowance provision of $6.0 million for notes receivable from former
insider directors of InfoCure. On March 31, 2001, InfoCure had consolidated
assets of $104.3 million and consolidated stockholders' equity of $30.8 million.
On March 5, 2001, InfoCure spun off the operations of PracticeWorks through
a pro rata distribution to InfoCure's stockholders of all of the issued and
outstanding stock of PracticeWorks. At this time, PracticeWorks became an
independent, publicly-traded company operating what was previously InfoCure's
dental business. This business includes the dental, orthodontic and oral and
maxillofacial surgery business lines.
On June 6, 2001, Frederick Fine, a founder of InfoCure, resigned as
Chairman of InfoCure's Board of Directors. Joseph Walsh, InfoCure's President
and Chief Executive Officer, was appointed as Chairman following Mr. Fine's
resignation. InfoCure's results for the quarter ending June 30, 2001 will
include a
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charge of approximately $780,000 relating to Mr. Fine's separation from
InfoCure. The InfoCure management changes are described in InfoCure's Current
Report on Form 8-K dated June 6, 2001, which is incorporated by reference in
this proxy statement/prospectus.
PRACTICEWORKS, INC.
1765 THE EXCHANGE
SUITE 200
ATLANTA, GEORGIA 30339
(770) 850-5006
PracticeWorks is an information management technology provider for
dentists, orthodontists and oral and maxillofacial surgeons. Its offerings
currently include the following:
- practice management applications -- PracticeWorks develops software
applications that automate dental, orthodontic and oral and maxillofacial
surgery practices, by providing functions such as scheduling and billing;
- business-to-business e-commerce services -- PracticeWorks provides access
to systems that enable online purchasing of orthodontic and office
supplies;
- electronic data interchange, or EDI, services -- PracticeWorks provides
access to systems that permit its customers to electronically submit
insurance claims and patient billing information for processing at
national clearinghouses; and
- ongoing maintenance, support and training related to the above services.
These applications and services are designed to automate the provider's
practice, resulting in greater efficiency, lower costs and higher quality care.
As of March 31, 2001, PracticeWorks had an installed base of approximately
57,000 providers in the United States, including 49,000 dentists, 4,000
orthodontists and 4,000 oral and maxillofacial surgeons. PracticeWorks has an
installed worldwide customer base of approximately 61,000 providers.
PracticeWorks derives substantially all of its revenues from its installed
customer base through a combination of systems and software licenses and
maintenance support and service fees.
During the fourth quarter of 1999, PracticeWorks changed its business model
from one based on revenues generated from a one-time licensing fee with
continuing maintenance, support and service to a subscription-based model
whereby revenues are generated from its customers' paying a fixed monthly fee
for use of our practice management applications and maintenance and support
services.
For the year ended December 31, 2000, PracticeWorks generated revenues of
$40.0 million and a net loss of $29.4 million. For the three months ended March
31, 2001, PracticeWorks generated revenues of $11.8 million and a net loss of
$8.6 million. On March 31, 2001, PracticeWorks had assets of $93.4 million and
stockholders' equity of $23.4 million.
MEDICAL DYNAMICS, INC.
400 INVERNESS DRIVE SOUTH, SUITE 200
ENGLEWOOD, COLORADO 80112
(303) 486-5818
Medical Dynamics is engaged in the development and marketing of practice
management software and related products for the dental profession. Medical
Dynamics principal products are practice management software, patient education
systems, digital x-ray systems and a wide variety of ancillary products utilized
in the dental profession.
For the year ended September 30, 2000, Medical Dynamics generated revenues
of $3.7 million and a net loss of $1.9 million. For the six months ended March
31, 2001, Medical Dynamics generated revenues of $1.3 million and a net loss of
$300,000. On March 31, 2001, Medical Dynamics had consolidated assets of $4.4
million and consolidated stockholders' equity of $926,000.
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THE MERGER
PracticeWorks will acquire Medical Dynamics by means of the merger of
Medical Dynamics with and into CADI Acquisition Corporation, a wholly owned
subsidiary of PracticeWorks. CADI Acquisition Corporation will be the surviving
corporation in the merger. The merger agreement is attached as Appendix A to
this proxy statement-prospectus. We encourage you to read the merger agreement
carefully. The merger agreement is more fully discussed on pages 89 through 94
of this proxy statement-prospectus.
REASONS FOR THE MERGER
Medical Dynamics and PracticeWorks have identified several potential
advantages of the merger that they believe will benefit you, Medical Dynamics
and PracticeWorks.
We anticipate that the merger will benefit you by:
- reducing your exposure to risks inherent in Medical Dynamics' reliance on
a limited number of products and competition with larger companies with
more diversified product lines and greater financial resources; and
- allowing you to participate in the potential for growth of the combined
company after the merger or, if you own 100 or fewer shares of Medical
Dynamics common stock, to receive $0.75 in cash in exchange for each
share of Medical Dynamics you hold.
Medical Dynamics anticipates that the merger will benefit it by:
- enabling Medical Dynamics to gain access to additional capital resources;
- providing increased opportunity for the development of Medical Dynamics'
product offerings, thereby augmenting Medical Dynamics' competitive
position and maximizing value for stockholders of the combined entity;
and
- providing Medical Dynamics with the opportunity to capitalize on
PracticeWorks' relationships with its customers and vendors.
PracticeWorks anticipates that the merger will benefit it by:
- enhancing PracticeWorks' product portfolio with the addition of Medical
Dynamics' products; and
- allowing PracticeWorks to secure ownership of Medical Dynamics'
technology.
ACCOUNTING TREATMENT
PracticeWorks intends to account for the merger as a purchase business
combination. Under this method of accounting, after the closing of the merger,
Medical Dynamics' assets and liabilities will be recorded at fair value and any
excess of the total value of shares exchanged for Medical Dynamics' assets over
its net assets will be recorded as goodwill.
Consistent with the terms of the original merger agreement and InfoCure's
subsequent spin-off of its dental business to PracticeWorks, InfoCure's issuance
of common stock to Medical Dynamics stockholders will be accounted for by
PracticeWorks as an equity contribution. InfoCure will record the issuance of
these shares by increasing its common stock outstanding and paid-in capital to
reflect fair value at issuance and simultaneously reduce paid-in capital by this
same amount to recognize the adjustment to net assets spun-off to PracticeWorks.
REPLACEMENT OF MEDICAL DYNAMICS OPTIONS AND WARRANTS
Medical Dynamics has issued options and warrants exercisable for shares of
Medical Dynamics common stock. When the merger is effective, all outstanding
options and warrants to purchase Medical Dynamics common stock will be
terminated and PracticeWorks will issue replacement options and warrants to
purchase shares of PracticeWorks common stock. The number of shares of
PracticeWorks common
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stock issuable upon exercise or conversion of each replacement option or warrant
will be equal to the number of shares of Medical Dynamics common stock issuable
upon exercise of the terminated option or warrant multiplied by 0.0380324,
rounded up to the nearest whole number of shares. The exercise price of each
replacement option or warrant will be equal to the exercise price of the
terminated option or warrant divided by 0.0380324, rounded up to the nearest
whole cent. The replacement options granted to certain current officers and
directors and former employees and directors of Medical Dynamics will expire on
the expiration dates of the corresponding terminated options, which occur on
various dates from September 2001 through April 2006. The remaining replacement
options will expire on the later of (1) one year from the closing of the merger
and (2) 30 days after the date the employee is terminated by Medical Dynamics,
but in no event will the expiration date extend beyond the expiration date
provided in the corresponding terminated option. The replacement warrants will
expire on the earlier of (1) one year from the closing of the merger and (2) the
expiration date in the corresponding terminated warrant.
NON-SOLICITATION OF THIRD PARTY PROPOSALS
Until consummation or abandonment of the merger, Medical Dynamics and its
affiliates have agreed not to initiate or facilitate any proposal from a third
party with respect to a merger, consolidation, sale or similar transaction
involving Medical Dynamics or its subsidiaries (an "acquisition proposal").
However, during the period from the mailing of this proxy statement-prospectus
until the Medical Dynamics stockholders have approved the merger, the Medical
Dynamics board may engage in discussions regarding an acquisition proposal if
certain conditions are met. Those conditions are more fully described on page 89
of this proxy statement-prospectus.
CONDITIONS TO COMPLETION OF THE MERGER
The merger will be completed only if certain conditions, including, but not
limited to the following, are met or waived, if waivable:
- Medical Dynamics stockholders approve the merger;
- PracticeWorks and Medical Dynamics receive legal opinions from their
respective counsel concerning the treatment of the merger as a
"reorganization" for federal income tax purposes; and
- neither Medical Dynamics nor PracticeWorks has breached any of its
representations or obligations under the merger agreement in any material
respect.
With respect to the condition that PracticeWorks and Medical Dynamics
receive legal opinions concerning the "reorganization" status of the merger, it
is possible that such opinions cannot be rendered depending upon the relative
values of the PracticeWorks common and preferred stock, and the InfoCure common
stock, to be received by the Medical Dynamics stockholders in the merger. If, at
the effective time of the merger, the aggregate fair market value of the
PracticeWorks common stock and PracticeWorks preferred stock to be issued in the
merger does not represent at least 50% of the aggregate fair market value of all
of the merger consideration (including cash and InfoCure common stock), counsel
to PracticeWorks and counsel to Medical Dynamics may be unwilling to render
legal opinions regarding the qualification of the merger as a reorganization for
federal income tax purposes. We cannot assure you that the value of the
PracticeWorks common and preferred stock at the effective time of the merger
will be sufficient to allow for legal opinions to be delivered. Medical
Dynamics, InfoCure, and PracticeWorks intend to consummate the merger even if
legal opinions as to the treatment of the merger as a reorganization cannot be
obtained. See the section entitled "Material Federal Income Tax Consequences of
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the Merger" beginning on page 74 for a discussion of this possibility. The
merger may not be consummated if such opinions are not rendered, unless this
condition is waived by PracticeWorks and Medical Dynamics.
In addition to these conditions, the merger agreement attached to this
proxy statement-prospectus as Appendix A, describes other conditions that must
be met before the merger may be completed.
TERMINATION OF THE MERGER AGREEMENT
Either PracticeWorks or Medical Dynamics may terminate the merger agreement
under certain circumstances, including if:
- both parties consent in writing;
- the merger is not completed before September 30, 2001;
- legal restraints prevent the consummation of the merger;
- the Medical Dynamics stockholders do not approve the merger agreement; or
- the other party breaches in a material manner any of its representations,
warranties or covenants under the merger agreement and such breach is not
cured within 30 days of notice.
PracticeWorks also may terminate the merger agreement, among other things,
if Medical Dynamics accepts or recommends acceptance of an acquisition proposal
with another party or withdraws, or adversely modifies, its recommendation of
the merger.
FEES AND EXPENSES
PracticeWorks and Medical Dynamics will generally pay their own fees, costs
and expenses incurred in connection with the merger agreement. However, Medical
Dynamics will pay PracticeWorks a "break up" fee of $250,000, under certain
circumstances, if:
- Medical Dynamics approves, enters into, or consummates a transaction
contemplated by an acquisition proposal;
- the Medical Dynamics board withdraws, modifies or changes its
recommendation as to the merger; or
- certain directors and officers of Medical Dynamics who own 17% of the
outstanding shares of Medical Dynamics stock fail to comply with their
obligations under a stockholders agreement to vote in favor of the
merger.
In addition, PracticeWorks will pay Medical Dynamics a fee of $250,000 if
Medical Dynamics terminates the merger agreement because PracticeWorks breaches
its representations, warranties or obligations under the merger agreement in any
material respect.
RESTRICTIONS ON YOUR ABILITY TO SELL THE COMMON STOCK AND PREFERRED STOCK YOU
RECEIVE IN THE MERGER
All shares of InfoCure common stock, PracticeWorks common stock and
PracticeWorks preferred stock you receive in connection with the merger will be
freely transferable, unless you are an "affiliate" of Medical Dynamics, InfoCure
or PracticeWorks under the securities laws. If you are considered an affiliate
of Medical Dynamics, InfoCure or PracticeWorks, your shares of common stock and
preferred stock received in the merger may only be sold pursuant to an exemption
under the securities laws or pursuant to an effective registration statement
covering the resale of such shares.
SPECIAL MEETING OF STOCKHOLDERS
The special meeting of Medical Dynamics stockholders will be held at the
offices of Medical Dynamics, 400 Inverness Drive South, Suite 200, Englewood,
Colorado 80112, at 10:00 a.m., local time on August 7, 2001. At
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the special meeting, we will ask you to approve the merger agreement. In order
for the special meeting to be held, a quorum must be present. A quorum is
present if a majority of the outstanding shares of Medical Dynamics common stock
are represented at the special meeting either in person or by proxy.
STOCKHOLDER VOTE REQUIRED TO APPROVE THE MERGER
The affirmative vote of the holders of a majority of the outstanding shares
of Medical Dynamics common stock is required to approve the merger agreement. In
connection with the merger, certain directors and officers of Medical Dynamics
who hold approximately 17% of the outstanding shares of Medical Dynamics common
stock have agreed to vote their shares in favor of the merger.
VOTING RIGHTS AT THE SPECIAL MEETING
You are entitled to vote at the special meeting if you owned shares as of
the close of business on May 29, 2001, the record date. As of the record date,
there were 13,229,206 shares of Medical Dynamics common stock outstanding held
by 11,555 holders of record. You will be entitled to one vote for each share of
Medical Dynamics common stock that you owned on the record date. You may vote
either by attending the special meeting and voting your shares in person or by
completing the enclosed proxy card and mailing it in the enclosed envelope.
Medical Dynamics is seeking your proxy to use at the special meeting.
Medical Dynamics, InfoCure and PracticeWorks have prepared this proxy
statement-prospectus to assist you in deciding how to vote. Whether or not you
plan to attend the meeting, please indicate on your proxy card how you want to
vote. Please sign, date and mail it as soon as possible so that your shares will
be represented at the special meeting. If you sign, date and mail your proxy
card without indicating how you wish to vote, your proxy will be counted as a
vote FOR approval of the merger agreement. If you fail to return your proxy card
and fail to vote at the meeting, the effect will be a vote AGAINST approval of
the merger agreement. If you sign a proxy, you may revoke it at any time before
the special meeting or by attending and voting at the special meeting.
Proxies submitted in connection with the August 15, 2000 stockholders'
meeting will not be counted at the special meeting on August 7, 2001. Therefore,
even if you voted on the original merger agreement, you must vote again on the
amended and restated merger agreement or your vote will not be counted.
MEDICAL DYNAMICS' RECOMMENDATION TO STOCKHOLDERS
Medical Dynamics' board of directors has unanimously determined that the
terms of the merger agreement are consistent with and in furtherance of the
long-term business strategy of Medical Dynamics and fair to, and in the best
interests of, Medical Dynamics and its stockholders. Medical Dynamics' board of
directors approved and declared advisable the merger agreement and recommends
that you vote to approve the merger agreement.
VOTING BY DIRECTORS AND EXECUTIVE OFFICERS
On the record date, Medical Dynamics' directors and executive officers
owned 2,264,716 shares, or approximately 17% of the outstanding shares of
Medical Dynamics common stock. These officers and directors have agreed to vote
those shares in favor of the merger agreement. Those shares do not include
shares that the Medical Dynamics directors and executive officers may acquire
through the exercise of stock options or warrants. On the record date and as of
the date of this proxy statement-prospectus, neither PracticeWorks' nor
InfoCure's directors and executive officers owned any shares of Medical Dynamics
common stock.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER THAT MAY BE DIFFERENT FROM YOURS
When considering the recommendation of Medical Dynamics' board of
directors, you should be aware that certain Medical Dynamics directors and
officers have interests in the merger that are different from, or are in
addition to, yours. Your board of directors was aware of these interests and
considered them in approving and recommending the merger.
COMPLETION OF THE MERGER AND REGULATORY APPROVALS
The merger will become effective upon the filing of articles of merger with
the Colorado Secretary of State. If the Medical Dynamics stockholders approve
the merger at the special meeting and all required regulatory approvals are
obtained, we currently anticipate that the merger will be completed on or before
September 30, 2001.
DIFFERENCES IN STOCKHOLDERS' RIGHTS
When the merger is completed, if you own more than 100 shares of Medical
Dynamics common stock, whether or not you surrender your Medical Dynamics stock
certificates, you will automatically become a holder of:
- InfoCure common stock;
- PracticeWorks common stock; and
- PracticeWorks series B preferred stock.
Your rights as a Medical Dynamics stockholder are governed by the Medical
Dynamics articles of incorporation and bylaws and by Colorado law. The rights of
InfoCure and PracticeWorks stockholders differ from the rights of Medical
Dynamics stockholders in several important ways. Many of these have to do with
provisions in InfoCure's and PracticeWorks' certificates of incorporation and
bylaws and with Delaware law. See "Effect of the Merger on Rights of
Stockholders" beginning on page 100 for a description of the differences in
these rights. In addition, as a holder of PracticeWorks preferred stock, you
will have the rights defined in the certificate of designations for the
preferred stock. These rights are described under "Preferred Stock --
PracticeWorks Series B Convertible Redeemable Preferred Stock Issuable to
Medical Dynamics Stockholders" beginning on page 166.
LISTING OF INFOCURE AND PRACTICEWORKS COMMON STOCK
InfoCure has agreed to list the shares of InfoCure common stock to be
issued in connection with the merger on The Nasdaq National Market.
PracticeWorks has agreed to list the shares of PracticeWorks common stock to be
issued in connection with the merger on the American Stock Exchange.
PracticeWorks does not currently anticipate listing the PracticeWorks preferred
stock on the American Stock Exchange or any other exchange.
MARKET PRICE INFORMATION
Shares of InfoCure common stock are traded on The Nasdaq National Market
under the trading symbol "VWKS." Prior to the spin-off, shares of InfoCure
common stock were traded on The Nasdaq National Market under the symbol "INCX."
Shares of PracticeWorks common stock are traded on the American Stock Exchange
under the trading symbol "PRW." Shares of Medical Dynamics common stock were
traded on The Nasdaq SmallCap Market under the trading symbol "MEDY" until
October 11, 2000 and thereafter have been traded on the Over-the-Counter
Bulletin Board System. No shares of PracticeWorks series B preferred stock will
be issued prior to the merger and therefore there has been no trading market for
those shares. The following table presents:
- the last reported sale price of one share of InfoCure common stock on
specified dates;
- the last reported sale price of one share of PracticeWorks common stock
on June 14, 2001;
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- the last reported sale price of one share of Medical Dynamics common
stock on specified dates; and
- the market value of one share of Medical Dynamics common stock on an
equivalent per share basis on specified dates;
These specified dates are December 20, 1999, the last full trading day before
the public announcement of the original merger agreement, October 10, 2000, the
last trading day before the public announcement of the amended and restated
merger agreement and June 14, 2001, the last practicable day before the date of
this proxy statement-prospectus. PracticeWorks commenced trading as an
independent public company on the American Stock Exchange on March 6, 2001.
Therefore, the last reported sales price for PracticeWorks common stock is only
reported as of June 14, 2001.
The equivalent price per share data for Medical Dynamics common stock at
December 20, 1999 and October 10, 2000 reflects the sum of the market value of
the InfoCure common stock and the InfoCure preferred stock (on an as-converted
basis) you would have received in exchange for one share of Medical Dynamics
common stock had the merger been completed on each of these dates. The market
value of the InfoCure common stock that you would have received was determined
by multiplying the last reported sales price of one share of InfoCure common
stock on the applicable date by 0.06873. The market value of the InfoCure
preferred stock was calculated by determining the number of shares of common
stock into which 0.07558 shares of preferred stock may be converted (based on
the initial liquidation preference and conversion price of the InfoCure
preferred stock at this time) and multiplying that number by the last reported
sales price of one share of InfoCure common stock on the applicable date.
The equivalent price per share data for Medical Dynamics common stock at
June 14, 2001 reflects the sum of the market value of the InfoCure common stock,
the PracticeWorks common stock and the PracticeWorks preferred stock (on an
as-converted basis) you would have received in exchange for one share of Medical
Dynamics common stock had the merger been completed on this date. The market
value of the InfoCure common stock that you would have received was determined
by multiplying the last reported sales price of one share of InfoCure common
stock on June 14, 2001 by 0.06873. The market value of the PracticeWorks common
stock was determined by multiplying the last reported sales price of
PracticeWorks common stock on June 14, 2001 by 0.017183. The market value of the
PracticeWorks preferred stock was calculated by determining the number of shares
of common stock into which 0.07558 shares of preferred stock may be converted
(based on the initial liquidation preference and conversion price of the
PracticeWorks preferred stock at this time) and multiplying that number by the
last reported sales price of one share of PracticeWorks common stock on June 14,
2001.
INFOCURE:
PRICE PER SHARE
DATE COMMON STOCK
- ---- ---------------
December 20, 1999............ $27.00
October 10, 2000............. 3.91
June 14, 2001................ 1.92
PRACTICEWORKS:
PRICE PER SHARE
DATE COMMON STOCK
- ---- ---------------
June 14, 2001................ $ 7.06
MEDICAL DYNAMICS:
PRICE PER SHARE PRICE PER SHARE
DATE COMMON STOCK COMMON STOCK
- ---- --------------- ---------------
December 20, 1999.... $0.94 $2.41
October 10, 2000..... 0.25 0.35
June 14, 2001........ .16 0.33
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
InfoCure, PracticeWorks and Medical Dynamics have made forward-looking
statements in this document and in documents to which we have referred you.
These statements are subject to risks and uncertainties, and we cannot assure
you that
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these statements will prove to be correct. Forward-looking statements include
assumptions as to how InfoCure, PracticeWorks and Medical Dynamics may perform
in the future. When we use words like "believes," "expects," "anticipates" or
similar expressions, we are making forward-looking statements. For those
statements, InfoCure, PracticeWorks and Medical Dynamics claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. You should understand that the
important factors discussed in this document and in the documents to which we
have referred you could affect the future results of InfoCure, PracticeWorks and
Medical Dynamics and could cause those results to differ materially from those
expressed in our forward-looking statements. See "Risk Factors" beginning on
page 24.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have any questions about the merger, please call Van A. Horsley,
Medical Dynamics' President, at (303) 486-5818.
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SELECTED HISTORICAL FINANCIAL DATA
INFOCURE SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data for the three months ended
March 31, 2001 and 2000 and for each of the years in the three year period ended
December 31, 2000 and the consolidated balance sheet data as of March 31, 2001
and December 31, 2000 and 1999 are derived from, and qualified by reference to,
the financial statements incorporated by reference in this proxy
statement-prospectus. The consolidated statement of operations data for each of
the years in the three year period ended December 31, 2000 and the consolidated
balance sheet data as of December 31, 2000 and 1999 have been derived from
financial statements audited by BDO Seidman, LLP, InfoCure's independent
certified public accountants. The consolidated statement of operations data for
the year ended December 31, 1998 and the eleven months ended December 31, 1997
and the consolidated balance sheet data as of December 31, 1998 and 1997 are
derived from financial statements audited by BDO Seidman, LLP which are not
included or incorporated by reference in this proxy statement-prospectus. The
consolidated statement of operations data for the year ended January 31, 1997
and the consolidated balance sheet data as of January 31, 1997 are unaudited.
The consolidated statement of operations data for the three months ended March
31, 2001 and 2000 and the consolidated balance sheet data as of March 31, 2001
are unaudited. Operating results for the three month period ended March 31, 2001
are not necessarily indicative of results that may be expected for the fiscal
year. Management of InfoCure believes that the assumptions underlying the
preparation of InfoCure's financial statements are reasonable.
As a result of the spin-off, the consolidated financial data presented
herein reflects the reclassification of PracticeWorks to discontinued
operations. The consolidated financial data for all periods presented also give
retroactive effect in accordance with the pooling of interests method of
accounting to six acquisitions completed during 1999 and one in 1998 and a
two-for-one stock split in August 1999. The financial information included in
this section may not be indicative of our future results of operations,
financial position and cash flows.
THREE MONTHS ELEVEN
ENDED MONTHS YEAR
MARCH 31, YEAR ENDED DECEMBER 31, ENDED ENDED
------------------- ----------------------------- DECEMBER 31, JANUARY 31,
2001 2000 2000 1999(1) 1998(2) 1997(3)(4) 1997
-------- -------- -------- -------- ------- ------------ -----------
(UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Total revenue................... $ 25,418 $ 25,899 $101,057 $149,043 $86,358 $ 53,745 $33,999
-------- -------- -------- -------- ------- -------- -------
Operating expense:
Hardware and other items
purchased for resale........ 6,570 6,627 28,748 39,959 19,255 15,533 8,074
Selling, general and
administrative (excluding
compensatory stock awards
and other non-recurring
charges).................... 15,544 19,133 70,577 76,104 42,586 38,161 27,299
Research and development...... 2,065 4,255 13,833 11,470 13,861 10,652 5,592
Depreciation and
amortization................ 6,707 6,757 28,183 11,206 4,110 3,850 2,320
Non-Recurring:
Restructuring(5)............ -- 426 9,958 4,124 843 6,589 --
Provision for notes
receivable(6)............. 6,000 -- -- -- -- -- --
Impairment and other non-
recurring charges(5)(6)... 1,747 -- 6,012 4,743 -- -- --
Merger costs................ -- -- -- 3,105 54 -- --
15
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INFOCURE CORPORATION
--------------------------------------------------------------------------------
THREE MONTHS ELEVEN
ENDED MONTHS YEAR
MARCH 31, YEAR ENDED DECEMBER 31, ENDED ENDED
------------------- ----------------------------- DECEMBER 31, JANUARY 31,
2001 2000 2000 1999(1) 1998(2) 1997(3)(4) 1997
-------- -------- -------- -------- ------- ------------ -----------
(UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
Purchased research and
development............... -- -- -- -- 9,000 -- --
Compensatory stock awards... -- -- -- 1,003 -- 64 --
Gain on sale of fixed
assets, net............... (365) -- (499) -- -- -- --
-------- -------- -------- -------- ------- -------- -------
Total operating
expense.............. 38,268 37,198 156,812 151,714 89,709 74,849 43,285
-------- -------- -------- -------- ------- -------- -------
Operating loss.................. (12,850) (11,299) (55,755) (2,671) (3,351) (21,104) (9,286)
Interest expense and other,
net........................... 822 847 2,761 2,178 2,863 375 599
-------- -------- -------- -------- ------- -------- -------
Loss from continuing operations
before income taxes and
extraordinary item............ (13,672) (12,146) (58,516) (4,849) (6,214) (21,479) (9,885)
Income tax benefit.............. -- (3,923) (9,843) (1,610) (1,910) (7,033) (2,385)
-------- -------- -------- -------- ------- -------- -------
Loss from continuing
operations.................... (13,672) (8,223) (48,673) (3,239) (4,304) (14,446) (7,500)
(Loss) income from discontinued
operations, net of taxes...... (5,384) (2,958) (29,440) 2,308 (2,495) (4,263) 1,554
Extraordinary item, net of
income taxes.................. -- -- -- (2,863) -- -- --
-------- -------- -------- -------- ------- -------- -------
Net loss............... $(19,056) $(11,181) $(78,113) $ (3,794) $(6,799) $(18,709) $(5,946)
======== ======== ======== ======== ======= ======== =======
Per share data(7):
Basic and diluted:
Loss from continuing
operations before
extraordinary item........ $ (0.39) $ (0.25) $ (1.45) $ (0.12) $ (0.22) $ (0.93)
(Loss) income from
discontinued operations... (0.15) (0.09) (0.88) 0.08 (0.13) (0.28)
Extraordinary item, net of
tax....................... -- -- -- 0.10 -- --
-------- -------- -------- -------- ------- --------
Net loss............... $ (0.54) $ (0.34) $ (2.33) $ (0.14) $ (0.35) $ (1.21)
======== ======== ======== ======== ======= ========
AS OF AS OF DECEMBER 31, AS OF
MARCH 31, ----------------------------------------- JANUARY 31,
2001 2000 1999 1998 1997 1997
--------- -------- -------- -------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents................. $ 7,127 $ 5,969 $ 14,309 $ 8,669 $ 6,054 $ 3,184
Working capital........................... (9,078) (11,144) 25,993 (2,564) (3,138) (6,570)
Total assets.............................. 104,286 143,825 196,271 196,940 133,834 29,354
Long-term debt, less current portion...... 34,996 35,057 31,564 58,127 7,989 5,611
Convertible, redeemable preferred stock... -- 10,000 -- 8,501 -- --
Total stockholders' equity................ 30,828 58,450 135,339 22,772 11,615 5,051
- ---------------
(1) During 1999, InfoCure acquired one company accounted for as a purchase and
six companies accounted for as poolings of interest.
(2) During 1998, InfoCure acquired two companies in transactions accounted for
as purchases and one company accounted for as a pooling of interest.
(3) During 1997, InfoCure acquired four companies in transactions accounted for
as purchases.
(4) InfoCure changed its fiscal year end from January 31 to December 31
effective February 1, 1997. Accordingly, the 1997 fiscal period is comprised
of eleven months.
(5)On August 1, 2000, InfoCure announced its 2000 restructuring plan which
included the termination of 400 employees resulting in severance and other
termination benefits of $4.0
16
23
million, and the closure and consolidation of 14 facilities resulting in
facility closure costs and other charges of $5.2 million. For the year ended
December 31, 2000, impairment and other non-recurring charges totaled $6.0
million, consisting of impairment charges of approximately $3.9 million for
asset write-downs and a write-down of inventory of $1.1 million related to
our decision to discontinue selling hardware and hardware support in certain
of our business lines. In addition, we incurred approximately $700,000 in
charges related to compensation and other termination benefits which were not
eligible for accrual, and $273,000 for professional services and other
related costs. During the year ended December 31, 1999, restructuring
consisted of facility closure and related costs of $2.0 million, severance
and other termination benefits of $1.4 million and incremental costs
associated with the completion of discontinued customer contracts of
$681,000. An additional $800,000 of costs related to the 1999 restructuring
were recorded in 2000. These costs consisted primarily of termination and
other severance costs for employee terminations determined in 1999 but for
whom the details were not communicated until 2000. During the year ended
December 31, 1999, impairment and other non-recurring charges of $4.7 million
consisted primarily of a write-off of capitalized software costs. During the
year ended December 31, 1998, restructuring consisted of severance and other
termination benefits of $843,000.
(6)As of March 31, 2001, InfoCure recorded non-recurring charges of $7.7 million
consisting primarily of a $6.0 million doubtful allowance provision for notes
receivable from former inside directors, $850,000 for unused financing and
$356,000 for retention bonuses for terminated employees.
(7) Loss per share for the year ended January 31, 1997 has not been provided as
it is not considered meaningful due to the acquisition of the Founding
Companies and InfoCure's initial public offering in connection with the
formation of InfoCure in the period ended December 31, 1997.
PRACTICEWORKS SELECTED HISTORICAL FINANCIAL DATA
You should read the following selected financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", PracticeWorks' unaudited financial statements as of March 31, 2001
and for the three months ended March 31, 2001 and 2000 and PracticeWorks'
audited financial statements as of December 31, 2000 and 1999 and for each of
the three years in the period ended December 31, 2000 and the related notes
appearing elsewhere in this proxy statement-prospectus. The statement of
operations data for each of the three years in the period ended December 31,
2000, and the balance sheet data as of December 31, 2000 and 1999 are derived
from, and qualified by reference to, the financial statements included elsewhere
in this proxy statement-prospectus that have been audited by BDO Seidman, LLP,
PracticeWorks' independent certified public accountants. The statement of
operations data for the eleven months ended December 31, 1997 and the balance
sheet data as of December 31, 1998 and 1997 are derived from, and qualified by
reference to, the financial statements audited by BDO Seidman, LLP, not included
in this proxy statement-prospectus. The information for the three months ended
March 31, 2001 and 2000 and for the year ended January 31, 1997 and the
information as of March 31, 2001 and January 31, 1997 is unaudited. Results for
the three month period ended March 31, 2001 are not necessarily indicative of
results that may be expected for the fiscal year. Management of PracticeWorks
believes that the assumptions underlying the preparation of PracticeWorks'
financial statements are reasonable. Our subscription based revenue model is
different than the one we have used historically and we are currently developing
new applications and services we have not historically offered. Therefore, the
financial information included in this section may not be indicative of our
future results of operations, financial position and cash flows. In addition,
this financial
17
24
information may not reflect the financial results we would have achieved if we
had been a separate stand-alone entity during these periods.
The financial statements for all periods presented give retroactive effect
to poolings of interests treatment for five acquisitions completed during 1999
attributed to us by InfoCure and include the results of operations for all
purchase acquisitions attributed to us by InfoCure from the respective
acquisition date.
PRACTICEWORKS, INC.
---------------------------------------------------------------------------------
THREE MONTHS
ENDED ELEVEN MONTHS
MARCH 31, YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
------------------ ------------------------------ DECEMBER 31, JANUARY 31,
2001(1) 2000(2) 2000(2) 1999(3) 1998(4) 1997(5) 1997
------- -------- -------- -------- -------- ------------- -----------
(UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Total revenue.................. $11,817 $ 9,820 $ 40,015 $ 54,591 $ 43,487 $21,484 $19,645
------- -------- -------- -------- -------- ------- -------
Operating expense:
Hardware and other purchases
for resale................. 1,447 1,296 5,337 9,654 9,726 3,722 6,334
Selling, general and
administrative (excluding
compensatory stock awards
and certain other
non-recurring charges)..... 10,212 8,520 38,895 28,666 21,061 11,703 9,394
Research and development..... 726 654 3,481 4,185 3,537 3,267 1,924
Depreciation and
amortization............... 5,314 3,293 17,250 3,284 2,272 551 283
Restructuring(6)(7).......... (310) 778 3,869 940 1,031 6,463 --
Impairment and other non-
recurring charges(6)(7).... 2,436 -- 3,541 874 -- -- --
Merger costs................. -- -- -- 659 69 -- --
Compensatory stock awards.... -- -- -- 428 6,447 14 --
Gain on disposal of fixed
assets..................... -- (640) (636) -- -- -- --
------- -------- -------- -------- -------- ------- -------
Total operating
expense............. 19,819 13,901 71,737 48,690 44,143 25,720 17,935
------- -------- -------- -------- -------- ------- -------
Operating (loss) income........ (8,002) (4,081) (31,722) 5,901 (656) (4,236) 1,710
Interest expense and other,
net.......................... 625 379 2,117 1,335 966 198 182
------- -------- -------- -------- -------- ------- -------
(Loss) income before income
taxes and extraordinary
item......................... (8,627) (4,460) (33,839) 4,566 (1,622) (4,434) 1,528
(Benefit) provision for income
taxes........................ -- (1,502) (4,399) 2,186 873 (171) (26)
------- -------- -------- -------- -------- ------- -------
(Loss) income before
extraordinary item........... (8,627) (2,958) (29,440) 2,380 (2,495) (4,263) 1,554
Extraordinary item, net of
income taxes................. -- -- -- (72) -- -- --
Accrued and accretive dividends
on preferred stock........... 333 -- -- -- -- -- --
------- -------- -------- -------- -------- ------- -------
Net (loss) income
available to common
stockholders........ $(8,960) $ (2,958) $(29,440) $ 2,308 $ (2,495) $(4,263) $ 1,554
======= ======== ======== ======== ======== ======= =======
18
25
PRACTICEWORKS, INC.
---------------------------------------------------------------------------------
THREE MONTHS
ENDED ELEVEN MONTHS
MARCH 31, YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
------------------ ------------------------------ DECEMBER 31, JANUARY 31,
2001(1) 2000(2) 2000(2) 1999(3) 1998(4) 1997(5) 1997
------- -------- -------- -------- -------- ------------- -----------
(UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
Per share data:
Basic and diluted:
(Loss) income before
extraordinary item......... $ (0.99) $ (0.36) $ (3.51) $ 0.34 $ (0.52) $ (1.10) $ 1.13
Extraordinary item, net of
tax........................ -- -- -- (0.01) -- -- --
------- -------- -------- -------- -------- ------- -------
Accrued and accretive dividends
on preferred stock........... (0.04) -- -- -- -- -- --
------- -------- -------- -------- -------- ------- -------
Net (loss) income available to
common stockholders.......... $ (1.03) $ (0.36) $ (3.51) $ 0.33 $ (0.52) $ (1.10) $ 1.13
======= ======== ======== ======== ======== ======= =======
Other Data (in thousands):
EBITDA, as adjusted(8)....... $ (568) $ (650) $ (7,698) $ 12,086 $ 9,163 $ 2,792 $ 1,993
Cash flow from:
Operating activities......... 48 362 (8,603) 5,814 2,258 3,016 (8,341)
Investing activities......... (1,792) (11,536) (26,970) (10,276) (15,575) (5,730) 484
Financing activities......... 4,902 12,368 37,015 5,356 14,209 2,817 15,357
AS OF AS OF DECEMBER 31, AS OF
MARCH 31, ------------------------------------- JANUARY 31,
2001 2000 1999 1998 1997 1997
----------- ------- ------- ------- ------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Consolidated balance sheet data:
Cash and cash equivalents................... $ 7,135 $ 3,979 $ 2,527 $ 1,633 $ 741 $ 638
Working capital............................. (5,370) (3,172) (1,190) (1,034) (3,598) 1,337
Total assets................................ 93,359 68,522 57,842 37,098 14,434 3,659
Long-term debt, less current portion........ 20,031 20,239 9,614 14,769 4,405 351
Net equity.................................. 23,436 29,829 32,419 10,800 983 1,229
- -------------------------
(1)During the quarter ended March 31, 2001, PracticeWorks acquired one company
in a transaction accounted for as a purchase.
(2) During the three months ended March 31, 2000 and during the year ended
December 31, 2000, InfoCure acquired four and six companies, respectively,
attributed to PracticeWorks in transactions accounted for as purchases.
(3) During 1999, InfoCure acquired four companies attributed to PracticeWorks in
transactions accounted for as purchases.
(4) During 1998, InfoCure acquired one company attributed to PracticeWorks in a
transaction accounted for as a purchase.
(5) InfoCure changed its fiscal year end from January 31 to December 31
effective February 1, 1997. Accordingly, the 1997 fiscal period is comprised
of eleven months. During 1997, InfoCure acquired two companies attributed to
PracticeWorks in transactions accounted for as purchases.
(6) On August 1, 2000, PracticeWorks announced its 2000 restructuring plan which
included the termination of 145 employees resulting in severance and other
termination benefits of $1.7 million, and the closure and consolidation of
11 facilities resulting in facility closure costs and other charges of $1.3
million. For the year ended December 31, 2000, restructuring also included
$816,000 related to the 1999 plan. Impairment and other non-recurring
charges consisted of impairment charges of approximately $500,000 for asset
write-downs and a write-down of
19
26
inventory of $1.5 million related to our decision to discontinue selling
hardware and hardware support in certain of our business lines in connection
with our new hardware agreement with Dell Computer Corporation. In addition,
PracticeWorks incurred approximately $1.4 million in charges related to the
spin-off consisting principally of professional service fees. During the
year ended December 31, 1999, restructuring consisted of contingent
consideration related to acquired companies whose products were discontinued
of $700,000, charges for asset write-downs of $97,000, facility closure
costs of $95,000 and severance and other termination benefits of $48,000. An
additional $816,000 of costs related to the 1999 restructuring were recorded
in 2000. These costs consisted primarily of termination and other severance
costs for employee terminations determined in 1999 but for whom the details
were not communicated until 2000. During the year ended December 31, 1999,
impairment and other non-recurring charges consisted of a write-off of
capitalized software costs of $874,000. During the year ended December 31,
1998, restructuring consisted of contingent consideration related to
acquired companies whose products were discontinued of $750,000 and
severance and other termination benefits of $281,000. During the eleven
months ended December 31, 1997, restructuring consisted of the write-off of
goodwill of $3.5 million, contingent consideration of $2.2 million related
to acquired companies whose products were discontinued, facility closure
costs of $401,000, the write-off of capitalized software costs of $339,000
and other charges for asset write-downs of $90,000.
(7)During the quarter ended March 31, 2001, we incurred non-recurring charges of
$2.4 million relating primarily to professional fees, printing and similar
costs in connection with completion of the spin-off from InfoCure offset by a
reduction of $310,000 in restructuring costs due to the renegotiation of
terminated facility leases.
(8) EBITDA, as adjusted, represents earnings before interest, (benefit)
provision for income taxes, depreciation and amortization, restructuring,
impairment and other non-recurring charges, merger costs, compensatory stock
awards and gain on disposal of fixed assets. PracticeWorks has excluded
restructuring and other charges, merger costs, compensatory stock awards and
gain on disposal of fixed assets from EBITDA, as adjusted, because
PracticeWorks does not believe those costs are representative of the normal
recurring nature of our operations. EBITDA, as adjusted, is provided because
it is a measure commonly used by analysts and investors to determine a
company's ability to incur and service debt. EBITDA, as adjusted, is not a
measurement in accordance with generally accepted accounting principles, or
GAAP, and should not be considered an alternative to, or more meaningful
than, net (loss) income as a measure of our profitability or cash flows as a
measure of our liquidity. All companies do not calculate EBITDA, as
adjusted, in the same manner. Accordingly, PracticeWorks' EBITDA, as
adjusted, may not be comparable with that of other companies. PracticeWorks
has included information concerning EBITDA, as adjusted, because management
believes EBITDA, as adjusted, provides a useful measure of its performance.
You should note, however, that the items excluded from EBITDA, as adjusted,
are significant components in understanding and assessing our performance.
MEDICAL DYNAMICS SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected historical financial data set forth below as of September 30,
1998, 1997 and 1996, and for each of the years in the three years ended
September 30, 1998 have been derived from Medical Dynamics' audited consolidated
financial statements not included or incorporated by reference into this proxy
statement-prospectus. The selected historical financial data set forth below as
of March 31, 2001, September 30, 2000, and for the six months ended March 31,
2001 and 2000 and for each of the years in the two year-period ended September
30, 2000 have been derived from Medical Dynamics' consolidated financial
statements which are incorporated by reference into this
20
27
proxy statement-prospectus. The consolidated financial statements as of
September 30, 2000 and for the years ended September 30, 2000 and 1999 have been
audited by Hein + Associates LLP, whose report on these consolidated financial
statements is also incorporated by reference in this proxy statement-prospectus.
The following financial information should be read in conjunction with Medical
Dynamics' consolidated financial statements and consolidated condensed financial
statements incorporated by reference into this proxy statement-prospectus.
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
------------------- -----------------------------------------------
STATEMENT OF OPERATIONS DATA 2001 2000 2000 1999 1998 1997 1996
- ---------------------------- ------ ------- ------- ------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues............................... $1,297 $ 2,243 $ 3,699 $10,959 $ 7,847 $ 983 $ 668
Cost of revenues....................... 582 1,053 1,715 6,108 4,059 1,296 652
Gross profit........................... 715 1,190 1,984 4,851 3,788 (313) 16
Operating loss......................... (189) (901) (1,594) (4,520) (2,304) (1,684) (1,787)
Net loss............................... (298) (1,073) (1,951) (5,398) (2,522) (1,548) (1,742)
Net loss per share..................... (0.02) (0.09) (0.15) (0.52) (0.27) (0.21) (0.25)
SEPTEMBER 30,
MARCH 31, --------------------------------------------
BALANCE SHEET DATA: 2001 2000 1999 1998 1997 1996
- ------------------- ------------ ------- ------- ------ ------ ------
(UNAUDITED) (IN THOUSANDS)
Cash and cash equivalents......................... $ 755 $ 331 $ 180 $ 553 $ 836 $ 993
Working capital................................... (2,428) (2,561) (1,787) 449 1,343 1,148
Total assets...................................... 4,351 4,298 5,603 9,170 1,917 2,237
Long-term debt, less current portion.............. 72 136 578 1,769 -- --
Stockholders' equity.............................. 926 1,224 2,593 5,464 1,547 1,926
PRACTICEWORKS SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
The following selected unaudited pro forma condensed combined financial
information has been derived from the historical financial statements of
PracticeWorks and Medical Dynamics. The unaudited pro forma condensed combined
balance sheet data as of March 31, 2001 has been presented as if the pending
acquisition of Medical Dynamics had been consummated on that date. The unaudited
pro forma condensed combined statement of operations data for the three months
ended March 31, 2001 and for the year ended December 31, 2000 have been
presented as if the pending acquisition of Medical Dynamics had been consummated
on January 1, 2000. The unaudited pro forma condensed combined statement of
operations data for the year ended December 31, 2000 and the three months ended
March 31, 2001 also reflect the impact of PracticeWorks' acquisition of InfoSoft
completed March 7, 2001 and the sale of $5.0 million of series C convertible
redeemable preferred stock completed March 6, 2001.
The selected unaudited pro forma condensed combined financial information
gives effect to the acquisitions of Medical Dynamics and InfoSoft under the
purchase method of accounting for business
21
28
combinations and is based upon the assumptions and adjustments described in the
accompanying notes to the unaudited pro forma condensed combined financial
statements.
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2001 DECEMBER 31, 2000
------------------ -----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Total revenue.................................... $ 13,818 $ 51,683
Depreciation and amortization.................... 7,125 28,766
Restructuring and other non-recurring charges.... 2,120 7,410
Operating loss................................... (9,772) (41,577)
Preferred dividends.............................. (1,458) (5,833)
Net loss available to common stockholders........ (11,918) (45,020)
Net loss per share, basic and diluted............ (1.34) (5.23)
MARCH 31, 2001
--------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,793
Working capital............................................. (6,872)
Total assets................................................ 101,644
Long-term debt, less current portion........................ 20,103
Series A convertible redeemable preferred stock -- net...... 21,281
Series B convertible redeemable preferred stock -- net...... 3,750
Series C convertible redeemable preferred stock -- net...... 5,052
Stockholders' equity........................................ 26,568
22
29
COMPARATIVE PER COMMON SHARE DATA
We are providing the following comparative per common share information to
aid you in your analysis of the financial aspects of the merger. You should read
this information in conjunction with the historical financial statements of
PracticeWorks and InfoSoft, which are included in this document, and the
historical consolidated financial statements of InfoCure and Medical Dynamics
contained in reports that have been previously filed with the SEC and that are
incorporated by reference in this proxy statement-prospectus. See PracticeWorks
Introduction to Unaudited Pro Forma Condensed Combined Financial Statements
beginning on page F-42. The pro forma loss per share amounts presented below
reflect the pending acquisition of Medical Dynamics as if it had occurred on
January 1, 2000. The pro forma book value per share amounts presented below
reflect the pending acquisition of Medical Dynamics as though it had occurred on
March 31, 2001. The Medical Dynamics pro forma equivalent per share data were
calculated by multiplying the pro forma per share data by 0.06873 (the exchange
ratio relating to the number of shares of InfoCure common stock that Medical
Dynamics stockholders would have received in the merger for each share of
Medical Dynamics common stock held had the merger been completed prior to the
spin-off), so that the pro forma per share amounts are equated to the respective
values for one share of Medical Dynamics, assuming an all stock conversion. The
pro forma per share data are not necessarily indicative of the results that
would have occurred, your financial interest in such results, or the future
results that will occur after the merger. Neither PracticeWorks, InfoCure nor
Medical Dynamics has paid cash dividends on its common stock.
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2001 DECEMBER 31, 2000
------------------ -----------------
LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS
(BASIC AND DILUTED):
InfoCure historical................................. $(0.39) $(1.45)
PracticeWorks historical............................ (1.03) (3.51)
Medical Dynamics historical(1)...................... (0.01) (0.15)
Pro forma combined.................................. (1.34) (5.20)
Medical Dynamics pro forma equivalent(2)............ (0.09) (0.36)
MARCH 31, 2001
--------------
BOOK VALUE PER COMMON SHARE:
InfoCure historical....................................... $0.87
PracticeWorks historical.................................. 2.70
Medical Dynamics historical............................... 0.07
Pro forma combined........................................ 2.98
Medical Dynamics pro forma equivalent(2).................. 0.21
- -------------------------
(1) Medical Dynamics historical data for the year ended December 31, 2000 is
derived from its consolidated financial statements for the year ended
September 30, 2000.
(2) The Medical Dynamics pro forma equivalent per share data does not give
effect to the conversion of the PracticeWorks preferred stock that would
have been issued in the merger because, as of the dates presented, the
preferred stock was "out-of-the money" in that the conversion price of the
PracticeWorks preferred stock would have been substantially greater than the
market price of the PracticeWorks common stock.
23
30
RISK FACTORS
If the merger is consummated, you may receive shares of InfoCure common
stock, PracticeWorks common stock and PracticeWorks preferred stock in exchange
for your shares of Medical Dynamics common stock. You should be aware of
particular risks and uncertainties that are applicable to an investment in
InfoCure common stock, PracticeWorks common stock and PracticeWorks preferred
stock. In addition to the other information included and incorporated by
reference in this proxy statement-prospectus, you should consider carefully the
matters described below in determining whether to approve the merger agreement.
RISKS RELATED TO THE MERGER
PRACTICEWORKS MAY NOT ACHIEVE THE ANTICIPATED BENEFITS FROM THE MERGER.
In connection with the spin-off, PracticeWorks assumed InfoCure's
obligation to acquire Medical Dynamics. PracticeWorks is a newly-formed company
and it cannot guarantee you that it will realize the benefits that it
anticipates from integrating Medical Dynamics' operations and PracticeWorks'
operations as fully or as quickly as it expects. PracticeWorks may encounter
difficulties integrating Medical Dynamics' operations, including, without
limitation:
- difficulty integrating the financial, operational and administrative
functions of Medical Dynamics;
- difficulty integrating Medical Dynamics' products and services;
- delays in realizing the benefits of PracticeWorks strategies for Medical
Dynamics' business;
- diversion of management's attention from existing operations;
- difficulty operating in markets in which PracticeWorks has little prior
experience;
- inability to retain key employees necessary to continue the operations of
Medical Dynamics; or
- Medical Dynamics' unknown or contingent liabilities.
The challenges and risks of integrating the operations of Medical Dynamics
will be made greater because PracticeWorks is still integrating several recent
acquisitions and is still completing the administrative separation required by
the spin-off from InfoCure. Moreover, PracticeWorks anticipates that it will
make additional future acquisitions. The integration of multiple acquisitions at
the same time will place an even greater strain on PracticeWorks' management's
resources and attention.
THE MEDICAL DYNAMICS BOARD OF DIRECTORS DID NOT OBTAIN ANY THIRD PARTY OPINION
AS TO THE FAIRNESS OF THE MERGER.
The Medical Dynamics board of directors did not seek or obtain any third
party fairness opinion or any valuation or appraisal of either Medical Dynamics,
InfoCure or PracticeWorks. Therefore, in voting to approve the merger, the
Medical Dynamics stockholders will not have the benefit of a third party opinion
that the number of shares of InfoCure common stock, PracticeWorks common stock
and PracticeWorks preferred stock to be received by them in the merger is fair
from a financial point of view. The number of
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shares of InfoCure common stock, PracticeWorks common stock and PracticeWorks
preferred stock to be received in the merger was negotiated directly between
representatives of InfoCure, PracticeWorks and Medical Dynamics.
CERTAIN OF MEDICAL DYNAMICS' OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST
THAT MAY INFLUENCE THEM TO SUPPORT OR APPROVE THE MERGER.
The directors and officers of Medical Dynamics participate in arrangements
and have continuing indemnification against liabilities that provide them with
interests in the merger that are different from, or are in addition to, your
interests. These directors and officers have already agreed to vote to approve
the merger agreement. You should consider whether these interests may have
influenced these directors or officers to support, vote for, or recommend the
merger.
MEDICAL DYNAMICS' OPERATING LOSSES WILL INCREASE PRACTICEWORKS' LOSSES PER
SHARE.
Medical Dynamics has experienced recent operating losses. As a result,
PracticeWorks' losses per share will be increased, which may negatively affect
the market price of PracticeWorks common stock.
Since the original execution of the merger agreement, Medical Dynamics' net
sales have dropped considerably. Further, Medical Dynamics' independent
accountants have stated in their audit report that there is substantial doubt as
to Medical Dynamics' ability to continue as a going concern.
YOUR RIGHTS AS A MEDICAL DYNAMICS STOCKHOLDER DIFFER FROM THE RIGHTS YOU WILL
HAVE AS A STOCKHOLDER OF INFOCURE AND PRACTICEWORKS.
Following the merger, you may become a holder of InfoCure common stock,
PracticeWorks common stock, and/or PracticeWorks preferred stock. Certain
material differences exist between the rights of stockholders of Medical
Dynamics under Medical Dynamics' articles of incorporation and bylaws and
Colorado law, and the rights of stockholders of InfoCure and PracticeWorks under
InfoCure's and PracticeWorks' certificates of incorporation and bylaws and
Delaware law. In addition, as a holder of PracticeWorks preferred stock, you
will have the rights defined in the certificate of designations for the
preferred stock.
THE TAX CONSEQUENCES OF THE MERGER ARE UNCERTAIN, AND COUNSEL TO PRACTICEWORKS
AND MEDICAL DYNAMICS MAY NOT BE ABLE TO RENDER AN OPINION AS TO THE TREATMENT OF
THE MERGER AS A REORGANIZATION FOR FEDERAL INCOME TAX PURPOSES AND THIS MIGHT
AFFECT THE ABILITY TO COMPLETE THE MERGER.
We can not assure you that counsel to PracticeWorks and counsel to Medical
Dynamics will be unable to render their respective opinions that the merger will
constitute a tax-deferred "reorganization" under Section 368 of the Internal
Revenue Code. The receipt of this tax opinion by both PracticeWorks and Medical
Dynamics is a condition to the completion of the merger. If this condition is
not satisfied, either party may terminate the merger agreement, unless such
condition is waived by both parties. For advance ruling purposes, the Internal
Revenue Service has taken the position that, in a transaction such as the
proposed merger between PracticeWorks and Medical Dynamics, at least 50 percent
of
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the fair market value of the aggregate consideration received by the former
stockholders of the acquired corporation must be in the form of stock of the
acquiring corporation in order for the merger to qualify as a tax-deferred
"reorganization" for federal income tax purposes. Therefore, if PracticeWorks
common stock and preferred stock comprises less than 50% of the fair market
value of the aggregate consideration to be received by Medical Dynamics'
stockholders in the merger, counsel to PracticeWorks and counsel to Medical
Dynamics may not be able to render their tax opinions. A significant decline in
the market value of PracticeWorks' securities, and/or a significant increase in
the market value of InfoCure common stock are the primary factors which might
cause PracticeWorks securities to comprise less than 50% of the aggregate merger
consideration. InfoCure, PracticeWorks and Medical Dynamics can not assure you
that significant fluctuations in the market value of InfoCure and PracticeWorks
securities will not occur. In addition, if counsel can not deliver their tax
opinions for the reasons stated above, yet both parties nonetheless waive the
condition and complete the merger, this may result in less assurance as to the
federal income tax treatment of the merger.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT MEDICAL DYNAMICS' FUTURE
BUSINESS AND OPERATIONS.
If the merger is not completed for any reason, Medical Dynamics may be
subject to a number of material risks, including the following:
- Medical Dynamics has a substantial working capital deficit and may have
difficulty paying its debts;
- Medical Dynamics may incur substantial operating losses and may need to
immediately and successfully establish new sources of financing, the
availability of which is uncertain;
- potential customers may defer purchases of Medical Dynamics products;
- potential partners may refrain from entering into agreements with Medical
Dynamics; and
- employee turnover may increase.
The occurrence of any of these factors would likely result in serious harm
to Medical Dynamics' business, results of operations and financial condition.
RISKS RELATED TO AN INVESTMENT IN PRACTICEWORKS SECURITIES
PRIOR TO THE SPIN-OFF, PRACTICEWORKS HAD NO OPERATING HISTORY AS AN INDEPENDENT
COMPANY AND IT MAY BE UNABLE TO MAKE THE CHANGES NECESSARY TO OPERATE AS A
STAND-ALONE COMPANY.
Prior to the March 5, 2001 spin-off, PracticeWorks did not have an
operating history as an independent public company. PracticeWorks relied on
InfoCure for various financial, administrative and managerial expertise in
conducting its operations. Following the spin-off, InfoCure has no obligation to
provide assistance to PracticeWorks other than the interim services which are
provided by InfoCure under the Transition Services Agreement, entered into in
connection with the spin-off. The services provided to InfoCure by PracticeWorks
include the preparation of tax returns, maintenance of the general ledger,
preparation of financial statements, corporate record-keeping and payroll. The
services provided to
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PracticeWorks by InfoCure include insurance-related services and employee
benefits services. Because PracticeWorks' business had never been operated as an
independent company prior to the spin-off, PracticeWorks cannot assure you that
it will be able to successfully put in place the financial, administrative and
managerial structure necessary to operate as an independent company on a
going-forward basis, or that the development of such a structure will not
require a significant amount of management's time or result in significant
additional operating costs, any of which could cause our results of operations
to suffer. Further, for the period from July 1997 through December 31, 2000,
InfoCure made net cash advances of approximately $40.1 million to PracticeWorks.
If PracticeWorks is unable to develop its own sources of funding, it may be
unable to execute on its business plan.
PRACTICEWORKS HAS A RECENT HISTORY OF LOSSES AND IT MAY NEVER ACHIEVE OR
MAINTAIN PROFITABILITY.
PracticeWorks had net losses of $8.6 million for the three months ended
March 31, 2001 and net losses of $29.4 million for the year ended December 31,
2000. PracticeWorks' accumulated deficit as of March 31, 2001 was $3.6 million.
PracticeWorks expects to continue to recognize reduced revenues due to its
introduction in the second quarter of 2000 of subscription pricing. This is due
to the elimination of the large up-front payment that it received in connection
with one-time licenses. As a result, PracticeWorks expects its operating and net
losses to continue for the foreseeable future. PracticeWorks cannot assure you
it will increase revenue or control expenses sufficiently to achieve or maintain
profitability in the future.
PRACTICEWORKS HAS CERTAIN OBLIGATIONS THAT WILL NEED TO BE REFINANCED, AND IT
MAY BE UNABLE TO REFINANCE THESE OBLIGATIONS ON FAVORABLE TERMS.
PracticeWorks has certain obligations that will need to be refinanced. The
outstanding principal balance of the FINOVA loan will amortize at 5.0% per
quarter beginning October 1, 2001, and the remaining outstanding balance under
the facility will be due in full on June 30, 2003. As of March 31, 2001, the
outstanding principal balance of the FINOVA loan was approximately $21.6
million. In addition, PracticeWorks may be required to finance the redemption of
its convertible redeemable preferred stock. If the series A convertible
redeemable preferred stock is not converted prior to March 7, 2006, or the fifth
anniversary of the date of issuance, the holders will have the right to require
PracticeWorks to redeem this preferred stock at a redemption price equal to the
liquidation preference, which is initially $32.0 million, plus accrued and
unpaid dividends. If the series B convertible redeemable preferred stock is not
converted prior to the fourth anniversary of the date of issuance, PracticeWorks
will be required to redeem this preferred stock at a redemption price equal to
the liquidation preference, which is initially $5.3 million, plus accrued and
unpaid dividends. If the series C convertible redeemable preferred stock is not
converted prior to March 6, 2005, or the fourth anniversary of the date of
issuance, the holders will have the right to require PracticeWorks to redeem
this preferred stock at a redemption price equal to 175% of the liquidation
preference, or $8.75 million. However, the terms of the FINOVA credit facility
prohibit redemption of any preferred stock without FINOVA's consent.
PracticeWorks cannot assure you that it will have sufficient funds available to
repay these obligations when they become due, and it may not be able to
refinance these obligations on favorable terms. Since an acquisition of a 50% or
greater interest in PracticeWorks by one or more persons within the four-year
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period beginning two years before the spin-off could cause the spin-off to be
taxable, PracticeWorks may be limited in its ability to refinance these
obligations by issuing equity.
PRACTICEWORKS' HISTORICAL FINANCIAL INFORMATION DOES NOT REFLECT THE
SUBSCRIPTION PRICING MODEL AND MANY OF THE APPLICATION AND SERVICE OFFERINGS
THAT IT EXPECTS TO BE THE FOCUS OF ITS BUSINESS IN THE FUTURE, WHICH MAKES IT
DIFFICULT TO EVALUATE ITS HISTORICAL AND FUTURE FINANCIAL PERFORMANCE.
PracticeWorks began operating as a separate division of InfoCure in the
first quarter of 2000. Historically, PracticeWorks charged its customers a
license fee plus maintenance and service fees for its practice management
applications and services. For the three months ended March 31, 2001, it derived
approximately 30.0% of its revenue from license and service fees, including
software upgrades and reselling hardware components, and 70.0% from maintenance
and support services, subscriptions and e-services (electronic data interchange,
or EDI, transactions and royalties and other revenues from e-commerce and other
services). PracticeWorks new pricing strategy is to migrate substantially all of
its providers to subscription pricing over the next five years. In addition, its
business strategy is to promote the most technologically advanced of its
existing applications, its application service provider, or ASP, applications
and the other new applications and services, including its Internet portal and
website development and hosting services that it is currently developing.
PracticeWorks expects the revenue and operating expenses from subscription
pricing and its new application and service offerings to differ from its
historical results. Specifically, revenue from subscription pricing will
initially be lower than revenue provided by one-time licenses because of the
elimination of the large up-front payment associated with selling software
licenses. Accordingly, its historical financial information reflects its results
from a pricing model that differs from the pricing model to which it is
transitioning its customer base and application and service offerings that
represent only a portion of the applications and services that it expects to
offer in the future.
PRACTICEWORKS DIRECTORS AND EXECUTIVE OFFICERS HAD CERTAIN CONFLICTS OF INTEREST
WITH RESPECT TO THE SPIN-OFF, WHICH MAY HAVE RESULTED IN TERMS UNFAVORABLE TO
PRACTICEWORKS.
PracticeWorks' directors and executive officers had certain conflicts of
interest with respect to setting the terms of the spin-off, negotiating the
terms of the agreements governing its relationship with InfoCure following the
spin-off, and approving the spin-off. Richard E. Perlman and James K. Price, two
members of InfoCure's board of directors, resigned from all positions with
InfoCure upon completion of the spin-off and became directors of PracticeWorks
at that time. Additionally, all of PracticeWorks' executive officers immediately
following the spin-off were employees of InfoCure immediately prior to the
spin-off. Certain of its executive officers who were executive officers of
InfoCure entered into new employment agreements with PracticeWorks. Also, in
August 2000, these directors and executive officers received grants of options
to purchase an aggregate of 3.35 million shares of InfoCure common stock in the
following amounts: Richard E. Perlman -- 1.2 million shares; James K.
Price -- 1.2 million shares; James C. Davis -- 700,000 shares; and James A.
Cochran -- 250,000 shares. On March 5, 2001, these options automatically
converted into options to purchase PracticeWorks common stock, and if the
spin-off had not been completed before March 31, 2001, approximately 75% of
these options would have been cancelled. Accordingly, these directors and
executive officers may have had an incentive to approve the spin-off even if the
terms were unfavorable to PracticeWorks.
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THE AGREEMENTS GOVERNING PRACTICEWORKS' RELATIONSHIP WITH INFOCURE FOLLOWING THE
SPIN-OFF WERE NEGOTIATED WHILE PRACTICEWORKS WAS A SUBSIDIARY OF INFOCURE AND AS
A RESULT, PRACTICEWORKS CANNOT ASSURE YOU THAT THE AGREEMENTS ARE ON TERMS
FAVORABLE TO PRACTICEWORKS.
The agreements governing PracticeWorks' relationship with InfoCure
following the spin-off were negotiated in a parent-subsidiary context and were
negotiated in the overall context of PracticeWorks' separation from InfoCure. At
the time of these negotiations, PracticeWorks' executive officers were executive
officers of InfoCure. PracticeWorks cannot assure you that these agreements were
the result of arm's-length negotiations. Especially as it relates to the
transition services agreement and the licensing agreements, PracticeWorks cannot
assure you that these agreements are on terms comparable to those which might
have been obtained from unaffiliated third parties. Additionally, after
PracticeWorks terminates these agreements, it may not be able to replace the
services and support which InfoCure provides under these agreements in a timely
manner or on terms and conditions, including cost, as favorable as those it
receives from InfoCure.
PRACTICEWORKS MAY HAVE POTENTIAL CONFLICTS OF INTEREST WITH RESPECT TO ITS
ONGOING RELATIONSHIPS WITH INFOCURE, AND THE RESOLUTION OF THESE CONFLICTS MAY
BE ON TERMS UNFAVORABLE TO PRACTICEWORKS.
All of PracticeWorks' executive officers and directors, at the time of the
spin-off, owned stock in both InfoCure and PracticeWorks. This ownership could
create, or appear to create, potential conflicts of interest with respect to the
resolution of disputes arising out of, among other things, the agreements
governing the two entities following the spin-off. PracticeWorks cannot assure
you that its directors and executive officers will resolve potential conflicts
in a manner which is in the best interests of PracticeWorks. Also, the
appearance of conflicts, even if such conflicts do not materialize, might
adversely affect the public's perception of the company following the spin-off.
PRACTICEWORKS' ASP APPLICATIONS AND SERVICES WILL NOT INITIALLY OFFER FULL
FUNCTIONALITY WHICH MAY MAKE IT DIFFICULT TO ATTRACT NEW CUSTOMERS FOR THESE
PRODUCTS.
PracticeWorks' initial ASP applications will not offer the full
functionality of its current products. Specifically, while its dental ASP will
initially feature the functionality required by most dental practices, plus the
efficiency of the ASP delivery model, upon initial release, the application will
not include third party features such as charting, graphical representation or
imaging of teeth or electronic medical records. PracticeWorks expects to provide
these levels of functionality in the first quarter of 2002. Similarly, although
its ASP applications for the orthodontic and oral and maxillofacial surgery
markets will contain the administrative and financial management functions
required to manage a dentist's office, they will not initially include the third
party features or support for imaging and x-rays. PracticeWorks expects to
provide such functionality for the orthodontic and the oral and maxillofacial
surgery markets in the fourth quarter of 2002. While it believes the fact that
the planned releases offering the administrative and financial functions
required by most dentists, coupled with the efficiency of the ASP delivery model
will be a competitive advantage, the lack of full functionality may result in
its products not being well received in the marketplace. Should these
circumstances occur, PracticeWorks' ability to convert existing customers to
these applications and its ability to achieve lower costs from this technology
will be adversely affected. Additionally, its ability to attract new
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customers may be adversely affected as well. As a result, it may be unable to
grow revenues and its ability to achieve profitability will be impaired.
PRACTICEWORKS MAY EXPERIENCE DELAYS IN RELEASING ITS ASP APPLICATIONS IN
TARGETED MARKETS.
PracticeWorks may experience delays in releasing its ASP applications in
its respective target markets. PracticeWorks expects to release its ASP
applications for use by dentists in the United States during the fourth quarter
of 2001 and its orthodontic and oral and maxillofacial surgery ASP applications
by the first quarter of 2002. PracticeWorks expects to release its Internet
portal and its website development and hosting services in the fourth quarter of
2001. However, it cannot assure you that it will not experience a delay in
releasing its ASP applications to its targeted markets. Any delay in releasing
its ASP applications may impair its ability to attract new customers and to grow
revenues and achieve profitability.
PRACTICEWORKS MAY NOT SUCCESSFULLY COMPLETE THE DEVELOPMENT OF ITS NEW
APPLICATIONS AND SERVICES, WHICH WOULD AFFECT ITS ABILITY TO IMPLEMENT ITS
GROWTH STRATEGY.
PracticeWorks' strategy for growing its business and achieving
profitability depends upon its ability to offer a number of additional
applications and services in the near future. It is continuing to develop its
ASP applications and our Internet portal, or website, and the services it will
enable. PracticeWorks expects to initially release its ASP applications for use
by dentists in the United States during the third quarter of 2001 and its
orthodontic and oral and maxillofacial surgery ASP applications by the first
quarter of 2002. Its initial ASP applications will not offer the full
functionality of its current products. PracticeWorks expects to release its
Internet portal and its website development and hosting services in the fourth
quarter of 2001. During 2001, PracticeWorks expects to spend approximately $1.2
million in development expenditures for the completion and enhancement of the
Internet portal and its ASP products. These expenditures will be financed
through operating cash flows and the proceeds from the Crescent investment.
However, because the development of its applications and services entails
significant technical and business risks and requires substantial expenditures
and lead time, PracticeWorks may be unable to offer these applications and
services on its projected schedule, in a cost-effective manner or at all. If the
offering of any or all of these applications and services is delayed or
cancelled, PracticeWorks' ability to grow its business and achieve profitability
will be substantially impaired.
IF PRACTICEWORKS IS UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS FROM
THIRD PARTY CHALLENGES, IT MAY SIGNIFICANTLY IMPAIR PRACTICEWORKS' COMPETITIVE
POSITION.
PracticeWorks' success and ability to compete depend in part on its ability
to protect its proprietary intellectual property rights, which consists
primarily of its internally developed and acquired software. Any failure to
adequately protect its proprietary rights could result in its competitors
offering similar services, which could impair its competitive advantage and
decrease its revenue. To protect its proprietary rights, PracticeWorks relies
primarily on a combination of copyright, trade secret and trademark laws,
confidentiality agreements with third parties, and protective contractual
provisions such as those contained in license agreements with suppliers, vendors
and customers. In addition, its employees are expected to sign an agreement to
comply with its corporate policies and procedures,
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including its policy regarding non-disclosure of confidential information.
PracticeWorks has not entered into these agreements in every case, and there
remains a risk that existing copyright, trademark and trade secret laws afford
only limited protection.
PracticeWorks cannot assure you that its means of protecting its
proprietary rights are adequate. Policing use of its proprietary information is
difficult, and the steps it has taken might not prevent misappropriation,
particularly in foreign countries where the laws may not protect its proprietary
rights as fully as do the laws of the United States. Despite its efforts,
unauthorized parties may copy aspects of its applications or services and obtain
and use information that it regards as proprietary. Its competitors could also
independently develop similar technology. Other parties may breach
confidentiality agreements and other protective contracts into which it has
entered. PracticeWorks may not become aware of, or have adequate remedies in the
event of, breaches.
THE SPIN-OFF MAY FAIL TO QUALIFY FOR NONRECOGNITION TREATMENT UNDER SECTION 355
OF THE INTERNAL REVENUE CODE.
In connection with the spin-off, King & Spalding, counsel to InfoCure and
PracticeWorks, rendered an opinion to the effect that, although the matter is
not free from doubt, the spin-off should qualify for nonrecognition treatment
under Section 355 of the Internal Revenue Code. There can be no assurance,
however, that the spin-off will qualify for nonrecognition treatment under
Section 355 of the Internal Revenue Code, and the opinion of King & Spalding
will be subject to a degree of uncertainty for a number of reasons. First,
Section 355 of the Internal Revenue Code is highly technical and complex, and
many aspects of the statute have not yet been addressed by judicial decisions,
Treasury regulations, or other administrative guidance. The opinion of King &
Spalding represented its best interpretation of the legal requirements of
Section 355 as applied to the spin-off, but an opinion of counsel is not binding
on the Internal Revenue Service or the courts. Second, the determination of
whether a transaction qualifies for nonrecognition treatment under Section 355
of the Internal Revenue Code depends in part on the business reasons for the
transaction and satisfaction of numerous other fact-based requirements. The
opinion of King & Spalding, therefore, was subject to certain assumptions and
based on various factual representations made by officers of PracticeWorks. If
any of the assumptions or representations upon which the opinion of King &
Spalding was based is inaccurate or incomplete in any material respect, the
spin-off could fail to qualify for nonrecognition treatment under Section 355 of
the Internal Revenue Code. Finally, the opinion of King & Spalding is subject to
uncertainty because it is possible that the spin-off could be rendered taxable
to InfoCure, but not its stockholders, under Section 355(e) of the Internal
Revenue Code as a result of subsequent acquisitions of the stock or assets of
InfoCure or PracticeWorks.
INFOCURE COULD INCUR A SUBSTANTIAL CORPORATE INCOME TAX LIABILITY IN CONNECTION
WITH THE SPIN-OFF, AND PRACTICEWORKS MAY BE REQUIRED TO INDEMNIFY INFOCURE FOR
ALL OR A PORTION OF THIS TAX LIABILITY.
If the spin-off fails to qualify for nonrecognition treatment under Section
355 of the Internal Revenue Code, then a corporate income tax could be payable
by InfoCure based upon the difference between (1) the aggregate fair market
value of the shares of PracticeWorks common stock distributed in the spin-off
and (2) InfoCure's adjusted basis in the shares of PracticeWorks stock. Although
the corporate level tax would be payable by InfoCure, PracticeWorks has agreed
to indemnify InfoCure under certain circumstances
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for all or a portion of this tax liability. This indemnification obligation, if
triggered, could be substantial. In addition, under the federal income tax
regulations that govern corporations filing a consolidated return, each member
of InfoCure's consolidated group, which includes PracticeWorks, is jointly and
severally liable for any tax liability incurred by InfoCure prior to the
spin-off or in connection with the spin-off.
Even if the spin-off qualifies for nonrecognition treatment under Section
355 of the Internal Revenue Code, a corporate income tax could be payable by
InfoCure as described above pursuant to Section 355(e) of the Internal Revenue
Code if, during the four-year period beginning two years before the spin-off,
one or more persons were to acquire a 50% or greater interest in PracticeWorks
as part of a plan or series of related transactions that includes the spin-off.
For example, a transaction or series of transactions resulting in an acquisition
of a 50% or greater interest in PracticeWorks, in the aggregate, by one or more
persons within the two-year period following the spin-off would trigger a
corporate level tax liability to InfoCure under Section 355(e) unless InfoCure
affirmatively establishes that the acquisition or acquisitions were not part of
a plan or series of related transactions that included the spin-off. If such an
acquisition of PracticeWorks were to occur within the two-year period following
the spin-off, InfoCure may be unable to prove that the acquisition was not part
of a plan or series of related transactions that included the spin-off, in which
case the spin-off would be taxable to InfoCure under Section 355(e) of the
Internal Revenue Code. The spin-off also could be taxable to InfoCure, but not
its stockholders, under Section 355(e) of the Internal Revenue Code if certain
acquisitions of "predecessors" of PracticeWorks are treated as having occurred
pursuant to a plan or series of related transactions that includes the spin-off.
A number of corporations that InfoCure acquired within the two-year period
preceding the spin-off may be treated as predecessors of PracticeWorks under
Section 355(e), although the statute is not clear and no administrative guidance
or court decisions to date have addressed the matter. If corporations acquired
by InfoCure within the two-year period preceding the spin-off are treated as
predecessors of PracticeWorks, the spin-off would be presumed to occur pursuant
to a plan or series of related transactions that included InfoCure's acquisition
of the predecessor corporations, and the spin-off would be taxable to InfoCure
unless InfoCure affirmatively establishes that none of its pre-spin-off
acquisitions of any predecessors occurred pursuant to a plan or series of
related transactions that includes the spin-off.
ISSUANCES OF SHARES OF PRACTICEWORKS' COMMON STOCK IN CONNECTION WITH RECENTLY
COMPLETED TRANSACTIONS AND A PENDING ACQUISITION TOGETHER WITH FUTURE ISSUANCES
MAY SUBJECT IT TO SUBSTANTIAL TAX LIABILITIES.
If during the four-year period beginning two years before the spin-off one
or more persons acquire a 50% or greater interest in PracticeWorks as part of a
plan or series of related transactions that includes the spin-off, the spin-off
may be a taxable transaction to InfoCure. The tax would be a corporate level tax
liability payable by InfoCure. PracticeWorks has agreed to indemnify InfoCure
under certain circumstances for all or a portion of the corporate income tax
liability. This indemnification obligation, if triggered, could be substantial.
PracticeWorks has already consummated certain transactions involving the
issuance of its stock. The acquisition of InfoSoft involved PracticeWorks
issuing securities convertible into approximately 9.8% of its common stock. In
addition, Crescent International Ltd. may acquire up to 20.0% of its common
stock upon conversion of its series C convertible
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redeemable preferred stock. Crescent may acquire even more common stock if
PracticeWorks utilizes its equity line through direct purchases and upon
exercise of the incentive and protective warrants. The acquisition of Medical
Dynamics will involve PracticeWorks issuance of securities representing less
than 2.0% of its common stock. PracticeWorks may also be required to issue up to
5.0% of its common stock to WebMD Corporation. These issuances together with
other issuances in the future could result in a determination that there has
been an acquisition of a 50.0% or greater interest in PracticeWorks in the
four-year period.
IN CONNECTION WITH THE SPIN-OFF, PRACTICEWORKS ASSUMED ANY AND ALL CONTINGENT
LIABILITY OF INFOCURE RELATING TO THE DEFINITIVE RESOLUTION OF A LAWSUIT FILED
AGAINST INFOCURE, ALLEGING BREACH OF CONTRACT AND OTHER CLAIMS, AND
PRACTICEWORKS CAN NOT ASSURE YOU AS TO THE OUTCOME OF THIS MATTER.
In connection with the spin-off, PracticeWorks assumed any and all
contingent liability of InfoCure relating to the definitive resolution of a
lawsuit filed against InfoCure by an individual who sold his business to
InfoCure in exchange for InfoCure stock. This lawsuit alleges that InfoCure
breached the terms of a registration rights agreement it executed with this
individual. This complaint further alleges breach of fiduciary duties owed to
the plaintiff as a stockholder of InfoCure and tort claims against InfoCure as a
result of the alleged failure to timely register shares for resale. The amount
of damages sought by this plaintiff is in excess of $3.2 million. PracticeWorks
cannot assure you that InfoCure will be successful defending these claims. If
InfoCure were to be found liable for a substantial portion, or the maximum
amount of damages sought, this would have an adverse effect on PracticeWorks'
business and operating results.
PRACTICEWORKS STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION AS A RESULT OF
THE INFOSOFT ACQUISITION AND THE PROPOSED MEDICAL DYNAMICS ACQUISITION.
In connection with PracticeWorks' acquisition of InfoSoft, it issued 32,000
shares of its series A convertible redeemable preferred stock. The series A
convertible redeemable preferred stock issued to Ceramco pursuant to the
InfoSoft acquisition is convertible, in the aggregate, into approximately 9.8%
of PracticeWorks' outstanding common stock. If Ceramco converts all, or a
portion of the series A convertible redeemable preferred stock into shares of
PracticeWorks common stock, this will result in dilution to PracticeWorks'
stockholders.
In connection with the acquisition of Medical Dynamics, PracticeWorks will
issue approximately 965,000 shares of series B convertible redeemable preferred
stock and approximately 219,000 shares of common stock. The common stock and
series B convertible redeemable preferred stock to be issued to the Medical
Dynamics shareholders, assuming full conversion of the series B convertible
redeemable preferred stock, will represent, in the aggregate, less than 2.0% of
PracticeWorks common stock at the time of the merger. If all or a portion of the
series B convertible redeemable preferred stock is converted into common stock,
PracticeWorks stockholders will experience dilution.
THE CONVERSION OF THE SERIES C CONVERTIBLE REDEEMABLE PREFERRED STOCK MAY RESULT
IN SUBSTANTIAL DILUTION TO PRACTICEWORKS STOCKHOLDERS.
PracticeWorks stockholders will experience dilution if Crescent converts
the series C convertible redeemable preferred stock into shares of PracticeWorks
common stock. The
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series C convertible redeemable preferred stock is not convertible into
PracticeWorks common stock during the first year after issuance. Thereafter, the
holders of series C convertible redeemable preferred stock can convert all or a
portion of the shares. In no event, however, will the holders of the series C
convertible redeemable preferred stock be entitled to obtain, in the aggregate
for all conversions, more than 20.0% of PracticeWorks common stock upon
conversion. Accordingly, a holder would not be able to convert a portion of the
series C convertible redeemable preferred stock, up to 19.9% of the outstanding
common stock, and then sell all or a portion of its common stock, and then
convert more of its holdings, up to 19.9%, at a later date.
The number of shares of common stock to be received upon conversion will
equal the liquidation preference of the series C convertible redeemable
preferred stock to be redeemed, or $50 per share, divided by the conversion
price. The conversion price will be equal to the lesser of (1) 107.5% of the
average closing bid price of PracticeWorks common stock for the 50 consecutive
trading days immediately following the spin-off, such 50 day average being
referred to as the "reference price," and (2) the average of the three lowest
closing bid prices of its common stock during the 22 trading day period
immediately preceding the applicable conversion date. As a result, the actual
conversion price may be less than the market value of its common stock on the
date of the conversion. The conversion price determined according to the formula
may not be less than a specified minimum conversion price, which means 75.0% of
the reference price. However, beginning 18 months after the date PracticeWorks
issued the series C convertible redeemable preferred stock, the minimum
conversion price will decrease by 7.5% of the reference price on the first day
of each month. As a result, the lower the stock price at the time the holder
converts, the more common stock the holder will receive upon conversion, subject
to the 20.0% limitation.
To the extent a holder of series C convertible redeemable preferred stock
converts and sells shares of PracticeWorks common stock, the price of its common
stock may decrease due to the additional number of shares on the market. This
could allow holders of the series C convertible redeemable preferred stock to
convert their shares of preferred stock into greater amounts of PracticeWorks
common stock, the sales of which could further depress the price of its common
stock.
The following table sets forth the number of shares of PracticeWorks common
stock into which the series C convertible redeemable preferred stock is
convertible at various assumed conversion prices and the percentages of its
total outstanding common stock represented by such shares. The percentages are
based on 9,117,238 shares of its common stock outstanding as of June 12, 2001.
ASSUMED NUMBER OF SHARES OF PERCENTAGE OF PRACTICEWORKS
CONVERSION PRICE PER SHARE COMMON STOCK ISSUABLE OUTSTANDING COMMON STOCK
- -------------------------- -------------------------- ---------------------------
$15.00 333,333 3.7%
10.00 500,000 5.5
5.00 1,000,000 11.0
1.00 1,823,439* 20.0*
- -------------------------
* The maximum number of shares of its common stock issuable, in the aggregate,
upon conversion of the series C convertible redeemable preferred stock will
not represent more than 20.0% of our common stock.
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The 20.0% maximum discussed above limits the total number of shares of
PracticeWorks common stock that the holders of series C convertible redeemable
preferred stock may receive upon conversion. In addition, there is a limit on
the number of shares of its common stock that a holder of series C convertible
redeemable preferred stock may hold on any conversion date, which may restrict
the number of shares of preferred stock that a holder may convert on any
particular conversion date. The holders of PracticeWorks series C convertible
redeemable preferred stock may not convert into shares of PracticeWorks common
stock if, as a result, the holders and their affiliates would own more than 9.9%
of all PracticeWorks common stock outstanding on the applicable conversion date.
This restriction, however, does not prevent the holders from converting some of
their series C convertible redeemable preferred stock, up to 9.9% of the
outstanding common stock, and then selling all or a portion of their common
stock, and then converting more shares of series C convertible redeemable
preferred stock, up to 9.9% of PracticeWorks outstanding common stock, at a
later date, subject to the 20.0% limitation on the aggregate number of shares of
PracticeWorks common stock that may be issued upon conversion of the series C
convertible redeemable preferred stock. In this way, the holders of
PracticeWorks series C convertible redeemable preferred stock could sell more
than 9.9% of its outstanding common stock while never holding more than 9.9% at
any one time. The conversion terms of the series C convertible redeemable
preferred stock may result in substantial dilution to its stockholders as well
as reduced market prices for its common stock.
PracticeWorks has a right to redeem the series C convertible redeemable
preferred stock and prevent dilution to its stockholders if specified conditions
exist. The redemption price will increase proportionately each year from 115% of
the liquidation preference during the first year to 160% of the liquidation
preference following the third anniversary of issuance. However, the terms of
the FINOVA credit facility will prohibit redemption without FINOVA's consent.
Also, PracticeWorks cannot assure you that it will have funds available to
redeem the series C convertible redeemable preferred stock even if all
conditions permitting redemption were satisfied.
PracticeWorks is required to register for resale all shares of common stock
issued to Crescent upon conversion of the series C convertible redeemable
preferred stock. PracticeWorks will be subject to certain cash penalties if it
does not timely register the underlying shares of its common stock. If
PracticeWorks fails to obtain effectiveness of the resale registration statement
or to maintain the effectiveness of the resale registration statement, it must
pay Crescent in cash an amount equal to 2.0% per month of the aggregate purchase
price of all of the registrable securities covered by the resale registration
statement. In addition, if the number of shares of common stock covered by the
resale registration statement is insufficient to permit the conversion in full
of the series C convertible redeemable preferred stock, PracticeWorks must pay
Crescent in cash an amount equal to 1.5% per month of the market value of the
shares that have not been registered for each month until a registration
statement covering the resale of any such shares has been declared effective.
THE ISSUANCE OF SHARES OF COMMON STOCK UNDER THE CRESCENT EQUITY LINE AND UPON
THE EXERCISE OF WARRANTS THAT MAY BE ISSUED TO CRESCENT IN CONNECTION WITH THE
EQUITY LINE MAY RESULT IN SUBSTANTIAL DILUTION TO PRACTICEWORKS STOCKHOLDERS.
PracticeWorks common stock is subject to further dilution upon the issuance
of shares of its common stock to Crescent in connection with the Crescent equity
line. The purchase
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price for shares of common stock sold to Crescent under this equity line will be
94% of the average of the lowest three consecutive bid prices during the 22 day
trading period immediately preceding the applicable sale. As a result, the
actual sales price may be less than the market value of its common stock on the
date of the sale.
PracticeWorks may cause Crescent to purchase a maximum of $2.5 million of
its common stock during any 22 day pricing period. The following table sets
forth the number of shares of its common stock that may be issuable to Crescent
if PracticeWorks utilizes $5.0 million of the availability under the equity line
at various assumed purchase prices and the percentages of its total outstanding
common stock represented by such shares. The percentages are based on 9,117,238
of shares of PracticeWorks common stock outstanding on June 12, 2001 plus the
shares issued upon a $5.0 million purchase under the equity line.
ASSUMED
PURCHASE PRICE NUMBER OF SHARES OF PERCENTAGE OF PRACTICEWORKS
PER SHARE COMMON STOCK ISSUABLE OUTSTANDING COMMON STOCK
-------------- --------------------- ---------------------------
$15.00 333,333 3.5%
10.00 500,000 5.2
5.00 1,000,000 9.9
1.00 5,000,000 35.4
In addition, if PracticeWorks sells shares to Crescent under the equity
line, it will be required to issue to Crescent an incentive warrant to purchase
a number of shares of its common stock equal to $3.5 million divided by the
purchase price of its common stock in the first sale to Crescent. The exercise
price will be 150% of the purchase price in the first sale. The following table
sets forth the number of shares of common stock that may be issuable to Crescent
upon exercise of the incentive warrant. The exercise prices are 150% of the
assumed purchase prices in the first sale under the equity line as set forth in
the table below. The number of shares of common stock issuable upon exercise
equals $3.5 million divided by the assumed purchase prices in the first sale as
set forth in the table below. The percentages are based on 9,117,238 shares of
PracticeWorks common stock outstanding on June 12, 2001 plus the shares issued
upon exercise of the incentive warrant.
ASSUMED
PURCHASE
PRICE PERCENTAGE OF PRACTICEWORKS
PER EXERCISE PRICE NUMBER OF SHARES OF OUTSTANDING
SHARE PER SHARE COMMON STOCK ISSUABLE COMMON STOCK
-------- -------------- -------------------------- ----------------------------
$15.00 $22.50 233,333 2.5%
10.00 15.00 350,000 3.6
5.00 7.50 700,000 6.9
1.00 1.50 3,500,000 24.8
After issuance of unregistered shares under the equity line, PracticeWorks
is obligated to file a resale registration statement within 20 days and use its
best efforts to have the registration statement declared effective.
PracticeWorks must issue to Crescent protective warrants to purchase shares of
its common stock at $0.01 per share, which are intended to protect Crescent
economically from any loss as a result of a drop in market price of
PracticeWorks common stock that might occur between issuance of the unregistered
shares and effectiveness of the resale registration statement. The warrants will
only become
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exercisable if the market price of the common stock on the date the resale
registration statement covering these unregistered shares is declared effective
is lower than the market price on the date the unregistered shares are issued.
As the issuance of these protective warrants directly relates to the sale of
common stock, PracticeWorks will account for these issuances as a cost of
raising capital, the impact of which will be reported in shareholders equity.
PracticeWorks will also be subject to certain cash penalties if it does not
timely register for resale the shares of its common stock issued under the
equity line and issuable upon exercise of the incentive and the protective
warrants. If PracticeWorks fails to obtain effectiveness of the resale
registration statement or to maintain the effectiveness of the resale
registration statement, it must pay Crescent in cash an amount equal to 2.0% per
month of the aggregate purchase price of all of the registrable securities
covered by the resale registration statement. In addition, if the number of
shares of common stock covered by the resale registration statement is
insufficient, PracticeWorks must pay Crescent in cash an amount equal to 1.5%
per month of the market value of the shares that have not been registered for
each month until a registration statement covering the resale of any such shares
has been declared effective. Regarding any cash penalties associated with the
warrants, PracticeWorks will net these amounts against the proceeds from the
sale of stock as such costs are considered costs of raising capital.
IF CRESCENT CONVERTS ITS SHARES OF SERIES C CONVERTIBLE REDEEMABLE PREFERRED
STOCK AND PRACTICEWORKS ISSUES ADDITIONAL SHARES OF ITS COMMON STOCK TO CRESCENT
UNDER THE EQUITY LINE AND UPON EXERCISE OF THE INCENTIVE AND PROTECTIVE
WARRANTS, CRESCENT COULD OWN A MAJORITY OF PRACTICEWORKS' COMMON STOCK AND
EXERCISE SUBSTANTIAL CONTROL OVER ITS OPERATIONS.
If Crescent converts its shares of PracticeWorks series C convertible
redeemable preferred stock and if PracticeWorks issues shares of our common
stock to Crescent under the equity line and upon exercise of the incentive and
protective warrants, Crescent could own a majority of PracticeWorks common stock
and exercise substantial control over its operations. Crescent could elect a
majority of PracticeWorks board of directors, which would enable persons elected
by Crescent to direct the business, policies and management of PracticeWorks.
Actions taken by, or at the direction of, Crescent could conflict with the
interests of our other stockholders. In addition, the acquisition by Crescent of
a majority of PracticeWorks common stock would constitute an event of default
under the FINOVA credit facility.
The number of shares of common stock to be owned by Crescent will depend
upon the conversion price at the time of conversion of the series C convertible
redeemable preferred stock, the purchase price at the time of any issuance of
common stock under the equity line, the incentive warrant exercise price and the
value of any protective warrants issued. The following table sets forth the
number of shares of common stock issuable to Crescent at various assumed
conversion prices and purchase prices. PracticeWorks assumed that it has issued
$5.0 million to Crescent under the equity line. The incentive warrant exercise
price equals 150% of the assumed purchase prices set forth in the table below.
The percentages are based on [9,117,238] shares of PracticeWorks common stock
outstanding on June 12, 2001 plus the shares issued upon conversion of the
series C convertible redeemable preferred stock, the shares issued upon a $5.0
million purchase
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under the equity line and the shares issued upon exercise of the incentive
warrant. All of the assumptions and calculations are consistent with the prior
tables.
ASSUMED CONVERSION NUMBER OF
PRICE PER SHARE FOR SHARES
SERIES C PREFERRED ISSUABLE UPON NUMBER OF SHARES PERCENTAGE OF
STOCK AND ASSUMED CONVERSION OF NUMBER OF SHARES ISSUABLE UPON PRACTICEWORKS
PURCHASE PRICE PER SERIES C ISSUABLE UNDER EXERCISE OF TOTAL OUTSTANDING
SHARE UNDER EQUITY LINE PREFERRED STOCK EQUITY LINE INCENTIVE WARRANT SHARES COMMON STOCK
- ----------------------- ---------------- ---------------- ----------------- ---------- -------------------
$15.00 333,333 333,333 233,333 899,999 9.0%
10.00 500,000 500,000 350,000 1,350,000 12.9
5.00 1,000,000 1,000,000 700,000 2,700,000 22.8
1.00 1,823,439* 5,000,000 3,500,000 10,323,439 53.1
- -------------------------
* The maximum number of shares of PracticeWorks common stock issuable, in the
aggregate, upon conversion of the series C convertible redeemable preferred
stock will not represent more than 20.0% of its common stock.
SHORT SELLING OF PRACTICEWORKS COMMON STOCK COULD RESULT FROM SIGNIFICANT
DOWNWARD PRESSURE ON THE PRICE OF ITS COMMON STOCK.
Significant downward pressure on the price of PracticeWorks common stock
could occur as the holders of its convertible redeemable preferred stock convert
their shares of preferred stock into common stock and sell material amounts of
common stock. In response, holders of PracticeWorks convertible redeemable
preferred stock may engage in short sales by borrowing common stock at the
current market price in hope of buying PracticeWorks common stock in the future
at a lower price. Crescent has contractually agreed not to engage in short sales
of PracticeWorks common stock. However, short selling by other persons may
depress the price of PracticeWorks common stock.
PRACTICEWORKS STOCKHOLDERS MAY EXPERIENCE SIGNIFICANT DILUTION IF FUTURE EQUITY
OFFERINGS ARE USED TO FUND ITS OPERATIONS OR ACQUIRE COMPLEMENTARY BUSINESSES OR
AS A RESULT OF OPTION AND WARRANT EXERCISES.
PracticeWorks expects to incur increased operating costs associated with
the development of its ASP applications and other new applications and services,
the establishment of additional business relationships and marketing and sales
expenses in connection with the introduction of new applications and services.
If PracticeWorks finances future acquisitions through the issuance of equity
securities, its stockholders could experience significant additional dilution.
In addition, securities issued in connection with future financing activities or
potential acquisitions may have rights and preferences senior to the rights and
preferences of its common stock. Since an acquisition of a 50% or greater
interest in PracticeWorks by one or more persons within the four-year period
beginning two years before the spin-off could cause the spin-off to be taxable,
PracticeWorks may be limited in the amount of equity it can issue for future
financing activities or potential acquisitions.
In connection with the spin-off, PracticeWorks replaced options held by
InfoCure employees who became PracticeWorks employees with options to purchase
shares of PracticeWorks common stock. PracticeWorks has issued warrants to
Crescent and FINOVA in connection with antidilution provisions contained in
their existing InfoCure warrants. Additionally, as a result of the antidilution
provisions of certain other outstanding
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warrants to purchase InfoCure common stock, InfoCure warrant holders may have
the right to acquire up to approximately 100,000 shares of PracticeWorks common
stock in connection with the exercise of the InfoCure warrants. The issuance of
shares of PracticeWorks common stock upon the exercise of these options and
warrants will result in dilution to its stockholders.
PRACTICEWORKS STOCKHOLDERS MAY EXPERIENCE SUBSTANTIAL DILUTION IF PRACTICEWORKS
IS REQUIRED TO ISSUE SHARES OF ITS COMMON STOCK TO WEBMD CORPORATION.
In connection with the spin-off, PracticeWorks assumed a portion of
InfoCure's contingent obligation under a letter agreement between InfoCure and
WebMD Corporation, formerly Healtheon/WebMD, executed in February 2000, whereby
PracticeWorks would issue up to 482,253 shares of PracticeWorks common stock to
WebMD. Under the terms of the February 2000 letter agreement, WebMD made a $10.0
million investment in VitalWorks, a subsidiary of InfoCure, in exchange for
400,000 shares of VitalWorks convertible preferred stock. In conjunction with
the February 2000 letter agreement, InfoCure and WebMD also entered into a
marketing agreement which provided for utilization, delivery and promotion of
WebMD's clinical financial transaction and EDI services. The VitalWorks
convertible preferred stock was to have automatically converted into 1.0% of the
outstanding common stock of VitalWorks upon the completion of VitalWorks'
initial public offering. If the VitalWorks initial public offering was not
consummated by November 11, 2000, WebMD had the right to exchange the VitalWorks
convertible preferred stock for shares of InfoCure common stock based on a
current price for InfoCure common stock. The VitalWorks initial public offering
was never consummated. On November 29, 2000, WebMD notified InfoCure of its
election to exchange the VitalWorks convertible preferred stock for 1,929,012
shares of InfoCure common stock, which if issued would represent approximately
5.0% of the total outstanding shares of InfoCure common stock.
InfoCure issued 1,929,012 shares of its common stock to WebMD on March 2,
2001, after the record date for the spin-off. If PracticeWorks issues the full
482,253 shares of PracticeWorks common stock to WebMD in satisfaction of this
contingent obligation, PracticeWorks stockholders will experience significant
dilution.
On March 8, 2001, InfoCure filed a lawsuit against WebMD, alleging certain
claims related to a dispute between the parties with respect to the February
2000 agreement. This lawsuit may impact PracticeWorks' business relationship
with WebMD in the future. PracticeWorks can not assure you as to what, if any,
impact InfoCure's lawsuit will have on PracticeWorks.
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PRACTICEWORKS' ABILITY TO ISSUE SENIOR PREFERRED STOCK IN THE FUTURE COULD
ADVERSELY AFFECT THE RIGHTS OF HOLDERS OF THE PRACTICEWORKS PREFERRED STOCK
ISSUED TO YOU.
PracticeWorks is authorized to issue additional preferred stock in one or
more series on terms that may be determined at the time of issuance by its board
of directors. In some instances, a series of preferred stock could include
voting rights, preferences as to dividends and liquidation, conversion and
redemption rights that will rank senior to the PracticeWorks preferred stock
that will be issued in the merger. The future issuance of preferred stock could
effectively diminish or supersede the dividends and liquidation preferences of
the PracticeWorks preferred stock that will be issued in the merger.
THERE IS NO PUBLIC MARKET FOR THE SERIES B PREFERRED STOCK.
No trading market for the series B preferred stock currently exists.
PracticeWorks does not intend to apply to list the series B preferred stock on
any exchange or automated inter-dealer quotation system. Thus, no trading market
for the series B preferred stock is likely to develop and holders of preferred
stock or may be unable to find a buyer for such shares without first converting
them into common stock.
THE FINOVA CREDIT FACILITY IMPOSES LIMITATIONS AND FINANCIAL COVENANTS, WHICH
MAY ADVERSELY AFFECT PRACTICEWORKS' ABILITY TO OPERATE ITS BUSINESS.
The FINOVA credit facility contains limitations on PracticeWorks' business
and financial covenants. For example, the credit facility includes a minimum net
worth requirement, a minimum current ratio requirement and a minimum liquidity
requirement. Management believes that the covenants that have the greatest
likelihood of potentially restricting PracticeWorks' operations are required
quarterly tests for minimum net worth and minimum liquidity.
Minimum net worth means, as of any date of determination, the consolidated
net worth of PracticeWorks and its subsidiaries calculated in accordance with
generally accepted accounting principles, plus the carrying value of the three
planned issuances of PracticeWorks' convertible redeemable preferred stock. On
March 31, 2001, PracticeWorks' minimum net worth as determined under this
definition was $50.0 million. The table below shows the applicable minimum net
worth requirements for the end of each quarter during the term of the loan:
MINIMUM
QUARTER AMOUNT
- ------- --------------
March 31, 2001.............................................. $41,760,000
June 30, 2001............................................... 34,720,000
September 30, 2001.......................................... 28,200,000
December 31, 2001........................................... 22,360,000
March 31, 2002.............................................. 18,100,000
June 30, 2002............................................... 30,480,000
September 30, 2002.......................................... 28,020,000
December 31, 2002........................................... 27,000,000
March 31, 2003.............................................. 27,600,000
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Minimum liquidity means cash and cash equivalents, such as securities
issued or guaranteed by the United States government, certificates of deposit
and commercial paper, plus amounts available on the next settlement date, up to
$2.5 million, under the Crescent equity line. PracticeWorks' liquidity at March
31, 2001 as determined under this definition was $9.6 million. The table below
shows the applicable minimum liquidity requirements for the end of each quarter
during the term of the loan:
MINIMUM
DATE AMOUNT
- ---- --------------
March 31, 2001.............................................. $ 6,375,000
June 30, 2001............................................... 5,395,000
September 30, 2001.......................................... 4,255,000
December 31, 2001........................................... 2,932,000
March 31, 2002.............................................. 2,835,000
June 30, 2002............................................... 3,455,000
September 30, 2002.......................................... 4,955,000
December 31, 2002........................................... 7,575,000
March 31, 2003.............................................. 11,125,000
In addition, the credit facility limits PracticeWorks' ability to make
capital expenditures in excess of specified amounts for each year during the
loan. PracticeWorks is not permitted to carry forward any unused amounts from a
prior year. The table below shows the applicable capital expenditure limitations
for each year during the term of the loan:
MAXIMUM
PERIOD AMOUNT
- ------ --------------
2001........................................................ $2,600,000
2002........................................................ 3,100,000
Each year thereafter........................................ 3,300,000
The levels for the quarterly tests for minimum net worth and liquidity and the
annual capital expenditures limitations have been computed based on discussions
with the lender regarding our business plan. Also, the credit facility includes
restrictions on PracticeWorks' ability, without FINOVA's consent, to incur
additional indebtedness, create liens, conduct mergers and acquisitions, pay
dividends, redeem capital stock or invest in other entities, even if
PracticeWorks believes these activities are in the best interests of its
stockholders.
If PracticeWorks does not satisfy the financial covenants in the credit
facility, this failure will constitute an event of default under the credit
facility. Upon an event of default, the lender may, at its option, terminate the
loan commitments and declare all amounts outstanding under the credit facility
immediately due and payable. In addition, the lender may exercise various
remedies under the credit facility, including foreclosure on and sale of our
assets. If the lender accelerates the obligation to repay amounts under the
credit facility PracticeWorks cannot assure you that it will have sufficient
funds available to repay the obligations, and it may not be able to refinance
these obligations on favorable terms or at all. If PracticeWorks is unable to
repay or refinance these obligations, it may need to seek protection under the
bankruptcy laws. If PracticeWorks seeks protection under the bankruptcy laws, it
will further impede PracticeWorks' ability to obtain additional financing and to
operate its business, and its stockholders could lose their entire investment in
PracticeWorks common stock.
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IF PRACTICEWORKS CANNOT MEET THE AMERICAN STOCK EXCHANGE MAINTENANCE RULES AND
OTHER REQUIREMENTS, THE AMERICAN STOCK EXCHANGE MAY DELIST ITS COMMON STOCK,
WHICH COULD NEGATIVELY AFFECT THE PRICE OF ITS COMMON STOCK AND ITS
STOCKHOLDERS' ABILITY TO SELL THE PRACTICEWORKS COMMON STOCK.
In the future, PracticeWorks may not be able to meet the maintenance rules
and requirements of the American Stock Exchange. The maintenance rules of the
American Stock Exchange specify that the exchange may initiate the delisting of
an issuer's stock if, among other things, the issuer has sustained losses from
continuing operations and/or net losses in its five most recent fiscal years,
or, if the issuer has sustained losses for three of its past four fiscal years
and stockholders' equity is less than $4.0 million, or, if the issuer has
sustained losses for two of its past three fiscal years and stockholders' equity
is less than $2.0 million. In addition, the American Stock Exchange rules
require stockholder approval prior to the issuance of securities in connection
with a transaction involving the sale or issuance of common stock equal to 20%
or more of a company's outstanding common stock before the issuance for less
than the greater of book or market value of the stock. If PracticeWorks was no
longer in compliance with the American Stock Exchange rules and were unable to
receive a waiver or achieve compliance, and if its common stock were to be
delisted from the American Stock Exchange, its stockholders may find it more
difficult to sell its common stock. This lack of liquidity also may make it more
difficult for it to raise capital in the future.
IF THE AMERICAN STOCK EXCHANGE DELISTS PRACTICEWORKS' COMMON STOCK, COMPLIANCE
WITH THE PENNY STOCK REGULATIONS WHICH WOULD RESULT COULD MAKE IT MORE DIFFICULT
TO SELL PRACTICEWORKS COMMON STOCK.
In the event that PracticeWorks' common stock is not listed on the American
Stock Exchange, trading of the common stock would be conducted in the "pink
sheets" or through the Over-the-Counter Bulletin Board System and covered by
Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule,
broker/dealers who recommend these securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The SEC adopted regulations that generally define a penny stock as any
equity security that has a market price of less than $5.00 per share. However,
PracticeWorks common stock will not constitute penny stock if its common stock
is quoted on the American Stock Exchange. If in the future its common stock
falls within the definition of penny stock, these regulations would require the
delivery, prior to any transaction involving its common stock, of a disclosure
schedule explaining the penny stock market and the risks associated with it.
Furthermore, the ability of broker/dealers and holders to sell the common stock
would be limited. As a result, the market liquidity for the common stock would
be severely and adversely affected. PracticeWorks cannot assure you that trading
in its securities will not be subject to these or other regulations in the
future which would negatively affect the market for its common stock.
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PRACTICEWORKS MAY NOT BE ABLE TO ESTABLISH THE BUSINESS RELATIONSHIPS NECESSARY
TO IMPLEMENT ITS GROWTH STRATEGY.
PracticeWorks expects to develop additional business relationships with
providers of dental and other supplies. This is necessary to allow it to begin
offering its e-commerce application, which it calls the PracticeWorks Exchange,
in the dental and oral and maxillofacial surgery markets. The PracticeWorks
Exchange is a software application that was designed to reduce administrative
effort and increase the efficiency of the procurement function of a practice by
enabling online purchasing of dental and office supplies.
The availability of the PracticeWorks Exchange to PracticeWorks' dental and
oral and maxillofacial surgery customers is dependent on its ability to develop
business relationships with suppliers in these industries. PracticeWorks cannot
assure you that it will be able to develop or sustain these relationships.
Establishing these relationships will involve negotiation with various suppliers
and PracticeWorks may be unable to reach acceptable agreements. PracticeWorks
has not currently finalized any relationships with suppliers in the dental and
oral and maxillofacial surgery markets, and as a result, PracticeWorks is unable
to predict when the PracticeWorks Exchange will be operational in the dental and
oral and maxillofacial surgery markets. If PracticeWorks is unable to establish
business relationships with providers of dental and other supplies, its ability
to offer the PracticeWorks Exchange will be limited and its ability to grow its
business and achieve profitability will be substantially impaired.
The PracticeWorks Exchange has been operational for its orthodontic
customers since May 2000 and has generated nominal revenues to date.
PRACTICEWORKS MAY BE UNABLE TO GROW ITS REVENUE IF CUSTOMERS DO NOT RESPOND
FAVORABLY TO ITS NEW APPLICATIONS AND SERVICES.
PracticeWorks' growth strategy depends on its ability to generate usage of
its ASP applications, Internet portal, the PracticeWorks Exchange and other new
applications and services by a large number of dentists, orthodontists and oral
and maxillofacial surgeons. PracticeWorks cannot be certain that these new
applications and services will achieve market acceptance. In order to
successfully sell its new applications and services, PracticeWorks will need to
convince new and existing customers that the features and functionality of its
applications justify their cost, as well as the time and administrative expense
required for conversion. They may be unwilling to adopt new practice management
systems if they have made an extensive investment in hardware, software and
training for existing systems. In addition, potential customers are likely to be
unfamiliar with the ASP delivery model and may be unwilling to utilize a
practice management system in which the application and patient data is stored
on an off-site server and delivered to their offices through the Internet.
PracticeWorks' ASP applications have not been released yet, and therefore, it
currently has no customers using its ASP applications and related services. If
PracticeWorks is unsuccessful in attracting customers to its new applications
and services or if the market for its applications and services does not grow or
grows slowly, achieving profitability could take longer than expected or
PracticeWorks may never achieve profitability.
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PRACTICEWORKS MAY INCUR INCREASED EXPENSES IF THE TRANSITION SERVICES AGREEMENT
WITH INFOCURE IS TERMINATED.
In connection with the spin-off, PracticeWorks entered into a Transition
Services Agreement with InfoCure. This agreement provides that InfoCure will
provide services, such as insurance and employee benefits, to PracticeWorks, and
PracticeWorks will provide services, such as tax, accounting, corporate
record-keeping and payroll, to InfoCure. The agreement will be terminable by
either party at any time upon 30 days prior written notice. If the agreement is
terminated, PracticeWorks will be required to obtain insurance and employee
benefits services from a third party. This could be more expensive than the fees
which it will be required to pay under the Transition Services Agreement.
PRACTICEWORKS EXPECTS ITS QUARTERLY OPERATING RESULTS TO FLUCTUATE, WHICH COULD
CAUSE ITS STOCK PRICE TO FLUCTUATE.
PracticeWorks' revenue and operating results may vary significantly from
quarter to quarter due to a number of factors which are outside of its control.
Some of these factors include:
- the rate of adoption of its new applications and services by new and
existing customers;
- costs of developing new applications and services;
- changes in the adoption of Internet usage and acceptance by healthcare
providers of electronic commerce;
- changes in customer purchasing patterns;
- costs related to acquisitions of technologies or businesses; and
- general economic conditions, as well as those specific to the healthcare
information technology market and related industries.
In addition, the following factors that are within PracticeWorks' control
may cause its revenue and operating results to vary significantly from quarter
to quarter:
- its success in appropriately setting subscription fees and the rate at
which new and existing customers adopt subscription pricing;
- the timing of the release of its ASP applications and Internet portal and
the introduction of the PracticeWorks Exchange to the dental and oral and
maxillofacial surgery markets;
- its success in establishing additional business relationships, including
those necessary to enable the introduction of the PracticeWorks Exchange
in the dental and oral and maxillofacial surgery markets; and
- the timing and amount of sales and marketing expenditures.
Any change in one or more of these or other factors could cause
PracticeWorks' annual or quarterly operating results to fluctuate. If its
operating results do not meet market expectations, its stock price will likely
decline.
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PRACTICEWORKS SUBSCRIPTION PRICING MODEL IS UNPROVEN AND IT MAY BE UNABLE TO SET
SUBSCRIPTION FEES AT LEVELS WHICH ENABLE IT TO ACHIEVE PROFITABILITY.
The success of PracticeWorks' subscription pricing model depends on its
ability to set subscription fees for its applications and services at rates that
will allow it to achieve profitability. Under its subscription pricing model,
its customers pay a fixed, monthly subscription fee for its practice management
applications, maintenance and support. The subscription fee is based on the
practice specialty and number of authorized system users. PracticeWorks has
limited experience with subscription pricing as it first introduced it to its
customers during the second quarter of 2000. Furthermore, the markets for
practice management applications and services delivered on a subscription basis
is new and evolving. There are relatively few similar products whose
subscription fees PracticeWorks can evaluate in setting its fees and the
providers of those products have also had to set their fees in the context of an
undeveloped market. As a result, PracticeWorks has limited information from
which to evaluate the appropriate level for its subscription fees and it may
fail to set its subscription fees at levels that enable it to become profitable.
In addition, it expects to enter into multi-year agreements with subscribers
pursuant to which subscription fees or increases in fees will be locked-in
typically for three to five years, limiting its ability to increase its
subscription fees for those subscribers. If it fails to appropriately price its
subscription fees, achieving profitability could take longer than expected or it
may never achieve profitability.
IF PRACTICEWORKS CANNOT EFFICIENTLY CONVERT THE DATA STORED IN EXISTING PRACTICE
MANAGEMENT APPLICATIONS TO ITS ASP APPLICATIONS, ITS GROWTH AND RESULTS MAY BE
HARMED.
When customers elect to use PracticeWorks' ASP applications, they may need
PracticeWorks to convert the data stored in their existing practice management
applications to its ASP applications. PracticeWorks expects conversions to take
approximately 30 days from the date that a practice establishes Internet
connectivity. If PracticeWorks cannot rapidly and accurately convert the data
stored in customers' existing practice management systems to its ASP
applications, whether they are existing customers using its applications or new
customers, its business will suffer. If we experience difficulties or delays in
converting this data, it will be forced to incur additional costs necessary to
correctly convert the data and PracticeWorks may be unable to attract additional
customers.
PRACTICEWORKS' NEW PRODUCT STRATEGY AND SUBSCRIPTION PRICING MODEL WILL REQUIRE
ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE.
PracticeWorks expects its transition to the subscription pricing model to
continue to adversely impact its cash flow until subscription fees replace the
decline in one-time revenue from license fees and hardware sales. In addition,
it expects to incur operating costs associated with the development of its ASP
applications, Internet portal and other new applications and services, the
establishment of additional business relationships and marketing and sales
expenses in connection with the introduction of new applications and services.
PracticeWorks currently expects to spend approximately $1.0 million on hardware,
software and maintenance costs, approximately $1.7 million in sales, marketing
and brand awareness expenditures and approximately $800,000 associated with
additional employees. PracticeWorks believes that operating cash flows, along
with the proceeds from the Crescent preferred stock investment, will be
sufficient to meet these, and other working
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capital needs in both in the short term, which means the next twelve months, and
in the long term, which means a reasonable period of time thereafter. However,
it may also need to raise funds in the future to meet its working capital needs.
Additional financing may not be available when and if PracticeWorks needs it,
and if available, it may not be available on terms favorable to PracticeWorks.
Recently, some Internet companies with a history of operating losses have been
unable to raise additional financing. If adequate funds are not available on
acceptable terms, PracticeWorks may not be able effectively to develop and
enhance its application and service offerings, market its applications and
services, respond to competitive pressures or fund acquisitions. If
PracticeWorks raises additional funds by issuing equity or convertible debt
securities, your ownership will be diluted and its stock price may decline. Any
new securities could also have rights, preferences and privileges senior to
those of PracticeWorks common stock.
PRACTICEWORKS PLANS TO EXPAND RAPIDLY AND IT MAY BE UNABLE TO MANAGE ITS GROWTH.
PracticeWorks intends to rapidly grow its business. However, PracticeWorks
cannot be sure that it will successfully manage its growth. In order to
successfully manage its growth, it must:
- expand and enhance its administrative infrastructure;
- improve its management, financial and information systems and controls;
- expand, train and manage its employees effectively; and
- successfully retain and recruit additional employees.
Continued growth could place a further strain on PracticeWorks' management,
operations and financial resources because it has not historically functioned as
an independent company. There will also be additional demands on its sales,
marketing, information systems and administrative resources as it offers new
applications and services, such as the ASP delivery model, an Internet portal
and website development and hosting, and expands its target markets and
customers. PracticeWorks cannot assure you that its operating and financial
control systems, administrative infrastructure, facilities and personnel will be
adequate to support its future operations or to effectively adapt to future
growth. If it cannot manage its growth effectively, its business may be harmed.
PRACTICEWORKS MAY NOT BE ABLE TO ACHIEVE A RECOGNIZED BRAND NAME FOR
PRACTICEWORKS, WHICH WOULD MAKE IT DIFFICULT TO IMPLEMENT ITS BUSINESS STRATEGY.
Achieving market acceptance for its new applications and services will
require substantial sales and marketing efforts and the expenditure of
significant funds to increase awareness and demand by its target customers.
PracticeWorks expects to spend approximately $1.4 million on the branding of the
PracticeWorks name and on programs that will promote market awareness of this
brand. It will finance these expenditures through operating cash flows and from
the proceeds of the Crescent preferred stock investment. To cultivate new
customers within the dental, orthodontic and oral and maxillofacial surgery
markets, PracticeWorks plans to implement a program designed to create a strong
brand identity for PracticeWorks. It also needs to ensure that its current
customers, especially those obtained through acquisitions, are familiar with the
PracticeWorks brand name. If it fails to successfully create a recognized brand
name for
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PracticeWorks, its ability to obtain new customers and retain current customers
could suffer.
PRACTICEWORKS MAY BE UNABLE TO CONTINUE TO ATTRACT QUALIFIED PERSONNEL, WHICH
WOULD AFFECT ITS ABILITY TO EXPAND ITS BUSINESS.
PracticeWorks believes its success depends largely on its ability to
attract and retain highly skilled technical, managerial and marketing personnel
to develop and market its new applications and services. PracticeWorks has added
90 employees since January 1, 2001, including 80 related to the SoftDent
acquisition, and it expects to hire over 50 additional employees during the next
12 months. It expects to spend approximately $200,000 on recruiting costs
associated with hiring these new employees. PracticeWorks will fund these
expenditures through operating cash flows. Individuals with the information
technology skills PracticeWorks needs to further develop its applications and
services are in short supply and competition for qualified personnel is
particularly intense. Further, it can be difficult to hire experienced sales
professionals. PracticeWorks may not be able to hire the necessary personnel to
implement its business strategy, or PracticeWorks may need to pay higher
compensation for employees than it currently expects. If PracticeWorks is unable
to hire and retain qualified employees, its business and expansion plans will
suffer.
PRACTICEWORKS IS DEPENDENT UPON ITS EXECUTIVE OFFICERS, AND THE LOSS OF THESE
PERSONNEL COULD DISRUPT ITS GROWTH.
PracticeWorks' success depends on the continued services and performance of
its executive officers and PracticeWorks cannot guarantee that it will be able
to retain those individuals. The loss of the services of one or more of its
executive officers could seriously impair its ability to implement the changes
in its application and service offerings and pricing model that it is currently
undertaking and its ability to manage and expand our business. PracticeWorks
does not maintain key person life insurance.
THE MARKETS PRACTICEWORKS SERVES ARE HIGHLY COMPETITIVE, AND IT MAY BE UNABLE TO
COMPETE WITH BUSINESSES THAT HAVE GREATER RESOURCES THAN IT DOES.
The market for providing information management technology to dentists,
orthodontists and oral and maxillofacial surgeons is extremely competitive. In
addition, the market for Internet-based application service providers in the
healthcare industry is relatively new and evolving. PracticeWorks anticipates
that competition will continue to intensify as the use of the Internet grows.
PracticeWorks' competitive position is difficult to evaluate due to the variety
of current and potential competitors and the evolving nature of the healthcare
information technology market.
PracticeWorks' primary competitors include national and regional providers
of traditional practice management systems, application service providers,
healthcare e-commerce and Internet connectivity companies. Specifically, it
competes with EagleSoft, a subsidiary of Patterson Dental Supply, Inc., Dentrix
Dental Systems, Inc., a subsidiary of Henry Schein, Inc., the Trizetto Group,
Inc. and MediBuy. PracticeWorks believes, based on published industry reports,
that PracticeWorks has licensed its practice management applications to more
dental, orthodontic and oral and maxillofacial surgery practices than any of its
competitors. Each of these types of companies currently competes with it or can
be expected to compete with it in the future in delivering information
management technology to dentists, orthodontists and oral and maxillofacial
surgeons, including the
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delivery of practice management applications and services through the ASP
delivery model. Furthermore, major software companies and other entities,
including those specializing in the healthcare industry that are not currently
offering applications or services that compete with PracticeWorks' applications,
may enter its markets. PracticeWorks also expects to compete with traditional
and online retailers of dental, medical and office supplies, health content
providers and website developers. In addition, companies with which it has
business relationships may compete with it from time to time by selling,
consulting on or hosting other applications that compete with PracticeWorks'
applications and services.
Many of PracticeWorks' competitors have substantially greater financial,
technical and marketing resources, longer operating histories, greater name
recognition and more established relationships in the healthcare information
technology market than it has. In addition, the lack of barriers to entry in its
market exposes it to a potentially increasing number of competitors.
PracticeWorks cannot assure you that it will have the resources or expertise to
compete successfully in the future. If PracticeWorks is unable to develop and
expand its applications and services or adapt to changing customer needs as well
as its current or future competitors are able to do, PracticeWorks may
experience reduced profitability and a loss of market share.
PRACTICEWORKS MAY HAVE DIFFICULTY INTEGRATING CURRENT AND FUTURE ACQUISITIONS
INTO ITS BUSINESS.
Since December 1, 1999, InfoCure has acquired 12 companies that were
attributed to PracticeWorks in the spin-off. Additionally, immediately following
the spin-off PracticeWorks completed the acquisition of InfoSoft. PracticeWorks
may from time to time acquire other companies, including its proposed
acquisition of Medical Dynamics. As a result, it is exposed to increased risks
relating to integrating these companies into its business, including:
- integration of new operations, products, services and personnel;
- integration of InfoSoft's independent distribution network into
PracticeWorks' existing distribution channels;
- diversion of resources from PracticeWorks' existing business;
- client communication and branding awareness;
- inability to generate revenues from new products and services sufficient
to offset associated acquisition costs;
- maintenance of uniform standards, controls and policies;
- accounting issues that adversely affect PracticeWorks' financial results;
- impairment of employee and customer relations as a result of any
integration of new management personnel; and
- dilution to existing stockholders from the issuance of equity securities.
In addition, liabilities or other problems associated with an acquired
business may adversely affect PracticeWorks' business or operating results.
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PRACTICEWORKS HAS RECORDED, AND MAY CONTINUE TO RECORD, A SIGNIFICANT AMOUNT OF
GOODWILL IN CONNECTION WITH ITS ACQUISITION STRATEGY.
As a result of PracticeWorks' recent acquisitions, goodwill accounted for
50.3% of its total assets as of March 31, 2001. As of March 31, 2001,
PracticeWorks had recorded goodwill of $47.0 million. In addition, PracticeWorks
may record additional goodwill related to future acquisitions. PracticeWorks
recorded goodwill of approximately $18.3 million related to the preliminary
purchase price allocation of the InfoSoft acquisition and anticipates recording
$10.0 to $11.0 million related to the Medical Dynamics acquisition.
PracticeWorks plans to amortize both amounts over three years, resulting in
additional annual amortization expense of approximately $9.7 million. Under
current generally accepted accounting principles, aggregate amortization expense
related to goodwill is expected to be $24.2 million and $25.0 million for 2001
and 2002, respectively, and as PracticeWorks integrates the acquired companies
into PracticeWorks' business, PracticeWorks will evaluate the carrying amount of
goodwill whenever adverse facts and circumstances occur indicating an impairment
in value. If the benefits of PracticeWorks' acquisitions do not ultimately
exceed the associated costs, including any dilution to our stockholders
resulting from the issuance of shares of its common stock in connection with our
acquisitions, we could continue to incur increased losses, or be required to
write down some or all of the unamortized goodwill and other intangible assets.
As a result, PracticeWorks' results of operations may be adversely affected.
Additionally, prior to the fourth quarter of 1999, goodwill was amortized
on a straight-line basis over a 15-year estimated useful life. As a result of
PracticeWorks' new product strategy involving the development of ASP
applications and other Internet-based applications and services, the transition
to a subscription pricing model and the current rate of change within the ASP
information management technology industries, PracticeWorks estimated that the
useful life of remaining goodwill and goodwill for our recent acquisitions is
currently three years. If PracticeWorks' assumptions underlying this change or
PracticeWorks' estimates with respect to this time period are inaccurate, its
net losses could increase.
MARKET ACCEPTANCE OF PRACTICEWORKS INTERNET-BASED APPLICATIONS AND SERVICES WILL
BE DEPENDENT ON INCREASED USE OF THE INTERNET BY ITS CUSTOMERS AND THEIR
SUPPLIERS, AND A LACK OF GROWTH OR DECLINE IN THEIR INTERNET USE MAY ADVERSELY
AFFECT ITS BUSINESS MODEL.
PracticeWorks intends to grow, in part, by encouraging dentists,
orthodontists and oral and maxillofacial surgeons to use its ASP applications,
which are accessed through the Internet, to place orders with suppliers over the
Internet using our PracticeWorks Exchange application and to access other
services on our Internet portal. If use of the Internet for commerce and
communication in the healthcare industry does not increase, PracticeWorks'
customers and healthcare suppliers may not utilize the Internet as it
anticipates and PracticeWorks' growth could be substantially limited. Rapid
growth in the use of the Internet is a recent phenomenon. As a result,
acceptance and use may not continue to develop at historical rates. A number of
factors may inhibit the continued growth and development of the Internet,
including:
- inadequate network infrastructure;
- lack of availability of cost-effective high-speed service;
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- security and privacy concerns; or
- inconsistent quality of services.
If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth and its performance and
reliability may decline. In addition, websites have experienced interruptions in
their service as a result of outages and other delays occurring throughout the
Internet network infrastructure. If these outages or delays frequently occur in
the future, Internet usage could grow more slowly or decline. Even if Internet
usage grows generally, PracticeWorks' business will suffer if its existing and
potential customers, many of whom have not traditionally utilized the Internet
for business purposes, do not accept Internet-based systems.
PRACTICEWORKS WOULD NOT BE ABLE TO DELIVER ITS ASP APPLICATIONS OR ITS INTERNET
PORTAL IF THIRD PARTIES DO NOT PROVIDE INFRASTRUCTURE AND APPLICATION HOSTING.
PracticeWorks does not intend to develop or maintain Internet
infrastructure or application hosting capabilities to support its ASP
applications, its Internet portal or the services it enables. Therefore,
PracticeWorks is dependent on obtaining those capabilities from its hosting
partner, GlobalCenter, or another third party hosting partner. The ability to
remotely host its ASP applications and its Internet portal is central to its
business strategy and depends on the efficient and uninterrupted operation of
the computer and network systems of the hosting partner PracticeWorks selects.
If PracticeWorks fails to establish or continue a relationship with a hosting
partner on acceptable terms, or if its hosting partner fails to host its ASP or
its Internet portal applications due to a breach of its agreement with the
hosting partner, technical difficulties or for any other reason, PracticeWorks
may be unable to provide its ASP applications and other services to its
customers, which would harm its business.
SYSTEM FAILURES MAY CAUSE INTERRUPTIONS OF PRACTICEWORKS' INTERNET-BASED
APPLICATIONS AND SERVICES, WHICH COULD AFFECT ITS CUSTOMERS' SATISFACTION WITH
ITS SYSTEMS.
The performance of PracticeWorks' hosting partner's servers, networking
hardware and software infrastructure will be critical to its ability to provide
its ASP applications and its Internet portal and the services it will enable.
Any systems failure or interruption could result in disruption of service or
loss or compromise of customer data. These failures, especially if they are
prolonged or repeated, would make PracticeWorks' services less attractive to
customers and damage its reputation. PracticeWorks' hosting partner's systems
may fail because:
- its systems and operations will be vulnerable to damage or interruption
from human error, natural disaster, power loss, telecommunications
failures, break-ins, sabotage, computer viruses and similar events;
- its hardware and application software may experience system failures;
- performance may suffer due to firewall security;
- there may be errors in architectural design; and
- it may be unable to manage its growth and to attract and retain
employees.
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Any system failure that causes an interruption in service or a decrease in
responsiveness of our Internet-based services, if sustained or repeated, may
adversely affect PracticeWorks' business and operating results.
INTERNET SECURITY CONCERNS COULD ADVERSELY AFFECT PRACTICEWORKS' BUSINESS.
The secure transmission of confidential information over public networks is
a fundamental requirement for the applications and services PracticeWorks plans
to offer over the Internet. Concerns over the security of transactions and
information and other privacy issues may inhibit the growth of the Internet and
delivery of applications and services such as those provided by PracticeWorks
over the Internet. PracticeWorks plans to use encryption and authentication
technology for the transmission of confidential information over the Internet.
However, technological advances, including new discoveries in the field of
cryptography, could result in a compromise or breach of PracticeWorks' security
systems. Therefore, PracticeWorks cannot be certain that its security measures
will prevent breaches. An intruder who breaches its security measures could
misappropriate proprietary information or cause interruptions in its operations.
In addition, PracticeWorks could be required to spend a significant amount of
time and money to protect against security breaches or to alleviate problems
caused by such breaches. Security breaches could also expose PracticeWorks to a
risk of loss or litigation and possible liability. As a result, security
breaches could adversely affect PracticeWorks' reputation, its business or its
operating results.
ASSERTING, DEFENDING AND MAINTAINING PRACTICEWORKS' INTELLECTUAL PROPERTY RIGHTS
COULD BE DIFFICULT AND COSTLY AND FAILURE TO DO SO MAY DIMINISH ITS ABILITY TO
COMPETE EFFECTIVELY AND MAY HARM ITS OPERATING RESULTS.
PracticeWorks may need to pursue lawsuits or legal action in the future to
enforce its intellectual property rights, to protect its trade secrets and
domain names and to determine the validity and scope of the proprietary rights
of others. If third parties prepare and file applications for trademarks used or
registered by PracticeWorks, PracticeWorks may oppose those applications and be
required to participate in proceedings to determine priority of rights to the
trademark. Similarly, competitors may have filed applications for patents, may
have received patents and may obtain additional patents and proprietary rights
relating to applications or services that block or compete with those offered by
PracticeWorks. PracticeWorks may have to participate in interference proceedings
to determine the priority of invention and the right to a patent for the
application. Litigation and interference proceedings, even if they are
successful, are expensive to pursue and time consuming, and PracticeWorks could
use a substantial amount of its financial resources in either case.
PRACTICEWORKS MAY FACE THIRD-PARTY CLAIMS ALLEGING INFRINGEMENT OF THEIR
INTELLECTUAL PROPERTY RIGHTS, WHICH COULD RESULT IN SIGNIFICANT EXPENSE TO IT
AND LOSS OF SIGNIFICANT RIGHTS.
From time to time, third parties may assert patent, copyright, trademark
and other intellectual property rights to technologies that are important to
PracticeWorks' business. This risk may increase as the number of entrants to its
market increases and PracticeWorks improves the functionality of its
applications and services, potentially causing an overlap with the applications
and services of other companies. Any claims against PracticeWorks, or companies
with which it has business relationships, asserting that
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its applications or services infringe or may infringe proprietary rights of
third parties, whether with or without merit, could be time consuming, result in
costly litigation, divert the efforts of PracticeWorks' technical and management
personnel, disrupt its relationships with its customers or require it to enter
into royalty or licensing agreements, any of which could have a negative impact
upon its operating results. Royalty or licensing agreements, if required, may
not be available on terms acceptable to PracticeWorks, if at all. If a claim
against it is successful and it cannot obtain a license to the relevant
technology on acceptable terms, license a substitute technology, or redesign its
applications or services to avoid infringement, its business and financial
results could be harmed.
PROVISIONS OF PRACTICEWORKS' CERTIFICATE OF INCORPORATION, BYLAWS AND THE TAX
DISAFFILIATION AGREEMENT MAY DISCOURAGE TAKEOVERS WHICH WOULD OTHERWISE BE IN
THE BEST INTEREST OF ITS STOCKHOLDERS.
PracticeWorks' certificate of incorporation and bylaws contain provisions
that may make more difficult or expensive or that may discourage a tender offer,
change in control or takeover attempt that is opposed by its board of directors.
In particular, PracticeWorks' certificate of incorporation and bylaws include
the following anti-takeover provisions:
(1) classify its board of directors into three groups, so that
stockholders elect only one-third of the board each year;
(2) permit stockholders to remove directors only for cause;
(3) permit a special stockholders' meeting to be called only by the
chairman of the board of directors, the chief executive officer or a
majority of the board of directors;
(4) require stockholders to give PracticeWorks advance notice to
nominate candidates for election to its board of directors or to make
stockholder proposals at a stockholders' meeting;
(5) permit its board of directors to issue, without stockholder
approval, preferred stock with such terms as the board may determine; and
(6) require the vote of the holders of at least 66 2/3% of its voting
shares for stockholder amendments to its bylaws.
In addition, Section 203 of the Delaware General Corporation Law provides
certain restrictions on business combinations between PracticeWorks and any
party acquiring a 15% or greater interest in its voting stock other than in a
transaction approved by its board of directors and in certain cases by its
stockholders. These provisions of PracticeWorks' certificate of incorporation
and bylaws and Delaware law could discourage potential acquisition proposals and
could delay or prevent a change in control of PracticeWorks, even if
PracticeWorks' stockholders support such proposals. These provisions could also
make it more difficult for third parties to remove and replace the members of
PracticeWorks' board of directors. Moreover, these provisions could diminish the
opportunities for stockholders to participate in certain tender offers,
including tender offers at prices above the then-current market value of
PracticeWorks' common stock, and may also inhibit increases in the trading price
of PracticeWorks' common stock that could result from takeover attempts or
speculation.
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In connection with the spin-off, PracticeWorks agreed to indemnify InfoCure
for all taxes and liabilities incurred solely because (1) it breaches a
representation or covenant given to King & Spalding in connection with rendering
its tax opinion, which contributes to an Internal Revenue Service determination
that the spin-off was not tax-free or (2) a post-spin-off action or omission by
it or one or more of its affiliates contributes to an Internal Revenue Service
determination that the spin-off was not tax-free. Unless InfoCure effectively
rebuts the presumption that a change in control transaction involving
PracticeWorks or disposition of PracticeWorks occurring prior to the second
anniversary of the spin-off date is pursuant to the same plan or series of
related transactions as the spin-off, the Internal Revenue Service might
determine that the spin-off was not tax-free, giving rise to PracticeWorks'
indemnification obligation. These provisions of the tax disaffiliation agreement
entered into with InfoCure in connection with the spin-off may have the effect
of discouraging or preventing an acquisition of PracticeWorks or a disposition
of its businesses, which may in turn depress the market price for PracticeWorks
common stock.
THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS CONCERNING PRACTICEWORKS WHICH
MAY DIFFER FROM ACTUAL EVENTS.
This document contains forward-looking statements that reflect
PracticeWorks' current assumptions and estimates of future performance, the
development and timing of PracticeWorks' release of new applications and
services, the rate of adoption of its new applications and services by new and
existing customers, its success in establishing business relationships, the
growth of its business, and general economic conditions. These statements may
pertain to periods following the spin-off. You can find many of these statements
by looking for words such as "believes," "expects," "anticipates," "estimates"
or similar expressions. Any forward-looking statements are subject to risks and
uncertainties that may cause actual results and future trends to differ
materially from those projected, stated, or implied by the forward-looking
statements. PracticeWorks' results and the accuracy of the forward-looking
statements could be affected by many factors, including the risk factors
discussed above.
RISKS RELATED TO AN INVESTMENT IN INFOCURE COMMON STOCK.
INFOCURE HAS RECENTLY INCURRED LOSSES AND EXPECTS TO CONTINUE TO INCUR LOSSES
FOR THE FORESEEABLE FUTURE.
InfoCure had losses from continuing operations of $13.7 million for the
three months ended March 31, 2001, which included a $6.0 million doubtful
allowance provision for notes receivable from former inside directors, and
losses from continuing operations of $48.7 million for the year ended December
31, 2000. InfoCure expects to incur increased marketing and selling expenses in
connection with offering its EDI services and Internet solutions, each of which
is discussed below. Additionally, InfoCure expects to continue to incur research
and development and related expenses, in connection with new product offerings.
As a result, based on current estimates, InfoCure expects to continue to incur
net losses for the foreseeable future.
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INFOCURE'S QUARTERLY OPERATING RESULTS MAY VARY AND IN THE PAST IT HAS
EXPERIENCED LOSSES.
InfoCure's operating results may vary significantly from quarter to
quarter. In addition, InfoCure has experienced historical losses. InfoCure's
operating results will be influenced by such factors as:
- its release of enhanced EDI services and Internet solutions and the rate
of adoption of these products and services by new and existing customers;
- the timing of and costs related to development of its new products;
- market demand and/or lack of demand for InfoCure's products and/or
services, including demand for software license and system sales, which
has recently been declining;
- the length of sales and delivery cycles;
- changes in customer purchasing patterns;
- competition;
- the timing of and charges associated with completed acquisitions or other
events; and
- the levels of advertising and promotional expenditures.
CERTAIN INDIVIDUALS HAVE FILED LAWSUITS AGAINST INFOCURE, ALLEGING BREACH OF
CONTRACT, SECURITIES LAW VIOLATIONS AND OTHER CLAIMS, AND INFOCURE CAN NOT
ASSURE YOU AS TO THE OUTCOME OF THESE MATTERS.
Certain individuals who sold their businesses to InfoCure in exchange for
InfoCure stock have filed lawsuits against InfoCure, primarily alleging that
InfoCure breached the terms of registration rights agreements it executed with
these individuals. These complaints further allege, among other things,
securities law violations and breach of fiduciary duties owed to the plaintiffs
as stockholders of InfoCure and tort claims against InfoCure as a result of the
alleged failure to timely register shares for resale. The aggregate amount of
damages sought by these plaintiffs for which InfoCure is potentially liable is
approximately $22.1 million. InfoCure can not assure you that it will be
successful defending these claims. If InfoCure were to be found liable for a
substantial portion, or the maximum amount of damages sought, this would have an
adverse effect on InfoCure's business and operating results.
INFOCURE'S STOCK PRICE HAS HISTORICALLY BEEN VOLATILE, WHICH MAY MAKE IT MORE
DIFFICULT FOR YOU TO RESELL SHARES WHEN YOU WANT AT PRICES YOU FIND ATTRACTIVE.
The market price of InfoCure common stock has been volatile in the past and
may be volatile in the future. Since the signing of the original merger
agreement, the closing price of InfoCure's common stock has dropped from a high
of $36.63 on January 24, 2000 to a
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low of $1.06 on March 22, 2001. The market price of InfoCure's common stock may
be significantly affected by the following factors:
- the market attempting to value InfoCure following the spin-off;
- public announcements by companies in InfoCure's industry, including
announcements of acquisitions, strategic relationships, new technologies
and new products or product enhancements;
- general market conditions or market conditions specific to particular
industries;
- the combined company's technological innovations or those of its
competitors; and
- quarterly variations in InfoCure's results of operations.
In particular, the stock prices of many companies in the technology and
emerging growth sectors have fluctuated widely due to events unrelated to their
operating performance. These fluctuations may cause the market price of
InfoCure's common stock to decline below current levels.
THE FAILURE TO SUCCESSFULLY COMPLETE THE DEVELOPMENT OF INFOCURE'S EDI SERVICES
AND INTERNET SOLUTIONS AND ENTER INTO STRATEGIC RELATIONSHIPS COULD HARM
INFOCURE'S BUSINESS AND LIMIT ITS POTENTIAL GROWTH.
As part of InfoCure's reorganization, it intends to offer EDI services and
Internet solutions that will allow its customers to utilize the Internet to
enhance office workflow and conduct business-to-business e-commerce. InfoCure is
continuing to develop its EDI services, and Internet solutions and to establish
strategic relationships to facilitate these product offerings. InfoCure's
ability to attract new customers may be dependent upon its ability to complete
the development of its Internet solutions. In addition, InfoCure's ability to
offer some EDI services and Internet solutions is contingent upon entering into
strategic relationships. If InfoCure is unsuccessful in completing the
development of its EDI services and Internet solutions or fails to enter into
strategic relationships, the offering of these products may be delayed or these
products may never become available.
INFOCURE'S STRATEGY OF DELIVERING ENHANCED EDI SERVICES IS DEPENDENT UPON THE
CONTINUED DEVELOPMENT OF THE INTERNET.
InfoCure's ability to offer enhanced EDI services that can be utilized over
the Internet and its Internet solutions on a widespread basis depends on
InfoCure's potential customers having access to Internet connections with the
necessary speed, bandwidth and data capacity. The availability of this Internet
access will depend on others for the ongoing development of the Internet
infrastructure, including the necessary speed, bandwidth, data capacity and
security, as well as timely development of complementary products for providing
reliable Internet access and service. InfoCure cannot predict whether the
Internet will evolve to the point where its customers will be able to take full
advantage of the services that it offers. If the Internet fails to develop into
an efficient medium for these transactions, InfoCure's strategy of offering
enhanced EDI services and other Internet solutions will be unsuccessful.
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IF THE NASDAQ NATIONAL MARKET DELISTS INFOCURE'S COMMON STOCK, COMPLIANCE WITH
THE PENNY STOCK REGULATIONS WHICH WOULD RESULT COULD MAKE IT MORE DIFFICULT FOR
INFOCURE'S STOCKHOLDERS TO SELL THEIR SHARES.
The trading price of InfoCure's common stock has been historically
volatile. The maintenance rules of the Nasdaq National Market specify that,
under specified circumstances Nasdaq may initiate the delisting of an issuer's
stock if, among other things, the market price per share is not at least $5.00
per share, or if the issuer has a market capitalization of below $50 million for
a specified period of time.
In the event that InfoCure's securities are not listed on the Nasdaq
National Market, under specified circumstances, trading of the common stock may
be conducted on the "pink sheets" or through the Over-the-Counter Bulletin Board
System and covered by Rule 15g-9 of the Securities Exchange Act of 1934. Under
this rule, broker/dealers who recommend these securities to persons other than
established customers and accredited investors must make special written
suitability determinations for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities are exempt from the rule if
the market price is at least $5.00 per share.
The SEC adopted regulations that generally define a penny stock as any
equity security that has a market price of less than $5.00 per share. However,
InfoCure's common stock will not constitute penny stock if its common stock is
quoted on the Nasdaq National Market. If in the future its common stock falls
within the definition of penny stock, these regulations would require the
delivery, prior to any transaction involving its common stock, of a disclosure
schedule explaining the penny stock market and the risks associated with it.
Furthermore, the ability of broker/dealers and holders to sell the common stock
would be limited. As a result, the market liquidity for the common stock would
be severely and adversely affected. InfoCure cannot assure you that trading in
its securities will not be subject to these or other regulations in the future
which would negatively affect the market for its common stock. This lack of
liquidity may also make it more difficult for InfoCure to raise capital in the
future.
INFOCURE'S SYSTEMS MAY BE VULNERABLE TO SECURITY BREACHES AND VIRUSES.
The success of InfoCure's strategy to offer its EDI services and Internet
solutions depends on the confidence of its customers in InfoCure's ability to
securely transmit confidential information. Any failure to provide secure
electronic communication services could harm InfoCure's business and reputation.
InfoCure's EDI services and Internet solutions will rely on encryption,
authentication and other security technology licensed from third parties to
achieve secure transmission of confidential information. InfoCure may not be
able to stop unauthorized attempts to gain access to or disrupt the transmission
of communications by InfoCure's customers. Anyone who is able to circumvent
InfoCure's security measures could misappropriate confidential user information
or interrupt InfoCure's, or InfoCure's customers', operations. In addition,
InfoCure's EDI services may be vulnerable to viruses, physical or electronic
break-ins, and similar disruptions.
IF THE MARKETPLACE DEMANDS SUBSCRIPTION PRICING AND/OR ASP-DELIVERED OFFERINGS,
INFOCURE'S REVENUES MAY BE ADVERSELY IMPACTED.
If the marketplace demands subscription pricing and/or ASP-delivered
offerings, InfoCure's revenues may be adversely impacted. Even though InfoCure
is positioned to deliver its products and services under the subscription
pricing model and ASP-delivered
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offerings, it currently derives substantially all of its revenue from
traditional software license, maintenance and service fees, as well as the
resale of hardware. Under this system, customers pay an initial license fee for
the use of our products, in addition to a periodic maintenance fee. If the
marketplace demands subscription pricing and/or ASP-delivered offerings,
InfoCure may be forced to adjust its strategy accordingly, by offering a higher
percentage of its products and services through these means. Shifting to
subscription pricing and/or ASP-delivered offerings could adversely impact
InfoCure's quarterly and annual results of operations, as its revenues would
initially decrease substantially. InfoCure can not assure you that the
marketplace will not embrace subscription pricing and/or ASP offerings.
INFOCURE'S GROWTH COULD BE LIMITED IF IT IS UNABLE TO ATTRACT AND RETAIN
QUALIFIED PERSONNEL.
InfoCure believes its success depends largely on its ability to attract and
retain highly skilled technical, managerial and marketing personnel to develop
its products and services. Individuals with the information technology skills
InfoCure needs to further develop its products and services are in short supply
and competition for qualified personnel is particularly intense. InfoCure may
not be able to hire the necessary personnel to implement its business strategy,
or it may need to pay higher compensation for employees than it currently
expects. There can be no assurance InfoCure will succeed in attracting and
retaining the personnel it needs to continue to grow and to implement its
business strategy. In addition, InfoCure depends on the performance of its
executive officers and other key employees. The loss of any member of InfoCure's
senior management team could negatively impact its ability to execute its new
product strategy and subscription pricing model.
IF INFOCURE FAILS TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS FROM THIRD PARTY
CHALLENGES, IT MAY SIGNIFICANTLY IMPAIR INFOCURE'S COMPETITIVE POSITION.
InfoCure relies on a combination of copyright, trademark and trade secret
laws and restrictions on disclosure to protect the intellectual property rights
related to InfoCure's software applications. InfoCure's software technology is
not patented and existing copyright laws offer only limited practical
protection. In addition, InfoCure has not generally entered into confidentiality
agreements with its employees. InfoCure cannot guarantee that the legal
protections that it relies on will be adequate to prevent misappropriation of
its technology.
Further, these protections do not prevent independent third-party
development of competitive products or services. Unauthorized parties may
attempt to copy or otherwise obtain and use InfoCure's products or technology.
Monitoring use of InfoCure's products is difficult, and InfoCure cannot assure
you that the steps it has taken will prevent unauthorized use of its technology,
particularly in foreign countries where the laws may not protect its proprietary
rights as fully as in the United States.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST INFOCURE COULD BE COSTLY TO
DEFEND AND COULD DIVERT MANAGEMENT'S ATTENTION AWAY FROM INFOCURE'S BUSINESS.
As the number of software products in InfoCure's target markets increases
and as the functionality of these products overlaps, InfoCure may become
increasingly subject to the threat of infringement claims. InfoCure cannot
guarantee that third parties will not assert
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infringement claims against it in the future. Any infringement claims alleged
against InfoCure, even if without merit, can be time-consuming and expensive to
defend. Any infringement claims may divert management's attention and resources
and could also cause delays in the delivery of InfoCure's applications to its
customers. Settlement of any infringement claims could require InfoCure to enter
into costly royalty or licensing agreements. If a claim of product infringement
against InfoCure was successful and InfoCure was unable to license the
infringing or similar technology, its business, financial condition and results
of operations could be harmed.
INFOCURE MAY UNDERTAKE ACQUISITIONS WHICH CAN POSE RISKS TO ITS BUSINESS.
InfoCure may undertake acquisitions if it identifies companies with
complementary applications, services, businesses or technologies. InfoCure may
be unable to retain the acquired companies' personnel or integrate them into its
company. InfoCure's profitability may suffer because of acquisition-related
costs or amortization of acquired goodwill and other intangible assets.
Similarly, the time and expense associated with finding suitable and compatible
companies to enhance InfoCure's product offering could disrupt InfoCure's
ongoing business and divert its management's focus.
INFOCURE MAY FACE DIFFICULTIES INTEGRATING ACQUIRED BUSINESSES.
InfoCure's success depends on its successful integration of the businesses
it has acquired. Integrating the management and operations of acquired
businesses is time consuming, and InfoCure cannot guarantee that it will achieve
any of the anticipated synergies and other benefits expected to be realized from
these acquisitions.
COMPETITION COULD REDUCE REVENUE FROM INFOCURE'S PRODUCTS AND SERVICES.
InfoCure's principal competitors include both national and regional
information management technology vendors. Currently, the information management
technology industry in the United States is characterized by a large number of
relatively small, regionally-focused companies, comprising a highly fragmented
industry with only a few national vendors. Smaller, regionally-focused companies
typically market their products to a single practice specialty. Until recently,
larger, national vendors have targeted primarily large healthcare providers.
InfoCure believes that the larger, national vendors may broaden their markets to
include both small and large healthcare providers. The information management
technology industry is consolidating, which has resulted in large, well-
capitalized companies that have not historically been providers of practice
management systems entering into the practice management systems market. In
addition, InfoCure competes with national and regional providers of computerized
billing, insurance processing and record management services to healthcare
practices. As the market for InfoCure's products and services expands,
additional competitors are likely to enter this market. InfoCure believes that
the primary competitive factors in its markets are:
- product features and functionality;
- customer service, support and satisfaction;
- price;
- ongoing product enhancements; and
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- the reputation and stability of the vendor.
Some national competitors have greater financial, development, technical,
marketing and sales resources than InfoCure. If competition in the information
management technology industry intensifies, InfoCure's results of operations may
suffer and it may be required to lower the prices of its products and services.
INFOCURE'S CERTIFICATE OF INCORPORATION AND BYLAWS HAVE ANTI-TAKEOVER
PROVISIONS.
Provisions of InfoCure's certificate of incorporation and bylaws, as well
as the Delaware General Corporation Law, could make it more difficult for a
third party to acquire InfoCure even if doing so would be beneficial to its
stockholders. InfoCure is subject to the provisions of Section 203 of the
Delaware General Corporation Law which restricts certain business combinations
with interested stockholders. The combination of these provisions may have the
effect of inhibiting a non-negotiated merger or other business combination.
In addition, the InfoCure board of directors has the authority to issue
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares, without
stockholder action. The rights of the holders of common stock will be subject
to, and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of preferred stock could
discourage or make difficult the acquisition of a majority of its outstanding
voting stock by a third party.
Moreover, certain provisions of InfoCure's certificate of incorporation and
bylaws and Delaware law could delay or make more difficult a merger, tender
offer or proxy contest involving InfoCure. These provisions may have the effect
of delaying or preventing a change of control.
PRIVATELY-SOLD SHARES ELIGIBLE FOR PUBLIC RESALE COULD HAVE A NEGATIVE EFFECT ON
INFOCURE'S STOCK PRICE.
A substantial number of shares of InfoCure's common stock are eligible to
be resold in the public market, including shares that may be issued upon the
exercise of outstanding options and shares issued in acquisitions that are
available for resale pursuant to currently effective registration statements
previously filed by InfoCure with the SEC. Sales of substantial amounts of these
shares in the public market or the prospect of these sales could adversely
affect the market price of InfoCure common stock.
RISKS RELATED TO THE INDUSTRY.
TECHNOLOGY SOLUTIONS MAY CHANGE FASTER THAN INFOCURE AND PRACTICEWORKS ARE ABLE
TO UPDATE THEIR TECHNOLOGY.
The information management technology market in which InfoCure and
PracticeWorks compete is characterized by rapidly changing technology, evolving
industry standards, emerging competition and the frequent introduction of new
services, software and other products. InfoCure's and PracticeWorks' success
depends partly on their ability to:
- develop new or enhanced existing applications, software and services to
meet its customers' changing needs in a timely and cost-effective way;
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- respond effectively to technological changes and new product offerings of
its competitors; and
- develop relationships with strategic partners necessary to offer its
enhanced EDI services and other Internet solutions.
InfoCure and PracticeWorks cannot assure you that they will be able to
accomplish any or all of these goals. Many of InfoCure's and PracticeWorks'
competitors may develop products or technologies that are better or more
attractive than InfoCure's or PracticeWorks' or that may render InfoCure's or
PracticeWorks' technology or applications obsolete. If InfoCure and
PracticeWorks do not succeed in adapting their technology, their business could
be harmed.
INFOCURE AND PRACTICEWORKS ARE SUBJECT TO GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES AND THEIR FAILURE OR INABILITY TO COMPLY COULD HAVE A MATERIAL
ADVERSE EFFECT ON THEIR BUSINESS.
HIPAA. Federal regulations have been adopted, and others proposed, that
will impact the manner in which both InfoCure and PracticeWorks conduct their
business. The Health Insurance Portability and Accountability Act of 1996, or
HIPAA, required the Secretary of the Department of Health and Human Services,
referred to as the Secretary, to promulgate national standards to facilitate the
electronic exchange of health information as part of specified standard health
care and health coverage transactions, and to ensure the confidentiality and
security of such information. The regulations will apply directly to specified
health care providers, health plans and health care clearinghouses, referred to
as covered entities. In addition, the privacy and security regulations will
require that covered entities enter into written agreements that contractually
will impose many of the regulatory requirements on business associates with
which covered entities share confidential health information.
The Secretary adopted final regulations governing the requirements for
standard electronic transactions on August 17, 2000 and adopted final health
information privacy regulations on December 28, 2000. The HIPAA regulations
become effective sixty days after publication and require compliance by most
covered entities within 24 months of the effective date while specified small
health plans will have 36 months to comply. Accordingly, most covered entities
must comply with the electronic transactions regulations by October 16, 2002 and
must comply with the privacy regulations by February 26, 2003. On August 12,
1998, the Secretary proposed regulations to establish health information
security standards which are yet to be adopted in final form.
A substantial part of both InfoCure's and PracticeWorks' activities
involves the receipt or delivery of confidential health information concerning
patients of the physicians with whom they have direct relationships. For
example, InfoCure and PracticeWorks transfer confidential health information to
national health care clearinghouses through their EDI services, and InfoCure and
PracticeWorks will transmit confidential health information over the Internet in
connection with offering their ASP applications. In some circumstances, InfoCure
and PracticeWorks will receive confidential health information from health care
providers and may provide specified clearinghouse functions before transmitting
such information to health plans responsible for paying for health care
services.
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The HIPAA regulations may require InfoCure and PracticeWorks to expend
significant resources to comply with applicable requirements. The privacy
regulations in particular will impose significant requirements on covered
entities and their business associates with respect to permissible uses and
disclosures of individually identifiable health information. Because these
regulations are new, there is uncertainty as to how they will be interpreted and
enforced. In addition, the delay in adopting final security regulations creates
uncertainties as to what security requirements ultimately will be imposed, to
what extent InfoCure and PracticeWorks will be required to comply with those
requirements, and what the deadline for compliance will be.
Although both InfoCure and PracticeWorks will make a good faith effort to
ensure that they comply with, and that their products enable compliance with,
applicable HIPAA requirements, neither InfoCure nor PracticeWorks may be able to
conform their operations and products to such requirements in a timely manner,
or at all. The failure to do so could subject InfoCure and PracticeWorks to
civil liability when each is the business associate of a covered entity, and
could subject InfoCure and PracticeWorks to civil liability and criminal
sanctions to the extent each is regulated directly as a covered entity. In
addition, delay in developing or failure to develop products that would enable
HIPAA compliance for its current and prospective customers could put InfoCure
and PracticeWorks at a significant disadvantage in the marketplace. Accordingly,
the sale of their products and their business could be harmed by the
implementation of HIPAA regulations.
OTHER E-COMMERCE REGULATION. Additionally, InfoCure and PracticeWorks may
be subject to additional federal and state statutes and regulations in
connection with their changing product strategies, which include internet
services and products. On an increasingly frequent basis, federal and state
legislators are proposing laws and regulations that apply to internet commerce
and communications. Areas being affected by this regulation include user
privacy, pricing, content, taxation, copyright protection, distribution, and
quality of products and services. To the extent that InfoCure's and
PracticeWorks' products and services are subject to these laws and regulations,
the sale of their products and their business could be harmed.
CHANGES IN STATE AND FEDERAL LAWS RELATING TO CONFIDENTIALITY OF PATIENT MEDICAL
RECORDS COULD LIMIT INFOCURE'S AND PRACTICEWORKS' CUSTOMERS' ABILITY TO USE
THEIR SERVICES.
InfoCure and PracticeWorks cannot assure you that changes to state or
federal laws will not materially affect or restrict the ability of healthcare
providers to submit information from patient records using their products and
services. Any such restrictions would inevitably decrease the value of their
applications to their customers, which could materially harm InfoCure's and
PracticeWorks' business. The confidentiality of patient records and the
circumstances under which records may be released are already subject to
substantial regulation by state governments. Although compliance with these laws
and regulations is principally the responsibility of the healthcare provider
under these current laws, statutes and regulations governing patient
confidentiality rights are evolving rapidly. In addition to the obligations
being imposed at a state level, legislation governing the dissemination of
medical information is being passed at the federal level. The legislation may
require holders of this information to implement security measures, which could
entail substantial expenditures on the part of InfoCure and PracticeWorks.
Consequently, the sale of their products and their business could be harmed.
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CHANGES IN THE REGULATORY AND ECONOMIC ENVIRONMENT IN THE HEALTHCARE INDUSTRY
COULD ADVERSELY AFFECT INFOCURE'S AND PRACTICEWORKS' BUSINESS.
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. These factors affect the
purchasing practices and operation of healthcare organizations. Changes in
current healthcare financing and reimbursement systems could require InfoCure
and PracticeWorks to make unplanned enhancements of applications or services, or
result in delays or cancellations of orders or in the revocation of endorsement
of their services by their strategic partners and others. Federal and state
legislatures have periodically considered programs to reform or amend the U.S.
healthcare system at both the federal and state level. These programs may
contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which healthcare
industry participants operate. Healthcare industry participants may respond by
reducing their investments or postponing investment decisions, including
investments in InfoCure's and PracticeWorks' applications and services.
THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS CONCERNING INFOCURE WHICH MAY
DIFFER FROM ACTUAL RESULTS.
Certain statements in this document are "forward-looking statements" within
the meaning of the federal securities laws. Statements regarding future events
and developments and InfoCure's future performance, as well as management's
expectations, beliefs, plans, estimates or projections relating to the future,
are forward-looking statements within the meaning of these laws. These
forward-looking statements are subject to a number of risks and uncertainties.
Among the important factors that could cause actual results to differ materially
from those indicated by such forward-looking statements are operating InfoCure
and PracticeWorks as independent public companies following the spin-off;
uncertainties concerning InfoCure's future capital needs and the ability to
obtain such capital; possible deferral, delay or cancellation by customers of
computer system purchase decisions; variations in the volume and timing of
system sales and installations; possible delays in product development; changing
economic, political and regulatory influences on the healthcare industry;
changes in product pricing policies; and general economic conditions. Management
believes that these forward-looking statements are reasonable and that the
projections contained in this release are based on reasonable assumptions and
forecasts; however, you should not place undue reliance on such statements.
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THE SPECIAL MEETING
PURPOSE
InfoCure, PracticeWorks and Medical Dynamics are furnishing this proxy
statement-prospectus to Medical Dynamics stockholders in connection with the
solicitation of proxies by the Medical Dynamics board of directors. The Medical
Dynamics board of directors will use the proxies at the special meeting of
stockholders of Medical Dynamics to be held on August 7, 2001 and at any
adjournment or postponement thereof.
At the special meeting, you will be asked to vote upon the proposal to
approve the merger agreement attached to this proxy statement-prospectus as
Appendix A and to authorize the merger of Medical Dynamics with and into CADI
Acquisition Corporation, a wholly owned subsidiary of PracticeWorks, with CADI
Acquisition Corporation being the surviving corporation and a wholly owned
subsidiary of PracticeWorks.
DATE, PLACE AND TIME
The special meeting of Medical Dynamics' stockholders will be held on
August 7, 2001, at the offices of Medical Dynamics, 400 Inverness Drive South,
Suite 200, Englewood, Colorado 80112 commencing at 10:00 a.m., local time.
RECORD DATE
The Medical Dynamics board of directors fixed the close of business on May
29, 2001 as the record date for the special meeting. Accordingly, only holders
of Medical Dynamics common stock of record at the close of business on May 29,
2001 will be entitled to notice of, and to vote at, the special meeting.
MEDICAL DYNAMICS STOCKHOLDERS ENTITLED TO VOTE
As of May 29, 2001, there were 13,229,206 shares of Medical Dynamics common
stock outstanding and held by 11,555 holders of record. Each share of Medical
Dynamics common stock entitles the holder thereof to one vote.
As of the date of this proxy statement-prospectus, directors and executive
officers of Medical Dynamics may be deemed to be beneficial owners of 2,264,716
of the outstanding shares of Medical Dynamics common stock. This number does not
include stock that the Medical Dynamics directors and executive officers may
acquire through the exercise of stock options or warrants.
On the record date and as of the date of this proxy statement-prospectus,
neither InfoCure's nor PracticeWorks' directors and executive officers owned
shares of Medical Dynamics common stock.
VOTE REQUIRED; VOTING AT THE MEETING
The holders of a majority of the outstanding shares of Medical Dynamics
common stock must be present in person or by proxy for a quorum to exist at the
special meeting. Approval of the merger agreement and authorization of the
merger requires the affirmative vote of the holders of a majority of the
outstanding shares of Medical Dynamics common stock.
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Officers and directors holding approximately 17% of the outstanding shares
of Medical Dynamics common stock have agreed to vote in favor of the merger
agreement pursuant to a voting agreement originally executed with InfoCure.
VOTING OF PROXIES
All properly executed proxies received before the vote at the special
meeting, and not revoked, will be voted in accordance with the instructions
indicated on the proxies. If no instructions are indicated, such proxies will be
voted FOR the proposal to approve the merger agreement, and the proxy holder may
vote the proxy in its discretion as to any other matter which may properly come
before the meeting.
Any abstention will have the same effect as a vote AGAINST the approval of
the merger agreement.
A Medical Dynamics stockholder who has given a proxy solicited by Medical
Dynamics' board of directors may revoke it by:
- giving written notice of revocation to the Secretary of Medical Dynamics;
- delivering a later dated proxy to the Secretary of Medical Dynamics; or
- attending the special meeting and voting in person.
Any written notice of revocation or subsequent proxy must be sent so as to
be delivered at or before the taking of the vote at the special meeting to
Medical Dynamics, Inc., 400 Inverness Drive South, Suite 200, Englewood,
Colorado 80112, Attention: Secretary.
Proxies submitted in connection with the August 15, 2000 stockholders'
meeting will not be counted at the special meeting on August 7, 2001. Therefore,
even if you submitted a proxy with respect to voting on the original merger
agreement, you must submit another proxy with respect to voting on the amended
and restated merger agreement or your vote will not be counted.
SOLICITATION OF PROXIES
The expenses of the solicitation of proxies for the special meeting will be
borne equally by PracticeWorks and Medical Dynamics, including the expenses
incurred in connection with filing, printing and mailing this proxy
statement-prospectus and the forms of proxy to the Medical Dynamics
stockholders.
In addition to solicitation by mail, directors, officers and key employees
of Medical Dynamics may solicit proxies in person or by telephone, telegram or
other means of communication. These persons will receive no additional
compensation for solicitation of proxies, but may be reimbursed for reasonable
out-of-pocket expenses.
You should not send in any stock certificates with your proxies. A
transmittal form with instructions for the surrender of stock certificates for
shares of Medical Dynamics will be mailed to you as soon as practicable after
completion of the merger.
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DISSENTERS' RIGHTS
If you own 100 or fewer shares of Medical Dynamics common stock, under
Article 113 of Title 7 the Colorado Business Corporation Act, or Article 113,
you are entitled to dissent from the merger and receive cash equal to the "fair
value" of your shares of Medical Dynamics common stock in lieu of receiving the
cash payment to which you otherwise would be entitled if the merger is
completed. If you own more than 100 shares of Medical Dynamics common stock but
will only receive InfoCure common stock, PracticeWorks common stock,
PracticeWorks preferred stock and cash in lieu of fractional shares, you will
not be entitled to dissent from the merger under Article 113. For purposes of
Article 113, "fair value" means the value of Medical Dynamics common stock
immediately before the effective time of the merger, excluding any appreciation
or depreciation in anticipation of the merger, unless that exclusion would be
inequitable.
Article 113 is attached to this proxy statement-prospectus as Appendix B.
The following is a brief summary of the dissenters' rights provided under
Article 113. This discussion is not a complete statement of the law relating to
dissenters' rights and is qualified in its entirety by reference to Appendix B.
THIS DISCUSSION AND APPENDIX B SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO
WISHES TO EXERCISE STATUTORY DISSENTERS' RIGHTS OR WHO WISHES TO PRESERVE THE
RIGHT TO DO SO BECAUSE FAILURE TO COMPLY STRICTLY WITH THE PROCEDURES SET FORTH
HEREIN AND THEREIN WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
Article 113 provides that stockholders of a corporation in a merger that
must be approved by the corporation's stockholders generally are entitled to
dissenters' rights. However, Article 113 further provides that a stockholder
will not be entitled to dissent from a merger if (1) the shares of stock of that
corporation are held of record by at least 2,000 stockholders and (2) in the
merger, the stockholder will receive in exchange for the stockholders' shares
(A) shares of a corporation which are listed on a national securities exchange
or designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., (B) shares that
are held by 2,000 or more holders and/or (C) cash in lieu of fractional shares.
Therefore, stockholders who own more than 100 shares of Medical Dynamics common
stock will not be entitled to dissent from the merger if they are entitled to
receive only InfoCure common stock, PracticeWorks common stock, PracticeWorks
preferred stock and cash in lieu of fractional shares because (1) shares of
Medical Dynamics common stock are held by more than 2,000 stockholders of
record, (2) shares of InfoCure common stock are quoted on The Nasdaq National
Market and shares of PracticeWorks common stock are quoted on the American Stock
Exchange and (3) the shares of PracticeWorks preferred stock will be held by
2,000 or more stockholders.
If you are entitled to dissenters' rights, to exercise those rights, you
must:
- file with Medical Dynamics, before the vote is taken at the special
meeting, written notice of your intent to demand the fair value for your
Medical Dynamics common stock if the merger is consummated and becomes
effective; and
- not vote your shares of Medical Dynamics common stock in favor of the
proposal to approve the merger agreement.
If you do not satisfy each of these requirements, you cannot exercise
dissenters' rights and will be bound by the terms of the merger agreement.
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Submitting a proxy card that does not direct how the Medical Dynamics
common stock represented by that proxy is to be voted will constitute a vote in
favor of the merger and a waiver of your statutory dissenters' rights. In
addition, voting against the proposal to approve the merger will not satisfy the
notice requirement referred to above. You must file the written notice of the
intent to exercise dissenters' rights with Medical Dynamics at: Medical
Dynamics, Inc., 400 Inverness Drive South, Suite 200, Englewood, Colorado 80112,
Attention: President.
If the merger is approved, Medical Dynamics will send written notice as
described above to all stockholders who have given written notice of an intent
to exercise dissenters' rights under Article 113 and have not voted in favor of
the merger. Medical Dynamics will provide this notice within 10 days of the
effective date of the merger and it will contain:
- a statement that the merger was approved and the effective date of the
merger;
- the address where the demand for payment and certificates representing
shares of Medical Dynamics common stock must be sent and the date by
which they must be received, which shall not be less than 30 days after
the date the notice is given;
- any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
- a form for demanding payment that requests the dissenting stockholder's
address for sending payment and requires certification of whether the
stockholder, or the beneficial owner on whose behalf the stockholder
dissents, acquired the Medical Dynamics common stock before October 11,
2000, the date the amended and restated merger agreement was first
publicly announced;
- the date by which Medical Dynamics must receive the payment demand and
certificates for certificated shares, which date shall not be less than
30 days after the date the notice is given; and
- a copy of Article 113.
If you wish to assert dissenters' rights, you must demand payment in
writing, which may be in the form of the demand payment form included in the
notice from Medical Dynamics or another writing, and deposit your Medical
Dynamics certificates by the date given in the dissenter's notice. If you fail
to make a demand for payment and deposit your Medical Dynamics certificates by
this date, you will lose the right to receive fair value for your shares under
Article 113, even if you filed a timely notice of intent to demand payment. A
stockholder who demands payment and deposits his or her certificates retains all
rights of a stockholder, except the right to transfer shares, until the
effective date of the merger, after which the stockholder only has the right to
receive payment for the shares. The demand for payment and deposit of
certificates is irrevocable.
Except as provided below, upon the later of the effective time of the
merger or Medical Dynamics' receipt of a valid demand for payment, Medical
Dynamics will remit to each dissenting stockholder who complied with the
requirements of Article 113 the amount Medical Dynamics estimates to be the fair
value of the stockholder's Medical Dynamics common stock, plus accrued interest.
Medical Dynamics will include the following information with the payment:
- audited financial statements of Medical Dynamics for and as of the end of
the most recent fiscal year and the latest available financial
statements, audited or unaudited,
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for and as of the end of any interim period since the end of the most
recent fiscal year;
- a statement of Medical Dynamics' estimate of the fair value of the
shares;
- an explanation of how the interest was calculated;
- a copy of Article 113; and
- a description of the procedures to be followed in demanding supplemental
payment.
For any dissenting stockholder who does not certify in writing that the
stockholder was the beneficial owner of the stockholder's shares of Medical
Dynamics common stock before October 11, 2000, Medical Dynamics may withhold
payment and instead send a statement setting forth its estimate of the fair
value of their shares and offering to pay such amount, with interest, as a final
settlement of the dissenting stockholder's demand for payment.
If the effective date of the merger does not occur within 60 days after the
date by which Medical Dynamics must receive the payment demand and Medical
Dynamics stock certificates from dissenting stockholders, Medical Dynamics will
return the deposited certificates to the stockholders and release the transfer
restrictions on uncertificated shares. If the effective date of the merger
occurs then occurs more than 60 days after the date by which Medical Dynamics
must receive the payment demand, Medical Dynamics must send a new notice as
described above to stockholders entitled to dissent from the merger and the
provisions described herein will be applicable with respect to the new notice.
If you believe the amount paid or offered is less than the fair value of
your shares or that interest was incorrectly calculated, you may, within 30 days
of the payment or offer for payment, notify Medical Dynamics in writing of and
demand payment of your estimate of the fair value of your shares and the amount
of interest due. In addition, you may demand payment of your estimate of the
fair value of your shares and the amount of interest due if (i) Medical Dynamics
fails to make payment of the fair value of your shares within 60 days after the
date by which Medical Dynamics must receive the payment demand and you have
certified to Medical Dynamics that you held your shares of Medical Dynamics
common stock before October 11, 2000 or (ii) Medical Dynamics does not return
your certificates or release the transfer restrictions on uncertificated shares
if the merger is not completed with 60 days after the date by which Medical
Dynamics must receive the payment demand. If any dissenting stockholder's demand
for payment is not settled within 60 days after its receipt by Medical Dynamics,
Medical Dynamics must either pay to each dissenter whose demand remains
unresolved the amount demanded or commence a court proceeding to determine the
fair value of the shares and accrued interest, naming all the dissenting
stockholders whose demands remain unsettled as parties to the proceeding. The
proceeding will be commenced in a district court in Colorado, and the court will
determine the fair value of the share of common stock and accrued interest.
The court may appoint one or more appraisers to receive evidence and make
recommendations to the court as to the amount of the fair value of the shares.
The fair value of the shares as determined by the court is binding on all
dissenting stockholders and may be less than, equal to or greater than the
amount of the cash payment the dissenter stockholder would otherwise have
received in the merger for his or her shares of Medical Dynamics common stock.
If the court determines that the fair value of the shares is in excess of any
amount remitted or offered by Medical Dynamics, then the court will enter a
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judgment for cash in favor of the dissenting stockholders in an amount by which
the value determined by the court, plus interest, exceeds the amount previously
remitted or offered by Medical Dynamics.
The court will determine the costs and expenses of the court proceeding and
assess them against Medical Dynamics, except that the court may assess part or
all of the costs against any dissenting stockholders whose actions in demanding
supplemental payments the court finds to be arbitrary, vexatious or not in good
faith. If the court finds that Medical Dynamics did not substantially comply
with the relevant provisions of Article 113, the court may also assess against
Medical Dynamics any fees and expenses of attorneys or experts that the court
deems equitable. The court may also assess those fees and expenses against any
party if the court finds that the party has acted arbitrarily, vexatiously or
not in good faith in bringing the proceedings. The court may award, in its
discretion, fees and expenses of an attorney for the dissenting stockholders out
of the amount awarded to the stockholders, if it finds the services of the
attorney were of substantial benefit to the other dissenting stockholders and
that those fees should not be assessed against Medical Dynamics.
A stockholder of record may assert dissenters' rights as to fewer than all
of the shares registered in the stockholder's name only if he or she dissents
with respect to all shares beneficially owned by any one person and notices
Medical Dynamics in writing of the name and address of each person on whose
behalf he or she asserts dissenters' rights. The rights of the partial
dissenting stockholder are determined as if the shares as to which he or she
dissents and his or her other shares were registered in the names of different
stockholders.
Beneficial owners of Medical Dynamics common stock who desire to exercise
dissenters' rights themselves must obtain and submit the registered owner's
written consent at or before the time they file the notice of intent to dissent
from the merger. A beneficial owner may exercise dissenters' rights only if the
beneficial owner exercises dissenters' rights with respect to all shares of
Medical Dynamics common stock he or she owns.
RECOMMENDATION OF THE MEDICAL DYNAMICS BOARD OF DIRECTORS
The Medical Dynamics board of directors has unanimously determined that the
terms of the merger agreement are consistent with and in furtherance of the
long-term business strategy of Medical Dynamics and fair to, and in the best
interests of, Medical Dynamics and its stockholders. Medical Dynamics' board of
directors approved and declared advisable the merger agreement and recommends
that Medical Dynamics stockholders vote FOR the proposal to approve the merger
agreement.
INTERESTS OF CERTAIN MEDICAL DYNAMICS DIRECTORS, OFFICERS AND AFFILIATES IN THE
MERGER
When considering the recommendation of the Medical Dynamics board of
directors, you should be aware that certain Medical Dynamics directors, officers
and affiliates have interests in the merger that are different from, or are in
addition to, yours. Your board of directors was aware of these interests and
considered them in approving and recommending the merger.
REPLACEMENT OF STOCK OPTIONS AND WARRANTS. At the closing of the merger,
all outstanding stock options and warrants held by officers, directors and
affiliates of Medical
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Dynamics will be terminated and replaced with options and warrants to acquire
shares of PracticeWorks common stock. The PracticeWorks options granted to Van
A. Horsley, President of Medical Dynamics, I. Dean Bayne, M.D. and Leroy
Bilanich, Ed. D, each an officer and director of Medical Dynamics, will expire
on the expiration dates set forth in the corresponding terminated options, which
occur on various dates from June 2001 through April 2006.
ACCELERATION OF OPTIONS AND PAYMENT OF CASH SEVERANCE. Upon closing of the
merger, the InfoCure options granted to Mr. Horsley to replace existing unvested
options to acquire 400,000 shares of Medical Dynamics common stock will be
immediately exercisable. In addition, Mr. Horsley will receive a cash payment of
$148,000 related to salary and accrued vacation.
EXECUTION OF NEW EMPLOYMENT AGREEMENTS. Each of Daniel L. Richmond and
Chae U. Kim, directors and officers with one of Medical Dynamics' subsidiaries,
currently have employment agreements with Medical Dynamics. The terms of the
agreements are five years and provide for annual compensation of $105,000 each
and other customary benefits. In connection with the merger, these employment
agreements will be cancelled and replaced with new employment agreements with
PracticeWorks.
The new employment agreement with Daniel L. Richmond provides for Mr.
Richmond to serve as manager of national accounts for Medical Dynamics's Dental
Division for a term of two years. Mr. Richmond will receive an annual salary of
$110,000, a $500 monthly business allowance, a $1,000 monthly automobile
allowance, and will be eligible for an annual cash incentive bonus not to exceed
his base salary.
The new employment agreement with Chae U. Kim provides for Mr. Kim to
manage all development of the Medical Dynamics Dental Division's "Classic" line
of products for a term of two years. Mr. Kim will receive an annual salary of
$110,000, a $500 monthly business allowance, a $1,000 monthly automobile
allowance, and will be eligible for an annual cash incentive bonus not to exceed
his base salary.
PAYMENT OF PROMISSORY NOTES. Medical Dynamics currently owes Messrs.
Richmond and Kim certain consideration from Medical Dynamics' original
acquisition of Computer Age Dentist, Inc. Approximately $127,000 is owed under
these notes, and these notes were payable in full on August 1, 2000, or, if
earlier, upon the sale of Medical Dynamics. However, Messrs. Richmond and Kim
have entered into subordination agreements pursuant to which they will not be
repaid until PracticeWorks has been repaid all amounts outstanding under the
loan agreement between PracticeWorks and Medical Dynamics. These notes bear
interest at 12% per annum, with interest being payable when the principal is
due. These notes will be paid in full by PracticeWorks upon closing of the
merger.
On July 30, 1999, Medical Dynamics issued a promissory note in the amount
of $400,000 to Edwin L. Adair, M.D. and Mrs. Pat Horsley Adair, each an officer
and a director of Medical Dynamics. Dr. and Mrs. Adair advanced the entire
amount to Medical Dynamics on July 30, 1999. The note bears interest at 12% per
annum, with interest payable monthly in arrears. All unpaid interest and
principal was due on July 30, 2000, or, if earlier, upon the sale of Medical
Dynamics. However, Dr. and Mrs. Adair have entered into a subordination
agreement pursuant to which they will not be repaid until PracticeWorks has been
repaid all amounts outstanding under the loan agreement between PracticeWorks
and Medical Dynamics. The current outstanding principal balance of the
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note is $200,000. The note will be paid in full by PracticeWorks upon closing of
the merger.
ASSUMPTION OF ROYALTY AGREEMENTS. Dr. Adair and Dr. Bayne, each an officer
and a director of Medical Dynamics, are entitled to receive royalties equal to
two percent of the net sales of certain products assigned to Medical Dynamics.
These royalty agreements will be assumed by PracticeWorks in the merger.
ASSUMPTION OF LICENSE AGREEMENT. Dr. Adair and Medical Dynamics entered
into an exclusive revocable license agreement relating to use of certain
technology invented and developed by Dr. Adair. The license agreement will be
assumed by PracticeWorks in the merger.
ASSUMPTION OF DISTRIBUTION AGREEMENT. Medical Dynamics entered into a
distribution agreement with Micro-Medical Devices, Inc. ("MMD"), a corporation
wholly owned by Dr. Adair. The distribution agreement includes all products
developed by Dr. Adair related to his Universal Sterile Endoscopy System. No
revenues have been received as a result of the distribution agreement with MMD
nor are any revenues currently expected. The distribution agreement will be
assumed by PracticeWorks in the merger.
INDEMNIFICATION AND INSURANCE. The merger agreement provides that after
the effective time of the merger, the surviving corporation will honor the
obligations of Medical Dynamics that existed prior to such effective time to
indemnify Medical Dynamics' present and former directors and officers and their
heirs, executors and assigns. In addition, PracticeWorks will assume
indemnification agreements with certain of Medical Dynamics' directors and
officers providing for indemnification of each such director by Medical Dynamics
to the fullest extent permitted by the Colorado Business Corporation Act. The
agreements provide that in all circumstances in which a director or officer may
receive indemnification by statute, such indemnity shall be provided.
For four years after the effective time of the merger, the surviving
corporation has agreed to indemnify and hold harmless, to the fullest extent
permitted under applicable law, each present or former director or officer of
Medical Dynamics or any of its subsidiaries (including his or her heirs,
executors and assigns) against any costs, expenses and amounts paid in
settlement of any claim, action, suit, proceeding or investigation arising out
of any act or omission in his or her capacity as a director or officer which
occurred before the effective time of the merger.
DESCRIPTION OF THE MERGER
The following information describes material aspects of the merger. This
description is only a summary of the terms and conditions of the merger
agreement. It is qualified in its entirety by the Appendix A, which is attached
to this proxy statement-prospectus. You are urged to read Appendix A in its
entirety. Unless otherwise indicated, all references to the merger agreement in
this proxy statement-prospectus refer to the amended and restated merger
agreement, as amended, set forth in Appendix A.
EFFECT OF THE PRACTICEWORKS SPIN-OFF
Pursuant to the December 19, 2000 amendment to the merger agreement,
effective on the date of InfoCure's spin-off of PracticeWorks, InfoCure assigned
all of its rights under the merger agreement to PracticeWorks, and PracticeWorks
assumed all of InfoCure's
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obligations under the merger agreement, except for InfoCure's obligation to
issue shares of its common stock to the stockholders of Medical Dynamics upon
the consummation of the merger.
THE MERGER
The merger agreement provides for the acquisition of Medical Dynamics by
PracticeWorks pursuant to the merger of Medical Dynamics into a wholly owned
subsidiary of PracticeWorks. The merger subsidiary will be the surviving
corporation following the merger and will be wholly owned by PracticeWorks.
WHAT YOU WILL RECEIVE IN THE MERGER IF YOU OWN MORE THAN 100 SHARES OF MEDICAL
DYNAMICS COMMON STOCK
If you own more than 100 shares of Medical Dynamics common stock, in
exchange for each share of Medical Dynamics common stock you own, you will
receive 0.06873 shares of InfoCure common stock 0.017183 shares of PracticeWorks
common stock and 0.07558 shares of PracticeWorks series B convertible redeemable
preferred stock.
MERGER CONSIDERATION IF YOU OWN 100 OR FEWER SHARES OF MEDICAL DYNAMICS
COMMON STOCK
If you own 100 or fewer shares of Medical Dynamics common stock, you will
receive $0.75 in cash in exchange for each share of Medical Dynamics common
stock you own. The cash payment you will receive will not change if the
consideration payable to stockholders who own more than 100 shares is changed as
described below.
TERMS OF THE INFOCURE COMMON STOCK
Holders of InfoCure common stock are entitled to one vote per share held of
record on each matter submitted to a vote of stockholders. The holders of common
stock have no cumulative voting rights, no pre-emptive rights and no rights to
convert their shares of common stock into any other securities. Because holders
of common stock do not have cumulative voting rights, the holders of the
majority of the shares of common stock represented at the annual meeting of
stockholders can elect all the directors. Under Delaware law, the affirmative
vote of a majority of the outstanding shares of common stock is necessary for
certain corporate actions, including merger or consolidation with another
corporation, sale or other disposition of all or substantially all of InfoCure's
property and assets and voluntary dissolution of InfoCure. Delaware law allows
InfoCure to establish a higher percentage of stockholder approval necessary to
take such corporate action.
Holders of common stock are entitled to receive dividends when and if
declared by the Board of Directors out of funds legally available therefor,
subject to any contractual restrictions on the payment of dividends.
Upon dissolution, liquidation or sale of all or substantially all of the
assets of InfoCure, and after payment in full of all amounts required to be paid
to creditors and liquidation preferences, if any, the holders of the common
stock will be entitled to receive provisions applicable to the common stock.
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TERMS OF THE PRACTICEWORKS COMMON STOCK
For a description of the PracticeWorks common stock to be issued in the
merger and upon exercise of the preferred stock, see "Description of Capital
Stock of PracticeWorks -- Common Stock" on page 163 of this proxy
statement-prospectus.
TERMS OF THE PRACTICEWORKS PREFERRED STOCK
The terms of the series B convertible redeemable preferred stock include
the following:
- The preferred stock has an initial liquidation preference of $5.44 per
share.
- Each share of preferred stock may be converted at any time at the option
of the holder into the number of shares of PracticeWorks common stock
equal to the liquidation preference in effect at the time divided by the
conversion price, which initially will be $36.387, subject to certain
anti-dilution adjustments. As of June , 2001, each share of preferred
stock would have been convertible into approximately 0.1495 shares of
PracticeWorks common stock.
- Dividends will accrue on each share of preferred stock from the date of
original issuance at a rate equal to 6% per annum on the liquidation
preference per share then in effect and shall be paid quarterly in
arrears on March 31, June 30, September 30 and December 31, commencing on
September 30, 2001. At its option, PracticeWorks may pay dividends either
in cash or shares of PracticeWorks common stock equal in value to the
amount of the dividend based on the average of the closing prices of
PracticeWorks common stock for the 20 trading days immediately prior to
the dividend payment date. Any dividends not paid on the applicable
payment date in respect of any share of preferred stock will be added to
the liquidation preference in effect with respect to such share.
- PracticeWorks must redeem all outstanding shares of preferred stock in
cash on the fifth anniversary of the date of original issuance at a
redemption price equal to the liquidation preference plus all accrued and
unpaid dividends through the redemption date.
- Holders of shares of preferred stock generally do not have the right to
vote on any matter on which holders of PracticeWorks common stock are
entitled to vote.
For a more detailed description of the terms of the series B convertible
redeemable preferred stock, see "Description of Capital Stock of
PracticeWorks -- Preferred Stock -- PracticeWorks Series B Convertible
Redeemable Preferred Stock Issuable to Medical Dynamics Stockholders" on page
166 of this proxy statement-prospectus.
CASH IN LIEU OF FRACTIONAL SHARES
InfoCure will not issue fractional shares of common stock in the merger. As
a result, the number of shares of InfoCure common stock you will receive in the
merger will be rounded down to the nearest whole number. You will receive a cash
payment, without interest, for the value of any fraction of a share of InfoCure
common stock you otherwise would be entitled to receive equal to the fraction
multiplied by $4.93.
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PracticeWorks will not issue any fractional shares of common stock in the
merger. As a result, the number of shares of PracticeWorks common stock you will
receive in the merger will be rounded down to the nearest whole number. You will
receive a cash payment, without interest, for the value of any fraction of a
share of PracticeWorks common stock you otherwise would have been entitled to
receive equal to the fraction multiplied by $19.72.
The number of shares of PracticeWorks preferred stock you will receive in
the merger will be rounded down to the nearest tenth of a share of preferred
stock. You will receive a cash payment, without interest, for the value of a
fraction of a share of preferred stock representing less than a tenth of a share
you otherwise would have been entitled to receive in an amount equal to the
fraction multiplied by $5.44.
EFFECT OF THE MERGER ON MEDICAL DYNAMICS OPTIONS AND WARRANTS
OPTIONS
When the merger is effective, each option granted under Medical Dynamics'
stock option plans that is outstanding, whether or not exercisable, will be
terminated and replaced with an option to purchase PracticeWorks common stock.
After the merger becomes effective:
- PracticeWorks and its compensation committee will administer the
replacement options;
- each replacement option may be exercised only for shares of PracticeWorks
common stock;
- the number of shares of PracticeWorks common stock subject to each
replacement option will be equal to the number of shares of Medical
Dynamics common stock subject to the terminated option immediately before
the merger is completed multiplied by 0.0380324, rounded up to the
nearest whole share; and
- the per share exercise price of each replacement option will be equal to
the exercise price of the corresponding terminated option divided by
0.0380324, rounded up to the nearest cent.
The shares subject to each replacement option will be immediately
exercisable in proportion to the percentage of shares subject to the
corresponding terminated option that are exercisable immediately prior to the
closing of the merger. The remaining shares subject to each replacement option
will become exercisable according to the vesting schedule of the corresponding
terminated option, as adjusted proportionately to reflect the number of shares
subject to the replacement option as compared to the number of shares subject to
the corresponding terminated option. The replacement options granted to Mr.
Horsley, Dr. Bayne and Dr. Bilanich and individuals who were former employees or
directors of Medical Dynamics as of the date of the merger agreement will expire
on the expiration dates set forth in the corresponding terminated options, which
occur on various dates from September 2001 through April 2006. Each option held
by any other individual, including current Medical Dynamics employees, will
expire on the later of (1) one year from the closing of the merger and (2) 30
days after the date the employee is terminated by Medical Dynamics, but in no
event will the expiration date extend beyond the expiration date provided in the
corresponding terminated option.
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WARRANTS
When the merger is effective, each warrant to purchase Medical Dynamics
common stock will be terminated and replaced with a warrant to purchase
PracticeWorks common stock. After the merger becomes effective:
- each replacement warrant may be exercised only for shares of
PracticeWorks common stock;
- the number of shares of PracticeWorks common stock subject to each
replacement warrant will be equal to the number of shares of Medical
Dynamics common stock subject to the corresponding terminated warrant
immediately before the merger is completed multiplied by 0.0380324,
rounded up to the nearest whole share; and
- the per share exercise price of each replacement warrant will be equal to
the exercise price of the corresponding terminated warrant divided by
0.0380324, rounded up to the nearest cent.
The shares subject to each replacement warrant will be immediately
exercisable in proportion to the percentage of shares subject to the
corresponding terminated warrant that are exercisable immediately prior to the
closing of the merger. The remaining shares subject to each replacement warrant
will become exercisable according to the vesting schedule of the corresponding
terminated warrant adjusted proportionately to reflect the number of shares
subject to the replacement as compared to the number of shares subject to the
terminated warrant. The replacement warrants will expire on the earlier of (1)
one year from the closing of the merger and (2) the expiration date provided in
the corresponding terminated warrant.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
In the opinion of Morris, Manning & Martin, L.L.P., counsel to
PracticeWorks, the following general discussion summarizes the material U.S.
federal income tax consequences of the merger to the stockholders of Medical
Dynamics. Because the following summary addresses only the federal income tax
consequences of the merger generally applicable to all stockholders of Medical
Dynamics, it may not contain all of the information that may be important to
you. As you review this discussion, you should keep in mind that the tax
consequences to you may vary depending upon your particular tax situation. For
example, this discussion does not address, among other matters:
- state, local, or foreign tax consequences of the merger;
- federal income tax consequences to Medical Dynamics stockholders who are
subject to special rules under the Internal Revenue Code, such as
tax-exempt organizations, insurance companies, financial institutions,
dealers in stocks and securities, persons who hold such stock as part of
a "straddle" or "conversion transaction" for federal income tax purposes,
and persons who do not own such stock as a capital asset;
- federal income tax consequences affecting shares of Medical Dynamics
common stock acquired upon the exercise of stock options, stock purchase
plan rights, or otherwise as compensation;
- the tax consequences to holders of warrants, options, or other rights to
acquire shares of such stock; and
- the tax consequences to Medical Dynamics stockholders who are not "United
States persons" for federal income tax purposes, including stockholders
who are not citizens or residents of the United States.
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YOU ARE URGED BOTH TO REVIEW THE FOLLOWING DISCUSSION AND TO CONSULT WITH YOUR
OWN TAX ADVISOR TO DETERMINE THE EFFECT OF THE MERGER ON YOUR INDIVIDUAL TAX
SITUATION, INCLUDING ANY STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES.
The information in this section is based upon the current Internal Revenue
Code; current, temporary and proposed regulations; the legislative history of
the Internal Revenue Code; current administrative interpretations and practices
of the Internal Revenue Service; and existing court decisions. Future
legislation, regulations, administrative interpretations and court decisions
could change current law or adversely affect existing interpretations of current
law, possibly on a retroactive basis. None of PracticeWorks, InfoCure or Medical
Dynamics intends to request any rulings from the Internal Revenue Service
concerning the tax treatment of the merger. It is possible that the Internal
Revenue Service may challenge the statements in this discussion, which do not
bind the Internal Revenue Service or the courts, and that a court may agree with
the Internal Revenue Service.
TAX OPINIONS DELIVERED AT CLOSING
The obligation of PracticeWorks and Medical Dynamics to consummate the
merger is conditioned upon the receipt of legal opinions from their respective
counsel at closing that the merger will qualify as a reorganization under
Section 368(a) of the Internal Revenue Code, although the merger agreement
provides that if counsel to either party does not render a tax opinion, the
merger may be consummated if counsel to the other party delivers a tax opinion
to both parties. The opinions of counsel delivered at closing will rely on
customary factual assumptions and customary representations made by
PracticeWorks and Medical Dynamics. If any of the factual assumptions or
representations relied upon by counsel are inaccurate, the opinions may not
accurately describe the federal income tax treatment of the merger, and this
discussion may not accurately describe the tax consequences of the merger.
Counsel's opinions are not binding upon the Internal Revenue Service or the
courts, and it is possible that the Internal Revenue Service and the courts will
disagree with counsels' opinions.
FEDERAL INCOME TAX CONSEQUENCES ASSUMING THE MERGER QUALIFIES AS A
REORGANIZATION
As noted above, the merger is intended to qualify as a "reorganization"
under Section 368(a)(1)(A) of the Internal Revenue Code by virtue of Section
368(a)(2)(D) of the Internal Revenue Code. In such a reorganization, the
Internal Revenue Service takes the position for ruling purposes that at least
fifty percent of the fair market value of the aggregate consideration received
by the former stockholders of the acquired corporation pursuant to the exchange
of their shares of acquired corporation stock must be in the form of stock of
the parent of the acquiring corporation, although the courts have allowed lower
percentages of stock under certain circumstances. The fair market value of the
consideration received by the former stockholders of the acquired corporation is
determined as of the effective time of the reorganization. In this regard, it is
important to note that there is no requirement that at least fifty percent of
the fair market value of the consideration received by each former stockholder
of the acquired corporation be in the form of stock of the parent of the
acquiring corporation, but only that in the aggregate, at least fifty percent of
the fair market value of the total consideration received by all stockholders of
the acquired corporation be in the form of stock of the parent of the acquiring
corporation.
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Therefore, according to Internal Revenue Service ruling requirements, not
more than fifty percent of the fair market value of the aggregate consideration
received by former stockholders of the acquired corporation may be in the form
of "money or other property" within the meaning of Section 356(a)(1) of the
Internal Revenue Code for the merger to qualify as a reorganization. For this
purpose, the discussion set forth immediately below assumes (i) that InfoCure
common stock received in the merger is "other property" within the meaning of
Section 356(a)(1), (ii) that at the effective time of the merger, the fair
market value of the shares of PracticeWorks common stock and PracticeWorks
preferred stock received by the stockholders of Medical Dynamics pursuant to the
merger agreement will constitute at least fifty percent of the fair market value
of the aggregate consideration (PracticeWorks common stock, PracticeWorks
preferred stock, InfoCure common stock and all cash, including cash received in
lieu of fractional shares) received by all of the Medical Dynamics stockholders
pursuant to the merger agreement and (iii) that the merger otherwise qualifies
as a reorganization for federal income tax purposes.
Further, even assuming the merger qualifies as a reorganization within the
meaning of Section 368(a), the federal income tax consequences of the merger to
the stockholders of Medical Dynamics will depend upon whether the shares of
PracticeWorks preferred stock they receive are treated as "nonqualified
preferred stock" within the meaning of Section 351(g) of the Internal Revenue
Code. Because the shares of PracticeWorks preferred stock are required to be
redeemed within five years of their issue date, the shares of PracticeWorks
preferred stock will constitute nonqualified preferred stock unless the right to
convert the shares of PracticeWorks preferred stock into shares of PracticeWorks
common stock is considered to provide significant participation in
PracticeWorks' corporate growth for purposes of Section 351(g). The legislative
history accompanying the enactment of Section 351(g) in 1997 states that a
conversion privilege into stock of the issuer will not "automatically" be
considered to provide significant participation in corporate growth under the
statute. To date, however, the Internal Revenue Service has not issued any
regulations or other administrative guidance regarding the circumstances under
which convertible preferred stock is treated as nonqualified preferred stock.
Without further administrative or other guidance concerning this issue, it is
impossible to predict whether the Internal Revenue Service will treat the shares
of PracticeWorks preferred stock as nonqualified preferred stock. Nonetheless,
such treatment would appear to be appropriate in connection with the merger. If
the PracticeWorks preferred stock is treated as nonqualified preferred stock,
then it also will be considered "other property" within the meaning of Section
356(a) of the Internal Revenue Code, as discussed further below.
InfoCure will not be a "party to a reorganization" within the meaning of
Section 368(b) of the Internal Revenue Code because InfoCure will not acquire
the assets of Medical Dynamics in the merger. Although definitive guidance from
the Internal Revenue Service or the courts is lacking, stock of a corporation
which is not a "party to a reorganization," but which is issued in exchange for
stock of an acquired corporation, probably constitutes "other property." It is
possible, however, that some other treatment may be asserted by the Internal
Revenue Service, and a Medical Dynamics stockholder should consult his own tax
advisor concerning this possibility.
Section 356(a) of the Internal Revenue Code provides that if "other
property or money" (in this case, based upon the foregoing, cash, PracticeWorks
preferred stock, and InfoCure common stock) is received by a stockholder in
connection with an of exchange of such stockholder's shares pursuant to a
reorganization, then any gain realized by a stockholder upon such exchange shall
be recognized by such stockholder to the extent of
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"such money and the fair market value of such other property" received by such
stockholder pursuant to such exchange. Generally, such gain is taxable as
capital gain.
If, at the effective time of the merger, the aggregate fair market value of
the PracticeWorks common stock and PracticeWorks preferred stock to be issued in
the merger does not represent at least 50% of the aggregate fair market value of
all of the merger consideration (including cash and InfoCure common stock),
counsel to PracticeWorks and counsel to Medical Dynamics may be unwilling to
render legal opinions regarding the qualification of the merger as a
reorganization for federal income tax purposes. We cannot assure you that the
value of the PracticeWorks common and preferred stock at the effective time of
the merger will be sufficient to allow for legal opinions to be delivered.
Medical Dynamics, InfoCure, and PracticeWorks intend to consummate the merger
even if legal opinions as to the treatment of the merger as a reorganization
cannot be obtained.
IN PREPARING THE DISCUSSION SET FORTH IMMEDIATELY BELOW, COUNSEL TO
PRACTICEWORKS AND COUNSEL TO MEDICAL DYNAMICS HAVE ASSUMED THAT THE SHARES OF
PRACTICEWORKS PREFERRED STOCK ALSO WILL BE TREATED AS NONQUALIFIED PREFERRED
STOCK AND THUS, "OTHER PROPERTY" WITHIN THE MEANING OF SECTION 356(A) OF THE
INTERNAL REVENUE CODE AND THAT THE SHARES OF INFOCURE COMMON STOCK WILL
CONSTITUTE OTHER PROPERTY WITHIN THE MEANING OF SECTION 356(A), BUT YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR REGARDING THESE MATTERS AND ITS EFFECT UPON THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
TAX CONSEQUENCES TO MEDICAL DYNAMICS STOCKHOLDERS OWNING MORE THAN 100 SHARES OF
MEDICAL DYNAMICS COMMON STOCK IF THE MERGER IS DEEMED A REORGANIZATION
If the merger constitutes a reorganization within the meaning of Section
368(a), the shares of PracticeWorks preferred stock are treated as nonqualified
preferred stock, and the shares of InfoCure common stock are treated as other
property, the merger will have the following material federal income tax
consequences to the stockholders of Medical Dynamics who own more than 100
shares of Medical Dynamics common stock:
- You will recognize any gain, but not any loss, that you realize in the
merger. The amount of gain that you recognize will not exceed the sum of
the fair market value of the shares of PracticeWorks preferred stock you
receive, the fair market value of the shares of InfoCure common stock you
receive, and any cash you receive in lieu of a fractional share of
PracticeWorks preferred stock and/or InfoCure common stock. Any such gain
that you recognize generally should be taxable as a capital gain and
should be long-term capital gain if you held your Medical Dynamics shares
for more than one year at the effective time of the merger.
- The aggregate tax basis of the PracticeWorks common stock you receive in
the merger (including any fractional share of PracticeWorks common stock
deemed to be received and then redeemed for cash, as described below)
will be the same as the aggregate tax basis of your shares of Medical
Dynamics common stock, decreased by the sum of the fair market value of
the shares of PracticeWorks preferred stock you receive, the fair market
value of the shares of InfoCure common stock you receive, and any cash
you receive in lieu of a fractional share of PracticeWorks preferred
stock and/or InfoCure common stock, and increased by the amount of gain
you recognize in the merger. The tax basis of the shares of PracticeWorks
preferred stock you receive and the shares of InfoCure common
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stock you receive will be equal to the fair market value of the shares of
PracticeWorks preferred stock and shares of InfoCure common stock,
respectively, at the effective time of the merger.
- The holding period of the shares of PracticeWorks common stock (including
any fractional share of PracticeWorks common stock deemed to be received
and then redeemed for cash, as described below) will include the holding
period of the Medical Dynamics common stock you surrender in the merger.
The holding period of the shares of PracticeWorks preferred stock and
shares of InfoCure common stock you receive in the merger will begin on
the day after the merger.
- If you receive cash in lieu of a fractional share of PracticeWorks common
stock, you will be treated for federal income tax purposes as if the
fractional share was issued to you in the merger and then redeemed by
PracticeWorks for cash. You generally will recognize capital gain or loss
equal to the difference between the amount of cash received for the
fractional share and your tax basis in the fractional share, determined
as discussed above.
The tax consequences of the merger to you will be different than the
consequences described above if you own more than 100 shares of Medical Dynamics
stock and the shares of PracticeWorks preferred stock are not treated as
nonqualified preferred stock and/or the shares of InfoCure common stock are not
treated as other property. You should consult your tax advisor about this
possibility and its effect on your particular tax situation.
TAX CONSEQUENCES TO STOCKHOLDERS OWNING MORE THAN 100 SHARES OF MEDICAL DYNAMICS
COMMON STOCK IF THE MERGER IS NOT DEEMED A REORGANIZATION
If you own more than 100 shares of Medical Dynamics common stock, the
federal income tax consequences of the merger to you will be different than the
consequences described above if the Internal Revenue Service successfully
challenges the status of the merger as a reorganization. Assuming that the
shares of InfoCure common stock are other property within the meaning of Section
356(a) of the Internal Revenue Code, then if at the effective time of the merger
the sum of the fair market value of the aggregate number of shares of InfoCure
common stock and the aggregate amount of cash received by all of the Medical
Dynamics stockholders pursuant to the merger agreement is more than fifty
percent of the fair market value of the aggregate consideration received by all
of the Medical Dynamics stockholders pursuant to the merger agreement
(PracticeWorks common stock, PracticeWorks preferred stock, InfoCure common
stock and cash), the Internal Revenue Service may take the position that the
merger fails to qualify as a reorganization. Likewise, in such circumstances,
counsel to PracticeWorks and Medical Dynamics may not be willing to render a
legal opinion that the merger will constitute a reorganization for federal
income tax purposes. Such a legal opinion is a condition to the consummation of
the merger and, if such condition is not met, the merger will not be consummated
unless such condition is waived by PracticeWorks and Medical Dynamics.
Furthermore, if the merger fails to qualify as a reorganization, you generally
will recognize gain or loss in an amount equal to the difference between the
aggregate fair market value of the consideration that you receive in the merger
(PracticeWorks common stock, PracticeWorks preferred stock, InfoCure common
stock and cash) and the tax basis in your Medical Dynamics common stock
surrendered. The remaining federal income tax consequences to you if the merger
does not qualify as a reorganization will be the same as
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described below for Medical Dynamics stockholders owning 100 or fewer shares of
Medical Dynamics common stock.
TAX CONSEQUENCES TO MEDICAL DYNAMICS STOCKHOLDERS OWNING 100 OR FEWER SHARES
If you own 100 or fewer shares of Medical Dynamics common stock and receive
solely cash in the merger in exchange for your shares, you will be treated for
federal income tax purposes as having sold your shares to PracticeWorks for cash
in a fully taxable transaction. The amount of gain or loss that you recognize
will equal the difference between the amount of cash you receive in the merger
and the adjusted tax basis in your shares of Medical Dynamics common stock
surrendered in the merger. If you hold your Medical Dynamics shares as a capital
asset, any gain or loss that you recognize will be capital gain or loss. If, at
the effective time of the merger, you have held your shares of Medical Dynamics
common stock for more than one year, any capital gain that you recognize will be
long-term capital gain, which is subject to a maximum federal income tax rate of
20% in the case of taxpayers other than corporations. Any capital losses
recognized by a taxpayer other than a corporation that are not offset by capital
gains may be deducted only up to a maximum of $3,000 per year, although unused
capital losses may be carried forward to future taxable years. In the case of a
corporation, capital gain is subject to federal income tax at the same rate as
ordinary income. A corporation's capital losses may be deducted only to the
extent of its capital gains, but unused capital losses may be carried back three
years and forward five years. If you own 100 or fewer shares of Medical Dynamics
common stock and receive solely cash in the merger in exchange for your shares,
the federal income tax consequences to you will not change even if the merger
does not qualify as a reorganization.
DISSENTING STOCKHOLDERS
If you are a Medical Dynamics stockholder who dissents from the merger, you
will recognize gain or loss on the exchange of your Medical Dynamics common
stock for cash in an amount equal to the difference between the cash received
(other than amounts, if any, which are or are deemed to be interest for U.S.
federal income tax purposes, which amounts will be taxed as ordinary income) and
the tax basis in your Medical Dynamics common stock. Such gain or loss generally
will be capital gain or loss and generally will be long-term capital gain or
loss with respect to Medical Dynamics stock held for more than one year at the
effective time of the merger. If you dissent, you may be required to recognize
any gain or loss in the year the merger closes, irrespective of whether you
actually receive payment for your shares in that year.
BACKUP WITHHOLDING
Under certain circumstances, you may be subject to backup withholding at a
rate of 31% with respect to the amount of cash, if any, received in the merger
(including cash received in lieu of fractional shares or upon exercise of
dissenters' rights), unless you provide proof of an applicable exemption or
correct taxpayer identification number and otherwise comply with applicable
requirements of the backup withholding rules. Any amounts withheld under the
backup withholding rules are not additional tax and may be refunded or credited
against your federal income tax liability, so long as the required information
is furnished to the Internal Revenue Service.
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LOAN TO MEDICAL DYNAMICS
InfoCure entered into a loan with Medical Dynamics on October 28, 1999,
pursuant to which InfoCure advanced $500,000 to Medical Dynamics to repay
certain existing obligations and for general working capital purposes. Pursuant
to the merger agreement, InfoCure agreed to amend and/or restate the loan, and
on January 18, 2000, InfoCure advanced an additional $500,000 to Medical
Dynamics. On May 23, 2000, InfoCure advanced an additional $300,000 to Medical
Dynamics pursuant to a second amendment to the loan agreement. On October 20,
2000, InfoCure advanced an additional $250,000 to Medical Dynamics pursuant to a
third amendment to the loan agreement. On or about January 15, 2001, InfoCure
advanced an additional $100,000 pursuant to a fourth amendment to the loan
agreement. These additional advances were for general working capital purposes.
The total principal amount of all advances under the loan is $1,650,000. The
maturity date on all advances and interest under the loan is December 31, 2001,
but pursuant to the May 30, 2001 letter agreement, PracticeWorks has agreed to
use its commercially reasonable efforts to extend the maturity date of this loan
to March 31, 2002. In connection with the spin-off, PracticeWorks assumed
InfoCure's rights with respect to this loan. All security for the original loan
will remain in place and each principal stockholder has signed a subordination
agreement to ensure that PracticeWorks is repaid in full by Medical Dynamics
before any principal stockholder receives payment from Medical Dynamics pursuant
to outstanding promissory notes issued by Medical Dynamics.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND TO THE MERGER
The healthcare practice management systems industry is undergoing a period
of rapid consolidation favoring large-scale providers that can quickly develop
new and diverse software applications and provide enhanced services to
healthcare practitioners. Medical Dynamics believes that its smaller size
relative to that of many of its competitors and its limited access to capital
resources may inhibit its future growth in revenues and profitability.
Accordingly, the Medical Dynamics board of directors had considered various
alternative means of increasing Medical Dynamics' capital resources through a
possible combination, whether through sale, merger or joint venture, with a
strong partner in the healthcare systems industry which could provide Medical
Dynamics with additional capital resources as well as a competitive advantage.
On June 2, 1999, the management and board of Directors of Medical Dynamics
met to explore a variety of strategic alternatives.
On June 7, 1999, the board of directors of Medical Dynamics approved the
engagement of Neidiger, Tucker, Bruner, Inc., to act as Medical Dynamics'
financial advisor and consultant.
On June 16, 1999, Richard E. Perlman, InfoCure's Chairman, James K. Price,
InfoCure's Executive Vice President and Marc Kloner, an InfoCure employee, met
with Van A. Horsley, President and CEO of Medical Dynamics, Chae U. Kim,
President of Computer Age Dentist, Inc., a wholly owned subsidiary of Medical
Dynamics ("CADI"), and Dan L. Richmond, CEO of CADI, at CADI's offices in Los
Angeles, California. At the meeting, the representatives described their
respective business operations, product technology and recent historical
financial results. The parties agreed to engage in further discussion regarding
a possible business combination of the companies.
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On June 23, 1999, Medical Dynamics executed an agreement engaging Neidiger,
Tucker, Bruner, Inc. to act as Medical Dynamics' financial advisor and
consultant.
In early July 1999, Mr. Perlman called Mr. Horsley to inform him that
InfoCure had decided not to proceed at that time with discussions regarding a
proposed business combination. No further talks between the parties occurred
until October.
During the week of October 4, 1999, Messrs. Perlman, Price and Horsley
engaged in several discussions regarding a possible acquisition by InfoCure of a
60% equity interest in Medical Dynamics in exchange for $2 million cash, the
transfer of InfoCure's KComp Dental Division, the assignment of InfoCure's
contract to acquire the PracticeWorks Division of Zila, Inc. and the procurement
of a $10 million facility for future acquisitions. The Medical Dynamics board
reviewed the proposed transaction with Mr. Horsley and provided him with
authority to negotiate a letter of intent.
On October 25, 1999, Medical Dynamics informed Neidiger, Tucker, Bruner,
Inc. that Medical Dynamics had terminated its engagement with Neidiger since
Neidiger was not involved in any discussions related to the proposed InfoCure
transaction.
During the last two weeks of October 1999, the parties negotiated the terms
of InfoCure's proposed acquisition of a 60% interest in Medical Dynamics. Also
during this period, the parties exchanged due diligence request lists and
representatives of both companies and their advisors participated in several
telephone calls to conduct reciprocal legal, business, accounting and financial
due diligence. On October 27, 1999, the Medical Dynamics board approved the
terms of a final letter of intent, which was signed by the parties on October
28, 1999.
Pursuant to the terms of the final letter of intent, InfoCure and Medical
Dynamics executed loan documents pursuant to which InfoCure advanced $500,000 to
Medical Dynamics so that it could repay certain existing obligations and for
general working capital purposes.
On November 2, 1999, both companies issued a press release prior to the
opening of trading on The Nasdaq Stock Market regarding their arrangements.
During November 1999, senior management of InfoCure re-evaluated the
proposed transaction and considered the possibility and merits of a possible
business combination of the companies. After extensive review by InfoCure senior
management, Mr. Perlman contacted Mr. Horsley on November 19, 1999 to propose a
business combination pursuant to which InfoCure would acquire all of the
outstanding shares of Medical Dynamics common stock in a stock-for-stock merger
transaction in which Medical Dynamics stockholders would have received InfoCure
common stock in exchange for their shares of Medical Dynamics common stock.
In late November 1999, and continuing into mid-December 1999, Messrs.
Perlman, Price and Horsley engaged in extensive telephone conversations
regarding the proposed merger transaction, including repayment of Medical
Dynamics' debt, treatment of options, employment contracts and the stock
exchange ratio. During this period, InfoCure's counsel delivered a first draft
of the merger agreement to Medical Dynamics and its counsel and subsequent
thereto, the parties engaged in several telephone conversations to negotiate the
provisions of the merger agreement. Also during this period, representatives of
InfoCure conducted on-site financial, operational and accounting due diligence
at Medical Dynamics' offices in Denver, Colorado and Los Angeles, California.
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On December 15, 1999, the InfoCure board was briefed on the status of
discussions between InfoCure and Medical Dynamics and reviewed the relevant
financial, accounting and legal considerations of the proposed transaction.
After due consideration, the InfoCure board unanimously approved the merger
agreement and the merger.
On December 20, 1999, the Medical Dynamics board of directors held a
special telephone meeting at which Medical Dynamics board of directors reviewed
the terms of the merger agreement and related transactions. After due
consideration, the Medical Dynamics board unanimously approved the merger
agreement and the merger, subject to approval of the Medical Dynamics
stockholders.
Following the approval of the merger by the InfoCure board and the Medical
Dynamics board, on December 21, 1999, InfoCure and Medical Dynamics executed the
merger agreement and issued a press release prior to the opening of trading on
The Nasdaq Stock Market. The merger agreement provided that in the merger each
share of Medical Dynamics common stock would have been exchanged for 0.05672
shares of InfoCure common stock. This exchange ratio was subject to adjustment
if the average of the closing prices of InfoCure's common stock for the twenty
trading days immediately prior to the closing of the merger was below $13.22 or
above $22.04. On December 20, 1999, the trading day immediately prior to the
announcement of the merger agreement, the closing price of InfoCure's common
stock was $27.00. If the average closing price of InfoCure's common stock for
the 20 consecutive trading days prior to the closing of the merger had been
$27.00, InfoCure would have issued approximately 160,000 shares in the merger.
On April 10, 2000, InfoCure and Medical Dynamics entered into an amendment
to the merger agreement to extend the termination date of the merger from May
31, 2000 until July 31, 2000, and to reflect the change in accounting for the
merger from a pooling-of-interests to purchase transaction. On June 22, 2000,
InfoCure and Medical Dynamics entered into a second amendment to the merger
agreement to extend the termination date of the merger to August 31, 2000.
Medical Dynamics scheduled a special meeting for August 15, 2000 for its
shareholders to approve the merger and Medical Dynamics and InfoCure commenced
mailing a joint proxy statement-prospectus relating to the special meeting to
the Medical Dynamics stockholders on July 17, 2000.
On August 14, 2000, Mr. Perlman and Mr. Price had a telephone conversation
with Mr. Horsley during which they indicated that InfoCure had a pending
announcement of material information that required delaying the Medical Dynamics
stockholder meeting until the proxy statement-prospectus could be amended or
supplemented. Mr. Perlman and Mr. Price explained to Mr. Horsley this material
information was that InfoCure was preparing to announce its intention to
spin-off PracticeWorks, its dental division. Mr. Perlman and Mr. Price also
indicated to Mr. Horsley that InfoCure wished to discuss amending the terms of
the merger agreement in light of its intention to spin-off PracticeWorks and the
significant change in trading price of InfoCure's common stock since the time
the original merger agreement was signed. At that time, Medical Dynamics agreed
to adjourn the stockholders meeting to allow the parties to meet to discuss the
need to supplement the proxy statement-prospectus. On August 15, 2000, Medical
Dynamics adjourned its special stockholder meeting to August 18, 2000 without
taking action on the proposal to approve the merger.
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On August 17, 2000, Mr. Perlman, Mr. Price, Mr. Horsley, Mr. Richmond and
Mr. Chae met in Atlanta to discuss the merger. At that meeting, representatives
of InfoCure and Medical Dynamics further discussed the need to amend or
supplement the proxy statement-prospectus to reflect the pending announcement
regarding the PracticeWorks spin-off. However, InfoCure also indicated to
Medical Dynamics that although InfoCure continued to have interest in a merger
with Medical Dynamics, InfoCure believed that completing the merger on its
current terms would be excessively dilutive to InfoCure's stockholders as
compared to the value of Medical Dynamics' business to InfoCure. From December
20, 1999, the trading day immediately prior to the original merger agreement to
August 17, 2000, InfoCure's stock price dropped from $27.00 per share to $4.50
per share. As a result of the significant decline in the trading price of
InfoCure's common stock at that time, InfoCure would have been obligated to
issue approximately 2.0 million shares of common stock, representing
approximately 6.1% of InfoCure's outstanding stock, to complete the merger. Mr.
Perlman and Mr. Price indicated that InfoCure believed that this dilution would
negatively affect InfoCure's stock price following the merger, which would be
detrimental to the interests of both existing InfoCure stockholders and the
former Medical Dynamics stockholders.
After meeting privately, Mr. Horsley, Mr. Richmond and Mr. Chae indicated
that, in light of the issues raised by InfoCure, Medical Dynamics was willing to
discuss possible amendments to the terms of the merger agreement. On August 18,
2000, Medical Dynamics adjourned its shareholder meeting indefinitely pending
renegotiation of the merger agreement.
Between August 17, 2000 and August 31, 2000, the parties negotiated the
provisions of the amended and restated merger agreement. On August 31, 2000, the
parties agreed to amend the merger agreement to provide that each share of
Medical Dynamics common stock would be exchanged for 0.06873 shares of InfoCure
common stock and 0.07558 shares of InfoCure redeemable preferred stock. The
parties further agreed to the designations, rights and preferences of the
preferred stock and the terms on which the InfoCure preferred stock would be
exchanged for PracticeWorks preferred stock, the reduction of the termination
fee payable to InfoCure by Medical Dynamics from $1.3 million to $250,000 and to
provide that holders of 100 or fewer shares of Medical Dynamics common stock
will receive $0.75 in cash for each share of Medical Dynamics common stock they
own in lieu of receiving InfoCure common stock and preferred stock. Finally, the
parties agreed that (1) if the 20-day average price is above $6.41, InfoCure may
terminate the merger agreement and (2) if the 20-day average price is below
$3.45, Medical Dynamics may provide notice of its intent to terminate the merger
agreement and that InfoCure may reject that notice, if given, if it agrees to
adjust the consideration to be paid to stockholders who own more than 100 shares
of Medical Dynamics common stock by
- adjusting the exchange ratio relating to the number of shares of InfoCure
common stock those stockholders will receive, as described elsewhere in
the proxy statement-prospectus or
- paying $0.2372 in cash for each share of Medical Dynamics common stock
owned.
In addition, if InfoCure agrees to make one of these changes, stockholders
who own more than 100 shares of Medical Dynamics common stock would still
receive 0.07558 shares of InfoCure preferred stock for each share of Medical
Dynamics common stock owned. If Medical Dynamics provides notice that it intends
to terminate the merger
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agreement and InfoCure does not make one of the changes described above, the
merger agreement will be terminated. Under the terms of the amended and restated
merger agreement entered into on October 10, 2000, the 20-day average price was
equal to the average closing price of InfoCure common stock for the 20 trading
days ending on the date of the closing of the merger. In connection with this
amendment, InfoCure advanced an additional $250,000 to Medical Dynamics. The
parties agreed to enter into the amended and restated merger agreement on those
terms only after receiving required third party approvals of the merger
agreement, including approval of InfoCure's senior lender. On August 31, 2000,
Medical Dynamics and InfoCure publicly announced that they had agreed to the
terms of an amended and restated merger agreement and would execute the
agreement upon receipt of third party approvals.
On October 10, 2000, InfoCure and Medical Dynamics received all required
third party approvals and, following approval of the amended and restated merger
agreement by the InfoCure board and the Medical Dynamics board, InfoCure and
Medical Dynamics executed the amended and restated merger agreement. On October
11, 2000, InfoCure and Medical issued a press release announcing the terms of
the amended and restated merger agreement prior to the opening of trading on The
Nasdaq Stock Market.
After further discussion between the parties, InfoCure and Medical Dynamics
amended the amended and restated merger agreement on October 30, 2000 to provide
that the 20-day average price would be the average closing price for InfoCure
common stock for the 20 trading days ending on the fourth trading day prior to
the date of the special meeting rather than the average closing price for the 20
trading days ending on the date of the closing of the merger. The parties agreed
that this amendment would be beneficial to stockholders who own more than 100
shares of Medical Dynamics common stock because it would allow those
stockholders to know the amount and nature of the consideration they would
receive in the merger and whether they were entitled to dissenters' rights prior
to the special meeting. Under the amended and restated merger agreement, as
amended, if Medical Dynamics elects to provide notice of its intent to terminate
the merger agreement because the 20-day average price is less than $3.45, it
must provide that notice before 5:00 p.m., Eastern Standard Time, on the fourth
trading day prior to the special meeting. If Medical Dynamics provides this
notice and InfoCure elects to reject the notice, it must provide Medical
Dynamics notice that it agrees to adjust the exchange ratio or pay cash by 8:00
p.m., Eastern Standard Time, on the fourth trading day prior to the date of the
Special Meeting. Therefore, any change to the consideration payable in the
merger will occur on the fourth trading day prior to the special meeting.
InfoCure and Medical Dynamics will issue a press release prior to 9:00 a.m.,
Eastern Standard Time, on the third trading day prior to the special meeting
indicating the consideration payable in the merger. In addition, if the 20-day
average price is less than $3.45, Medical Dynamics delivers notice of its intent
to terminate the merger and InfoCure rejects the notice and elects to pay cash,
the press release issued by the parties would also indicate that Medical
Dynamics stockholders who own more than 100 shares of Medical Dynamics common
stock are entitled to dissenters' rights. InfoCure and Medical Dynamics agreed
that it would be beneficial for Medical Dynamics stockholders to have such
information prior to the date of the special meeting, allowing them to vote or
change proxies they have previously provided, based on this information. The
amendment to the amended and restated merger agreement also clarified that the
merger would not qualify as "reorganization" for federal income tax purposes if
the 20-day average price is less than $3.45, Medical Dynamics delivers notice of
its intent to terminate the merger and InfoCure rejects the notice and elects to
pay cash. The consequences of the merger not qualifying as
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a "reorganization" are discussed above under the caption "Material Federal
Income Tax Consequences of the Merger." On October 31, 2000, InfoCure and
Medical Dynamics issued a press release announcing the terms of the amendment to
the amended and restated merger agreement prior to the opening of trading on The
Nasdaq Stock Market.
Because of the timing of the spin-off of PracticeWorks by InfoCure,
InfoCure and Medical Dynamics concluded that it would be in the best interest of
their stockholders to restructure the deal so that it would close after the
spin-off was completed. On December 19, 2000, the parties agreed to amend the
merger agreement to provide that each share of Medical Dynamics common stock
would be exchanged for 0.017183 shares of PracticeWorks common stock, 0.06873
shares of InfoCure common stock and 0.07558 shares of PracticeWorks preferred
stock. The parties further agreed to delete certain provisions in the merger
agreement relating to the right of Medical Dynamics to terminate the merger
agreement as a result of the trading value of the InfoCure common stock as
outlined in the preceding paragraph. Pursuant to this amendment and various
agreements executed between PracticeWorks and InfoCure in connection with the
spin-off, PracticeWorks assumed the obligations of InfoCure under the merger
agreement, except InfoCure's obligation to issue shares of InfoCure common
stock.
On March 2, 2001, the parties agreed to amend the merger agreement to
extend the spin-off date from February 28, 2001 to March 15, 2001 and to extend
the termination date to May 31, 2001. On April 16, 2001, the parties further
amended the merger agreement to extend the termination date to June 15, 2001 and
on May 30, 2001, PracticeWorks and Medical Dynamics executed a letter agreement,
specifying that neither party would exercise its termination right prior to
September 30, 2001.
MEDICAL DYNAMICS' REASONS FOR THE MERGER
The Medical Dynamics board of directors has determined that the merger is
in the best interests of Medical Dynamics and its stockholders and has
unanimously approved the merger agreement. In reaching its determination, the
Medical Dynamics board of directors considered a number of factors, without
assigning any relative weights to such factors, including, but not limited to,
the following:
- Medical Dynamics' need to gain access to additional resources. Although
Medical Dynamics believed it has the ability to operate profitably in the
future and generate sufficient cash flow to service its short-term
obligations, Medical Dynamics believed its limited access to capital
resources may inhibit its growth in revenues and profitability.
- The effect on the Medical Dynamics stockholders of Medical Dynamics
continuing as an independent entity compared to the effect of a
combination with PracticeWorks. The Medical Dynamics board determined
that an integration of Medical Dynamics with PracticeWorks, given
PracticeWorks' greater marketing, sales and financial resources, may
provide a better opportunity for the long-term success of Medical
Dynamics' product offerings and thereby maximize value for the Medical
Dynamics stockholders.
- The synergies that existed between PracticeWorks' business and operations
and Medical Dynamics' business and operations. PracticeWorks and Medical
Dynamics share similar types of customers and technologies. They also
share a similar vision, strategy and business philosophy in the physician
office marketplace. As a result, the combination provides the combined
entity with the opportunity to capitalize on
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the parties' respective existing relationships with customers and vendors
in order to cross-market their respective products and services.
- The financial performance and condition, businesses and prospects of
Medical Dynamics and PracticeWorks, including, but not limited to,
information with respect to the historical stock prices of InfoCure,
PracticeWorks and the respective operating performances of Medical
Dynamics, InfoCure and PracticeWorks.
- The terms of the merger agreement, including the form and amount of the
consideration to be received by the Medical Dynamics stockholders and the
terms and structure of the merger. The Medical Dynamics board of
directors deemed it significant that the merger would provide Medical
Dynamics stockholders who own 100 or more shares with InfoCure and
PracticeWorks common stock for which there is an active and liquid
trading market and shares of preferred stock that are convertible into
shares of PracticeWorks common stock.
- The merger is expected to be treated as a "reorganization" for federal
income tax purposes and is expected to be treated as a purchase
transaction for accounting and financial reporting purposes.
- The merger affords the Medical Dynamics stockholders the opportunity to
reduce the exposure inherent in Medical Dynamics' reliance on a few
products and services in a relatively discrete market, and the
difficulties Medical Dynamics faces in competing against larger companies
with more diversified product lines and greater financial resources.
In reaching its conclusion, the Medical Dynamics board of directors also
considered the following factors, which it believed did not favor entering into
the merger agreement:
- A combination with PracticeWorks could prevent it from seeking other
avenues of maximizing the value of the Medical Dynamics common stock,
including seeking a business combination with a third party that offered
greater value to the Medical Dynamics stockholders.
- The merger could prevent Medical Dynamics from maximizing the value of
the Medical Dynamics common stock by pursuing its existing strategic plan
as an independent entity and that, after the merger, the holders of
Medical Dynamics common stock who receive shares of InfoCure common
stock, PracticeWorks common stock and PracticeWorks preferred stock in
the merger will have to rely on the operating success of InfoCure to
maximize the value of their investment.
- All of the consideration that would be received by Medical Dynamics
stockholders who own more than 100 shares of Medical Dynamics common
stock in the merger would consist of InfoCure common stock, PracticeWorks
common stock and PracticeWorks preferred stock rather than cash.
- By including InfoCure common stock with the PracticeWorks common stock
and PracticeWorks preferred stock, Medical Dynamics stockholders would
obtain diversification of their investment.
- The merger could adversely affect Medical Dynamics' existing
relationships with customers and partners.
In reaching its conclusions set forth above, the Medical Dynamics board
acknowledged that certain officers and directors (specifically Messrs. Horsley,
Richmond and Kim with respect to certain employment matters, and Dr. and Mrs.
Adair and Messrs. Richmond and Kim with respect to the repayment of certain
indebtedness) would receive benefits in
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the merger, including those described below under the caption "The Special
Meeting -- Interests of Certain Medical Dynamics Directors, Officers and
Affiliates in the Merger." After further consideration and discussion among the
directors, the Medical Dynamics board (1) concluded that those benefits (a) were
not materially different from those to be realized by other Medical Dynamics
stockholders in the merger and (b) in the case of Messrs. Horsley, Richmond and
Kim, were appropriate compensation for the employment relationship between those
individuals and Medical Dynamics and its subsidiary, Computer Age Dentist, Inc.,
and (2) considered the fact that Dr. and Mrs. Adair and Messrs. Richard and Kim
were otherwise in compliance with relevant contractual requirements for the
repayment of loans made.
Other than those considerations described above which the Medical Dynamics
board of directors believed did not favor entering into the merger agreement,
the Medical Dynamics board of directors did not identify any particular risks or
adverse effects on non-affiliated Medical Dynamics stockholders.
The foregoing discussion of certain information and factors deemed material
by the Medical Dynamics board in considering the merger agreement is not
intended to be exhaustive but is believed to include all material factors
considered by the Medical Dynamics board of directors.
The Medical Dynamics board of directors has unanimously approved the merger
agreement and each amendment thereto and unanimously recommends to the
stockholders of Medical Dynamics that you approve the merger agreement.
PRACTICEWORKS/INFOCURE'S REASONS FOR THE MERGER
In connection with the March 5, 2001 spin-off from InfoCure, PracticeWorks
assumed all of InfoCure's rights and obligations under the merger agreement,
except for InfoCure's obligation to issue a specified number of shares. In
approving this assumption of InfoCure's rights and obligations in connection
with the spin-off, and in approving the amendment to the merger agreement
subsequent to the spin-off, PracticeWorks' board of directors considered a
number of factors concerning the benefits of the merger. Without assigning any
relative or specific weights to the factors, PracticeWorks' board of directors
considered the following material factors, among others:
- Medical Dynamics' existing customer base, especially how its customer
base would positively impact PracticeWorks soon after the spin-off.
- Medical Dynamics' strong positions in the dental practice management
specialty.
- Medical Dynamics' proprietary practice management and clinical software.
PracticeWorks' board of directors believed that the assumption of
InfoCure's rights and obligations under the merger agreement would be in the
best interests of PracticeWorks and its stockholders, and unanimously approved
the assumption of InfoCure's rights and obligations in connection with the
spin-off, as well as the April 16, 2001 amendment to the merger agreement and
the May 30, 2001 letter agreement.
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COMPLETION OF THE MERGER
Subject to the conditions and the obligations of the parties to effect the
merger, the merger will be completed on the date and at the time specified in
the articles of merger to be filed with the Colorado Secretary of State.
PracticeWorks and Medical Dynamics agree to exercise their respective best
efforts to cause the closing to take place on or before June 15, 2001 and
additionally, the parties have executed a letter agreement, dated May 30, 2001,
specifying that neither PracticeWorks nor Medical Dynamics would exercise its
right to terminate the merger agreement prior to September 30, 2001. However,
unexpected delays can occur. PracticeWorks and Medical Dynamics cannot assure
you that Medical Dynamics will be able to obtain necessary stockholder approval,
that they will be able to obtain any regulatory approvals required for the
merger or that they will be able to satisfy other conditions to completion of
the merger. Either Medical Dynamics' or PracticeWorks' board of directors may
terminate the merger agreement if the merger is not completed by September 30,
2001, unless it is not completed because of the breach of the merger agreement
by the party seeking termination. See "The Merger Agreement -- Conditions to
Completion of the Merger" and "-- Waiver, Amendment, and Termination."
DISTRIBUTION OF INFOCURE AND PRACTICEWORKS STOCK CERTIFICATES
Promptly after the merger is completed, you will be mailed a letter of
transmittal and instructions for the exchange of the certificates representing
shares of Medical Dynamics common stock for certificates representing shares of
InfoCure common stock, PracticeWorks common stock and PracticeWorks preferred
stock and/or to receive a check for the amount of cash to which you are
entitled, depending on the consideration payable to you under the terms of the
merger agreement.
You should not send in your certificates until you receive a letter of
transmittal and instructions.
StockTrans, Inc. will serve as the exchange agent for this transaction.
StockTrans functions as both InfoCure's and PracticeWorks' transfer agent. After
you surrender to the exchange agent certificates for Medical Dynamics common
stock with a properly completed letter of transmittal, the exchange agent will
mail you (1) a certificate or certificates representing the number of shares of
InfoCure common stock, PracticeWorks common stock and/or PracticeWorks preferred
stock to which you are entitled and a check for the amount to be paid in lieu of
any fractional share, without interest, if any, together with all undelivered
dividends or distributions in respect of the shares of InfoCure and
PracticeWorks common stock and/or PracticeWorks preferred stock, without
interest thereon, if any and/or (2) a check for any other cash payment to which
you are entitled for your shares. InfoCure and PracticeWorks will not be
obligated to deliver the consideration to you, as a former Medical Dynamics
stockholder, until you have surrendered your Medical Dynamics common stock
certificates.
Whenever a dividend or other distribution is declared by InfoCure or
PracticeWorks on InfoCure common stock, PracticeWorks common stock or
PracticeWorks preferred stock, as the case may be, with a record date after the
date on which the merger was completed, the declaration will include dividends
or other distributions on all shares of InfoCure common stock, PracticeWorks
common stock or PracticeWorks preferred stock, as the case may be, that may be
issued in the merger. However, neither InfoCure nor PracticeWorks will pay any
dividend or other distribution that is payable after the completion of the
merger to you until you surrender the certificate. If your Medical
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Dynamics stock certificate has been lost, stolen, or destroyed, the exchange
agent will deliver to you the consideration to which you are entitled upon your
submission of an affidavit claiming the certificate to be lost, stolen, or
destroyed, the posting of a bond in such amount as InfoCure or PracticeWorks may
reasonably direct as indemnity against any claim that may be made against
InfoCure or PracticeWorks with respect to the certificate, and submission of any
other documents necessary to effect the exchange of the shares represented by
the certificate.
At the time the merger is completed, the stock transfer books of Medical
Dynamics will be closed to Medical Dynamics' stockholders and no transfer of
shares of Medical Dynamics common stock by any stockholder will thereafter be
made or recognized. If certificates for shares of Medical Dynamics common stock
are presented for transfer after the merger is completed, they will be canceled
and the holder thereof will receive the applicable merger consideration.
REGULATORY APPROVAL
PracticeWorks and Medical Dynamics are required to make filings with or
obtain approvals from certain regulatory authorities in connection with the
merger. PracticeWorks and Medical Dynamics cannot assure you that they can
obtain the necessary regulatory approvals or that the other conditions to
consummation of the merger can or will be satisfied.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
The merger will not change the present management team or board of
directors of PracticeWorks. Information concerning the management of
PracticeWorks is included in the documents incorporated by reference in this
proxy statement-prospectus. See "Where You Can Find More Information" on page
185 of this proxy statement-prospectus.
CADI Acquisition Corporation will be the surviving corporation resulting
from the merger and will be a wholly owned subsidiary of PracticeWorks. CADI
Acquisition Corporation will continue to be governed by the laws of the State of
Colorado. Medical Dynamics' officers and directors will, however, resign upon
consummation of the merger and be replaced by persons designated by
PracticeWorks.
ACCOUNTING TREATMENT
It is anticipated that the merger will be accounted for as a purchase
business combination. Under this method of accounting, after the closing of the
merger, Medical Dynamics' assets and liabilities will be recorded at fair value
and any excess of the total value of shares exchanged for Medical Dynamics'
assets over its net assets will be recorded as goodwill.
Consistent with the terms of the original merger agreement and InfoCure's
subsequent spin-off of its dental business to PracticeWorks, InfoCure's issuance
of common stock to Medical Dynamics stockholders will be accounted for by
PracticeWorks as an equity contribution. InfoCure will record the issuance of
these shares by increasing its common stock outstanding and paid-in capital to
reflect fair value at issuance and simultaneously reduce paid-in capital by this
same amount to recognize the adjustment to net assets spun-off to PracticeWorks.
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RESALES OF INFOCURE COMMON STOCK, PRACTICEWORKS COMMON STOCK AND PRACTICEWORKS
PREFERRED STOCK
The shares of InfoCure common stock, PracticeWorks common stock and
PracticeWorks preferred stock to be issued to you in the merger will be
registered under the Securities Act of 1933, as amended, or the Securities Act.
All shares of InfoCure common stock, PracticeWorks common stock and
PracticeWorks preferred stock that you receive in the merger will be freely
transferable after the merger provided you are not considered to be an
"affiliate" of Medical Dynamics, InfoCure or PracticeWorks. "Affiliates"
generally are defined as persons or entities who control, are controlled by, or
are under common control with Medical Dynamics, InfoCure or PracticeWorks at the
time of the special meeting (generally, executive officers, directors, and 10%
or greater stockholders).
Rule 145 under the Securities Act restricts the sale of InfoCure common
stock, PracticeWorks common stock and PracticeWorks preferred stock received in
the merger by affiliates of Medical Dynamics and certain of their family members
and related entities. Under the rule, during the first 12-month period after the
merger is completed, affiliates of Medical Dynamics may resell publicly the
InfoCure common stock, PracticeWorks common stock and PracticeWorks preferred
stock they receive in the merger but only within certain limitations as to the
amount of InfoCure common stock, PracticeWorks common stock and PracticeWorks
preferred stock they can sell in any three-month period and as to the manner of
sale provided that InfoCure continues to satisfy its reporting requirements
under the Securities Exchange Act of 1934, or the Exchange Act. After the
one-year period, affiliates of Medical Dynamics who are not affiliates of
InfoCure or PracticeWorks may resell their shares without restriction provided
that InfoCure must continue to satisfy its reporting requirements under the
Exchange Act. After two years following the closing of the merger, affiliates of
Medical Dynamics who are not affiliates of InfoCure or PracticeWorks and who
have not been affiliates for at least three months may resell their shares
without restriction. Affiliates also would be permitted to resell InfoCure
common stock, PracticeWorks common stock and PracticeWorks preferred stock
received in the merger pursuant to an effective registration statement under the
Securities Act or an available exemption from the registration requirements of
the Securities Act. This proxy statement-prospectus does not cover any resales
of InfoCure common stock, PracticeWorks common stock and PracticeWorks preferred
stock received by persons who may be deemed to be affiliates of Medical
Dynamics, InfoCure or PracticeWorks.
Each person who may be deemed to be an affiliate of Medical Dynamics has
executed and delivered to InfoCure an agreement intended to ensure compliance
with the Securities Act. Each Medical Dynamics affiliate has agreed not to sell,
pledge, transfer, or otherwise dispose of any Medical Dynamics common stock held
by the affiliate except as contemplated by the merger agreement or the affiliate
agreement. In addition, each Medical Dynamics affiliate must agree not to sell,
pledge, transfer or otherwise dispose of any InfoCure common stock,
PracticeWorks common stock and PracticeWorks preferred stock received in the
merger except in compliance with the Securities Act, and the applicable rules.
The stock certificates representing InfoCure common stock, PracticeWorks common
stock and PracticeWorks preferred stock issued to affiliates in the merger will
bear a legend summarizing these restrictions on transfer.
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VOTING AGREEMENT
Officers and directors holding approximately 17% of the outstanding shares
of Medical Dynamics' common stock have agreed to vote in favor of the merger
agreement. The voting agreement terminates upon the earlier of the termination
of the merger agreement in accordance with its terms or the effective time of
the merger.
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THE MERGER AGREEMENT
The following description summarizes the material provisions of the merger
agreement. Your are urged to read carefully the merger agreement, a copy of
which is attached as Appendix A to this proxy statement-prospectus.
CONDITIONS TO COMPLETION OF THE MERGER
In addition to any required regulatory approvals, the merger will be
completed only if certain conditions, including, but not limited to the
following, are met or waived, if waivable:
- Medical Dynamics stockholders approve the merger at the special meeting;
- PracticeWorks and Medical Dynamics receive legal opinions from their
respective counsel concerning the treatment of the merger as a
"reorganization" for federal income tax purposes;
- PracticeWorks has not breached any of its representatives or obligations
under the merger agreement in any material respect;
- Medical Dynamics has not breached any of its representations or
obligations under the merger agreement in any material respect;
- the shares of InfoCure common stock to be issued in the merger are
approved for listing on The Nasdaq Stock Market;
- the shares of PracticeWorks common stock to be issued in the merger are
approved for listing on the American Stock Exchange;
- Medical Dynamics and PracticeWorks receive opinions of counsel in forms
reasonably satisfactory to each;
- no law order or other action taken by any court or governmental authority
prohibits or restricts the merger or makes it illegal; and
- in addition to these conditions, the merger agreement, attached as
Appendix A to this proxy statement-prospectus, describes other conditions
that must be met before the merger may be completed.
PracticeWorks and Medical Dynamics cannot assure you as to when or if all
of the conditions to the merger can or will be satisfied or waived by the party
permitted to do so. For instance, the relative values of the PracticeWorks
common and preferred stock, and the InfoCure common stock, to be received by the
Medical Dynamics stockholders in the merger may prevent counsel for either party
from rendering a legal opinion that the merger will constitute a
"reorganization" for federal income tax purposes. See the section entitled
"Material Federal Income Tax Consequences of the Merger" beginning on page 74
for further discussion of this possibility. In that event, a condition to the
consummation of the merger will not be met and must be waived in order for the
merger to be completed. If the merger is not effected on or before September 30,
2001, except as described otherwise in this proxy statement-prospectus or the
merger agreement, the board of directors of either Medical Dynamics or
PracticeWorks may terminate the merger agreement and abandon the merger.
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NO SOLICITATION
In the merger agreement, Medical Dynamics has agreed that until the
effective time of the merger or the termination of the merger agreement, neither
Medical Dynamics nor any of its officers, directors, affiliates, employees,
investment bankers, attorneys or other representatives will, directly or
indirectly:
- solicit, initiate, encourage or induce the making of any "acquisition
proposal" (as defined below);
- participate in any discussions or negotiations regarding, or take any
other action to facilitate any acquisition proposal;
- engage in discussions with any person with respect to any acquisition
proposal;
- approve, endorse or recommend any acquisition proposal; or
- enter into any letter of intent or similar contract relating to any
"acquisition transaction" (as defined below);
provided, however, that the Medical Dynamics board of directors may (1) comply
with certain SEC rules related to a tender or exchange offers not made in
violation of Medical Dynamics' non-solicitation covenants or (2) during the
period between mailing of this proxy statement-prospectus and the date the vote
required to be obtained from the Medical Dynamics stockholders in connection
with the merger has been obtained, in response to an unsolicited, bona fide
written acquisition proposal that the Medical Dynamics board of directors
reasonably concludes, based upon the advice of its independent financial
advisors, constitutes a "superior proposal" (as defined below), engage in
discussions with and furnish information to the party making such acquisition
proposal to the extent the Medical Dynamics board determines in good faith based
on the advice of its outside legal counsel that its fiduciary obligations under
applicable law require it to do so. In addition, at least five days prior to
furnishing any such nonpublic information to, or entering into discussions with,
such party, Medical Dynamics must (1) give PracticeWorks written notice of its
intention to furnish such information or enter into such discussions, (2)
receive from the third party an executed confidentiality agreement, and (3)
contemporaneously with furnishing any such nonpublic information, furnish such
nonpublic information to PracticeWorks.
The merger agreement provides that:
- the term "acquisition transaction" shall mean any transaction or series
of related transactions involving: (1) any acquisition or purchase from
Medical Dynamics by any person of more than 5% of the total outstanding
voting securities of Medical Dynamics or any of its subsidiaries or any
tender offer or exchange offer that if consummated would result in any
person beneficially owning 5% or more of the total outstanding voting
securities of Medical Dynamics or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving
Medical Dynamics pursuant to which the stockholders of Medical Dynamics
immediately preceding such transaction hold less than 95% of the equity
interests in the surviving or resulting entity of such transaction; (2)
any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 5% of the assets of
Medical Dynamics; or (3) any liquidation, dissolution, recapitalization
or other significant corporate reorganization of Medical Dynamics;
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- the term "acquisition proposal" shall mean any offer or proposal relating
to any acquisition transaction; and
- the term "superior proposal" shall mean an acquisition proposal with
respect to which: (1) the Medical Dynamics board of directors has
concluded in good faith, after considering applicable state law, on the
basis of the written opinion of independent outside counsel, that such
action is necessary to prevent the board from violating its fiduciary
duties to the Medical Dynamics stockholders; (2) if any cash
consideration is involved, it is not subject to any financing
contingency, and with respect to which the board has determined (based
upon the written opinion of its independent financial advisors) in the
exercise of its fiduciary duties to the Medical Dynamics stockholders
that the acquiring party is capable of consummating the proposed
transaction on the terms proposed; and (3) the board has determined in
the exercise of its fiduciary duties to the Medical Dynamics stockholders
that the proposed transaction provides greater value to such stockholders
than the merger with PracticeWorks (based upon the written opinion of
independent financial advisors that such transaction is superior from a
financial point of view).
WAIVER, AMENDMENT, AND TERMINATION
To the extent permitted by law, the boards of directors of PracticeWorks
and Medical Dynamics may agree in writing to amend the merger agreement, whether
before or after Medical Dynamics' stockholders have approved it. In addition, at
any time before the merger becomes effective, either Medical Dynamics or
PracticeWorks, or both, may waive any default in the performance of any term of
the merger agreement by the other party or may waive or extend the time for the
compliance or fulfillment by the other party of any and all of its obligations
under the merger agreement. In addition, either PracticeWorks or Medical
Dynamics may waive any of the conditions precedent to its obligations under the
merger agreement, unless a violation of any law or regulation would result. To
be effective, a waiver must be in writing and signed by an authorized officer of
Medical Dynamics or PracticeWorks, as the case may be.
At any time before the merger becomes effective, the boards of directors of
PracticeWorks and Medical Dynamics may agree to terminate the merger agreement.
In addition, the merger agreement may be terminated at any time prior to the
effective time of the merger, whether before or after Medical Dynamics obtains
your approval, by:
1. Medical Dynamics or PracticeWorks, if the transaction is not
completed by September 30, 2001, or such later date as may be agreed to by
Medical Dynamics and PracticeWorks; however, neither Medical Dynamics nor
PracticeWorks may terminate the merger agreement if its breach is the
reason the merger has not been completed;
2. Medical Dynamics, if PracticeWorks breaches its representations,
warranties or obligations under the merger agreement in any material
respect;
3. PracticeWorks, if Medical Dynamics breaches its representations,
warranties or obligations under the merger agreement in any material
respect;
4. Medical Dynamics or PracticeWorks, if a governmental authority has
issued an order or ruling or taken any other action having the effect of
permanently restraining or otherwise prohibiting the merger, and such
action is final and nonappealable;
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5. Medical Dynamics or PracticeWorks, if the Medical Dynamics
stockholders fail to approve the merger; or
6. PracticeWorks, if (A) the Medical Dynamics board withdraws,
modifies or changes its recommendation as to the merger in a manner adverse
to PracticeWorks, (B) the Medical Dynamics board recommends to its
stockholders a competing transaction, (C) Medical Dynamics breaches its
non-solicitation covenant under the merger agreement, (D) a competing
transaction for Medical Dynamics is announced and the Medical Dynamics
board fails to recommend against acceptance of such proposal, or (E)
certain principal stockholders of Medical Dynamics who own 17% of the
outstanding shares of Medical Dynamics stock fail to comply with their
contractual obligations to vote in favor of the merger.
If Medical Dynamics terminates the merger agreement as a result of
PracticeWorks' breach of any representation or warranty contained in the merger
agreement, PracticeWorks will pay a termination fee of $250,000 in cash to
Medical Dynamics, and PracticeWorks will waive any right to offset such amount
against any amounts then owned to PracticeWorks pursuant to the $1.65 million in
advances made by InfoCure to Medical Dynamics.
If the merger is terminated, the merger agreement will become void and have
no effect.
FEES AND EXPENSES
All fees and expenses incurred in connection with the merger will be paid
by the party incurring such expenses whether or not the merger is consummated;
provided, however, that PracticeWorks and Medical Dynamics will share equally
all fees and expenses, other than attorneys' and accountants fees and expenses,
incurred in connection with the printing and filing of this proxy
statement-prospectus.
TERMINATION FEE
Medical Dynamics must pay PracticeWorks a $250,000 cash termination fee if:
1. PracticeWorks terminates the merger agreement for the reasons
described in paragraph 6 above under "-- Waiver, Amendment, and
Termination"; or
2. PracticeWorks terminates the merger agreement for the reasons
described in paragraph 1 or paragraph 5 above under "-- Waiver, Amendment.
and Termination" and (A) at or prior to such termination, there shall exist
or have been proposed an acquisition proposal and (B) within 9 months after
such termination, Medical Dynamics enters into a definitive agreement with
respect to any "company acquisition" (as defined below) or any company
acquisition shall be consummated.
The merger agreement provides that the term "company acquisition" shall
mean: (1) a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Medical Dynamics
pursuant to which the stockholders of Medical Dynamics immediately preceding
such transaction hold less than 50% of the aggregate equity interests in the
surviving or resulting entity of such transaction; (2) a sale or other
disposition by Medical Dynamics of assets representing in excess of 50% of the
aggregate fair market value of Medical Dynamics' business immediately prior to
such sale; or (3) an acquisition by any person or group (including by way of a
tender offer or an
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exchange offer or issuance by Medical Dynamics), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing in excess of 50% of the voting power of the then outstanding shares
of common stock of Medical Dynamics.
In addition, in the event that PracticeWorks terminates the merger
agreement for the reason described in paragraph 3 above under "-- Waiver,
Amendment, and Termination", then Medical Dynamics shall promptly reimburse
PracticeWorks for its costs and expenses in connection with the merger
agreement, and if, within 9 months of such termination, Medical Dynamics shall
enter into a definitive agreement with respect to any company acquisition or any
company acquisition is consummated, then concurrently with the execution of a
definitive agreement with respect to, or the consummation of, as applicable,
such company acquisition, Medical Dynamics must pay to PracticeWorks an amount
in cash equal to the amount by which $250,000 exceeds the amount of
PracticeWorks' expenses previously reimbursed by Medical Dynamics.
Finally, if Medical Dynamics terminates the merger agreement for the reason
described in paragraph 2 above under "-- Waiver, Amendment, and Termination",
PracticeWorks shall pay to Medical Dynamics $250,000 in cash.
REPRESENTATIONS AND WARRANTIES
Both parties made a number of representations and warranties in the merger
agreement regarding aspects of our respective businesses, financial condition,
structure and other facts pertinent to the merger.
Medical Dynamics' representations and warranties include representations as
to:
- corporate organization, good standing and corporate power
- corporate power and authority to enter into the merger agreement
- capitalization
- SEC filings and financial statements
- books and records
- real property interests
- condition and sufficiency of assets
- accounts receivable
- inventory
- liabilities
- taxes
- material adverse changes since June 30, 1999
- employee benefit matters
- compliance with legal requirements and governmental authorizations
- legal proceedings or orders
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- absence of certain changes and events since June 30, 1999
- material contracts
- insurance
- environmental matters
- employees
- government contracts
- intellectual property rights
- year 2000 compliance
- certain payments
- relationships with related persons
- brokers or finders
- labor relations matters
- disclosure
- stockholder approval
PracticeWorks' representations and warranties include representations as
to:
- corporate organization, good standing and corporate power
- corporate power and authority to enter into the merger agreement
- absence of restrictions and conflicts
- capitalization
- SEC filings and financial statements
- litigation
- disclosure
- absence of certain proceedings
- brokers or finders
CONDUCT OF BUSINESS PENDING THE MERGER
The merger agreement obligates Medical Dynamics to use its reasonable
efforts to maintain and preserve its business organization and to retain the
services of its officers and key employees and maintain relationships with
customers, suppliers and other third parties to the end that their goodwill and
ongoing business shall not be impaired in any material respect, and imposes
certain limitations on the operations of Medical Dynamics and its subsidiaries.
These items are set forth in the merger agreement which is attached to this
proxy statement-prospectus as Appendix A.
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THE STOCKHOLDERS AGREEMENT
Certain stockholders of Medical Dynamics who own approximately 17% of the
outstanding shares of common stock of Medical Dynamics entered into a
stockholders agreement with InfoCure on December 21, 1999.
The stockholders agreement provides, among other things, that the
stockholders subject to the agreement:
- will not transfer any of the shares subject to the agreement, unless the
transferee has agreed in writing to hold the shares subject to the
agreement and executes an irrevocable proxy prior to the transfer;
- will not deposit any shares in a voting trust or grant a proxy or enter
into any voting agreement in contravention of the stockholder agreement;
- will vote the shares subject to the agreement (1) in favor of the merger
agreement and the merger, (2) in favor of any matter to facilitate the
merger, and (3) as directed by InfoCure with respect to any shareholder
proposal related to the merger;
- will not directly or through a representative solicit, initiate or
encourage a third party to make an acquisition proposal to Medical
Dynamics, or take any action to facilitate any third party acquisition
proposal; and
- will deliver to InfoCure a proxy that (1) irrevocably appoints the
InfoCure board as sole and exclusive attorneys and proxies for the
stockholder, (2) authorizes and empowers the InfoCure board to vote and
exercise all voting rights of the shares subject to the agreement in
favor of the merger agreement and merger, and (3) revokes any and all
prior proxies given by the stockholder. The proxy and power of attorney
is coupled with an interest throughout the term of the stockholder
agreement and granted in consideration of InfoCure entering into the
merger agreement.
The stockholders agreement terminates on the earlier of the termination of
the merger agreement or the effective time of the merger.
DESCRIPTION OF THE PRACTICEWORKS COMMON STOCK
For a description of the PracticeWorks common stock to be issued to the
Medical Dynamics stockholders, see "Description of Capital Stock of
PracticeWorks -- Common Stock" on page 163 of the proxy statement-prospectus.
DESCRIPTION OF THE PRACTICEWORKS
SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK
For a description of the PracticeWorks Series B convertible redeemable
preferred stock to be issued to the Medical Dynamics stockholders, see
"Description of Capital Stock of PracticeWorks -- PracticeWorks Series B
Convertible Redeemable Preferred Stock Issuable to Medical Dynamics
Stockholders" on page 166 of this proxy statement-prospectus.
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COMPARATIVE STOCK PRICES AND DIVIDENDS
InfoCure common stock is quoted on The Nasdaq National Market under the
trading symbol "VWKS". Prior to the spin-off, shares of InfoCure common stock
were traded on the Nasdaq National Market under the symbol "INCX". Shares of
PracticeWorks common stock are traded on the American Stock Exchange under the
trading symbol "PRW". Prior to the merger, none of the shares of PracticeWorks
preferred stock will be issued and there will be no market for those shares.
Medical Dynamics common stock was quoted on The Nasdaq SmallCap Market under the
trading symbol "MEDY" until October 11, 2000 and thereafter has been traded on
the Over-the-Counter Bulletin Board System.
The following table sets forth, for the periods indicated, the high and low
sale prices per share of InfoCure common stock on The Nasdaq National Market,
PracticeWorks common stock on the American Stock Exchange and Medical Dynamics
common stock on The Nasdaq SmallCap Market for all periods through October 11,
2000 and on the Over-the-Counter Bulletin Board System for the period from
October 12, 2000 through the date of this proxy statement-prospectus. The table
also gives retroactive effect, where applicable, to the 2-for-1 stock split of
InfoCure which was effective August 19, 1999.
For current price information, you should consult publicly available
sources. Neither InfoCure nor PracticeWorks has paid dividends on its common
stock. Medical Dynamics has never paid dividends on its common stock. Neither
InfoCure nor PracticeWorks intend to pay dividends on their common stock after
consummation of the merger.
MEDICAL
INFOCURE PRACTICEWORKS DYNAMICS
COMMON STOCK COMMON STOCK(1) COMMON STOCK
---------------- --------------- ---------------
HIGH LOW HIGH LOW HIGH LOW
------- ------ ------ ------ ------ ------
Year Ending December 31, 2001:
Second Quarter(2)............ $ 2.37 $ 1.29 $ 7.49 $ 5.10 $ 0.23 $ 0.16
First Quarter................ 4.69 1.06 7.47 4.60 0.22 0.11
Year Ending December 31, 2000:
Fourth Quarter............... $ 6.75 $ 3.69 -- -- $ 0.38 $ 0.08
Third Quarter................ 6.44 3.50 -- -- 0.59 0.31
Second Quarter............... 18.38 4.00 -- -- 0.94 0.25
First Quarter................ 37.38 14.75 -- -- 2.00 0.75
Year Ending December 31, 1999:
Fourth Quarter............... $ 18.87 $17.94 -- -- $ 1.69 $ 0.66
Third Quarter................ 28.75 16.94 -- -- 0.94 0.63
Second Quarter............... 26.47 12.25 -- -- 2.19 0.84
First Quarter................ 18.13 10.50 -- -- 2.72 2.56
Year Ending December 31, 1998:
Fourth Quarter............... $ 16.37 $ 5.81 -- -- $ 2.56 $ 2.31
Third Quarter................ 8.47 6.37 -- -- 3.00 2.00
Second Quarter............... 8.09 5.47 -- -- 3.00 2.13
First Quarter................ 8.53 4.12 -- -- 3.50 3.06
- -------------------------
(1) PracticeWorks common stock began trading on the American Stock Exchange on
March 6, 2001. Prior to this date, PracticeWorks common stock was not
publicly traded.
(2) through May 29, 2001.
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RECENT CLOSING PRICES
The closing sales price per share of InfoCure common stock on The Nasdaq
National Market was $27.00 on December 20, 1999, the last trading day prior to
the public announcement of the proposed merger, $3.91 on October 10, 2000, the
last trading day before public announcement of the amended and restated merger
agreement and $1.92 on June 14, 2001, the latest practicable day before the
mailing of this proxy statement-prospectus.
PracticeWorks commenced trading as an independent public company on the
American Stock Exchange on March 6, 2001. On June 14, 2001, the last reported
sales price for PracticeWorks common stock on the American Stock Exchange was
$7.06.
Because the market price of InfoCure and PracticeWorks common stock is
subject to fluctuation, the market value of the shares of InfoCure and
PracticeWorks common stock that you will receive in the merger and that you will
be entitled to receive upon conversion of the PracticeWorks preferred stock may
increase or decrease prior to and following the merger. In addition, YOU ARE
URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR INFOCURE COMMON STOCK AND
PRACTICEWORKS COMMON STOCK. NEITHER MEDICAL DYNAMICS, INFOCURE NOR PRACTICEWORKS
CAN ASSURE YOU AS TO THE FUTURE PRICES FOR INFOCURE AND PRACTICEWORKS COMMON
STOCK.
DIVIDEND INFORMATION
PracticeWorks' dividend policy is set by its board of directors. It
currently intends to retain all available funds and any future earnings for use
in the operation and expansion of its business and does not anticipate declaring
or paying any cash dividends on its common stock in the foreseeable future. Any
future determination as to the declaration and payment of dividends will be at
the discretion of its board of directors and will depend on then existing
conditions, including its financial condition, results of operations,
contractual restrictions, capital requirements, business prospects and other
factors that PracticeWorks' board of directors considers relevant. In addition,
its credit facility with FINOVA prohibits payment of dividends on its common
stock.
Holders of series A convertible redeemable preferred stock will be entitled
to receive cumulative dividends of 6.5% when and if declared by PracticeWorks'
board of directors and will also share on an as-converted basis with the holders
of its common stock in any dividends declared on its common stock. Unpaid
dividends on the series A convertible redeemable preferred stock will accrue
whether or not they have been declared.
Holders of series B convertible redeemable preferred stock will be entitled
to receive cumulative dividends at an annual rate of 6.0%, and dividend payments
may be made in cash or shares of our common stock.
Holders of series C convertible redeemable preferred stock will not be
entitled to dividends. PracticeWorks' board of directors must pay accrued and
unpaid dividends to the holders of our series C convertible redeemable preferred
stock before any dividends are paid to the holders of our common stock.
InfoCure has never declared or paid any cash dividends on its common stock.
InfoCure currently intends to retain all available funds and any future earnings
for use in the operation and expansion of its business and does not anticipate
declaring or paying any
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cash dividends in the foreseeable future. Any future determination as to the
declaration and payment of dividends will be at the discretion of InfoCure's
board of directors and will depend on then existing conditions, including its
financial condition, results of operations, contractual restrictions, capital
requirements, business prospects and other factors that its board of directors
considers relevant. In addition, InfoCure's credit facility prohibits payment of
dividends.
Medical Dynamics has never paid cash dividends on its common stock, and
Medical Dynamics anticipates that it will continue to retain earnings for the
foreseeable future for use in the operation of its business.
NUMBER OF STOCKHOLDERS
As of May 29, 2001, there were 716 stockholders of record who held shares
of InfoCure common stock, 686 stockholders of record who held shares of
PracticeWorks common stock and 11,555 stockholders of record who held shares of
Medical Dynamics common stock.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth PracticeWorks' consolidated ratios of
earnings to combined fixed charges and preferred stock dividends for the periods
shown:
THREE MONTHS
ENDED YEAR ENDED ELEVEN MONTHS YEAR
MARCH 31, DECEMBER 31, ENDED ENDED
------------ ------------------ DECEMBER 31, JANUARY 31,
2001 2000 1999 1998 1997 1997
---- ---- ---- ---- ------------- -----------
Ratio................ (1) (1) 4.4 (1) (1) 9.4
- -------------------------
(1) For the three months ended March 31, 2001, and for the years ended December
31, 2000 and 1998 and the eleven months ended December 31, 1997,
PracticeWorks' earnings were insufficient to cover fixed charges by $8.6
million, $33.8 million, $1.6 million, and $4.4 million, respectively.
PracticeWorks' consolidated ratios of earnings to combined fixed charges
and preferred stock dividends were computed by dividing its earnings in the
applicable year by its combined fixed charges for the corresponding year. For
the purposes of these calculations, PracticeWorks' earnings consist of pre-tax
income from continuing operations plus fixed charges. PracticeWorks' fixed
charges consist of interest expense. PracticeWorks neither declared nor paid
dividends on preferred stock during the periods presented.
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SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
OF MEDICAL DYNAMICS
The following table sets forth certain information known by Medical
Dynamics regarding the beneficial ownership of common stock as of May 29, 2001,
by:
- each person known by Medical Dynamics to be the beneficial owner of more
than 5% of its outstanding shares of common stock;
- each director of Medical Dynamics;
- each executive officer of Medical Dynamics; and
- all directors and executive officers of Medical Dynamics as a group.
Unless otherwise indicated, the persons or entities listed below have sole
voting and investment power with respect to all shares of common stock owned by
them.
NAME OF BENEFICIAL OWNER SHARES OWNED BENEFICIALLY(1) PERCENT OF CLASS*
- ------------------------ ---------------------------- -----------------
Edwin L. Adair, M.D.................... 1,054,298(2) 7.9%
Pat Horsley Adair...................... 1,054,298(2) 7.9
Daniel L. Richmond..................... 1,097,760(3) 8.0
Chae U. Kim............................ 1,097,760(3) 8.0
I. Dean Bayne, M.D..................... 40,000(4) 0.3
Van A. Horsley......................... 519,686(5) 3.8
Leroy Bilanich, Ed.D................... 40,000(4) 0.3
All officers and directors as a group
(7 persons).......................... 3,849,504(6) 26.0
- -------------------------
* Percent of class based upon 13,229,206 shares outstanding on May 29, 2001.
(1) The term beneficial ownership with respect to a security is defined by Rule
13d-3 under the Exchange Act as consisting of sole or shared voting power
(including the power to vote or direct the vote) and/or sole or shared
investment power (including the power to dispose or direct the disposition)
with respect to the security through any contract, arrangement,
understanding, relationship or otherwise. Unless otherwise indicated,
beneficial ownership is of record and consists of sole voting and investment
power.
(2) Includes 175,000 stock options held by Dr. Adair of which all are presently
exercisable.
(3) Includes 450,000 shares under presently exercisable stock options. Does not
include option to acquire 150,000 shares which vest upon defined performance
goals.
(4) Includes 40,000 shares under presently exercisable stock options.
(5) Includes 429,780 shares under presently exercisable stock options. Does not
include options to acquire 400,000 shares which vest based upon definition
performance goals.
(6) Includes shares referenced in notes (2) through (5).
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EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS
The following discussion describes certain material differences between the
rights of InfoCure stockholders, PracticeWorks stockholders and the rights of
Medical Dynamics stockholders. While we believe that the description covers the
material differences between the two, this summary may not contain all of the
information that is important to you. You should carefully read this entire
proxy statement-prospectus and the other documents we refer to for a more
complete understanding of the differences between being a stockholder of Medical
Dynamics and being a stockholder of InfoCure and PracticeWorks.
As a stockholder of Medical Dynamics, your rights are governed by Medical
Dynamics' amended and restated articles of incorporation and amended bylaws, as
currently in effect. After completion of the merger, if you own more than 100
shares of Medical Dynamics common stock, you may become a holder of InfoCure
common stock, PracticeWorks common stock and PracticeWorks preferred stock.
As an InfoCure stockholder, your rights will be governed by InfoCure's
amended certificate of incorporation and InfoCure's amended and restated bylaws.
As a PracticeWorks stockholder, your rights will be governed by
PracticeWorks' certificate of incorporation, including the certificate of
designations which sets forth the rights, preferences and designations of the
series B convertible redeemable preferred stock, and PracticeWorks' bylaws.
Both InfoCure and PracticeWorks are incorporated under the laws of the
state of Delaware. Medical Dynamics is incorporated under the laws of the state
of Colorado, and therefore, your rights as a stockholder of InfoCure and
PracticeWorks will be governed by the Delaware General Corporation Law ("DGCL"),
rather than the Colorado Business Corporation Act ("CBCA"), after completion of
the merger. The rights, preferences and designations of the preferred stock are
described in "Description of Capital Stock of PracticeWorks -- PracticeWorks
Series B Convertible Redeemable Preferred Stock Issuable to Medical Dynamics
Stockholders" beginning on page 166 of this proxy statement-prospectus.
CLASSES OF STOCK AND VOTING RIGHTS OF INFOCURE AND MEDICAL DYNAMICS
InfoCure and Medical Dynamics each have one class of common stock issued
and outstanding. Holders of InfoCure common stock and holders of Medical
Dynamics common stock are each entitled to one vote for each share held.
Holders of PracticeWorks common stock are entitled to one vote for each
share held. The PracticeWorks preferred stock to be issued to the former
stockholders of Medical Dynamics will generally not have voting rights.
BOARD OF DIRECTORS
Neither InfoCure's nor Medical Dynamics' board of directors is divided into
classes and all directors are elected annually.
PracticeWorks' board of directors is divided into three classes, currently
consisting of two directors in each class.
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NUMBER OF DIRECTORS
InfoCure's board of directors may contain as few as three directors and as
many as twelve. Currently, there are six members of InfoCure's board of
directors. The exact number of authorized directors within such range may be
fixed from time to time by a resolution adopted by InfoCure's board of
directors.
The number of directors of PracticeWorks and the number of directors in
each class of directors may be fixed by the from time to time by a resolution
adopted by the PracticeWorks board of directors, except that while any shares of
series A preferred stock are outstanding, PracticeWorks will be required to have
at least six members, and the holders of series A preferred stock, voting as a
class, will be entitled to elect one member to PracticeWorks' board of
directors. However, such holders will not be entitled to vote with respect to
the remaining directors. Currently, there are six members of PracticeWorks'
board of directors.
There are currently seven directors on Medical Dynamics' board of
directors.
FILLING VACANCIES ON THE BOARD
Any vacancy occurring on the InfoCure board of directors may be filled by a
vote of the majority of the remaining directors, though less than a quorum, or
by the sole remaining director, or if no director remains or if the vacancy is
not so filled, by the stockholders. A director elected to fill a vacancy will
serve until the next election of directors by the stockholders and the election
and qualification of the successor.
A vacancy on the PracticeWorks board of directors may be filled by vote of
the majority of the remaining directors, though less than a quorum. A director
elected to fill a vacancy will serve until the next election of directors by the
stockholders and the election and qualification of the successor.
Medical Dynamics' bylaws provide that vacancies and newly-created
directorships resulting from any increase in the authorized number of directors
may be filled by the affirmative vote of a majority of the remaining directors,
though less than a quorum. The CBCA provides that stockholders may also fill a
vacancy on the board of directors. The term of a director elected to fill a
vacancy by the directors expires at the next annual stockholders' meeting at
which directors are elected. The term of a director elected to fill a vacancy by
the stockholders is the unexpired term of the predecessor director. Directors
elected to fill vacancies or newly-created directorships will continue to serve
until a successor is elected and qualifies.
QUORUM
InfoCure's bylaws provide that one-third of the number of votes entitled to
be cast, present in person or represented by proxy, shall constitute a quorum at
all meetings of stockholders.
PracticeWorks' bylaws provide that a majority of the number of votes
entitled to be cast, present in person or represented by proxy, shall constitute
a quorum at all meetings of stockholders.
Medical Dynamics' articles of incorporation provide that one-third of all
shares entitled to vote shall constitute a quorum.
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STOCKHOLDER ACTION BY WRITTEN CONSENT
InfoCure's bylaws provide that any action required or permitted to be taken
at any annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a written consent is signed by the
holders having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
PracticeWorks' bylaws provide that any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, if a written consent signed by the holders
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted.
Medical Dynamics' bylaws provide that any action required to be taken, or
which may be taken at a meeting of the stockholders may be taken without a
meeting, if a written consent setting forth the action to be taken is signed by
all of the stockholders entitled to vote on that subject matter.
ABILITY TO CALL SPECIAL MEETING
Special Meetings of InfoCure stockholders may be called by the board of
directors or by the chairman of the board of directors.
Special meetings of PracticeWorks stockholders may be called by the
chairman of the board of directors, the chief executive officer, or a majority
of the board of directors.
Special meetings of stockholders of Medical Dynamics may be called by the
president, the chief executive officer, the board of directors or by the
president at the request of the holders of not less than one-tenth of all shares
of Medical Dynamics entitled to vote at the meeting.
NOTICE OF MEETING
InfoCure, PracticeWorks and Medical Dynamics stockholders are entitled to
notice of all stockholder meetings not less than ten nor more than 60 days prior
to the date of the meeting.
ADVANCE NOTICE OF STOCKHOLDER PROPOSALS
INFOCURE. Business at an annual meeting may be brought by an InfoCure
stockholder only upon the stockholder's timely notice thereof in writing to the
secretary of InfoCure. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of InfoCure not less
than 60 days nor more than 90 days prior to the meeting as originally scheduled;
provided, however, that in the event that less than 60 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the earlier of the day on which
such notice of the date of the meeting was mailed or the date on which such
public disclosure was made.
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The InfoCure stockholder's notice to the Secretary shall set forth:
- a brief description of the proposal desired to be brought before the
meeting and the reasons for conducting such business at the meeting;
- the name and address of the stockholder proposing such business and any
other stockholders known by such stockholder to be supporting such
proposal;
- the class and number of shares of InfoCure stock that are beneficially
owned by the stockholder on the date such stockholder gives notice to the
secretary, and the number of shares in InfoCure common stock that are
beneficially owned on such date by any other stockholders known to be
supporting such proposal; and
- any financial interest of the stockholder in such proposal.
With respect to InfoCure stockholders nominating persons to election to
InfoCure's board of directors, such nominations shall be made only at an annual
or special meeting of the stockholders called for that purpose and only by
complying with the notice procedures set forth in InfoCure's bylaws.
Specifically, the InfoCure stockholder must provide a timely notice in writing
to the secretary of InfoCure, such notice must be delivered to or mailed and
received at the principal executive offices of InfoCure not less than 60 days
nor more than 90 days prior to the meeting; provided, however, that in the event
that less than 60 days notice or public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the tenth day following the
earlier of the day on which such notice of the date of the meeting was mailed or
the date on which such public disclosure was made.
The stockholder's notice must set forth:
(1) as to each person that the stockholder proposes to nominate for
election or reelection as a director:
- the name, age, business address and residence address of such proposed
nominee;
- the principal occupation or employment of such proposed nominee;
- the class and number of shares of common stock of InfoCure which are
beneficially owned by such proposed nominee; and
- any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant
to Schedule 14A under the Securities Exchange Act of 1934, as amended;
and
(2) as to the stockholder giving such notice:
- the name and address of such stockholder; and
- the class and number of shares of InfoCure's stock that are beneficially
owned by the stockholder on the date of such notice.
PRACTICEWORKS. PracticeWorks' bylaws establish an advance notice procedure
for stockholder proposals to be brought before any annual or special meeting of
stockholders and for nominations by stockholders of candidates for election as
directors at an annual meeting or a special meeting at which directors are to be
elected. Subject to any other applicable requirements, including, without
limitation, Rule 14a-8 under the Securities Exchange Act of 1934, as amended, or
the Exchange Act, only such business may be
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conducted at a meeting of stockholders as has been brought before the meeting
by, or at the direction of, PracticeWorks' board of directors, or by a
stockholder who has given PracticeWorks' Secretary timely written notice, in
proper form, of the stockholder's intention to bring that business before the
meeting. The presiding officer at such meeting has the authority to make such
determinations. Only persons who are nominated by, or at the direction of,
PracticeWorks' board of directors, or who are nominated by a stockholder who has
given timely written notice, in proper form, to PracticeWorks' Secretary prior
to a meeting at which directors are to be elected will be eligible for election
as directors of PracticeWorks.
To be timely, notice of nominations or other business to be brought before
any meeting must be delivered to our Secretary not less than 90 days nor more
than 120 days prior to the first anniversary date of the annual meeting for the
preceding year; provided, however, that if the annual meeting is not scheduled
to be held within a period that commences 30 days before and ends 30 days after
such anniversary date, such advance notice shall be given by the later of (1)
the close of business on the date 90 days prior to the date of the annual
meeting or (2) the close of business on the tenth day following the date that
the meeting date is first publicly announced or disclosed.
Any stockholder who gives notice of a proposal must provide the text of the
proposal to be presented, a brief written statement of the reasons why he or she
favors the proposal, the stockholder's name and address, the number and class of
all shares of each class of PracticeWorks stock owned, any material interest the
stockholder may have in the proposal, other than as a PracticeWorks stockholder,
and, in the case of any person that holds PracticeWorks stock through a nominee
or "street name" holder of record of such stock, evidence establishing such
person's indirect ownership of PracticeWorks stock and entitlement to vote on
the matter proposed at the annual meeting.
The notice of any nomination for election as a director must set forth the
name of the nominee, the number and class of all shares of each class of
PracticeWorks capital stock beneficially owned by the nominee, the information
regarding the nominee required by paragraphs (a), (e) and (f) of Item 401 of
Regulation S-K adopted by the SEC, the signed consent of each nominee to serve
as a director if elected, the nominating stockholder's name and address, the
number and class of shares of PracticeWorks stock owned by such nominating
stockholder and, in the case of any person that holds PracticeWorks stock
through a nominee or "street name" holder of record of such stock, evidence
establishing such person's indirect ownership of PracticeWorks stock and
entitlement to vote on the matter proposed at the annual meeting.
MEDICAL DYNAMICS. The Medical Dynamics bylaws do not contain any
provisions related to advance notice of stockholder proposals.
VOTING REQUIREMENTS
InfoCure's bylaws provide that when a quorum is present at any stockholder
meeting, a majority of the number of votes entitled to be cast present in person
or represented by proxy shall decide any proposal brought before the meeting,
unless the certificate of incorporation, the bylaws or the DGCL provides a
different threshold.
PracticeWorks' bylaws provide that when a quorum is present at any
stockholder meeting, a majority of the number of votes entitled to be cast,
present in person or
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represented by proxy, shall decide any proposal brought before the meeting,
unless the certificate of incorporation, the bylaws or the DGCL provides a
different threshold.
Medical Dynamics' articles of incorporation provide that when a quorum is
present at any stockholder meeting, the affirmative vote of the holders of a
majority of the shares entitled to vote shall decide any proposal brought before
the meeting, unless the articles of incorporation or the CBCA provide a
different threshold.
AMENDING CERTIFICATE OF INCORPORATION OR ARTICLES OF INCORPORATION
InfoCure's certificate of incorporation and Medical Dynamics' articles of
incorporation may be amended by the affirmative vote of a majority of the votes
entitled to be cast and the affirmative vote of a majority of the outstanding
stock of each class entitled to vote as a class thereon.
Any proposal to amend, alter, change or repeal any provision of
PracticeWorks' certificate of incorporation requires approval by the affirmative
vote of a majority of the voting power of all of the shares of its capital stock
entitled to vote on such matters, with the exception of certain provisions of
PracticeWorks' certificate of incorporation, which require a vote of 66 2/3% of
more of such voting power.
AMENDING BYLAWS
InfoCure's bylaws may be amended as follows:
- at any meeting of stockholders at which a quorum is present, by vote of a
majority of the number of votes entitled to be cast present in person or
by proxy, provided that the notice of the meeting contained a statement
of the substance of the amendment; or
- by a majority vote of the board of directors.
In addition, any stockholder who intends to propose an amendment to the
InfoCure bylaws shall notify the secretary of InfoCure in writing of the
amendment not later than one hundred eighty days prior to a request by such
stockholder to call a special meeting for such purpose or, if such proposal is
intended to be made at an annual meeting of stockholders, not later than the
latest date permitted for submission of stockholder proposals by Rule 14a-8
under the Securities Exchange Act. Such notice to the secretary shall include
the text of the proposed amendment and a brief statement of the reason why such
stockholder intends to make such proposal.
PracticeWorks' certificate of incorporation provides that only its board of
directors or the holders of 66 2/3% of the shares of its capital stock entitled
to vote at an annual or special meeting of stockholders have the power to amend
or repeal its bylaws.
Medical Dynamics' bylaws may be altered, amended, repealed, suspended or
replaced by the board of directors at any regular or special meeting. The CBCA
also permits the stockholders to amend the bylaws.
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INTERESTED DIRECTOR TRANSACTIONS
InfoCure's bylaws provide that no contract or transaction between InfoCure
and one or more of its directors or officers, or between InfoCure and any other
company, partnership, association, or other organization in which one or more of
its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
board of directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose,
if:
- the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the board of
directors or the committee, and the board of directors or committee in
good faith authorizes the contract or transaction by the affirmative
votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
- the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
- the contract or transaction is fair as to InfoCure as of the time it is
authorized, approved or ratified, by the board of directors, a committee
thereof, or the stockholders.
Both PracticeWorks' bylaws and the CBCA contains provisions which are
substantially the same as the Interested Director provisions of the InfoCure
bylaws.
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BUSINESS OF PRACTICEWORKS, INC.
OVERVIEW
PracticeWorks previously operated as a division of InfoCure Corporation. On
March 5, 2001, InfoCure spun off PracticeWorks' operations through a pro rata
distribution to its shareholders of all of PracticeWorks' outstanding common
stock. As a result of the spin-off, PracticeWorks became an independent public
company operating what was previously InfoCure's dental business. This business
includes the dental, orthodontic and oral and maxillofacial surgery business
lines.
PracticeWorks is an information management technology provider for
dentists, orthodontists and oral and maxillofacial surgeons. Its offerings
include practice management applications, business-to-business e-commerce
services, electronic data interchange, or EDI, services, ongoing maintenance and
support and training. These applications and services are designed to automate
the provider's practice, resulting in greater efficiency, lower costs and higher
quality care. As of May 31, 2001, PracticeWorks had an installed base of
approximately 57,000 providers, including approximately 49,000 dentists, 4,000
orthodontists and 4,000 oral and maxillofacial surgeons in the United States. In
addition, PracticeWorks has approximately 4,000 providers located in Europe and
Australia.
PracticeWorks believes that the direct and frequent use of its practice
management applications by providers and office staff throughout the business
day combined with its substantial installed customer base strongly positions
PracticeWorks to facilitate business-to-business e-commerce between its
customers and dental, medical and orthodontic product manufacturers and
distributors as well as other suppliers. Through business relationships
PracticeWorks has established to date, orthodontists using its e-commerce
application can make convenient, cost-effective online purchases of orthodontic
supplies, office supplies and promotional materials. PracticeWorks is developing
additional business relationships to enable online purchasing of dental supplies
using PracticeWorks' e-commerce application. This will allow PracticeWorks to
expand its e-commerce services to the dental and oral and maxillofacial surgery
markets and further develop this revenue stream.
PracticeWorks' existing practice management applications are installed
either on servers or personal computers located in the provider's office.
PracticeWorks is developing practice management applications that PracticeWorks
will deliver through an application services provider, or ASP, delivery model
whereby the applications will be remotely hosted on a central server which its
customers will access through a standard Internet browser. PracticeWorks' ASP
applications will benefit our customers primarily by:
- decreasing their total cost of ownership by reducing hardware
requirements and allowing them to outsource maintenance and support
functions;
- automatically providing immediate access to future updates and
improvements to our applications;
- enabling secure, online communication with patients; and
- enabling remote access to their practice management information.
PracticeWorks expects to release specified modules of its ASP application
for use by dentists in the United States during the second quarter of 2001 and
to release specified
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modules of its ASP applications for orthodontists and oral and maxillofacial
surgeons by the fourth quarter of 2001. Although PracticeWorks' initial ASP
applications will contain the basic functionality required to manage a dentist's
office, they will not offer the full functionality of PracticeWorks' core
products. PracticeWorks expects to provide these levels of full functionality
for its ASP applications in the dental market in the fourth quarter of 2001 and
in the orthodontic and oral and maxillofacial markets in the third quarter of
2002.
RECENT EVENTS
INFOSOFT ACQUISITION
On March 7, 2001, PracticeWorks completed the acquisition of SoftDent, LLC,
or InfoSoft, the practice management software subsidiary of Ceramco, Inc., a
wholly owned subsidiary of DENTSPLY International, Inc. The aggregate
consideration paid in connection with this acquisition was approximately $32.7
million including fees and expenses. In connection with this acquisition,
PracticeWorks issued 32,000 shares of its series A convertible redeemable
preferred stock to Ceramco having a stated redemption value of $32.0 million in
five years. These shares of series A convertible redeemable preferred stock are
convertible into a number representing approximately 9.8%, or 857,949 shares, of
PracticeWorks' outstanding common stock.
InfoSoft develops and provides dental practice management systems. The
acquisition of InfoSoft strengthens PracticeWorks' presence in the dental
segment of the healthcare information systems market by adding approximately
22,000 dentists to our installed customer base. As a result of this acquisition,
PracticeWorks now has an installed customer base of approximately 49,000
dentists in the United States, in addition to 4,000 orthodontists and 4,000 oral
and maxillofacial surgeons. The InfoSoft acquisition also affords PracticeWorks
opportunities for future conversion of the acquired customer base to newer
technology offered by PracticeWorks, the potential revenue from its connectivity
offerings and the cost savings potential of eliminating duplicative services and
redundancies in staffing.
PROPOSED MEDICAL DYNAMICS ACQUISITION
In connection with the spin-off, PracticeWorks assumed InfoCure's
obligation to acquire Medical Dynamics, Inc. except for InfoCure's obligation to
issue a specified number of shares of InfoCure common stock. The aggregate
consideration to be paid to the Medical Dynamics shareholders in connection with
the proposed merger is approximately $7.5 million including fees and expenses.
Each Medical Dynamics shareholder of greater than 100 shares of Medical Dynamics
common stock will receive 0.017183 shares of PracticeWorks common stock, 0.07558
shares of PracticeWorks series B convertible redeemable preferred stock and
0.06873 shares of InfoCure common stock in exchange for each share of Medical
Dynamics common stock outstanding on a fully diluted basis on the date of the
merger.
Each holder of 100 or fewer shares of Medical Dynamics common stock will
receive $0.75 in cash for each share of Medical Dynamics. Assuming 13.2 million
shares of Medical Dynamics are outstanding on the date of the acquisition,
PracticeWorks will issue approximately 219,500 shares of PracticeWorks common
stock and approximately 965,000 shares of PracticeWorks series B convertible
redeemable preferred stock (with a stated redemption value of $5.3 million) and
will pay approximately $325,000 in cash as
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consideration for the merger. Assuming full conversion of the PracticeWorks
series B convertible redeemable preferred stock, the PracticeWorks securities to
be issued in connection with the proposed Medical Dynamics merger will
represent, in the aggregate, less than 2.0% of PracticeWorks' common stock at
the time of the spin-off. InfoCure will issue approximately 878,000 shares of
its common stock as a portion of the consideration for the merger.
The Medical Dynamics merger will require approval of the Medical Dynamics
shareholders. No vote of the PracticeWorks or InfoCure shareholders is required
to approve the merger. Either PracticeWorks or Medical Dynamics may terminate
the merger agreement under specified circumstances, including if both parties
consent in writing; if the merger is not completed by September 30, 2001; and if
the Medical Dynamics shareholders do not approve the merger.
Medical Dynamics will pay PracticeWorks a "break up" fee of $250,000 if (1)
Medical Dynamics approves, enters into, or consummates a transaction
contemplated by an acquisition proposal; (2) the Medical Dynamics board
withdraws, modifies or changes its recommendation as to the merger; or (3)
specified principal stockholders of Medical Dynamics who own approximately 17%
of the outstanding shares of Medical Dynamics stock fail to comply with their
obligations under a stockholders agreement to vote in favor of the merger. In
addition, PracticeWorks will pay Medical Dynamics a fee of $250,000 if Medical
Dynamics terminates the merger agreement because InfoCure breaches its
representations, warranties or obligations under the merger agreement in any
material respect.
The proposed acquisition of Medical Dynamics will further strengthen
PracticeWorks' presence in the dental segment of the healthcare information
systems market by adding approximately 4,000 dentists to its installed customer
base. Medical Dynamics' customer base is relatively large and produced a revenue
stream of approximately $2.7 million from customer support contracts for the
fiscal year ended September 30, 2000. This acquisition also affords
opportunities for future conversion of the acquired customer base to newer
technology offered by PracticeWorks and the potential for additional revenues
from PracticeWorks' connectivity offerings.
CRESCENT INVESTMENT AND EQUITY LINE
In connection with the spin-off, on March 6, 2001, PracticeWorks issued
100,000 shares of its series C convertible redeemable preferred stock for $5.0
million to Crescent International Ltd. in a private placement. PracticeWorks
expects to use the proceeds of this investment to fund its general operations.
The series C convertible redeemable preferred stock is not convertible
during the first year after issuance. Thereafter, the holders of the series C
convertible redeemable preferred stock can convert all or a portion of the
shares. In no event, however, will the holders of the series C convertible
redeemable preferred stock be entitled to obtain, in the aggregate for all
conversions, more than 20.0% of PracticeWorks' common stock upon conversion.
Accordingly, a holder would not be able to convert a portion of the series C
convertible redeemable preferred stock, up to 19.9% of the outstanding common
stock, and then sell all or a portion of its common stock, and then convert more
of its holdings, up to 19.9%, at a later date.
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The number of shares of common stock to be received upon conversion will
equal the liquidation preference, $5.0 million, of the series C convertible
redeemable preferred stock to be redeemed divided by the conversion price. The
conversion price will be equal to the lesser of (1) 107.5% of the average
closing bid price of our common stock for the 50 consecutive trading days
immediately following the spin-off, such 50 day average being referred to as the
"reference price," and (2) the average of the three lowest closing bid prices of
PracticeWorks' common stock during the 22 trading day period immediately
preceding the applicable conversion date. The conversion price determined
according to the formula may not be less than 75% of the reference price;
however, beginning 18 months after the date PracticeWorks issued the series C
convertible redeemable preferred stock, the minimum conversion price will
decrease by 7.5% of the reference price on the first day of each month. Holders
of the series C convertible redeemable preferred stock will be entitled to
receive a liquidation preference of $50 per share, plus a 6.5% annual return, in
the event that PracticeWorks liquidates, dissolves or winds up, before any
payments or distributions of assets are made or set aside for the benefit of
holders of its common stock. PracticeWorks will have the right either to redeem
in cash or to require the conversion of the shares of series C convertible
redeemable preferred stock, provided certain conditions are met. If the series C
convertible redeemable preferred stock has not been converted after four years,
the holders may require PracticeWorks to redeem the series C convertible
redeemable preferred stock at a redemption price equal to 175% of the
liquidation preference, or $8.75 million. Crescent will also receive specified
registration rights in connection with its investment. The series C convertible
redeemable preferred stock is entitled to vote on an as-converted basis,
together with the holders of PracticeWorks' common stock on all matters on which
the holders of our common stock are entitled to vote; however, the outstanding
shares of series C convertible redeemable preferred stock, together with the
shares of common stock into which the preferred stock has been converted, will
not be entitled to cast more than 9.9% of the votes cast on any matter on which
stockholders are entitled to vote.
On March 6, 2001, PracticeWorks entered into an equity line agreement with
Crescent that allows PracticeWorks to issue and sell and requires Crescent to
purchase, upon PracticeWorks' request, shares of PracticeWorks' common stock for
consideration of up to $35.0 million (minus applicable fees and expenses). Under
this agreement, PracticeWorks can, from time to time and at its option, issue
and sell shares of common stock with an aggregate purchase price of up to twice
the average daily trading value of its common stock during the 22 trading day
period immediately preceding the applicable sale date, but no more than $2.5
million at one time. The purchase price for shares of common stock sold to
Crescent under this equity line will be 94% of the average of the lowest three
consecutive bid prices during the 22 day trading period immediately preceding
the applicable sale. Management does not currently believe that it will be
necessary to draw any amounts under the Crescent equity line.
At the time PracticeWorks first elects to sell common stock to Crescent
under the equity line, PracticeWorks will be required to issue Crescent an
incentive warrant to purchase a number of shares of PracticeWorks' common stock
equal to $3.5 million divided by the purchase price of PracticeWorks' common
stock in the first sale to Crescent. This warrant will be exercisable for five
years. The exercise price will be 150% of the purchase price in the first sale
of PracticeWorks' common stock to Crescent under the equity line.
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After issuance of unregistered shares under the equity line, PracticeWorks
is obligated to file a resale registration statement within 20 days and use its
best efforts to have the registration statement declared effective. We must
issue to Crescent protective warrants to purchase shares of its common stock at
$0.01 per share, which are intended to protect Crescent economically from any
loss as a result of a drop in market price of PracticeWorks' common stock that
might occur between issuance of the unregistered shares and effectiveness of the
resale registration statement. The warrants will only become exercisable if the
market price of the common stock on the date the resale registration statement
covering these unregistered shares is declared effective is lower than the
market price on the date the unregistered shares are issued. As the issuance of
these protective warrants directly relates to the sale of common stock,
PracticeWorks would account for these issuances as a cost of raising capital,
the impact of which would be reported in stockholders' equity.
PracticeWorks will also be subject to certain cash penalties if
PracticeWorks does not timely register for resale the shares of its common stock
issued under the equity line and issuable upon exercise of the incentive and the
protective warrants. If PracticeWorks fails to obtain effectiveness of the
resale registration statement or to maintain the effectiveness of the
registration statement, PracticeWorks must pay Crescent in cash an amount equal
to 2.0% per month of the aggregate purchase price of all of the registrable
securities covered by the resale registration statement. In addition, if the
number of shares of common stock covered by the resale registration statement is
insufficient, PracticeWorks must pay Crescent in cash an amount equal to 1.5%
per month of the market value of the shares that have not been registered for
each month until a registration statement covering the resale of any such shares
has been declared effective. Regarding any cash penalties associated with the
warrants, PracticeWorks would net these amounts against the proceeds from the
sale of stock as such costs would be considered costs of raising capital.
THE INDUSTRY
CURRENT STATE OF THE DENTAL INDUSTRY
According to the Health Care Financing Administration, healthcare
expenditures were approximately $1.15 trillion, or 13.7% of the U.S. gross
domestic product in 1998. Spending on dental services in the United States
reached approximately $53.7 billion in 1998 and was expected to increase 6.3% in
1999. Dental services are expected to grow at a compound rate of 6.6% annually
through the year 2007, when total dental care would account for $95.2 billion of
U.S. healthcare expenditures. Expenditures on dental services are growing at a
slightly faster pace than total U.S. healthcare expenditures, growing from 4.7%
of the total in 1997 to over 4.8% in 1999. Based on our experience in the
industry, we believe the primary drivers of growth in dental services include
the aging U.S. population, natural teeth being retained longer, changing dental
practices, general population growth and an increase in private dental
insurance. According to Dorland Healthcare Information, a healthcare industry
research firm, orthodontic services were estimated to have represented $4.1
billion of total dental services expenditures in 1999, an increase of 7.0%
annually since 1997.
The market for professional dental products is estimated to have been
approximately $3.1 billion in 1999, growing at annual rate of 6.7% to more than
$3.5 billion by 2001, according to the Detwiler Group, a healthcare industry
research firm. This market is comprised of a wide range of products including
supplies, such as hand instruments, polishing materials and consumables used in
patient therapy, and equipment, such as
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sterilizers, powered hand pieces and ultrasonic cleaners. In addition,
orthodontists and oral and maxillofacial surgeons use other specialty equipment
and supplies including bonding and wiring material, anesthesia and surgical
supplies.
The traditional supply chain for professional dental and related products
is highly fragmented and inefficient, with more than 300 distributors serving
dental practices, of which fewer than 20 have more than $20.0 million in annual
sales, according to the Detwiler Group. According to Strategic Dental Marketing,
an industry market research firm, the six largest manufacturers of dental
supplies control approximately 45.0% of the market, but very few sales are made
directly to dental practices. However, the cost effective procurement of
supplies and equipment is highly important to managing dental practice expenses.
According to Dorland Health Information, "the spread of managed care in
dental care is likely to increase in the future as HMOs and other managed care
plans contract with dentists to provide services on a capitated basis in an
effort to control costs. The key to prosperity in the capitated environment will
be cost control." The managed care, fixed-fee and capitated models are replacing
the fee-for-service reimbursement model that has been the traditional basis for
payment for healthcare services. We believe this shift will increase the demand
for dental practice management applications and services.
We note that information about the oral and maxillofacial surgery markets
was not available and is not included in industry data about the dental services
market. Therefore, our discussion of trends and forecasts in the dental services
industry is necessarily incomplete.
CURRENT INFORMATION MANAGEMENT TECHNOLOGY SYSTEMS
To more efficiently manage their practices in connection with cost
containment pressures, recent information from the American Dental Association
indicates that dental practitioners are increasingly utilizing information
management technology, including practice management applications, in the
day-to-day operation of their practices. Practice management applications
include a range of software products for dentists, physicians and other
healthcare providers that are used throughout the business day. Most practice
management applications provide several common functions, including:
- administrative functions, such as patient scheduling;
- financial functions, such as patient billing and receivables management;
and
- clinical functions, such as preventative care notification.
However, practitioners have informed us that most existing healthcare practice
management systems are largely inadequate because those systems:
- were not designed to handle the complexity of the pricing pressures
created by managed care;
- cannot be automatically upgraded to reflect rapid technological
advancements;
- are not designed to not take advantage of the efficiencies available
through the Internet;
- require substantial up-front investments; and
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- require practices to utilize technology experts to efficiently manage
their information technology systems, which is cost prohibitive for all
but the largest practices.
THE EMERGENCE OF THE APPLICATION SERVICE PROVIDER MODEL
The ASP model of application delivery offers the end user local access to
an application hosted centrally on remote servers, and all ASP maintenance is
performed centrally once for the benefit of the user community. Customers
typically pay a monthly subscription fee, which is often based on the number of
computer terminals or users authorized to access the application. The advantages
of this form of technology outsourcing include:
- the significant reduction or avoidance of up-front costs to purchase
software, application maintenance and upgrades;
- faster implementation;
- a reduced need for in-house information technology maintenance resources;
- better data storage at a central site;
- remote access to applications; and
- higher level of server security.
These various benefits combine to create a lower total cost of ownership
that can be significant. Gartner Group, an independent research firm, estimates
that companies that choose ASP models can reduce related information technology
costs by 35.0% to 55.0% over the life of an application. Because of these many
advantages, Gartner Group further estimates that the overall ASP market will
grow from $900.0 million in 1998 to approximately $23.0 billion by 2003. The ASP
model is especially beneficial for small to medium sized businesses, including
dental and related practices, due to the impracticality of retaining in-house
information technology resources.
GROWTH OF THE INTERNET AND BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE
Many companies in a variety of industries have increasingly begun to use
the Internet to utilize business-to-business electronic communication to
streamline complex processes, purchase and sell goods and exchange information
among fragmented groups of customers, manufacturers and distributors. Forrester
Research, an independent research firm, has estimated that U.S.
business-to-business e-commerce, defined as the total volume of inter-company
trade of goods and services in which the final order is placed over the
Internet, will increase from $109.0 billion in 1999 to $1.3 trillion in 2003.
Business-to-business e-commerce enables purchasers and sellers in fragmented
markets to reduce supply chain inefficiencies. Sellers are able to
cost-effectively access additional markets, streamline their sales, marketing
and distribution operations, reduce their time-to-market and efficiently
distribute updated product information. Buyers can improve their purchasing
process and easily access current product information and a broad range of
products and services.
OPPORTUNITY FOR NEW INFORMATION MANAGEMENT TECHNOLOGY SYSTEMS FOR DENTISTS
Information management technology and the Internet are becoming
increasingly important and commercially viable systems to reduce the current
cost burden in many
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industries. Because of its size, fragmentation and dependence on information
exchange, we believe the healthcare sector, including the dental, orthodontic
and oral and maxillofacial surgery industries, is ideally suited to benefit from
increased use of technology systems to control costs and manage complex data
requirements. However, we believe there are unmet needs between the older legacy
vendors and the new technology vendors. Legacy vendors can provide systems with
advanced features but typically lack systems that are user-friendly and enable
electronic communications. On the other hand, new technology vendors can provide
this Internet connectivity but often lack the experience, customer base and
feature functionality to promote widespread adoption. We believe a significant
opportunity exists for companies that have experience in delivering information
management technology systems to dental providers, advanced feature
functionality and new technology systems that enhance connectivity through the
Internet.
THE PRACTICEWORKS SYSTEMS
PracticeWorks offers dentists, orthodontists and oral and maxillofacial
surgeons information management technology systems that include:
- PRACTICE MANAGEMENT APPLICATIONS. PracticeWorks' feature-rich practice
management applications are designed to automate dental, orthodontic and
oral and maxillofacial surgery practices. PracticeWorks also provides its
customers with the necessary training, maintenance and support.
- E-COMMERCE SERVICES. The PracticeWorks Exchange, PracticeWorks'
e-commerce application, enables convenient, online purchasing of dental
and office supplies and promotional materials offered by PracticeWorks'
suppliers. Through PracticeWorks' existing business relationships,
orthodontists currently use the PracticeWorks Exchange to order
orthodontic supplies, office supplies and promotional materials.
PracticeWorks is developing business relationships to facilitate online
ordering of dental supplies, which will allow it to begin offering the
PracticeWorks Exchange in the dental and oral and maxillofacial surgery
markets.
- ELECTRONIC DATA INTERCHANGE SERVICES. Through the EDI component of
PracticeWorks' practice management applications, customers can
electronically submit insurance claims and patient billing information
for processing at national clearinghouses.
- ASP APPLICATIONS. PracticeWorks expects to release specified modules of
its ASP application for use by dentists in the United States during the
fourth quarter of 2001 and its orthodontic and oral and maxillofacial
surgery ASP applications by the first quarter of 2002. These applications
will be remotely hosted on a central server which PracticeWorks'
customers will access with a standard Internet browser. PracticeWorks'
initial ASP applications will not offer the full functionality of our
core products, as PracticeWorks' ASP applications currently do not offer
charting, graphical representation or imaging of teeth or an electronic
medical record. PracticeWorks expects to provide these levels of full
functionality for its ASP applications in the dental market in the first
quarter of 2002 and for its ASP applications in the orthodontic and oral
and maxillofacial markets in the fourth quarter of 2002.
- INTERNET PORTAL. PracticeWorks is developing an Internet portal, or
website, that will provide access to its ASP applications and an
Internet-based version of the
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PracticeWorks Exchange, enable secure communication between patients and
providers and feature healthcare content for patients and providers about
dentistry, orthodontics and oral and maxillofacial surgery. PracticeWorks
also expects to enter into business relationships which will enable it to
provide additional services to its customers through its Internet portal.
These services may include credentialing, continuing medical education,
or CME, banking, insurance and travel services. PracticeWorks expects to
release our Internet portal in the fourth quarter of 2001.
- PRACTICE WEBSITES. PracticeWorks plans to offer custom website
development services for its customers, enabling them to use the Internet
to provide information about their practices and market their services.
PracticeWorks also plans to pursue relationships with companies that will
offer tools for its customers to develop their own websites and provide
hosting for its customers' websites. PracticeWorks expects to release its
website development and hosting services in the fourth quarter of 2001.
PracticeWorks' existing applications and services, together with the
additional products it is developing, will provide its customers with the
following significant benefits:
- ROBUST AND SPECIALTY-SPECIFIC FUNCTIONALITY. PracticeWorks' practice
management applications include features that automate the
administrative, financial and clinical information management functions
of our customers' practices. In addition to these standard features, many
of PracticeWorks' applications offer specialized features that serve the
practice-specific needs of dental, orthodontic and oral and maxillofacial
surgery customers. PracticeWorks' technologically advanced applications
are also scalable, providing the flexibility to serve practices of all
sizes and with multiple locations.
- CONVENIENT AND COST-EFFECTIVE E-PROCUREMENT. The PracticeWorks Exchange
is designed to reduce the administrative effort and increase the
efficiency of a practice by enabling convenient, online purchasing of
dental, medical and office supplies at competitive prices from a single
application.
- LOWER START-UP AND TOTAL COSTS. PracticeWorks expects use of its ASP
applications to result in a lower total cost of ownership for its
customers by reducing hardware requirements and the need for in-house
maintenance and support. PracticeWorks offers its practice management
applications and maintenance and support services for a fixed, monthly
subscription fee, which reduces start-up costs by eliminating one-time
application licensing, maintenance and support fees. Subscription pricing
also provides PracticeWorks' customers with protection against
application obsolescence, because PracticeWorks provides customers with
upgrades for no additional charge as it expands the functionality of its
applications. Furthermore, PracticeWorks' customers will be able to
purchase hardware directly from Dell Computer Corporation at a discount
from its suggested retail prices and pay for their purchases on an
installment basis, further reducing start-up and overall costs.
- CONVENIENCE OF PRACTICEWORKS' ASP APPLICATIONS AND INTERNET PORTAL.
PracticeWorks' ASP applications will provide additional benefits,
including rapid implementation and immediate access to upgrades and
improvements to our applications as they become available. PracticeWorks'
Internet portal will enable remote access to its ASP applications,
feature Internet-based training and support
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services and facilitate secure communication between our customers and
their patients through its ASP applications. PracticeWorks also plans to
offer Internet-based customer support applications that will enable
customers to view the current status of support requests sent using these
applications and provide access to a customer knowledge base of
frequently-asked questions.
PRACTICEWORKS' STRATEGY
PracticeWorks' objective is to become the leading provider of information
management technology for dentists, orthodontists and oral and maxillofacial
surgeons. PracticeWorks' principal strategies include:
PROMOTE PRACTICEWORKS' PRACTICE MANAGEMENT APPLICATIONS
PracticeWorks plans to offer customers a choice between the most
technologically advanced of its applications that are installed in the
provider's office, which PracticeWorks calls its core applications, and
PracticeWorks' ASP applications. In addition to marketing PracticeWorks'
applications to new customers, PracticeWorks intend to actively encourage
existing customers to upgrade to its ASP applications or its core applications.
Based on PracticeWorks' experience in the information management technology
industry, PracticeWorks believes providers traditionally upgrade to new practice
management systems approximately every five years. PracticeWorks expects this
relatively short upgrade cycle, combined with its strong customer relationships
and its establishment of a centralized data conversion center to facilitate our
efforts to upgrade PracticeWorks' existing customers. As PracticeWorks' existing
customers upgrade to its ASP or core applications, PracticeWorks believes it can
reduce its operating costs by retiring some of our existing applications and
reducing the overall number of applications we support.
PROMOTE E-COMMERCE BETWEEN PRACTICEWORKS' CUSTOMERS AND SUPPLIERS
PracticeWorks believes it can capitalize on the direct and frequent use of
its practice management applications by providers and office staff throughout
the business day and PracticeWorks' significant market penetration to facilitate
e-commerce transactions between PracticeWorks' customers and dental, oral
surgery and orthodontic product manufacturers and distributors as well as other
suppliers. PracticeWorks has established business relationships with Ormco
Corporation, a leading supplier of orthodontic supplies, a division of United
Stationers Supply Co., a leading wholesale provider of office supplies, and
Summit Marketing Group, Inc., a leading supplier of promotional materials.
Through these relationships, orthodontists currently utilize the PracticeWorks
Exchange to place orders directly with Ormco and Summit Marketing Group.
PracticeWorks' customers can place orders for office supplies directly with
PracticeWorks, a service PracticeWorks markets under the brand name
PracticeDepot, and the orders are fulfilled by e-NITED, a division of United
Stationers. PracticeWorks recently began marketing the PracticeWorks Exchange in
the orthodontic market, and PracticeWorks is continuing to promote the product
to that market. In addition, PracticeWorks is developing business relationships
to facilitate online ordering of dental supplies, which will allow it to begin
offering the PracticeWorks Exchange to the dental and oral and maxillofacial
surgery markets.
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ESTABLISH A NATIONAL MARKETING IDENTITY AND TARGET NEW CUSTOMERS
PracticeWorks plans to implement a program designed to create a strong
brand identity for PracticeWorks and to gain new customers within the dental,
orthodontic and oral and maxillofacial surgery markets. PracticeWorks' marketing
program will include direct mailings, advertising, participation in trade shows,
promotions at user group meetings and an annual seminar program which will
enable it to meet face-to-face with existing and potential customers in major
U.S. cities.
FURTHER LEVERAGE PRACTICEWORKS' EXISTING CUSTOMER BASE
In addition to PracticeWorks' efforts to promote its core and ASP
applications and
e-commerce transactions using the PracticeWorks Exchange, PracticeWorks believes
there are other efforts it can take with existing customers to increase revenue
and reduce operating costs. A significant number of its existing customers do
not currently utilize its EDI services. PracticeWorks plans to encourage
customers to begin using its EDI services through a direct marketing campaign.
PracticeWorks also recently established a direct sales group to focus on
marketing its maintenance and support services to its existing customers that do
not currently use those services. PracticeWorks expects to convert substantially
all of its customer base to subscription pricing over the next five years, which
will provide its customers with lower start-up and total costs and will provide
it with a substantial source of recurring revenue. PracticeWorks will market
subscription pricing to existing customers primarily in conjunction with its
efforts to upgrade those customers to its ASP or core applications or as their
existing maintenance and support contracts expire.
SELECTIVELY ACQUIRE COMPLEMENTARY BUSINESSES AND TECHNOLOGY
From July 1997 through December 2000, InfoCure acquired 18 practice
management application companies that were attributed to PracticeWorks in
connection with the spin-off. These acquisitions have enabled PracticeWorks to
build a substantial customer base, expand into new markets and obtain the
technology utilized by those businesses. In addition, PracticeWorks acquired
InfoSoft in March 2001, which further expanded its installed customer base.
PracticeWorks intends to pursue additional acquisitions as it identifies
appropriate opportunities to further increase its customer base, expand into
additional markets and enhance its product offerings.
PRACTICEWORKS' APPLICATIONS AND SERVICES
PRACTICE MANAGEMENT APPLICATIONS
APPLICATION FEATURES. PracticeWorks' practice management applications are
designed to automate the administrative, financial and clinical information
management functions for dental, orthodontic and oral and maxillofacial surgery
practices. Its applications include features and functions most essential to its
customers' practices, primarily in the following areas:
- ADMINISTRATIVE MANAGEMENT. Appointment scheduling, patient registration,
resource management, patient correspondence, referral management and
management reporting;
- FINANCIAL MANAGEMENT. Payor billing, patient billing and accounts
receivable management; and
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- CLINICAL INFORMATION MANAGEMENT. Complete documentation of patient
visits, patient dental history and treatment planning.
In addition to providing standard practice management features, its
applications offer advanced features that serve many of the specialty-specific
needs of orthodontic and oral and maxillofacial surgery practices. Some of these
advanced features are summarized in the following chart:
SPECIALTY AREA SPECIALTY SPECIFIC FEATURES
- -------------- ---------------------------
Orthodontics - Contract billing via payment
coupons
- Time scheduling by units of
doctor and assistant time per
procedure
- Treatment charting
- Diagnostic and treatment
planning
- Automatic patient treatment
milestone tracking
- Imaging
Oral and Maxillofacial Surgery - Medical and dental claim
processing and cross-coding
- Surgery narrative reporting
- Surgery stage tracking
- Implant tracking
- Pretreatment estimating and
treatment planning
- Image integration into
patient records
CURRENT APPLICATIONS. PracticeWorks classifies its existing practice
management applications as either "core" or "classic." Core applications are the
applications it currently markets to new and existing customers and, together
with its ASP applications, are the focus of its ongoing product development
efforts. Core applications offer advanced functionality and operate with the
latest generation of operating systems and hardware platforms. Classic
applications, while continuing to offer adequate functionality, may lack the
most advanced practice management features and may not be designed for the
latest generation of operating systems. PracticeWorks has designated some of its
applications that offer advanced functionality and operate on the latest
generation of operating systems as classic applications because it has a core
application that it believes better serves the same market. Therefore, its
classic applications will not be further marketed or developed as part of its
strategy to reduce the number of applications it supports.
As of March 31, 2001, approximately 52% of PracticeWorks' practice sites
used core applications, while approximately 48% used classic applications.
PracticeWorks believes there is a significant opportunity to upgrade those
customers utilizing classic applications to its core applications or, when
available, to its ASP applications. While PracticeWorks no longer actively
markets its classic applications, it will continue to provide support for those
applications until it determines that it is no longer cost effective to do so.
ASP APPLICATIONS. PracticeWorks expects to release specified modules of
its ASP application for use by dentists in the United States during the fourth
quarter of 2001 and its orthodontic and oral and maxillofacial surgery ASP
applications by the first quarter of
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2002. Its ASP applications will be remotely hosted on a central server that its
customers will access using a standard Internet browser or handheld device.
PracticeWorks believes this architectural design will result in lower support
costs because maintenance and updating of the application will be performed once
on the central server rather than having to be performed at each site. In
addition, a customer will require only Internet access and a standard browser to
access and utilize its ASP applications, minimizing hardware requirements.
PracticeWorks is also developing Internet-based training and support services
for its ASP applications which will improve accessibility of these services by
its customers while reducing its cost of providing these services.
The advantages to its customers of PracticeWorks' ASP applications over
traditional software applications include:
- decreasing their total cost of ownership by reducing hardware
requirements and allowing them to outsource maintenance and support
functions;
- automatically providing immediate access to future updates and
improvements to its applications;
- enabling secure, online communication with patients;
- enabling remote access to their practice management information;
- offering better data storage through automatic back ups and storage
at secure data centers;
- providing access to Internet-based support and training; and
- providing faster implementation for new customers.
PracticeWorks' dental ASP application will initially feature the
functionality required by most dental practices, plus the efficiency of the ASP
delivery model. Upon its initial release, the dental ASP application will not
include third party features such as charting, graphical representation or
imaging of teeth or an electronic medical record. PracticeWorks expects to
include such functionality in the first quarter of 2002. PracticeWorks will
continue to develop its dental ASP application to offer the full functionality
of its core products. In addition, although PracticeWorks' ASP applications for
the orthodontic and oral and maxillofacial surgery markets will contain the
minimum functionality required to manage a dentist's office, they will not
initially include all of the functionality of its core applications for those
markets, although PracticeWorks will also continue to develop those applications
to offer the full functionality of its core applications. For example, the
orthodontic and oral and maxillofacial surgery products will not initially
contain the third party features or support for imaging and x-rays.
PracticeWorks expects to provide this functionality in the fourth quarter of
2002. To the extent that technological advances are achieved and proven in the
general market, PracticeWorks intends to incorporate such advances into its ASP
products.
INTERNET PORTAL
PracticeWorks plans to launch its Internet portal, or website, in the
fourth quarter of 2001 in connection with the release of its dental ASP
application. Customers will access the portal through a standard Internet
browser and then log in by entering a unique personal identification number and
password. After logging in, customers will be able to utilize PracticeWorks' ASP
applications, Internet-based version of the PracticeWorks
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Exchange and its website development services and will have access to an
Internet-based customer service application. In addition, its customers will be
able to offer their patients access to selected features of its ASP applications
through the portal, including a feature that will enable secure online
communication between patient and provider. Practices will also have the option
to allow their patients to view their provider's schedule, request an
appointment and receive confirmation of the appointment, view their clinical
records, obtain account information and view the status of insurance claims.
Access to PracticeWorks' ASP applications will be user-specific, so that
customers and patients will have different levels of access and distinct user
groups within a provider's office staff may be given varying levels of access.
PracticeWorks also expects to enter into business relationships which will
enable it to provide additional services to its customers through its Internet
portal. These services may include credentialing, continuing medical education,
Internet-based banking, insurance and travel services. Its Internet portal will
feature relevant content regarding the dental, orthodontic and oral and
maxillofacial surgery markets.
THE PRACTICEWORKS EXCHANGE
The PracticeWorks Exchange, PracticeWorks' e-commerce application, is
designed to reduce administrative effort and increase the efficiency of the
procurement function of a practice by enabling online purchasing of dental,
orthodontic and office supplies and promotional materials. The PracticeWorks
Exchange features an electronic catalogue of the supplies offered by
PracticeWorks' e-commerce suppliers. Customers create orders by selecting
products from this catalogue, and the PracticeWorks Exchange sends the order to
be fulfilled by one of its e-commerce suppliers. The PracticeWorks Exchange also
offers an inventory management function which can automatically generate
practice-specific supply orders for orthodontic supplies based on the
pre-determined needs of the practice.
PracticeWorks introduced the PracticeWorks Exchange in the orthodontic
market in the second quarter of 2000. Through its business relationships,
orthodontists use the PracticeWorks Exchange to order orthodontic supplies
directly from Ormco and promotional supplies directly from Summit Marketing
Group. Customers place orders for office supplies directly with PracticeWorks, a
service it offers under the brand name PracticeDepot. Through a business
relationship with PracticeWorks, e-NITED fulfills those office supply orders for
PracticeWorks' customers. PracticeWorks is continuing to develop additional
business relationships with providers of dental supplies, which will allow it to
expand its marketing of the PracticeWorks Exchange and PracticeDepot to the
dental and oral and maxillofacial surgery markets. PracticeWorks plans to
include the PracticeWorks Exchange as an additional component of its core
practice management applications for no additional charge when it provides those
applications to new customers or to existing customers who upgrade to its core
applications.
PracticeWorks released an Internet-enabled version of the PracticeWorks
Exchange during the second quarter of 2001. Customers are able to access this
version of the PracticeWorks Exchange directly through an Internet browser. The
Internet-enabled version of the PracticeWorks Exchange provides real time access
to product information and special promotional offerings by PracticeWorks or its
e-commerce suppliers, in addition to providing customers the other advantages of
an application delivered through the ASP model. The Internet-enabled version of
the PracticeWorks Exchange will also subsequently include inventory management
functionality during the fourth quarter of 2001.
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ELECTRONIC DATA INTERCHANGE
Using the EDI component of PracticeWorks' practice management applications,
customers are able to (1) electronically submit insurance claims to independent
national clearinghouses that then submit the claims to payers and (2) submit
patient billing information to clearinghouses that process, print and mail
patient statements and provide billing reports to the customer. The use of
PracticeWorks' EDI services can improve a practice's cash flow by enabling more
accurate and rapid submission of claims to third-party payers and statements to
patients. Furthermore, its EDI application is an integrated component of most of
its practice management applications, enabling customers to submit information
to clearinghouses without the need to access a separate system or re-enter data.
PracticeWorks expects to expand its EDI services to enable customers to
determine patient insurance eligibility in the third quarter of 2001.
WEBSITE DEVELOPMENT SERVICES
Healthcare practices are increasingly establishing their own websites to
market their services and provide information about their practices over the
Internet. To serve this growing demand, PracticeWorks plans to offer custom
website development services either directly or through a business relationship
it plans to form with an independent website developer. PracticeWorks also plans
to develop a business relationship with a website developer to provide tools for
practices to develop their own websites. Customers will access these website
development services through PracticeWorks Internet portal. Through
PracticeWorks' relationship with GlobalCenter, PracticeWorks plans to offer
hosting for its customer's websites. PracticeWorks expects to begin offering
these website development and hosting services in connection with launching its
Internet portal during the fourth quarter of 2001.
SUBSCRIPTION PRICING MODEL
Under PracticeWorks' subscription pricing model, its customers pay a fixed,
monthly subscription fee for its practice management applications, maintenance
and support. The subscription fee is based on the practice specialty and number
of authorized system users, which may include practitioners and support staff.
The subscription fee is set by a contract that is typically three years in
length, but may be terminated following the first year if the customer provides
notice at least 90 days prior to the end of the first year. Subscription fees
also include access to the PracticeWorks Exchange and PracticeWorks' EDI
application, although customers pay PracticeWorks or an e-commerce supplier for
supplies ordered through the PracticeWorks Exchange and pay PracticeWorks a fee
per EDI transaction. Subscription fees for users of PracticeWorks' ASP
applications will also include access to the applications offered through its
Internet portal. In some cases, subscription fees will include connection to an
Internet service provider, or ISP. PracticeWorks plans to offer this service by
establishing a business relationship with an ISP. PracticeWorks will also
provide subscribers with updates to its practice management applications as they
become available for no additional charge.
BUSINESS RELATIONSHIPS
PracticeWorks believes the direct and frequent use of its practice
management applications by providers and their office staff throughout the
business day combined with its substantial installed customer base strongly
positions it to facilitate e-commerce
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between providers and dental, oral surgery and orthodontic product manufacturers
and distributors as well as other suppliers. To pursue these opportunities,
PracticeWorks intends to form business relationships with companies that can
provide fulfillment of supply orders placed through the PracticeWorks Exchange.
In addition, PracticeWorks intends to enter into business relationships with (1)
a website developer to offer website development services and tools to its
customers and (2) vendors that will provide healthcare content that it will
offer its customers and their patients through PracticeWorks' Internet portal.
To date, PracticeWorks has entered into business relationships with the
following companies:
GLOBALCENTER. GlobalCenter, a wholly owned subsidiary of Global
Crossing, Ltd., is a leading provider of complex web hosting services to
business customers worldwide. PracticeWorks has entered into an agreement
with GlobalCenter under which GlobalCenter will provide PracticeWorks'
customers with Internet connectivity and related services. The agreement,
which terminates on October 1, 2001, is automatically renewed annually
unless terminated earlier by either party.
ORMCO CORPORATION. Ormco Corporation, a subsidiary of Sybron Dental
Specialities Inc., is a leading provider of orthodontic supplies and other
industry-related goods. PracticeWorks has entered into an agreement with
Ormco under which Ormco will be PracticeWorks' exclusive supplier of
orthodontic supplies ordered by its customers through the PracticeWorks
Exchange. The two year agreement provides that Ormco will rebate to
PracticeWorks a percentage of each sale generated through the PracticeWorks
Exchange, a portion of which PracticeWorks will rebate to the customer. The
agreement will renew automatically for subsequent one year terms unless
terminated earlier by either party.
E-NITED. e-NITED is a division of United Stationers Supply Co., the
leading wholesale distributor of business products and office supplies.
PracticeWorks has entered into an agreement with e-NITED under which
e-NITED fulfills orders for office supplies placed by PracticeWorks'
customers using the PracticeWorks Exchange. Customers place orders with
PracticeDepot, the trade name under which PracticeWorks offers office
supplies, and PracticeWorks then sends the orders to e-NITED for
fulfillment. e-NITED has order processing facilities nationwide and will
ship orders from the closest facility to the PracticeWorks customer,
shipping on the same day if the order is received by 2 p.m. e-NITED bills
PracticeWorks the for cost of the orders processed and PracticeWorks is
responsible for billing its customers and providing payment to e-NITED.
SUMMIT MARKETING GROUP, INC. Summit Marketing Group, Inc. is a
leading supplier of marketing and promotional materials. PracticeWorks has
entered into an agreement with Summit under which Summit will be its
exclusive supplier of promotional materials for orthodontists ordered by
its customers through the PracticeWorks Exchange. The two year agreement
provides that Summit will pay PracticeWorks a royalty based on the amount
of sales generated through the PracticeWorks Exchange. The agreement will
renew automatically for subsequent one year terms unless terminated earlier
by either party.
DELL COMPUTER CORPORATION. Dell Computer Corporation is a leading
designer, developer and manufacturer of personal computers and also
provides personal computer hardware, software and service and support
programs to its customers. PracticeWorks has entered into an agreement with
Dell under which Dell will be the exclusive supplier of computer hardware
and related products to PracticeWorks'
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customers. Under the agreement, PracticeWorks' customers purchase their
computer hardware directly from Dell. In addition, Dell will provide
general service and support for its products. In connection with its
hardware products, Dell also licenses some of its software to PracticeWorks
for use by its customers. Dell grants PracticeWorks' customers a discount
from its suggested retail prices. The one year agreement renews
automatically for successive one year terms unless terminated earlier by
either party.
The rebates and royalties payable to PracticeWorks pursuant to its business
relationships generally range from 5.0% to 10.0% of sales generated through its
agreements with Dell and through the PracticeWorks Exchange. Revenue is
generated with respect to the e-NITED agreement based on sales volume of
purchases through the PracticeWorks exchange. Revenue is generated with respect
to the Dell, Ormco, and Summit agreements by a royalty arrangement.
SALES AND MARKETING
SALES
PracticeWorks generates sales primarily through a direct sales force that
is organized by practice area and consisted of 49 sales representatives as of
April 30, 2001. Its sales force generates sales to new customers and promotes
and sells new applications and services to existing customers. PracticeWorks
recently established an additional dedicated sales force to focus on promoting
its maintenance and support services to its existing customers who do not
utilize those services. PracticeWorks recently introduced a new application for
use by its sales force which provides tools for remote generation of proposals,
quotes and licenses, lead tracking, sales forecasting and customer base
forecasting.
PracticeWorks plans to focus its sales efforts on the following
initiatives:
- aggressively promote its ASP and core applications to new customers or as
upgrades for existing customers;
- continue its efforts to enroll orthodontic customers in the PracticeWorks
Exchange and aggressively promote enrollment in the PracticeWorks
Exchange by dentists and oral and maxillofacial surgeons as it introduces
the application in those markets;
- promote use of its maintenance and support services by existing customers
who do not currently subscribe to these services through its new
dedicated sales force;
- increase utilization of its EDI applications by new and existing
customers through a direct marketing campaign; and
- encourage existing customers to convert to subscription pricing as their
maintenance and support contracts expire or when they upgrade to either
its ASP applications or its core products.
InfoSoft currently uses a value added reseller network to distribute products
and services. PracticeWorks intends to review the agreements governing the
InfoSoft reseller network to determine what, if any, changes will be required to
integrate distribution of products and sales with its existing sales strategy.
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MARKETING
In connection with the introduction of PracticeWorks subscription pricing
model, the continued rollout of the PracticeWorks Exchange and the upcoming
release of its ASP application and Internet portal, PracticeWorks has focused
its resources on an enhanced marketing program. Its new marketing program, which
it launched in the first quarter of 2001, includes the following components:
- INTENSE BRANDING CAMPAIGN. PracticeWorks will brand all new components
of its technology systems, except for specified components associated
with the InfoSoft acquisition, with its PracticeWorks logo. While using
PracticeWorks' practice management applications, the user will constantly
see its PracticeWorks logo. In addition, PracticeWorks will use the
"PracticeWorks" name in connection with all trade shows and medical
journals and other areas in which it has historically advertised
individual products under different names.
- NATIONAL SEMINAR PROGRAM. PracticeWorks' ongoing seminar program will
enable it to meet face-to-face with thousands of customers in major U.S.
cities to strengthen its customer relationships and apprise them of the
new products and features available through its practice management
applications and services.
- LEAD GENERATION. PracticeWorks is implementing a comprehensive lead
generation application to track its contact with existing and potential
customers to increase the efficiency and management of its sales and its
marketing efforts.
PracticeWorks targets its new and existing customers principally through
customer referrals, participation in trade shows, its seminar program, direct
mailings and advertising.
CUSTOMERS
As of May 31, 2001, PracticeWorks had an installed base of approximately
57,000 providers in the United States, including 49,000 dentists, 4,000
orthodontists and 4,000 oral and maxillofacial surgeons. PracticeWorks has
systems installed in all 50 states.
In addition, as of March 31, 2001, through the result of an acquisition in
April 2000, approximately 2,200 dentists in Sweden, representing approximately
28% of all dentists in Sweden, and approximately 1,500 dentists in the United
Kingdom, representing approximately 5% of all dentists in the United Kingdom,
utilize PracticeWorks' practice management applications. These providers
currently utilize its core and classic applications, which PracticeWorks expects
will continue to be the primary applications that it promotes and supports
internationally.
CUSTOMER SERVICE AND SUPPORT
PracticeWorks' support staff provides a wide range of customer support
functions. PracticeWorks employs functional and technical support personnel who
work directly with its customers to resolve technical, operational and
application problems or questions.
PracticeWorks' support group also assists with the implementation process.
Implementation consists of training, hardware installation and, with respect to
new customers or existing customers that are upgrading from its classic systems,
data conversion. PracticeWorks trains providers and their staffs on the use of
its products through on-site training and it regularly offers seminar training
in major U.S. cities. Data conversion is
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generally performed while providers are using their existing practice management
systems so that the day-to-day operations of their practices are not
interrupted. PracticeWorks recently established a centralized data conversion
center which it believes will enable it to more efficiently and effectively
perform customer data conversions. Hardware support is generally provided
directly by the manufacturer or its authorized reseller, although PracticeWorks
provides the first level of phone support and dispatch the service call to the
appropriate vendor.
PracticeWorks recently established a centralized support center for its
classic applications and it intends to migrate a majority of the support for its
classic applications to customer support personnel at this location.
PracticeWorks believes this will offer a higher level of support to its
customers at reduced expense levels. PracticeWorks plans to leverage the
capabilities of its support staff through the implementation and use of
sophisticated computer software that keeps track of solutions to common computer
and software related problems. Use of this software will allow its support staff
to learn from the experience of other personnel within its company and is
expected to reduce the time required to respond to support requests.
PracticeWorks is also developing Internet-based training and maintenance
and support services for its ASP applications. Internet-based training will
allow its customers and their office staff to learn to utilize their practice
management systems as needed and on a more consistent basis than periodic
on-site training or seminars can offer. The benefit of training services being
available on a constant basis is particularly important due to frequent turnover
in providers' office personnel. PracticeWorks' Internet-based training will
include competency testing which it expects to increase the proficiency of users
and to reduce unnecessary maintenance and support requests. PracticeWorks
expects its Internet-based training will also reduce its training expenses by
reducing the need for on-site training and seminars. PracticeWorks'
Internet-based maintenance and support services will include help menus and a
summary of frequently asked questions to allow users to solve common problems.
PracticeWorks expects these Internet-based services to reduce its costs by
reducing the necessary number of maintenance and support personnel.
As of April 30, 2001, PracticeWorks had 265 employees performing customer
support functions.
PRODUCT DEVELOPMENT
PracticeWorks is currently focusing its product development efforts on its
core applications, ASP applications and its Internet portal and the services it
will enable. PracticeWorks will devote its product development resources on an
ongoing basis to the continuing development of its applications and services.
PracticeWorks' product development staff will develop additional functionality
for its applications by regularly communicating with its customers, its customer
service and support staff and its sales representatives to ensure its
applications meet market demands. PracticeWorks' product development staff will
also develop additional functionality by assessing the best attributes of its
classic applications and applications of companies it may acquire. Further,
PracticeWorks has established market specific product advisory councils,
consisting of cross-functional product development staff, to advise it with
respect to the products requested by their customers. PracticeWorks also intends
to establish end user groups to provide feedback to it with respect to the needs
of the marketplace. As of April 30, 2001, PracticeWorks had 51 employees
performing product development functions.
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PracticeWorks spent approximately $726,000 on research and development
activities during the three months ended March 31, 2001 and approximately $3.5
million, $4.2 million and $3.5 million on research and development during the
years ended December 31, 2000, 1999 and 1998, respectively.
TECHNOLOGY
CORE APPLICATIONS
PracticeWorks believes that PC-based practice management systems are
standardizing on the Windows family of operating systems. Its PC-based core
applications use industry standard relational database software, such as
SQL-Server or B-Trieve, and Microsoft Corporation's operating system software,
such as Windows 95, Windows 98 and Windows NT, and networking software, such as
Windows Terminal Server. PracticeWorks has adopted 32-bit client/server
technology for its PC-based core applications, increasing their scalability in
local and wide area network environments.
ASP APPLICATIONS
PracticeWorks has established a business relationship with GlobalCenter,
which will host its ASP applications on secure servers located at hosting
centers it maintains. GlobalCenter will provide continuous back up of data. All
data will be transmitted through secure socket layers and will be 128-bit
encrypted, the highest level commercially available.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
PracticeWorks' success and ability to compete depend in part on its ability
to protect its proprietary intellectual property rights in its applications and
services. To protect these rights, it relies primarily on a combination of
copyright, trade secret and trademark laws, confidentiality agreements with
third parties, and protective contractual provisions such as those contained in
agreements with companies with which it has business relationships, vendors and
customers. In addition, it expects its employees to sign an agreement to comply
with its corporate policies and procedures, including its policy regarding non-
disclosure of confidential information. Despite PracticeWorks' efforts to
protect its proprietary information, unauthorized parties may attempt to obtain
and use its proprietary information. Policing unauthorized use of its
proprietary information is difficult, and the steps it has taken might not
prevent misappropriation, particularly in foreign countries where the laws may
not protect its proprietary rights as fully as do the laws of the United States.
In addition, competitors may independently develop applications and services
similar to PracticeWorks.
COMPETITION
The market for healthcare information services is intensely competitive,
rapidly evolving, highly fragmented and subject to rapid technological change.
PracticeWorks' competitors can be categorized as follows:
- national and regional practice management application providers,
including EagleSoft, a subsidiary of Patterson Dental Supply, Inc., and
Dentrix Dental Systems, Inc., a subsidiary of Henry Schein, Inc.;
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- application services providers, such as the Trizetto Group, Inc.;
- traditional and online suppliers of dental, medical and office supplies,
such as MediBuy, OfficeDepot.com, and Staples.com; and
- website development companies.
Each of these types of companies can be expected to compete with
PracticeWorks within various segments of the market for information management
technology for dentists, orthodontists and oral and maxillofacial surgeons. Some
of PracticeWorks' competitors may have greater financial, development,
technical, marketing and sales resources than it has.
Furthermore, major software information systems companies and other
entities, including those specializing in the healthcare industry that are not
presently offering applications that compete with PracticeWorks' applications
and services, may enter its markets. PracticeWorks believes that the primary
competitive factors in its industry are:
- product features and functionality;
- customer service, support and satisfaction;
- price;
- ease of implementation; and
- ongoing product enhancements.
Although its position in the market as compared to its competitors is
difficult to characterize due principally to the variety of current and
potential competitors and the evolving nature of its market, PracticeWorks
believes that it presently competes favorably with respect to all of these
factors.
PRIVACY ISSUES
Because PracticeWorks' applications and services are utilized to transmit
and manage highly sensitive and confidential health information, it must address
the security and confidentiality concerns of its customers and their patients.
To enable the use of its applications and services for the transmission of
sensitive and confidential medical information, PracticeWorks utilizes advanced
technology designed to ensure a high degree of security. This technology
generally includes:
- security that requires a password to access its systems;
- user access restrictions that allow its customers to determine the
individuals who will have access to data and what level of access each
individual will have;
- encryption of data relating to its ASP applications and e-commerce
transactions transmitted over the Internet; and
- use of a mechanism for preventing outsiders from improperly accessing
private data resources on its internal network and its ASP applications,
commonly referred to as a "firewall."
The level of data encryption utilized by PracticeWorks' products is in
compliance with the encryption guidelines set forth in the proposed rules
regarding security and electronic
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signature standards in connection with the Health Insurance Portability and
Accountability Act of 1996. PracticeWorks also encourages each of its customers
to implement their own firewall to protect the confidentiality of information
being transferred into and out of their computer network.
Internally, PracticeWorks works to ensure the safe handling of confidential
data by employees in its our electronic services department by:
- using individual user names and passwords for each employee handling
electronic data; and
- requiring each employee to sign an agreement to comply with all company
policies, including its policy regarding handling confidential
information.
PracticeWorks monitors proposed regulations that might affect its
applications and services, in order to ensure that it is in compliance with such
regulations when and if they are effected.
GOVERNMENT REGULATION
HEALTHCARE REGULATION
As a participant in the healthcare industry, PracticeWorks' operations and
relationships are subject to regulation by federal and state laws and
regulations and enforcement by federal and state governmental agencies.
Sanctions may be imposed for violation of these laws. PracticeWorks believes its
operations are in substantial compliance with existing laws that are material to
its operations.
HIPAA. The Health Insurance Portability and Accountability Act of 1996,
known as HIPAA, required the Secretary of the Department of Health and Human
Services, referred to as the Secretary, to promulgate national standards to
facilitate the electronic exchange of health information and to ensure the
confidentiality and security of such information.
A substantial part of PracticeWorks' activities involves the receipt or
delivery of confidential health information concerning patients of the dentists,
orthodontists and oral and maxillofacial surgeons with whom it has direct
relationships. For example, PracticeWorks transfers confidential health
information to national healthcare clearinghouses through its EDI services and
it will transmit confidential health information over the Internet in connection
with offering its ASP applications. On December 28, 2000, the Secretary
published a final rule setting standards to limit the permissible use and
disclosure of individually identifiable health information by health care
providers, health plans and health care clearinghouses, known collectively as
"covered entities." Certain requirements of the rule extend to "business
associates" of the covered entities. The covered entities are required to enter
into agreements with their business associates, extending applicable provisions
of the rule to those business associates. The covered entities are responsible
for enforcing those contractual provisions. The Secretary's actions are mandated
by HIPAA because Congress did not pass legislation protecting health information
privacy by the August 1999 deadline set by HIPAA.
Because of the broad definition of "business associates" under the final
privacy rule, PracticeWorks will at a minimum be considered to be business
associates of covered entities. The rule establishes a complex regulatory
framework on a variety of subjects, including (1) disclosure and use of health
information, (2) individuals' rights to access
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and amend their health information, (3) individuals' rights to an accounting of
disclosures and (4) administrative, technical and physical safeguards required
of covered entities that maintain or transmit protected health information. The
final rule generally prohibits any disclosure or use of protected health
information except as authorized either by the rule or by the patient under
standards set by the final rule.
In addition to the federal privacy rule described above, most states have
enacted patient confidentiality laws which prohibit the disclosure of
confidential medical information. The federal privacy rule would establish
minimum standards and would preempt conflicting state laws which are less
restrictive than HIPAA regarding health information privacy but would not
preempt conflicting state laws that are more restrictive than HIPAA. The rule
provides that covered entities must comply with the health information privacy
standards within two years after the effective date of the final rule, or
February 26, 2003 in the case of most covered entities. The final rule may
require substantial changes to PracticeWorks' applications and services,
policies and procedures.
In addition to the federal privacy rule, on August 12, 1998 the Secretary
issued proposed regulations addressing security standards regarding transmission
of health information data under HIPAA. The security standards address various
areas, including, administrative procedures, physical safeguards, technical
security services and technical security mechanisms. Security standards may
require PracticeWorks to enter into agreements with certain of its customers
restricting the dissemination of health information and requiring implementation
of specified security measures. Final regulations are expected at an
undetermined date and will require compliance two years after the effective date
of the final rule. Although PracticeWorks is working to design its applications
and services to comply with the proposed security standards, there can be no
assurance that final security regulations will not require additional
modifications to its applications, policies and procedures.
FDA REGULATION. The Food and Drug Administration, or FDA, generally has
the authority to regulate medical devices, including computer applications, when
devices are indicated, labeled or intended to be used in the diagnosis of
disease or other conditions, or in the cure, mitigation, treatment or prevention
of disease, or are intended to affect the structure or function of the body.
PracticeWorks does not believe that any of its current applications or services
are subject to FDA regulation as medical devices, however, expansion of its
application and service offerings could subject it to FDA regulation. In
addition, there can be no assurance that the FDA will not assert jurisdiction
over certain aspects of its business. FDA jurisdiction over its business,
including its applications and services, could materially impact its ability to
introduce new applications and services in a timely manner because of the FDA
approval process. In addition, compliance with FDA regulations could be
expensive.
REGULATION OF THE INTERNET
Laws and regulations applicable to communications or commerce over the
Internet may be adopted covering user privacy, pricing, content, copyright,
distribution and characteristics and quality of products and services. In
addition, some states or foreign countries could apply existing laws concerning
issues such as property ownership, sales tax, libel and personal privacy to
transactions conducted over the Internet. Additional laws or regulations or
application of laws to transactions over the Internet could require
PracticeWorks to change its operations or increase its cost of doing business.
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REGULATION OF PRACTICEWORKS' INTERNATIONAL OPERATIONS
PracticeWorks currently has international offices in Australia, the United
Kingdom and Sweden. PracticeWorks also has customers located in approximately 15
additional countries. Because PracticeWorks conducts business with dentists,
orthodontists and oral and maxillofacial surgeons in foreign countries, it may
be subject to additional laws and regulations concerning communications or
commerce over the Internet, international taxes and tariffs. Such laws and
regulations could require PracticeWorks to change its international operations
or increase its cost of doing business internationally.
PROPERTIES
PracticeWorks' principal executive offices are located in a facility in
Atlanta, Georgia that it will lease from InfoCure under a long-term lease
agreement. PracticeWorks currently operates seven additional facilities
currently leased by it. These facilities are located in Sacramento, California;
Norcross, Georgia; Indianapolis, Indiana; and Raleigh, North Carolina, and it
has an office in each of Australia, the United Kingdom and Sweden. The U.S.
leases have expiration dates ranging from June 2002 to June 2004. PracticeWorks
believes that its facilities are adequate for its current operations and that
additional leased space can be obtained if needed.
LEGAL PROCEEDINGS
From time to time, PracticeWorks is involved in various legal proceedings
relating to claims arising in the ordinary course of its business. There are no
material legal proceedings to which it is a party and its management is unaware
of any contemplated actions against it. However, pursuant to the Agreement and
Plan of Distribution between InfoCure and PracticeWorks and executed in
connection with the spin-off, PracticeWorks agreed to assume any and all
contingent liability arising from the definitive resolutions of the litigation
filed on June 21, 2000 against InfoCure by Joseph Hafner. On June 21, 2000, a
lawsuit styled Joseph Hafner v. InfoCure Corporation et al., was filed in the
United States District Court in and for the Eastern District of Pennsylvania.
The lawsuit alleges that InfoCure breached the terms of a registration rights
agreement whereby InfoCure was required, prior to a specified date, to effect
the registration for resale with the Securities and Exchange Commission of
shares of InfoCure's common stock which the plaintiff owned. The complaint
further alleges breach of fiduciary duties owed to the plaintiff as a
stockholder of InfoCure and tort claims against InfoCure as a result of the
alleged failure to timely register shares for resale. The complaint seeks in
excess of $3.2 million in compensatory damages as a result of InfoCure's alleged
breach of this agreement, as well as punitive damages and reimbursement for the
plaintiff's attorney's fees and associated costs and expenses of the lawsuit. On
March 30, 2001, the court denied the plaintiff's motions for judgment on the
pleadings with respect to plaintiff's claim that InfoCure breached the terms of
the registration rights agreement, and the court also denied InfoCure's motion
to dismiss certain of the plaintiff's contract and tort claims in the case.
InfoCure believes it has meritorious defenses in this matter and intends to
pursue these defenses vigorously. Management of PracticeWorks believes that the
ultimate resolution of this matter will not have a material adverse effect on
its financial condition.
EMPLOYEES
As of April 30, 2001, PracticeWorks had 511 full-time employees. Its
employees are not subject to any collective bargaining agreements. PracticeWorks
believes its relationships with its employees are satisfactory.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PRACTICEWORKS
The following discussion and analysis should be read in conjunction with
the "Selected Financial Data" and the accompanying financial statements and
related notes included elsewhere in this proxy statement-prospectus. The
following discussion contains forward-looking statements that reflect
PracticeWorks' plans, estimates and beliefs. PracticeWorks' actual results could
differ materially from those discussed in these forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below and elsewhere in this proxy
statement-prospectus.
OVERVIEW
PracticeWorks is an information management technology provider for
dentists, orthodontists and oral and maxillofacial surgeons. PracticeWorks'
offerings include practice management applications, business-to-business
e-commerce services, electronic data interchange, or EDI, services, ongoing
maintenance and support and training. These applications and services are
designed to automate the provider's practice, resulting in greater efficiency,
lower costs and higher quality care. As of May 31, 2001, PracticeWorks had an
installed base of approximately 57,000 providers, including 49,000 dentists,
4,000 orthodontists and 4,000 oral and maxillofacial surgeons in the United
States. Including the recent InfoSoft acquisition, PracticeWorks' installed base
worldwide is approximately 61,000 providers.
For all of the periods presented in this proxy statement-prospectus up to
March 5, 2001, PracticeWorks operated as part of InfoCure Corporation. On March
5, 2001, InfoCure completed the distribution of all of the outstanding shares of
PracticeWorks, Inc. common stock to its stockholders. InfoCure currently owns
none of PracticeWorks' outstanding common stock.
A substantial part of PracticeWorks' growth has been achieved through
acquisitions. From July 10, 1997 through December 31, 2000, InfoCure completed
18 acquisitions that were attributed to PracticeWorks in the spin-off.
Additionally, PracticeWorks completed the acquisition of InfoSoft in the first
quarter of 2001. PracticeWorks anticipates closing the acquisition of Medical
Dynamics in the third quarter of 2001. Given the significant number of
acquisitions in each of the periods presented, the results of operations from
period to period may not necessarily be comparable. Of the 18 acquisitions, the
five companies listed below (the "1999 Pooled Companies") were acquired in
transactions accounted for as poolings of interests during the year ended
December 31, 1999. These mergers provided for the exchange of substantially all
of the outstanding equity interests of such companies for shares of InfoCure's
common stock.
SHARES OF INFOCURE
COMMON STOCK
COMPANY ISSUED
- ------- ------------------
OMSystems, Inc.............................................. 2,287,998
Ardsley, M.I.S., Inc........................................ 209,016
Kevin Kozlowski, Inc., d/b/a Human Touch Software........... 255,247
Unident Corporation......................................... 357,796
InfoLogic, Inc.............................................. 102,096
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Because these acquisitions were accounted for as poolings of interests, the
financial statements included in this document have been retroactively restated
to reflect them. As a result, the financial position, results of operations and
cash flows are presented as if the 1999 Pooled Companies had been included for
all periods presented. See notes to the financial statements. Of the 18
acquisitions, InfoCure acquired six dental practice management companies that
were accounted for as purchases during the year ended December 31, 2000. The
aggregate consideration for these acquisitions was $13.4 million in cash and
$2.4 million in InfoCure common stock. Goodwill of approximately $15.7 million
was recorded for these transactions and will be amortized over an estimated
useful life of three years.
On March 7, 2001, PracticeWorks acquired SoftDent, LLC, or InfoSoft, the
practice management software subsidiary of Ceramco, Inc., a wholly owned
subsidiary of DENTSPLY, International, Inc. ("DENTSPLY"). In connection with
this acquisition, PracticeWorks issued 32,000 shares of its series A convertible
redeemable preferred stock having a stated redemption value of $32.0 million.
The holder can redeem the preferred stock for $32.0 million after five years.
The shares of series A convertible redeemable preferred stock are convertible
into approximately 9.8% of PracticeWorks' outstanding common stock at the time
of the spin-off, or 857,949 shares. The purchase price was allocated based on
preliminary estimated fair values to tangible assets, developed technology and
total liabilities assumed. PracticeWorks recorded goodwill of $18.3 million,
inclusive of approximately $700,000 in transaction costs, which is being
amortized over three years. The fair value of the transaction, net of an
estimated $11.0 million discount on the series A convertible redeemable
preferred stock consideration, is approximately $21.7 million including
estimated transaction costs. The $11.0 million discount is being recognized over
the five-year redemption period as an accretive dividend.
In connection with the spin-off, PracticeWorks assumed all of InfoCure's
obligations under the Medical Dynamics merger agreement except for InfoCure's
obligation to issue a specified number of shares of InfoCure common stock. In
connection with the proposed acquisition, each Medical Dynamics shareholder of
greater than 100 shares of Medical Dynamics common stock will receive 0.017183
shares of PracticeWorks common stock, 0.07558 shares of PracticeWorks series B
convertible redeemable preferred stock and 0.06873 shares of InfoCure common
stock in exchange for each share of Medical Dynamics common stock outstanding on
a fully diluted basis on the date of the merger. Each holder of 100 or fewer
shares of Medical Dynamics common stock will receive $0.75 in cash for each
share of Medical Dynamics. Assuming 13.2 million shares of Medical Dynamics are
outstanding on the date of the acquisition, PracticeWorks will issue
approximately 219,500 shares of PracticeWorks common stock and approximately
965,000 shares of PracticeWorks series B convertible redeemable preferred stock
(with a stated redemption value of $5.3 million) and will pay approximately
$325,000 in cash as consideration for the merger. Assuming full conversion of
the PracticeWorks series B convertible redeemable preferred stock, the
PracticeWorks securities to be issued in connection with the Medical Dynamics
merger will represent, in the aggregate, less than 2% of PracticeWorks' common
stock at the time of the spin-off. InfoCure will issue approximately 878,000
shares of its common stock as a portion of the consideration for the merger.
Based on the relative closing prices for each security on June 14, 2001,
consideration for Medical Dynamics will be $3.2 million in PracticeWorks and
InfoCure common stock, $5.3 million in PracticeWorks series B convertible
redeemable preferred stock and $325,000 in cash. The total consideration is
approximately $7.5 million, including $300,000 in estimated transaction costs,
$500,000 estimated value assigned to
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stock options being assumed and after giving effect to a $1.5 million discount
applied to reduce the series B convertible redeemable preferred stock to
approximate fair value. The purchase price will be allocated based on fair
values of tangible assets and total liabilities assumed. PracticeWorks expects
to record goodwill of $10 million to $11 million which will be amortized over
three years. The $1.5 million discount will be recognized over the five-year
redemption period as an accretive dividend.
PracticeWorks bases its revenue recognition policies for sales of software
on the provisions of the American Institute of Certified Public Accountants'
Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition." Revenue
from software sales is recognized upon shipment in instances where PracticeWorks
has evidence of a contract, the fee charged is fixed and determinable and
collection is probable. Revenue from hardware sales is recognized upon product
shipment. Revenue from support and maintenance contracts, which are typically
one year in length, is recognized ratably over the life of the contract. Revenue
from other services is recognized as the services are provided.
Depreciation and amortization expense results primarily from the
amortization of goodwill, which represents the excess of the consideration we
paid over the fair value of the net assets acquired in acquisitions accounted
for under the purchase method of accounting. As of March 31, 2001,
PracticeWorks' balance sheet included goodwill, net of accumulated amortization,
of $47.0 million. Since the fourth quarter of 1999, goodwill has been amortized
over its estimated useful life of three years. Goodwill had previously been
amortized over 15 years, which was derived primarily from PracticeWorks'
historical experience with the length of PracticeWorks' customer relationships.
In the fourth quarter of 1999, management responded to external changes in the
business environment by making significant changes to its strategic business
model and product strategy. As a result, management determined that the
estimated useful life of goodwill should be shortened substantially to be more
reflective of the impact of these changes, the current rate of technological
change and competitive conditions within the marketplace. The three-year life is
based, in part, on the term of PracticeWorks' new subscription agreement. This
change in accounting estimate was applied prospectively from the fourth quarter
of 1999 and increased 1999 amortization expense by approximately $600,000. As of
March 31, 2001, future amortization expense related to goodwill (excluding
subsequent acquisitions) is estimated to total approximately $25.0 million per
year.
Depreciation and amortization expense also includes depreciation of
property and equipment and amortization of software development costs. Property
and equipment are assigned depreciable lives ranging from three to 40 years.
Software development costs are expensed until technological feasibility is
achieved. Costs incurred after achievement of technological feasibility and
before general release are capitalized and amortized, generally over a four-year
life. Costs incurred after general release are expensed as incurred. As
discussed below, during the fourth quarter of 1999, PracticeWorks adopted a new
product strategy involving the development of ASP applications and other
Internet-based applications and services. Additionally, in connection with
restructuring the businesses of recently acquired companies, PracticeWorks
decided to modify future product offerings. As a result of these decisions,
PracticeWorks recorded an impairment charge of approximately $874,000 in the
fourth quarter of 1999 representing the write-off of the carrying value of
certain software development costs.
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CHANGE IN PRODUCT STRATEGY AND BUSINESS MODEL
In the fourth quarter of 1999, PracticeWorks decided to transition to a
subscription pricing model and commenced development of practice management
applications that may be delivered through an ASP delivery model and other
Internet-based applications and services.
Following these decisions, in the second quarter of 2000 PracticeWorks
began offering substantially all of its products and services on a subscription
basis. Under this subscription pricing model, customers pay a fixed, monthly fee
for use of PracticeWorks' practice management applications and maintenance and
support services. The subscription fee for each customer is based upon the
practice specialty and the number of authorized system users. This represents a
change in PracticeWorks' historical pricing model in which customers were
charged an initial licensing fee for use of practice management products and
were charged for continuing maintenance and support. As a result of the
transition to a subscription pricing model, PracticeWorks has experienced a
decline in one-time revenue from software license fees and hardware sales, which
we expect to be replaced over time by monthly subscription fees. In addition, as
PracticeWorks converts existing customers to its new subscription contracts, the
recurring support revenue from our installed customer base will gradually
decline and will be replaced by increasing monthly subscription fee revenue.
PracticeWorks expects the percentage of its revenue that is recurring in nature
to increase substantially as a result of this change.
Under its subscription pricing model, as with PracticeWorks' historical
pricing model, PracticeWorks will charge its customers transaction fees, on a
per-transaction basis, for the use of its EDI services.
PracticeWorks' existing practice management applications are installed
either on servers or personal computers located in the provider's office.
PracticeWorks is developing ASP applications, which will be remotely hosted on a
central server which its customers will access through a standard Internet
browser. PracticeWorks expects to release an ASP application for use by dentists
in the United States during the fourth quarter of 2001 and to release ASP
applications for orthodontists and oral and maxillofacial surgeons by the first
quarter of 2002. Although PracticeWorks' initial ASP applications will contain
the basic functionality required to manage a dentist's office, they will not
offer the full functionality of our core products. Following the release of
these applications, PracticeWorks will offer customers a choice between its most
advanced existing applications and its ASP applications. PracticeWorks expects
to provide full functionality consistent with its existing products for its ASP
applications in the dental market in the first quarter of 2002 and in the
orthodontic and oral and maxillofacial markets in the fourth quarter of 2002.
In addition, PracticeWorks has developed the PracticeWorks Exchange, an
e-commerce application that enables convenient, online purchasing of dental,
orthodontic and office supplies and promotional materials offered by companies
with which PracticeWorks has business relationships. The PracticeWorks Exchange
features an electronic catalogue of the supplies offered by PracticeWorks'
e-commerce suppliers. Customers can create orders by selecting products from
this catalogue, and the PracticeWorks Exchange sends the order to be fulfilled
by one of PracticeWorks' e-commerce suppliers. The PracticeWorks Exchange also
offers an inventory management function which can automatically generate
practice-specific supply orders for orthodontic supplies based on the
pre-determined needs of the practice. PracticeWorks currently offers
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the PracticeWorks Exchange only to PracticeWorks' orthodontic customers. Because
the PracticeWorks Exchange was released on a limited basis in May 2000, the
aggregate revenue generated by the PracticeWorks Exchange for the year ended
December 31, 2000 was nominal. PracticeWorks currently has three business
relationships which relate to the PracticeWorks Exchange. Two of these current
business relationships benefit its customers by providing discounted supplies
and services to its customers. These two relationships also generate revenue for
PracticeWorks in the form of royalty payments or rebates. These rebates and
royalties payable to PracticeWorks generally range from 5.0% to 10.0% of sales
generated through the PracticeWorks Exchange. PracticeWorks' other current
business relationship with a distributor benefits its customers by providing a
vehicle by which customer orders for supplies are fulfilled and shipped at a
discount to its customers. Pursuant to this business relationship, PracticeWorks
generates revenue based on the sale of each product effected through its
supplier and net income based on the margin between the amount PracticeWorks
charges its customers and the cost of these products purchased from the
distributor. Further, its product costs are discounted as specific sales levels
are reached. The revenue PracticeWorks recognizes through its relationship with
the distributor is based on the sales volume of products purchased through the
distributor by the customers. PracticeWorks is developing additional business
relationships to facilitate online ordering of dental supplies, which will allow
it to begin offering the PracticeWorks Exchange in the dental and oral and
maxillofacial surgery markets.
PracticeWorks cannot currently predict when the PracticeWorks Exchange will
be available in the dental and oral and maxillofacial surgery markets, as this
is dependent on its establishing business relationships with suppliers in these
industries. PracticeWorks expects to derive increasing revenue from e-commerce
transactions utilizing the PracticeWorks Exchange. PracticeWorks is also
developing an Internet portal which will provide access to its ASP applications,
enable secure communication between patients and providers, feature healthcare
content relevant to the markets PracticeWorks serves and provides access to
additional online services. Further, PracticeWorks intends to develop business
relationships to enable it to design custom websites for its customers, enabling
them to utilize the Internet to provide information about their practices and
market their services.
PracticeWorks began the implementation of these changes in its pricing
model and product strategy during the year ended December 31, 2000. During the
three months ended March 31, 2000, PracticeWorks formalized its sales approach
relating to its new pricing model and ASP applications and developed new
marketing materials. In addition, during the year ended December 31, 2000,
PracticeWorks completed company-wide training and education related to its
subscription pricing model for its sales and support staffs. Because these
training initiatives were ongoing throughout the year ended December 31, 2000,
PracticeWorks had a reduced sales effort from that of comparable periods.
PracticeWorks also believes that the overall reduction in its sales was
partially due to purchases customers made in 1999 to prepare for Year 2000
computer issues. These factors impacted its results for the year ended December
31, 2000 compared to the year ended December 31, 1999. In addition, because of
the changes in its pricing model and product offerings, PracticeWorks does not
believe its historical financial results are representative of future results.
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RESTRUCTURING, IMPAIRMENT AND OTHER NON-RECURRING CHARGES
THE 2000 PLAN. In July 2000, PracticeWorks completed a comprehensive
assessment of infrastructure requirements including personnel, facilities and
other resources for PracticeWorks. As a result of the integration efforts
required for the recent acquisitions and the assessment of infrastructure
requirements to execute PracticeWorks' new product strategy and subscription
pricing model, management adopted a significant initiative to restructure
PracticeWorks. On August 1, 2000, we announced the plan of restructuring which
included the consolidation and closing of approximately 11 facilities and the
reduction of approximately 145 employees.
In the third and fourth quarters of 2000, PracticeWorks recorded
non-recurring charges of approximately $3.0 million related to the
restructuring. The components of the charges are $1.7 million related to
severance and other termination costs and $1.3 million related to facility
closure and consolidation costs, including cancellation of leases and other
contracts. During the first quarter of 2001, PracticeWorks recorded a reduction
of $310,000 in the restructuring reserve relating to the re-negotiation of
terminated facility leases. Beginning in the first quarter of 2001 the
restructuring is expected to reduce annual operating expenses by approximately
$8.0 million to $9.0 million.
In addition to the restructuring, PracticeWorks also incurred approximately
$3.5 million for impairment and other non-recurring charges including impairment
charges related to asset write-downs of approximately $500,000 for assets and
$1.5 million for inventory and $1.4 million in charges related to the spin-off,
consisting principally of professional fees. PracticeWorks incurred $2.4 million
in non-recurring charges during the first quarter of 2001 relating primarily to
professional fees, printing and similar costs in connection with the completion
of the spin-off from InfoCure.
The inventory write-down described above related to PracticeWorks' decision
to discontinue selling hardware and hardware support in certain of its business
lines in connection with its new hardware agreement with Dell Computer
Corporation. Under PracticeWorks' historical business model, combined sales of
hardware and hardware support comprised approximately 15.0% of total historical
revenues. However, the costs of hardware purchased for resale, the direct costs
associated with hardware support and the estimated overhead associated with
these activities typically aggregated approximately 85.0% to 95.0% of the
related revenue. Accordingly, the gross margin on the sales of hardware and
hardware maintenance ranged from 5.0% to 15.0%. PracticeWorks' new business
model attempts to minimize activities that make such small gross margin
contributions and instead focuses on building recurring revenues from
subscription-based use of PracticeWorks' applications.
Under PracticeWorks' new agreement with Dell, entered into on August 1,
2000, PracticeWorks' customers will obtain hardware and related support for
Windows-Intel platform products directly from Dell at a 5.0% to 10.0% discount
to market prices. In exchange for access to PracticeWorks' customers and its
assistance in coordinating the referrals, PracticeWorks will receive a marketing
fee. An additional benefit of the Dell agreement is the elimination of the
substantial capital requirement which would have been needed to provide hardware
under PracticeWorks' subscription pricing model.
In comparison to PracticeWorks' historical business model, the decision to
exit hardware sales and related support activities would have reduced total
revenues by approximately $4.0 million based on 2000 revenues. Operating
expenses for 2000 would
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have been reduced by an estimated $3.0 million to $3.5 million with a
corresponding reduction in operating income for 2000 of between approximately
$500,000 and $1.0 million. However, this reduction would have been substantially
mitigated by the fees available under the terms of the Dell marketing agreement.
The validity of this comparison, in management's opinion, is not directly
relevant to future trends. As compared to PracticeWorks' historical business
model, its subscription pricing model contemplates that revenues from
traditional sales of licenses and hardware would decline and be replaced by
revenues from subscription fees. While this decline will be somewhat accentuated
by PracticeWorks' decision to exit certain hardware and related support
activities, PracticeWorks believes that the effect on operating income will be
essentially neutral as the previous margins from such activities are replaced by
a combination of the marketing fee and anticipated reductions in indirect costs.
Further, cash flows will be positively impacted by the significant reduction in
capital expenditures which would have been otherwise required to effectively
finance customers' purchases.
THE 1999 PLAN. In the fourth quarter of 1999, InfoCure decided to
restructure its business into a medical division and a dental division. The
dental division formed in this restructuring constitutes the business that was
transferred to PracticeWorks in the spin-off. At the time of the restructuring,
PracticeWorks decided to transition to subscription pricing and to commence
development of ASP applications and other Internet-based applications and
services. Management committed to a plan of restructuring and reorganization in
connection with the establishment of the dental division and these changes in
PracticeWorks' pricing model and product strategy. This restructuring plan,
which was substantially completed in the second quarter of 2000, included
consolidating facilities, eliminating staffing redundancies and repositioning
PracticeWorks to capitalize on the change in our pricing model and product
strategy. In the fourth quarter of 1999, PracticeWorks recorded approximately
$940,000 in restructuring in connection with this plan. The components of these
charges are:
- $700,000 reflecting contingent consideration deemed payable to former
stockholders of entities whose products were discontinued as part of the
restructuring;
- $97,000 representing other asset write-downs and costs;
- $95,000 representing facility closure and consolidation costs, including
cancellation of leases and other contracts; and
- $48,000 representing incremental costs associated with completion of
discontinued customer contracts.
In connection with the 1998 restructuring, PracticeWorks recorded an
impairment charge of $874,000 representing the carrying value of software
development costs, the estimated useful life of which was considered minimal
based on changes to its product strategy.
Additional charges related to the 1999 plan were recorded in 2000 primarily
to provide for costs associated with staffing reductions and other asset
write-downs. These personnel changes were finalized and communicated in the
first quarter of 2000. Accordingly, compensation costs, including severance and
other termination benefits, and asset write-downs aggregating $816,000 were
recorded in 2000.
THE 1997 PLAN. In 1997, PracticeWorks adopted a plan to restructure its
operations by consolidating existing facilities and acquired operations. In
connection with the
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restructuring plan, which was substantially completed in the second quarter of
1998, PracticeWorks recorded restructuring and other charges totaling $6.5
million in the fourth quarter of 1997 and $1.0 million in the first six months
of 1998.
SEGMENT AND MARKET INFORMATION
We report our results in two segments: recurring revenue and non-recurring
revenue. Recurring revenue includes contractual arrangements for maintenance and
support services, subscriptions and e-services (including electronic data
interchange, or "EDI" transactions, and royalties and other revenues from
e-commerce and other Internet-based services). Non-recurring revenue includes
one-time sales of licenses and systems and fees for training and implementation
services.
CONSOLIDATED RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2000
REVENUE (IN THOUSANDS)
REVENUES FOR THE THREE MONTHS PERCENT PERCENT DOLLAR PERCENT
ENDED MARCH 31, 2001 OF TOTAL 2000 OF TOTAL CHANGE CHANGE
----------------------------- ------- -------- ------ -------- ------ -------
Recurring................. $ 8,235 69.7% $5,427 55.3% $2,808 51.7%
Non-recurring............. 3,582 30.3 4,393 44.7 (811) (18.5)
------- ----- ------ ----- ------ -----
Total........... $11,817 100.0% $9,820 100.0% $1,997 20.3%
======= ===== ====== ===== ====== =====
TOTAL REVENUE. Effective in the first quarter of 2001, we changed the
manner in which we report revenues to be more reflective of our new business
model. For periods prior to December 31, 2000 we reported revenues from sale of
systems and software and from maintenance, support and services. Commencing in
2001, we classify revenues as recurring and non-recurring. Results for the three
months ended March 31, 2000 have been reclassified for consistency. Total
revenue for the three months ended March 31, 2001 increased by $2.0 million, or
20.3%, from the three months ended March 31, 2000, primarily as a result of
organic growth in the core elements of our new business model of $1.7 million.
For the three months ended March 31, 2001, revenues attributable to acquisitions
added $2.5 million including $1.6 million attributable to acquisitions made in
the first and second quarters of 2000 and $900,000 attributable to the InfoSoft
acquisition. The growth in revenues from our core business and acquisitions was
offset by a reduction of $1.2 million in software sales as a result of our
transition to subscription-based pricing and a $1.0 million reduction in
hardware sales related as well to subscription pricing and to our new hardware
agreement entered into in August 2000.
RECURRING REVENUE. Recurring revenue includes contractual arrangements for
maintenance and support services, subscriptions and e-services. Recurring
revenue for the three months ended March 31, 2001 increased by $2.8 million, or
51.7%, from the three months ended March 31, 2000 as a result of increases of
$800,000 in subscriptions, $1.0 million in maintenance contracts and $1.0
million in e-services. These increases are largely volume related and include
the effects of new services offered to existing customers. Increases in
maintenance and e-services include approximately $700,000 of maintenance revenue
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attributed to the effect of several small acquisitions completed in 2000 and
approximately $500,000 of e-services revenue attributable to the InfoSoft
acquisition.
NON-RECURRING REVENUE. Non-recurring revenue includes one-time sales of
licenses and systems and fees for training and implementation services.
Non-recurring revenue for the three months ended March 31, 2001 decreased by
$800,000, or 18.5%, from the three months ended March 31, 2000, primarily as a
result of an $800,000 net decrease in hardware sales and a $400,000 net decrease
in software licenses, offset by an increase of $400,000 in training and
implementation service revenue. The decrease in hardware and software sales
includes a $2.0 million net reduction in domestic sales offset by increases of
$800,000 in foreign sales. The domestic decrease is the expected result of lower
unit sales of one-time licenses as we transition to subscription pricing for
most products coupled with lower unit sales of hardware related as well to
subscription pricing and to an agreement we entered in August 2000 to
essentially outsource hardware in certain business lines in exchange for a
marketing fee. The foreign sales activity resulted from an acquisition completed
in the second quarter of 2000. Increases in training and implementation revenue
reflects growth in subscription units.
OPERATING COSTS AND EXPENSES (IN THOUSANDS)
OPERATING COSTS AND
EXPENSES FOR THE THREE PERCENT PERCENT DOLLAR PERCENT
MONTHS ENDED MARCH 31, 2001 OF SALES 2000 OF SALES CHANGE CHANGE
- ---------------------- ------- -------- ------ -------- ------ -------
Hardware and other
purchases for
resale.............. $ 1,447 12.2% $1,296 13.2% $ 151 11.7%
Selling, general and
administrative...... 10,212 86.4 8,520 86.8 1,692 19.9
Research and
development......... 726 6.1 654 6.7 72 11.0
Depreciation and
amortization........ 5,314 45.0 3,293 33.5 2,021 61.4
Restructuring and
other non-recurring
charges............. 2,120 17.9 778 7.9 1,342 172.5
Interest expense,
net................. 625 5.3 379 3.9 246 64.9
Income tax benefit.... -- -- (1,502) (15.3) 1,502 (100.0)
HARDWARE AND OTHER PURCHASES FOR RESALE. Hardware and other purchases for
resale consists of costs incurred to purchase hardware and includes costs of
processing, forms and postage for EDI claims and statements and other
e-services, outsourced hardware maintenance, third-party software and other
items for resale in connection with the sales of new systems and software.
Hardware and other purchases for resale for the three months ended March 31,
2001, compared to the three months ended March 31, 2000, increased in the
aggregate due to the growth in e-services but decreased as a percentage of sales
as a result of an increase in higher margin e-services transactions and software
maintenance contracts and a decrease in lower margin hardware sales.
SELLING, GENERAL AND ADMINISTRATIVE, OR SG&A. SG&A expense includes
salaries and benefits, product maintenance and support, variable commissions and
bonuses, marketing, travel, communications, facilities, insurance and other
administrative expenses. SG&A expense increased by $1.7 million, or 19.9%. Of
this increase, approximately $416,000 was
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attributable to the InfoSoft acquisition completed in March 31, 2001.
Additionally, the allowance for doubtful accounts increased $500,000 when
compared to the first quarter of 2000 to more closely align with our revenue
growth and collection experience. The remainder of this increase is due to the
effect of SG&A costs from the acquisitions completed in the first and second
quarter of 2000, offset by the reduction in SG&A costs resulting from the August
2000 restructuring.
RESEARCH AND DEVELOPMENT. Research and development expense increased
$72,000 or 11.0% for the three months ended March 31, 2001 primarily as a result
of costs incurred on products acquired during 2000.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $2.0 million or 61.4% primarily due to the additional amortization
expense from the acquisitions completed in the first and second quarters of 2000
and, to a lesser extent, the InfoSoft acquisition completed in March 2001.
RESTRUCTURING AND OTHER NON-RECURRING CHARGES. In the three months ended
March 31, 2001, PracticeWorks incurred approximately $2.4 million in
non-recurring charges relating primarily to professional fees, printing and
similar costs in connection with the completion of the spin-off from InfoCure
offset by a $310,000 reduction in restructuring costs relating to the
re-negotiation of terminated facility leases. In the three months ended March
31, 2000, PracticeWorks incurred restructuring charges of approximately $778,000
primarily associated with contingent consideration payable to former
stockholders of entities whose products were discontinued as part of the 1999
restructuring plan.
INTEREST EXPENSE, NET. Interest expense increased by $246,000 or 64.9% due
to the increase in the amount of the outstanding balance under our credit
facility and other debt agreements during the comparable periods coupled with
increases in the prime lending rate.
INCOME TAX BENEFIT. For the three months ended March 31, 2001,
PracticeWorks generated net pre-tax losses for financial reporting purposes of
approximately $8.6 million and taxable net operating losses of approximately
$5.2 million. The financial reporting losses differ from the taxable losses
primarily due to book versus tax differences in goodwill amortization, including
non-deductible amounts. Approximately $3.2 million of these taxable losses were
generated prior to the spin-off and remained with InfoCure. The remaining $2.0
million of these taxable losses generated subsequent to the spin-off, are
attributable to PracticeWorks and will be available to offset any future taxable
income we generate. These net operating loss carryforwards create a deferred tax
asset of approximately $800,000. Additionally, certain of the assets and
liabilities spun-off to PracticeWorks had temporary differences between their
book and tax bases which carried over to PracticeWorks. As a result,
PracticeWorks' deferred tax assets at March 31, 2001 relating to temporary
differences approximate $5.9 million. Total deferred tax assets at March 31,
2001, including the net operating loss carryforwards and temporary differences
in the book and tax bases of assets and liabilities aggregate $6.7 million.
PracticeWorks reported deferred tax assets at March 31, 2001 of
approximately $5.4 million representing essentially amounts attributable to us
based solely on reversing temporary differences as recorded by InfoCure through
December 31, 2000. Management believes that it is more likely than not that
these deferred tax assets will be realized based on our financial projections,
sales backlog and other operational factors. These factors
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indicate we will generate taxable income within the next three to five years
sufficient to realize the tax benefits represented by these future deductible
temporary differences. During the quarter ended March 31, 2001, we recorded a
valuation allowance of approximately $1.3 million to reduce the total deferred
tax assets to the amount that we believe is more likely than not to be realized.
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
The following table sets forth certain statement of operations data as a
percentage of total revenue for the periods indicated:
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
------ ------ ------
Revenue:
Systems and software.......................... 28.7% 62.9% 64.0%
Maintenance, support and services............. 71.3 37.1 36.0
----- ----- -----
Total revenue......................... 100.0 100.0 100.0
----- ----- -----
Operating expense:
Hardware and other items purchased for
resale..................................... 13.3 17.7 22.4
Selling, general and administrative (excluding
compensatory stock awards)................. 97.2 52.5 48.4
Research and development...................... 8.7 7.7 8.1
Depreciation and amortization................. 43.1 6.0 5.2
Restructuring................................. 9.7 1.7 2.4
Impairment and other non-recurring charges.... 8.8 1.6 --
Merger costs.................................. -- 1.2 0.2
Compensatory stock awards..................... -- 0.8 14.8
Gain on disposal of fixed assets.............. (1.6) -- --
----- ----- -----
Total operating expense............... 179.2 89.2 101.5
----- ----- -----
Operating (loss) income......................... (79.2) 10.8 (1.5)
Interest expense and other, net................. 5.3 2.4 2.2
----- ----- -----
(Loss) income before income taxes and
extraordinary item............................ (84.5) 8.4 (3.7)
(Benefit) provision for income taxes............ (11.0) 4.0 2.0
----- ----- -----
Net (loss) income before extraordinary
item............................... (73.5)% 4.4% (5.7)%
===== ===== =====
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUE. Total revenue for the year ended December 31, 2000 decreased
$14.6 million, or 26.7%, to $40.0 million from $54.6 million for the year ended
December 31, 1999. For the year ended December 31, 2000, systems and software
revenue decreased $22.8 million, or 66.5%, to $11.5 million from $34.3 million
in the year ended December 31, 1999. These decreases are the result of lower
unit sales in the current period due to PracticeWorks' transition to a
subscription pricing model and the result of some customers preparing during
1999 for any potential Year 2000 computer issues. Maintenance, support and
service revenue for the year ended December 31, 2000 increased $8.2 million, or
40.4%, to $28.5 million from $20.3 million for the year ended December 31, 1999.
These increases are primarily due to additional revenue of approximately $5.2
million
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generated by acquisitions made in December 1999 and March and April 2000. The
increase also includes an increase in EDI revenue of $3.1 million for the year
ended December 31, 2000, resulting from an increase in the number of practices
using this service, and to a much lesser extent, revenue related to new
subscription contracts.
HARDWARE AND OTHER ITEMS PURCHASED FOR RESALE. For the year ended December
31, 2000, hardware and other items purchased for resale was $5.3 million, or
13.3% of total revenue compared to $9.7 million, or 17.7% of total revenue, for
the year ended December 31, 1999. These changes as a percentage of revenue
reflect the increase in higher margin EDI transactions and software maintenance
contracts and a decrease in lower margin hardware sales. PracticeWorks expects
to continue to experience decreasing hardware sales in light of PracticeWorks'
agreement announced with Dell Computer Corporation.
SELLING, GENERAL AND ADMINISTRATIVE, OR SG&A. SG&A expense includes
salaries and benefits (excluding compensatory stock awards), product maintenance
and support, variable commissions and bonuses, marketing, travel,
communications, facilities, insurance and other administrative expenses. SG&A
expenses exclude research and development, depreciation and amortization,
restructuring and other non-recurring charges. SG&A expense increased $10.2
million, or 35.5%, to $38.9 million for the year ended December 31, 2000, from
$28.7 million for the year ended December 31, 1999. Of this amount,
approximately $8.0 million was related to the SG&A costs of the acquisitions
made in December 1999 and the 2000 acquisitions. We incurred marketing expenses
related to the new subscription pricing model of approximately $300,000. Legal
and professional fees increased approximately $570,000 due to costs related to
potential acquisitions and other transactions that were not completed. During
the third quarter of 2000 PracticeWorks also increased the allowance for
doubtful accounts by approximately $400,000. The basis for this additional
provision was derived from PracticeWorks' analysis of the negative effects on
current collection experience as a result of closing and consolidating offices
and reducing staff in conjunction with having implemented the 2000 Restructuring
Plan.
RESEARCH AND DEVELOPMENT. Research and development expense decreased to
$3.5 million for the year ended December 31, 2000 from $4.2 million for the year
ended December 31, 1999. This decrease is primarily due to an increase in
software development costs eligible for capitalization related to products
PracticeWorks will be offering in the future and a decrease in the costs related
to products that will be discontinued in the future. For the year ended December
31, 2000, $835,000 was capitalized related to software development costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $14.0 million, to $17.3 million for the year ended December 31, 2000,
from $3.3 million for the year ended December 31, 1999. This increase in
depreciation and amortization expense is primarily due to the change in the
estimated useful life of goodwill from 15 years to three years during the fourth
quarter of 1999 and also to acquisitions completed during the fourth quarter of
1999 and during 2000.
RESTRUCTURING. On August 1, 2000, PracticeWorks announced its intention to
terminate approximately 145 employees and to close or consolidate 11 facilities
as part of our 2000 restructuring plan. As a result, in the third and fourth
quarter of 2000 PracticeWorks incurred costs of $1.7 million related to
severance and other termination benefits and facility closure costs and other
charges of $1.3 million. For the year ended
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December 31, 2000, restructuring also includes $816,000 consisting primarily of
severance and other termination costs, concluding the 1999 plan.
IMPAIRMENT AND OTHER NONRECURRING CHARGES. During the year ended December
31, 2000 PracticeWorks recorded impairment and other non-recurring charges of
approximately $3.5 million. Of this amount, $500,000 related to fixed assets
which are being disposed of as a result of PracticeWorks' decision to
consolidate our office locations and $1.5 million related to our decision to
discontinue hardware sales and support for certain of our business lines in
connection with our new hardware agreement with Dell Computer Corporation.
PracticeWorks also incurred costs of $1.4 million related to the spin-off,
consisting principally of professional service fees.
INTEREST EXPENSE AND OTHER, NET. Interest expense and other, net increased
$782,000 to $2.1 million for the year ended December 31, 2000, from $1.3 million
for the year ended December 31, 1999. This increase relates to increases in the
amount of the outstanding balances under PracticeWorks' credit facility and
other debt agreements.
(BENEFIT) PROVISION FOR INCOME TAXES. The provision for income taxes was a
net benefit of $4.4 million for the year ended December 31, 2000 compared to a
net expense of $2.2 million for the year ended December 31, 1999. The change is
due to the generation of net operating losses for the year ended December 31,
2000 versus net operating income for the year ended December 31, 1999. The
effective income tax rate for the year ended December 31, 2000 was (13.0%)
versus 47.9% for the year ended December 31, 1999. The decrease in the effective
income tax rate is a result of accelerated non-deductible goodwill amortization
as well as recognition of a valuation allowance for net operating losses
generated by PracticeWorks prior to the spin-off which will remain with InfoCure
upon the spin-off. The variances from the federal statutory rate are due to the
effect of non-deductible goodwill amortization, state taxes and the recognition
of the valuation allowance noted above.
PracticeWorks reported net deferred tax assets of $5.2 million in its
financial statements as of December 31, 2000, related to differences between the
book and tax basis of its assets. Management has assessed PracticeWorks' past
financial history, when adjusted for non-recurring items such as restructuring
charges, as well as PracticeWorks' sales backlog, and budgeted sales and
believes that it is more likely than not that PracticeWorks will generate
taxable income within the next three to five years more than sufficient to
realize the tax benefits associated with future deductible temporary
differences.
NET (LOSS) INCOME. As a result of the above factors, PracticeWorks' net
loss for the year ended December 31, 2000 was $(29.4) million compared to net
income of $2.3 million for the year ended December 31, 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
TOTAL REVENUE. Total revenue for the year ended December 31, 1999
increased $11.1 million, or 25.5%, to $54.6 million from $43.5 million for the
year ended December 31, 1998. The acquisitions of the 1999 Pooled Companies,
which are accounted for as pooling of interests, are reflected retroactively for
all periods presented. Systems and software revenue increased $6.5 million, or
23.4%, to $34.3 million for the year ended December 31, 1999 from $27.8 million
for the year ended December 31, 1998. Maintenance, support, and service revenue
increased $4.6 million, or 29.3%, to $20.3 million for the year ended December
31, 1999 from $15.7 million for the year ended December 31, 1998. These
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revenue increases primarily reflect overall volume growth in the business of
$10.5 million, including customer purchases made in preparation for year 2000
computer issues, and, to a lesser extent, acquisitions during the fourth quarter
of 1999.
HARDWARE AND OTHER ITEMS PURCHASED FOR RESALE. Hardware and other items
purchased for resale was $9.7 million for both the years ended December 31, 1999
and 1998. For the year ended December 31, 1999, hardware and other items
purchased for resale as a percentage of total revenue was 17.7%, compared to
22.4%, for the year ended December 31, 1998. This decrease as a percentage of
revenue is attributable primarily to a change in the mix of revenues resulting
from the growth in service revenues related to EDI, which generally carries
higher margins.
SELLING, GENERAL AND ADMINISTRATIVE, OR SG&A. SG&A expense increased $7.6
million, or 36.0%, to $28.7 million for the year ended December 31, 1999
compared to $21.1 million for the year ended December 31, 1998. This increase
reflects primarily additional marketing and administrative personnel and other
selling and administrative costs necessary to support the consolidated
businesses of the acquired companies. As a percentage of revenue, SG&A expense
increased to 52.5% for the year ended December 31, 1999 from 48.4% for the year
ended December 31, 1998 primarily due to the fact that the SG&A expense for the
acquisition of the 1999 Pooled Companies were substantially higher in relation
to their revenues than that of PracticeWorks. Because three of these companies
were acquired in December 1999, cost savings measures resulting from their
integration had not yet been reflected. Further, during the fourth quarter of
1999, the allowance for doubtful accounts increased by $700,000 to more closely
align the allowance with PracticeWorks' collection experience and for the
potential write-off associated with customers migrating from traditional support
programs to our subscription pricing offerings.
RESEARCH AND DEVELOPMENT. Research and development expense increased
$648,000, or 18.5%, to $4.2 million for the year ended December 31, 1999 from
$3.5 million for the year ended December 31, 1998. This increase was due
primarily to acquisitions and the number of products that we support.
PracticeWorks capitalizes development costs incurred from the time a new product
reaches technological feasibility until it is available for general release. The
higher level of capitalized costs in 1999 is reflective of the state of
development of a variety of projects, including new e-commerce applications. As
a percentage of total revenue, research and development expense decreased to
7.7% of total revenue for the year ended December 31, 1999 from 8.1% of total
revenue for the year ended December 31, 1998 due to the significant increase in
revenues from acquisitions and business growth.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $1.0 million, or 43.5%, to $3.3 million for the year ended December
31, 1999 from $2.3 million for the year ended December 31, 1998. This increase
was primarily due to increased expense for amortization of goodwill resulting
from the addition of approximately $10.5 million of goodwill related to the 1999
acquisitions and a change in accounting estimate, which was effected in the
fourth quarter of 1999, to reduce the estimated useful life of goodwill from 15
years to three years. This change in accounting estimate resulted in additional
goodwill amortization of approximately $600,000 for 1999.
RESTRUCTURING, IMPAIRMENT AND OTHER NON-RECURRING CHARGES. In the year
ended December 31, 1999, PracticeWorks incurred $940,000 in restructuring
charges and $874,000 in impairment charges associated with a restructuring plan
announced in the fourth quarter of 1999. In the year ended December 31, 1998 we
incurred $1.0 million of
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restructuring charges associated with the 1997 restructuring plan that was
completed in 1998.
MERGER COSTS. PracticeWorks incurred $659,000 in merger costs in 1999
related to the acquisitions of the 1999 Pooled Companies.
COMPENSATORY STOCK AWARDS. Compensatory stock awards expense decreased
$6.0 million, or 93.8%, to $428,000 for the year ended December 31, 1999 from
$6.4 million for the year ended December 31, 1998. Compensatory stock award
expense for the year ended December 31, 1999 related to the accelerated vesting
of restricted stock awards to executive officers of InfoCure. The $6.4 million
expense in 1998 related to contingently exercisable stock options of an acquired
company. Under the terms of the purchase agreement, the value of the options
became determinable in the fourth quarter of 1998, resulting in recognition of
compensation expense. As a percentage of total revenue, compensatory stock
awards expense decreased to 0.8% for the year ended December 31, 1999 from 14.8%
for the year ended December 31, 1998.
INTEREST EXPENSE AND OTHER, NET. Interest expense and other, net increased
$369,000, or 38.2%, to $1.3 million for the year ended December 31, 1999 from
$966,000 for the year ended December 31, 1998. The increase relates primarily to
higher average outstanding debt balances during 1999 and a higher effective
interest rate resulting from the amortization of loan costs. As a percentage of
total revenue, interest expense and other, net increased to 2.4% for the year
ended December 31, 1999 from 2.2% for the year ended December 31, 1998.
PROVISION (BENEFIT) FOR INCOME TAXES. The provision for income taxes was
$2.2 million for the year ended December 31, 1999, compared to $873,000 for the
year ended December 31, 1998. The effective income tax rate of 47.9% for the
year ended December 31, 1999 is higher than statutory rates due to state income
taxes and permanent differences resulting primarily from the amortization of
nondeductible goodwill. In addition, the effective tax rate for 1998 differs
from the statutory tax rate due to the more significant impact of pooling of
interests accounting with certain S-corporation entities that incurred no
federal income taxes prior to their acquisition by InfoCure.
NET (LOSS) INCOME. As a result of the above factors, our net income for
the year ended December 31, 1999 was $2.3 million compared to net loss of $(2.5)
million for the year ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
PracticeWorks' principal capital requirements have been to fund:
- acquisitions;
- working capital;
- capital expenditures for furniture, fixtures and equipment; and
- capitalized software development costs.
Historically, InfoCure has managed cash on a centralized basis. Cash
receipts associated with PracticeWorks' business have largely been retained by
InfoCure which has provided funds to cover PracticeWorks' disbursements for
operating activities, capital expenditures and acquisitions. The cash balances
reported by PracticeWorks at
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December 31, 2000, and 1999 are based on the results of PracticeWorks'
operations and the net cash resulting from intercompany transfers between
InfoCure and PracticeWorks. The investing and financing activities discussed
below were funded as a result of activities entered into by InfoCure and
relating to PracticeWorks' operations. The long-term debt amounts reported by
PracticeWorks are based on long-term debt that InfoCure incurred to acquire
businesses and other assets that were transferred to PracticeWorks in connection
with the spin-off.
During the three months ended March 31, 2001, PracticeWorks generated
$48,000 of cash in operating activities relating primarily to (1) a net loss of
$8.6 million offset by non-cash charges of $5.3 million in depreciation and
amortization and (2) an increase in accounts payable and accrued expenses of
$3.4 million. This increase is primarily due to non-recurring charges relating
to the spin-off and, to a lesser extent, fees associated with the InfoSoft
acquisition. During the three months ended March 31, 2000, PracticeWorks
generated $362,000 of cash from operating activities relating primarily to (1) a
loss of $3.0 million offset by non-cash charges of $3.3 million for depreciation
and amortization and a non-cash benefit of $1.5 million associated with deferred
taxes and (2) a decrease in accounts receivable of $1.6 million.
During the year ended December 31, 2000, PracticeWorks used $8.6 million of
net cash in operating activities primarily relating to (1) a net loss of $29.4
million, offset by the net effect of non-cash charges and credits of $17.3
million in depreciation and amortization and $3.6 million in restructuring and
other charges and the non-cash benefit of $4.4 million associated with deferred
taxes, (2) increase of accounts payable and accrued liabilities of approximately
$2.6 million and (3) an increase in deferred revenue and customer deposits of
$2.3 million. The net use of cash flow from operations is due primarily to the
impact of the ongoing transition to subscription-based pricing and customers
making purchases in 1999 to prepare for potential Year 2000 issues.
During the year ended December 31, 1999, PracticeWorks generated $5.8
million of net cash from operating activities primarily relating to net income
of $2.3 million, $3.3 million of non-cash charges for depreciation and
amortization and restructuring and other charges, and offset by a $3.2 million
increase in accounts receivable. During the year ended December 31, 1998,
PracticeWorks generated $2.3 million of net cash from operating activities
primarily relating to (1) a net loss of $2.5 million, offset by the net effect
of non-cash charges of $6.4 million in stock based compensation, $2.3 million in
depreciation and amortization and $1.0 million in restructuring and other
charges and the non-cash reduction of $700,000 associated with deferred taxes,
(2) payment of accounts payable and accrued expenses of approximately $3.5
million, (3) an increase in accounts receivable of $3.1 million, and (4) an
increase in deferred revenue and customer deposits of $2.3 million.
During the three months ended March 31, 2001, PracticeWorks used $1.8
million of cash in investing activities primarily relating to cash paid in
connection with the InfoSoft acquisition of $673,000, cash paid for other
intangibles of $669,000 and cash paid for property and equipment expenditures of
$233,000. During the three months ended March 31, 2000, PracticeWorks used $11.5
million of cash in investing activities primarily representing cash used for
acquisitions and related expenditures of $6.1 million, additional purchase price
consideration of $4.4 million, advances to Medical Dynamics of $500,000 and
capital expenditures of $598,000.
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During the year ended December 31, 2000, net cash used in investing
activities was $27.0 million, primarily representing cash used for acquisitions
and related expenditures of $13.4 million, additional purchase price
consideration of $4.4 million, $3.6 million of capital expenditures, $3.7
million of cash paid for other intangibles, and $1.1 million of cash advances to
Medical Dynamics. During the year ended December 31, 1999, net cash used in
investing activities was $10.3 million, consisting primarily of cash used for
acquisitions of $8.3 million. During the year ended December 31, 1998, net cash
used in investing activities was $15.6 million, consisting primarily of cash
used for acquisitions of $12.5 million and cash used for other intangibles of
$2.3 million. PracticeWorks expects to incur capital expenditures of $1.0
million in 2001.
During the three months ended March 31, 2001, PracticeWorks generated cash
from financing activities of $4.9 million consisting primarily from the sale of
series C convertible redeemable preferred stock, net of transaction costs, of
$4.7 million and net cash advances from InfoCure of approximately $344,000,
offset by the payment of deferred loan costs of $183,000. During the three
months ended March 31, 2000, PracticeWorks generated cash from financing
activities of $12.4 million consisting primarily of borrowings attributed to us
of $7.7 million from InfoCure's line of credit and $4.7 million in cash advances
from InfoCure.
During the year ended December 31, 2000, PracticeWorks generated $37.0
million of net cash from financing activities consisting primarily of borrowings
attributed to us of $12.5 million from InfoCure's line of credit and $24.7
million in cash advances from InfoCure. During the year ended December 31, 1999,
we generated net cash from financing activities of $5.4 million, including $8.7
million in proceeds attributed to PracticeWorks from borrowings under InfoCure's
line of credit and $13.3 million in cash advances from InfoCure. These proceeds
were principally used to retire outstanding debt previously attributed to
PracticeWorks of $16.7 million and to fund the 1999 acquisitions. During the
year ended December 31, 1998, PracticeWorks generated net cash from financing
activities of $14.2 million, including $12.5 million in proceeds from InfoCure's
line of credit attributed to it and $1.9 million in cash advances from InfoCure.
These proceeds were principally used to fund the 1998 acquisitions.
In connection with the spin-off, PracticeWorks entered into a credit
facility with FINOVA Capital Corporation ("FINOVA") under which PracticeWorks
incurred approximately $21.6 million of indebtedness to repay InfoCure's
long-term indebtedness relating to our business. The FINOVA credit facility
contains restrictions and covenants, including limitations on PracticeWorks'
leverage, a minimum net worth requirement, a minimum current ratio requirement
and a minimum liquidity requirement. Management believes that the covenants that
have the greatest likelihood of potentially restricting PracticeWorks'
operations are quarterly tests for minimum net worth and minimum liquidity.
Minimum net worth has been defined to include the two completed convertible
redeemable preferred stock issuances in the first quarter of 2001, and the
planned issuance of convertible, redeemable preferred stock and common stock to
the stockholders of Medical Dynamics in the third quarter of 2001. The minimum
net worth requirement ranges from a high of approximately $41.8 million at the
quarter ended March 31, 2001, to a low of approximately $18.1 million at the
quarter ended March 31, 2002. Minimum liquidity has been defined as cash and
cash equivalents, plus amounts up to $2.5 million available, but not drawn,
under the Crescent equity line (discussed below). The minimum liquidity
requirement is approximately $6.4 million at the quarter ended March 31, 2001
and ranges from a high of approximately $11.1 million at the quarter ended March
31,
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2003, to a low of approximately $2.8 million at the quarter ended March 31,
2002. The levels for the quarterly tests for minimum net worth and liquidity
have been computed based on discussions with the lender regarding PracticeWorks'
business plan. The credit facility will prohibit payment of dividends on, or
redemption of, PracticeWorks' capital stock. Amounts outstanding under the
credit agreement will bear interest equal to 1.5% plus a base rate equal to the
higher of the prime rate as announced from time to time by Citibank N.A. or a
weighted average of the rates on overnight federal fund transactions plus 50
basis points. The outstanding principal balance of the loan will amortize at
5.0% per quarter beginning October 1, 2001, and the entire outstanding balance
under the facility will be due in full on June 30, 2003. PracticeWorks was in
compliance with all of the loan covenants at March 31, 2001.
In connection with the spin-off, on March 6, 2001, PracticeWorks entered
into an equity line agreement with Crescent that allows PracticeWorks to issue
and sell and requires Crescent to purchase, upon PracticeWorks' request, shares
of PracticeWorks' common stock for consideration of up to $35.0 million (minus
applicable fees and expenses). Under this agreement, PracticeWorks can, from
time to time at its option, issue and sell shares of its common stock with an
aggregate purchase price of up to twice the average daily trading value of
PracticeWorks' common stock during the 22 trading day period immediately
preceding the date of the notice to Crescent. However, in no event may
PracticeWorks require Crescent to purchase more than $2.5 million at one time.
The purchase price for shares of common stock sold to Crescent under this equity
line will be 94% of the average of the lowest three consecutive bid prices
during the 22 day trading period immediately preceding the applicable sale.
Management does not currently believe that it will be necessary to draw any
amounts under the Crescent equity line.
In connection with the spin-off, on March 6, 2001, PracticeWorks issued
100,000 shares of its series C convertible redeemable preferred stock for $5.0
million to Crescent in a private placement. The series C convertible redeemable
preferred stock is not convertible for one year after issuance. Thereafter, the
holders can convert all or a portion of the shares of series C convertible
redeemable preferred stock. In no event will the holders of series C convertible
redeemable preferred stock be entitled to obtain, in the aggregate for all
conversions, more than 20.0% of PracticeWorks' common stock upon conversion.
PracticeWorks will have the right to either redeem in cash at a premium or
require the conversion of the shares of series C convertible redeemable
preferred stock, provided certain conditions are met. The redemption premiums
will increase proportionately each year from 115% of the liquidation preference
during the first year after issuance of the preferred stock to 160% of the
liquidation preference following the fourth anniversary year of issuance. If the
series C convertible redeemable preferred stock has not been converted after
four years, the holders may require PracticeWorks' to redeem the series C
convertible redeemable preferred stock at a redemption price equal to 175% of
the liquidation preference, or $8.75 million. If the price of PracticeWorks'
common stock decreases following the spin-off, PracticeWorks may be required to
redeem the shares of series C convertible redeemable preferred stock at a
significant premium in order to prevent a dilutive conversion of the series C
convertible redeemable preferred stock into shares of PracticeWorks' common
stock. PracticeWorks may not have the necessary funds to redeem any shares of
the series C convertible redeemable preferred stock, or be permitted to do so
under the FINOVA credit facility.
Once issued to the Medical Dynamics stockholders, PracticeWorks will be
required to redeem for cash the shares of series B convertible redeemable
preferred stock issuable to
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Medical Dynamics on the fifth anniversary of issuance. The redemption price of
the series B convertible redeemable preferred stock will be equal to
approximately $5.3 million plus accrued and unpaid dividends. The holders of the
shares of series A convertible redeemable preferred stock issued to Ceramco may
require the redemption in cash of their shares of series A convertible
redeemable preferred stock at any time following the fifth anniversary of
issuance. The redemption price of the series A convertible redeemable preferred
stock is equal to $32.0 million plus accrued and unpaid dividends. PracticeWorks
may not have the necessary funds to redeem any such shares of our convertible
redeemable preferred stock or be permitted to do so under the FINOVA credit
facility.
At March 31, 2001, PracticeWorks had total cash and cash equivalents of
$7.1 million and a working capital deficit of $5.4 million (including the effect
of deferred revenue and customer deposits of $10.6 million). PracticeWorks
expects the transition to a subscription pricing model will continue to
adversely impact its cash flow until revenue from subscription fees replaces
revenue from software license fees and hardware sales. Based on current business
plans, the benefits of this transition to subscriptions begins to manifest
itself in 2001 when it is anticipated that subscription fees will comprise
approximately 10.0% of total revenues. PracticeWorks anticipates the growth in
subscription fees and other revenue, coupled with the cost reductions from its
2000 restructuring, will enable it to generate positive earnings before
interest, income taxes, depreciation and amortization (EBITDA) commencing in the
second quarter of 2001. PracticeWorks believes that its existing cash and
anticipated future operating cash flow, combined with availability of funds from
other sources of financing, will be sufficient to fund its working capital
requirements both in the short term, which means the next twelve months, and in
the long term, which means a reasonable period of time thereafter. However, if
insufficient funds are available, PracticeWorks may not be able to increase its
marketing and sales expenses and grow its businesses or effectively compete in
any of its markets, which could materially harm its business, financial
condition and results of operations.
FORWARD-LOOKING STATEMENTS
This section contains forward-looking statements that reflect
PracticeWorks' current assumptions and estimates of future performance, the
development and timing of its release of new applications and services, and the
rate of adoption of its new applications and services by new and existing
customers. Any forward-looking statements are subject to risks and uncertainties
that may cause actual results and future trends to differ materially from those
projected, stated or implied by the forward-looking statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging Activities",
as amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging activities.
Historically, we have not entered into derivative contracts either to hedge
existing risks or for speculative purposes. This standard was adopted on January
1, 2001. Adoption of this new standard did not have an effect on PracticeWorks'
financial statements.
The Financial Accounting Standards Board issued Interpretation
("Interpretation") No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an
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Interpretation of APB Opinion No. 25" which was effective July 1, 2000.
Interpretation No. 44 clarified (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a stock
compensation plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Adoption of the provisions of the
Interpretation did not have a significant impact on PracticeWorks' financial
statements.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities -- a Replacement of FASB Statement No. 125"
was issued in September 2000 to address securitizations and other transfers of
financial assets and collateral, and requires specified new disclosures.
Specified disclosure provisions are effective for fiscal years ending after
December 15, 2000 with the accounting for transfers and servicing of financial
assets and extinguishments of liabilities effective for transactions occurring
after March 31, 2001. Adoption of this new standard did not have an effect on
PracticeWorks' financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101, -- Revenue Recognition, which outlines the basic criteria that must be met
to recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the Securities and Exchange Commission. The effective date for SAB No. 101
is September 1, 2001, however we adopted the provisions of SAB No. 101 in the
first quarter of 2000 without a significant impact on PracticeWorks' financial
position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT PRACTICEWORKS' MARKET RISK
Our primary market risks include fluctuations in interest rates and
variability in interest rate spread relationships, such as prime to LIBOR
spreads. Approximately $21.6 million of PracticeWorks' outstanding debt at March
31, 2001 related to long-term indebtedness under PracticeWorks' credit facility
with FINOVA that was used to repay InfoCure's long-term indebtedness related to
PracticeWorks' business at the time of the spin-off. Amounts outstanding bear
interest equal to 1.5% plus a base rate equal to the higher of the prime rate as
announced from time to time by Citibank N.A. or a weighted average of the rates
on overnight federal fund transactions plus 50 basis points. The rate base is
incremented for margins specified in the agreement. Thus, PracticeWorks'
interest rate is subject to market risk in the form of fluctuations in interest
rates. The effect of a hypothetical one percentage point increase across all
maturities of variable rate debt would result in an increase of approximately
$216,000 in pre-tax net loss assuming no further changes in the amount of
borrowings subject to variable rate interest from amounts outstanding at March
31, 2001. PracticeWorks does not trade in derivative financial instruments.
PracticeWorks also conducts operations in Europe and Australia.
Accordingly, PracticeWorks is subject to risk for exchange rate fluctuations
between such local currencies and the U.S. dollar. For the year ended March 31,
2001, less than 10% of PracticeWorks' total revenues were earned outside the
United States and collected in the local currency and related operating expenses
were also paid in such corresponding local currencies. PracticeWorks does not
conduct any significant hedging activities.
The financial statements of PracticeWorks' non-U.S. subsidiaries are
translated into U.S. dollars using current rates of exchange, with gains or
losses included in the foreign
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currency translation adjustment account, a component of stockholder's equity. As
of March 31, 2001, PracticeWorks had a cumulative translation adjustment of
$(65,000).
MANAGEMENT OF PRACTICEWORKS
The directors and executive officers of PracticeWorks are as follows:
NAME AGE POSITION
- ---- --- --------
Richard E. Perlman.................... 54 Chairman of the Board of Directors
James K. Price........................ 42 President and Chief Executive Officer
and Director
James C. Davis........................ 52 Executive Vice President and Director
James A. Cochran...................... 53 Senior Vice President, Secretary and
Chief Financial Officer
William A. Shutzer.................... 53 Director
William R. Jellison................... 42 Director
Raymond H. Welsh...................... 69 Director
Richard E. Perlman has been Chairman of the Board since PracticeWorks'
formation in August 2000. Mr. Perlman served as InfoCure's chairman and
treasurer since December 1997 and as a director of InfoCure since March 1997.
Mr. Perlman resigned from all positions with InfoCure upon completion of the
spin-off. From December 1997 until October 1998, Mr. Perlman served as
InfoCure's chief financial officer. Mr. Perlman is the founder of Compass
Partners, L.L.C., a merchant banking and financial advisory firm specializing in
corporate restructuring and middle market companies, and has served as its
president since its inception in May 1995. From 1991 to 1995, Mr. Perlman was
executive vice president of Matthew Stuart & Co., Inc., an investment banking
firm. Mr. Perlman received a B.S. in Economics from the Wharton School of the
University of Pennsylvania and a Masters in Business Administration from the
Columbia University Graduate School of Business.
James K. Price has been PracticeWorks' President and Chief Executive
Officer and a director since PracticeWorks' formation in August 2000. Mr. Price
was a founder of InfoCure and served as its executive vice president and
secretary since its inception in November 1996. Mr. Price resigned from all
positions with InfoCure upon completion of the spin-off. Mr. Price served as
executive vice president of American Medcare from 1996 until 1997 and was vice
president from 1993 to 1995. Mr. Price co-founded International Computer
Solutions and served as its executive vice president since 1994, as vice
president from 1987 to 1994 and as president from 1985 to 1987. American Medcare
and International Computer Solutions merged into InfoCure in July 1997. In
addition, from 1991 to 1993, Mr. Price was a vice president of Newport Capital.
From 1983 to 1985, Mr. Price was healthcare sales manager of Executive Business
Systems, a practice management systems supplier, and from 1981 to 1983 was with
Moore Business Systems. Mr. Price holds a B.A. in Marketing from the University
of Georgia.
James C. Davis, D.M.D., has served as PracticeWorks' Executive Vice
President since PracticeWorks' formation in August 2000 and was elected a
director in March 2001. Dr. Davis manages PracticeWorks' e-commerce operations.
Dr. Davis served as Chairman of InfoCure's orthodontic group since February
1999. Dr. Davis resigned from all positions
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with InfoCure upon completion of the spin-off. He has been a practicing
orthodontist for the past 25 years and, in 1982, was a co-founder of OMSystems,
Inc., the largest orthodontic practice management software company in North
America which InfoCure acquired in February 1999. Dr. Davis received a D.M.D.
from the University of Alabama School of Dentistry and a Certificate of
Orthodontics from the UCLA School of Dentistry. Dr. Davis previously served as
president of the Georgia Association of Orthodontists.
James A. Cochran served as PracticeWorks' Senior Vice President, Secretary
and Chief Financial Officer since our formation in August 2000. He was
InfoCure's chief financial officer since August 1999 but resigned from all
positions with InfoCure upon completion of the spin-off. From 1992 until joining
InfoCure, Mr. Cochran was a member of the accounting firm of BDO Seidman, LLP,
serving as a partner since 1995. Mr. Cochran is a Certified Public Accountant.
Mr. Cochran received a B.B.A. in Accounting and an M.B.A. in Corporate Finance
from Georgia State University.
William A. Shutzer has been a director of PracticeWorks since March 2001.
Since October 2000, he has been a Managing Director of Lehman Brothers, Inc.
From September 1999 until September 2000, Mr. Shutzer was a Partner in Thomas
Weisel Partners, LLC. From October 1996 to the end of December 1997, he was
President of Furman Seiz, Inc., and from January 1998 until September 1999, he
was chairman of ING Barings LLC's Investment Banking Group. From March 1994 to
October 1996, he was Executive Vice President of Furman Seiz, Inc. From
September 1978 until February 1994, Mr. Shutzer was a Managing Director of
Lehman Brothers and its predecessors. Mr. Shutzer is currently a director of
Tiffany & Co., The Fortress Group, internet.com Corporation, and a member of the
Advisory Board of E&J Gallo Winery. Mr. Shutzer received a B.A. from Harvard
University and an MBA from the Harvard Graduate School of Business.
William R. Jellison has been a director of PracticeWorks since March 2001.
He is currently the Senior Vice President and Chief Financial Officer of
DENTSPLY. He joined DENTSPLY in April of 1998 and has responsibility for
worldwide Finance and Information Technology. Prior to joining DENTSPLY, Mr.
Jellison had an eighteen-year career with the Donnelly Corporation where he
served in a number of positions with increasing responsibilities, including Vice
President of Finance, Treasurer and Corporate Controller. A Certified Management
Accountant, Mr. Jellison earned his B.A. in business administration from Hope
College in Michigan.
Raymond H. Welsh has been a director of PracticeWorks since March 2001.
Prior to the spin-off, he served on the Board of Directors of InfoCure
Corporation. Since January 1995, Mr. Welsh has been a Senior Vice President of
UBS/PaineWebber, Incorporated. Mr. Welsh is a Trustee of the University of
Pennsylvania, The University of Pennsylvania Health System, and Chairman of the
Medical Center and HealthSystem's Creating the Future of Medicine Campaign. Mr.
Welsh received a B.S. in Economics from the Wharton School of the University of
Pennsylvania.
PracticeWorks currently has six directors. PracticeWorks' certificate of
incorporation provides that the terms of office of the directors are divided
into three classes: Class I, whose term will expire at the annual meeting of
stockholders to be held in 2002; Class II, whose term will expire at the annual
meeting of stockholders to be held in 2003; and Class III, whose term will
expire at the annual meeting of stockholders to be held in 2004. James C. Davis
and William R. Jellison are Class I directors. James K. Price and Raymond H.
Welsh are Class II directors. Richard E. Perlman and William A. Shutzer
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are Class III directors. So long as any shares of the series A convertible
redeemable preferred stock issued to Ceramco are outstanding, PracticeWorks will
be required to have a minimum of six directors, and the holders of such series A
convertible redeemable preferred stock, voting as a class, will be entitled to
elect one director to PracticeWorks' board of directors. However, such holders
will not be entitled to vote with respect to the election of PracticeWorks'
remaining directors. At each annual meeting of stockholders after the initial
classification or special meeting in lieu thereof, the successors to directors
whose terms will then expire will be elected to serve from the time of election
and qualification until the third annual meeting following election or special
meeting held in lieu thereof. This classification structure of the board of
directors may have the effect of delaying or preventing changes in control or
management of PracticeWorks.
PracticeWorks' bylaws provide that the authorized number of directors may
be changed by an amendment to the bylaws adopted by its board of directors or by
the stockholders. In addition, PracticeWorks' certificate of incorporation and
its bylaws provide that, in general, vacancies on the board may be filled by a
majority of directors in office, although less than a quorum.
COMMITTEES OF THE BOARD
PracticeWorks' audit committee consists of Messrs. Jellison, Shutzer and
Welsh, all of whom are independent directors. The audit committee reviews, acts
on and reports to PracticeWorks' board of directors on various auditing and
accounting matters, including the election of PracticeWorks' independent
accountants, the scope of its annual audits, fees to be paid to the independent
accountants, the performance of its independent accountants and our accounting
practices and internal controls. We did not have an audit committee during 2000.
PracticeWorks' compensation committee consists of Mr. Shutzer and Welsh,
both of whom are independent directors. PracticeWorks' compensation committee
establishes salaries, incentives and other forms of compensation for officers
and other employees. This committee will also administer its incentive
compensation and benefit plans. PracticeWorks did not have a compensation
committee during 2000.
PRACTICEWORKS EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
PracticeWorks' directors do not currently receive cash compensation for
their services as directors, but are reimbursed for their reasonable and
necessary expenses for attending board and board committee meetings. Members of
the board who are not PracticeWorks' employees, or employees of any parent,
subsidiary or affiliate of PracticeWorks, are eligible to participate in
PracticeWorks' stock option plan. Such members receive options to purchase 5,000
shares of its common stock upon election to the board and will receive options
to purchase 2,500 shares of PracticeWorks' common stock for each year of
service. The exercise price of the options will be the fair market value of
PracticeWorks' common stock on the date of grant.
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EXECUTIVE COMPENSATION
Prior to the spin-off, PracticeWorks never paid compensation to its
executive officers. During the fiscal years ended December 31, 2000, 1999 and
1998, the individuals were compensated in accordance with InfoCure's plans and
policies. The following tables set forth certain information with respect to the
annual and long-term compensation paid by InfoCure for services to InfoCure for
PracticeWorks' chief executive officer and other executive officers. The amounts
set forth below do not reflect the compensation these persons will receive from
PracticeWorks following the spin-off.
In addition, PracticeWorks has never granted stock options to executive
officers. All references in the following tables to stock and stock options
relate to awards of stock and stock options granted by InfoCure. Neither
PracticeWorks nor InfoCure has granted stock appreciation rights. InfoCure
options held by InfoCure employees who became PracticeWorks employees may be
replaced by PracticeWorks options. Employees whose InfoCure options were fully
vested as of March 5, 2001 had the right to surrender their InfoCure options for
options to purchase PracticeWorks common stock until March 25, 2001. Any
InfoCure employees who became PracticeWorks' employees who chose not to
surrender their vested InfoCure options during this time period continue to hold
InfoCure options which will expire according to their terms. Employees who were
not fully vested in InfoCure options as of March 5, 2001, had their InfoCure
options exchanged for PracticeWorks options as of March 5, 2001.
The option price for the shares of PracticeWorks common stock subject to
each PracticeWorks option was determined by dividing the option price for the
related InfoCure option by the PracticeWorks conversion factor, which was
0.47530, as determined by the Employee Benefits and Compensation Allocation
Agreement, entered into with InfoCure in connection with the spin-off, and the
number of shares of PracticeWorks common stock subject to each PracticeWorks
option was determined by multiplying the number of shares subject to the related
InfoCure option by the PracticeWorks conversion factor.
The following table sets forth the total compensation paid by InfoCure for
services rendered by PracticeWorks' Chief Executive Officer during the fiscal
years ended December 31, 2000, 1999 and 1998 as well as PracticeWorks' other
executive officers (collectively, the "Named Executive Officers"). Prior to the
spin-off, Messrs. Perlman, Price and Cochran were executive officers of
InfoCure. Each of the persons below resigned from all positions with InfoCure
effective March 5, 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
ANNUAL --------------------------
COMPENSATION OTHER RESTRICTED SECURITIES
NAME AND PRINCIPAL ------------------ ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS/SARS COMPENSATION(3)
- ------------------ ---- -------- ------- --------------- ---------- ------------ ---------------
Richard E. Perlman.... 2000 $215,833 $ -- $ -- $ -- 1,200,100 --
Chairman of the 1999 120,000 23,500 17,380 -- 440,100 4,000
Board 1998 120,000 33,333 -- 367,500 320,000 --
James K. Price........ 2000 209,375 4,000 -- -- 1,200,200 9,600
Chief Executive 1999 125,000 19,500 19,452 -- 440,200 9,600
Officer and 125,000 33,333 19,270 367,500 320,200 --
President 1998
James C. Davis(4)..... 2000 177,083 20,030 18,000 -- 700,200 6,214
Executive Vice 1999 109,375 20,000 14,000 -- 3,400 --
President 1998 -- -- -- -- -- --
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LONG-TERM
COMPENSATION AWARDS
ANNUAL --------------------------
COMPENSATION OTHER RESTRICTED SECURITIES
NAME AND PRINCIPAL ------------------ ANNUAL STOCK UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS/SARS COMPENSATION(3)
- ------------------ ---- -------- ------- --------------- ---------- ------------ ---------------
James A. Cochran(5)... 2000 145,334 25,000 18,000 -- 250,100 --
Senior Vice 52,083 -- 7,660 -- 300,000 --
President 1999
and Chief 1998 -- -- -- -- -- --
Financial Officer
- -------------------------
(1) The amounts presented for 2000 include an automobile allowance for the use
of a vehicle in the amount of $12,000 for each of Dr. Davis and Mr. Cochran
and compensation for business expenses in the amount of $6,000 for each of
Dr. Davis and Mr. Cochran. The amounts presented for 1999 include an
automobile allowance for the use of a vehicle in the amount of $11,380 for
Mr. Perlman, $13,492 for Mr. Price, $9,500 for Dr. Davis and $5,000 for Mr.
Cochran and compensation for business expenses in the amount of $6,000 for
each of Messrs. Perlman and Price, $4,500 for Dr. Davis and $2,500 for Mr.
Cochran. The amount presented for Mr. Price in 1998 includes an automobile
allowance for the use of a vehicle in the amount of $13,270 and compensation
for business expenses in the amount of $6,000. The compensation set forth in
this column does not include compensation in the form of perquisites or
other personal benefits for Mr. Perlman in fiscal years 1998 and 2000 and
Mr. Price in 2000 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 Mr. Perlman and Mr. Price for such years.
(2) The amounts presented represent the value on the date of grant of restricted
stock awards of 60,000 shares to Mr. Perlman and 60,000 shares to Mr. Price,
calculated based on the closing price of InfoCure's common stock as reported
on The Nasdaq National Market on such date. One-half of the shares awarded
to Messrs. Perlman and Price vested in the first quarter of 1999 and the
remaining shares vested in the third quarter of 1999. In January 1999,
InfoCure entered into agreements with Messrs. Perlman and Price pursuant to
which the benefit of the restricted stock awards was credited to a deferred
compensation arrangement upon vesting of the restricted stock. The value of
the restricted stock awards as of December 31, 1999, calculated on the basis
of the closing price for InfoCure's common stock on such date, was
$1,871,280 for each of Messrs. Perlman and Price.
(3) The amounts presented represent InfoCure's contribution to the 401(k)
savings plan.
(4) Dr. Davis joined InfoCure in February 1999.
(5) Mr. Cochran joined InfoCure in August 1999.
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OPTION GRANTS IN LAST FISCAL YEAR
PracticeWorks did not grant any options during 2000. The following table
contains information concerning the stock option grants made by InfoCure to
PracticeWorks' chief executive officer and the Named Executive Officers by
InfoCure during 2000. The amounts shown for potential realizable values are
based upon assumed annualized rates of InfoCure stock price appreciation of five
percent and ten percent over the full ten year term (or shorter term) of the
options, as required by the SEC, and are not intended to represent or forecast
possible future appreciation, if any, of the price of InfoCure or PracticeWorks
common stock.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF ANNUAL RATES OF
SHARES OF TOTAL STOCK PRICE
COMMON STOCK OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED 2000 ($/SHARE)(1) DATE 5%($) 10%($)
- ---- ------------ --------------- ------------ ---------- ---------- ----------
Richard E. Perlman....... 100 * $31.19 1/1/10 $ 1,962 $ 4,971
1,200,000 10.0% 4.44 8/21/10 3,350,751 8,491,460
James K. Price........... 200 * 31.19 1/1/10 3,923 9,942
1,200,000 10.0 4.44 8/21/10 3,350,751 8,491,460
James C. Davis........... 200 * 5.62 7/1/10 707 1,791
700,000 5.8 4.44 8/21/10 1,954,605 4,953,352
James A. Cochran......... 100 * 5.50 8/2/10 87,599 209,322
250,000 2.1 4.44 8/21/10 698,073 1,769,054
- -------------------------
* Less than one percent.
(1) All options were granted with exercise prices equal to or in excess of the
fair market value of the common stock on the date of grant as determined by
the board of directors.
CERTAIN TRANSACTIONS
During August 2000, InfoCure granted PracticeWorks' executive officers
additional options to acquire InfoCure common stock. Mr. Perlman received
1,200,000 options, Mr. Price received 1,200,000 options, Dr. Davis received
700,000 options and Mr. Cochran received 250,000 options. Prior to the spin-off,
the exercise price of these options was $4.4375 per share. These options expire
ten years from the date of grant. Fifty percent of the options granted to these
executive officers vest in four equal annual installments beginning on the first
anniversary of the date of grant. The remaining 50% of the options granted to
these executive officers will vest five years from the date of grant, but half
of these options will immediately vest upon the average closing price of
InfoCure's common stock for 20 consecutive trading days being equal to or
greater than $8.875 per share and the remaining options will vest upon the
average closing stock price for 20 consecutive trading days being equal to or
greater than $13.3125 per share.
In connection with the terms of the spin-off, on March 5, 2001, each of
these options was converted to options to purchase PracticeWorks common stock.
The conversion ratio equaled 0.47530 PracticeWorks options for each InfoCure
option held. Using this conversion ratio, the August 2000 grants converted to
570,360 options each for
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Mr. Perlman and Mr. Price, 332,710 options for Dr. Davis, and 118,125 for Mr.
Cochran. The exercise price for these options is now $9.34.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUE TABLE
Shown below is information with respect to the number of InfoCure shares
acquired upon exercise of stock options and the aggregate gains realized on
exercises during 2000 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, 2000 and the aggregate gains that
would have been realized had these options been exercised on December 31, 2000,
even though these options were not exercised, and the unexercisable options
could not have been exercised at that time.
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN
UNDERLYING UNEXERCISED THE MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
Richard E. Perlman... 416,618 $2,996,316 133,381 1,650,200 $18,670 $77,151
James K. Price....... 416,618 2,996,316 110,000 1,533,000 -- 1,915
James C. Davis....... -- -- -- 703,600 -- --
James A. Cochran..... -- -- 75,000 475,100 -- --
- -------------------------
(1) The closing price for InfoCure's common stock as reported by The Nasdaq
National Market on December 29, 2000 was $3.75. The value is calculated on
the basis of the difference between the option exercise price and $3.75,
multiplied by the number of shares of common stock underlying the option.
EMPLOYMENT AGREEMENTS
In connection with the spin-off, PracticeWorks entered into three-year
employment agreements with Richard E. Perlman, James K. Price, James C. Davis
and James A. Cochran on substantially the terms described below. The individual
employment agreements provide for an initial annual base salary of $350,000 for
Messrs. Perlman and Price, $250,000 for Dr. Davis and $175,000 for Mr. Cochran.
The agreements also provide for a severance payment for each executive equal to
three times his then current annual base salary rate upon the termination of the
executive's employment by PracticeWorks without cause or by the executive for
good reason or in the event of a change in control. The employment agreements
entitle the executives to participate in our employee benefit programs and
provide for other customary benefits. In addition, each employment agreement
provides compensation pursuant to a program established by the compensation
committee of PracticeWorks' board of directors, the grant of stock options on
the first day of the executive's employment and periodic grants of options
thereafter as recommended by the compensation committee of our board of
directors.
Each employment agreement provides for 100% vesting of all outstanding
stock options upon a change in control. The employment agreements also provide
for an additional, tax gross-up payment to be made by PracticeWorks to the
executive in the event that, upon a change in the control, any payments made to
the executive that are subject to an excise tax under Section 4999 of the
Internal Revenue Code. Finally, the employment agreements prohibit the executive
from engaging in certain activities which
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compete with PracticeWorks, seek to recruit its employees or disclose any of its
trade secrets or otherwise confidential information.
2000 STOCK OPTION PLAN
PracticeWorks adopted an amended and restated stock option plan, effective
December 1, 2000, pursuant to which 8.0 million shares of common stock are
reserved for issuance. The PracticeWorks stock options that are outstanding
immediately following the spin-off are as a result of the conversion of existing
InfoCure options to PracticeWorks options that are deemed issued under the plan.
As of the date of the spin-off, approximately 3,500,000 shares of PracticeWorks'
common stock were issuable pursuant to presently outstanding options. The plan
is administered by the compensation committee of our board of directors. The
compensation committee may grant incentive stock options and nonqualified stock
options to purchase shares of common stock, stock appreciation rights and may
make stock grants to PracticeWorks' directors and employees. Each such stock
option, stock appreciation right and stock grant shall be subject to the terms
and conditions that the compensation committee deems appropriate. The option
price for each stock option granted will be the fair market value of common
stock on the date of the grant provided, however, that if the option is an
incentive stock option and the employee is the holder of more than ten percent
of our issued and outstanding stock, the option price will be no less than 110%
of the fair market value of common stock on the date of the grant. Upon a sale,
merger or a change in control of PracticeWorks, all stock options, stock
appreciation rights and stock grants shall be fully vested. The stock option
plan permits PracticeWorks to loan money to or guarantee loans made by a third
party to finance all or a part of the exercise of a stock option or the purchase
of common stock subject to a stock grant. PracticeWorks' board of directors can
amend or terminate the stock option plan at any time.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
PracticeWorks' certificate of incorporation limits the liability of
directors to the fullest extent permitted by Delaware law. In addition,
PracticeWorks' certificate of incorporation and bylaws provide that
PracticeWorks will indemnify PracticeWorks' directors and officers to the
fullest extent permitted by Delaware law.
PracticeWorks' bylaws provide that PracticeWorks will indemnify officers
and directors against losses that they may incur in investigations and legal
proceedings resulting from their services to PracticeWorks, which may include
services in connection with takeover defense measures. These provisions may have
the effect of preventing changes in the management.
At the time of the spin-off, PracticeWorks entered into indemnification
agreements with each of PracticeWorks' current directors and officers to give
them additional contractual assurances regarding the scope of the
indemnification set forth in PracticeWorks' certificate of incorporation and
bylaws and to provide additional procedural protections. At present, there is no
pending litigation or proceeding involving any of PracticeWorks' directors,
officers or employees for which indemnification from PracticeWorks is sought.
PracticeWorks is not aware of any threatened litigation that may result in
claims for indemnification from PracticeWorks.
PracticeWorks currently has liability insurance for its directors and
officers and intends to extend that coverage for public securities matters.
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SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND
MANAGEMENT OF PRACTICEWORKS
All of PracticeWorks' outstanding common stock was, prior to the spin-off,
held beneficially and of record by a wholly owned subsidiary of InfoCure.
Subsequent to the spin-off, InfoCure and its subsidiaries do not own any of
PracticeWorks' outstanding common stock. The following table sets forth
information concerning the shares of PracticeWorks common stock that are
beneficially owned by the following individuals:
- each person that beneficially owns more than five percent of the
PracticeWorks common stock outstanding;
- each of PracticeWorks' directors or director nominees;
- each of PracticeWorks' executive officers; and
- all of PracticeWorks' directors, director nominees and executive officers
as a group.
Unless otherwise indicated, the listing is based on the number of
PracticeWorks shares held by such persons as of May 31, 2001. Unless otherwise
indicated in the footnotes to this table and subject to community property laws
where applicable, PracticeWorks believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. The address for each person set forth in the
table is c/o PracticeWorks, Inc., 1765 The Exchange, Suite 200, Atlanta, Georgia
30339.
In addition, options to acquire InfoCure common stock held by these persons
were converted into options to acquire PracticeWorks common stock in connection
with the spin-off. The number of shares shown as beneficially owned by each
person in the table below includes shares that can be acquired by that person
through stock option exercises on or prior to July 30, 2001. In calculating the
percentage owned by each person, PracticeWorks assumed that all shares issuable
upon exercise of options on or prior to July 30, 2001 are exercised by that
person. The total number of shares outstanding used in calculating the
percentage owned assumes no exercise of options held by other persons.
TOTAL
COMMON EXERCISABLE NUMBER OF SHARES PERCENT
NAME OF BENEFICIAL OWNER STOCK OPTIONS BENEFICIALLY OWNED OF CLASS(1)
- ------------------------ ------- ----------- ------------------ -----------
Richard E. Perlman.................. 264,613 75,243 339,856 3.7%
James K. Price...................... 355,990 78,256 434,246 4.7
James C. Davis...................... 232,518 -- 232,518 2.6
James A. Cochran.................... 265 35,646 35,911 *
William R. Jellison................. -- -- -- *
Raymond H. Welsh.................... 31,250 7,130 38,380 *
William A. Shutzer.................. 62,500 -- 62,500 *
------- ------- --------- ----
All executive officers and directors
as a group (7 persons)............ 947,136 196,275 1,143,411 12.3%
======= ======= ========= ====
- -------------------------
* Less than 1%
(1) Based on an aggregate of 9,117,194 shares of PracticeWorks common stock
issued and outstanding as of May 31, 2001.
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Currently, there are no stockholders known by PracticeWorks to be the
beneficial owner of more than 5% of PracticeWorks outstanding common stock as of
May 31, 2001. However, PracticeWorks issued shares of its series A and series C
convertible redeemable preferred stock in two separate transactions.
PracticeWorks also expects to issue shares of series B convertible redeemable
preferred stock upon the consummation of the Medical Dynamics acquisition. The
series A, series B and series C convertible redeemable preferred stock are each
convertible into shares of PracticeWorks' common stock in accordance with the
terms of such series, and under specified circumstances, the holders of series A
and series B convertible redeemable preferred stock may immediately convert
their preferred stock into common stock in an aggregate amount exceeding 5% of
PracticeWorks' outstanding common stock. The series C convertible redeemable
preferred stock is not convertible for one year after issuance. After one year,
holders of PracticeWorks' series C convertible redeemable preferred stock will
be able to convert their preferred stock into more than 5% of its outstanding
common stock. Additionally, PracticeWorks may issue more than 5% of its
outstanding common stock to Crescent pursuant to the equity line. PracticeWorks
may also issue up to 487,253 shares of its common stock, representing 5.3% of
the PracticeWorks common stock, to WebMD in connection with PracticeWorks'
assumption of a portion of InfoCure's obligation owed to WebMD representing
greater than 5% of PracticeWorks' outstanding common stock.
DESCRIPTION OF CAPITAL STOCK OF PRACTICEWORKS
PracticeWorks' authorized capital stock consists of 100,000,000 shares of
common stock, $0.01 par value, and 20,000,000 shares of preferred stock, $0.01
par value.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
holders of common stock are entitled to receive ratably such dividends as may be
declared by the board out of legally available funds. In the event of
PracticeWorks' liquidation, dissolution or winding up, holders of the common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any outstanding shares of
preferred stock. Holders of common stock have no preemptive rights or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable. The shares of PracticeWorks' common
stock to be distributed will be freely transferable, except for PracticeWorks'
common stock received by persons who may be deemed to be its "affiliates" under
the Securities Act of 1933, as amended.
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PREFERRED STOCK -- GENERAL
PracticeWorks is authorized, subject to limitations prescribed by Delaware
law, to issue a total of 20,000,000 shares of preferred stock in one or more
series, to establish from time to time the number of shares to be included in
each series, and to fix the rights, preferences and privileges of the shares of
each wholly unissued series and any of its qualifications, limitations or
restrictions.
The terms and rights of any such series may include:
- the designation of the series,
- the number of shares of the series, which number our board of directors
may thereafter, except where otherwise provided in the applicable
certificate of designation, increase or decrease, but not below the
number of shares thereof then outstanding,
- whether dividends, if any, will be cumulative or noncumulative, and, in
the case of shares of any series having cumulative dividend rights, the
date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative,
- the rate of any dividends or method of determining such dividends payable
to the holders of the shares of such series, any conditions upon which
such dividends will be paid and the date or dates or the method for
determining the date or dates upon which such dividends will be payable,
- the redemption rights and price or prices, if any, for shares of the
series,
- the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series,
- the amounts payable on and the preferences, if any, of shares of the
series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of our affairs,
- whether the shares of the series will be convertible or exchangeable into
shares of any other class or series, or any other security, of us or any
other corporation, and, if so, the specification of such other class or
series or such other security, the conversion or exchange price or prices
or rate or rates, any adjustments thereof, the date or dates as of which
such shares will be convertible or exchangeable and all other terms and
conditions upon which such conversion or exchange may be made,
- restrictions on the issuance of shares of the same series or of any other
class or series,
- the voting rights, if any, of the holders of the shares of the series,
and
- any other relative rights, preferences and limitations of such series.
PracticeWorks' board may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of the common stock. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could, among other things, have the effect of
delaying, deferring or preventing a change in control of
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PracticeWorks and may adversely affect the market price of the common stock and
the voting and other rights of the holders of common stock.
Except as described below, PracticeWorks currently has no outstanding
shares of preferred stock. The series A, series B and series C convertible
redeemable preferred stock will rank pari passu with respect to liquidation
preference and the payment of dividends, but each of the series A, series B and
series C convertible redeemable preferred stock will rank senior to our common
stock with respect to these terms.
PRACTICEWORKS SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK ISSUED TO
CERAMCO.
In connection with its March 7, 2001 acquisition of the InfoSoft division
of DENTSPLY, PracticeWorks issued 32,000 shares of its series A convertible
redeemable preferred stock to Ceramco, a wholly owned subsidiary of DENTSPLY, as
consideration for the transfer to PracticeWorks of the membership interests in
SoftDent, LLC representing the assets which were used in DENTSPLY's business of
developing, marketing, licensing and supporting the SoftDent software product.
The series A convertible redeemable preferred stock was issued to Ceramco in a
private placement. The rights, preferences and limitations of the series A
convertible redeemable preferred stock are as follows:
- holders of the series A convertible redeemable preferred stock will be
entitled to receive cumulative dividends, if so declared by our board of
directors, at an annual rate of 6.5% and will accumulate if not so
declared;
- holders of the series A convertible redeemable preferred stock will have
priority over common stock as to the declaration of dividends and will
share, on an as-converted basis, with the holders of our common stock in
any dividends declared on the common stock;
- holders of the series A convertible redeemable preferred stock will be
entitled to receive a liquidation preference of $1,000 per share, plus
accrued and unpaid dividends in the event that PracticeWorks liquidates,
dissolves or winds up before any distribution or payment is made for the
benefit of the holders of its common stock, or any series of stock junior
to the series A convertible redeemable preferred stock and will share, on
an as-converted basis, with the holders of its common stock in any such
distribution or payment up to a maximum of 200% of the holders'
liquidation preference plus all accrued and unpaid dividends;
- on the fifth anniversary date of the issuance of the series A convertible
redeemable preferred stock, the holders of a majority of the outstanding
shares of series A convertible redeemable preferred stock will be
entitled to cause PracticeWorks to redeem all of the series A convertible
redeemable preferred stock outstanding in cash at a price equal to the
then effective liquidation preference plus accrued and unpaid dividends;
- holders of the series A convertible redeemable preferred stock, voting as
a class, are generally entitled to elect one director to PracticeWorks'
board of directors as long as it has at least six directors, but are not
entitled to vote with respect to the election of the remaining directors;
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- holders of the series A convertible redeemable preferred stock will
generally have the right to vote, on an as-converted basis, on all
matters on which PracticeWorks' common stockholders are entitled to vote;
- at any time prior to the fourth anniversary date of the issuance of the
series A convertible redeemable preferred stock, holders of the series A
convertible redeemable preferred stock will have the right, at such
holders' option, to convert all or a portion of their series A
convertible redeemable preferred stock into shares of PracticeWorks'
common stock based upon a conversion price that, assuming all shares were
converted, would result in the issuance of approximately 9.8%, or 857,949
shares, of PracticeWorks' outstanding common stock at the time of the
spin-off;
- at any time between the fourth and fifth anniversary dates of the
issuance of the series A convertible redeemable preferred stock, holders
of the series A convertible redeemable preferred stock will have the
right, at such holders' option, to convert all or a portion of their
series A convertible redeemable preferred stock into shares of common
stock at the conversion price equal to the average of the closing price
of our common stock during the 30 trading days prior to the conversion,
unless PracticeWorks elects to redeem such shares based on such average
closing price, plus all accrued and unpaid dividends;
- the shares of series A convertible redeemable preferred stock are subject
to automatic conversion if the closing price for 20 consecutive trading
days exceeds 175% of the conversion price then applicable; and
- holders of the series A convertible redeemable preferred stock will
receive demand and piggyback registration rights as to the common stock
issuable upon conversion of the shares of series A convertible redeemable
preferred stock PracticeWorks issues.
PRACTICEWORKS SERIES B CONVERTIBLE REDEEMABLE PREFERRED STOCK ISSUABLE TO
MEDICAL DYNAMICS STOCKHOLDERS
GENERAL. PracticeWorks has authorized for issuance to stockholders of
Medical Dynamics, without any further stockholder action required, 1,000,000
shares of PracticeWorks' preferred stock, designated as series B convertible
redeemable preferred stock. The holders of the preferred stock will have no
preemptive rights with respect to any shares of PracticeWorks' capital stock or
any of PracticeWorks' other securities which are convertible into or carrying
rights or options to purchase any such shares. The preferred stock will, when
issued, be fully paid and nonassessable.
The transfer agent, registrar, redemption, conversion and dividend
disbursing agent for shares of the preferred stock will initially be StockTrans,
Inc. The transfer agent will send notices to stockholders of any special
meetings at which holders of the preferred stock have the right to vote. See
"-- Voting Rights" below.
SELECTED DEFINITIONS.
"CLOSING PRICE" for each day shall mean on such day the reported last sales
price for the PracticeWorks common stock or, in case no sale takes place on such
day, the average of the reported closing bid and asked prices for the common
stock, in either case as
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reported on The Nasdaq National Market, or if the common stock is not quoted on
The Nasdaq National Market, on the principal national securities exchange on
which the common stock shall then be listed or admitted for trading or, if not
listed or admitted to trading on any national securities exchange, the average
of the closing bid and asked prices for the common stock on such day in the
over-the-counter market as reported by Nasdaq or, if bid and asked prices for
the common stock on each such date shall not have been reported by Nasdaq, the
average of the bid and asked prices of the common stock for such day as
furnished by any New York Stock Exchange member firm regularly making a market
in the common stock selected for such purpose by PracticeWorks' board of
directors or, if no such quotations are available, the fair market value (as
defined) of the common stock furnished by any New York Stock Exchange member
firm selected from time to time by PracticeWorks' board of directors for that
purpose.
"CONVERSION NOTICE" shall mean the written notice to the transfer agent
that the holder of preferred stock elects to convert all or a specified portion
of their preferred stock.
"CURRENT MARKET PRICE" per share of common stock on any date means the
average of the daily closing prices for the 30 consecutive trading days
commencing 45 trading days before the date of determination.
"FAIR MARKET VALUE" means fair market value as determined in good faith by
PracticeWorks' board of directors, after consultation with an investment banker
of recognized national standing, which determination shall be evidenced by a
resolution of PracticeWorks' board of directors.
"LIQUIDATION PREFERENCE" means an amount equal to $5.44 per share of
preferred stock, subject to change in accordance with the terms of the
certificate of designation.
"TRADING DAY" with respect to common stock means (1) if the common stock is
quoted on The Nasdaq National Market, or any similar system of automated
dissemination of quotations or securities prices, a day on which trades may be
made on such system, (2) if the common stock is listed or admitted for trading
on the New York Stock Exchange or another a national securities exchange, a day
on which the New York Stock Exchange or such other national securities exchange
is open for business, (3) if not quoted or listed as described in clause (1) and
(2), days on which quotations are reported by the National Quotation Bureau
Incorporated or (4) otherwise, any business day.
RANKING. PracticeWorks may issue a class or series of stock which may rank
senior to, pari passu with, or junior to the preferred stock with respect to
dividends or amounts distributable upon liquidation, dissolution or winding up.
DIVIDENDS. Holders of the preferred stock will be entitled to receive
cumulative dividends from the date on which the shares of preferred stock are
issued at an annual rate of 6% on the amount of the then effective liquidation
preference of the shares of preferred stock. Dividends will be payable quarterly
in arrears on March 31, June 30, September 30 and December 31 of each year
commencing June 30, 2001, for so long as any shares of preferred stock are
outstanding. PracticeWorks may, in its sole discretion, elect to pay dividend
payments on any dividend payment date in either cash or common stock.
PracticeWorks will take all actions required or permitted under the General
Corporation Law of the state of Delaware to permit the payment of dividends on
the shares of preferred stock on the dividend payment date. Dividends will
accrue on a daily basis whether or not PracticeWorks has earnings or profits,
whether or not there are funds legally available for the payment of such
dividends and whether or not the dividends are
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declared. If any dividend payable on any dividend payment date is not declared
and paid in full on such dividend payment date, the amount so payable, to the
extent not paid, shall automatically, without any action on the part of
PracticeWorks or the holders of the shares of preferred stock, be added to the
then effective liquidation preference on the first business day following such
dividend payment date. Notwithstanding anything else contained herein, once any
dividends for the preceding dividend period are added to the then effective
liquidation preference, such dividends shall no longer be payable in cash or
common stock and such dividends shall be deemed to have been fully paid. For any
dividend period for which PracticeWorks elects to pay dividends on the preferred
stock in PracticeWorks common stock, the number of shares of common stock
payable on each share shall be equal to the dividend due per share divided by
the average of the closing prices of the common stock on the 20 consecutive
trading days ending on the trading day immediately prior to the dividend payment
date for such dividend period. No fractional shares of common stock shall be
issued as dividends on the preferred stock, and in lieu of any fractional shares
to which the holder would otherwise be entitled, PracticeWorks shall pay cash to
such holder. If fractional shares of common stock would be issuable in
connection with dividend payments, PracticeWorks will pay to each holder cash in
lieu of such fractional shares. Except as otherwise provided herein, if at any
time PracticeWorks pays less than the total amount of dividends then accrued
with respect to the preferred stock, such payment shall be distributed pro rata
among the holders thereof based upon the number of shares of preferred stock
held by each such holder.
The amount of dividends payable for each full dividend period for the
preferred stock will be computed by multiplying the annual dividend rate by the
liquidation preference as of the first day of the dividend period and dividing
the product therefrom by four (rounding down to the nearest cent). The amount of
dividends payable for the initial dividend period on the preferred stock, or any
other period shorter or longer than a full dividend period on the preferred
stock shall be computed on the basis of a 360-day year consisting of twelve
30-day months. Holders of shares of preferred stock to be redeemed on a
redemption date falling between the close of business on a dividend payment
record date and the opening of business on the corresponding dividend payment
date shall, in lieu of receiving such dividend on the dividend payment date
fixed therefor, receive such dividend payment together will all other accrued
and unpaid dividends on the date fixed for redemption (unless such holder
converts such shares in accordance with the terms of the certificate of
designations). Holders of shares of preferred stock shall not be entitled to any
dividends, whether payment in cash, property or securities, in excess of the
dividends on the preferred stock provided for herein. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on the preferred stock which are in arrears.
Notwithstanding any provision to the contrary contained in the certificate
of designation, PracticeWorks is not obligated or permitted to pay any dividends
on the preferred stock to the extent that PracticeWorks is prohibited from doing
so under any agreements, documents or instruments related to any outstanding
indebtedness for borrowed money of PracticeWorks or any of its subsidiaries.
LIQUIDATION PREFERENCE. In the event that PracticeWorks liquidates,
dissolves or winds up, whether voluntary or involuntary, before any payment or
distribution of its assets (whether capital or surplus) shall be made to or set
apart for the holders of PracticeWorks common stock or any other series or class
or classes of PracticeWorks stock ranking junior to the preferred stock upon
liquidation, dissolution or winding up, the holders of the shares
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of preferred stock shall be entitled to receive the greater of (1) the then
effective liquidation preference, plus an amount per share equal to all
dividends (whether or not or declared) accrued and unpaid thereon to the date of
final distribution to such holders, or (2) the amount per share that would be
distributed among the holders of the preferred stock and common stock pro rata
based on the number of shares of common stock held by each holder assuming
conversion of all shares of preferred stock. PracticeWorks will make no payment
on account of any liquidation, dissolution or winding up of its operations to
the holders of any class or series of stock ranking on a parity with the
preferred stock in respect of the distribution of assets upon dissolution,
liquidation or winding up unless there will likewise be paid at the same time to
the holders of the preferred stock like proportionate amounts determined ratably
in proportion to the full amounts to which the holders of all outstanding shares
of preferred stock and the holders of all outstanding shares of such parity
stock are respectively entitled with respect to such distribution. If, upon
PracticeWorks' liquidation, dissolution or winding up of operations,
PracticeWorks' assets or proceeds thereof, distributable among the holders of
the shares of preferred stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other shares of
stock ranking, as to liquidation, dissolution or winding up, on a parity with
the preferred stock, then such assets, or the proceeds thereof, shall be
distributed among the holders of shares of preferred stock and any such other
parity stock ratably in accordance with the respective amounts which would be
payable on such shares of preferred stock and any such other stock if all
amounts payable thereof were paid in full. For purposes of the certificate of
designation, (1) a consolidation or merger of PracticeWorks with one or more
corporations or other entities; (2) a sale, lease, exchange or transfer of all
or any part of PracticeWorks' assets; (3) a statutory share exchange or (4) the
distribution of PracticeWorks common stock to PracticeWorks' stockholders are
not deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary.
Subject to the rights of the holders of shares of any series or class or
classes of stock ranking on a parity with or senior to the preferred stock upon
liquidation, dissolution or winding up, upon any liquidation, dissolution or
winding up of PracticeWorks, after payment shall have been made in full to the
holders of preferred stock, as provided in the certificate of designations, any
other series or class or classes of stock ranking junior to the preferred stock
upon liquidation, dissolution or winding up shall, subject to the respective
terms and provisions (if any) applying thereto, be entitled to receive any and
all assets remaining to be paid or distributed, and the holders of preferred
stock shall not be entitled to share therein.
PracticeWorks shall give written notice of liquidation, dissolution or
winding up, stating the payment date or dates and the place or places where the
amounts distributable in such circumstances shall be payable, by first class
mail, postage prepaid, not less than 30 days prior to any payment date stated
therein, to the holders of record of the preferred stock at their respective
addresses as the same shall appear on our stock record books.
REDEMPTION. On the fifth anniversary of the date the shares of preferred
stock are issued in the merger PracticeWorks will redeem all outstanding shares
of preferred stock in cash at a price per share equal to the then effective
liquidation preference plus an amount equal to all accrued and unpaid dividends
(whether or not declared) on the redemption date. Prior to the redemption date,
PracticeWorks will give notice of redemption not less than 30 nor more than 60
days prior to the redemption date, which shall set forth the material terms of
the redemption as required by the certificate of designation.
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If funds legally available for redemption shall be insufficient to redeem
all of the outstanding shares of preferred stock, funds to the extent legally
available shall be used for such purpose and PracticeWorks shall effect such
redemption pro rata according to the number of outstanding shares of preferred
stock held by each holder thereof. The redemption requirements provided hereby
shall be continuous, so that if such requirements cannot be fully discharged,
without further action by any holder of the preferred stock, funds legally
available shall be applied therefor until such requirements are fulfilled.
On or after the redemption date, each holder of shares of preferred stock
shall surrender a certificate or certificates representing the number of shares
of the preferred stock to be redeemed as stated in the redemption notice. If the
redemption notice shall have been duly given, unless PracticeWorks has been in
default in providing money for the payment of the redemption price (including
any accrued and unpaid dividends to (and including) the redemption date), (1)
dividends on the shares of the preferred stock to be redeemed will cease to
accrue on the redemption date, (2) said shares shall be deemed no longer
outstanding, and (3) all rights of the holders thereof as stockholders of
PracticeWorks, except the right to receive from us the monies payable upon
redemption without interest thereon, shall cease on the redemption date, or if
earlier, on the date specified in the following sentence. PracticeWorks'
obligation to provide monies in accordance with the preceding sentence will be
deemed fulfilled if, on or before the redemption date, PracticeWorks deposits
with a bank or trust company funds necessary for such redemption, in trust for
the account of the holders of the shares to be redeemed (and so as to be and
continue to be available therefor), with irrevocable instructions and authority
to such bank or trust company that such funds be applied to the redemption of
the shares of preferred stock to be so redeemed. Any interest accumulated on
such funds will be paid to PracticeWorks from time to time. Any funds so
deposited and unclaimed at the end of two years from the redemption date will be
released or repaid to PracticeWorks, after which, subject to any applicable laws
relating to escheat or unclaimed property, the holder or holders of such shares
of preferred stock so called for redemption will look only to PracticeWorks for
payment of the redemption price.
Upon surrender in accordance with the notice of redemption of the
certificates for the shares so redeemed, PracticeWorks will redeem such shares
at the applicable redemption price aforesaid. There is no restriction on the
redemption of the preferred stock while there is an arrearage in the payment of
dividends.
Notwithstanding any provision to the contrary in the certificate of
designations, PracticeWorks shall not be obligated or permitted to redeem or
otherwise acquire any shares of preferred stock to the extent that it is
prohibited from doing so under any agreements, documents or instruments related
to any outstanding indebtedness for borrowed money of PracticeWorks or any of
its subsidiaries.
CONVERSION RIGHTS. Holders of shares of preferred stock will have the
right to convert all or a portion of such shares, including fractions of such
shares, into shares of PracticeWorks common stock, as follows:
A holder of shares of preferred stock will have the right, at such holder's
option, at any time to convert any of such shares (or fractions thereof) into
the number of fully paid and nonassessable shares of PracticeWorks common stock,
calculated as to each conversion to the nearest 1/100th of a share, obtained by
dividing the aggregate of the then effective liquidation preference of the
shares to be converted by the conversion price, which is initially $36.387 and
subject to adjustment, and by surrender of such shares; provided,
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however, that the right to convert shares subject to a notice of redemption will
terminate at the close of business on (i) the redemption date, or (ii) if
PracticeWorks so elects and states in the notice of redemption, the business day
immediately before the date (which date shall be the redemption date or any
earlier date not less than 30 days after the date of mailing of the redemption
notice) on which PracticeWorks irrevocably deposits with a designated bank or
trust company as paying agent, money sufficient to pay, on the redemption date,
the redemption price for the shares of preferred stock to be redeemed. If a part
of a share of preferred stock is converted, then PracticeWorks will convert such
share into the appropriate number of shares of PracticeWorks' common stock, and
cash instead of fractional shares of common stock, and issue a fractional share
of preferred stock evidencing the remaining interest of such holder.
Holders of shares of preferred stock at the close of business on the record
date to set the dividend payment date shall be entitled to receive the dividend
payable on such shares on the corresponding dividend payment date (unless the
redemption date is between the close of business on such record date and the
opening of business on the corresponding dividend payment date in which case, in
lieu of receiving such dividend on the dividend payment date fixed therefor, the
holder of such shares will receive such dividend payment together with all other
accrued and unpaid dividends on the redemption date, unless such holder first
converts such shares pursuant to the provisions of the certificate of
designation) notwithstanding the conversion thereof following such dividend
payment record date and prior to such dividend payment date.
As promptly as practicable after the surrender of certificates for shares
of preferred stock as aforesaid, PracticeWorks will issue and deliver at such
office to such holder, or on such holder's written order, a certificate or
certificates for the number of shares of common stock issuable upon the
conversion of such shares, and any fractional interest in respect of a share of
common stock arising upon such conversion, as the case may be.
Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which the written notice of conversion (as
delivered to the transfer agent) shall have been received by InfoCure, and the
person or persons in whose name or names any certificate or certificates for
shares of common stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby at
such time on such date and such conversion shall be at the conversion price in
effect at such time on such date, unless the stock transfer books of
PracticeWorks shall be closed on that date, in which event such person or
persons shall be deemed to have become such holder or holders of record at the
close of business on the next succeeding day on which such stock transfer books
are open, but such conversion shall be at the conversion price in effect at the
close of business on the date prior to the date the conversion notice is
received. All shares of common stock delivered upon conversion of the preferred
stock will upon delivery be duly and validly issued and fully paid and
nonassessable.
In connection with the conversion of any shares of preferred stock,
fractions of such shares may be converted; however, no fractional shares or
scrip representing fractions of shares of common stock shall be issued upon
conversion of the preferred stock. Instead of any fractional interest in a share
of common stock which would otherwise be deliverable upon the conversion of a
share (or fraction thereof) of preferred stock, PracticeWorks will pay to the
holder of such share an amount in cash (computed to the nearest cent) equal to
the closing price of PracticeWorks' common stock on the trading day immediately
preceding the day of conversion multiplied by the fraction of a share of common
stock
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represented by such fractional interest. If more than one share (or fraction
thereof) shall be surrendered for conversion at one time by the same holder, the
number of full shares of common stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of preferred stock so
surrendered.
In connection with the conversion of any shares of preferred stock,
fractions of such shares may be converted; however, no fractional shares or
scrip representing fractions of shares of common stock shall be issued upon
conversion of the preferred stock. Instead of any fractional interest in a share
of common stock which would otherwise be deliverable upon the conversion of a
share of preferred stock, or a fraction thereof, PracticeWorks shall pay to the
holder of such share an amount in cash (computed to the nearest cent) equal to
the closing price of common stock on the trading day immediately preceding the
day of conversion multiplied by the fraction of a share of common stock
represented by such fractional interest. If more than one share (or fraction
thereof) shall be surrendered for conversion at one time by the same holder, the
number of full shares of common stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of preferred stock so
surrendered.
PracticeWorks may not consolidate or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets to, any entity unless the holders of a majority of the then outstanding
shares of preferred stock consent thereto, or (1) if PracticeWorks is the
surviving or continuing entity, the preferred stock shall remain outstanding
without any amendment that would adversely affect the preferences, rights or
powers of the preferred stock, provided that the preferred stock will thereafter
no longer be subject to conversion into common stock pursuant to the terms of
the certificate of designations, but each share of preferred stock instead shall
be convertible into the kind of shares of stock and other securities and
property receivable (including cash) upon the consummation of such transaction
by a holder of that number of shares or fractions thereof of common stock into
which one share of preferred stock was convertible immediately prior to such
transaction with the amount of shares of stock and other securities and property
to be received determined based upon the conversion price and liquidation
preference on the date of conversion, (2) if PracticeWorks is not the surviving
or continuing person, (a) the entity formed by such consolidation or merger or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (in any such case, the "resulting entity") is a corporation
organized and existing under the laws of any State of the United States; and (b)
the shares of preferred stock are converted into or exchanged for and become
shares of such resulting entity, having in respect of such resulting entity the
same (or more favorable) powers, preferences and relative, participating,
optional or other special rights that the shares of preferred stock had
immediately prior to such transaction, provided that the preferred stock will
thereafter no longer be subject to conversion into common stock pursuant to the
certificate of designations, but instead each share of preferred stock shall be
convertible into the kind of shares of stock and other securities and property
receivable (including cash) upon the consummation of such transaction by a
holder of that number of shares or fractions thereof of common stock into which
one share of preferred stock was convertible immediately prior to such
transaction with the amount of shares of stock and other securities and property
to be received determined based upon the conversion price and liquidation
preference on the date of conversion; and (3) PracticeWorks shall have delivered
to the transfer agent an officers' certificate and an option of counsel,
reasonably satisfactory in form and content, each stating that such
consolidation, merger, conveyance or transfer complies with the terms of the
certificate of designations and that all conditions precedent herein provided
for
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relating to such transaction have been complied with. These provisions of this
paragraph shall similarly apply to successive transactions.
CONVERSION PRICE ADJUSTMENT. The conversion price shall be adjusted from
time to time as follows:
- If PracticeWorks should, after the issue date (1) pay a dividend or make
a distribution on its common stock in shares of PracticeWorks common
stock, (2) subdivide or split PracticeWorks outstanding common stock into
a greater number of shares, (3) combine PracticeWorks outstanding common
stock into a smaller number of shares or (4) issue any shares of capital
stock by reclassification of PracticeWorks common stock, the conversion
price in effect immediately prior thereto will be adjusted so that the
holder of any share of preferred stock thereafter surrendered for
conversion will be entitled to receive the number of shares of
PracticeWorks common stock which such holder would have owned or have
been entitled to receive after the occurrence of any of the events
described above had such share been surrendered for conversion
immediately prior to the occurrence of such event or the record date
therefor, whichever is earlier. An adjustment made pursuant to this
paragraph will become effective immediately after the close of business
on the record date for determination of stockholders entitled to receive
such dividend or distribution in the case of a dividend or distribution,
except as provided elsewhere in the certificate of designation, and shall
become effective immediately after the close of business on the effective
date in the case of a subdivision, split, combination or
reclassification. Any shares of common stock issuable in payment of a
dividend shall be deemed to have been issued immediately prior to the
close of business on the record date for such dividend for purposes of
calculating the number of outstanding shares of common stock below.
- If PracticeWorks should issue after the issue date rights or warrants to
all holders of common stock entitling them (for a period expiring within
45 days after the issuance date) to subscribe for or purchase common
stock at a price per share less than the current market price per share
of common stock at the record date for the determination of stockholders
entitled to receive such rights or warrants, then the conversion price in
effect immediately prior thereto will be adjusted to equal the price
determined by multiplying (1) the conversion price in effect immediately
prior to the date of issuance of such rights or warrants by (2) a
fraction, the numerator of which will be the sum of (a) the number of
shares of common stock outstanding on the date of issuance of such rights
or warrants (without giving effect to any such issuance) and (b) the
number of shares which the aggregate proceeds from the exercise of such
rights or warrants for common stock would purchase at such current market
price, and the denominator of which will be the sum of (1) the number of
shares of common stock outstanding on the date of issuance of such rights
or warrants (without giving effect to any such issuance) and (2) the
number of additional shares of common stock that are subject to such
rights or warrants. Such adjustment will be made successively whenever
any such rights or warrants are issued, and will become effective
immediately after such record date. In determining whether any rights or
warrants entitle the holders of common stock to subscribe for or purchase
shares of common stock at less than such current market price, there
shall be taken into account the fair market value of any consideration
received by us upon issuance and upon exercise of such rights or
warrants.
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- If PracticeWorks should pay a dividend or make a distribution to all
holders of its common stock after the issue date of any shares of its
capital stock or its subsidiaries (other than in PracticeWorks common
stock) or evidences of indebtedness or assets (excluding cash dividends
payable solely in cash that may from time to time be fixed by
PracticeWorks' board of directors, or dividends or distributions in
connection with liquidation, dissolution or winding up) or rights or
warrants to subscribe for or purchase any of its securities or those of
its subsidiaries (excluding those referred to above), then in each such
case, the conversion price will be adjusted so that it shall equal the
price determined by multiplying (A) the conversion price in effect on the
record date mentioned below by (B) a fraction, the numerator of which
shall be the current market price per share of the common stock on the
record date mentioned below less the then fair market value as of such
record date of the portion of the capital stock or assets or evidences of
indebtedness so distributed or of such rights or warrants applicable to
one share of common stock, and the denominator of which will be the
current market price per share of the common stock on such record date;
provided, however, that in the event the then fair market value of the
portion of securities so distributed applicable to one share of common
stock is equal to or greater than the Current Market Price per share of
common stock on the record date mentioned above, in lieu of the foregoing
adjustment, adequate provision shall be made so that each holder of
shares of Series B Preferred Stock shall have the right to receive the
amount and kind of Securities such holder would have received had such
holder converted each such share of Series B Preferred Stock immediately
prior to the record date for the distribution of the securities. Such
adjustment shall become effective immediately, except as provided
elsewhere in the certificate of designation, after the record date for
the determination of stockholders entitled to receive such distribution.
- Notwithstanding anything in the second and third bullet points above, if
rights or warrants, the distribution of which results an adjustment under
either of such subparagraphs shall by their terms provide for an increase
or increases with the passage of time or otherwise in the price payable
to PracticeWorks upon the exercise thereof, the conversion price upon any
such increase becoming effective shall forthwith be readjusted (but to no
greater extent than originally adjusted by reason of such issuance or
sale) to reflect the same. Upon the expiration or termination of such
rights or warrants, if any such rights or warrants shall not have been
exercised, then the conversion price shall forthwith be readjusted and
thereafter be the rate which it would have been had an adjustment been
made on the basis that (1) the only rights or warrants so issued or sold
were those so exercised and they were issued or sold for the
consideration actually received by us upon such exercise plus the
consideration, if any, actually received by PracticeWorks for the
granting of all such options, rights or warrants whether or not exercised
and (2) PracticeWorks issued and sold a number of shares of common stock
equal to those actually issued upon exercise of such rights, and such
shares were issued and sold for a consideration equal to the aggregate
exercise price in effect under the exercise rights actually exercised at
the respective dates of their exercise. For purposes of the second and
third bullets above, the aggregate consideration received by
PracticeWorks in connection with the issuance of shares of common stock
or of rights or warrants shall be deemed to be equal to the sum of the
aggregate offering price (before deduction of underwriting discounts or
commissions and expenses payable to third parties) of all such securities
plus the
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minimum aggregate amount, if any, payable upon the exercise of such
rights or warrants into shares of common stock.
- If PracticeWorks should, by dividend or otherwise, at any time distribute
to all holders of PracticeWorks' common stock cash, excluding
distributions specified in the certificate of designation, in an
aggregate amount that, together with (1) the aggregate amount of any
other distributions to all holders of the common stock made exclusively
in cash within the 12 months preceding the date fixed for the
determination of stockholders entitled to such distribution and in
respect of which no conversion price adjustment pursuant to the third
bullet point above or this bullet point has been made previously and (2)
the aggregate of any cash plus the fair market value as of such date of
determination of consideration payable in respect of any tender or
exchange offer by PracticeWorks or a subsidiary for all or any portion of
the common stock consummated within 12 months preceding such date of
determination and in respect of which no conversion price adjustment
pursuant to the sixth bullet point below has been made previously,
exceeds the greater of (a) 1% of the product of the current market price
per share of common stock on such date of determination multiplied by the
number of shares of common stock outstanding on such date or (b) 5% of
our net income reported for the 12 month period ending with the fiscal
quarter next preceding such payment, then in each such case the
conversion price shall be reduced so that it shall equal the price
obtained by multiplying the conversion price in effect immediately prior
to the close of business on such date of determination by a fraction of
which the numerator shall be the current market price per share of common
stock on such date less the amount of cash to be distributed at such time
applicable to one share of common stock and the denominator shall be such
current market price, such reduction to become effective immediately
prior to the opening of business on the day after such date; provided,
however, that in the event the portion of the cash so distributed
applicable to one share of common stock is equal to or greater than the
current market price per share of common stock on the record date
mentioned above, in lieu of the foregoing adjustment, adequate provision
shall be made so that each holder of shares of preferred stock shall have
the right to receive the amount of cash such holder would have received
had such holder converted each such share of preferred stock immediately
prior to the record date for such distribution.
- If a tender or exchange offer made by PracticeWorks or any subsidiary for
all or any portion of the common stock shall be consummated and such
tender or exchange offer shall involve an aggregate consideration having
a fair market value as of the last time that tenders or exchanges may be
made pursuant to such tender or exchange offer (as it shall have been
amended) that, together with (1) the aggregate of the cash plus the fair
market value as of the expiration time of the other consideration paid in
respect of any other tender or exchange offer by PracticeWorks or a
subsidiary for all or any portion of the common stock consummated within
the 12 months preceding the expiration time and in respect of which no
conversion price adjustment pursuant to this bullet has been made
previously and (2) the aggregate amount of any distributions to all
holders of the common stock made exclusively in cash within the 12 months
preceding the expiration time and in respect of which no conversion price
adjustment pursuant to the third and fifth bullets above has been made
previously, exceeds the greater of (a) 1% of the product of the current
market price per share of common stock on such date of determination
multiplied by the number of shares of common stock
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outstanding on such date or (b) 5% of PracticeWorks' net income reported
for the 12 month period ending with the fiscal quarter next preceding
such payment, then in each such case the conversion price shall be
reduced so that it shall equal the price obtained by multiplying the
conversion price in effect immediately prior the expiration time by a
fraction of which the numerator shall be (x) the product of the current
market price per share of common stock immediately prior to the
expiration time multiplied by the number of shares of common stock
outstanding (including any tendered or exchanged shares) at the
expiration time minus (y) the fair market value of the aggregate
consideration payable to stockholders upon consummation of such tender or
exchange offer and the denominator shall be the product of (A) such
current market price multiplied by (B) such number of outstanding shares
at the expiration time minus the number of shares accepted for payment in
such tender or exchange offer, such reduction to become effective
immediately prior to the opening of business on the day following the
expiration time; provided, however, that if the number of shares accepted
for payment or the aggregate consideration payable therefor have not been
finally determined by such opening of business, the adjustment required
by this bullet shall, pending such final determination, be made based
upon the preliminarily announced results of such tender or exchange
offer, and, after such final determination shall have been made, the
adjustment required by this bullet will be made based upon the number of
shares accepted for payment and the aggregate consideration payable
therefore as so finally determined.
- No adjustment in the conversion price will be required unless such
adjustment would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustments which by reason of this
bullet are not required to be made shall be carried forward and taken
into account in any subsequent adjustment; and provided, however, that
any adjustment shall be required and shall be made in accordance with the
provisions of the certificate of designations (other than this bullet)
not later than such time as may be required in order to preserve the
tax-free nature of a distribution to the holders of shares of common
stock. All calculations under this section shall be made to the nearest
cent (with $.005 being rounded upward) or to the nearest 1/100th of a
share (with .005 of a share being rounded upward), as the case may be.
Notwithstanding anything in this paragraph to the contrary, PracticeWorks
shall be entitled, to the extent permitted by law, to make such
reductions in the conversion price, in addition to those required by this
paragraph, as we, in our discretion shall determine to be advisable in
order that any stock dividends, subdivision of shares, distribution of
rights or warrants to purchase stock or securities, or a distribution of
other assets or any other transaction which could be treated as any of
the foregoing transactions pursuant to Section 305 of the Internal
Revenue Code of 1986, as amended, hereafter made by us to its
stockholders shall not be taxable for such stockholders.
If (1) PracticeWorks shall declare a dividend (or any other distribution)
on its common stock that would cause an adjustment to the conversion price of
the preferred stock pursuant to the terms of any of the certificate of
designations; (2) PracticeWorks shall authorize the granting to the holders of
its common stock of rights or warrants to subscribe for or purchase any shares
of any class or any other rights or warrants; (3) there shall be any
reclassification or change of its common stock (except as set forth specifically
in the certificate of designations); (4) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of PracticeWorks; or (5)
PracticeWorks or any subsidiary shall
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commence a tender offer or exchange offer for all or a portion of its common
stock, then PracticeWorks shall cause to be filed with its transfer agent and
shall cause to be mailed to the holders of shares of the preferred stock, as
promptly as possible, but at least 30 days prior to the applicable date
hereinafter specified, a notice stating (a) the date on which a record is to be
taken for the purpose of such dividend, distribution or granting of rights or
warrants, or, if a record is not to be taken, the date as of which the holders
of PracticeWorks common stock of record to be entitled to such dividend,
distribution or rights or warrants are to be determined or (b) the date on which
such reclassification, change, dissolution, liquidation or winding up is
expected to become effective or occur or the expiration date of any such tender
offer or exchange offer, and the date as of which it is expected that holders of
PracticeWorks common stock of record shall be entitled to exchange their shares
of common stock for securities or other property deliverable upon such
reclassification, dissolution, liquidation or winding up.
VOTING RIGHTS. Except as required by law, holders of the preferred stock
will not be entitled to vote such shares of preferred stock on any matter of
PracticeWorks or to receive notice of any meeting of stockholders.
PRACTICEWORKS SERIES C CONVERTIBLE REDEEMABLE PREFERRED STOCK ISSUED TO
CRESCENT
In connection with the March 6, 2001 Crescent investment, PracticeWorks
issued 100,000 shares of its series C convertible redeemable preferred stock to
Crescent in a private placement. The series C convertible redeemable preferred
stock has the following rights, limitations and preferences:
- holders of the series C convertible redeemable preferred stock will be
entitled to receive a liquidation preference of $50 per share, plus a
6.5% annual return, in the event that PracticeWorks liquidates, dissolves
or winds up, before any payments or distributions of assets are made or
set aside for the benefit of holders of PracticeWorks' common stock;
- holders of the series C convertible redeemable preferred stock will not
be entitled to any dividends;
- at any time following one year after issuance, holders of the series C
convertible redeemable preferred stock will have the right to convert
all, or a portion, of PracticeWorks' shares of series C convertible
redeemable preferred stock into shares of its common stock based upon a
conversion price equal to the lesser of (1) 107.5% of the 50-day trading
average of PracticeWorks' common stock immediately following the
spin-off, such 50 day average being referred to herein as the "reference
price", or (2) the average of the lowest three-day closing price of
PracticeWorks' common stock during the 22 days prior to conversion;
provided, however, that in no event will the holders of the series C
convertible redeemable preferred stock be entitled to obtain, in the
aggregate for all conversions, more than 19.9% of PracticeWorks' common
stock upon conversion.
- The holders of series C convertible redeemable preferred stock may not
convert into shares of common stock if, as a result, the holders and
their affiliates would own more than 9.9% of all PracticeWorks' common
stock outstanding on the applicable conversion date; provided, however,
that this restriction will not prohibit the holders from converting some
of their series C convertible redeemable preferred stock up to
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9.9% of PracticeWorks' common stock, and then selling all or a portion of
their common stock, and then converting more shares of series C
convertible redeemable preferred stock up to the 9.9% limitation;
provided, that the foregoing is subject to the 20.0% limitation on the
aggregate number of shares of PracticeWorks' common stock that may be
issued upon conversion of the series C convertible redeemable preferred
stock.
- the conversion price will be subject to a floor equal to 75% of the
reference price; however, this floor will be reduced by 7.5% of the
reference price per month following the 18 month anniversary of issuance
of the series C convertible redeemable preferred stock;
- if the market value of PracticeWorks' common stock exceeds 280% of the
reference price and if specified conditions are met, PracticeWorks may
require conversion of all or a portion of the series C convertible
redeemable preferred stock;
- if the conversion price of the series C convertible redeemable preferred
stock is less than 75% of the reference price, PracticeWorks may redeem
the series C convertible redeemable preferred stock for cash at a premium
equal to 115% of the liquidation preference during the first year after
issuance, 130% during the second year, 145% during the third year, 160%
during the fourth year;
- beginning four years after the date of issuance, the holders of series C
convertible redeemable preferred stock may require PracticeWorks to
redeem the stock at a premium equal to 175% of the liquidation
preference, or $8.75 million;
- holders of the series C convertible redeemable preferred stock will have
the right to vote, on an as-converted basis, on all matters on which the
holders of PracticeWorks' common stock are entitled to vote; however, in
no event will all of the outstanding shares of the series C convertible
redeemable preferred stock, together with any shares of common stock into
which the preferred stock has been converted (provided such shares of
common stock are held by holders of series C convertible redeemable
preferred stock), be entitled to cast more than 9.9% of the votes cast on
any matter on which PracticeWorks' stockholders are entitled to vote; and
- holders of the series C convertible redeemable preferred stock will
receive resale and piggyback registration rights as to the shares of the
common stock issuable upon conversion of the series C convertible
redeemable preferred stock. If PracticeWorks fails to obtain
effectiveness of the resale registration statement or to maintain the
effectiveness of the resale registration statement, PracticeWorks must
pay Crescent an amount equal to 2% per month of the aggregate purchase
price of all of the registrable securities covered by the resale
registration statement. In addition, if the number of shares of common
stock covered by the resale registration statement is insufficient to
permit the conversion in full of the series C convertible redeemable
preferred stock, PracticeWorks must pay Crescent an amount equal to 1.5%
per month of the market value of the deficit shares for each month until
a registration statement covering the resale of any deficit shares has
been declared effective.
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NO PREEMPTIVE RIGHTS
No holder of any of PracticeWorks' stock of any class has any preemptive
right to subscribe to any of our securities of any kind or class.
WARRANTS
In connection with the spin-off, PracticeWorks issued warrants to Crescent
International Ltd. and FINOVA Capital Corporation in connection with
antidilution provisions contained in their existing InfoCure warrants.
Additionally, as a result of the antidilution provisions of certain warrants
issued by InfoCure to acquire InfoCure common stock, the holders of InfoCure
warrants may be entitled to receive approximately 100,000 shares of
PracticeWorks common stock upon the exercise of the InfoCure warrants. The
actual number of shares of PracticeWorks common stock to be issued in connection
with the InfoCure warrants will depend on the applicable exercise price and
number of shares of InfoCure common stock issued at the time the warrant is
exercised.
If PracticeWorks elects to sell shares of its common stock to Crescent
under the Crescent equity line, it will be required to issue Crescent an
incentive warrant to purchase a number of shares of its common stock equal to
$3.5 million divided by the purchase price of its common stock in the first sale
to Crescent. This warrant will be exercisable for five years. The exercise price
will be 150% of the purchase price in the first sale. After issuance of
unregistered shares under the equity line, PracticeWorks is obligated to file a
resale registration statement within 20 days and use its best efforts to have
the registration statement declared effective. At the time PracticeWorks issues
unregistered shares of its common stock to Crescent under the equity line, it
must issue to Crescent protective warrants to purchase shares of its common
stock at an exercise price of $0.01 per share. These protective warrants are
intended to protect Crescent economically from a drop in market price of its
common stock that might occur between issuance of the unregistered shares and
effectiveness of the resale registration statement. The warrants will only
become exercisable if the market price of the common stock on the date the
resale registration statement covering these unregistered shares is declared
effective is lower than the market price the date the unregistered shares are
issued. As the issuance of these protective warrants directly relates to the
sale of common stock, PracticeWorks will account for these issuances as a cost
of raising capital, the impact of which will be reported in shareholders equity.
PracticeWorks will also be subject to certain cash penalties if it does not
timely register for resale the shares of its common stock issued under the
equity line and issuable upon exercise of the incentive and the protective
warrants. If PracticeWorks fails to obtain effectiveness of the resale
registration statement or to maintain the effectiveness of the resale
registration statement, PracticeWorks must pay Crescent in cash an amount equal
to 2.0% per month of the aggregate purchase price of all of the registrable
securities covered by the resale registration statement. In addition, if the
number of shares of common stock covered by the resale registration statement is
insufficient, PracticeWorks must pay Crescent in cash an amount equal to 1.5%
per month of the market value of the shares that have not been registered for
each month until a registration statement covering the resale of any such shares
has been declared effective. Regarding any cash penalties associated with the
warrants, PracticeWorks will net these amounts against the proceeds from the
sale of stock as such costs are considered costs of raising capital.
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TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the PracticeWorks securities is
StockTrans, Inc.
ANTI-TAKEOVER PROVISIONS OF PRACTICEWORKS' CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW
GENERAL
PracticeWorks' certificate of incorporation, its bylaws and the Delaware
General Corporation Law contain certain provisions that could delay or make more
difficult an acquisition of control of PracticeWorks not approved by its board
of directors, whether by means of a tender offer, open market purchases, a proxy
contest or otherwise. These provisions have been implemented to enable
PracticeWorks, particularly but not exclusively in the initial years of its
existence as an independent, publicly owned company, to develop its business in
a manner which will foster its long-term growth without disruption caused by the
threat of a takeover not deemed by our board of directors to be in the best
interests of PracticeWorks and its stockholders. These provisions could have the
effect of discouraging third parties from making proposals involving an
acquisition or change of control of PracticeWorks, although such a proposal, if
made, might be considered desirable by a majority of our stockholders. These
provisions may also have the effect of making it more difficult for third
parties to cause the replacement of our current management without the
concurrence of our board of directors. In addition, some provisions of the Tax
Disaffiliation Agreement entered into by InfoCure and PracticeWorks in
connection with the spin-off may also have the effect of discouraging third
parties from making proposals involving an acquisition or change of control of
PracticeWorks prior to the second anniversary of the spin-off. Set forth below
is a description of the provisions contained in PracticeWorks' certificate of
incorporation and bylaws and the Delaware General Corporation Law that could
impede or delay an acquisition of control of PracticeWorks that our board of
directors has not approved. This description is intended as a summary only and
is qualified in its entirety by reference to its certificate of incorporation
and bylaws, as well as the Delaware General Corporation Law.
CLASSIFIED BOARD OF DIRECTORS
PracticeWorks' certificate of incorporation provides for its board of
directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of its board of directors
will be elected each year. The first class of directors will initially serve a
one-year term, and the second class of directors will initially serve a two-year
term. Thereafter, each class of directors will be elected for a three-year term.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of our board of directors
until the second annual stockholders meeting following the date on which the
acquiror obtains the controlling stock interest and could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of PracticeWorks. Therefore, it could increase the
likelihood that incumbent directors will retain their positions.
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NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
PracticeWorks' certificate of incorporation and bylaws provide that the
number of directors shall be fixed only by resolution of PracticeWorks' board of
directors from time to time. PracticeWorks' certificate of incorporation
provides that the directors may be removed by stockholders only both for cause
and by the affirmative vote of at least 66 2/3% of the shares entitled to vote.
PracticeWorks' certificate of incorporation and bylaws provide that
vacancies on the board of directors may be filled only by a majority vote of the
remaining directors or by the sole remaining director.
STOCKHOLDER ACTION
PracticeWorks' certificate of incorporation provides that stockholder
action may be taken only at an annual or special meeting of stockholders.
PracticeWorks' certificate of incorporation and bylaws provide that special
meetings of stockholders may be called only by the chairman of the board of
directors, the chief executive officer or a majority of the board of directors.
Stockholders are not permitted to call a special meeting or to require
PracticeWorks' board of directors to call a special meeting of stockholders.
ADVANCE NOTICE FOR STOCKHOLDER PROPOSALS OR NOMINATION AT MEETINGS
PracticeWorks' bylaws establish an advance notice procedure for stockholder
proposals to be brought before any annual or special meeting of stockholders and
for nominations by stockholders of candidates for election as directors at an
annual meeting or a special meeting at which directors are to be elected.
Subject to any other applicable requirements, including, without limitation,
Rule 14a-8 under the Securities Exchange Act of 1934, as amended, or the
Exchange Act, only such business may be conducted at a meeting of stockholders
as has been brought before the meeting by, or at the direction of,
PracticeWorks' board of directors, or by a stockholder who has given
PracticeWorks' Secretary timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. The presiding
officer at such meeting has the authority to make such determinations. Only
persons who are nominated by, or at the direction of, PracticeWorks' board of
directors, or who are nominated by a stockholder who has given timely written
notice, in proper form, to PracticeWorks' Secretary prior to a meeting at which
directors are to be elected will be eligible for election as directors of
PracticeWorks.
To be timely, notice of nominations or other business to be brought before
any meeting must be delivered to our Secretary not less than 90 days nor more
than 120 days prior to the first anniversary date of the annual meeting for the
preceding year; provided, however, that if the annual meeting is not scheduled
to be held within a period that commences 30 days before and ends 30 days after
such anniversary date, such advance notice shall be given by the later of (1)
the close of business on the date 90 days prior to the date of the annual
meeting or (2) the close of business on the tenth day following the date that
the meeting date is first publicly announced or disclosed.
Any stockholder who gives notice of a proposal must provide the text of the
proposal to be presented, a brief written statement of the reasons why he or she
favors the proposal, the stockholder's name and address, the number and class of
all shares of each class of PracticeWorks stock owned, any material interest the
stockholder may have in the proposal, other than as a PracticeWorks stockholder,
and, in the case of any person that
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holds PracticeWorks stock through a nominee or "street name" holder of record of
such stock, evidence establishing such person's indirect ownership of
PracticeWorks stock and entitlement to vote on the matter proposed at the annual
meeting.
The notice of any nomination for election as a director must set forth the
name of the nominee, the number and class of all shares of each class of
PracticeWorks capital stock beneficially owned by the nominee, the information
regarding the nominee required by paragraphs (a), (e) and (f) of Item 401 of
Regulation S-K adopted by the SEC, the signed consent of each nominee to serve
as a director if elected, the nominating stockholder's name and address, the
number and class of shares of PracticeWorks stock owned by such nominating
stockholder and, in the case of any person that holds PracticeWorks stock
through a nominee or "street name" holder of record of such stock, evidence
establishing such person's indirect ownership of PracticeWorks stock and
entitlement to vote on the matter proposed at the annual meeting.
AMENDMENTS TO BYLAWS
PracticeWorks' certificate of incorporation provides that only its board of
directors or the holders of 66 2/3% of the shares of its capital stock entitled
to vote at an annual or special meeting of stockholders have the power to amend
or repeal its bylaws.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
Any proposal to amend, alter, change or repeal any provision of
PracticeWorks certificate of incorporation requires approval by the affirmative
vote of a majority of the voting power of all of the shares of PracticeWorks
capital stock entitled to vote on such matters, with the exception of certain
provisions of its certificate of incorporation which require a vote of 66 2/3%
or more of such voting power.
PREFERRED STOCK
PracticeWorks' certificate of incorporation authorizes its board of
directors by resolution to issue one or more series of preferred stock and to
determine, with respect to any series of preferred stock, the terms and rights
of such series.
As of the date hereof, PracticeWorks has issued shares of series A
convertible redeemable preferred stock and series C convertible redeemable
preferred stock, which are described in the section entitled, "Description of
Capital Stock of PracticeWorks" on page 160. In addition, we have authorized a
third series of convertible redeemable preferred stock to be issued to the
current stockholders of Medical Dynamics in connection with the merger described
herein, containing the rights, limitations and preferences set forth in
"PracticeWorks Series B Convertible Redeemable Preferred Stock Issuable to
Medical Dynamics Stockholders."
PracticeWorks believes that the availability to issue additional preferred
stock will provide it with increased flexibility in structuring possible future
financing and acquisitions and in meeting other corporate needs which might
arise. Having such authorized shares available for issuance will allow
PracticeWorks to issue shares of preferred stock without the expense and delay
of a special stockholders' meeting. The authorized shares of preferred stock, as
well as PracticeWorks common stock, will be available for issuance without
further action by our stockholders, unless such action is required by applicable
law or the rules of the American Stock Exchange, any other inter-dealer
quotation system or
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any stock exchange on which our securities may be listed. PracticeWorks' board
of directors has the power subject to applicable law to issue additional series
of preferred stock that could, depending on the terms of such series, impede the
completion of a merger, tender offer or other takeover attempt. For instance,
subject to applicable law, such series of preferred stock might impede a
business combination by including class voting rights which would enable the
holder to block such a transaction.
DELAWARE LAW
Under Section 203 of the Delaware General Corporation Law, or Section 203,
certain "business combinations," which are defined generally to include mergers
or consolidations between the Delaware corporation and an interested stockholder
and transactions with an interested stockholder involving the assets or stock of
the corporation or its majority-owned subsidiaries and transactions which
increase the interested stockholder's percentage ownership of stock, between a
publicly held Delaware corporation and an "interested stockholder," which is
defined generally as those stockholders who become beneficial owners of 15% or
more of a Delaware corporation's voting stock or their affiliates, are
prohibited for a three-year period following the date that such stockholder
became an interested stockholder, unless:
(1) the corporation has elected in its certificate of incorporation
not to be so governed;
(2) either the business combination or the proposed acquisition of
stock resulting in the person becoming an interested stockholder was
approved by the board of directors of the corporation before the other
party to the business combination became an interested stockholder;
(3) upon consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the commencement of the
transaction, excluding voting stock owned by officers who are also
directors or held in employee benefit plans in which the employees do not
have a confidential right to tender or vote stock held by the plan; or
(4) the business combination was approved by the board of directors of
the corporation and also ratified by two-thirds of the voting stock which
the interested stockholder did not own.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an interested stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. PracticeWorks' certificate of incorporation does not exclude it from
restrictions imposed under Section 203. The provisions of Section 203 may
encourage companies interested in acquiring PracticeWorks to negotiate in
advance with PracticeWorks' board of directors, since the stockholder approval
requirement would be avoided if a majority of the directors then in office
approved either the business combination or the transaction which results in the
stockholder becoming an interested stockholder. Such provisions also may have
the effect of preventing changes in the management of PracticeWorks. It is
possible that such provisions could make it more difficult to accomplish
transactions which stockholders may otherwise deem to be in their best
interests.
183
190
STOCKHOLDER PROPOSALS
Medical Dynamics does not expect to hold a 2001 annual meeting of
stockholders. Any proposals of stockholders intended to be presented at the next
annual meeting of stockholders must be received by the Secretary of Medical
Dynamics within a reasonable time before Medical Dynamics will print and mail
its proxy materials to be considered for inclusion in the Medical Dynamics proxy
materials relating to that meeting. Any submission of a stockholder proposal,
even if it is not intended for inclusion in the proxy materials, must be
received by the Secretary of Medical Dynamics within a reasonable time before
Medical Dynamics will print and mail its proxy materials to be timely. Medical
Dynamics will provide public notice to its stockholders of the time and place of
its next annual meeting.
OTHER MATTERS
As of the date of this proxy statement-prospectus, Medical Dynamics' board
of directors knows of no matters that will be presented for consideration at the
special meeting other than as described in this proxy statement-prospectus.
However, if any other matters properly come before the special meeting or any
adjournment or postponement of the special meeting and are voted upon, the
enclosed proxy will be deemed to confer discretionary authority to the
individuals named as proxies to vote the shares represented by such proxy as to
any such matters.
EXPERTS
The consolidated financial statements and schedule of InfoCure Corporation
and its subsidiaries incorporated by reference in this proxy
statement-prospectus have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their reports incorporated herein by reference, and are incorporated herein in
reliance upon such reports given upon the authority of said firm as experts in
accounting and auditing.
The financial statements and schedule of PracticeWorks (a division of
InfoCure Corporation) and the financial statements of InfoSoft (a division of
Ceramco, Inc., a wholly owned subsidiary of DENTSPLY International, Inc.)
included in this proxy statement - prospectus and in the Registration Statement
on Form S-4 have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their reports
appearing elsewhere herein and in the Registration Statement on Form S-4, and
are included in reliance upon such reports given upon the authority of said firm
as experts in auditing and accounting.
The consolidated financial statements of Medical Dynamics, Inc. and its
subsidiaries incorporated by reference in this proxy statement-prospectus have
been audited by Hein + Associates LLP, independent certified public accountants,
to the extent and for the periods set forth in their reports incorporated herein
by reference, and are incorporated herein in reliance upon such reports given
upon the authority of said firm as experts in accounting and auditing.
184
191
LEGAL MATTERS
Certain legal matters with respect to validity of the shares of InfoCure
and PracticeWorks common stock offered hereby in connection with the merger will
be passed upon for InfoCure and PracticeWorks by Morris, Manning & Martin,
L.L.P., Atlanta, Georgia.
WHERE YOU CAN FIND MORE INFORMATION
InfoCure, PracticeWorks and Medical Dynamics file annual, quarterly and
special reports, proxy statements and other information with the Securities and
Exchange Commission or SEC. You may read and copy any reports, statements or
other information that InfoCure, PracticeWorks and Medical Dynamics file with
the SEC at the SEC's public reference rooms at the following locations:
Public Reference Room New York Regional Office Chicago Regional
450 Fifth Street, N.W. 7 World Trade Center Office
Room 1024 Suite 1300 Citicorp Center
Washington, D.C. 20549 New York, NY 10048 500 West Madison
Street
Suite 1400
Chicago, IL 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. These SEC filings are also available to the public from
commercial document retrieval services and at the Internet worldwide web site
maintained by the SEC at "http://www.sec.gov". Reports, proxy statements and
other information concerning InfoCure and Medical Dynamics may also be inspected
at the offices of The Nasdaq Stock Market, which is located at 1735 K. Street,
N.W., Washington, D.C. 20006. Reports, proxy statements and other information
concerning PracticeWorks may also be inspected at the offices of the American
Stock Exchange, which is located at 86 Trinity Place, New York, New York
10006-1881.
InfoCure and PracticeWorks filed a registration statement on Form S-4 to
register with the SEC the InfoCure common stock, the PracticeWorks common stock
and the PracticeWorks preferred stock to be issued to Medical Dynamics
stockholders in the merger. This proxy statement-prospectus is a part of that
registration statement and constitutes a prospectus of InfoCure and
PracticeWorks in addition to being a proxy statement of Medical Dynamics. As
allowed by SEC rules, this proxy statement-prospectus does not contain all the
information you can find in InfoCure's and PracticeWorks' registration statement
or the exhibits to the registration statement.
The SEC allows InfoCure and Medical Dynamics to "incorporate by reference"
information into this proxy statement-prospectus, which means that the companies
can disclose important information to you by referring you to other documents
filed separately with the SEC. The information incorporated by reference is
considered part of this proxy statement-prospectus, except for any information
superseded by information contained directly in this proxy statement-prospectus
or in later filed documents incorporated by reference in this proxy
statement-prospectus.
185
192
This proxy statement-prospectus incorporates by reference the documents set
forth below that InfoCure and Medical Dynamics have previously filed with the
SEC. These documents contain important business and financial information about
InfoCure, and Medical Dynamics that is not included in or delivered with this
proxy statement-prospectus.
INFOCURE FILINGS (FILE NO. 001-12799)
- -------------------------------------
Annual Report on Form 10-K, as amended
by Annual Report on Form 10-K/A..... Fiscal year ended December 31, 2000
Quarterly Report on Form 10-Q......... Three months ended March 31, 2001
Current Reports on Form 8-K........... Filed February 21, 2001, March 8,
2001, March 16, 2001, March 20, 2001
(as amended on March 21, 2001) and
June 6, 2001
The description of Common Stock in
InfoCure's Registration Statement on
Form 8-A............................ Filed January 28, 1999
MEDICAL DYNAMICS FILINGS (FILE NO. 0-8632)
- ------------------------------------------
Annual Report on Form 10-KSB............ Fiscal Year ended September 30, 2000
Quarterly Reports on Form 10-QSB........ Three months ended December 31, 2000
and the six months ended March 31,
2001
Current Reports on Form 8-K............. Dated October 11, 2000 (filed October
16, 2000), October 30, 2000 (filed
November 6, 2000), November 30, 2000
(filed December 15, 2000), March 5,
2001 (filed March 12, 2001), April 16,
2001 (filed April 19, 2001), May 30,
2001 (filed June 8, 2001)
InfoCure and Medical Dynamics also incorporate by reference additional
documents that may be filed with the SEC under section 13(a), 13(c), 14 or 15(d)
of the Exchange Act between the date of this proxy statement-prospectus and the
date of the Medical Dynamics special meeting on August 7, 2001.
Medical Dynamics' Annual Report on Form 10-KSB for the fiscal year ended
September 30, 2000 and Quarterly Reports on Form 10-QSB for the three months
ended December 31, 2000 and the six months ended March 31, 2001, excluding
exhibits, accompany this proxy statement-prospectus.
InfoCure's Annual Report on Form 10-K, as amended by its Annual Report on
Form 10-K/A for the fiscal year ended December 31, 2000, InfoCure's Quarterly
Report on Form 10-Q for the three months ended March 31, 2001 excluding
exhibits, and InfoCure's Current Report on Form 8-K filed on June 6, 2001
accompany this proxy statement-prospectus.
InfoCure has supplied all information contained or incorporated by
reference in this proxy statement-prospectus relating to InfoCure, PracticeWorks
has supplied all information contained in this proxy statement-prospectus
relating to PracticeWorks and Medical
186
193
Dynamics has supplied all information contained or incorporated by reference in
this proxy statement prospectus relating to Medical Dynamics.
Medical Dynamics stockholders should not send in their Medical Dynamics
stock certificates until they receive the transmittal materials from the
exchange agent. Medical Dynamics stockholders of record who have further
questions about their stock certificates or the exchange of their Medical
Dynamics common stock for InfoCure common stock, PracticeWorks common stock and
PracticeWorks preferred stock should call the exchange agent.
If you are a Medical Dynamics stockholder, we may have sent you some of the
documents incorporated by reference, but you can also obtain any of them through
the company, the SEC or the SEC's Internet web site as described above.
Documents incorporated by reference are available from Medical Dynamics without
charge, excluding all exhibits, except that if the company has specifically
incorporated by reference an exhibit in this proxy statement-prospectus, the
exhibit will also be provided without charge. You may obtain documents
incorporated by reference in this proxy statement-prospectus by requesting them
in writing or by telephone from the company at the following address and
telephone number:
Medical Dynamics, Inc.
400 Inverness Drive South, Suite 200
Englewood, Colorado 80112
Attention: President
Telephone: (303) 486-5818
If you would like to request documents, please do so by July 20, 2001 in
order to receive them before your special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT-PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
PROXY STATEMENT-PROSPECTUS. THIS PROXY STATEMENT-PROSPECTUS IS DATED JUNE 20,
2001. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT-PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE. NEITHER
THE MAILING OF THIS PROXY STATEMENT-PROSPECTUS TO MEDICAL DYNAMICS STOCKHOLDERS
NOR THE ISSUANCE OF INFOCURE COMMON STOCK, PRACTICEWORKS PREFERRED STOCK OR
PRACTICEWORKS COMMON STOCK IN THE MERGER CREATES ANY IMPLICATION TO THE
CONTRARY.
187
194
INDEX TO FINANCIAL STATEMENTS
PAGE
----
PRACTICEWORKS (A DIVISION OF INFOCURE CORPORATION)
HISTORICAL FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants.......... F-2
Balance Sheets as of December 31, 2000 and 1999............. F-3
Statements of Operations for the years ended December 31,
2000, 1999 and 1998....................................... F-4
Statements of Changes in Divisional Equity and Comprehensive
Income for the years ended December 31, 2000, 1999 and
1998...................................................... F-5
Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998....................................... F-6
Notes to Financial Statements............................... F-7
PRACTICEWORKS, INC. INTERIM FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of March 31, 2001
(Unaudited) and December 31, 2000......................... F-32
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2001 and 2000 (Unaudited).... F-33
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2001 and 2000 (Unaudited).... F-34
Notes to Condensed Consolidated Interim Financial Statements
(Unaudited)............................................... F-35
PRACTICEWORKS, INC. PRO FORMA FINANCIAL STATEMENTS:
Introduction to Unaudited Pro Forma Condensed Combined
Financial Statements...................................... F-42
Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 2001............................................ F-44
Unaudited Pro Forma Condensed Combined Statement of
Operations for the three months ended March 31, 2001...... F-45
Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 2000........... F-46
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements................................................ F-47
INFOSOFT (A DIVISION OF CERAMCO, INC., A WHOLLY OWNED
SUBSIDIARY OF DENTSPLY INTERNATIONAL, INC.)
Report of Independent Certified Public Accountants.......... F-49
Balance Sheets as of December 31, 2000 and 1999............. F-50
Statements of Income for the years ended December 31, 2000
and 1999.................................................. F-51
Statements of Changes in Divisional Equity for the years
ended December 31, 2000 and 1999.......................... F-52
Statements of Cash Flows for the years ended December 31,
2000 and 1999............................................. F-53
Notes to Financial Statements............................... F-54
F-1
195
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
PracticeWorks
(A Division of InfoCure Corporation)
Atlanta, Georgia
We have audited the accompanying balance sheets of PracticeWorks (a
division of InfoCure Corporation) (the "Division") as of December 31, 2000 and
1999 and the related statements of operations, changes in divisional equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Division's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PracticeWorks as of December
31, 2000 and 1999 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America.
BDO Seidman, LLP
Atlanta, Georgia
February 9, 2001
(except for Note 14,
which is as of March 7, 2001)
F-2
196
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
BALANCE SHEETS
DECEMBER 31,
-----------------
2000 1999
------- -------
(IN THOUSANDS)
ASSETS (NOTES 1 AND 8)
CURRENT:
Cash and cash equivalents................................. $ 3,979 $ 2,527
Accounts receivable-trade, net of allowance of $1,103 and
$1,113................................................. 8,097 9,041
Other receivables......................................... 979 97
Inventory................................................. 845 1,772
Deferred tax assets (Note 11)............................. 1,147 669
Prepaid expenses and other current assets................. 235 453
------- -------
Total current assets.............................. 15,282 14,559
Property and equipment, net of accumulated depreciation
(Note 5).................................................. 4,120 2,046
Goodwill, net of accumulated amortization of $19,643 and
$3,927 (Note 3)........................................... 33,571 32,800
Other intangible assets, net of accumulated amortization
(Note 6).................................................. 9,213 7,806
Deferred tax assets (Note 11)............................... 4,029 108
Other assets................................................ 2,307 523
------- -------
$68,522 $57,842
======= =======
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,483 $ 1,003
Accrued expenses (Note 7)................................. 4,324 7,481
Accrued restructuring costs (Note 4)...................... 1,839 445
Deferred revenue and customer deposits.................... 9,753 6,704
Current portion of long-term debt (Note 8)................ 1,055 116
------- -------
Total current liabilities......................... 18,454 15,749
Long-term debt, less current portion (Note 8)............... 20,239 9,614
Other liabilities........................................... -- 60
------- -------
Total liabilities................................. 38,693 25,423
------- -------
Commitments and contingencies (Notes 3, 8 and 9)
DIVISIONAL EQUITY (NOTE 14):
Net advances from parent.................................. 62,650 35,909
Accumulated other comprehensive income.................... 109 --
Accumulated deficit....................................... (32,930) (3,490)
------- -------
Total divisional equity........................... 29,829 32,419
------- -------
$68,522 $57,842
======= =======
See accompanying notes to financial statements.
F-3
197
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
--------- -------- ---------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
Revenue (Note 1):
Systems and software................................. $ 11,483 $34,325 $ 27,825
Maintenance, support and services.................... 28,532 20,266 15,662
-------- ------- --------
Total revenue................................ 40,015 54,591 43,487
-------- ------- --------
Operating expense:
Hardware and other items purchased for resale........ 5,337 9,654 9,726
Selling, general and administrative (excluding
compensatory stock awards and other non-recurring
charges).......................................... 38,895 28,666 21,061
Research and development............................. 3,481 4,185 3,537
Depreciation and amortization........................ 17,250 3,284 2,272
Restructuring (Note 4)............................... 3,869 940 1,031
Impairment and other non-recurring charges (Note
4)................................................ 3,541 874 --
Merger costs (Note 3)................................ -- 659 69
Compensatory stock awards............................ -- 428 6,447
Gain on sale of fixed assets......................... (636) -- --
-------- ------- --------
Total operating expense...................... 71,737 48,690 44,143
-------- ------- --------
Operating (loss) income................................ (31,722) 5,901 (656)
Interest expense and other, net........................ 2,117 1,335 966
-------- ------- --------
(Loss) income before income taxes and extraordinary
item................................................. (33,839) 4,566 (1,622)
(Benefit) provision for income taxes (Note 11)......... (4,399) 2,186 873
-------- ------- --------
(Loss) income before extraordinary item................ (29,440) 2,380 (2,495)
Extraordinary item -- debt extinguishment cost, net of
income taxes (Note 8)................................ -- (72) --
-------- ------- --------
Net (loss) income...................................... (29,440) 2,308 (2,495)
Pro forma tax adjustments (Note 11).................... -- (384) (1,350)
-------- ------- --------
Pro forma net (loss) income............................ $(29,440) $ 2,692 $ (1,145)
======== ======= ========
Per share data:
Basic and diluted:
Income (loss) before extraordinary item........... $ (3.51) $ 0.34 $ (0.52)
Extraordinary item, net of tax.................... -- 0.01 --
-------- ------- --------
Net income (loss)................................. (3.51) 0.33 (0.52)
Pro forma tax adjustments......................... -- (0.05) (0.28)
-------- ------- --------
Pro forma net income (loss)....................... $ (3.51) $ 0.38 $ (0.24)
======== ======= ========
Shares used in computing per share amounts:
Basic and diluted (Note 2)........................... 8,384 6,994 4,828
======== ======= ========
See accompanying notes to financial statements.
F-4
198
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
STATEMENTS OF CHANGES IN DIVISIONAL EQUITY AND
COMPREHENSIVE INCOME
ACCUMULATED
OTHER
NET ADVANCES COMPREHENSIVE (ACCUMULATED DIVISIONAL
FROM PARENT INCOME DEFICIT) EQUITY
------------ ------------- ------------ ----------
(IN THOUSANDS)
Balances at December 31, 1997........ $ 4,286 $ -- $ (3,303) $ 983
Net advances from InfoCure......... 12,312 -- -- 12,312
Net loss........................... -- -- (2,495) (2,495)
------- ---- -------- --------
Balances at December 31, 1998........ 16,598 -- (5,798) 10,800
Net advances from InfoCure......... 19,311 -- -- 19,311
Net income......................... -- -- 2,308 2,308
------- ---- -------- --------
Balances at December 31, 1999........ 35,909 -- (3,490) 32,419
Net advances from InfoCure......... 26,741 -- -- 26,741
Foreign currency translation
adjustments..................... -- 109 -- 109
Net loss........................... -- -- (29,440) (29,440)
------- ---- -------- --------
Balances at December 31, 2000........ $62,650 $109 $(32,930) $ 29,829
======= ==== ======== ========
Comprehensive loss:
Net loss........................ $(29,440)
Foreign currency translation
adjustments................... 109
--------
Total comprehensive loss... $(29,331)
========
See accompanying notes to financial statements.
F-5
199
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
-------- -------- -------
(IN THOUSANDS)
OPERATING ACTIVITIES (NOTE 1):
Net (loss) income.................................. $(29,440) $ 2,308 $(2,495)
Adjustments to reconcile net (loss) income to cash
flows (used) provided by operating activities:
Extraordinary item -- debt extinguishment cost... -- 110 --
Restructuring, impairment and other non-recurring
charges....................................... 3,637 971 --
Depreciation and amortization.................... 17,250 3,284 2,272
Provision for doubtful accounts.................. 611 774 247
Stock-based compensation......................... -- 428 6,447
Deferred income taxes............................ (4,399) 157 (702)
Gain on disposal of fixed assets................. (636) -- --
Changes in current assets and liabilities, net of
effect of acquisitions:
Accounts receivable........................... (430) (3,150) (3,101)
Inventory, prepaid expenses and other current
assets...................................... (147) (262) (240)
Accounts payable and accrued expenses......... 2,604 1,461 (2,482)
Deferred revenue and customer deposits........ 2,347 (267) 2,312
-------- -------- -------
Net cash (used) provided by operating
activities............................. (8,603) 5,814 2,258
-------- -------- -------
INVESTING ACTIVITIES:
Net cash paid for acquisitions..................... (13,422) (8,254) (12,501)
Additional purchase price consideration............ (4,400) -- --
Capital expenditures............................... (3,604) (307) (894)
Cash paid for other intangible assets.............. (3,690) (1,452) (2,252)
Advances to pending acquisition.................... (1,050) (500) --
Other.............................................. (804) 237 72
-------- -------- -------
Net cash used by investing activities.... (26,970) (10,276) (15,575)
-------- -------- -------
FINANCING ACTIVITIES:
Borrowings under credit facility and other
long-term debt................................... 12,543 8,654 12,501
Principal payments on long-term debt............... (186) (16,668) (208)
Net cash advances from parent...................... 24,658 13,370 1,916
-------- -------- -------
Net cash provided by financing
activities............................. 37,015 5,356 14,209
-------- -------- -------
Effect of exchange rate changes on cash and cash
equivalents...................................... 10 -- --
-------- -------- -------
Net increase in cash and cash equivalents.......... 1,452 894 892
Cash and cash equivalents, beginning of period..... 2,527 1,633 741
-------- -------- -------
Cash and cash equivalents, end of period........... $ 3,979 $ 2,527 $ 1,633
======== ======== =======
See accompanying notes to financial statements.
F-6
200
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The accompanying financial statements are those of PracticeWorks, a
division of InfoCure Corporation (the "Division"). Subsequent to December 31,
2000, InfoCure Corporation ("InfoCure") completed the distribution of the common
stock of its dental subsidiary, PracticeWorks, Inc. ("PracticeWorks"), to its
stockholders in a tax-free distribution (Note 14). The spin-off of PracticeWorks
was effected by way of a pro rata dividend (the "Distribution" or "Spin-Off") of
all of the issued and outstanding shares of PracticeWorks, Inc. common stock, to
InfoCure's stockholders. Immediately prior to the Distribution, InfoCure
transferred to PracticeWorks, Inc. the Division's assets and liabilities,
consisting of InfoCure's information management technology business for dental,
orthodontic, and oral and maxillofacial surgery practices.
The assets and liabilities of the Division (the "Contributed Businesses")
consist primarily of businesses InfoCure acquired at various times from the
consummation of InfoCure's initial public offering in July 1997 through 2000. In
2000, InfoCure acquired substantially all of the assets or all of the
outstanding equity securities of the following companies: (1) Practice Outlook,
Inc. ("Practice Outlook"), (2) Applied Professional Systems, Inc. ("APS"), (3)
Technos Corporation ("Intellident"), (4) The Perfect Manager ("Perfect
Manager"), (5) Datatrac Service Corporation ("Datatrac"), and (6) Medical
Insurance Agency Limited ("MIA"). The Contributed Businesses include two
acquisitions made by InfoCure in 1997, one in 1998, four in 1999, and six in
2000, all of which were accounted for as purchases. In addition, InfoCure
completed five acquisitions attributable to the Division during 1999, which were
accounted for as poolings of interests (see Note 3).
Revenues and expenses specifically identified with the Division have been
directly attributed to the Division in the financial statements. The Division's
costs and expenses in the accompanying financial statements include allocations
from InfoCure for centralized legal, accounting, treasury, real estate,
information technology, and other InfoCure corporate services and infrastructure
costs because specific identification of the expenses is not practicable. The
expense allocations have been determined on the bases that InfoCure and the
Division considered to be reasonable reflections of the utilization of services
provided or the benefit received by the Division using ratios such as relative
head count, sales and real estate occupied. However, the financial information
included herein may not necessarily reflect the financial position and results
of operations of PracticeWorks in the future or what these amounts would have
been had it been a separate, stand-alone entity during the periods presented.
Management believes that if the Division had been a stand-alone entity during
the periods presented, the expenses would not have been materially different
from the allocations presented.
The Division is a provider of information management technology for
dentists, orthodontists and oral and maxillofacial surgeons throughout the
United States, Canada, Europe and Australia. The Division's offerings include
practice management applications, business-to-business e-commerce services,
electronic data interchange, or EDI, services, ongoing maintenance and support
and training. These systems are designed to increase the quality and reduce the
cost of providing care by allowing dentists and physicians to manage
F-7
201
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
their practices more efficiently and reduce the administrative burdens created
by an increasingly complex healthcare environment. The Division is currently
developing new practice management applications, tailored to the needs of
dental, orthodontic, and oral and maxillofacial surgery customers that can be
delivered through its application services provider, or ASP, delivery model and
other Internet-based applications and services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from software sales is recognized when all shipment obligations
have been met, fees are fixed and determinable, collection of the sale proceeds
is deemed probable and persuasive evidence that an agreement exists. Revenue
from hardware sales is recognized upon product shipment. Revenue from
subscription, support and maintenance contracts, which are typically one to
three years in length, is recognized ratably over the life of the contract.
Revenue from other services is recognized as the services are provided.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with
initial maturity dates of no more than three months. Historically, InfoCure has
managed cash for its divisions on a centralized basis.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Management estimates that the carrying amounts of the Division's financial
instruments included in the accompanying balance sheets are not materially
different from their fair values.
INVENTORIES
Inventory consists primarily of peripheral computer equipment and related
supplies. Inventory is accounted for on the first-in, first-out basis and
reported at the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, are
stated at the lower of the fair value or cost. Depreciation is computed over the
estimated useful lives of the related assets using both straight-line and
accelerated methods for financial reporting and primarily accelerated methods
for income tax purposes. Substantial betterments to property and equipment are
capitalized and repairs and maintenance are expensed as incurred.
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CAPITALIZED COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED
Costs incurred, such as planning, designing, coding and testing, for
computer software to be sold, leased or otherwise marketed are expensed as
incurred prior to establishing the technological feasibility of a product.
Technological feasibility is generally achieved when the detail program design
or a working model has been completed. For the period between the establishment
of technological feasibility and the time a product is available for general
release, such costs are capitalized. Capitalized software costs are amortized
using the straight-line method over the estimated lives of the related products
(generally 48 months). During the fourth quarter of 1999, PracticeWorks adopted
a new product strategy involving the development of ASP applications and other
Internet-based applications and services. Additionally, in connection with
restructuring the businesses of recently acquired companies, management decided
to modify future product offerings. As a result of these decisions, the Division
recorded a charge of approximately $874,000 in the fourth quarter of 1999
representing the write-off of the carrying value of certain software development
costs.
COSTS OF COMPUTER SOFTWARE DEVELOPED FOR INTERNAL USE
Computer software development costs that are incurred during the
preliminary stage of development, such as product evaluation and selection, are
expensed as incurred. Costs incurred during the application development stage,
such as design coding and installation, are capitalized and amortized over the
useful life of the product, which is generally four years. Training, maintenance
and data conversion costs are expensed as incurred.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of cost over the fair value of assets
acquired in business combinations accounted for under the purchase method.
Goodwill is amortized on a straight-line basis over its estimated useful life.
Prior to the fourth quarter of 1999, goodwill was amortized over a 15 year
estimated useful life, which was reflective of management's analysis that
goodwill is derived from the historical and estimated future lives of its
customer relationships, the longevity and continuing use of its core products
and the relatively minor impact of technological obsolescence on these core
products. In the fourth quarter of 1999, as a result of InfoCure's and
PracticeWorks' change in product strategy involving the development of ASP
applications and other Internet-based applications and services, their
transition to a subscription pricing model and the current rate of change within
the industry, management estimated that the useful life of its remaining
goodwill was three years.
Other intangible assets include (1) purchased technology, to be amortized
over four years, (2) customer lists, amortized over three years and (3) deferred
loan costs, amortized over the life of the respective loans at rates which
approximate the interest method.
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LONG-LIVED ASSETS
Long-lived assets, such as goodwill, property and equipment and capitalized
software development costs and cost of computer software developed for internal
use are periodically evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows resulting from
the use of the assets. When any such impairment exists, the related assets will
be written down to fair value. Concurrent with the August 2000 restructuring,
the Division recorded an impairment loss of approximately $500,000 relating to
assets that will be abandoned due to the closing of facilities (see Note 4).
CHANGE IN ACCOUNTING ESTIMATES
During the fourth quarter of 1999, management reassessed the useful life of
goodwill in view of recent competitive developments, the rapid pace of change
engendered by the encroachment of Internet companies into the marketplace and
InfoCure's response to these external factors, resulting in a change in product
strategy involving the development of ASP applications and other Internet-based
applications and services and the transition to a subscription pricing model.
While in management's opinion, there was no impairment in the carrying value of
this long-lived intangible asset (based on an analysis of undiscounted future
cash flows), management determined that the useful life of goodwill should be
shortened substantially to be more reflective of the current rate of
technological change and competitive conditions. Accordingly, management changed
the estimated useful life of goodwill from an original life of 15 years to a
remaining life of three years, which change was applied prospectively from the
fourth quarter of 1999. This change in accounting estimate increased
amortization expense of the Division by approximately $12.7 million and $800,000
in 2000 and 1999, respectively.
Additionally, based on InfoCure's analysis of current business and market
conditions, its cash collection experience and, in light of the potential
write-offs associated with customers migrating from traditional support programs
to InfoCure's subscription pricing offerings, management also increased the
allowance for doubtful accounts in 1999. This change of accounting estimate,
recorded in the fourth quarter of 1999, increased the Division's selling,
general and administrative expenses by $700,000 in 1999.
DIVISIONAL EQUITY
Divisional Equity represents InfoCure's net investment in and advances to
the Division. Intercompany interest expense has been allocated to, and included
in, the accompanying financial statements only for that portion of third-party
debt attributed to the Division. No intercompany interest income or expense has
been allocated to the Division for InfoCure's net investment in the Division.
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The functional currency for the Division's foreign operations is the
applicable local currency. The translation from the applicable foreign
currencies to U.S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date and for revenue and expense
accounts using the weighted average exchange rate during the period. The gains
or losses resulting from such translations are included in divisional equity.
STOCK-BASED COMPENSATION PLANS
The Division accounts for its stock-based compensation plans under the
provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees." In Note 10, the Division presents the disclosure
requirements of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-based Compensation." SFAS No. 123 requires that companies
which elect not to account for stock-based compensation as prescribed by that
statement shall disclose, among other things, the pro forma effects on net loss
as if SFAS No. 123 had been adopted.
INCOME TAXES
For the periods presented, the Division was not a separate taxable entity
for federal, state or local income tax purposes and its operating results are
included in InfoCure's tax returns. The Division calculates its income taxes
under the separate return method and accounts for income taxes under the asset
and liability method that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Division's financial statements or tax returns. In estimating
future tax consequences, management generally considers all expected future
events other than possible enactments of changes in the tax laws or rates.
RESTRUCTURING COSTS
The Division records the costs of consolidating acquired operations into
the Division's existing facilities, including the external costs and liabilities
to close redundant Division facilities and severance and relocation costs
related to the Division's employees in accordance with Emerging Issues Task
Force Issue ("EITF") No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in Restructuring)."
PER SHARE DATA
The historical capital structure of the Division is not representative of
the future capital structure of PracticeWorks. The Division commenced operations
as a separate legal entity upon completion of the distribution subsequent to the
date of the accompanying balance sheet, December 31, 2000 (Notes 1 and 14). For
purposes of these financial statements, shares used in computing per share data
are based on the distribution ratio of 1/4 share of PracticeWorks common stock
for every outstanding share of InfoCure common
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock. The weighted average shares outstanding are based on the outstanding
shares of InfoCure and the distribution ratio. The financial information
included herein may not reflect the financial position, results of operations,
changes in divisional equity and cash flows of the Division in the future or
what they would have been had the Division been a separate, stand-alone entity
during the periods presented.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities.
Historically, the Division has not entered into derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Division does
not expect adoption of the new standard on January 1, 2001, to affect its
financial statements.
The Financial Accounting Standards Board ("FASB") issued Interpretation
("Interpretation") No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an Interpretation of APB Opinion No. 25" which was effective July
1, 2000. Interpretation No. 44 clarified (a) the definition of employee for
purposes of applying Opinion 25, (b) the criteria for determining whether a
stock compensation plan qualifies as a noncompensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and (d) the accounting for an exchange of stock compensation
awards in a business combination. Adoption of the provisions of the
Interpretation did not have a significant impact on the Division's financial
statements.
During September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities -- A Replacement of FASB Statement No. 125"
("SFAS No. 140"), which revises the standards of accounting for securitizations
and other transfers of financial assets and collateral and requires certain
disclosures. SFAS No. 140 is effective for transfers occurring after March 31,
2001 and for disclosures relating to securitization transactions and collateral
for fiscal years ended after December 15, 2000. Management is
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
in the process of evaluating the potential effect of SFAS No. 140 on the
Division's financial statements, but does not expect adoption to have a material
impact.
During December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101 "Revenue Recognition" which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the SEC. Adoption of SAB No. 101 did not have a material impact on the
Division's financial position or results of operations.
3. BUSINESS COMBINATIONS
As discussed in Note 1, InfoCure completed 18 acquisitions attributable to
the Division at various times from the consummation of InfoCure's initial public
offering in July 1997 through 2000.
ACQUISITIONS ACCOUNTED FOR USING THE PURCHASE METHOD OF ACCOUNTING
The following table summarizes the fair values of the assets acquired,
liabilities assumed and consideration given in connection with the acquisitions
completed in each of the following years and accounted for as purchases and
attributed to the Division:
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Accounts receivable.............................. $ 588 $ 555 $ 134
Inventory........................................ 133 43 --
Prepaid expenses................................. 74 39 152
Property and equipment........................... 413 260 159
Goodwill......................................... 15,735 10,526 14,988
Capitalized software............................. 39 116 420
Other assets..................................... 437 200 72
Deferred revenue................................. (702) (925) (715)
Accounts payable and accrued expenses............ (593) (560) (9)
Notes payable.................................... (316) -- --
------- ------- -------
Net assets acquired.................... $15,808 $10,254 $15,201
======= ======= =======
These acquisitions were funded as follows:
InfoCure common stock............................ $ 2,386 $ 2,000 $ 2,700
Cash............................................. 13,422 8,254 12,501
------- ------- -------
$15,808 $10,254 $15,201
======= ======= =======
Certain of the 1999 and 1998 purchase acquisition agreements provided for
additional consideration based on the acquired company attaining specified
revenue or operating income goals. Maximum determinable contingent consideration
aggregated $2.0 million and $4.4 million for acquisitions accounted for as
purchases during 1999 and 1998, respectively. As more fully described in Note 4,
portions of the contingent consideration related to certain acquisitions were
deemed earned and payable in connection with the Division's restructuring plans.
Accordingly, restructuring costs for the years ended
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1999 and 1998 included approximately $700,000 and $750,000,
respectively, in settlement of estimated contingent consideration obligations
related to the affected companies.
In 1999, contingent consideration of approximately $4.4 million was earned
and accrued as additional purchase price pursuant to the terms of the original
purchase agreements and was paid during 2000. As of December 31, 2000, maximum
contingent consideration payable based on future performance was $2.0 million.
There was no contingent consideration earned during 2000.
The following unaudited pro forma information presents the results of
operations of the Division as if each of the acquisitions had occurred as of the
beginning of the immediately preceding period. The pro forma information is not
necessarily indicative of what would have occurred had the acquisitions been
made as of such periods, nor is it indicative of future results of operations.
The pro forma amounts give effect to appropriate adjustments for the fair value
of the assets acquired, reductions in personnel costs and other operating
expenses not assumed as part of the acquisitions, amortization of intangibles,
interest expense and income taxes.
YEAR ENDED DECEMBER 31,
----------------------------
PRO FORMA AMOUNTS 2000 1999 1998
- ----------------- -------- ------- -------
(IN THOUSANDS)
Revenue................................................. $ 43,092 $73,245 $52,044
Pro forma net income (loss)............................. (30,757) 432 (3,100)
ACQUISITIONS ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD OF ACCOUNTING
Five of the Contributed Businesses acquired by InfoCure during 1999 were
accounted for as poolings of interests which provided for the exchange of
substantially all of the outstanding equity interest of each entity for shares
of InfoCure common stock. Accordingly, the accompanying financial statements
have been prepared for all periods presented to include the financial position,
results of operations and cash flows of the combined companies. The following
table summarizes the shares of InfoCure stock issued in these acquisitions:
SHARES OF
COMPANY INFOCURE ISSUED CLOSING DATE
- ------- --------------- -----------------
OMSystems, Inc. ("OMS").................... 2,287,998 February 18, 1999
Ardsley, M.I.S., Inc. ("Orthoware")........ 209,016 August 17, 1999
Kevin Kozlowski, Inc. d/b/a Human Touch
Software ("Human Touch")................. 255,247 December 20, 1999
Unident Corporation ("Unident")............ 357,796 December 21, 1999
InfoLogic, Inc. ("InfoLogic").............. 102,096 December 21, 1999
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents a reconciliation of revenue, income (loss)
before extraordinary item and pro forma net income (loss) to those presented in
the accompanying financial statements.
YEAR ENDED
DECEMBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
Revenue:
The Division.............................................. $22,238 $18,815
OMS....................................................... 18,651 14,993
Orthoware................................................. 2,330 1,800
Human Touch............................................... 2,288 1,007
Unident................................................... 6,518 4,510
InfoLogic................................................. 2,566 2,362
------- -------
$54,591 $43,487
======= =======
Income (Loss) Before Extraordinary Item:
The Division.............................................. $ 3,239 $ 1,022
OMS....................................................... 1,623 (3,296)
Orthoware................................................. 260 (73)
Human Touch............................................... 34 (1)
Unident................................................... (1,545) (163)
InfoLogic................................................. (1,231) 16
------- -------
$ 2,380 $(2,495)
======= =======
Pro Forma Net Income (Loss) -- After Extraordinary Item:
The Division.............................................. $ 3,167 $ 1,022
OMS....................................................... 1,623 (3,296)
Orthoware................................................. 260 (73)
Human Touch............................................... 34 (1)
Unident................................................... (1,545) (163)
InfoLogic................................................. (1,231) 16
Pro forma tax adjustments................................. 384 1,350
------- -------
$ 2,692 $(1,145)
======= =======
Certain of the companies acquired in 1999 as poolings of interests ("1999
Pooled Companies") had fiscal years that differed from that of the Division.
Therefore, the balance sheet as of December 31, 1998 reflects the combination of
the Division's balance sheet as of this date with the balance sheets of the 1999
Pooled Companies as of the dates that most closely correspond thereto. The
statements of operations for the year ended December 31, 1998 reflect the
combination of the Division's results with the results of each of the 1999
Pooled Companies for the most closely comparable periods. As of and for the year
ended December 31, 1999, the 1999 Pooled Companies' balance sheets and
statements of operations have been restated to coincide with the Division's
year-end. As a result, certain of the 1999 Pooled Companies' operations are
included in both 1999 and 1998. The net revenue and net loss for such duplicated
periods was approximately $300,000 and $161,000, respectively.
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Division incurred costs of approximately $659,000 in completing the
acquisition of the 1999 Pooled Companies'. Such costs consisted principally of
professional fees and related transaction costs.
PENDING ACQUISITIONS
Medical Dynamics Acquisition
In October 1999, InfoCure entered into a definitive agreement to acquire
Medical Dynamics, Inc. ("MEDY"), a dental practice management company. As
amended, this agreement contemplates aggregate consideration of approximately
$9.9 million comprised of the issuance of shares of InfoCure common stock,
issuance of shares of PracticeWorks common and preferred stock and a small cash
payment in exchange for all the outstanding equity interests of MEDY. The
transaction is expected to close during the second quarter of 2001 and is being
attributed to the Division. In connection with this proposed transaction, as of
December 31, 2000, InfoCure has advanced MEDY $1.55 million under terms of a
loan agreement dated October 1999. As of December 31, 1999, $500,000 had been
advanced. The advances are reflected in other non-current assets in the
accompanying balance sheets. PracticeWorks will assume all obligations of
InfoCure under the merger agreement except for InfoCure's obligation to issue
approximately 878,000 shares of its common stock. InfoCure's issuance of these
shares will be accounted for by PracticeWorks as an equity contribution to
recognize the substance of the transaction as originally contemplated. Under the
terms of the original merger agreement, these 878,000 shares were valued at
approximately $4.3 million. The ultimate value ascribed to the equity
contribution, as well as the total consideration, will be based on the market
value of the PracticeWorks and InfoCure common stock when the transaction
closes.
InfoSoft Acquisition
In December 2000, PracticeWorks entered into an agreement to acquire
SoftDent, LLC, or InfoSoft, the practice management subsidiary of Ceramco, Inc.,
a wholly-owned subsidiary of DENTSPLY International, Inc. The agreement provides
for PracticeWorks to acquire all of the outstanding membership interests of
SoftDent, LLC in exchange for issuing 32,000 shares of 6.5% series A convertible
redeemable preferred stock in PracticeWorks, which is convertible into 9.8% of
PracticeWorks common stock and is redeemable for $32.0 million after five years
if not converted. The acquisition closed subsequent to December 31, 2000 (see
Note 14).
4. RESTRUCTURING AND OTHER CHARGES
The 2000 Plan. On August 1, 2000, InfoCure announced its plans to
restructure each of its medical and dental operating divisions, VitalWorks and
PracticeWorks, respectively, through a plan of employee reductions and
consolidation of existing facilities. During the third and fourth quarter of
2000, the Division closed or consolidated 11 facilities and terminated
approximately 145 employees. The Division recorded approximately $3.1 million in
restructuring costs in 2000 summarized in the table below.
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The terminated leases have various expiration dates through 2005 and the
other costs will be substantially paid in the first half of 2001.
The 1999 Plan. In the fourth quarter of 1999, InfoCure decided to
restructure its business into medical and dental divisions, changed its product
strategy to begin development of ASP applications and Internet solutions,
decided to transition to a subscription based-pricing model and completed six
acquisitions. Concurrently, management committed to a plan of restructuring and
reorganization related to acquisitions completed during 1999, which was
completed in the second quarter of 2000, to consolidate certain facilities and
eliminate staffing redundancies involving approximately 50 employees. As
summarized in the table below, the Division recorded approximately $816,000 and
$940,000 during the years ended December 31, 2000 and 1999, respectively, in
restructuring costs in connection with the 1999 restructuring in accordance with
EITF No. 94-3.
In accordance with EITF No. 94-3, the Division recognized approximately
$281,000 in severance and other termination benefits in 1998 for restructuring
charges relating to the 1997 restructuring. Additionally, the Division
recognized $750,000 in final settlement of the contingent consideration.
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A description of the type and amount of restructuring costs and other
charges recorded at the commitment date and subsequently incurred for all of the
restructurings discussed above are as follows:
RESERVE COSTS RESERVE COSTS RESERVE
BALANCE APPLIED BALANCE APPLIED BALANCE
DECEMBER 31, ADDITIONS AGAINST DECEMBER 31, ADDITIONS AGAINST DECEMBER 31, ADDITIONS
1997 TO RESERVE RESERVES 1998 TO RESERVE RESERVES 1999 TO RESERVE
------------ ---------- -------- ------------ ---------- -------- ------------ ----------
2000 PLAN
Facility closure and
consolidation........ $-- $ -- $ -- $-- $ -- $ -- $ -- $1,312
Compensation costs for
severance and other
termination
benefits............. -- -- -- -- -- -- -- 1,691
Other asset
write-downs and
costs................ -- -- -- -- -- -- -- 50
--- ------ ------- --- ---- ----- ---- ------
2000 Plan Total.... -- -- -- -- -- -- -- 3,053
--- ------ ------- --- ---- ----- ---- ------
1999 PLAN
Facility closure and
consolidation........ -- -- -- -- 95 -- 95 14
Compensation costs for
severance and other
termination
benefits............. -- -- -- -- 48 (48) -- 628
Contingent
consideration payable
to former
stockholders of
entities whose
products were
discontinued as part
of the consolidation
and restructuring.... -- -- -- -- 700 (350) 350 --
Other asset
write-downs and
costs................ -- -- -- -- 97 (97) -- 174
--- ------ ------- --- ---- ----- ---- ------
1999 Plan Total.... -- -- -- -- 940 (495) 445 816
--- ------ ------- --- ---- ----- ---- ------
1997 PLAN
Compensation costs for
severance and other
termination
benefits............. -- 281 (281) -- -- -- -- --
Contingent
consideration payable
to former
stockholders of
entities whose
products were
discontinued as part
of the consolidation
and restructuring.... -- 750 (750) -- -- -- -- --
--- ------ ------- --- ---- ----- ---- ------
1997 Plan Total.... -- 1,031 (1,031) -- -- -- -- --
--- ------ ------- --- ---- ----- ---- ------
$-- $1,031 $(1,031) $-- $940 $(495) $445 $3,869
--- ------ ------- --- ---- ----- ---- ------
COSTS RESERVE
APPLIED BALANCE
AGAINST DECEMBER 31,
RESERVES 2000
-------- ------------
2000 PLAN
Facility closure and
consolidation........ $ (90) $1,222
Compensation costs for
severance and other
termination
benefits............. (1,074) 617
Other asset
write-downs and
costs................ (50) --
------- ------
2000 Plan Total.... (1,214) 1,839
------- ------
1999 PLAN
Facility closure and
consolidation........ (109) --
Compensation costs for
severance and other
termination
benefits............. (628) --
Contingent
consideration payable
to former
stockholders of
entities whose
products were
discontinued as part
of the consolidation
and restructuring.... (350) --
Other asset
write-downs and
costs................ (174) --
------- ------
1999 Plan Total.... (1,261) --
------- ------
1997 PLAN
Compensation costs for
severance and other
termination
benefits............. -- --
Contingent
consideration payable
to former
stockholders of
entities whose
products were
discontinued as part
of the consolidation
and restructuring.... -- --
------- ------
1997 Plan Total.... -- --
------- ------
$(2,475) $1,839
------- ------
IMPAIRMENT AND OTHER NON-RECURRING CHARGES
Concurrent with the 2000 plan of restructuring, the Division recorded an
impairment charge of approximately $500,000 relating to assets that will be
abandoned due to the closing of facilities. The Division also recorded a
non-recurring charge of approximately $1.5 million to write-down inventory to
its estimated net realizable value based on a planned bulk lot disposal as a
result of the Division's decision to discontinue selling hardware and hardware
support in certain of its business lines in connection with its new hardware
agreement with Dell Computer Corporation entered into on August 1, 2000. This
agreement provides that Dell will be the exclusive supplier of computer hardware
and related products for the Intel platform to the Division's customers.
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Division also recorded a non-recurring charge of $1.4 million for costs
related to the Spin-Off and estimates incurring an additional $1.6 million in
the first quarter of 2001 (Notes 1 and 14).
In connection with the 1999 plan of restructuring and the change in product
strategy, management also re-evaluated the carrying value of its investment in
capitalized software. As a result, the Division recorded an impairment charge
during 1999 of $874,000 to write-off of capitalized software.
5. PROPERTY AND EQUIPMENT
Major classes of property and equipment consisted of the following:
DECEMBER 31,
ESTIMATED -----------------
USEFUL LIVES 2000 1999
------------ ------- -------
(YEARS) (IN THOUSANDS)
Buildings...................................... 40 $ -- $ 1,883
Office and computer equipment.................. 3 - 5 5,050 2,193
Furniture and fixtures......................... 5 - 7 791 733
Leasehold improvements and other............... 3 - 5 209 302
------- -------
6,050 5,111
Less accumulated depreciation.................. (1,930) (3,065)
------- -------
$ 4,120 $ 2,046
======= =======
Depreciation expense was approximately $929,000, $900,000, and $800,000 for
the years ended December 31, 2000, 1999 and 1998, respectively. In connection
with the restructuring plans described in Note 4, the Division disposed of
property and equipment, primarily office and computer equipment, with a net book
value of approximately $500,000 and $97,000 for the years ended December 31,
2000 and 1999.
6. OTHER INTANGIBLE ASSETS
Other intangible assets consisted of the following:
DECEMBER 31,
---------------
2000 1999
------ ------
(IN THOUSANDS)
Purchased technology....................................... $6,741 $6,530
Capitalized software development costs..................... 1,554 1,118
Loan costs................................................. 1,298 423
Other...................................................... 208 102
------ ------
9,801 8,173
Less accumulated amortization.............................. (588) (367)
------ ------
$9,213 $7,806
====== ======
In the fourth quarter of 1999, InfoCure acquired technology for delivering
practice management applications in an ASP delivery model in exchange for cash
and common
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PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock aggregating approximately $6.5 million. This technology will be utilized
by the Division's research and development staff in the development of its own
ASP applications. At the time of acquisition, the software had reached
technological feasibility and was in beta testing at three pilot sites. Costs to
complete this technology will be capitalized until products are ready for
general release, scheduled for the second quarter of 2001, and then will be
amortized over the products' estimated useful life. As described in Note 4,
approximately $874,000 of capitalized software was written off in 1999 as a
result of this change in product strategy. The remaining capitalized software
development costs relate to products not being replaced, primarily those related
to various e-commerce applications.
Amortization of capitalized software charged to operations was
approximately $432,000, $267,000, and $135,000 for the years ended December 31,
2000, 1999, and 1998, respectively. As discussed in Note 8, approximately
$110,000 was allocated to the Division for the write-off of unamortized loan
costs in conjunction with the April 1999 prepayment of InfoCure's acquisition
credit facility.
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
DECEMBER 31,
---------------
2000 1999
------ ------
(IN THOUSANDS)
Additional purchase price consideration.................... $ -- $4,400
Compensation............................................... 1,733 1,473
Interest................................................... 578 426
Taxes, other than income................................... 96 93
Professional fees.......................................... 630 320
Marketing.................................................. 285 236
Utilities.................................................. 161 74
Other...................................................... 841 459
------ ------
$4,324 $7,481
====== ======
F-20
214
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT
The amounts recorded as notes payable and other long-term debt attributable
to the Division represent borrowings under Infocure's credit facility or other
note agreements which were used primarily to acquire the Contributed Businesses
and other Division assets. Long-term debt consisted of the following:
DECEMBER 31,
----------------
2000 1999
------- ------
(IN THOUSANDS)
Notes payable, FINOVA Capital Corporation ("FINOVA")...... $20,690 $8,604
Other..................................................... 604 1,126
------- ------
21,294 9,730
Less current portion...................................... (1,055) (116)
------- ------
$20,239 $9,614
======= ======
Under provisions of an agreement dated August 1999 and amended August 2000,
InfoCure has a $100.0 million credit facility with FINOVA consisting of a
revolving loan for the funding of the acquisition program and a term loan for
certain real estate purchases (as amended, the "InfoCure Credit Facility"). The
total amount outstanding under this facility was $55.0 and $36.8 million as of
December 31, 2000 and 1999, respectively. The credit facility has a five-year
term and is collateralized by substantially all of InfoCure's, and
PracticeWorks', assets, cash flows and any assets of companies acquired in the
future. Interest accrues at an annual rate based, at InfoCure's option, on prime
plus 0.5% to 1.25% or LIBOR plus 2.0% to 2.75%, depending on the achievement of
certain debt service ratios. At December 31, 2000, the rate was 10.75%. The
agreement provides for mandatory prepayments based upon achieving certain
defined levels of cash flows and contains certain restrictive covenants.
InfoCure was not in compliance with certain pre-amendment financial covenants
contained in the credit facility as of June 30, 2000 and received a waiver for
such non-compliance. The InfoCure Credit Facility was amended in August 2000 to
eliminate certain financial covenants and establish new financial covenants. At
December 31, 2000, InfoCure was in compliance with the new financial covenants.
In connection with the Spin-Off subsequent to December 31, 2000, PracticeWorks
entered into its own credit facility agreement with FINOVA with similar terms to
the InfoCure Credit Facility (Note 14).
InfoCure's previous credit facility was repaid in April 1999 with proceeds
from the sale of its common stock. In connection with this early retirement of
debt, an extraordinary item was recognized for the unamortized portion of the
loan costs and prepayment costs which aggregated approximately $4.9 million and,
net of estimated tax effect, totaled approximately $2.9 million. The Division
was allocated approximately $72,000, net of estimated tax effect, based on its
respective share of the borrowings.
F-21
215
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 2000, future maturities of long-term debt are as
follows:
YEAR AMOUNT
- ---- --------------
(IN THOUSANDS)
2001.............................................. $ 1,055
2002.............................................. 4,741
2003.............................................. 4,138
2004.............................................. 11,360
-------
$21,294
=======
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
PracticeWorks leases office facilities and certain equipment under
operating leases having original terms ranging from one to seven years.
Approximate future minimum rentals, by year and in the aggregate, under
noncancellable operating leases with remaining terms of more than one year that
relate to facilities and equipment utilized by the Division are as follows:
YEAR AMOUNT
- ---- --------------
(IN THOUSANDS)
2001.............................................. $1,267
2002.............................................. 963
2003.............................................. 794
2004.............................................. 406
2005.............................................. 192
------
Total................................... $3,622
======
Rent expense was approximately $1.5 million, $528,000, and $323,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
EMPLOYEE BENEFIT PLAN
The Division's eligible employees may participate in a plan known as the
InfoCure 401(k) Plan (the "Plan"). Eligible employees may contribute up to 15%
of their annual salary to the Plan, subject to certain limitations. InfoCure may
make matching contributions and may also provide profit-sharing contributions at
its sole discretion. Employees become fully vested in any employer contributions
after five years of service. The Division's expense related to employee benefit
plans for the years ended December 31, 2000, 1999 and 1998 were $550,000,
$680,000, and $205,000, respectively. InfoCure made the contributions for the
years ended December 31, 2000, 1999 and 1998 in the following year through the
issuance of InfoCure common stock.
LEGAL PROCEEDINGS
From time to time, PracticeWorks is involved in various legal proceedings
relating to claims arising in the ordinary course of its business. There are no
material legal
F-22
216
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
proceedings to which PracticeWorks is a party and management is unaware of any
contemplated actions against PracticeWorks. However, pursuant to the Agreement
and Plan of Distribution, PracticeWorks agreed to assume any and all contingent
liability arising from the definitive resolution of the litigation filed on June
21, 2000 against InfoCure by Joseph Hafner. On June 21, 2000, a lawsuit styled
Joseph Hafner v. InfoCure Corporation et al., was filed in the United States
District Court in and for the Eastern District of Pennsylvania. The lawsuit
alleges that InfoCure breached the terms of a registration rights agreement
whereby InfoCure was required, prior to a specified date, to effect the
registration for resale with the Securities and Exchange Commission of shares of
InfoCure's common stock which the plaintiff owned. The complaint further alleges
breach of fiduciary duties owed to the plaintiff as a stockholder of InfoCure
and tort claims against InfoCure as a result of the alleged failure to timely
register shares for resale. The complaint seeks in excess of $3.2 million in
compensatory damages as a result of InfoCure's alleged breach of this agreement,
as well as punitive damages and reimbursement for the plaintiff's attorney's
fees and associated costs and expenses of the lawsuit. A motion to dismiss
certain of plaintiff's tort and contract claims was filed by InfoCure on March
19, 2001. InfoCure believes it has meritorious defenses in this matter and
intends to pursue these defenses vigorously. Management of PracticeWorks
believes that the ultimate resolution of this matter will not have a material
adverse effect on our financial condition.
10. STOCK COMPENSATION PLANS
InfoCure has stock option plans under which the Division's employees and
directors may be granted options to purchase common stock. Options are granted
at not less than the fair market value at grant date (110% of such value for 10%
stockholders). Options vest ratably over the four-year period beginning on the
grant date and expire ten years from the grant date.
SFAS No. 123, "Accounting for Stock-Based Compensation," defines a "fair
value method" of accounting for employee stock options. It also allows
accounting for such options under the "intrinsic value method" in accordance
with APB No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. If a company elects to use the intrinsic value method, then pro
forma disclosures of earnings and earnings per share are required as if the fair
value method of accounting was applied. The effects of applying SFAS No. 123 in
the pro forma disclosures are not necessarily indicative of future amounts
because the pro forma disclosures do not take into account the amortization of
the fair value of awards prior to 1995.
Management has elected to account for its stock options under the intrinsic
value method as outlined in APB No. 25. The fair value method requires use of
option valuation models, such as the Black-Scholes option valuation model, to
value employee stock options, upon which a compensation expense is based. The
Black-Scholes option valuation model was not developed for use in valuing
employee stock options. Instead, this model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.
F-23
217
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Because InfoCure's stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, it is management's
opinion that the existing models do not necessarily provide a reliable measure
of the fair value of its employee stock options. Under the intrinsic value
method, compensation expense is only recognized if the exercise price of the
employee stock option is less than the market price of the underlying stock on
the date of grant.
The fair value for InfoCure's employee stock options was estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions for each year in the three year period ended
December 31, 2000.
YEAR ENDED DECEMBER 31,
------------------------
2000 1999 1998
----- ------ -----
Risk-free interest rate.............................. 5.2% 6.2% 6.0%
Dividend yield....................................... 0.0 0.0 0.0
Volatility factor.................................... 76.7 119.0 58.0
Weighted average expected life (in years)............ 4 4 4
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Division's
pro forma information, based on the options to be held by the Division's
employees, is as follows:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- ------- -------
(IN THOUSANDS)
Pro Forma Net Income (Loss):
As reported............................... $(29,440) $ 2,308 $(2,495)
Pro forma................................. (35,001) (1,446) (3,052)
F-24
218
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
------- ------ ------
(IN THOUSANDS)
Current:
Federal...................................... $ -- $1,316 $ 420
State........................................ -- 291 90
------- ------ ------
Total current expense................ -- 1,607 510
------- ------ ------
Deferred:
Federal...................................... (9,928) 138 (619)
State........................................ (1,833) 19 (83)
Change in deferred tax asset valuation
allowance(a).............................. 7,362 -- (285)
------- ------ ------
Total deferred expense (benefit)..... (4,399) 157 (987)
------- ------ ------
Total income tax expense (benefit)
before extraordinary item.......... (4,399) 1,764 (477)
Income tax benefit on extraordinary item....... -- 38 --
Pro forma tax adjustments for pooled
companies.................................... -- 384 1,350
------- ------ ------
Provision (benefit) for income
taxes.............................. $(4,399) $2,186 $ 873
======= ====== ======
Deferred taxes result from temporary differences between the bases of
assets and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. The sources of the temporary differences
and their effect on deferred tax assets and liabilities are as follows:
DECEMBER 31,
--------------
2000 1999
------ ----
(IN THOUSANDS)
Current:
Deferred tax assets:
Allowance for doubtful accounts....................... $ 430 $203
Deferred revenue and customer deposits................ -- 246
Accrued restructuring costs........................... 713 211
Accrued expenses...................................... 4 9
------ ----
Total current deferred tax assets................ $1,147 $669
====== ====
Noncurrent:
Deferred tax assets:
Basis difference of goodwill.......................... $4,029 $108
Net operating loss carryforwards(a)................... 7,362 --
Valuation allowance(a)................................ (7,362) --
------ ----
Total noncurrent deferred tax assets............. $4,029 $108
------ ----
$5,176 $777
====== ====
F-25
219
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Division's effective income tax rate varied from the U.S. federal
statutory rate as follows:
YEAR ENDED DECEMBER 31,
----------------------------
2000 1999 1998
-------- ------ ------
(IN THOUSANDS)
Expected tax (benefit) expense................ $(11,505) $1,552 $ (552)
Increase (decrease) in income taxes resulting
from:
State income taxes.......................... (1,209) 213 (76)
Nondeductible goodwill amortization......... 1,139 104 372
Other, net.................................. (186) (67) 64
Effect of operations of pooled companies
which were pass-through entities......... -- 384 1,350
Change in deferred tax asset valuation
allowance(a)............................. 7,362 -- (285)
-------- ------ ------
Net income tax (benefit) expense......... $ (4,399) $2,186 $ 873
======== ====== ======
(a) As a result of the Spin-Off, the net operating loss carryforwards
generated by PracticeWorks through the Distribution Date will remain with
InfoCure, the parent company (see Note 14). Consequently, the Division has
recorded a valuation allowance to fully reserve these net operating loss
carryforwards.
As discussed in Notes 1 and 3, acquisitions attributed to the Division
included five companies accounted for as pooling of interests. Four of these
five companies were pass-through entities for tax purposes in which the
then-owners agreed to report their share of income or loss in their respective
individual income tax returns. Upon their acquisition, the pass-through tax
status terminated. Pro forma net income (loss) is presented in the statement of
operations as if each of these entities had been a taxable corporation during
the periods presented.
12. SUPPLEMENTAL CASH FLOW INFORMATION
All cash payments for interest and income taxes were made by InfoCure on
behalf of the Division. All equity instruments issued in conjunction with
historical business acquisitions attributed to the Division were issued by
InfoCure. Accordingly, there are no significant non-cash transactions.
13. SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which is effective for financial
statements for periods beginning after December 15, 1997. SFAS No. 131
establishes standards for the way public business enterprises are to report
information about operating segments in annual and interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers.
F-26
220
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PracticeWorks is an information management technology provider and has
three reportable operating segments: dental, orthodontic and oral and
maxillofacial. The three reportable segments are strategic market units that are
offered similar products and services. These segments were determined based on
the customers and the markets that PracticeWorks serves.
Performance measurement and resource allocation for the reportable
operating segments are based on revenues. PracticeWorks employs shared-service
concepts to realize economies of scale and efficient use of resources and does
not allocate these to the operating segments. Consequently, the table below
summarizes the revenues by reportable operating segment. The accounting
policies, specifically the revenue recognition policies, of the reportable
operating segments are the same as those described in the Summary of Significant
Accounting Policies (Note 2).
REPORTABLE SEGMENTS:
ORAL AND CONSOLIDATED
DENTAL ORTHODONTIC MAXILLOFACIAL TOTALS
------- ----------- ------------- ------------
(IN THOUSANDS)
Revenue for year ended December 31:
2000................................... $19,634 $14,945 $ 5,436 $40,015
1999................................... 11,988 25,940 16,663 54,591
1998................................... 10,492 24,020 8,975 43,487
For the years ended 2000, 1999 and 1998, no individual customer accounted
for more than 10.0% of PracticeWorks' net revenues.
The Division's international operations are conducted principally in Europe
and began during 2000. The revenue derived from international operations was
less than 5.0% of the total revenues of the Division.
14. SUBSEQUENT EVENTS
DISTRIBUTION OF PRACTICEWORKS COMMON STOCK
On March 5, 2001, (the "Distribution Date") InfoCure completed the pro rata
distribution of the common stock of PracticeWorks to its stockholders in a
tax-free distribution, effective 11:59 p.m. (the "Distribution"). Immediately
prior to the Distribution, InfoCure transferred to PracticeWorks the Division's
assets and liabilities, consisting of InfoCure's information management
technology business for dental, orthodontic, and oral and maxillofacial surgery
practices. The Distribution was effected through a dividend of all of
PracticeWorks' issued and outstanding shares, to InfoCure's stockholders of
record as of February 21, 2001 (the "Record Date"). InfoCure's stockholders
received one share of PracticeWorks common stock for every four shares of
InfoCure common stock owned as of the Record Date.
Concurrent with the Distribution, PracticeWorks borrowed approximately
$21.6 million under a credit facility executed with FINOVA (the "PracticeWorks
Credit Facility"). The amount equal to the outstanding amounts under the
InfoCure Credit
F-27
221
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Facility was attributed to PracticeWorks on the Distribution Date. The terms of
the PracticeWorks Credit Facility are similar to the terms of the InfoCure
Credit Facility. See Note 8 for a description of the terms of the InfoCure
Credit Facility. In addition, InfoCure employees who became PracticeWorks
employees in the Distribution, holding approximately 7.4 million InfoCure
employee stock options, exchanged their InfoCure employee stock options for
approximately 3.5 million PracticeWorks employee stock options (see "Employee
Benefits and Compensation Allocation Agreement" below).
For purposes of governing certain of the ongoing relationships between
PracticeWorks and InfoCure and to provide for an orderly transition to the
status of two independent companies, PracticeWorks and InfoCure entered into
various agreements. A brief description of certain of the material agreements
follows:
Distribution Agreement. Prior to the Distribution Date, InfoCure and
PracticeWorks entered into a Distribution Agreement, which provided for,
among other things, the principal corporate transactions required to effect
the distribution and the exchange and other agreements relating to the
continuing relationship between PracticeWorks and InfoCure after the
distribution. Pursuant to the Distribution Agreement, InfoCure transferred
to PracticeWorks all assets and liabilities relating to InfoCure's
information management technology provider business for dentists,
orthodontists and oral and maxillofacial surgeons.
Pursuant to the Distribution Agreement and effective as of the
Distribution Date, PracticeWorks assumed and agreed to indemnify InfoCure
against, all liabilities, litigation and claims, including related
insurance costs, arising out of its business, and InfoCure retained, and
agreed to indemnify PracticeWorks against, all liabilities, litigation and
claims, including related insurance costs, arising out of InfoCure's
businesses. The foregoing obligations will not entitle an indemnified party
to recovery to the extent any such liability is covered by proceeds
received by such party from any third party insurance policies.
The Distribution Agreement provides that each of InfoCure and
PracticeWorks will be granted access to certain records and information in
the possession of the other, and required the retention by each of InfoCure
and PracticeWorks for a period of eight years following the distribution
date of all such information in its possession. Also, the Distribution
Agreement provided for a three-year period during which neither InfoCure
nor PracticeWorks may solicit pre-existing customers or employees of the
other party.
Transition Services Agreement. InfoCure and PracticeWorks entered
into a Transition Services Agreement on the Distribution Date. Pursuant to
this agreement, in exchange for specified fees, InfoCure will provide to
PracticeWorks services including insurance-related services and employee
benefit services and PracticeWorks will provide to InfoCure services
including the preparation of tax returns, maintenance of the general
ledger, preparation of financial statements, corporate record-keeping and
payroll. The fees paid pursuant to the Transition Services Agreement will
be equal to (a) a pro rata portion of the cost of providing the services,
based solely on the number of employees of each company, with respect to
payroll services and employee
F-28
222
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
benefits services and (b) the aggregate of all expenses and costs
attributable to the provision of the services, with respect to all other
services. The Transition Services Agreement provided that each of InfoCure
and PracticeWorks undertake to provide the same degree of care and
diligence as it uses in providing these services to itself and its
subsidiaries. Provision of any service under the Transition Services
Agreement will terminate upon 30 days prior written notice by either
company, or December 31, 2001, whichever is earlier.
Tax Disaffiliation Agreement. InfoCure and PracticeWorks entered into
a Tax Disaffiliation Agreement on the Distribution Date which identifies
each party's rights and obligations with respect to deficiencies and
refunds, if any, of federal, state, local or foreign taxes for periods
before and after the Distribution and related matters such as the filing of
tax returns and the conduct of Internal Revenue Service and other audits.
Under the Tax Disaffiliation Agreement, PracticeWorks will indemnify
InfoCure for any tax liability of PracticeWorks or its affiliates for any
period. PracticeWorks will also indemnify InfoCure for all taxes and
liabilities incurred solely because (1) PracticeWorks breaches a
representation or covenant given to King & Spalding in connection with
rendering its tax opinion, which breach contributes to an Internal Revenue
Service determination that the distribution and the exchange were not
tax-free or (2) a post-distribution action or omission by PracticeWorks or
an affiliate of PracticeWorks contributes to an Internal Revenue Service
determination that the distribution and the exchange were not tax-free.
InfoCure will indemnify PracticeWorks for all taxes and liabilities
incurred solely because (1) InfoCure breaches a representation or covenant
given to King & Spalding in connection with rendering its tax opinion,
which breach contributes to an Internal Revenue Service determination that
the distribution and the exchange were not tax-free, or (2) a post-
Distribution action or omission by InfoCure or an affiliate contributes to
an Internal Revenue Service determination that the Distribution and the
exchange were not tax-free. If the Internal Revenue Service determines that
the Distribution was not tax-free for any other reason, InfoCure and
PracticeWorks will indemnify each other against 50% of all taxes and
liabilities.
PracticeWorks will also indemnify InfoCure for any taxes resulting
from any internal realignment undertaken to facilitate the distribution and
the exchange on or before the distribution date. Any such taxes are not
expected to be material.
Employee Benefits and Compensation Allocation Agreement. InfoCure and
PracticeWorks entered into an Employee Benefits and Compensation Allocation
Agreement on the Distribution Date, which contained provisions relating to
employee compensation, benefits and labor matters and the treatment of
options to purchase InfoCure common stock held by InfoCure employees who
became PracticeWorks employees. This agreement provides that InfoCure
options held by InfoCure employees who became PracticeWorks employees may
be replaced by PracticeWorks options. Employees whose InfoCure options were
fully vested as of the Distribution Date had the right to surrender their
InfoCure options for options to purchase PracticeWorks common stock for a
period of 20 days following the Distribution Date. Any InfoCure employees
who become our employees who chose not to surrender their
F-29
223
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
vested InfoCure options during this time period will continue to hold
InfoCure options which, if not exercised, will expire June 3, 2001, or 90
days after the Distribution Date. Employees who were not fully vested in
InfoCure options as of the Distribution Date had their InfoCure options
exchanged for PracticeWorks options as of the Distribution Date. The option
price for the number for the shares of PracticeWorks common stock subject
to each option will be determined by dividing the option price for the
related InfoCure option by the PracticeWorks conversion factor, and the
number of shares of PracticeWorks common stock subject to each
PracticeWorks option will be determined by multiplying the number of shares
subject to the related InfoCure option by the PracticeWorks conversion
factor. The PracticeWorks conversion factor is a number equal to (1) the
closing price of InfoCure common stock on the Nasdaq National Market on the
distribution date, divided by (2) the opening price of the PracticeWorks
common stock on the American Stock Exchange on the day following the
distribution date. Based upon these values, the conversion factor was
0.47530. InfoCure employees who became PracticeWorks employees in the
Distribution, holding approximately 7.4 million InfoCure employee stock
options exchanged their InfoCure employee stock options for approximately
3.5 million PracticeWorks employee stock options, thereby canceling the
InfoCure employee stock options. No compensation expense resulted from the
conversion of these options.
CRESCENT INVESTMENT
In March 6, 2001, PracticeWorks issued 100,000 shares of its series C
convertible redeemable preferred stock for $5.0 million to Crescent
International Ltd. in a private placement. If the series C convertible
redeemable preferred stock has not been converted after four years, the holders
may require PracticeWorks to redeem the series C convertible redeemable
preferred stock at a 175% premium to the liquidation preference. PracticeWorks
will recognize an accretive dividend of approximately $938,000 annually related
to this feature for four years which will adversely impact earnings per share.
The series C convertible redeemable preferred stock is not convertible for one
year after issuance. During the second year after issuance, holders will not be
entitled to obtain more than 20% of PracticeWorks common stock upon conversion.
Thereafter, the holders of the series C convertible redeemable preferred stock
can convert all or a portion of their shares. The holders will also receive
certain registration rights in connection with the investment.
INFOSOFT ACQUISITION
On March 7, 2001, PracticeWorks closed on the acquisition of SoftDent, LLC,
or InfoSoft, the practice management subsidiary of Ceramco, Inc., a wholly-owned
subsidiary of DENTSPLY International, Inc. In connection with the acquisition,
Ceramco received $32.0 million of PracticeWorks' 6 1/2 % convertible redeemable
preferred stock. These preferred shares are convertible into PracticeWorks
common stock and are redeemable for cash after five years if not converted.
F-30
224
PRACTICEWORKS
(A DIVISION OF INFOCURE CORPORATION)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY INFORMATION (UNAUDITED)
THREE MONTHS ENDED
---------------------------------------------------- YEAR ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
--------- -------- ------------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2000(a)
Total revenue............. $ 9,820 $10,196 $ 9,836 $ 10,163 $ 40,015
Net loss.................. (2,958) (5,708) (8,014)(b) (12,760)(b) (29,440)
Shares used in computing
per share amounts....... 8,194 8,317 8,544 8,570 8,384
Basic and diluted earnings
per share............... $ (0.37) $ (0.69) $ (0.94) $ (1.49) $ (3.51)
1999(a)
Total revenue............. $12,120 $14,461 $14,783 $ 13,227 $ 54,591
Net (loss) income before
extraordinary item...... (310) 1,939 2,560 (1,809)(c) 2,380
Shares used in computing
per share amounts....... 5,265 7,054 7,755 7,922 6,994
Basic and diluted (loss)
earnings per share
before extraordinary
item.................... $ (0.06) $ 0.28 $ 0.33 $ (0.23) $ 0.34
- ---------------
(a) As discussed in Note 3, several business acquisitions were attributed to the
Division in 1999 and 2000.
(b) The Division recorded restructuring, impairment and other non-recurring
charges approximating $5.8 million in the third and fourth quarters of 2000
and approximately $1.4 million in non-recurring professional fees and other
costs related to the spin-off in the fourth quarter of 2000 (see Note 4).
The Division also recorded a valuation allowance of approximately $7.4
million on net deferred tax assets in the fourth quarter of 2000
representing the cumulative net operating loss carryforwards generated by
PracticeWorks through December 31, 2000 which will remain with InfoCure
subsequent to the Distribution (see Note 14).
(c) The Division recorded restructuring charges approximating $1.8 million in
the fourth quarter of 1999 (see Note 4). Additionally, the Division changed
the estimated useful life of goodwill to three years from 15 years (see Note
2).
F-31
225
PRACTICEWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000
----------- ------------
(UNAUDITED)
ASSETS
CURRENT:
Cash and cash equivalents................................. $ 7,135 $ 3,979
Accounts receivable-trade, net of allowance of $1,452 and
$1,103.................................................. 7,590 8,097
Other receivables......................................... 1,169 979
Deferred tax assets....................................... 987 1,147
Prepaid expenses and other current assets................. 1,308 1,080
------- -------
Total current assets............................... 18,189 15,282
Property and equipment, net of accumulated depreciation of
$3,395 and $1,930......................................... 6,289 4,120
Goodwill, net of accumulated amortization of $24,314 and
$19,643................................................... 46,996 33,571
Other intangible assets, net of accumulated amortization of
$837 and $588............................................. 15,545 9,769
Deferred tax assets......................................... 4,370 4,029
Advances to pending acquisition............................. 1,650 1,550
Other assets................................................ 320 201
------- -------
$93,359 $68,522
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 5,113 $ 1,483
Accrued expenses.......................................... 4,605 4,324
Accrued restructuring costs............................... 1,079 1,839
Deferred revenue and customer deposits.................... 10,636 9,753
Current portion of long-term debt......................... 2,126 1,055
------- -------
Total current liabilities.......................... 23,559 18,454
Long-term debt, less current portion........................ 20,031 20,239
------- -------
Total liabilities.................................. 43,590 38,693
------- -------
Commitments and contingencies
Convertible redeemable preferred stock, $0.01 par value;
20,000,000 shares authorized:
Series A 6.5% convertible redeemable preferred; $32,000
liquidation preference and redemption value; 32,000
shares issued and outstanding at March 31, 2001;
carrying value includes accumulated dividends of $136
and is net of $10,855 unamortized discount.............. 21,281 --
------- -------
Series C convertible redeemable preferred; $5,000
liquidation preference and redemption value; 100,000
shares issued and outstanding at March 31, 2001;
carrying value includes $52 estimated accrued redemption
premium................................................. 5,052 --
------- -------
STOCKHOLDERS' EQUITY:
Common stock $0.01 par value, 100,000,000 authorized,
8,783,814 issued and outstanding at March 31, 2001...... 88 --
Additional paid-in capital (Note 1)....................... 26,989 --
InfoCure Corporation equity............................... -- 29,720
Accumulated deficit....................................... (3,576) --
Accumulated other comprehensive (loss) income............. (65) 109
------- -------
Total stockholders' equity......................... 23,436 29,829
------- -------
$93,359 $68,522
======= =======
See accompanying notes to condensed consolidated financial statements.
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PRACTICEWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------
REVENUE:
Recurring................................................. $ 8,235 $ 5,427
Non-recurring............................................. 3,582 4,393
------- -------
Total revenue............................................... 11,817 9,820
------- -------
OPERATING EXPENSE:
Hardware and other purchases for resale................... 1,447 1,296
Selling, general and administrative....................... 10,212 8,520
Research and development.................................. 726 654
Depreciation and amortization............................. 5,314 3,293
Restructuring and other non-recurring charges............. 2,120 778
Gain on disposal of fixed assets.......................... -- (640)
------- -------
Total operating expense..................................... 19,819 13,901
------- -------
Operating loss.............................................. (8,002) (4,081)
Interest expense and other, net............................. 625 379
------- -------
Loss before income taxes.................................... (8,627) (4,460)
Income tax benefit.......................................... -- (1,502)
------- -------
Net loss.................................................... (8,627) (2,958)
Accrued and accretive dividends on preferred stock.......... 333 --
------- -------
Net loss available to common shareholders................... $(8,960) $(2,958)
======= =======
Loss per share -- basic and diluted......................... $ (1.03) $ (0.36)
======= =======
Weighted average shares outstanding:
Basic and diluted......................................... 8,685 8,194
======= =======
See accompanying notes to condensed consolidated financial statements.
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PRACTICEWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AMOUNT)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
------- --------
CASH PROVIDED BY OPERATING ACTIVITIES:
Net loss.................................................. $(8,627) $ (2,958)
Adjustments to reconcile net loss to cash flows provided
by operating activities:
Restructuring and other charges........................ (310) --
Depreciation and amortization.......................... 5,314 3,293
Provision for doubtful accounts........................ 517 --
Gain on disposal of fixed assets....................... -- (640)
Deferred taxes......................................... -- (1,502)
Changes in current assets and liabilities, net of
acquisitions:
Trade and other receivables.......................... 266 1,613
Prepaid expenses and other current assets............ (90) 33
Accounts payable and accrued expenses................ 3,414 275
Deferred revenue and customer deposits............... (436) 248
------- --------
Cash provided by operating activities..................... 48 362
------- --------
CASH USED IN INVESTING ACTIVITIES:
Cash paid for acquisitions................................ (673) (6,080)
Additional purchase price consideration................... -- (4,400)
Property and equipment expenditures....................... (233) (598)
Cash paid for other intangible assets..................... (669) (31)
Advances to pending acquisition........................... (100) (500)
Other..................................................... (117) 73
------- --------
Cash used in investing activities......................... (1,792) (11,536)
------- --------
CASH PROVIDED BY FINANCING ACTIVITIES:
Net cash advances from InfoCure........................... 344 4,705
Proceeds from sale of series C convertible redeemable
preferred stock, net................................... 4,741 --
Borrowings of long-term debt.............................. -- 7,663
Payment of loan costs..................................... (183) --
------- --------
Cash provided by financing activities..................... 4,902 12,368
------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (2) --
------- --------
Net increase in cash and cash equivalents................... 3,156 1,194
Cash and cash equivalents, beginning of period.............. 3,979 2,527
------- --------
Cash and cash equivalents, end of period.................... $ 7,135 $ 3,721
======= ========
NONCASH TRANSACTIONS:
Convertible redeemable preferred stock issued for
acquisition, net of discount........................... $21,000 $ --
Issuance of 8,754,937 shares of common stock in exchange
for net assets at time of spin-off..................... 26,600 --
InfoCure common stock issued for acquisitions............. -- 2,386
Disposal of building under capital lease obligation....... -- (1,109)
======= ========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid............................................. $ 9 $ --
======= ========
See accompanying notes to condensed consolidated financial statements.
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PRACTICEWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
PracticeWorks, Inc. was incorporated in Delaware on August 10, 2000 as a
wholly owned subsidiary of InfoCure Corporation. On March 5, 2001 (the "Spin-Off
Date"), InfoCure completed the pro rata distribution of the all of the
outstanding shares of PracticeWorks' common stock to its stockholders in a
tax-free distribution (the "Spin-Off"). The Spin-Off was effected through the
dividend of one share of PracticeWorks common stock for every four shares of
InfoCure common stock held by InfoCure stockholders of record as of February 21,
2001. Immediately prior to the Spin-Off, InfoCure transferred to PracticeWorks
the assets and liabilities of its information management technology business for
dental, orthodontic and oral and maxillofacial surgery practices, including its
interests in all wholly owned subsidiaries engaged in such business. Results of
operations prior to the Spin-Off are those of PracticeWorks, a division of
InfoCure, considered the predecessor to PracticeWorks, Inc. For purposes of
these financial statements the term "PracticeWorks" or the "Company" means
PracticeWorks, a division of InfoCure Corporation, for periods prior to the
Spin-Off, and PracticeWorks, Inc. for periods after the Spin-Off.
The information presented at March 31, 2001, and for the three months ended
March 31, 2001 and 2000 is unaudited, however, in the opinion of management,
includes all normal recurring adjustments necessary for a fair presentation of
the consolidated financial position, results of operations and cash flows of
PracticeWorks for the periods presented. All significant intercompany balances
and transactions have been eliminated in consolidation. The results for the
three-month period ended March 31, 2001 are not necessarily indicative of the
results to be expected for the full year. Certain information in footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). The consolidated financial statements, notes
thereto and other information should be read in conjunction with the historical
consolidated financial statements and related notes thereto contained in
PracticeWorks' Annual Report on Form 10-K for the year ended December 31, 2000,
(the "Form 10-K"). The results for the quarter ended March 31, 2000 and for the
period through March 5, 2001 are not reflective of PracticeWorks as a
stand-alone entity, but as an operating division of InfoCure. Accumulated
deficit reflects activity from March 5, 2001. Certain prior period amounts have
been reclassified to conform to the current presentation.
The Company is a provider of information management technology for
dentists, orthodontists and oral and maxillofacial surgeons throughout the
United States, and in Canada, Europe and Australia. The Company's offerings
include practice management applications, business-to-business e-commerce
services, electronic data interchange, or EDI, services, ongoing maintenance and
support and training. These systems are designed to increase the quality and
reduce the cost of providing care by allowing dentists and physicians to manage
their practices more efficiently and reduce the administrative burdens created
by an increasingly complex healthcare environment. The Company is currently
developing new practice management applications, tailored to the needs of
dental, orthodontic and oral and maxillofacial surgery customers that can be
delivered through its
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PRACTICEWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
application services provider, or ASP, delivery model and other Internet-based
applications and services.
NOTE 2. REVENUE
The Company reports two types of revenue: recurring and non-recurring
revenue. Recurring revenue includes contractual arrangements for maintenance and
support services, subscriptions and e-services (electronic data interchange
("EDI" transactions) and royalties and other revenues from e-commerce and other
Internet-based services). Non-recurring revenue includes one-time sales of
licenses and systems and fees for training and implementation services.
NOTE 3. BUSINESS COMBINATIONS
As reported in the Company's Form 10-K, InfoCure completed three
acquisitions during the first quarter of 2000 and an additional three during the
second quarter of 2000. These acquisitions were accounted for as purchases and
attributed to the Company in conjunction with the Spin-Off. Additionally, on
March 7, 2001, the Company acquired the membership interests of SoftDent, LLC,
or InfoSoft, the practice management subsidiary of Ceramco, Inc. ("Ceramco"), a
wholly owned subsidiary of DENTSPLY International, Inc. ("DENTSPLY"), for which
the aggregate consideration was approximately $32.7 million represented by
32,000 shares of the Company's series A convertible redeemable preferred stock
and transaction costs. This transaction was also accounted for as a purchase.
The following unaudited pro forma information presents the results of operations
of the Company as if the foregoing acquisitions had occurred as of the beginning
of each of the periods presented. The pro forma information is not necessarily
indicative of what would have occurred had the acquisitions been made as of such
periods, nor is it indicative of future results of operations. The pro forma
amounts give effect to appropriate adjustments for the fair value of the assets
acquired, amortization of intangibles, interest expense and income taxes.
THREE MONTHS ENDED
MARCH 31,
----------------------
2001 2000
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNT)
PRO FORMA AMOUNTS
Revenue................................................ $13,191 $14,558
Net loss available to common stockholders.............. (10,858) (6,683)
Loss per common share -- basic and diluted............. (1.25) (0.82)
PENDING ACQUISITION
In October 1999, InfoCure entered into a definitive agreement to acquire
Medical Dynamics, Inc. ("Medical Dynamics"), a dental practice management
company. As amended, this agreement contemplates aggregate consideration of
approximately $8.2 million comprised of the issuance of shares of PracticeWorks
common and preferred stock, issuance of shares of InfoCure common stock and a
small cash payment in exchange for all the outstanding equity interests of
Medical Dynamics. The transaction is expected to
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PRACTICEWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
close during the third quarter of 2001. In connection with this proposed
transaction, as of March 31, 2001, InfoCure has advanced MEDY $1.65 million
under terms of a loan agreement dated October 1999. PracticeWorks has assumed
all obligations of InfoCure under the merger agreement except for InfoCure's
obligation to issue approximately 878,000 shares of its common stock. InfoCure's
issuance of these shares will be accounted for by PracticeWorks as an equity
contribution to recognize the substance of the transaction as originally
contemplated.
NOTE 4. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
RESTRUCTURING
As reported on PracticeWorks' Form 10-K, InfoCure announced on August 1,
2000 its plans to restructure each of its dental and medical operating
divisions, PracticeWorks and VitalWorks, respectively, through a plan of
employee reductions and consolidation of existing facilities. During the third
and fourth quarter of 2000, PracticeWorks closed or consolidated 11 facilities
and terminated approximately 145 employees. The following table sets forth
changes in the restructuring reserves during the three months ended March 31,
2001:
RESERVE COSTS RESERVE
BALANCE ADDITIONS/ APPLIED BALANCE
DECEMBER 31, ADJUSTMENTS AGAINST MARCH 31,
2000 TO RESERVE RESERVES 2001
------------ ----------- -------- ---------
(IN THOUSANDS)
Facility closure and
consolidation............... $1,222 $(389) $(200) $ 633
Compensation costs for
severance and other
termination benefits........ 617 79 (250) 446
------ ----- ----- ------
Total............... $1,839 $(310) $(450) $1,079
====== ===== ===== ======
OTHER NON-RECURRING CHARGES
During the three months ended March 31, 2001, the Company recorded other
non-recurring charges of approximately $2.4 million related primarily to
professional fees, printing and similar costs in connection with completion of
the Spin-Off.
NOTE 5. NOTES PAYABLE AND LONG TERM DEBT
On March 5, 2001, concurrent with the Spin-Off, the Company borrowed
approximately $21.6 million under a credit facility executed with FINOVA (the
"Credit Facility") to repay amounts attributed to the Company under InfoCure's
credit facility. The Credit Facility matures June 30, 2003 and is collateralized
by substantially all of the Company's assets. Amounts outstanding will bear
interest at a variable rate which, through June 30, 2001, is a margin equal to
1.5% plus a base rate equal to the higher of the prime rate as announced from
time to time by Citibank N.A. or a weighted average of the rates on overnight
federal fund transactions plus 50 basis points. Subsequent to June 30, 2001, the
margin increases to 1.75% and after January 1, 2002 increases to 2.25%. The
original outstanding principal balance of the loan will amortize at 5.0% per
quarter beginning
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PRACTICEWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
October 1, 2001, and the remaining outstanding balance under the Credit Facility
will be due in full on June 30, 2003.
The Credit Facility contains restrictions and covenants, including
limitations on our leverage, a minimum net worth requirement, a minimum current
ratio requirement and a minimum liquidity requirement. For a more detailed
discussion of the Credit Facility, including the requirements, restrictions and
covenants contained therein, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
NOTE 6. INCOME TAXES
During the three months ended March 31, 2001, the Company generated
approximately $5.2 million in taxable losses. Approximately $3.2 million of
these losses were generated prior to the Spin-Off and will remain with InfoCure.
The remaining $2.0 million were generated subsequent to the Spin-Off and will be
available to offset any future taxable income the Company generates. At March
31, 2001, the Company reported deferred tax assets of $5.4 million consisting of
gross deferred tax assets of $6.7 million and a valuation allowance of $1.3
million. The gross deferred tax assets consisted of $5.9 million in temporary
differences in the book and tax bases of certain assets and liabilities and
$800,000 in net operating loss carryforwards. The Company has recorded a
valuation allowance to reduce the deferred tax assets to an amount that
management believes is more likely than not to be realized.
NOTE 7. STOCKHOLDERS' EQUITY
COMMON STOCK
The weighted average number of shares outstanding used in computing basic
and diluted net loss per share for the three months ended March 31, 2001 was
8,685,081. The weighted average number of shares outstanding used in computing
diluted net loss for the three months ended March 31, 2001 excludes
approximately 975,000 shares of potentially issuable common stock assuming
conversion of the series A preferred stock because such inclusion would be
antidilutive. Potentially dilutive shares of 87,025 for exercise of options and
warrants were also excluded from the diluted loss per share calculation because
they were antidilutive.
For purposes of computing the historical basic and diluted weighted average
per share amounts for periods prior to the Spin-Off, PracticeWorks used the
distribution ratio of 1/4 share of PracticeWorks common stock for every
outstanding share of InfoCure common stock.
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK ISSUED TO CERAMCO
In connection with the acquisition of the InfoSoft division of DENTSPLY,
PracticeWorks issued 32,000 shares of series A convertible redeemable preferred
stock to Ceramco as consideration for the transfer of the membership interests
in SoftDent, LLC representing the assets which were used in DENTSPLY's business
of developing, marketing, licensing and supporting the SoftDent software
product. These preferred shares
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PRACTICEWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
have a stated redemption value of $32.0 million, accrue dividends at an annual
rate of 6.5%, are convertible into approximately 9.8% of PracticeWorks
outstanding common stock at the time of the Spin-Off, or approximately 975,000
shares, and are redeemable after five years if not converted. Ceramco also
received certain registration rights in connection with this acquisition.
SERIES C CONVERTIBLE REDEEMABLE PREFERRED STOCK ISSUED TO CRESCENT
On March 6, 2001, the Company issued 100,000 shares of its series C
convertible redeemable preferred stock for $5.0 million to Crescent
International Ltd. ("Crescent"). If the series C convertible redeemable
preferred stock has not been converted after four years, the holders may require
the Company to redeem the series C convertible redeemable preferred stock at a
175% premium to the liquidation preference. The Company will recognize an
accretive dividend of approximately $938,000 annually related to this feature
for four years which will impact earnings per share. The series C convertible
redeemable preferred stock is not convertible for one year after issuance.
Thereafter, the holders of the series C convertible redeemable preferred stock
can convert all or a portion of their shares based on a floating conversion
price which is a function of our common stock's closing price. Holders will not
be entitled to obtain more than 20% of the Company's common stock in the
aggregate upon conversion. Crescent also received certain registration rights in
connection with its investment.
WARRANTS
In connection with the Spin-Off, the Company issued to the lender a warrant
to purchase up to 98,750 shares of the Company's common stock at a price of
$4.80 per share in connection with the antidilution provisions of existing
warrants to purchase InfoCure common stock. This warrant is immediately
exercisable and has an eight-year term. The estimated fair value of
approximately $540,000 has been recorded as deferred loan costs and is being
amortized over the life of the loan. No warrants had been exercised as of March
31, 2001.
In connection with the Spin-Off, the Company issued to the investor a
warrant to purchase up to 50,000 shares of the Company's common stock at a price
of $18.40 per share in connection with the antidilution provisions of existing
warrants to purchase InfoCure common stock. The estimated fair value of this
grant is nil. This warrant is immediately exercisable and has a four-year term.
No warrants had been exercised as of March 31, 2001.
CONTINGENTLY ISSUABLE SHARES
As reported in PracticeWorks' Form 10-K, in connection with the Spin-Off,
PracticeWorks assumed a portion of InfoCure's contingent obligation under a
letter agreement between InfoCure and WebMD Corporation ("WebMD"), formerly
Healtheon/WebMD, executed February 2000 whereby PracticeWorks may be obligated
to issue up to 482,253 shares of PracticeWorks common stock to WebMD. Under the
terms of the letter agreement, WebMD made a $10.0 million investment in
VitalWorks, a subsidiary of InfoCure, in exchange for shares of VitalWorks
convertible preferred stock.
F-39
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PRACTICEWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
VitalWorks' initial public offering was not consummated by November 11, 2000,
and pursuant to the terms of the letter agreement, WebMD notified InfoCure of
its election to exchange the VitalWorks convertible preferred stock for
1,929,012 shares of InfoCure common stock, which if issued would represent
approximately 5.0% of the total outstanding shares of InfoCure common stock.
VitalWorks issued these shares to WebMD on March 2, 2001. The PracticeWorks
shares would represent the PracticeWorks common stock that WebMD would have been
entitled to receive in the Spin-Off had it owned the full number of shares of
InfoCure common stock on the record date. On March 8, 2001, InfoCure filed a
lawsuit against WebMD alleging certain claims related to a dispute between the
parties with respect to the letter agreement and a related marketing agreement.
The exact number of shares of PracticeWorks common stock to be delivered to
WebMD, if any, will be determined through negotiations and/or litigation
regarding the InfoCure/WebMD February 2000 letter agreement and related
marketing agreement.
NOTE 8. SEGMENT INFORMATION
SFAS No. 131 establishes standards for the way in which public companies
are to disclose certain information about operating segments in their financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers.
The Company historically evaluated its business based on specialty group
(i.e. dental, orthodontic, and oral) clients. The Company's business model has
changed and reshaped these bases for evaluation. Effective in the first quarter
of 2001, in connection with the Spin-Off, the Company changed the way it
evaluates its business to reflect the new business model. Although the Company's
products and services are similar, management believes that the delineation
between the Company's revenue streams provides definition for reportable
segments and is consistent with its newly adopted business model. Consequently,
the Company has identified two reportable operating segments based on the
criteria of SFAS No. 131: recurring revenue and non-recurring revenue. Recurring
revenue includes contractual arrangements for maintenance and support services,
subscriptions and e-services. Non-recurring revenue includes one-time sales of
licenses and systems and fees for training and implementation services.
The Company also conducts operations in Europe and Australia. For the three
months ended March 31, 2001, less than 10% of the Company's total revenues were
generated outside the United States.
The Company's President and Chief Executive Officer evaluates performance
based on measures of segment revenues and company-wide operating results.
Employee headcount and operating costs and expenses are managed by functional
areas, rather than by revenue segments. Moreover, the Company does not account
for or report to the President and CEO its assets or capital expenditures by
segments.
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PRACTICEWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The accompanying statements of operations disclose the financial
information of the Company's reportable segments in accordance with SFAS No. 131
for the three months ended March 31, 2001 and 2000.
NOTE 9. LEGAL PROCEEDINGS
Pursuant to the Agreement and Plan of Distribution, executed in connection
with the Spin-Off, PracticeWorks agreed to assume any and all contingent
liability arising from the definitive resolution of the litigation filed on June
21, 2000 against InfoCure by Joseph Hafner. On June 21, 2000, a lawsuit styled
Joseph Hafner v. InfoCure Corporation et al., was filed in the United States
District Court in and for the Eastern District of Pennsylvania. The lawsuit
alleges that InfoCure breached the terms of a registration rights agreement
whereby InfoCure was required, prior to a specified date, to effect the
registration for resale with the Securities and Exchange Commission of shares of
InfoCure's common stock which the plaintiff owned. The complaint further alleges
breach of fiduciary duties owed to the plaintiff as a stockholder of InfoCure
and tort claims against InfoCure as a result of the alleged failure to timely
register shares for resale. The complaint seeks in excess of $3.2 million in
compensatory damages as a result of InfoCure's alleged breach of this agreement,
as well as punitive damages and reimbursement for the plaintiff's attorney's
fees and associated costs and expenses of the lawsuit. On March 30, 2001, the
court denied the plaintiff's motions for judgment on the pleadings with respect
to plaintiffs' claim that InfoCure breached the terms of the registration rights
agreement, and the court also denied InfoCure's motion to dismiss certain of the
plaintiff's contract and tort claims in the case. InfoCure's management believes
it has meritorious defenses in this matter and intends to pursue these defenses
vigorously. Management of PracticeWorks believes that the ultimate resolution of
this matter will not have a material adverse effect on PracticeWorks' financial
condition.
F-41
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PRACTICEWORKS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements reflect
completion on March 5, 2001 of the spin-off by InfoCure Corporation ("InfoCure")
of its dental business to PracticeWorks, Inc. ("PracticeWorks") and have been
prepared to give effect to PracticeWorks' proposed acquisition of all the
outstanding equity interest of Medical Dynamics. Pursuant to the merger
agreement, each holder of greater than 100 shares of Medical Dynamics common
stock will receive 0.06873 shares of InfoCure common stock, 0.017183 shares of
PracticeWorks common stock and 0.07558 shares of PracticeWorks series B
convertible redeemable preferred stock in exchange for each share of Medical
Dynamics common stock held. Each holder of 100 or fewer shares of Medical
Dynamics will receive $0.75 in cash for each share of Medical Dynamics common
stock held. The unaudited pro forma condensed combined financial statements
assume 13.2 million shares of Medical Dynamics common stock are outstanding as
of the date of the acquisition, in which case InfoCure would issue approximately
878,000 shares of InfoCure common stock. PracticeWorks would issue approximately
219,000 shares of PracticeWorks common stock, approximately 965,000 shares of
PracticeWorks series B convertible redeemable preferred stock and pay
approximately $325,000 in cash. The unaudited pro forma condensed combined
statements of operations also include the March 7, 2001, acquisition of
SoftDent, LLC, or InfoSoft, in exchange for 32,000 shares of PracticeWorks'
series A convertible redeemable preferred stock with a stated redemption value
of $32.0 million in five years.
The pro forma condensed combined financial statements included herein
reflect application of the purchase method of accounting for the acquisitions.
Such financial statements have been prepared from, and should be read in
conjunction with, the historical financial statements and notes thereto of
PracticeWorks as of and for the three months ended March 31, 2001, and of
PracticeWorks and InfoSoft as of and for the year ended December 31, 2000
included elsewhere in this proxy statement-prospectus, and the Medical Dynamics
historical consolidated financial statements and notes thereto included in
Medical Dynamics' annual report on Form 10-KSB for the year ended September 30,
2000 and its quarterly report on Form 10-QSB for the six months ended March 31,
2001, incorporated herein by reference.
The pro forma condensed combined balance sheet gives effect to the Medical
Dynamics acquisition as if it had occurred on March 31, 2001 combining the
balance sheets of PracticeWorks and Medical Dynamics as of that date. The pro
forma condensed combined statements of operations give effect to the
acquisitions of Medical Dynamics and InfoSoft as if they had occurred on January
1, 2000, combining the results of PracticeWorks and InfoSoft for the three
months ended March 31, 2001 and for the year ended December 31, 2000 with those
of Medical Dynamics for the three months ended March 31, 2001 and for the
twelve-month period ended December 31, 2000.
The pro forma condensed combined statements of operations for the three
months ended March 31, 2001 and for the year ended December 31, 2000 include
appropriate adjustments for amortization and other items related to the
transaction, but exclude any potential cost savings. PracticeWorks believes that
it may be able to reduce salaries and related costs and general and
administrative expenses as it eliminates duplication of overhead and has
formulated a plan of restructuring to implement such savings. There can be no
assurance that the restructuring plan will be successful in effecting such cost
savings.
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236
PRACTICEWORKS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The transactions described above have an impact on InfoCure's financial
statements, which, for pro forma purposes, are considered immaterial. Consistent
with the terms of the original merger agreement and InfoCure's subsequent
spin-off of its dental business to PracticeWorks, InfoCure's issuance of common
stock to Medical Dynamics stockholders will be accounted for by PracticeWorks as
an equity contribution. InfoCure will record the issuance of these shares by
increasing its common stock outstanding and paid-in capital to reflect a fair
value at issuance and simultaneously reduce paid-in capital by this same amount
to recognize the adjustment to net assets spun-off to PracticeWorks.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The pro
forma combined financial information is unaudited and does not purport to
represent the consolidated results that would have been obtained had the
transactions occurred at the dates indicated, as assumed, nor does it purport to
present the results which may be obtained in the future.
F-43
237
PRACTICEWORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2001
(IN THOUSANDS)
PRACTICEWORKS, MEDICAL PRO FORMA
INC. DYNAMICS ADJUSTMENTS COMBINED
-------------- -------- ----------- ---------
ASSETS
CURRENT:
Cash and cash equivalents............. $ 7,135 $ 755 $ (325)(A) $ 6,793
(772)(B)
Accounts and notes receivable, net.... 7,590 157 -- 7,747
Deferred tax assets................... 987 -- -- 987
Prepaid expenses and other current
assets.............................. 2,477 14 -- 2,491
------- -------- -------- --------
Total current assets............. 18,189 926 (1,097) 18,018
Property and equipment, net........... 6,289 230 -- 6,519
Goodwill and other intangible assets,
net................................. 62,541 3,173 6,581(A) 72,295
Deferred tax assets................... 4,370 -- -- 4,370
Other assets.......................... 1,970 22 (1,550)(C) 442
------- -------- -------- --------
$93,359 $ 4,351 $ 3,934 $101,644
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................... $ 5,113 $ 48 $ -- $ 5,161
Accrued expenses...................... 4,605 607 300(A) 5,364
(148)(B)
Accrued restructuring costs........... 1,079 -- -- 1,079
Deferred revenue and customer
deposits............................ 10,636 284 -- 10,920
Current portion of long-term debt..... 2,126 2,414 (624)(B) 2,366
(1,550)(C)
------- -------- -------- --------
Total current liabilities........ 23,559 3,353 (2,022) 24,890
Long-term debt, less current
portion............................. 20,031 72 -- 20,103
------- -------- -------- --------
Total liabilities................ 43,590 3,425 (2,022) 44,993
------- -------- -------- --------
Convertible redeemable preferred
stock............................... 26,333 -- 3,750(A) 30,083
------- -------- -------- --------
STOCKHOLDERS' EQUITY:
Common stock.......................... 88 13 (11)(A) 90
Additional paid-in capital............ 26,989 28,353 (28,353)(A) 30,119
1,469(A)
1,161(A)
500(A)
Accumulated deficit................... (3,576) (27,440) 27,440(A) (3,576)
Accumulated other comprehensive
loss................................ (65) -- -- (65)
------- -------- -------- --------
Total stockholders' equity....... 23,436 926 2,206 26,568
------- -------- -------- --------
$93,359 $ 4,351 $ 3,934 $101,644
======= ======== ======== ========
See accompanying notes to pro forma financial statements.
F-44
238
PRACTICEWORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRACTICEWORKS, MEDICAL PRO FORMA PRO FORMA
INC. INFOSOFT DYNAMICS ADJUSTMENTS COMBINED
-------------- -------- -------- ----------- ---------
Total revenue....................... $ 11,817 $1,374 $ 627 $ -- $ 13,818
-------- ------ ------- -------- --------
Operating expense:
Hardware and other purchases for
resale.......................... 1,447 495 293 -- 2,235
Selling, general and
administrative.................. 10,212 673 419 -- 11,304
Research and development.......... 726 80 -- -- 806
Depreciation and amortization..... 5,314 236 25 839(D) 7,125
711(D)
Restructuring and other
non-recurring charges........... 2,120 -- -- -- 2,120
-------- ------ ------- -------- --------
Total operating expense............. 19,819 1,484 737 1,550 23,590
-------- ------ ------- -------- --------
Operating loss...................... (8,002) (110) (110) (1,550) (9,772)
Interest expense and other, net..... 625 -- 63 -- 688
-------- ------ ------- -------- --------
Loss before income taxes............ (8,627) (110) (173) (1,550) (10,460)
Income taxes........................ -- -- -- -- --
-------- ------ ------- -------- --------
Net loss............................ (8,627) (110) (173) (1,550) (10,460)
Accrued and accretive dividends on
preferred stock................... 333 -- -- 347(F) 1,458
79(G)
699(H)
-------- ------ ------- -------- --------
Net loss available to common
stockholders...................... $ (8,960) $ (110) $ (173) $ (2,675) $(11,918)
======== ====== ======= ======== ========
Net loss per share:
Basic and diluted................. $ (1.03) $ (1.34)
======== ========
Weighted average shares outstanding:
Basic and diluted................. 8,685 8,904
======== ========
F-45
239
PRACTICEWORKS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRACTICEWORKS, MEDICAL PRO FORMA PRO FORMA
INC. INFOSOFT DYNAMICS ADJUSTMENTS COMBINED
-------------- -------- -------- ----------- ---------
Total revenue....................... $ 40,015 $8,648 $ 3,020 $ -- $ 51,683
-------- ------ ------- -------- --------
Operating expense:
Hardware and other purchases for
resale.......................... 5,337 649 704 -- 6,690
Selling, general and
administrative.................. 38,895 5,722 2,537 -- 47,154
Research and development.......... 3,481 395 -- -- 3,876
Depreciation and amortization..... 17,250 1,590 1,092 5,992(D) 28,766
2,842(D)
Restructuring and other
non-recurring charges........... 7,410 -- -- -- 7,410
Gain on disposal of fixed
assets.......................... (636) -- -- -- (636)
-------- ------ ------- -------- --------
Total operating expense............. 71,737 8,356 4,333 8,834 93,260
-------- ------ ------- -------- --------
Operating (loss) income............. (31,722) 292 (1,313) (8,834) (41,577)
Interest expense and other, net..... 2,117 -- 316 -- 2,433
-------- ------ ------- -------- --------
(Loss) income before income taxes... (33,839) 292 (1,629) (8,834) (44,010)
(Benefit) provision for income
taxes............................. (4,399) 129 -- (553)(E) (4,823)
-------- ------ ------- -------- --------
Net (loss) income (29,440) 163 (1,629) (8,281) (39,187)
Accrued and accretive dividends on
preferred stock................... -- -- -- 2,080(F) 5,833
315(G)
3,438(H)
-------- ------ ------- -------- --------
Net (loss) income available to
common stockholders............... $(29,440) $ 163 $(1,629) $(14,114) $(45,020)
======== ====== ======= ======== ========
Net loss per share:
Basic and diluted................. $ (3.51) $ (5.23)
======== ========
Weighted average shares outstanding:
Basic and diluted................. 8,384 8,603
======== ========
F-46
240
PRACTICEWORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENTS
(A)Records the Medical Dynamics acquisition, including (1) issuance of
approximately 219,500 shares of PracticeWorks common stock and recognizes the
issuance of approximately 878,000 shares of InfoCure common stock, together
valued at $2.6 million, (2) the issuance of approximately 965,000 shares of
PracticeWorks series B convertible redeemable preferred stock, with a stated
redemption value of $5.3 million, and (3) the cash payment of approximately
$325,000, all in exchange for approximately 13.2 million shares of Medical
Dynamics common stock. Also records the exchange of PracticeWorks stock
options for outstanding Medical Dynamics stock options valued at
approximately $500,000 and estimated transaction costs of $300,000. The
PracticeWorks and InfoCure common stock has been valued based on recent
closing prices. The valuation of the series B convertible redeemable
preferred stock is based on the redemption value net of a discount to adjust
to estimated fair value. PracticeWorks will recognize an equity contribution
to recognize the issuance of the InfoCure common stock in accordance with the
original agreement. For pro forma purposes the total consideration is
estimated at $7.5 million.
This acquisition is accounted for as a purchase with the total consideration
allocated to the assets acquired as follows:
DESCRIPTION AMOUNT
- ----------- --------------
(IN THOUSANDS)
Total consideration:
Issuance of series B convertible redeemable preferred
stock.................................................. $ 5,250
Discount on series B convertible redeemable preferred
stock.................................................. (1,500)
Issuance of PracticeWorks common stock.................... 1,163
Contribution to recognize InfoCure's issuance of common
stock to Medical Dynamics stockholders................. 1,469
Payment to certain Medical Dynamics stockholders.......... 325
Transaction costs......................................... 300
Issuance of stock options................................. 500
-------
7,507
Allocation
Current assets............................................ (926)
Property and equipment.................................... (230)
Other assets.............................................. (22)
Current liabilities....................................... 3,353
Long-term debt, net of current portion.................... 72
Goodwill.................................................. (9,754)
-------
$ --
=======
(B)Records payments of accrued salary and vacation and certain promissory notes
to Medical Dynamics stockholders, officers and directors upon closing.
(C)Records elimination of loans to Medical Dynamics.
F-47
241
PRACTICEWORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
(D)Records adjustment to amortization expense to reflect increase for new basis
of goodwill net of eliminated amortization for other intangibles to which no
value was assigned. Goodwill is amortized using the straight line method over
a three year life.
(E)Records the effect of income taxes as though the companies filed consolidated
tax returns. Goodwill arising from the acquisitions is not deductible for
income tax purposes and therefore does not provide a pro forma income tax
benefit.
(F)Records the annual dividends on PracticeWorks convertible redeemable
preferred stock issued in connection with the InfoSoft acquisition which was
completed on March 7, 2001.
(G)Records the annual dividends on PracticeWorks convertible redeemable
preferred stock to be issued in connection with the Medical Dynamics
acquisitions.
(H)Records the accretive dividends related to the discount on convertible
redeemable preferred stock issued in connection with the InfoSoft acquisition
and to be issued in connection with the Medical Dynamics acquisition. Also
records the accretive dividend related to the potential redemption premium
feature of the convertible redeemable preferred stock issued in connection
with the Crescent investment, which was made on March 6, 2001.
F-48
242
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
DENTSPLY International, Inc.
(Owner of the InfoSoft division of Ceramco, Inc., a wholly owned subsidiary)
York, Pennsylvania
We have audited the accompanying balance sheets of InfoSoft (a division of
Ceramco, Inc., a wholly owned subsidiary of DENTSPLY International, Inc.) (the
"Division") as of December 31, 2000 and 1999, and the related statements of
income, changes in divisional equity and cash flows for the years then ended.
These financial statements are the responsibility of the Division's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of InfoSoft as of December 31,
2000 and 1999, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
BDO Seidman, LLP
Atlanta, Georgia
March 2, 2001 (except for Note 7, which is as of March 7, 2001)
F-49
243
INFOSOFT
(A DIVISION OF CERAMCO, INC., A WHOLLY OWNED SUBSIDIARY OF DENTSPLY
INTERNATIONAL, INC.)
BALANCE SHEETS
DECEMBER 31,
-------------------------
2000 1999
----------- -----------
ASSETS
Current
Cash and cash equivalents............................... $ 70,853 $ --
Accounts receivable, less allowance for doubtful
accounts $50,000 and $22,000......................... 355,982 592,938
Supplies inventory...................................... 50,129 67,028
Convention deposits and other prepaid expenses.......... 273,197 185,438
----------- -----------
Total current assets............................... 750,161 845,404
----------- -----------
Property and equipment, net (Note 3)...................... 820,839 944,069
----------- -----------
Other assets
Capitalized software costs, less accumulated
amortization of $1,839,605 and $1,060,771 (Note 2)... 4,449,170 4,070,711
Goodwill, less accumulated amortization of $1,121,216
and $689,749......................................... 5,350,784 5,782,251
----------- -----------
Total other assets................................. 9,799,954 9,852,962
----------- -----------
Total assets....................................... $11,370,954 $11,642,435
=========== ===========
LIABILITIES AND DIVISIONAL EQUITY
Current
Bank overdrafts......................................... $ -- $ 216,912
Accounts payable........................................ 32,518 261,950
Income taxes payable (Note 5)........................... 304,000 520,000
Accrued expenses:
Salaries and related expenses........................ 345,732 725,082
Other................................................ 277,243 221,612
Deferred revenue........................................ 1,285,144 814,449
----------- -----------
Total current liabilities.......................... 2,244,637 2,760,005
Deferred tax liabilities, net (Note 5).................... 1,236,000 891,000
----------- -----------
Total liabilities.................................. 3,480,637 3,651,005
----------- -----------
Commitments (Note 4)
Divisional equity
Net advances from parent................................ 5,492,221 5,756,707
Retained earnings....................................... 2,398,096 2,234,723
----------- -----------
Total divisional equity............................ 7,890,317 7,991,430
----------- -----------
Total liabilities and divisional equity............ $11,370,954 $11,642,435
=========== ===========
See accompanying notes to financial statements.
F-50
244
INFOSOFT
(A DIVISION OF CERAMCO, INC., A WHOLLY OWNED SUBSIDIARY OF DENTSPLY
INTERNATIONAL, INC.)
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Net sales................................................... $8,647,959 $9,545,002
Costs and expenses
Cost of products purchased for sale....................... 648,713 719,699
Selling, general and administrative expenses.............. 7,311,606 7,228,712
Research and development.................................. 395,267 155,000
---------- ----------
Total operating costs and expenses..................... 8,355,586 8,103,411
---------- ----------
Net income before income taxes.............................. 292,373 1,441,591
Income taxes (Note 5)....................................... 129,000 558,000
---------- ----------
Net income.................................................. $ 163,373 $ 883,591
========== ==========
See accompanying notes to financial statements.
F-51
245
INFOSOFT
(A DIVISION OF CERAMCO, INC., A WHOLLY OWNED SUBSIDIARY OF DENTSPLY
INTERNATIONAL, INC.)
STATEMENTS OF CHANGES IN DIVISIONAL EQUITY
NET
ADVANCES RETAINED
FROM PARENT EARNINGS TOTAL
----------- ---------- -----------
Balance, December 31, 1998..................... $ 7,053,222 $1,351,132 $ 8,404,354
Net income................................... -- 883,591 883,591
Net repayments............................... (1,296,515) -- (1,296,515)
----------- ---------- -----------
Balance, December 31, 1999..................... 5,756,707 2,234,723 7,991,430
Net income................................... -- 163,373 163,373
Net repayments............................... (264,486) -- (264,486)
----------- ---------- -----------
Balance, December 31, 2000..................... $ 5,492,221 $2,398,096 $ 7,890,317
=========== ========== ===========
See accompanying notes to financial statements.
F-52
246
INFOSOFT
(A DIVISION OF CERAMCO, INC., A WHOLLY OWNED SUBSIDIARY OF DENTSPLY
INTERNATIONAL, INC.)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999
----------- -----------
Operating activities
Net income.............................................. $ 163,373 $ 883,591
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization...................... 1,589,888 1,417,213
Corporate overhead allocation...................... 123,909 95,817
Deferred income taxes.............................. 345,000 480,000
Change in operating assets and liabilities:
Accounts receivable............................. 236,956 (100,152)
Supplies inventory.............................. 16,899 (622)
Prepaid expenses................................ (87,759) 172,089
Bank overdrafts................................. (216,912) 216,912
Accounts payable................................ (229,432) 222,626
Income taxes payable............................ (216,000) 78,000
Accrued expenses................................ (323,719) 81,966
Deferred revenue................................ 470,695 95,167
----------- -----------
Cash provided by operating activities..................... 1,872,898 3,642,607
----------- -----------
Investing activities
Capital expenditures.................................... (256,357) (940,073)
Capitalized software expenditures....................... (1,157,293) (1,428,875)
----------- -----------
Cash used by investing activities......................... (1,413,650) (2,368,948)
----------- -----------
Financing activity
Repayments to parent company, net of draws and corporate
overhead allocation.................................. (388,395) (1,392,332)
----------- -----------
Net change in cash and cash equivalents................... 70,853 (118,673)
Cash and cash equivalents, beginning...................... -- 118,673
----------- -----------
Cash and cash equivalents, ending......................... $ 70,853 $ --
=========== ===========
See accompanying notes to financial statements.
F-53
247
INFOSOFT
(A DIVISION OF CERAMCO, INC., A WHOLLY OWNED SUBSIDIARY OF DENTSPLY
INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The accompanying financial statements include the operations, assets and
liabilities of InfoSoft, a division of Ceramco, Inc., a wholly owned subsidiary
of DENTSPLY International, Inc ("DENTSPLY"), referred to hereafter as "the
Division". The Division provides information management technology to dentists.
The Division's offerings include practice management applications,
business-to-business e-commerce services, electronic data interchange, or EDI,
services, ongoing maintenance and support and training. These systems are
designed to increase the quality and reduce the cost of providing care by
allowing dentists and physicians to manage their practices more efficiently and
reduce the administrative burdens created by an increasingly complex healthcare
environment.
The assets and liabilities of the Division were acquired by DENTSPLY on
March 18, 1998, and accounted for under the purchase method of accounting.
The Division's costs and expenses in the accompanying financial statements
include allocations from DENTSPLY for centralized corporate services and
infrastructure costs because specific identification of the expenses is not
practicable. The expense allocations have been determined on the bases that
DENTSPLY and the Division considered to be reasonable reflections of the
utilization of services provided or the benefit received by the Division using
ratios such as relative head count, sales and real estate occupied. These
allocations are minimal as the Division, for the most part, operates
independently.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from software sales is recognized when all shipment obligations
have been met, fees are fixed and determinable, collection of the sale proceeds
is deemed probable and persuasive evidence that an agreement exists. Revenue
from hardware sales, which was minimal for the periods presented, is recognized
upon product shipment. Revenue from support and maintenance contracts, which are
typically one year in length, is recognized ratably over the life of the
contract. Revenue from electronic claims processing is based upon a per
transaction fee. Customers using the Division's electronic claims processing
services must pay the Division in advance and maintain prepaid deposits. The
Division records these deposits as deferred revenue until the processing of
transactions is complete and reported by a third party clearing house. Revenue
from other services is recognized as the services are provided.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with
initial maturity dates of no more than three months. Historically, DENTSPLY has
managed cash for its subsidiaries and divisions on a centralized basis.
F-54
248
INFOSOFT
(A DIVISION OF CERAMCO, INC., A WHOLLY OWNED SUBSIDIARY OF DENTSPLY
INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Management estimates that the carrying amounts of the Division's financial
instruments, which consist primarily of accounts receivable and accounts
payable, are not materially different from their fair values.
PROPERTY AND EQUIPMENT
Property and equipment, are stated at the lower of the fair value or cost.
Depreciation is computed over the estimated useful lives of the related assets
using both straight-line and accelerated methods for financial reporting and
primarily accelerated methods for income tax purposes. Substantial betterments
to property and equipment are capitalized and repairs and maintenance are
expensed as incurred.
CAPITALIZED COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED
Costs incurred, such as planning, designing, coding and testing, for
computer software to be sold, leased or otherwise marketed are expensed as
incurred prior to establishing the technological feasibility of a product.
Technological feasibility is generally achieved when the detail program design
or a working model has been completed. For the period between the establishment
of technological feasibility and the time a product is available for general
release, such costs are capitalized. Capitalized software costs are amortized
using the straight-line method over the estimated lives of the related products
(generally 60 months).
GOODWILL
Goodwill represents the excess of cost over the fair value of assets
acquired in a business combination accounted for under the purchase method.
Goodwill is amortized on a straight-line basis over its estimated useful life
(15 years).
LONG-LIVED ASSETS
Long-lived assets, such as goodwill, property and equipment and capitalized
software development costs are periodically evaluated for impairment when events
or changes in circumstances indicate that the carrying amount of the assets may
not be recoverable through the estimated undiscounted future cash flows
resulting from the use of the assets. When any such impairment exists, the
related assets will be written down to fair value.
DIVISIONAL EQUITY
Divisional Equity represents DENTSPLY's net advances to the Division,
through its wholly owned subsidiary, Ceramco, Inc. and divisional earnings. No
intercompany interest income or expense has been allocated to the Division for
DENTSPLY's net investment in
F-55
249
INFOSOFT
(A DIVISION OF CERAMCO, INC., A WHOLLY OWNED SUBSIDIARY OF DENTSPLY
INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Division, as there is no portion of DENTSPLY's third-party debt attributed
to the Division.
INCOME TAXES
For the periods presented, the Division was not a separate taxable entity
for federal, state or local income tax purposes and its operating results are
included in the tax return of Ceramco, Inc. and ultimately are included in
DENTSPLY's consolidated tax returns. The Division calculates its income taxes
under the separate return method and accounts for income taxes under the asset
and liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the Division's financial statements or tax returns. In estimating
future tax consequences, management generally considers all expected future
events other than possible enactments of changes in the tax laws or rates.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to the
current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities.
Historically, the Division has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Division does
not expect adoption of the new standard on January 1, 2001, to affect its
financial statements.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities -- a Replacement of FASB Statement No. 125"
was issued in September 2000 to address securitizations and other transfers of
financial assets and collateral, and requires specified new disclosures.
Specified disclosure provisions are effective for fiscal years ending after
December 15, 2000 with the accounting for transfers and servicing of financial
assets and extinguishments of liabilities effective for transactions
F-56
250
INFOSOFT
(A DIVISION OF CERAMCO, INC., A WHOLLY OWNED SUBSIDIARY OF DENTSPLY
INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
occurring after March 31, 2001. Adoption of this new standard is not expected to
have an effect on our financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101
"Revenue Recognition" which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the SEC. The Division believes that adopting SAB No. 101 will not have a
material impact on its financial position or results of operations.
NOTE 3. PROPERTY AND EQUIPMENT
Major classes of property and equipment consisted of the following:
ESTIMATED DECEMBER 31,
USEFUL LIVES -----------------------
(YEARS) 2000 1999
------------ ---------- ----------
Office and computer equipment........ 2-5 $1,132,199 $ 871,606
Furniture and fixtures............... 10 479,434 483,670
---------- ----------
1,611,633 1,355,276
Less accumulated depreciation........ (790,794) (411,207)
---------- ----------
$ 820,839 $ 944,069
========== ==========
Depreciation expense was $379,587 and $294,660 for the year ended December
31, 2000 and 1999.
NOTE 4. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
DENTSPLY leases office facilities and certain equipment under operating
leases having original terms ranging from one to seven years. Approximate future
minimum rentals, by year and in the aggregate, under the noncancellable
operating leases with remaining terms of more than one year that relate to
facilities utilized by the Division are as follows:
YEAR AMOUNT
- ---- ----------
2001....................................................... $ 376,000
2002....................................................... 387,000
2003....................................................... 369,000
2004....................................................... 411,000
----------
Total............................................ $1,543,000
==========
Rent expense was approximately $332,000 and $270,000 for the year ended
December 31, 2000 and 1999, respectively.
F-57
251
INFOSOFT
(A DIVISION OF CERAMCO, INC., A WHOLLY OWNED SUBSIDIARY OF DENTSPLY
INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DEFINED CONTRIBUTION PLANS
Substantially all of the employees of the Division are eligible to
participate in defined contribution plans sponsored by DENTSPLY -- the DENTSPLY
Employee Stock Ownership Plan ("ESOP") and a 401(k) savings plan. The ESOP is a
non-contributory defined contribution plan. DENTSPLY makes annual contributions
to the ESOP of not less than the amounts required to service ESOP debt. The
Division records pro rata expense related to the Division's employees relative
to all employees of DENTSPLY and its subsidiaries. Total expense recorded by the
Division was approximately $91,000 and $70,000 for 2000 and 1999, respectively.
The 401(k) savings plan allows enrolled participants to contribute up to
15% of their compensation, subject to IRS defined limits. Neither DENTSPLY nor
the Division contributes to the 401(k) savings plan.
LITIGATION
The Division is a party to various legal proceedings related to its
agreements with certain of its value-added resellers. Although the ultimate
disposition of these proceedings is not presently determinable, management does
not believe that adverse determination in any or all of such proceedings would
have a material impact on the financial statements of the Division.
NOTE 5. INCOME TAXES
The components of the provision for income taxes are as follows:
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
----------- ----------
Current:
Federal............................................. $(177,000) $ 68,000
State............................................... (39,000) 10,000
--------- --------
Total current.................................... (216,000) 78,000
--------- --------
Deferred:
Federal............................................. 283,000 418,000
State............................................... 62,000 62,000
--------- --------
Total deferred................................... 345,000 480,000
--------- --------
Income tax expense............................... $ 129,000 $558,000
========= ========
F-58
252
INFOSOFT
(A DIVISION OF CERAMCO, INC., A WHOLLY OWNED SUBSIDIARY OF DENTSPLY
INTERNATIONAL, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes result from temporary differences between the bases of
assets and liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. The sources of the temporary differences
and their effect on deferred tax assets and liabilities are as follows:
DECEMBER 31,
-----------------------
2000 1999
----------- ---------
Deferred tax assets:
Accounts receivable reserve....................... $ 20,000 $ 9,000
Basis difference of property and equipment........ 24,000 15,000
Other............................................. (1,000) 13,000
----------- ---------
Total deferred tax assets........................... 43,000 37,000
Deferred tax liabilities:
Capitalized software costs........................ (1,279,000) (928,000)
----------- ---------
Net deferred tax liabilities...................... $(1,236,000) $(891,000)
=========== =========
The Division's effective income tax rate varied from the U.S. federal
statutory rate as follows:
YEAR ENDED DECEMBER 31,
------------------------
2000 1999
---------- ----------
Expected tax expense at U.S. federal statutory rate......... $100,000 $490,000
Increase (decrease) in income taxes resulting from:
State income taxes........................................ 15,000 43,000
Other, net................................................ 14,000 25,000
-------- --------
Net income tax expense................................. $129,000 $558,000
======== ========
NOTE 6. SUPPLEMENTAL CASH FLOW INFORMATION
All required cash payments for income taxes were made by DENTSPLY on behalf
of the Division.
NOTE 7. SUBSEQUENT EVENT
On March 7, 2001, the net assets of the Division were acquired by
PracticeWorks, Inc. ("PracticeWorks") in exchange for 6.5% convertible
redeemable preferred stock. The preferred stock will be convertible into
PracticeWorks' outstanding common stock and is redeemable after five years for
$32.0 million. PracticeWorks was formerly a division of InfoCure Corporation
("InfoCure") and was spun-off from InfoCure in a pro rata distribution of
PracticeWorks' common stock to InfoCure's common stockholders.
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APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
MEDICAL DYNAMICS, INC., A COLORADO CORPORATION,
INFOCURE CORPORATION, A DELAWARE CORPORATION
AND
CADI ACQUISITION CORPORATION, A COLORADO CORPORATION
DATED: OCTOBER 10, 2000
254
TABLE OF CONTENTS
PAGE
-----
1. DEFINITIONS........................................................ A-2
1.1. "Affiliate"................................................. A-2
1.2. "Best Efforts".............................................. A-2
1.3. "Breach".................................................... A-2
1.4. "Closing"................................................... A-2
1.5. "Closing Date".............................................. A-2
1.6. "Code"...................................................... A-2
1.7. "Company Disclosure Schedule"............................... A-2
1.8. "Company Material Adverse Effect"........................... A-2
1.9. "Consent"................................................... A-2
1.10. "Contemplated Transactions"................................. A-2
1.11. "Contract".................................................. A-3
1.12. "Damages"................................................... A-3
1.13. "Effective Time"............................................ A-3
1.14. "Encumbrance"............................................... A-3
1.15. "Environmental Requirements"................................ A-3
1.16. "ERISA"..................................................... A-3
1.17. "ERISA Affiliate"........................................... A-3
1.18. "Exchange Act".............................................. A-3
1.19. "Facilities"................................................ A-3
1.20. "GAAP"...................................................... A-3
1.21. "Governmental Authorization"................................ A-3
1.22. "Governmental Body"......................................... A-3
1.23. "HSR Act"................................................... A-3
1.24. "IRS"....................................................... A-4
1.25. "Knowledge"................................................. A-4
1.26. "Legal Requirement"......................................... A-4
1.27. "Order"..................................................... A-4
1.28. "Ordinary Course of Business"............................... A-4
1.29. "Organizational Documents".................................. A-4
1.30. "Parent Disclosure Schedule"................................ A-4
1.31. "Parent Material Adverse Effect"............................ A-4
1.32. "Person".................................................... A-4
1.33. "Plan"...................................................... A-4
1.34. "Proceeding"................................................ A-4
1.35. "Related Person"............................................ A-5
1.36. "Representative"............................................ A-5
1.37. "Securities Act"............................................ A-5
1.38. "Subsidiary"................................................ A-5
1.39. "Tax Returns"............................................... A-5
1.40. "Taxes"..................................................... A-6
1.41. "Threatened"................................................ A-6
2. MERGER............................................................. A-6
2.1. The Merger.................................................. A-6
2.2. Effective Time; Closing..................................... A-6
2.3. Effect of the Merger........................................ A-6
2.4. Articles of Incorporation; Bylaws; Directors and Officers... A-6
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PAGE
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2.5. Effect on Capital Stock..................................... A-7
2.6. Exchange of Certificates.................................... A-9
2.7. Lost, Stolen or Destroyed Certificates...................... A-10
2.8. No Further Ownership Rights in Company Common Stock......... A-11
2.9. Additional Actions.......................................... A-11
2.10. Tax and Accounting Consequences............................. A-11
2.11. Automatic Conversion of Parent Preferred Stock Into
PracticeWorks Preferred Stock............................. A-11
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................... A-11
3.1. Organization, Good Standing, Corporate Power and
Subsidiaries.............................................. A-11
3.2. Authority; No Conflict...................................... A-12
3.3. Capitalization.............................................. A-13
3.4. SEC Filings; Financial Statements........................... A-14
3.5. Books and Records........................................... A-15
3.6. Real Property Interests..................................... A-15
3.7. Condition and Sufficiency of Assets......................... A-15
3.8. Accounts Receivable......................................... A-15
3.9. Inventory................................................... A-16
3.10. No Undisclosed Liabilities.................................. A-16
3.11. Taxes....................................................... A-16
3.12. No Company Material Adverse Effect.......................... A-17
3.13. Employee Benefits Matters................................... A-17
3.14. Compliance With Legal Requirements; Governmental
Authorizations............................................ A-20
3.15. Legal Proceedings; Orders................................... A-21
3.16. Absence of Certain Changes and Events....................... A-22
3.17. Contracts; No Defaults...................................... A-23
3.18. Insurance................................................... A-25
3.19. Environmental Matters....................................... A-25
3.20. Employees................................................... A-26
3.21. Government Contracts........................................ A-26
3.22. Intellectual Property Rights of the Company................. A-27
3.23. Certain Payments............................................ A-33
3.24. Relationships With Related Persons.......................... A-33
3.25. Brokers or Finders.......................................... A-33
3.26. Labor Relations; Compliance................................. A-33
3.27. Disclosure Documents........................................ A-34
3.28. Disclosure.................................................. A-34
3.29. Vote Required............................................... A-34
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF MERGER SUB AND
4. PARENT............................................................. A-34
4.1. Organization................................................ A-34
4.2. Authorization............................................... A-35
4.3. Absence of Restrictions and Conflicts....................... A-35
4.4. Capitalization of Parent and Merger Sub..................... A-36
4.5. SEC Filings; Financial Statements........................... A-36
4.6. Litigation.................................................. A-36
4.7. Registration Statement; Proxy Statement..................... A-37
4.8. Certain Proceedings......................................... A-37
4.9. Brokers or Finders.......................................... A-37
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PAGE
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5. CERTAIN AGREEMENTS OF THE PARTIES.................................. A-37
5.1. No Solicitation............................................. A-37
5.2. Public Disclosure........................................... A-39
5.3. Reasonable Efforts; Notification............................ A-39
5.4. Third Party Consents........................................ A-40
5.5. Indemnification............................................. A-40
5.6. Nasdaq Listing.............................................. A-41
5.7. Reimbursement of Employee Costs and Expenses................ A-41
5.8. Provision of Loan By Parent to Company...................... A-41
5.9. PracticeWorks Spin-off...................................... A-41
6. ADDITIONAL COVENANTS OF THE PARTIES................................ A-41
6.1. Mutual Covenants............................................ A-41
6.2. Covenants of the Company.................................... A-44
6.3. Form S-8.................................................... A-46
6.4. Stock Options and Warrants.................................. A-46
7. CONDITIONS......................................................... A-47
7.1. Mutual Conditions........................................... A-47
7.2. Conditions to Obligations of Merger Sub and Parent.......... A-48
7.3. Conditions to Obligations of the Company.................... A-49
8. TERMINATION........................................................ A-50
8.1. Termination................................................. A-50
8.2. Notice of Termination; Effect of Termination................ A-51
8.3. Fees and Expenses........................................... A-51
8.4. Amendment................................................... A-53
8.5. Extension; Waiver........................................... A-53
8.6. Special Parent Payment...................................... A-53
9. MISCELLANEOUS...................................................... A-53
9.1. Survival of Representations and Warranties.................. A-53
9.2. Notices..................................................... A-53
9.3. Further Assurances.......................................... A-54
9.4. Waiver...................................................... A-54
9.5. Entire Agreement and Modification........................... A-54
9.6. Assignments, Successors and No Third-Party Rights........... A-55
9.7. Section Headings, Construction.............................. A-55
9.8. Time of Essence............................................. A-55
9.9. Governing Law............................................... A-55
9.10. Counterparts................................................ A-55
EXHIBITS:
Exhibit A Form of Shareholder Agreement.
Exhibit B Form of Certificate of Designation.
Exhibit C-1 Form of Employment Agreement for Daniel L. Richmond.
Exhibit C-2 Form of Employment Agreement for Chae U. Kim.
Exhibit D Form of Norton Lidstone, P.C. Legal Opinion.
Exhibit E Form of Morris, Manning & Martin, L.L.P. Legal Opinion.
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(this "Agreement"), is made and entered into as of this 10th day of October,
2000, by and among INFOCURE CORPORATION, a Delaware corporation ("Parent"), CADI
ACQUISITION CORPORATION, a Colorado corporation and a wholly-owned subsidiary of
Parent ("Merger Sub") and MEDICAL DYNAMICS, INC., a Colorado corporation
("Company").
RECITALS:
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Colorado Business Corporation Act ("Colorado Law"), Parent,
Merger Sub and Company intend to enter into a transaction pursuant to which
Merger Sub will be merged with and into Company.
B. The Board of Directors of Company (i) has determined that the Merger (as
defined in Section 2.1.) is consistent with and in furtherance of the long-term
business strategy of Company and fair to, and in the best interests of, Company
and its shareholders; (ii) has approved and declared advisable this Agreement,
and has approved the Merger and the other transactions contemplated by this
Agreement and (iii) has determined to recommend that the shareholders of Company
adopt and approve this Agreement and approve the Merger.
C. The Board of Directors of Parent (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Parent
and is fair to, and in the best interests of, Parent and its stockholders; (ii)
has approved this Agreement, the Merger and the other transactions contemplated
by this Agreement; (iii) has approved the issuance of shares of common stock,
$.001 par value per share, of Parent ("Parent Common Stock") pursuant to the
Merger and (iv) has approved the issuance of shares of Series A preferred stock,
$.001 par value per share, of Parent ("Parent Preferred Stock"), having the
designations, preferences and rights set forth on EXHIBIT B, pursuant to the
Merger.
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement (i) Edwin L.
Adair, M.D. and Pat Horsley Adair; (ii) Daniel L. Richmond; (iii) Chae U. Kim
and (iv) Van A. Horsley (such individuals collectively referred to as the
"Principal Shareholders") are entering into Shareholder Agreements in the form
attached hereto as EXHIBIT A (the "Shareholder Agreements").
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
F. This Agreement amends and restates in its entirety that certain original
Agreement and Plan Merger and Reorganization dated December 21, 1999, as amended
by that First Amendment to the Agreement and Plan of Merger dated April 10,
2000, and as further amended by that certain Second Amendment to the Agreement
and Plan of Merger dated June 21, 2000.
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NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. DEFINITIONS.
The following terms shall have the following meanings:
1.1. "AFFILIATE" is used in this Agreement to indicate a relationship with
one (1) or more persons and when used shall mean any corporation or organization
of which such person is an executive officer, director or partner or is directly
or indirectly the beneficial owner of ten percent (10%) or more of any class of
equity securities or financial interest therein; any trust or other estate in
which such person has a beneficial interest or as to which such person serves as
trustee or in any similar fiduciary capacity; any relative or spouse of such
person, or any relative of such spouse (such relative being related to the
person in question within the second degree); or any person that directly, or
indirectly through one (1) or more intermediaries, controls or is controlled by,
or is under common control with, the person specified.
1.2. "BEST EFFORTS" means the efforts that a prudent Person desirous of
achieving a result would reasonably use in similar circumstances to ensure that
such result is achieved as expeditiously as possible; provided, however, that an
obligation to use Best Efforts under this Agreement does not require the Person
subject to that obligation to take actions that would result in a materially
adverse change in the benefits of this Agreement and the Contemplated
Transactions to such Person.
1.3. "BREACH" means a "breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement and will be deemed to have
occurred if there is or has been any inaccuracy in or any failure to perform or
comply with, such representation, warranty, covenant, obligation, or other
provision.
1.4. "CLOSING" is defined in this Agreement in Section 2.2.
1.5. "CLOSING DATE" is defined in this Agreement in Section 2.2.
1.6. "CODE" means the Internal Revenue Code of 1986, as amended, including
regulations or other authoritative notices or rulings issued by the Internal
Revenue Service thereunder.
1.7. "COMPANY DISCLOSURE SCHEDULE" is defined in this Agreement in Section
3.
1.8. "COMPANY MATERIAL ADVERSE EFFECT" means a material adverse effect on
the financial condition, results of operation, business or properties of the
Company and Subsidiary taken as a whole.
1.9. "CONSENT" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
1.10. "CONTEMPLATED TRANSACTIONS" means all of the transactions
contemplated by this Agreement, including, without limitation:
A. The Merger; and
B. The performance by Merger Sub, Parent and the Company of their
respective covenants and obligations under this Agreement.
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1.11. "CONTRACT" means any agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order, license,
sublicense, insurance policy, benefit plan, commitment, obligation, promise or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
1.12. "DAMAGES" means any loss, liability, claim, damages, expense
(including, without limitation, costs of investigation and defense and
reasonable attorneys' fees) or diminution of value, whether or not involving a
third party.
1.13. "EFFECTIVE TIME" is defined in this Agreement in Section 2.2.
1.14. "ENCUMBRANCE" means any security interest, mortgage, lien, charge,
adverse claim or restriction of any kind, including, but not limited to, any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attributes of ownership.
1.15. "ENVIRONMENTAL REQUIREMENTS" means federal, state and local laws
relating to pollution or protection of the environment, including laws or
provisions relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials, substances, or wastes
into air, surface water, groundwater, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials, substances, or wastes.
1.16. "ERISA" means the Employee Retirement Income Security Act of 1974 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
1.17. "ERISA AFFILIATE" means any Person which would be required to be
aggregated with the Company under Code sec. 414(b), (c), (m) and/or (o) and/or
under ERISA sec. 4001(a)(14) at any time during the period beginning seven (7)
years prior to the Closing Date and ending immediately prior to the Closing.
1.18. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
1.19. "FACILITIES" means any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company or any Subsidiary and any
buildings, plants, structures, or equipment (including motor vehicles, tank
cars, and rolling stock) currently or formerly owned or operated by the Company
or any Subsidiary.
1.20. "GAAP" means generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the financial statements
referred to in Section 3.4. were prepared.
1.21. "GOVERNMENTAL AUTHORIZATION" means any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
1.22. "GOVERNMENTAL BODY" means any national, state or municipal or other
local government, state or municipal or other local governmental body, any
subdivision, agency, commission or authority thereof, or any quasi-governmental
or private body exercising any regulatory or taxing authority thereunder.
1.23. "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, 15 U.S.C. sec. 18a, et seq.
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1.24. "IRS" means the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
1.25. "KNOWLEDGE" means an individual will be deemed to have "Knowledge" of
a particular fact or other matter if such individual is actually aware of such
fact or other matter, or a prudent individual given his position with the
Company could be expected to discover or otherwise become aware of such fact or
other matter. A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving or has served within the last five (5) years as a director, executive,
officer, partner, executor or trustee of such Person (or in any similar
capacity) has, or at any time had, Knowledge of such fact or other matter.
1.26. "LEGAL REQUIREMENT" means any federal, state, local, municipal or
other administrative order, constitution, law, ordinance, principle of common
law, regulation, statute, or treaty.
1.27. "ORDER" means any award, decision, injunction, judgment, order,
ruling or verdict entered, issued, made or rendered by any court, administrative
agency or other Governmental Body or by any arbitrator.
1.28. "ORDINARY COURSE OF BUSINESS" means an action taken by a Person will
be deemed to have been taken in the "Ordinary Course of Business" only if such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person. In the case
of Company, the term "Ordinary Course of Business" shall include the changes in
the Company's operations since December 21, 1999 taken at the specific request
of Parent, including, but not limited to: (i) Company's cessation of marketing
and selling of it's Computer Age Dentist software product; (ii) Company's
compensating sales personnel who are selling the PracticeWorks product; (iii)
Company's termination of approximately thirty-five (35) employees and (iv) the
other changes in Company's business resulting therefrom as disclosed in the
reports filed by the Company under the Exchange Act.
1.29. "ORGANIZATIONAL DOCUMENTS" means (i) the Articles of Incorporation
and the Bylaws of a corporation; (ii) any charter or similar document adopted or
filed in connection with the creation, formation, or organization of a Person
and (iii) any amendment to any of the foregoing.
1.30. "PARENT DISCLOSURE SCHEDULE" is defined in this Agreement in Section
4.
1.31. "PARENT MATERIAL ADVERSE EFFECT" means a material adverse effect on
the financial condition, results of operation, business or properties of the
Parent and all of it subsidiaries taken as a whole.
1.32. "PERSON" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
1.33. "PLAN" as defined in Section 3.13.A. of this Agreement.
1.34. "PROCEEDING" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
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1.35. "RELATED PERSON" means with respect to a particular individual:
A. Each other member of such individual's Family;
B. Any Person that is directly or indirectly controlled by such
individual or one (1) or more members of such individual's Family;
C. Any Person in which such individual or members of such individual's
Family hold (individually or in the aggregate) a Material Interest; and
D. Any Person with respect to which such individual or one (1) or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
A. Any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
B. Any Person that holds a Material Interest in such specified Person;
C. Each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
D. Any Person in which such specified Person holds a Material
Interest;
E. Any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
F. Any Related Person of any individual described in clause B. or C.
For purposes of this definition, (i) the "Family" of an individual
includes (1) the individual's spouse and (2) any other natural person who
is related to the individual or the individual's spouse within the second
degree and (ii) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of
1934) of voting securities or other voting interests representing at least
five percent (5%) of the outstanding voting power of a Person or equity
securities or other equity interests representing at least five percent
(5%) of the outstanding equity securities or equity interests in a Person.
1.36. "REPRESENTATIVE" means with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial advisors.
1.37. "SECURITIES ACT" means the Securities Act of 1933 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
1.38. "SUBSIDIARY" shall mean Computer Age Dentist, Inc., a California
corporation.
1.39. "TAX RETURNS" means any return, report, information return or other
document (including any related or supporting information) filed or required to
be filed with any Governmental Body in connection with the determination,
assessment or collection of any Taxes or the administration of any laws,
regulations or administrative requirements relating to any Taxes.
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1.40. "TAXES" means all taxes, charges, fees, levies, interest, penalties,
additions to tax or other assessments, including, but not limited to, income,
excise, property, sales, use, value added and franchise taxes and customs
duties, imposed by any Governmental Body and any payments with respect thereto
required under any tax-sharing agreement.
1.41. "THREATENED" means a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made (orally or in writing) or any notice has been given (orally or in
writing), or any other event has occurred or any other circumstances exist, that
would lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action or other matter is likely to be asserted, commenced, taken or otherwise
pursued in the future.
2. MERGER.
2.1. THE MERGER. At the Effective Time and subject to and upon the terms
and conditions of this Agreement, Merger Sub shall be merged with and into
Company (the "Merger"), the separate corporate existence of Merger Sub shall
cease and Company shall continue as the surviving corporation under the
corporate name it possesses immediately prior to the Effective Time. Company as
the surviving corporation after the Merger is sometimes hereinafter referred to
as the "Surviving Corporation."
2.2. EFFECTIVE TIME; CLOSING. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing Articles
of Merger with the Secretary of State of the State of Colorado in accordance
with the relevant provisions of Colorado Law (the "Articles of Merger") (the
time of such filing (or such later time as may be agreed in writing by Company
and Parent and specified in the Articles of Merger) being the "Effective Time")
as soon as practicable on or after the Closing Date (as herein defined). The
closing of the Merger (the "Closing") shall take place at the offices of Morris,
Manning & Martin, L.L.P., 1600 Atlanta Financial Center, 3343 Peachtree Road,
N.E., Atlanta, Georgia 30326, at a time and date to be specified by the parties,
which shall be no later than the second (2nd) business day after the
satisfaction or waiver of the conditions set forth in Section 7., or at such
other time, date and location as the parties hereto agree in writing (the
"Closing Date").
2.3. EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Colorado
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
2.4. ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS. At the
Effective Time, the Articles of Incorporation of Company, as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
of the Surviving Corporation and thereafter shall continue to be its Articles of
Incorporation (until amended as provided under Colorado Law).
The Bylaws of Company, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation and thereafter shall
continue to be its bylaws (until amended as provided therein and under Colorado
Law).
The initial directors and officers of the Surviving Corporation shall be
the directors and the officers of Merger Sub who are serving in such capacities
immediately prior to the
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Effective Time, and such directors and officers shall continue to serve as the
directors and officers of the Surviving Corporation in accordance with the
bylaws of the Surviving Corporation.
2.5. EFFECT ON CAPITAL STOCK. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, Company or the holders of any of the following
securities, the following shall occur:
A. CONVERSION OF COMPANY COMMON STOCK. Each share of common stock, $.001
par value per share, of Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time, other than any shares of
Company Common Stock to be canceled pursuant to Section 2.5.B. and any
Dissenting Shares (as defined and to the extent provided in Section 2.5.), will
be canceled and extinguished and automatically converted (subject to Section
2.5.F.) into the right to receive (i) .06873 of a share, unless adjusted as
provided for herein, of Parent Common Stock ("Common Exchange Ratio") and (ii)
0.07558 of a share of Parent Preferred Stock, such shares to be represented by
depository receipts representing 0.100 per share of Parent Preferred Stock
rounded up to the nearest 1/100th share of Parent Preferred Stock. When used
herein unless the context otherwise requires, the term "Parent Preferred Stock"
also includes the depository receipts.
B. CANCELLATION OF COMPANY-OWNED STOCK. Each share of Company Common Stock
held by Company or any direct or indirect wholly-owned subsidiary of Company
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
C. WARRANTS. All warrants to purchase Company Common Stock (collectively,
the "Warrants") then outstanding shall be terminated and replaced with new
warrants to purchase Parent Common Stock in the manner described in Section 6.4.
D. STOCK OPTIONS. All options (collectively, the "Options") to purchase
Company Common Stock then outstanding under the Company's stock option plans
referenced in SCHEDULE 3.3 (collectively, the "Company Stock Option Plans")
shall be terminated and replaced with new options to purchase Parent Common
Stock in the manner described in Section 6.4.
E. ADJUSTMENTS TO CONVERSION. The conversion rights of holders of Company
Common Stock shall be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Company Common Stock, Parent Common Stock or Parent
Preferred Stock), reorganization, recapitalization or other like change with
respect to Company Common Stock, Parent Common Stock or Parent Preferred Stock
occurring after the date hereof and prior to the Effective Time.
F. FRACTIONAL SHARES. As of the Effective Time, all such shares of Company
Common Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each certificate previously
representing any such shares shall thereafter represent only the right to
receive a certificate representing the shares of Parent Common Stock and Parent
Preferred Stock into which such Company Common Stock was converted in the
Merger. The holders of such certificates previously evidencing such shares of
the Company Common Stock outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such shares of the Company
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Common Stock as of the Effective Time except as otherwise provided herein or by
law. Such certificates previously representing shares of the Company Common
Stock shall be exchanged for certificates representing whole shares of Parent
Common Stock and Parent Preferred Stock issued in consideration therefor upon
the surrender of such certificates in accordance with the provisions of Section
2.6., without interest. No fractional shares of Parent Common Stock or Parent
Preferred Stock will be issued in connection with the Merger, but in lieu
thereof, the holder of any shares of Company Common Stock who would otherwise be
entitled to receive (i) a fraction of a share of Parent Common Stock shall
receive cash in an amount equal to the value of such fractional shares, which
shall be equal to the fraction of a share of Parent Common Stock that would
otherwise be issued multiplied by Four and 93/100 Dollars ($4.93) or (ii) a
depository receipt representing less than 0.10 of a share of Parent Preferred
Stock shall receive cash in an amount equal to the value of such depository
receipt, which shall be equal to the fraction of a share of Parent Preferred
Stock less than 0.10 share that would otherwise be issued multiplied by Five and
44/100 Dollars ($5.44).
G. CONDITIONAL STOCK. If any shares of Company Common Stock outstanding
immediately prior to the Effective Time are unvested or are subject to a
repurchase option, risk of forfeiture or other condition under any applicable
restricted stock purchase agreement or other agreement with the Company, then
the shares of Parent Common Stock and Parent Preferred Stock issued in exchange
for such shares of Company Common Stock will also be unvested and subject to the
same repurchase option, risk of forfeiture or other condition, and the
certificates representing such shares of Parent Common Stock and Parent
Preferred Stock may accordingly be marked with appropriate legends. The Company
shall take all action that may be necessary to ensure that, from and after the
Effective Time, Parent is entitled to exercise any such repurchase option or
other right set forth in any such restricted stock purchase agreement or other
agreement.
H. ODD LOT CASH-OUT. Notwithstanding Sections 2.5.A. and 2.5.F. above, any
holder, owning in the aggregate, one hundred (100) or fewer shares of Company
Common Stock ("Odd Lot Shareholder"), shall instead receive cash in an amount
equal to 75/100 Dollars ($.75) per share of Company Common Stock held by such
Odd Lot Shareholder.
I. DISSENTERS RIGHTS.
(i) Notwithstanding any provision of this Agreement to the contrary, any
shares of Company Common Stock held by a holder who has demanded and perfected
appraisal or dissenters' rights for such shares in accordance with Colorado Law
and who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal or dissenters' rights (the "Dissenting Shares") shall not be converted
into or represent a right to receive the consideration set forth pursuant to
this Section 2.5., but the holder thereof shall only be entitled to such rights
as are granted by Colorado Law.
(ii) Notwithstanding the provisions of subsection (i), if any holder of
shares of Company Common Stock who demands appraisal of such shares under
Colorado Law shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive Parent Common Stock,
Parent Preferred Stock and payment for any fractional share as provided in this
Section 2.5., without interest thereon, upon surrender of the certificate
representing such shares.
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(iii) The Company shall give Parent (1) prompt notice of any written
demands for appraisal of any shares of Company Common Stock, withdrawals of such
demands, and any other instruments served pursuant to Colorado Law and received
by the Company and (2) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under Colorado Law. The
Company shall not, except with the prior written consent of Parent, voluntarily
make any payment with respect to any demands for appraisal of capital stock of
the Company or offer to settle or settle any such demands.
2.6. EXCHANGE OF CERTIFICATES.
A. EXCHANGE AGENT; PARENT TO PROVIDE COMMON STOCK. Promptly after the
Effective Time, Parent shall supply, or shall cause to be supplied, to or for
the account of a bank or trust company designated by Parent (the "Exchange
Agent"), for exchange in accordance with this Section 2.6., through the Exchange
Agent, certificates evidencing the Parent Common Stock and Parent Preferred
Stock issuable pursuant to Section 2.5. in exchange for outstanding shares of
Company Common Stock, and cash in an amount sufficient for payment in lieu of
fractional shares pursuant to Section 2.5.F. and any dividends or other
distributions to which holders of shares of Company Common Stock may be entitled
pursuant to Section 2.6.C.
B. EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, Parent shall cause the Exchange Agent to mail to each holder of
record (as of the Effective Time) of a certificate or certificates which
immediately prior to the Effective Time evidenced outstanding shares of Company
Common Stock (the "Certificates") whose shares were converted into shares of
Parent Common Stock and Parent Preferred Stock pursuant to Section 2.5., cash in
lieu of any fractional shares pursuant to Section 2.5.F. and any dividends or
other distributions to which holders of shares of Company Common Stock may be
entitled pursuant to Section 2.6.C. (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates evidencing shares of
Parent Common Stock and Parent Preferred Stock, cash in lieu of any fractional
shares pursuant to Section 2.5.F. and any dividends or other distributions
pursuant to Section 2.6.C. Upon surrender of a Certificate for cancellation to
the Exchange Agent or to such other agent or agents as may be appointed by
Parent, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, and such other customary
documents as may be required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange thereof (i) certificates
evidencing that number of whole shares of Parent Common Stock and Parent
Preferred Stock into which such holder's shares of Company Common Stock were
converted at the Effective Time; (ii) any dividends or other distributions to
which such holder is entitled pursuant to Section 2.6.C. and (iii) cash in lieu
of fractional shares to which such holder is in entitled pursuant to Section
2.5.F., and the Certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of shares of Company Common Stock which is not
registered in the transfer records of the Company as of the Effective Time,
Parent Common Stock and Parent Preferred Stock and cash may be issued and paid
in accordance with this Section 2. to a transferee if the Certificate evidencing
such shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer pursuant to this Section 2.6. and
by evidence that any applicable stock transfer taxes have been paid. Until so
surrendered, each outstanding Certificate that, prior to the Effective
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Time, represented shares of Company Common Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence only the ownership of the number of full shares of Parent
Common Stock and Parent Preferred Stock into which such shares of Company Common
Stock shall have been so converted and the right to receive an amount in cash in
lieu of the issuance of any fractional shares in accordance with Section 2.5.F.
and any dividends or distributions payable pursuant to Section 2.6.C.
C. DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions declared or made after the Effective Time, with respect to Parent
Common Stock or Parent Preferred Stock with a record date after the Effective
Time, shall be paid to the holder of any unsurrendered Certificate until the
holder of such Certificate shall surrender such Certificate or comply with the
lost instrument procedure set forth in Section 2.7. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock and
Parent Preferred Stock issued in exchange therefor, without interest, at the
time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole
shares of Parent Common Stock and Parent Preferred Stock.
D. TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent Common
Stock or Parent Preferred Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will be
a condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any person designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Common Stock or Parent Preferred Stock in any name other
than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
E. REQUIRED WITHHOLDING. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable legal requirement.
To the extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes under this Agreement as having been paid to the person
to whom such amounts would otherwise have been paid.
F. NO LIABILITY. Notwithstanding anything to the contrary in this Section
2.6., neither the Exchange Agent, Parent, Merger Sub nor the Company shall be
liable to any holder of shares of Company Common Stock, Parent Common Stock or
Parent Preferred Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.7. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Company Common
Stock as may be required pursuant to Section 2.5.; provided, however, that
Parent may, in its sole discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against
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any claim that may be made against Parent or the Exchange Agent with respect to
the Certificates alleged to have been lost, stolen or destroyed.
2.8. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock and Parent Preferred Stock issued upon the surrender for
exchange of shares of Company Common Stock in accordance with the terms hereof
(including any cash paid in respect thereof pursuant to Sections 2.5.F. and
2.6.C.) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and exchanged as
provided in this Section 2.
2.9. ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation or Parent shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of the Company or otherwise to carry out the
purposes of this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of the Company, all such deeds, bills of sale, assignments and assurances
and to take and do, in the name and on behalf of the Company, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Corporation or otherwise to carry out the purposes of
this Agreement.
2.10. TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall constitute a reorganization within the meaning of
Section 368 of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Income Tax Regulations.
2.11. AUTOMATIC CONVERSION OF PARENT PREFERRED STOCK INTO PRACTICEWORKS
PREFERRED STOCK. All Parent Preferred Stock issued pursuant to Section 2.5.
shall be subject to automatic exchange into shares of PracticeWorks Preferred
Stock upon a spin-off of Parent's PracticeWorks division as further described in
EXHIBIT B hereto (the "PracticeWorks Spin-off"). The PracticeWorks Spin-off,
while expected, is at InfoCure's discretion and subject to, among other things,
appropriate consents (including consents of senior lenders) and no guarantee is
made hereunder that the PracticeWorks Spin-off will occur.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As of September 25, 2000 and as of the Closing Date, Company represents and
warrants to Merger Sub and Parent, subject to such exceptions as are
specifically disclosed in writing in the disclosure schedule and referencing a
specific representation supplied by the Company to Merger Sub and Parent dated
as of September 25, 2000 and certified by a duly authorized officer of Company
(the "Company Disclosure Schedule"), as follows:
3.1. ORGANIZATION, GOOD STANDING, CORPORATE POWER AND SUBSIDIARIES.
A. SCHEDULE 3.1.A of the Company Disclosure Schedule contains a complete
and accurate list of the Company and each Subsidiary's name, its jurisdiction of
incorporation, other jurisdictions in which it is authorized to do business.
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The Company and the Subsidiary are each a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction in
which it is organized, with full corporate power and authority to conduct its
business as it is now being conducted and to own or use the properties and
assets that it purports to own or use.
The Company and the Subsidiary are each duly qualified or licensed to do
business as a foreign corporation and is in good standing under the laws of each
state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification, except where the failure to be so qualified or
licensed would not result in a Company Material Adverse Effect.
B. The Company and Subsidiary have delivered to Merger Sub copies of the
Organizational Documents of the Company and Subsidiary, as currently in effect.
C. Neither Company nor Subsidiary has agreed nor is obligated to make nor
be bound by any Contract under which it may become obligated to make, any future
investment in or capital contribution to any other entity. Neither the Company
nor the Subsidiary owns, directly or indirectly, any equity or similar interest
convertible, exchangeable or exercisable for, any equity or similar interest in,
any corporation, partnership, joint venture or other business association or
entity.
3.2. AUTHORITY; NO CONFLICT.
A. The Company has all necessary corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder and, subject
only to obtaining the approval of the shareholders of the Company of the Merger
(the "Shareholder Approval"), to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by Company and the
consummation by Company of the transactions contemplated hereby have been duly
and validly approved by the Company Board of Directors, as required by
applicable law and the Company Board of Directors has, as of the date of this
Agreement, determined (i) that the Merger is advisable and fair to, and in the
best interests of Company and its shareholders and (ii) to recommend that the
shareholders of Company approve and adopt this Agreement and approve the Merger.
This Agreement is, or when executed and delivered by the Company will be, a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as to the effect, if any, of (i) applicable
bankruptcy and other similar laws affecting the rights of creditors generally
and (ii) rules of law governing specific performance, injunctive relief and
other equitable remedies.
B. Except as set forth in SCHEDULE 3.2 of the Company Disclosure Schedule,
neither the execution and delivery of this Agreement by the Company nor, after
obtaining the Shareholder Approval, the consummation or performance of any of
the Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of time):
(i) Contravene, conflict with, or result in a violation of any
provision of the Organizational Documents of the Company or the Subsidiary;
(ii) Contravene, conflict with, or result in a violation of, or give
any Governmental Body or, to the Knowledge of the Company, other Person the
right to challenge any of the Contemplated Transactions or to exercise any
remedy or obtain any relief under, any Legal Requirement or any Order to
which the Company or the
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Subsidiary, or any of the assets owned or used by the Company or the
Subsidiary, may be subject;
(iii) Subject to the filing of the Articles of Merger with the
Colorado Secretary of State, contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, suspend, cancel, terminate, or modify,
any Governmental Authorization that is held by the Company or the
Subsidiary or that otherwise relates to the business of, or any of the
assets owned or used by the Company or the Subsidiary;
(iv) Cause the Company or the Subsidiary to become subject to, or to
become liable for the payment of, any Tax;
(v) Cause any of the assets owned by the Company or the Subsidiary to
be reassessed or revalued by any taxing authority or other Governmental
Body;
(vi) Contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any material Contract to which Company
or the Subsidiary is a party or by which Company or the Subsidiary or its
or any of their respective properties are bound or affected; or
(vii) Result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by the Company or the
Subsidiary.
C. Except as set forth in SCHEDULE 3.2 of the Company Disclosure
Schedule and such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Company
Material Adverse Effect or have a material adverse effect on the ability of
the parties to consummate the Merger, the Company and the Subsidiary are
not or will not be required to give any notice to or obtain any Consent
from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
3.3. CAPITALIZATION. The authorized capital stock of the Company consists
of (i) thirty million (30,000,000) shares of Company Common Stock, par value
$.001 per share and five million (5,000,000) shares of Preferred Stock, $.001
par value per share ("Company Preferred Stock"). At the close of business on
August 21, 2000 (i) thirteen million two hundred forty thousand sixty-six
(13,240,066) shares of Company Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable; (ii) no shares of
Company Common Stock were held in treasury by Company or by any Subsidiary;
(iii) three million one hundred twenty-five thousand eight hundred thirty-seven
(3,125,837) shares of Company Common Stock were reserved for issuance upon the
exercise of outstanding options to purchase Company Common Stock under the
Company Stock Option Plans; (iv) one million three hundred forty-nine thousand
(1,349,000) shares of Company Common Stock were available for future grant under
the Company Stock Option Plans and (v) one hundred fifty thousand (150,000)
shares of Company Common Stock were reserved for future issuance upon conversion
of warrants of the Company. As of August 31, 2000, no shares of Company
Preferred Stock were issued or outstanding. SCHEDULE 3.3 of the Company
Disclosure Schedule sets forth the following information with respect to each
Option and Warrant (as defined in Section 6.4.) outstanding as of the date of
this Agreement: (i) the name and address of
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the optionee or warrant holder; (ii) the particular plan pursuant to which such
Option was granted; (iii) the number of shares of Company Common Stock subject
to such Option or Warrant; (iv) the exercise price of such Option or Warrant;
(v) the date on which such Option or Warrant was granted; (vi) the applicable
vesting schedule and (vii) the date on which such Option or Warrant expires.
Company has made available to Parent accurate and complete copies of all stock
option plans pursuant to which the Company has granted such Options that are
currently outstanding and the form of all stock option agreements and
instruments evidencing such Options and Warrants. Except as set forth in
SCHEDULE 3.3, all shares of Company Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the instrument
pursuant to which they are issuable, would be duly authorized, validly issued,
fully paid and nonassessable. There are no commitments or agreements of any
character to which the Company is bound obligating the Company to accelerate the
vesting of any Option as a result of the Merger. All outstanding shares of
Company Common Stock, all outstanding Options and Warrants, and all outstanding
shares of capital stock of Subsidiary have been issued and granted in compliance
with (i) all applicable securities laws and other applicable Legal Requirements
and (ii) all requirements set forth in applicable Contracts. Except for
securities Company owns free and clear of all Encumbrances, as of the date of
this Agreement, there are no equity securities, partnership interests or similar
ownership interests of any class of equity security of Subsidiary, or any
security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except as set forth in SCHEDULE 3.3, there
are no subscriptions, options, warrants, equity securities, partnership
interests or similar ownership interests, calls, rights (including preemptive
rights), commitments or agreements of any character to which Company or
Subsidiary is a party or by which it is bound obligating Company or Subsidiary
to issue, deliver or sell, or cause to be issued, delivered or sold, or
repurchase, redeem or otherwise acquire, or cause the repurchase, redemption or
acquisition of, any shares of capital stock, partnership interests or similar
ownership interest s of the Company or Subsidiary or obligating the Company or
Subsidiary to grant, extend, accelerate the vesting of or enter into any such
subscription, option, warrant, equity security, call, right, commitment or
agreement. As of the date of this Agreement, except as contemplated by this
Agreement and except as set forth in SCHEDULE 3.3, there are no registration
rights and there is no voting trust, proxy, rights plan, anti-takeover plan or
other agreement or understanding to which the Company or Subsidiary is a party
or by which they are bound with respect to any equity security of any class of
the Company or with respect to any equity security, partnership interest or
similar ownership interest of any class of Subsidiary. Stockholders of the
Company will not be entitled to dissenters' rights under applicable state law in
connection with the Merger.
3.4. SEC FILINGS; FINANCIAL STATEMENTS.
A. Company has made available to Parent a correct and complete copy of each
report, schedule, registration statement and definitive proxy statement filed by
Company with the Securities and Exchange Commission ("SEC") since September 1,
1998 (the "Company SEC Reports"), which are all the forms, reports and documents
required to be filed by Company with the SEC since September 1, 1998. The
Company SEC Reports (i) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be and (ii) did not at the
time they were filed (and if amended or superseded by a filing prior to the date
of this Agreement then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light
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of the circumstances under which they were made, not misleading. None of
Company's Subsidiaries is required to file any reports or other documents with
the SEC.
B. Each set of consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared in
accordance with GAAP (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain footnotes as permitted by Form 10-Q
of the Exchange Act) and each fairly presents the consolidated financial
position of Company and the Subsidiary at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal adjustments which were not or are not expected to be material in amount.
C. Company has previously furnished to Parent a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC,
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Company with the SEC pursuant to
the Securities Act or the Exchange Act.
3.5. BOOKS AND RECORDS. The books of account, stock record books, and
other records of the Company and the Subsidiary, all of which have been made
available to Merger Sub and Parent, are complete and correct in all material
respects.
The minute books of the Company and the Subsidiary made available to
counsel for Parent are the only minute books of the Company and the Subsidiary
and contain a reasonably accurate summary, in all material respects, of all
meetings held of, and corporate action taken by, the stockholders, the Board of
Directors and committees of the Board of Directors of Company and the Subsidiary
since the time of its incorporation. At the Closing, all of those books and
records will be in the possession of the Company.
3.6. REAL PROPERTY INTERESTS. Neither the Company nor the Subsidiary owns
real property. SCHEDULE 3.6 of the Company Disclosure Schedule contains a
complete and accurate list of all leaseholds or other interests in real property
of the Company and the Subsidiary. The Company has delivered or made available
to Merger Sub and Parent copies of the lease agreements and other instruments by
which the Company and the Subsidiary acquired such leasehold and other real
property interests.
3.7. CONDITION AND SUFFICIENCY OF ASSETS. Except as set forth on SCHEDULE
3.7 of the Company Disclosure Schedule, to the Company's Knowledge, the
buildings, plants, structures and equipment of the Company and the Subsidiary
are structurally sound, are in good operating condition and repair, subject to
normal wear and tear, and are adequate for the uses to which they are being put.
3.8. ACCOUNTS RECEIVABLE. All accounts receivable of the Company and the
Subsidiary that are reflected on the Financial Statements or on the accounting
records of the Company as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the Ordinary Course of Business.
Unless paid prior to the Closing Date, the Accounts Receivable are or will
be as of the Closing Date current and collectible net of the respective reserves
shown on the Financial Statements or on the accounting records of the Company
and the Subsidiary as of the Closing Date (which reserves are adequate and
calculated consistent with past practice).
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Subject to such reserves, each of the Accounts Receivable either has been
or will be collected in full, without any set-off, within one hundred fifty
(150) days on which it first becomes due and payable. To the Knowledge of the
Company, there is no contest, claim, or right of set-off, other than returns in
the Ordinary Course of Business, under any material Contract with any obligor of
an Accounts Receivable relating to the amount or validity of such Accounts
Receivable.
SCHEDULE 3.8 of the Company Disclosure Schedule contains a complete and
accurate list of all Accounts Receivable as of September 25, 2000, which list
sets forth the aging of such Accounts Receivable.
3.9. INVENTORY. All inventory of the Company and the Subsidiary, whether
or not reflected in the Financial Statements, consists of a quality and quantity
usable and salable in the Ordinary Course of Business, except for obsolete items
and items of below-standard quality, all of which have been or will be written
off or written down to net realizable value in the Financial Statements or on
the accounting records of the Company and the Subsidiary as of the Closing Date,
as the case may be.
3.10. NO UNDISCLOSED LIABILITIES. Except as set forth in SCHEDULE 3.10 of
the Company Disclosure Schedule, neither the Company nor the Subsidiary have any
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent or otherwise) except for liabilities or
obligations reflected or reserved against in the Financial Statements and not
heretofore paid or discharged and current liabilities incurred in the Ordinary
Course of Business since June 30, 1999.
3.11. TAXES.
A. Except as set forth on SCHEDULE 3.11 to the Company Disclosure Schedule,
the Company and the Subsidiary have timely filed all Tax Returns that they were
required to file. All such Tax Returns were correct and complete in all material
respects. The Company and the Subsidiary have paid in full or made adequate
provision by the establishment of reserves for all Taxes which have become due
or which are attributable to the conduct of the Company's and the Subsidiary's
business prior to August 31, 2000. The Company and the Subsidiary will continue
to make adequate provision for all such Taxes for all periods through the
Closing Date. The Company and the Subsidiary are not the beneficiaries of any
extension of time within which to file any Tax Return.
Except as set forth on SCHEDULE 3.11, the Company has no Knowledge of any
Tax deficiency proposed or Threatened against the Company or the Subsidiary.
There are no Tax liens upon any property or assets of the Company or the
Subsidiary to secure the payment of any delinquent Taxes.
Except as set forth on SCHEDULE 3.11, the Company and the Subsidiary have
made all payments of estimated Taxes when due in amounts sufficient to avoid the
imposition of any penalty.
B. Except as set forth on SCHEDULE 3.11, all Taxes and other assessments
and levies which the Company or the Subsidiary were required by law to withhold
or to collect have been duly withheld and collected, and have been paid over to
the proper Governmental Body.
C. Except as set forth in SCHEDULE 3.11, the Tax Returns of the Company and
the Subsidiary have never been audited by the IRS or other Governmental Body,
nor are any such audits in process. Except as set forth in SCHEDULE 3.11, there
are no outstanding
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agreements or waivers extending the statute of limitations applicable to any Tax
Returns of the Company or the Subsidiary for any period.
D. For federal income tax purposes, the Company and the Subsidiary have a
taxable year ending on September 30 in each year.
E. The Company has not filed a consent under Code sec. 341(f) concerning
collapsible corporations. The Company and the Subsidiary have not made any
material payments, are not obligated to make any material payments, and are not
a party to any agreement that under any circumstances could obligate it to make
any material payments that will not be deductible under Code sec. 280G. The
Company and the Subsidiary have not been a United States real property holding
corporation within the meaning of Code sec. 897(c)(2) during the applicable
period specified in Code sec. 897(c)(1)(A)(ii). The Company and the Subsidiary
are not a party to any Tax allocation or sharing agreement. Except with respect
to the Subsidiary, the Company (i) has not been a member of an affiliated group
filing a consolidated federal income Tax Return and (ii) has no liability for
the Taxes of any Person under Reg. sec. 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
F. The Company's and the Subsidiary's Tax basis in its assets for purposes
of determining its future amortization, depreciation and other federal income
tax deductions is accurately reflected on the Company's and the Subsidiary's
books and records in all material respects.
3.12. NO COMPANY MATERIAL ADVERSE EFFECT. Since June 30, 1999, there has
not been any Company Material Adverse Effect, and to the Company's Knowledge, no
event has occurred and no circumstance exists that may result in a Company
Material Adverse Effect other than with respect to general domestic or
international economic conditions and other than the changes in the Company's
financial condition, business and operations as disclosed in Company's reports
filed under the Exchange Act, which changes are continuing to date.
3.13. EMPLOYEE BENEFITS MATTERS.
A. SCHEDULE 3.13.1 lists all plans, programs, and similar agreements,
commitments or arrangements (including, but not limited to, any bonus, profit
sharing, pension, deferred compensation, stock option, stock purchase, fringe
benefit, severance, post-retirement, scholarship, tuition reimbursement,
disability, sick leave, vacation, commission, retention or other arrangements),
whether oral or written, sponsored or maintained by or on behalf of, or to which
contributions are or were made by, Company and/or any ERISA Affiliate within the
last seven (7) years that provide or provided benefits, compensation or other
remuneration to, or for the benefit of, current or former employees of Company
and/or any ERISA Affiliate or any or any other individual who provides services
to the Company and/or any ERISA Affiliate (including, but not limited to, any
shareholder, officer, director, employee or consultant), or any spouse, child or
other dependent of such current or former employee or other individual ("Plan"
or "Plans"). Except as disclosed on SCHEDULE 3.13.1, there are no other benefits
to which any current or former employees of Company and/or any ERISA Affiliate
or any or any other individual who provides services to the Company and/or any
ERISA Affiliate (including, but not limited to, any shareholder, officer,
director, employee or consultant), or any spouse, child or other dependent of
such current or former employee or other individual is entitled or for which the
Company and/or any ERISA Affiliate has any obligation. Except as set forth on
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SCHEDULE 3.13.1, only current employees of Company participate in the Plans,
except as required by I.R.C. sec. 4980B and/or ERISA sec.sec. 601-609. Copies of
all Plans and, to the extent applicable, all related trust agreements, actuarial
reports, and valuations for the most recent three (3) years, all summary plan
descriptions, prospectuses, Annual Report Form 5500's or similar forms (and
attachments thereto) for the most recent three (3) years, all Internal Revenue
Service determination letters, and any related documents requested by Buyer,
including all amendments, modifications and supplements thereto, all material
employee and/or participant communications relating to each such Plan, and all
insurance contracts, administrative services agreements or contracts, have been
delivered to Buyer, and all of the same are true, correct and complete.
B. With respect to each Plan to the extent applicable:
(i) No litigation or administrative or other proceeding or
investigation, claim, lawsuit, arbitration or other action is pending or
threatened involving such Plan or any administrator, fiduciary, employee,
contributing employer, contractor or agent of such Plan, other than routine
claims for benefits in the ordinary course for such Plan.
(ii) Such Plan has been administered and operated in compliance with,
and has been amended to comply with, all applicable laws, rules, and
regulations, including, without limitation, ERISA, the Code, and the
regulations issued under ERISA and the Code.
(iii) Company and ERISA Affiliates have made and as of the Closing
Date will have made or accrued, all payments and contributions required, or
reasonably expected to be required, to be made under the provisions of such
Plan or required to be made under applicable laws, rules and regulations,
with respect to any period prior to the Closing Date, such amounts to be
determined using the ongoing actuarial and funding assumptions of the Plan
if applicable.
(iv) Such Plan is fully funded in an amount sufficient to pay all
liabilities (whether or not vested) accrued (including liabilities and
obligations for health care, life insurance and other benefits after
termination of employment) and claims incurred through August 31, 2000.
(v) On the Closing Date such Plan will be fully funded in an amount
sufficient to pay all liabilities (whether or not vested) accrued as of the
Closing Date (including liabilities and obligations for health care, life
insurance and other benefits after termination of employment) and claims
incurred as of the Closing Date, or adequate reserves will be set up on
Company's books and records, or paid-up insurance will be provided,
therefor.
(vi) Such Plan has been administrated and operated only in the
ordinary and usual course and in accordance with its terms, and there has
not been in the four (4) years prior hereto any increase in the liabilities
of such Plan beyond increases typically experienced as a result of changes
in the workforce.
(vii) Such Plan is not a multiemployer plan (as defined in ERISA
sec. 3(37) or 4001(a)(3)), is not a single-employer plan (as defined in
ERISA sec. 4001(a)(15)), and is not a defined benefit plan (as defined in
ERISA sec. 3(35)), and is not a plan maintained by more than one employer
(within the meaning of Code sec. 413(c)).
(viii) No Person has engaged in any "prohibited transaction" (as
defined in ERISA sec. 406 or Code sec. 503(b) or 4975) with respect to such
Plan on or prior to the
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Closing Date, and no Person who would be a fiduciary with respect to such
Plan has breached any of his responsibilities or obligations imposed upon
fiduciaries under Title I of ERISA which would subject Company or any ERISA
Affiliate, or any Person whom the Company has an obligation to indemnify,
to any liability.
(ix) Such Plan contains provisions which allow additional benefits
under the Plan to be discontinued at any time and for any reason, and which
allow the Plan to be terminated (or the Company's participation in the Plan
to be terminated) by the Company at any time and for any reason, and, if
such Plan were terminated (or the Company's participation in such Plan were
terminated) on or prior to the Closing Date, no additional liability would
be incurred by the Company by such action.
(x) All communications with respect to such Plan by any Person on or
prior to the Closing Date have reflected accurately the documents and
operations of such Plan, and no Person has, as of the Closing Date, any
liability under any applicable law by reason of any communication or
failure to communicate with respect to or in connection with such Plan.
(xi) Such Plan does not provide benefits to any former employee, or
any other Person who is not performing services for the Company, except as
required by Code sec. 4980B and/or ERISA sec.sec. 601-609.
(xii) No liability to the Pension Benefit Guaranty Corporation
("PBGC") has been incurred or will be incurred as of the Closing Date by
Company or any ERISA Affiliate, except for PBGC insurance premiums (if
any), and all such insurance premiums incurred or accrued up to and
including the Closing Date have been timely paid, or will be timely paid
prior to the Closing Date.
(xiii) Neither the Company nor any ERISA Affiliate has ceased
operations at any facility or withdrawn from such Plan in a manner which
could subject the Company to liability under ERISA sec. 4062, 4063 or 4064,
and no events have occurred or will occur on or prior to the Closing Date
which might give rise to any liability of Company to the PBGC under Title
IV of ERISA or which could reasonably be anticipated to result in any
claims being made against Company by the PBGC.
(xiv) No entitlement to any benefit (including, but not limited to,
severance pay, unemployment compensation or payment contingent upon a
change in control or ownership of the Company) from such Plan shall arise,
and no acceleration or increase in benefits due any Person shall occur, by
reason of the consummation of the transactions contemplated by this
Agreement.
(xv) An ERISA fiduciary insurance policy issued by a licensed
insurance company is in place covering each and every fiduciary of such
Plan.
(xvi) If such Plan purports to provide benefits which qualify for
tax-favored treatment under Code sec. 79, 105, 106, 117, 120, 125, 127 129
or 132, the Plan satisfies the requirements of said Code sections.
C. The participants and beneficiary records with respect to each Plan
providing benefits to employees or other Persons performing services for the
Company and their spouses, dependents, etc., are in the custody of the Company
(or an agent of the Company who must, upon demand, provide such records to the
Company), and such records accurately state the history of each participant and
beneficiary in connection with each
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such Plan and accurately state the benefits earned by and/or owed to each such
participant and beneficiary.
D. Except as otherwise set forth on SCHEDULE 3.13.2, the Company is not
liable for and neither the Company nor Merger Sub nor Parent will be liable for,
any contribution, Tax, lien, penalty, cost, interest, claim, loss, action, suit,
damage, cost assessment or other similar type of liability or expense of any
ERISA Affiliate (including predecessors thereof) with regard to any Plan
maintained, sponsored or contributed to by an ERISA Affiliate, including,
without limitation, withdrawal liability arising under Title IV of ERISA,
liabilities to the PBGC, or liabilities under Code sec. 412 or ERISA sec. 302.
3.14. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS. For
purposes of this Section 3.14. only, the term "Company" shall be deemed to
include the Company and the Subsidiary.
A. Except as set forth in SCHEDULE 3.14 of the Company Disclosure Schedule:
(i) The Company is, and at all times since September 30, 1998 has
been, in full compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its business or the
ownership or use of any of its assets except where the failure to comply
with a Legal Requirement would not have a Company Material Adverse Effect;
(ii) To the Knowledge of the Company, no event has occurred or
circumstance exists that (with or without notice or lapse of time) (1) may
constitute or result in a violation by the Company of, or a failure on the
part of the Company to comply with, any Legal Requirement or (2) may give
rise to any obligation on the part of the Company to undertake, or to bear
all or any portion of the cost of, any remedial action of any nature except
for events or circumstances which in the aggregate would not have a Company
Material Adverse Effect; and
(iii) The Company has not received, at any time since September 30,
1998, any written notice or other written communication from any
Governmental Body or any other Person regarding (1) any actual, alleged,
possible, or potential violation of, or failure to comply with, any Legal
Requirement or (2) any actual, alleged, possible, or potential obligation
on the part of the Company to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature.
B. The Company has all Governmental Authorizations necessary to conduct its
business as presently conducted. Each Governmental Authorization is valid and in
full force and effect. Except as set forth in SCHEDULE 3.14 of the Company
Disclosure Schedule:
(i) The Company is, and at all times since September 30, 1998 has
been, in full compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in
SCHEDULE 3.14 of the Company Disclosure Schedule, except where the failure
to comply with a Governmental Authorization would not have a Company
Material Adverse Effect;
(ii) To the Knowledge of the Company, no event has occurred or
circumstance exists that may (with or without notice or lapse of time) (1)
constitute or result directly or indirectly in a violation of or a failure
to comply with any term or requirement of any Governmental Authorization
listed or required to be listed in SCHEDULE 3.14 of the Company Disclosure
Schedule or (2) result directly or indirectly
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in the revocation, withdrawal, suspension, cancellation, or termination of,
or any modification to, any Governmental Authorization listed or required
to be listed in SCHEDULE 3.14 of the Company Disclosure Schedule, except
for events or circumstances which in the aggregate would not have a Company
Material Adverse Effect;
(iii) The Company has not received, at any time since September 30,
1998, any written notice or other written communication from any
Governmental Body or any other Person regarding (1) any actual or alleged
violation of or failure to comply with any term or requirement of any
Governmental Authorization or (2) any actual or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to
any Governmental Authorization; and
(iv) All applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed in SCHEDULE
3.14 of the Company Disclosure Schedule have been duly filed on a timely
basis with the appropriate Governmental Bodies, and all other filings
required to have been made with respect to such Governmental Authorizations
have been duly made on a timely basis with the appropriate Governmental
Bodies, except where the failure to make such filings in a timely manner
would not have a Company Material Adverse Effect.
The Governmental Authorizations listed in SCHEDULE 3.14 of the Company
Disclosure Schedule collectively constitute all of the Governmental
Authorizations that are material to the conduct of the Company's business in the
manner it is currently conducted and to operate such business and to permit the
Company to own and use its assets in the manner in which it currently owns and
uses such assets.
3.15. LEGAL PROCEEDINGS; ORDERS.
A. Except as set forth in SCHEDULE 3.15 of the Company Disclosure Schedule,
there is no pending Proceeding:
(i) That has been commenced by or against the Company or the
Subsidiary; or
(ii) To the Knowledge of the Company, that challenges, or that may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions.
Except as set forth in SCHEDULE 3.15 of the Company Disclosure Schedule, to
the Knowledge of the Company, (i) no such Proceeding has been Threatened and
(ii) no event has occurred or circumstance exists that may give rise to or serve
as a basis for the commencement of any Proceeding that could reasonably be
expected to result in a Company Material Adverse Effect. The Company and the
Subsidiary have delivered to Merger Sub and Parent copies of all pleadings,
correspondence, and other documents relating to each pending Proceeding listed
in SCHEDULE 3.15 of the Company Disclosure Schedule. The Proceedings listed in
SCHEDULE 3.15 of the Company Disclosure Schedule will not have a Company
Material Adverse Effect.
B. Except as set forth in SCHEDULE 3.15 of the Company Disclosure Schedule:
(i) There is no Order to which the Company or the Subsidiary, or, to
the Company's Knowledge, any of the assets owned or used by the Company or
the Subsidiary, is subject; and
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(ii) To the Company's Knowledge, no officer, director, or employee of
the Company or the Subsidiary is subject to any Order that prohibits such
officer, director, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of the Company or the
Subsidiary as currently conducted.
C. Except as set forth in SCHEDULE 3.15 of the Company Disclosure Schedule:
(i) The Company and the Subsidiary are, and at all times since
September 30, 1998 have been, in full compliance with all of the terms and
requirements of each Order to which it, or any of the assets owned or used
by it, is or has been subject, except where the failure to comply would not
have a Company Material Adverse Effect;
(ii) To the Knowledge of the Company, no event has occurred or
circumstance exists that may constitute or result in (with or without
notice or lapse of time) a violation of or failure to comply with any term
or requirement of any Order to which the Company or the Subsidiary, or any
of the assets owned or used by the Company or the Subsidiary, is subject,
except for events or circumstances which in the aggregate would not have a
Company Material Adverse Effect; and
(iii) Neither the Company nor the Subsidiary have received, at any
time since September 30, 1998, any written notice from any Governmental
Body or any other Person regarding any actual or alleged violation of, or
failure to comply with, any term or requirement of any Order to which the
Company, or any of the assets owned or used by the Company or the
Subsidiary, is or has been subject.
3.16. ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in
Schedule 3.16 of the Company Disclosure Schedule and in the recent changes in
capitalization as reflected in Section 3.3. hereto, since June 30, 1999, the
Company and the Subsidiary have conducted their businesses only in the Ordinary
Course of Business and there has not been any:
A. Change in the Company's or the Subsidiary's authorized or issued capital
stock; grant of any stock option or right to purchase shares of capital stock of
the Company or the Subsidiary; issuance of any security convertible into such
capital stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by the Company or the Subsidiary of any shares
of any such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
B. Amendment to the Organizational Documents of the Company or the
Subsidiary;
C. Except in the Ordinary Course of Business, payment or increase by the
Company or the Subsidiary of any bonuses, salaries, or other compensation to any
stockholder, director, officer or employee or entry into any employment,
severance, or similar Contract with any director, officer, or employee;
D. Adoption of, or substantial increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any employees of
the Company or the Subsidiary;
E. Damage to or destruction or loss of any asset or property of the Company
or the Subsidiary, whether or not covered by insurance that had a Company
Material Adverse Effect;
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F. Entry into, termination of, or receipt of written notice of termination
of any Contract or transaction involving a total remaining commitment by or to
the Company or the Subsidiary of at least Twenty-Five Thousand and No/100
Dollars ($25,000.00);
G. Sale (other than sales of inventory in the Ordinary Course of Business),
lease, or other disposition of any asset or property of the Company or the
Subsidiary or mortgage, pledge, or imposition of any Encumbrance on any material
asset or property of the Company or the Subsidiary, including the sale, lease,
or other disposition of any of the Software and Intangibles;
H. Cancellation or waiver of any claims or rights with a value to the
Company or the Subsidiary in excess of Twenty-Five Thousand and No/100 Dollars
($25,000.00);
I. Material change in the accounting methods used by the Company or the
Subsidiary; or
J. Agreement, whether oral or written, by the Company or the Subsidiary to
do any of the foregoing.
3.17. CONTRACTS; NO DEFAULTS.
A. SCHEDULE 3.17(A) of the Company Disclosure Schedule contains a complete
and accurate list (other than Customer License Agreements which are disclosed in
Section 3.22.), and the Company has delivered to Merger Sub and Parent true and
complete copies, of:
(i) Each Contract that involves performance of services or delivery of
goods or materials by the Company or the Subsidiary of an amount or value
in excess of Twenty-Five Thousand and No/100 Dollars ($25,000.00);
(ii) Each Contract that involves performance of services or delivery
of goods or materials to the Company or the Subsidiary of an amount or
value in excess of Twenty-Five Thousand and No/100 Dollars ($25,000.00);
(iii) Except for customer Contracts and inventory and equipment
purchase orders incurred in the Ordinary Course of Business, each Contract
that was not entered into in the Ordinary Course of Business and that
involves expenditures or receipts of the Company or the Subsidiary in
excess of Twenty-Five Thousand and No/100 Dollars ($25,000.00);
(iv) Each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Contract affecting the ownership
of, leasing of, title to, use of, or any leasehold or other interest in,
any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than Twenty-Five Thousand and No/100 Dollars
($25,000.00) and with terms of less than one (1) year) of the Company or
the Subsidiary;
(v) Each collective bargaining agreement and other Contract to or with
any labor union or other employee representative of a group of employees
relating to the Company or the Subsidiary;
(vi) Each joint venture, partnership, and other Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by the
Company or the Subsidiary with any other Person;
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(vii) Each Contract containing covenants that in any way purport to
restrict the business activity of the Company or the Subsidiary or limit
the freedom of the Company or the Subsidiary to engage in any line of
business or to compete with any Person;
(viii) Each Contract (relating to the Company or the Subsidiary)
providing for payments to or by any Person based on sales, purchases, or
profits, other than direct payments for goods;
(ix) Each power of attorney relating to the Company or the Subsidiary
that is currently effective and outstanding;
(x) Each Contract relating to the Company or the Subsidiary for
capital expenditures in excess of Twenty-Five Thousand and No/100 Dollars
($25,000.00);
(xi) Each written warranty, guaranty, and or other similar undertaking
with respect to contractual performance extended by the Company or the
Subsidiary other than in the Ordinary Course of Business; and
(xii) Each amendment, supplement, and modification in respect of any
of the foregoing.
B. Except as set forth in SCHEDULE 3.17(B) of the Company Disclosure
Schedule, to the Knowledge of the Company, no officer, director, or employee of
the Company or the Subsidiary is bound by any Contract that purports to limit
the ability of such officer, director or employee to (i) engage in or continue
any conduct, activity, or practice relating to the business of the Company or
any Subsidiary, as currently conducted or (ii) assign to the Company or any
Subsidiary any rights to any invention, improvement, or discovery relating to
the business of the Company or any Subsidiary.
C. Except as set forth in SCHEDULE 3.17(C) of the Company Disclosure
Schedule, each Contract identified or required to be identified in SCHEDULE
3.17(A) of the Company Disclosure Schedule is in full force and effect, except
as to matters or default which in the aggregate would not have a Company
Material Adverse Effect.
D. Except as set forth in SCHEDULE 3.17(D) of the Company Disclosure
Schedule:
(i) The Company and each Subsidiary is in full compliance with all
material terms and requirements of each Contract under which Company or
such Subsidiary has or had any obligation or liability or by which Company
or such Subsidiary or any of the assets owned or used by Company or such
Subsidiary is or was bound, except where the failure to comply with such
terms and requirements would not have a Company Material Adverse Effect;
(ii) To the Knowledge of the Company, each other Person that has or
had any obligation or liability under any Contract under which the Company
has or had any rights is in full compliance with all material terms and
requirements of such Contract;
(iii) To the Knowledge of the Company, no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a violation or breach of, or give
the Company or other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to
cancel, terminate, or modify, any material Contract, except for
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events or circumstances which in the aggregate would not have a Company
Material Adverse Effect; and
(iv) Neither the Company nor any Subsidiary has given to or received
from any other Person, at any time since March 31, 1999, any written notice
regarding any actual, alleged, possible, or potential violation or breach
of, or default under, any material Contract.
E. There are no renegotiations of or attempts to renegotiate any material
amounts paid or payable to the Company or any Subsidiary under current or
completed Contracts with any Person and the Company has not received any written
demand for such renegotiation.
3.18. INSURANCE.
A. The Company has delivered to Merger Sub and Parent:
(i) True and complete copies of all policies of insurance to which the
Company or the Subsidiary is a party;
(ii) True and complete copies of all pending applications for policies
of insurance; and
(iii) Any written statement by the auditor of the Financial Statements
with regard to the adequacy of such entity's coverage or of the reserves
for claims.
B. Except as set forth on SCHEDULE 3.18(B) of the Company Disclosure
Schedule:
(i) All policies to which the Company or the Subsidiary is a party or
that provide coverage to the Company or the Subsidiary, or any director of
the Company or the Subsidiary:
(1) Are in full force and effect, except as to matters or defaults
which in the aggregate, would not have a Company Material Adverse
Effect; and
(2) Taken together in the reasonable judgment of the Company,
provide adequate insurance coverage for the assets and the operations of
the Company or any Subsidiary for all risks to which the Company or the
Subsidiary is normally exposed.
(ii) Neither the Company nor Subsidiary has received any written
notice of cancellation or other indication that any insurance policy is no
longer in full force or effect or will not be renewed or that the issuer of
any policy is not willing or able to perform its obligations thereunder.
(iii) The Company and Subsidiary has paid all premiums due and has
otherwise performed all of its material obligations under each policy to
which the Company or such Subsidiary is a party or that provides coverage
to the Company or such Subsidiary or any director thereof, except where the
failure to so perform would not in the aggregate have a Company Material
Adverse Effect.
3.19. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 3.19 of the
Company Disclosure Schedule, the Company and the Subsidiary have obtained and
are in compliance with all permits, licenses and other authorizations
(collectively, "Permits") required to do business by Environmental Requirements.
To the Company's Knowledge,
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there are no conditions, circumstances, activities, practices, incidents, or
actions (collectively, "Conditions") resulting from the conduct of its business
which Conditions may reasonably form the basis of any claim or suit against the
Company or the Subsidiary based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling by the
Company or the Subsidiary, or the emission, discharge, release or Threatened
release by the Company or the Subsidiary into the environment, of any pollutant,
contaminant, or hazardous or toxic materials, substances or wastes.
3.20. EMPLOYEES.
A. SCHEDULE 3.20.1 contains a complete and accurate list of the following
information for each employee or director of Company and Subsidiary, including
each employee on leave of absence or layoff status: name of employee or
director; date of hire, job title and "essential functions" (as defined in 29
C.F.R. Section 1630.2(n)); current compensation and any change in compensation
during the past two (2) years; vacation accrued; and service credited for
purposes of vesting and eligibility to participate under Company's Plans to the
extent applicable under such Plans.
B. No employee or director of Company or Subsidiary is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee or
director and any other Person ("Proprietary Rights Agreement") that in any way
adversely affects or will affect (i) the performance of his duties as an
employee or director of Company or Subsidiary or (ii) the ability of Company or
Subsidiary to conduct its business, including any Proprietary Rights Agreement
with Company or Subsidiary by any such employee or director. No key employee of
Company or Subsidiary intends to terminate his employment with Company or
Subsidiary.
C. SCHEDULE 3.20.2 contains a complete and accurate list of the following
information for each retired employee or director of Company or the Subsidiary,
or their dependents, receiving benefits or scheduled to receive benefits in the
future: name, listing of benefits to which they are entitled and funding
mechanism for such benefits.
D. SCHEDULE 3.20.3 contains a complete listing of all "covered employees"
and "qualified beneficiaries" (as each is defined in ERISA sec.sec. 607(2) and
(3) and/or Code sec. 4980B(f)(7)) who have experienced a qualifying event
(within the meaning of ERISA sec. 603 and/or Code sec. 4980B(f)(3)) with respect
to a Plan, and/or who are eligible for continuation coverage (within the meaning
of ERISA sec. 602 and/or Code sec. 4980B(f)(2)) and/or whose period for
continuation coverage has not expired. Included in this listing is the current
address for each such individual, the date on which they would have (absent
continuation coverage) lost coverage, whether the individual has elected
continuation coverage, and for individuals who have not yet elected continuation
coverage, the date on which the individual was notified of their right to
continuation coverage.
E. SCHEDULE 3.20.4 contains a complete listing of all employees who are on
a leave of absence from the Company or the Subsidiary (indicating also whether
or not such leave is pursuant to the Family and Medical Leave Act of 1993, as
amended) and denoting whether such employee is receiving or entitled to receive
health coverage under a Plan during such period of leave.
3.21. GOVERNMENT CONTRACTS. Except as set forth in SCHEDULE 3.21 of the
Company Disclosure Schedule, neither the Company nor the Subsidiary have any
business contracts
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with any independent or executive agency, division, subdivision, audit group or
procuring office of the federal government or of a state government, including
any prime contractor of the federal government and any higher level
subcontractor of a prime contractor of the federal government, and including any
employees or agents thereof, in each case acting in such capacity.
3.22. INTELLECTUAL PROPERTY RIGHTS OF THE COMPANY. For purposes of this
Section 3.22. only, the term "Company" shall be deemed to include the Company
and the Subsidiary.
3.22.1. SCHEDULE 3.22.1 (i) contains a complete list of each governmental
filing, whether federal, state, local, foreign or otherwise, related to patents,
copyrights, trademarks, service marks, trade names, maskworks, other Intangibles
and Software (such terms are defined in Section 3.22.2.M.) (collectively
"Registrations") of Company; (ii) identifies each pending Registration of
Company with respect to the Intangibles and Software (defined in Section
4.9.2.M.); (iii) identifies all of Company's applications for or Registrations
regarding the Intangibles and Software which have been withdrawn, abandoned, or
have lapsed or been denied and (iv) specifies any advice to Company with respect
to such Registration or protectability of the Intangibles and Software
summarizing such advice.
SCHEDULE 3.22.1 also identifies (i) each license agreement or other written
or oral agreement or permission ("License Agreement") and in which Company has
granted to any third party any right with respect to any of the Intangibles or
Software; (ii) each item of the Intangibles and Software used or possessed by
Company that any third party owns and the license, sublicense, agreement or
other permission in connection therewith (the "Third Party License Agreement"),
together with the term thereof, and all royalties or other amounts due thereon
and (iii) each agreement entered into by Company that provides for the sale of
license or access to any source code of the Software, including, without
limitation, any source code escrow agreement ("Source Code Agreement").
Company has supplied Parent with correct and complete copies of all License
Agreements, Third Party License Agreements and Source Code Agreements.
Company has complied with all License Agreements, Third Party License
Agreements and Source Code Agreements, and to the best of Company's knowledge,
all other parties to such agreements have complied with all provisions thereof;
and no default or event of default exists under any of the License Agreements,
Third Party License Agreements, or Source Code Agreements.
3.22.2.
A. SCHEDULE 3.22.2 is an accurate and complete list and description
(including a name, product description, the language in which it is written and
the type of hardware platform(s) on which it runs) of all of the following:
(i) All Software owned by Company, whether purchased from a third
party, developed by or on behalf of Company, currently under development or
otherwise ("Owned Software").
(ii) All Software, other than the Owned Software, that is either (x)
offered or provided by Company, directly or through Distributors, to
customers of Company or (y) used by Company to provide information or
services to customers of Company for a fee (collectively, "Customer
Software"; the Owned Software and the Customer Software are collectively
referred to as the "Company Software").
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(iii) All Software, other than Company Software, that is licensed or
marketed to or from third parties or otherwise used by Company for any
purpose whatsoever (collectively, "Other Software"), other than Other
Software that is generally available for license at retail or directly via
the Internet ("COTS").
B. To the extent not set forth in SCHEDULE 3.22.1, SCHEDULE 3.22.2
separately sets forth an accurate and complete list and description of each
copyright, trademark, trademark application or registration, service mark,
service mark application or registration, patent application or registration,
and name and logo included in the Intangibles (as defined below in this Section)
owned, marketed or licensed by Company to or from third parties, used or under
development by Company. SCHEDULE 3.22.2 indicates Company's ownership of such
items or the source of Company's right to use such items.
C. No Software other than the Owned Software, Customer Software and Other
Software is required to operate the Company's businesses as currently conducted
and as contemplated by existing Company Software product and service plans.
SCHEDULE 3.22.2 identifies all individuals who have contributed to the
development of the Owned Software.
D. Except as explained on SCHEDULE 3.22.2, Company owns and has good and
marketable title to the Owned Software and Intangibles attributable to the Owned
Software, and has the full right to use all of the Customer Software and Other
Software, and Intangibles attributable thereto, as used or required to operate
the Company's businesses as currently conducted and as contemplated in the
future in accordance with Company's written business plans, free and clear of
any liens, claims, charges or encumbrances which would affect the use of such
Software in connection with the operation of the Company's businesses as
currently conducted and as contemplated in the future in accordance with
Company's written business plans.
E. No rights of any third party not previously obtained are necessary to
market, license, sell, modify, update, and/or create derivative works for any
Software as to which Company takes any such action in its businesses as
currently conducted.
F. With respect to Software which is licensed by Company to third parties
or used in connection with the providing of services to third parties in the
Company's businesses:
(i) Company maintains machine-readable master-reproducible copies,
reasonably complete technical documentation and/or user manuals for the
most current releases or versions thereof and for all earlier releases or
versions thereof currently being supported by Company;
(ii) In each case, the machine-readable copy substantially conforms to
the corresponding source code listing;
(iii) Such Software is written in the language set forth on SCHEDULE
3.22.2, for use on the hardware set forth on SCHEDULE 3.22.2 with standard
operating systems;
(iv) Such Software can be maintained and modified by reasonably
competent programmers familiar with such language, hardware and operating
systems; and
(v) In each case the Software operates in accordance with the user
manual thereof without operating defects of any material nature.
G. None of the Software or Intangibles listed on SCHEDULE 3.22.1 or
SCHEDULE 3.22.2, or their respective past or current uses by or through Company
has violated or infringed
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upon, or is violating or infringing upon, any Software, patent, copyright, trade
secret or other Intangible of any person. Company has adequately maintained all
trade secrets and copyrights with respect to the Software. Company has performed
all obligations imposed upon it with regard to the Customer Software and Other
Software which are required to be performed by it on or prior to August 31,
2000, and neither Company nor, to the knowledge of Company, any other party, is
in breach of or default thereunder in any respect, nor to Company's knowledge,
is there any event which with notice or lapse of time or both would constitute a
default thereunder.
H. To the knowledge of Company, no person is violating or infringing upon,
or has violated or infringed upon at any time, any of Company's proprietary
rights to any of the Software or Intangibles listed on either SCHEDULE 3.22.1 or
SCHEDULE 3.22.2.
I. None of the Software or Intangibles listed on SCHEDULE 3.22.1 and
SCHEDULE 3.22.2 are owned by or registered in the name of any of Company's
shareholders, any current or former owner or shareholder, partner, director,
executive, officer, employee, salesperson, agent, customer, contractor of
Company or its representative nor does any such person have any interest therein
or right thereto, including, but not limited to, the right to royalty payments.
Except as listed on SCHEDULE 3.22.2, Company has granted no third party any
exclusive rights related to any Owned Software.
J. No litigation is pending and no claim has been made against Company or,
to the knowledge of Company, is threatened, which contests the right of Company
to sell or license to any person or entity or use any of the Owned Software,
Customer Software or Other Software. No former employer of any employee or
consultant of Company has made a claim against Company or, to the knowledge of
Company, against any other person, that Company or such employee or consultant
is misappropriating or violating the Intangibles of such former employer.
K. Company is not a party to or bound by and, upon the consummation of the
transactions contemplated by this Agreement, will not be a party to or bound by
(as a result of any acts or agreements of Company), any license or other
agreement requiring the payment by Company or its assigns of any royalty or
license payment, excluding such agreements relating to the Customer Software to
the extent such royalty or license payment is expressly set forth on SCHEDULE
3.22.2.
L. [INTENTIONALLY LEFT BLANK].
M. For purposes of this Agreement, "Software" means any computer program,
operating system, applications system, microcode, firmware or software of any
nature, whether operational, under development or inactive, including all object
code, source code, technical manuals, compilation procedures, execution
procedures, flow charts, programmers notes, user manuals and other documentation
thereof, whether in machine-readable form, programming language or any other
language or symbols and whether stored, encoded, recorded or written on disk,
tape, film, memory device, paper or other media of any nature.
"Intangible" means:
(i) Patents, patent applications, patent disclosures, all re-issues,
divisions, continuations, renewals, extensions and continuation-in-parts
thereof and improvements thereto;
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(ii) Trademarks, service marks, trade dress, logos, trade names, and
corporate names and registrations and applications for registration thereof
and all goodwill associated therewith;
(iii) Copyrights and registrations and applications for registration
thereof;
(iv) Maskworks and registrations and applications for registration
thereof;
(v) All right, title and interest in all computer software, data and
documentation (including, without limitation, modifications, enhancements,
revisions or versions of or to any of the foregoing and prior releases of
any of the foregoing applicable to any operating environment);
(vi) Trade secrets and confidential business information (including,
without limitation, ideas, formulas, compositions, inventions, whether
patentable or unpatentable and whether or not reduced to practice,
know-how, manufacturing and production processes and techniques, research
and development information, drawings, flow charts, processes ideas,
specifications, designs, plans, proposals, technical data, copyrightable
works, financial, marketing, and business data, pricing and cost
information, business and marketing plans, and customer and supplier lists
and information);
(vii) Other proprietary rights;
(viii) All rights necessary to prevent claims of invasion of privacy,
right of publicity, defamation, infringement of moral rights, or any other
causes of action arising out of the use, adaptation, modification,
reproduction, distribution, sale, or exhibition of the Software;
(ix) All income, royalties, damages and payments due at Closing or
thereafter with respect to the Owned Software, Customer Software, Other
Software, or other Intangibles and all other rights thereunder including,
without limitation, damages and payments for past, present or future
infringements or misappropriations thereof, the right to sue and recover
for past, present or future infringements or misappropriations thereof;
(x) All rights to use all of the foregoing forever; and
(xi) All other rights in, to, and under the foregoing in all
countries.
"Distributor" means Company and any other person or entity that has been
authorized by Company to sell, license or offer to sell or license any Company
Software, other than an employee of Company. Distributors may include, without
limitation, value added resellers, original equipment manufacturers, dealers,
sales agents, and distributors.
3.22.3. MILLENNIUM COMPLIANCE.
A. Except as noted in SCHEDULE 3.22.3, the Owned Software and to the best
knowledge of Company, the Customer Software and Other Software, are "Millennium
Compliant." For the purposes of this Agreement "Millennium Compliant" means:
(i) The functions, calculations, and other computing processes of the
Owned Software, Other Software and Customer Software (collectively,
"Processes") perform in an accurate manner regardless of the date in time
on which the Processes are actually performed and regardless of the date
input to the Owned Software, Other
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Software, and Customer Software, whether before, on, or after January 1,
2000, and whether or not the dates are affected by leap years;
(ii) The Owned Software, Other Software, and Customer Software accept,
store, sort, extract, sequence, and otherwise manipulate date inputs and
date values, and return and display date values, in an accurate manner
regardless of the dates used, whether before, on, or after January 1, 2000;
(iii) The Owned Software, Other Software, and Customer Software will
function without interruptions caused by the date in time on which the
Processes are actually performed or by the date input to the Owned
Software, Other Software, and Customer Software, whether before, on, or
after January 1, 2000;
(iv) The Owned Software, Other Software, and Customer Software accept
and respond to two (2) digit year and four (4) digit year date input in a
manner that resolves any ambiguities as to the century in a defined,
predetermined, and accurate manner;
(v) The Owned Software, Other Software, and Customer Software display,
print, and provide electronic output of date information in ways that are
unambiguous as to the determination of the century; and
(vi) The Owned Software, Customer Software, and Other Software have
been tested by Company to determine whether the Owned Software, Customer
Software, and Other Software are Millennium Compliant. Company shall
deliver the test plans and results of such tests upon written request from
Parent. Company shall notify Parent immediately of the results of any tests
or any claim or other information that indicates the Owned Software,
Customer Software, and Other Software are not Millennium Compliant.
B. Except as set forth in SCHEDULE 3.22.3(B) of the Company Disclosure
Schedule and except as described in the next following sentence, the Company has
inquired as to the Millennium Compliance of the Customer Software and any
computer hardware and devices owned or leased by the Company that operates any
of the Company Software ("Company Hardware") with the vendor thereof, has
obtained assurances that such Customer Software and Company Hardware is
Millennium Compliant, and has tested such Customer Software and Company Hardware
in conjunction with the Owned Software to determine whether the operation of the
Owned Software would result in dated-related failures or errors in such Customer
Software or Company Hardware. In the event that the Company obtains information
that such Customer Software or Company Hardware is not Millennium Compliant or
such Customer Software or Company Hardware fails the testing as described above,
the Company has established and has timely implemented written plans to migrate
the Company and all Company customers off of such Customer Software or Company
Hardware before the Company anticipates that errors or failures in such Customer
Software or Company Hardware will occur.
C. Except as set forth in SCHEDULE 3.22.3(C) of the Company Disclosure
Schedule and except as described in the next following sentence, the Company has
inquired as to the Millennium Compliance of the Other Software with the vendor
thereof and has obtained assurances that such Other Software is Millennium
Compliant. In the event that the Company obtains information that such Other
Software is not Millennium Compliant, the Company has established and has timely
implemented written plans to migrate the
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Company off of such Other Software before the Company anticipates that errors or
failures in such Other Software will occur.
D. Each customer of Company identified on SCHEDULE 3.22.3(D) has received a
copy of the correspondence attached to SCHEDULE 3.21.3(D).
E. SCHEDULE 3.22.3(E) of the Company Disclosure Schedule sets forth true
and correct information called for therein with respect to each customer of
Company.
3.22.4. Without limiting any of the foregoing, to the best knowledge of
Company, none of Company's current or former officers, executives, directors,
partners, shareholders, employees, salespersons, customers, or independent
contractors have disclosed to (without proper obligation of confidentiality) or
otherwise used or utilized on behalf of any person other than Company, any trade
secrets or proprietary information, including, without limitation, the source
codes for Company Software.
All License Agreements, Third Party License Agreements, software
development agreements, and any other written agreement between Company and any
third party in which trade secrets or confidential information of Company,
Company's customers, agents, or suppliers are disclosed binds the recipient
thereof to take reasonable steps to protect the proprietary rights of Company
and its customers, agents, and suppliers in such trade secrets and confidential
information.
SCHEDULE 3.22.4 identifies all individuals who have materially contributed
to the development of the Owned Software.
3.22.5. COMPANY SOFTWARE:
A. Performs in accordance with all published specifications for such
Software;
B. Complies with all other published documentation, descriptions and
literature with respect to such Software; and
C. Complies with all representations, warranties and other requirements
specified in all of Company's License Agreements.
3.22.6. Except as set forth on SCHEDULE 3.22.6, none of Company's
shareholders have an ownership right or other interest in any Software or
Intangibles related to the Acquired Business, and no claims have been made or,
to the knowledge of the Company, is threatened, that the Company Software
substantially fails to perform as set forth in Section 3.22.5.
3.22.7. All Company's contracts with customers (collectively "Customer
Contracts"), whether completed or outstanding, were or are evidenced by written
agreements containing provisions reasonably equivalent to those contained in
SCHEDULE 3.22.7 hereto, with only such changes as would not affect the rights of
Company and would not impose on Company any additional obligations.
No Customer Contract provided for the transfer to the customer therein of
any Intangibles relating to Company Software as to which Company thereafter
shall have no further rights. No current Customer Contract provides that the
customer therein shall be entitled to sublicense or otherwise transfer to a
third party any of the Intangibles relating to Company Software unless such
third party agrees to be bound by the confidentiality provisions thereof and
agrees to pay Company royalties and other amounts comparable to those under such
Customer Contract.
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Except as set forth on SCHEDULE 3.22.7, each past or present customer of
Company and each past or present customer of Company to whom Company disclosed
any of the Intangibles relating to Company Software is bound by a
confidentiality provision which requires such past or present customer to take
reasonable steps to protect the rights of Company in the Intangibles relating to
Company Software.
3.23. CERTAIN PAYMENTS. To the Knowledge of the Company, neither the
Company or any Subsidiary nor any director, officer, agent, or employee of the
Company or any Subsidiary, nor any other Person associated with or acting for or
on behalf of the Company or any Subsidiary, has directly or indirectly:
A. On behalf of the Company or any Subsidiary or for the Company's or any
Subsidiary's benefit, made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services in violation of any
Legal Requirement.
B. Established or maintained any fund or asset on behalf of the Company or
any Subsidiary that has not been recorded in the books and records of the
Company or any Subsidiary.
3.24. RELATIONSHIPS WITH RELATED PERSONS. Except as set forth in SCHEDULE
3.24 of the Company Disclosure Schedule, no Related Person of the Company or the
Subsidiary has, or since September 30, 1998, has had, any interest in any
property (whether real, personal, or mixed and whether tangible or intangible),
used in the Company's or the Subsidiary's businesses.
Except as set forth in SCHEDULE 3.24 of the Company Disclosure Schedule, to
the Knowledge of the Company, no Related Person of the Company or the Subsidiary
owns, or since September 30, 1998, has owned (of record or as a beneficial
owner) an equity interest or any other financial or profit interest in, a Person
that has a material financial interest in any transaction with the Company or
the Subsidiary.
Except as set forth in SCHEDULE 3.24 of the Company Disclosure Schedule, no
Related Person of the Company is a party to any Contract or commitment with the
Company.
3.25. BROKERS OR FINDERS. Except as set forth on SCHEDULE 3.25, neither
the Company, the Subsidiary nor their agents have incurred any obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement.
3.26. LABOR RELATIONS; COMPLIANCE. Neither the Company nor the Subsidiary
have been nor are a party to any collective bargaining or other labor Contract.
There has not been, there is not presently pending or existing, and there is not
Threatened:
A. Any strike, slowdown, picketing, work stoppage or employee grievance
process;
B. Any Proceeding against or affecting Company or Subsidiary relating to
the alleged violation of any Legal Requirement pertaining to labor relations or
employment matters, including any charge or complaint filed by an employee or
union with the National Labor Relations Board, the Equal Employment Opportunity
Commission, or any comparable Governmental Body, organizational activity, or
other labor or employment dispute against or affecting any of Company or their
premises; or
C. Any application for certification of a collective bargaining agent.
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No event has occurred or circumstance exists that could provide the basis
for any work stoppage or other labor dispute. There is no lockout of any
employees by Company or Subsidiary, and no such action is contemplated by
Company or Subsidiary. Company and Subsidiary have complied in all respects with
all Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and health
and plant closing. The Company and Subsidiary have only employed individuals
authorized to work in the United States.
Company and Subsidiary are not liable for the payment of any compensation,
Damages, taxes, fines, penalties, or other amounts, however, designated, for
failure to comply with any of the foregoing Legal Requirements.
3.27. DISCLOSURE DOCUMENTS. None of the information supplied or to be
supplied by the Company for inclusion in or incorporation by reference in (i)
the Proxy Statement (as defined in Section 6.1.) and (ii) the registration
statement (as defined in Section 4.3.) including the Proxy Statement included
therein, will, in the case of the Proxy Statement, at the time of mailing of the
Proxy Statement to stockholders of the Company, contain any untrue statement of
a material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading or will, in the case of
the Registration Statement, at the time the Registration Statement becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The Proxy Statement will comply as
to form in all material respects with the provisions of the Exchange Act, the
rules and regulations thereunder, except that no representation is made by the
Company with respect to information supplied by Parent or Merger Sub for
inclusion therein.
3.28. DISCLOSURE. No representation or warranty made by the Company in
this Agreement or any Exhibit hereto or in the Company Disclosure Schedule, when
taken together, contains or contained (as of the date made) any untrue statement
of a material fact or omits to state a material fact necessary in order to make
the statements or facts contained herein or therein not misleading in light of
the circumstances under which they were made.
3.29. VOTE REQUIRED. The affirmative vote of a majority of the votes that
holders of the outstanding shares of Company Common Stock are entitled to vote
with respect to the Merger is the only vote of the holders of any class or
series of Company's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
4. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS OF MERGER SUB AND PARENT.
As of September 25, 2000 and as of the Closing Date, Merger Sub and Parent,
jointly and severally, hereby represent and warrant to the Company, subject to
such exceptions as are specifically disclosed in writing in the disclosure
letter and referenced by a specific representation supplied by Parent to Company
dated as of September 25, 2000 and certified by a duly authorized officer of
Parent (the "Parent Disclosure Schedule"), as follows:
4.1. ORGANIZATION. Each of Merger Sub and Parent is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and Merger Sub and Parent each has all
requisite corporate power and authority to own,
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lease and operate its assets and to carry on its business as now being
conducted. Each of Merger Sub and Parent is duly qualified to transact business,
and is in good standing, as a foreign corporation in each jurisdiction where the
character of its activities requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the assets,
liabilities, results of operations, financial condition, business or prospects
of Merger Sub, Parent or their respective subsidiaries taken as a whole.
4.2. AUTHORIZATION. Each of Merger Sub and Parent has full corporate power
and authority to execute and deliver this Agreement and to perform its
respective obligations under this Agreement and to consummate the Merger and the
other transactions contemplated hereby (the "Parent/Merger Sub Ancillary
Agreements"). The execution and delivery of this Agreement by Merger Sub and
Parent and the performance by Merger Sub and Parent of their respective
obligations hereunder and the consummation of the Merger, the Parent/Merger Sub
Ancillary Agreements and the other transactions provided for herein have been
duly and validly authorized by all necessary corporate action on the part of
each of Merger Sub and Parent. This Agreement and the Parent/Merger Sub
Ancillary Agreements have been duly executed and delivered by each of Merger Sub
and Parent and each constitutes the legal, valid and binding agreement of Merger
Sub and Parent, enforceable against each of Merger Sub and Parent in accordance
with its terms, subject to applicable bankruptcy, insolvency and other similar
laws affecting the enforceability of creditors' rights generally, general
equitable principles and the discretion of courts in granting equitable
remedies. Each other agreement to be executed by Merger Sub and Parent in
connection with this Agreement will be duly executed and delivered by Merger Sub
and Parent in accordance with its terms, subject to applicable bankruptcy,
insolvency and other similar laws affecting the enforceability of creditors'
rights generally, general equitable principles and the discretion of courts in
granting equitable remedies.
4.3. ABSENCE OF RESTRICTIONS AND CONFLICTS. The execution, delivery and
performance of this Agreement, the consummation of the Merger and the other
transactions contemplated by this Agreement, and the fulfillment of and
compliance with the terms and conditions of this Agreement do not and will not,
with the passing of time or the giving of notice or both, violate or conflict
with, constitute a breach of or default under, result in the loss of any
material benefit under, or permit the acceleration of any obligation under, (i)
any term or provision of the Organizational Documents of Merger Sub or Parent;
(ii) any Contract material to the business and operations of Merger Sub or
Parent; (iii) any judgment, decree, injunction or order of any court or
governmental authority or agency to which Merger Sub or Parent is a party or by
which Merger Sub or Parent or any of their respective properties is bound or
(iv) any statute, law, regulation or rule applicable to Merger Sub or Parent, so
as to have, in the case of subsections (ii) through (iv) above, a material
adverse effect on the assets, liabilities, results of operations, financial
condition, business or prospects of Merger Sub or Parent and their respective
subsidiaries taken as a whole. Except for (i) filing of the Articles of Merger;
(ii) the filing of a Form S-4 Registration Statement (the "Registration
Statement") with the Securities and Exchange Commission ("SEC") in accordance
with the Securities Act; (iii) the filing of the Proxy Statement (as defined in
Section 6.1.) with the SEC in accordance with the Exchange Act and (iv) the
filing of such consents, approvals, orders, authorizations, registrations,
declarations and filing as may be required under applicable state securities
laws, no Consent, approval, order or authorization of, or registration,
declaration or filing with, any government agency or public or regulatory unit,
agency, body or authority with respect to Merger Sub or Parent is required in
connection with the execution, delivery or performance of this Agreement by
Merger Sub or Parent or the consummation of the
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Contemplated Transactions contemplated by this Agreement by Merger Sub or
Parent, the failure to obtain which would have a material adverse effect upon
the assets, liabilities, results of operations, financial condition, business or
prospects of Merger Sub or Parent and its subsidiaries taken as a whole.
4.4. CAPITALIZATION OF PARENT AND MERGER SUB. The authorized capital stock
of Parent consists of two hundred million (200,000,000) shares of common stock,
$.001 par value per share of which thirty million three hundred fifty-two
thousand seven hundred sixty-five (30,352,765) shares were issued and
outstanding as of December 10, 1999 and two million (2,000,000) shares of
preferred stock, $.001 par value per share, of which zero (0) shares are issued
and outstanding. The authorized capital stock of Merger Sub consists of one
thousand (1,000) shares of common stock, par value $.01 per share, all of which,
as of the date hereof, are issued and outstanding. All of the outstanding shares
of Parent's and Merger Sub's respective capital stock are duly authorized,
validly issued, fully paid and nonassessable. The shares of Parent Common Stock
to be issued pursuant to this Agreement have been duly authorized and, when
issued, will be validly issued, fully paid and nonassessable.
4.5. SEC FILINGS; FINANCIAL STATEMENTS.
A. Parent has made available to Company a correct and complete copy of each
report, schedule, registration statement and definitive proxy statement filed by
Parent with the SEC on or after January 1, 1999 (the "Parent SEC Reports"),
which are all the forms, reports and documents required to be filed by Parent
with the SEC since January 1, 1999. The Parent SEC Reports (i) were prepared in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of Parent's subsidiaries is required to file any reports or
other documents with the SEC.
B. Each set of consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, do not contain footnotes as permitted by Form 10-Q of the
Exchange Act) and each fairly represents the consolidated financial position of
Parent and its subsidiaries at the respective dates thereof and the consolidated
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal
adjustments which were not or are not expected to be material in amount.
C. Parent has previously furnished to Company a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC,
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
4.6. LITIGATION. Except as may be disclosed in the Parent SEC Reports,
there are no suits, arbitrations, actions, claims, complaints, grievances,
investigations or proceedings pending or, to the Knowledge of Parent or Merger
Sub, Threatened against Parent or Merger Sub that, if resolved against Parent or
Merger Sub could be reasonably expected to
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have a material adverse effect on Parent or Merger Sub on their ability to
consummate the Merger and the other transactions contemplated hereby.
4.7. REGISTRATION STATEMENT; PROXY STATEMENT. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in (i) the S-4 will, at the time the S-4 becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading and (ii) the Proxy Statement will, at the dates mailed to the
shareholders of Company at the time of the Company Shareholders' meeting (the
"Meeting") and as of the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The S-4 will comply as
to form in all material respects with the provisions of the Securities Act and
the rules and regulations promulgated by the SEC thereunder. Notwithstanding the
foregoing, Parent makes no representation or warranty with respect to any
information supplied by the Company which is contained in any of the foregoing
documents.
4.8. CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced against Merger Sub or Parent that challenges, or may have the effect
of preventing, delaying, making illegal, or otherwise interfering with, any of
the Contemplated Transactions. To the knowledge of Merger Sub or Parent, no such
Proceeding has been Threatened.
4.9. BROKERS OR FINDERS. Except as set forth on SCHEDULE 4.9 of the Parent
Disclosure Schedule, neither Merger Sub or Parent nor any of their respective
officers or agents have incurred any obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
5. CERTAIN AGREEMENTS OF THE PARTIES.
5.1. NO SOLICITATION.
A. From and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Section 8., Company and Subsidiary
will not, nor will they authorize or permit any of their respective officers,
directors, affiliates or employees or any investment banker, attorney or other
advisor or representative retained by any of them to, directly or indirectly,
(i) solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal (as defined below); (ii) participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes or may reasonably be
expected to lead to, any Acquisition Proposal; (iii) engage in discussions with
any person with respect to any Acquisition Proposal; (iv) approve, endorse or
recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or any contract, agreement or commitment contemplating or
otherwise relating to any Acquisition Transaction (as defined below); provided,
however, that nothing contained in this Section 5.1. shall prohibit the Board of
Directors of Company (1) from complying with Rule 14d-9 or 14e-2(a) promulgated
under the Exchange Act with regard to a tender or exchange offer not made in
violation of this Section 5.1. or (2) during the period between mailing of the
Proxy Statement to
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Company's shareholders and receipt of the approval by the shareholders of
Company of this Agreement and the Merger from, in response to an unsolicited,
bona fide written Acquisition Proposal that Company's Board of Directors
reasonably concludes based upon the advice of its independent financial advisors
constitutes a Superior Proposal (as defined below), engaging in discussions with
and furnishing information to the party making such Acquisition Proposal to the
extent (a) the Board of Directors of the Company determines in good faith based
on the advice of its outside legal counsel that its fiduciary obligations under
applicable law require it to do so; (b) (x) at least five (5) days prior to
furnishing any such nonpublic information to, or entering into discussions or
negotiations with, such party, Company gives Parent written notice of Company's
intention to furnish nonpublic information to, or enter into discussions or
negotiations with, such party and (y) Company receives from such party an
executed confidentiality agreement containing customary limitations on the use
and disclosure of all nonpublic written and oral information furnished to such
party by or on behalf of Company and (c) contemporaneously with furnishing any
such nonpublic information to such party, Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not been
previously furnished by the Company to Parent). Company and its subsidiaries
will immediately case any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in this Section 5.1. by any officer,
director or employee of Company or any of its subsidiaries or any investment
banker, attorney or other advisor or representative of Company or any of its
subsidiaries shall be deemed to be a breach of this Section 5.1. by Company.
For purposes of this Agreement, (i) "Acquisition Proposal" shall mean any
offer or proposal (other than an offer or proposal by Parent) relating to any
Acquisition Transaction. For the purposes of this Agreement; (ii) "Acquisition
Transaction" shall mean any transaction or series of related transactions other
than the transactions contemplated by this Agreement involving: (1) any
acquisition or purchase from the Company by any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a five percent (5%) interest in the total outstanding
voting securities of the Company or any of its subsidiaries or any tender offer
or exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning five percent (5%) or more of the total
outstanding voting securities of the Company or any of its subsidiaries or any
merger, consolidation, business combination or similar transaction involving the
Company pursuant to which the shareholders of the Company immediately preceding
such transaction hold less than ninety-five percent (95%) of the equity
interests in the surviving or resulting entity of such transaction; (2) any
sale, lease (other than in the ordinary course of business), exchange, transfer,
license (other than in the ordinary course of business), acquisition or
disposition of more than five percent (5%) of the assets of the Company or (3)
any liquidation, dissolution, recapitalization or other significant corporate
reorganization of the Company and (iii) "Superior Proposal" shall mean an
Acquisition Proposal with respect to which (x) Company's Board of Directors
shall have concluded in good faith, after considering applicable state law; on
the basis of the written opinion of independent outside counsel that such action
is necessary to prevent Company's Board of directors from violating its
fiduciary duties to Company's shareholders under applicable law; (y) if any cash
consideration is involved, shall not be subject to any financing contingency,
and with respect to which Company's Board of Directors shall have determined
(based upon the written opinion of Company's independent financial advisors) in
the exercise of its
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fiduciary duties to Company's shareholders that the acquiring party is capable
of consummating the proposed Acquisition Transaction on the terms proposed and
(z) Company's Board of Directors shall have determined in the exercise of its
fiduciary duties to Company's shareholders that the proposed Acquisition
Transaction provides greater value to the shareholders of Company than the
Merger (based upon the written opinion of Company's independent financial
advisors that such Acquisition Transaction is superior to the Merger from a
financial point of view).
B. In addition to the obligations of Company set forth in paragraph A. of
this Section 5.1., Company as promptly as practicable, and in any event within
twenty-four (24) hours, shall advise Parent orally and in writing of any request
for information which Company reasonably believes would lead to an Acquisition
Proposal or of any Acquisition Proposal, or any inquiry with respect to or which
Company reasonably should believe would lead to any Acquisition Proposal, the
material terms and conditions of such request, Acquisition Proposal or inquiry,
and the identity of the person or group making any such request, Acquisition
Proposal or inquiry. Company will keep Parent informed in all material respects
of the status and details (including material amendments or proposed amendments)
or any such request, Acquisition Proposal or inquiry. In addition to the
foregoing, Company shall (i) provide Parent with at least forty-eight (48) hours
prior notice (or such lesser prior notice as provided to the members of
Company's Board of Directors, but in no event less than eight (8) hours) of any
meeting of Company's Board of Directors at which Company's Board of Directors is
reasonably expected to consider a Superior Offer and (ii) provide Parent with at
least five (5) business days prior written notice of a meeting of Company's
Board of Directors at which Company's Board of Directors is reasonably expected
to recommend a Superior Offer to its shareholders and together with such notice
a copy of the definitive documentation relating to such Superior Offer.
5.2. PUBLIC DISCLOSURE. Parent and Company will consult with each other
and agree before issuing any press release or otherwise making any public
statement with respect to the Merger, this Agreement or an Acquisition Proposal
and will not issue any such press release or make any such public statement
prior to such agreement, except as may be required by law or any listing
agreement with a national securities exchange, in which case reasonable efforts
to consult with the other party will be made prior to any such release or public
statement. The parties have agreed to the text of the joint press release
announcing the signing of this Agreement.
5.3. REASONABLE EFFORTS; NOTIFICATION.
A. Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including using reasonable efforts to accomplish the following: (i)
the taking of all reasonable acts necessary to cause the conditions precedent
set forth in Section 7. to be satisfied; (ii) the obtaining of all necessary
actions or nonactions, waivers, consents, approvals, orders and authorizations
from Governmental Bodies and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Bodies, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Body; (iii) the obtaining of all necessary consents, approvals or
waivers
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from third parties; (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Body vacated or reversed and (v) the execution or
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, Company and its Board of
Directors shall, if any state takeover statute or similar statute or regulation
is or becomes applicable to the Merger, this Agreement or any of the
transactions contemplated by this Agreement, use all reasonable efforts to
ensure that the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger, this Agreement and the transactions contemplated hereby.
Notwithstanding anything herein to the contrary, nothing in this Agreement shall
be deemed to require Parent or Company or any subsidiary or affiliate thereof to
agree to any divestiture by itself or any of its affiliates of shares of capital
stock or of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their business or to own or
exercise control of such assets, properties and stock.
B. Company shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate,
or any failure of Company to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement, in each case, such that the conditions set forth in Section
7.2.A. or 7.2.B. would not be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
C. Parent shall give prompt notice to Company of any representation or
warranty made by it or Merger Sub contained in this Agreement becoming untrue or
inaccurate, or any failure of Parent or Merger Sub to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions set
forth in Section 7.3.A. or 7.3.B. would not be satisfied; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
5.4. THIRD PARTY CONSENTS. As soon as practicable following the date
hereof, Parent and Company will each use its commercially reasonable efforts to
obtain any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.5. INDEMNIFICATION. From and after the Effective Time, Parent will cause
the Surviving Corporation to fulfill and honor in all respects the obligations
of Company pursuant to any indemnification agreements between Company and its
directors and officers in effect immediately prior to the Effective Time and any
indemnification provisions under the Company Organizational Documents as in
effect on the date hereof. The Certificate of Incorporation and Bylaws of the
Surviving Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the indemnified parties
thereunder (the "Indemnified Parties") as those contained in the
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Company Organizational Documents as in effect on the date hereof, which
provisions will not be amended, repealed or otherwise modified for a period of
four (4) years from the Effective Time in any manner that would adversely affect
the rights thereunder of the Indemnified Parties, unless such modification is
required by law.
5.6. NASDAQ LISTING. Parent agrees to authorize for listing on Nasdaq the
shares of Parent Common Stock issuable and those required to be reserved for
issuance, in connection with the Merger, upon official notice of issuance.
5.7. REIMBURSEMENT OF EMPLOYEE COSTS AND EXPENSES. Beginning October 1,
2000 and continuing until the earlier of (i) the termination of this Agreement
pursuant to Section 8 below or (ii) the Closing Date, the Parent will reimburse
the Subsidiary on a monthly basis for all costs and expenses, including salary,
benefits, commissions and travel or related expenses associated with the
following employees of Subsidiary who directly devote all or a portion of their
time and effort to the sales, training or support of the Parent's products and
services: (i) Karen Barbera; (ii) Michelle Peabody-Meyers; (iii) Fran Melda;
(iv) Art Michele; (v) Dan Sands and (vi) Jeff Weiss. The Subsidiary will provide
documentation of such efforts and expenses to the Parent and the Parent will pay
the stated amount within twenty (20) days of receipt of such documentation. If
the Parent disagrees with the amount stated by the Subsidiary, the Parent will
nevertheless pay such amount, subject to recoupment if the Parent's review of
the Subsidiary's books and records indicates that any portion of the amount was
not due. Any dispute on whether any recoupment is due or as to the amount of the
recoupment, will be negotiated between the principals of the Subsidiary and the
Parent and, if not resolved to the parties' satisfaction, will be conclusively
resolved by the independent certified public accountant for the Parent after a
review of records which the Subsidiary may supply to such independent public
accountant.
5.8. PROVISION OF LOAN BY PARENT TO COMPANY. Pursuant to that certain
Third Amendment to Loan Documents dated as of October 10, 2000 by and among
Company, Subsidiary and Parent and related documents (the "Loan Documents"),
Parent has agreed to advance an additional Two Hundred Fifty Thousand and No/100
Dollars ($250,000.00) to Company and Subsidiary to be used for general working
capital purposes, which advance shall made on or before October 20, 2000 and
upon such advance, the total aggregate principal loan balance outstanding will
be ($1,550,000.00).
5.9. PRACTICEWORKS SPIN-OFF. Unless this Agreement is terminated prior to
the Effective Time pursuant to Section 8 below, the parties shall cause the
proposed Merger to be consummated prior to the PracticeWorks Spin-off.
6. ADDITIONAL COVENANTS OF THE PARTIES.
The parties hereto hereby agree as follows with respect to the period from
and after the date of this Agreement.
6.1. MUTUAL COVENANTS.
A. [RESERVED].
B. Tax-Deferred Treatment. Each of the parties shall use its reasonable
efforts to cause the Merger to constitute a tax-deferred "reorganization" under
Section 368(a) of the Code.
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C. Confidentiality; Access to Information.
(i) Prior to the Effective Time and after any termination of this
Agreement each party hereto will hold, and will use its best efforts to
cause its officers, directors, employees, accountants, counsel,
consultants, advisors, affiliates (as such term is used in Rule 12b-2 under
the Exchange Act) and representatives (collectively, the
"Representatives"), to hold, in confidence all confidential documents and
information concerning the other parties hereto and the Subsidiary
furnished to such party in connection with the transactions contemplated by
this Agreement, including, without limitation, all analyses, compilations,
studies or records prepared by the party receiving the information or by
such party's Representatives, that contain or otherwise reflect or are
generated from such information (collectively, the "Confidential
Material"). The party furnishing any Confidential Material is herein
referred to as the "Delivering Company" and the party receiving any
Confidential Material is herein referred to as the "Receiving Company."
(ii) The Receiving Company agrees that the Confidential Material will
not be used other than for the purpose of the transaction contemplated by
this Agreement, and that such information will be kept confidential by the
Receiving Company and its Representatives; provided, however, that (1) any
of such information may be disclosed to the Representatives who need to
know such information for the purpose described above (it being understood
that (a) each such Representative shall be informed by the Receiving
Company of the confidential nature of such information, shall be directed
by the Receiving Company to treat such information confidentially and not
to use it other than for the purpose described above and shall agree to be
bound by the terms of this Section 6.1.C. and (b) in any event, the
Receiving Company shall be responsible for any breach of this Agreement by
any of its Representatives) and (2) any other disclosure of such
information may be made if the Delivering Company has, in advance,
consented to such disclosure in writing. The Receiving Company will make
all reasonable, necessary and appropriate efforts to safeguard the
Confidential Material from disclosure to anyone other than as permitted
hereby.
(iii) Notwithstanding the foregoing, if the Receiving Company or any
of its Representatives is requested or required (by oral question or
request for information or documents in legal proceedings, interrogatories,
subpoena, civil investigative demand or similar process) to disclose any
Confidential Material, the Receiving Company will promptly notify the
Delivering Company of such request or requirement so that the Delivering
Company may seek an appropriate protective order and/or waive the Receiving
Company's compliance with the provisions or this Agreement. If, in the
absence of a protective order or the receipt of a waiver hereunder, the
Receiving Company or any of its Representatives is nonetheless, in the
reasonable written opinion of the Receiving Company's counsel, compelled to
disclose Confidential Material to any tribunal, the Receiving Company or
such Representative, after notice to the Delivering Company, may disclose
such information to such tribunal. The Receiving Party shall exercise
reasonable efforts to obtain reliable assurance that confidential treatment
will be accorded the Confidential Material so disclosed. The Receiving
Company or such Representative shall not be liable for the disclosure of
Confidential Material hereunder to a tribunal compelling such disclosure
unless such disclosure to such tribunal was caused by or resulted from a
previous disclosure by the Receiving Company or any of its Representatives
not permitted by this Agreement.
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(iv) This Section 6.1.C. shall be inoperative as to particular
portions of the Confidential Material if such information (1) is or becomes
generally available to the public other than as a result of a disclosure by
the Receiving Company or its Representatives; (2) was available to the
Receiving Company on a non-confidential basis prior to its disclosure to
the Receiving Company by the Delivering Company or the Delivering Company's
Representatives or (3) becomes available to the Receiving Company on a
non-confidential basis from a source other than the Delivering Company or
the Delivering Company's Representatives, provided that such source is not
known by the Receiving Company, after reasonable inquiry, to be bound by a
confidentiality agreement with the Delivering Company or the Delivering
Company's Representatives and is not otherwise prohibited from transmitting
the information to the Receiving Company by a contractual, legal or
fiduciary obligation. The fact that information included in the
Confidential Material is or becomes otherwise available to the Receiving
Company or its Representatives under clauses (1) through (2) above shall
not relieve the Receiving Company or its Representatives of the
prohibitions of the confidentiality provisions of this Section 6.1. with
respect to the balance of the Confidential Material.
(v) If this Agreement is terminated, each party hereto will, and will
use its best efforts to cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents to, destroy or
deliver to the party from whom such Confidential Material was obtained,
upon request, all documents and other materials, and all copies thereof,
obtained by such party or on its behalf from any such other parties in
connection with this Agreement that are subject to such confidence.
D. Proxy Statement/Registration Statement; Shareholder Approval. Following
the execution of this Agreement, Parent, Merger Sub and the Company will
mutually cooperate to prepare and file with the SEC a preliminary proxy
statement relating to the Merger (the "Proxy Statement") and Parent will prepare
and file with the SEC the Registration Statement in which the Proxy Statement
will be included as a prospectus. Each of Parent, Merger Sub and the Company
will respond to any comments of the SEC and will use its best efforts to have
the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing and when the Registration Statement is
declared effective by the SEC, the Company will thereafter promptly cause the
Proxy Statement to be mailed to its stockholders. In connection therewith,
Parent, Merger Sub and the Company will prepare and file any other filings
required under the Exchange Act, the Securities Act or any other Federal or blue
sky laws relating to the Merger and the transactions contemplated by this
Agreement (the "Other Filings"). Each party will notify the other party promptly
upon the receipt of any comments from the SEC or its staff and of any
supplements to the Registration Statement, the Proxy Statement or any Other
Filing or for additional information and will supply the other party with copies
of all correspondence between such party or any of its representatives, on the
one hand, and the SEC, or its staff or other government officials, on the other
hand, with respect to the Registration Statement, the Proxy Statement, the
Merger or any Other Filing. The Proxy Statement, the Registration Statement and
the Other Filings will comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder. Each
party agrees to cooperate with the other to provide all materials, documents,
exhibits and other requested information necessary to assure such compliance.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Proxy Statement, the Registration Statement or any Other
Filing, Parent or the Company, as the case may be, will promptly inform the
other party of such
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occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of the Company, such
amendment or supplement. The Proxy Statement will also include the approval of
this Agreement and the Merger and the recommendation of the Board of Directors
of the Company to Company's shareholders that they vote in favor of approval of
this Agreement and the Merger, subject to the right of the Board of Directors of
the Company to withdraw its recommendation and recommend a Superior Proposal
determined to be such in compliance with Section 5.1. of this Agreement;
provided, however, that the Board of Directors of Company shall submit this
Agreement to Company's shareholders whether or not at any time subsequent to the
date hereof such board determines that it can no longer make such
recommendation. Promptly after the date hereof, the Company will exercise its
best efforts and take all action necessary in accordance with Colorado law and
its Certificate of Incorporation and Bylaws to convene the Meeting to be held as
promptly as practicable, and in any event within (forty (40)) days after the
declaration of effectiveness of the Registration Statement, for the purpose of
voting upon this Agreement. Unless Company's Board of Directors has withdrawn
its recommendation of this Agreement and the Merger in compliance with Section
5.1., Company shall use all reasonable efforts to solicit from its shareholders
proxies in favor of the approval of this Agreement and the Merger pursuant to
the Proxy Statement and shall take all other action necessary or advisable to
secure the vote or consent of shareholders required by Colorado Law or
applicable stock exchange requirements to obtain such approval. Notwithstanding
any provision in this Agreement to the contrary, the Company acknowledges and
agrees that Parent may, by notice to the Company, postpone the filing of the
Registration Statement, the request to accelerate the declaration of
effectiveness of the Registration Statement, or the mailing of the Proxy
Statement to the Company's shareholders if at any time the Board of Directors of
Parent, in good faith, determines that it would be detrimental to the Parent or
Company for such Registration Statement to be filed or declared effective, or
for such Proxy Statement to be mailed to the shareholders of the Company;
provided, that any such postponement shall not exceed ninety (90) days in
duration.
6.2. COVENANTS OF THE COMPANY.
A. CONDUCT OF THE COMPANY'S OPERATIONS. During the period from the date of
this Agreement to the Effective Time or the date of termination of this
Agreement, the Company and the Subsidiary shall use its reasonable efforts to
maintain and preserve their respective business organizations and to retain the
services of their respective officers and key employees and maintain
relationships with customers, suppliers and other third parties to the end that
their goodwill and ongoing business shall not be impaired in any material
respect. Without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Effective Time, neither the Company nor
Subsidiary shall, except as otherwise expressly contemplated by this Agreement
and the transactions contemplated hereby, without the prior written consent of
Parent, such consent not to be unreasonably withheld or delayed:
(i) Sell, transfer, lease, pledge, mortgage, encumber or otherwise
dispose of any of its personal property or assets other than sales or
leases of inventory or licensing of Intellectual Property Assets in the
Ordinary Course of Business.
(ii) Make or propose any changes in its Articles of Incorporation or
Bylaws.
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(iii) Merge or consolidate with any other Person or acquire a material
amount of assets or capital stock of any other Person or enter into any
confidentiality agreement with any Person other than in the Ordinary Course
of Business.
(iv) Incur, create, assume or otherwise become liable for indebtedness
for borrowed money or assume, guarantee, endorse or otherwise as an
accommodation become responsible or liable for obligations of any other
individual, corporation or other entity, or enter into any arrangement
having the economic effect of any of the foregoing other than in connection
with the financing of ordinary course trade payables consistent with past
practice other than its Subsidiaries, except in the Ordinary Course of
Business.
(v) Create any subsidiaries.
(vi) Enter into or modify any employment, severance, termination or
similar agreements or arrangements with, or grant any bonuses, salary
increases, severance or termination pay to, any officer, director,
consultant or employee.
(vii) Change its method of doing business, in any material respect, or
change any material method or principle of accounting in a manner that is
inconsistent with past practice.
(viii) Settle any Proceeding, whether now pending or hereafter made or
brought involving an amount in excess of Twenty-Five Thousand and No/100
Dollars ($25,000.00).
(ix) Modify, amend or terminate, or waive, release or assign any
material rights or claims with respect to, any material Contract to which
the Company or Subsidiary is a party or any confidentiality agreement to
which the Company or Subsidiary is a party.
(x) Incur or commit to any capital expenditures, obligations or
liabilities in respect thereof which in the aggregate exceed or would
exceed Fifty Thousand and No/100 Dollars ($50,000.00) on a cumulative
basis.
(xi) Issue, sell or grant options, warrants or rights to purchase or
subscribe to, or enter into any arrangement or contract with respect to the
issuance or sale of any securities of the Company or Subsidiary, or rights
or obligations convertible into or exchangeable for any securities of the
Company or Subsidiary, or alter the terms of any presently outstanding
options or make any changes, by split-up, combination, reorganization or
otherwise in the capital structure of the Company or Subsidiary.
(xii) Declare, set aside or pay any dividend or make any other
distribution or payment with respect to any shares of its capital stock.
(xiii) Grant any severance or termination pay to any officer or
employee except pursuant to written agreements outstanding, or policies
existing, on the date hereof and as previously disclosed in writing or made
available to Parent, or adopt any new severance plan.
(xiv) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock.
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(xv) Purchase, redeem or otherwise acquire, directly or indirectly,
any shares of capital stock of Company or Subsidiary, except repurchases of
unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof.
(xvi) Engage in any action that could cause the Merger to fail to
qualify as a "reorganization" under Section 368(a) of the Code, whether or
not (in each case) otherwise permitted by the provisions of this Section
6.2.
(xvii) Engage in any action with the intent to directly or indirectly
adversely impact any of the transactions contemplated by this Agreement.
(xviii) Make any tax election that, individually or in the aggregate,
is reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of Company or Subsidiary or settle or
compromise any material income tax liability.
(xix) Agree in writing or otherwise to take any of the foregoing
actions.
B. INTELLECTUAL PROPERTY MATTERS. The Company shall use its reasonable
efforts to preserve its ownership rights to all of the intellectual property
("Intellectual Property") described in Section 3.22. free and clear of any
Encumbrances and shall use its reasonable efforts to assert, contest and
prosecute any infringement of any issued foreign or domestic patent, trademark,
service mark, trade name or copyright that forms a part of the Intellectual
Property or any misappropriation or disclosure of any trade secret, confidential
information or know-how that forms a part of the Intellectual Property.
C. SHAREHOLDER AGREEMENTS. The Company shall deliver or cause to be
delivered to Parent, concurrently with the execution of this Agreement, from
each of the Principal Shareholders, an executed Shareholder Agreement (the
"Shareholder Agreements") in the form attached hereto as EXHIBIT A, agreeing,
among other things, to vote in favor of the Merger.
6.3. FORM S-8. Parent agrees to file, if available, for use by Parent, a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Options no later than twenty (20) business days
after the Closing Date.
6.4. STOCK OPTIONS AND WARRANTS.
A. At the Effective Time, the Company's obligations with respect to each
outstanding Option or Warrant, whether vested or unvested, will be terminated
and such Option or Warrant shall be replaced with an option or warrant, as the
case may be, (such replacement options or warrants shall hereinafter be referred
to collectively as "Parent Securities" or individually as "Parent Security") to
acquire shares of Parent Common Stock equal to the product of the number of
shares of Company Common Stock that were purchasable under such Option or
Warrant immediately prior to the Effective Time multiplied by .1521298, rounded
up to the nearest whole number of shares of Parent Common Stock. The per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
such Parent Security will be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which the related Option or
Warrant was exercisable immediately prior to the Effective Time by .1521298 and
rounding the resulting exercise price up to the nearest whole cent. Each Parent
Security shall be evidenced by an option or warrant agreement in a form
acceptable to Parent and shall contain the following additional provisions: (i)
with respect to any Parent Security to be issued to Messrs. Horsley, Bayne and
Bilanich or to individuals who are
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former employees or directors of either Company or Subsidiary as of the date of
this Agreement, the expiration date of such Parent Security shall be the same
expiration date as presently provided in such party's existing option or warrant
agreement with the Company; (ii) with respect to any Parent Security to be
issued to any other party not described in clause (i) above, the expiration date
of such Parent Security shall be the later of (x) one (1) year from the date of
Closing or (y) the thirtieth (30th) day following termination of such employee's
employment with the Company or Subsidiary, but in no event shall such expiration
date extend beyond the expiration date presently provided in such party's
existing option or warrant agreement with the Company and (iii) the Parent
Security shall be subject to automatic exchange for a comparable option or
warrant to acquire PracticeWorks common stock upon the PracticeWorks Spin-off,
adjusted to reflect the exchange rate applicable to other options or warrants of
the Parent which are exchanged in connection with the PracticeWorks Spin-off.
B. Upon execution of this Agreement, Company will promptly send notice to
each Option or Warrant holder of the proposed termination and exchange of such
holder's Options or Warrants as described above, and the Company further agrees
to take any and all other action as may be required under any existing option or
warrant agreements to effectuate the transactions contemplated by this Section
6.4.
C. Parent will reserve sufficient shares of Parent Common Stock for
issuance under this Section 6.4. hereof.
7. CONDITIONS.
7.1. MUTUAL CONDITIONS. The obligations of the parties hereto to
consummate the Merger shall be subject to the satisfaction at or prior to the
Closing Date of the following conditions:
A. No temporary restraining order, preliminary or permanent injunction or
other order or decree which prevents the consummation of the Merger shall have
been issued and remain in effect, and no statute, rule or regulation shall have
been enacted by any Governmental Body which prevents the consummation of the
Merger.
B. [INTENTIONALLY LEFT BLANK].
C. No Proceeding shall be instituted by any Governmental Body which seeks
to prevent consummation of the Merger or seeking material damages in connection
with the transactions contemplated hereby which continues to be outstanding.
D. The Registration Statement shall have been declared effective by the SEC
under the Securities Act. No stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued by the SEC and
no proceedings for that purpose and no similar proceeding in respect of the
Proxy Statement shall have been initiated or, to the knowledge of Parent, Merger
Sub or the Company, threatened in writing by the SEC.
E. The shares of Parent Common Stock issuable to the shareholders of
Company pursuant to this Agreement and such other shares required to be reserved
for issuance in connection with the Merger shall have been authorized for
listing on Nasdaq upon official notice of issuance.
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F. All waiting periods, if any, under the HSR Act relating to the Merger
will have expired or terminated early.
G. The Shareholder Approval shall have been obtained.
H. Parent and Company shall each have received written opinions from their
respective tax counsel in the form and substance reasonably satisfactory to
them, to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and such opinions shall not have been
withdrawn; provided, however, that if the counsel to either Parent or Company
does not render such opinion, this condition shall nonetheless be deemed to be
satisfied with respect to such party if counsel to the other party renders such
opinion to such party. The parties to this Agreement agree to make such
reasonable representations as requested by such counsel for the purpose of
rendering such opinions.
7.2. CONDITIONS TO OBLIGATIONS OF MERGER SUB AND PARENT. The obligations
of Merger Sub and Parent to consummate and effect the Merger shall be subject to
the satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:
A. REPRESENTATIONS AND WARRANTIES. Each representation and warranty of
Company contained in this Agreement (i) shall have been true and correct as of
December 31, 1999 and (ii) shall be true and correct on and as of the Closing
Date with the same force and effect as if made on and as of the Closing Date
except (1) for such failures to be true and correct that do not in the aggregate
constitute a Company Material Adverse Effect; provided, however, such Company
Material Adverse Effect qualifier shall be inapplicable with respect to
representations and warranties contained in Sections 3.2.A., 3.3., 3.29., 3.30.
and 3.31. and (2) for those representations and warranties which address matters
only as of a particular date (which representations shall have been true and
correct (subject to the qualifications set forth in the preceding clause (1)) as
of such particular date) (it being understood that, for purposes of determining
the accuracy of such representations and warranties, (i) all "Company Material
Adverse Effect" qualifications and other qualifications based on the word
"material" or similar phrases contained in such representations and warranties
shall be disregarded and (ii) any update of or modification to the Company
Disclosure Schedule made or purported to have been made after the date of this
Agreement shall be disregarded).
B. The Company shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects with
each covenant to be performed and complied with by such parties hereunder prior
to the Effective Time.
C. Since the date of this Agreement, there shall not have been any Company
Material Adverse Effect or any material adverse effect on the ability of the
Company to consummate the transactions contemplated hereby.
D. The Company shall have furnished Merger Sub and Parent with a
certificate dated the Closing Date signed on behalf of it by its President to
the effect that the conditions set forth in Sections 7.2.A., B. and C. have been
satisfied.
E. Daniel L. Richmond and Chae U. Kim shall each have executed an
Employment Agreement, in the forms of which are attached hereto as EXHIBIT C-1
and EXHIBIT C-2, respectively.
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F. Merger Sub and Parent shall have received the legal opinion, dated the
Closing Date, of Norton Lidstone, P.C., counsel to the Company, in substantially
the form attached hereto as EXHIBIT D.
G. The Company shall have obtained all material consents, waivers,
approvals, authorizations or orders, including the consents set forth on
SCHEDULE 3.2, and made all filings in connection with the authorization,
execution and delivery of this Agreement by the Company and the consummation by
each of the transactions contemplated hereby.
H. The Company and Parent shall have fully complied with all of their
obligations and covenants set forth in Section 6.1.D. above.
I. The total aggregate amount of cash paid by Parent pursuant to Section
2.5.H. shall not exceed Five Hundred Thousand and No/100 Dollars ($500,000.00).
7.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by the Company:
A. Each representation and warranty of Merger Sub and Parent set forth in
Section 4. (i) shall have been true and correct as of September 25, 2000 and
(ii) shall be true and correct on and as of the Closing Date as though made on
and as of the Closing Date except (1) for such failures to be true and correct
that do not in the aggregate constitute a Parent Material Adverse Effect and (2)
for those representations and warranties which address matters only as of a
specified date, which need be true and correct (which representations and
warranties shall have been true and correct (subject to the qualifications set
forth in the preceding clause (1)) as of such particular date (it being
understood that, for purposes of determining the accuracy of such
representations and warranties, (i) all "Parent Material Adverse Effect"
qualifications and other qualifications based on the word "material" or similar
phrases contained in such representations and warranties shall be disregarded
and (ii) any update of or modification to the Parent Disclosure Schedule made or
purported to have been made after the date of this Agreement shall be
disregarded).
B. Each of Merger Sub and Parent shall have performed in all material
respects each obligation and agreement and shall have complied in all material
respects with each covenant to be performed and complied with by it hereunder at
or prior to the Effective Time.
C. Since the date of this Agreement, there shall not have been any material
adverse change in the assets, liabilities, results of operations, business or
financial condition of Merger Sub and Parent or any material adverse effect on
the ability of Merger Sub and Parent to consummate the transactions contemplated
hereby.
D. Each of Merger Sub and Parent shall have furnished the Company with a
certificate dated the Closing Date signed on its behalf by its Chairman,
President or any Vice President to the effect that the conditions set forth in
Sections 7.3.A., B. and C. have been satisfied.
E. The Company shall have received the legal opinion, dated the Closing
Date, of Morris, Manning & Martin, L.L.P., counsel to Merger Sub and Parent,
substantially in the form attached hereto as EXHIBIT E.
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8. TERMINATION.
8.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after the requisite approval of the
shareholders of Company:
A. By mutual written consent duly authorized by the Boards of Directors of
Parent and Company;
B. By either Company or Parent if the Merger shall not have been
consummated by December 31, 2000 for any reason; provided, however, that the
right to terminate this Agreement under this Section 8.1.B. shall not be
available to any party whose action or failure to act has been a principal cause
of or resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a breach of this Agreement;
C. By either Company or Parent if a Governmental Body shall have issued an
order, decree or ruling or taken any other action, in any case having the effect
of permanently restraining, enjoining or otherwise prohibiting the Merger, which
order, decree, ruling or other action is final and nonappealable;
D. By either Company or Parent if the required approval of the shareholders
of Company contemplated by this Agreement shall not have been obtained by reason
of the failure to obtain the required vote at a meeting of Company shareholders
duly convened therefor or at any adjournment therefor;
E. By Company, upon a breach of any representation, warranty, covenant or
agreement on the part of Parent set forth in this Agreement, or if any
representation or warranty of Parent shall have become untrue, in either case
such that the conditions set forth in Section 7.3.A., B. or C. would not be
satisfied as of the time of such breach or as of the time such representation or
warranty shall have become untrue, provided, that if such inaccuracy in Parent's
representations and warranties or breach by Parent is curable by Parent, then
Company may not terminate this Agreement under this Section 8.1.E. for thirty
(30) days after delivery of written notice from Company to Parent of such
breach, provided Parent continues to exercise best efforts to cure such breach
(it being understood that Company may not terminate this Agreement pursuant to
this paragraph E. if such breach by Parent is cured during such thirty (30) day
period);
F. By Parent, upon a breach of any representation, warranty, covenant or
agreement on the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have become untrue, in either case
such that the conditions set forth in Section 7.2.A., B. or C. would not be
satisfied as of the time of such breach or as of the time such representation or
warranty shall have become untrue, provided, that if such inaccuracy in
Company's representations and warranties or breach by Company is curable by
Company, then Parent may not terminate this Agreement under this Section 8.1.F.
for thirty (30) days after delivery of written notice from Parent to Company of
such breach, provided Company continues to exercise best efforts to cure such
breach (it being understood that Parent may not terminate this Agreement
pursuant to this paragraph F. if such breach by Company is cured during such
thirty (30) day period);
G. By Parent, if (i) the Board of Directors of Company withdraws, modifies
or changes its recommendation of this Agreement or the Merger in a manner
adverse to Parent or its stockholders; (ii) the Board of Directors of Company
shall have
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recommended to the shareholders of Company an Acquisition Proposal; (iii) the
Company fails to comply with Section 5.1.; (iv) an Acquisition Proposal shall
have been announced or otherwise become publicly known and the Board of
Directors of Company shall have (1) failed to recommend against acceptance of
such by its shareholders (including by taking no position, or indicating its
inability to take a position, with respect to the acceptance by its shareholders
of an Acquisition Proposal involving a tender offer or exchange offer) or (2)
failed to reconfirm its approval and recommendation of this Agreement and the
transactions contemplated hereby within five (5) business days thereafter; (v)
any of the Principal Shareholders fail to comply with the Shareholder Agreement
or (vi) the Board of Directors of Company resolves to take any of the actions
described above; or
H. By Company, if the Share Value, as defined below, is less than Three and
45/100 Dollars ($3.45), or by Parent, if the Share Value is greater than Six and
41/100 Dollars ($6.41). Termination of the Agreement by either party pursuant to
this Section 8.1.H. shall require delivery of written notice of termination to
the other party; however, if Company provides notice pursuant to this Section
8.1.H., that notice shall be irrevocable and Parent shall have the option, in
its sole discretion, by giving written notice to Company of such election prior
to Closing to reject the notice and proceed with Closing (i) using an adjusted
Common Exchange Ratio equal to the product of .06873 multiplied by a fraction,
the numerator of which is $3.45 and the denominator of which is the Share Value
or (ii) in lieu of issuing Parent Common Stock as otherwise set forth herein,
pay cash in the amount of $.2372 per share of Company Common Stock. For purposes
hereof, the term "Share Value" shall mean an amount equal to the average closing
price of a share of Parent Common Stock as reported on NASDAQ for the twenty
(20) consecutive trading days immediately preceding the Closing Date.
Termination of the Agreement under this section does not entitle the
non-terminating party to any termination fee, reimbursement of expenses, or
payment of a penalty of any kind.
8.2. NOTICE OF TERMINATION; EFFECT OF TERMINATION. Except as otherwise
provided in Section 8.1.H. above, any termination of this Agreement under
Section 8.1. above will be effective immediately upon the delivery of written
notice of the terminating party to the other parties hereto (or such later time
as may be required by Section 8.1.). In the event of the termination of this
agreement as provided in Section 8.2., this Agreement shall be of no further
force or effect, except (i) as set forth in this Section 8.2., Section
6.1.C.(i), Section 8.3. and Section 9., each of which shall survive the
termination of this Agreement and (ii) nothing herein shall relieve any party
from liability for fraud in connection with, or any willful breach of, this
Agreement.
8.3. FEES AND EXPENSES.
A. GENERAL. Except as set forth in this Section 8.3., all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Merger is consummated; provided, however, that Parent and Company
shall share equally all fees and expenses, other than attorneys' and accountants
fees and expenses, incurred (i) in relation to the printing and filing of the
Proxy Statement (including any preliminary materials related thereto) and the
S-4 (including financial statements and exhibits) and any amendments or
supplements thereto or (ii) for the premerger notification and report forms
under the HSR Act.
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B. TERMINATION FEE.
(i) In the event that (1) Parent shall terminate this Agreement
pursuant to Section 8.1.G. or (2) this Agreement shall be terminated (x)
pursuant to Section 8.1.B. or (y) pursuant to Section 8.1.D. and, in the
case of either (x) or (y), (a) at or prior to such termination, there shall
exist or have been proposed an Acquisition Proposal and (b) within nine (9)
months after such termination, Company shall enter into a definitive
agreement with respect to any Company Acquisition or any Company
Acquisition shall be consummated, then, in the case of (1), promptly after
such termination, or in the case of (2), concurrently with the execution of
a definitive agreement with respect to, or the consummation of, as
applicable, such Company Acquisition, Company shall pay to Parent an amount
in cash equal to Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00) (the "Termination Fee").
(ii) In the event that Parent shall terminate this Agreement pursuant
to Section 8.1.F., then Company shall promptly reimburse Parent for
Parent's costs and expenses in connection with this Agreement and the
transactions contemplated hereby ("Parent's Expenses"), and if, within nine
(9) months of such termination of this Agreement, Company shall enter into
a definitive agreement with respect to any Company Acquisition or any
Company Acquisition involving Company shall be consummated, then
concurrently with the execution of a definitive agreement with respect to,
or the consummation of, as applicable, such Company Acquisition, then
Company shall pay to Parent an amount in cash equal to the amount by which
the Termination Fee exceeds the amount of Parent's Expenses previously
reimbursed by Company pursuant hereto.
(iii) The Company acknowledges that the agreements contained in this
Section 8.3.B. are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not enter
into this Agreement; accordingly, if the Company fails to pay in a timely
manner the amounts due pursuant to this Section 8.3.B. and, in order to
obtain such payment, Parent makes a claim that results in a judgment
against the Company for the amounts set forth in this Section 8.3.B., the
Company shall pay to Parent its costs and expenses (including attorneys'
fees and expenses) in connection with such suit, together with interest on
the amounts set forth in this Section 8.3.B. at the prime rate of interest
as reported by SunTrust Bank, N.A. in effect on the date such payment was
required to be made. Payment of the fees described in this Section 8.3.B.
shall not be in lieu of damages incurred in the event of breach of this
Agreement. For the purposes of this Agreement, "Company Acquisition" shall
mean any of the following transactions (other than the transactions
contemplated by this Agreement): (i) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company pursuant to which the shareholders of the
Company immediately preceding such transaction hold less than fifty percent
(50%) of the aggregate equity interests in the surviving or resulting
entity of such transaction; (ii) a sale or other disposition by the Company
of assets representing in excess of fifty percent (50%) of the aggregate
fair market value of the Company's business immediately prior to such sale
or (iii) the acquisition by any person or group (including by way of a
tender offer or an exchange offer or issuance by the Company), directly or
indirectly, of beneficial ownership or a right to acquire
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beneficial ownership of shares representing in excess of fifty percent
(50%) of the voting power of the then outstanding shares of capital stock
of the Company.
8.4. AMENDMENT. Subject to applicable law, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of Parent, Merger Sub and Company.
8.5. EXTENSION; WAIVER. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto;
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
8.6. SPECIAL PARENT PAYMENT. In the event that Company shall terminate
this Agreement pursuant to Section 8.1.E., Parent shall pay to Company an amount
in cash equal to Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00),
and Parent hereby waives the right to offset such amount against any amounts due
Parent by Company pursuant to the loan described in Section 5.8.
9. MISCELLANEOUS.
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Company, Parent and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
9.2. NOTICES. Except as otherwise set forth herein, all notices given in
connection with this Agreement shall be in writing and shall be delivered either
by personal delivery, by telecopy or similar facsimile means, by certified or
registered mail, return receipt requested, or by express courier or delivery
service, addressed to the parties hereto at the following addresses:
A. Company: Medical Dynamics, Inc.
99 Inverness Drive East
Englewood, Colorado 80112
Attention: Van Horsley, President
Telecopy No.: (303) 799-1378
With a copy to: Norton Lidstone, P.C.
5445 DTC Parkway
The Quadrant, Suite 850
Englewood, Colorado 80111
Attention: Herrick K. Lidstone, Jr., Esq.
Telecopy No.: (303) 221-5553
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B. Merger Sub and Parent: InfoCure Corporation and CADI Acquisition
Corporation
1765 The Exchange, Suite 450
Atlanta, Georgia 30339
Attention: Richard E. Perlman
Telecopy No.: (770) 857-1300
With a copy to: Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
Attention: Richard L. Haury, Jr., Esq.
Telecopy No.: (404) 365-9532
or at such other address and number as either party shall have previously
designated by written notice given to the other party in the manner hereinabove
set forth. Notices shall be deemed given (i) when received, if sent by telecopy
or similar facsimile means (confirmation of such receipt by confirmed facsimile
transmission being deemed receipt of communications sent by telecopy or other
facsimile means) and (ii) when delivered and receipted for (or upon the date of
attempted delivery where delivery is refused), if hand-delivered, sent by
express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
9.3. FURTHER ASSURANCES. The parties hereto agree to furnish upon request
to each other such further information, to execute and deliver to each other
such other documents, and to do such other acts and things, all as the other
party hereto may at any time reasonably request for the purpose of carrying out
the intent of this Agreement and the documents referred to herein.
9.4. WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay on the part of
any party in exercising any right, power or privilege under this Agreement or
the documents referred to herein shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or privilege preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. To the maximum extent permitted by applicable law, no claim or
right arising out of this Agreement or the documents referred to herein can be
discharged by one party hereto, in whole or in part, by a waiver or renunciation
of the claim or right unless in writing signed by the other party hereto; no
waiver which may be given by a party hereto shall be applicable except in the
specific instance for which it is given; and no notice to or demand on one party
hereto shall be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to
herein.
9.5. ENTIRE AGREEMENT AND MODIFICATION. This Agreement, including all
exhibits and schedules hereto, are intended by the parties to this Agreement as
a final expression of their agreement with respect to the subject matter hereof,
and are intended as a complete and exclusive statement of the terms and
conditions of that agreement. This Agreement may not be modified, rescinded or
terminated orally, and no modification, rescission, termination or attempted
waiver of any of the provisions hereof (including this Section) shall be valid
unless in writing and signed by the party against whom the same is sought to be
enforced.
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9.6. ASSIGNMENTS, SUCCESSORS AND NO THIRD-PARTY RIGHTS. This Agreement
shall apply to and be binding in all respect upon, and shall inure to the
benefit of, the successors and assigns of the parties hereto. Nothing expressed
or referred to in this Agreement is intended or shall be construed to give any
person or entity other than the parties to this Agreement any legal or equitable
right, remedy or claim under or with respect to this Agreement, or any provision
hereof, it being the intention of the parties hereto that this Agreement and all
of its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement, their successors and assigns, and for the benefit of
no other person or entity; provided, however, that the parties hereto consent to
the assignment of interests in this Agreement, including all exhibits and
schedules hereto, as collateral security for the obligations of Parent and
Merger Sub following the Closing to Finova Capital Corporation.
9.7. SECTION HEADINGS, CONSTRUCTION. The headings of articles and sections
contained in this Agreement are provided for convenience only. They form no part
of this Agreement and shall not affect its construction or interpretation. All
references to articles and sections in this Agreement refer to the corresponding
articles and sections of this Agreement. All words used herein shall be
construed to be of such gender or number as the circumstances require. Unless
otherwise specifically noted, the words "herein," "hereof," "hereby,"
"hereinabove," "hereinbelow," "hereunder," and words of similar import, refer to
this Agreement as a whole and not to any particular section, subsection,
paragraph, clause or other subdivision hereof.
9.8. TIME OF ESSENCE. With regard to all time periods set forth or
referred to in this Agreement, time is of the essence.
9.9. GOVERNING LAW. Except to the extent mandatorily governed by Colorado
Law, this Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of law thereof.
9.10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original copy of this
Agreement, and all of which, when taken together, shall be deemed to constitute,
but one and the same agreement.
[SIGNATURES BEGIN ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the Company, Merger Sub and Parent, by their duly
authorized officers, have each caused this Agreement to be executed as of the
date first written above.
PARENT:
InfoCure Corporation
By: /s/ RICHARD E. PERLMAN
-----------------------------------
Name: Richard E. Perlman
Title: Chairman
MERGER SUB:
CADI Acquisition Corporation
By: /s/ RICHARD E. PERLMAN
-----------------------------------
Name: Richard E. Perlman
Title: Chief Financial Officer and
Treasurer
COMPANY:
Medical Dynamics, Inc.
By: /s/ VAN A. HORSLEY
-----------------------------------
Name: Van A. Horsley
Title: President and CEO
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FIRST AMENDMENT TO THE
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
MEDICAL DYNAMICS, INC., A COLORADO CORPORATION,
INFOCURE CORPORATION, A DELAWARE CORPORATION
AND
CADI ACQUISITION CORPORATION, A COLORADO CORPORATION
DATED: OCTOBER 30, 2000
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FIRST AMENDMENT TO THE
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS FIRST AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION (this "Agreement"), is made and entered into as of
this 30th day of October, 2000, by and among INFOCURE CORPORATION, a Delaware
corporation ("Parent"), CADI ACQUISITION CORPORATION, a Colorado corporation and
a wholly-owned subsidiary of Parent ("Merger Sub") and MEDICAL DYNAMICS, INC., a
Colorado corporation ("Company").
RECITALS:
A. The Parent, the Merger Sub and the Company entered into an amended and
restated agreement and plan of merger and reorganization as of October 10, 2000
(the "Merger Agreement").
B. The parties desire to amend the Merger Agreement as described herein.
C. Unless otherwise defined herein, capitalized terms used in this first
amendment to the Merger Agreement have the same definitions given them in the
Merger Agreement.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. THE MERGER AGREEMENT BE AND HEREBY IS AMENDED TO DELETE SECTION 2.10 IN
ITS ENTIRETY AND TO INSERT IN LIEU THEREOF THE FOLLOWING AS SECTION
2.10:
2.10 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Code unless, pursuant to Section 8.1.H. hereof, Parent shall agree to
pay cash in the amount of $.2372 per share of Company Common Stock in lieu of
each share of Company Common Stock being automatically converted into the right
to receive Parent Common Stock as set forth in Section 2.5.A. The parties hereto
adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations.
2. THE MERGER AGREEMENT BE AND HEREBY IS AMENDED TO DELETE SECTION 6.1.B.
IN ITS ENTIRETY AND TO INSERT IN LIEU THEREOF THE FOLLOWING AS SECTION
6.1.B.:
B. TAX-DEFERRED TREATMENT. Each of the parties shall use its reasonable
efforts to cause the Merger to constitute a tax-deferred "reorganization" under
Section 368(a) of the Code unless and until, pursuant to Section 8.1.H. hereof,
Parent shall agree to pay cash in the amount of $.2372 per share of Company
Common Stock in lieu of each share of Company Common Stock being automatically
converted into the right to receive Parent Common Stock as set forth in Section
2.5.A.
3. THE MERGER AGREEMENT BE AND HEREBY IS AMENDED TO INSERT THE FOLLOWING
NEW SECTION 6.5:
6.5 COMPANY PLAN. Company shall terminate the Computer Age Dentist 401(k)
Plan (the "401(k) Plan") effective immediately prior to the Closing, shall cease
all further
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contributions to the 401(k) Plan for pay periods beginning on and after the
Closing Date and, to the extent the 401(k) Plan provides for loans to
participants, shall cease making any such additional loans effective immediately
prior to the Closing Date. Company agrees to cooperate with Parent after the
Closing Date to amend the 401(k) Plan in order to bring the 401(k) Plan into
compliance with all applicable laws and regulations, to vest all participants in
their accounts, to distribute all such accounts to the extent permitted under
applicable laws and regulations and to bear all expenses that may apply in
connection with obtaining a favorable determination letter from the Internal
Revenue Service with respect to the tax-qualified status of the 401(k) Plan at
its termination.
4. THE MERGER AGREEMENT BE AND HEREBY IS AMENDED TO DELETE SECTION 7.1.H.
IN ITS ENTIRETY AND TO INSERT IN LIEU THEREOF THE FOLLOWING AS SECTION
7.1.H.:
H. Parent and Company shall each have received written opinions from their
respective tax counsel in the form and substance reasonably satisfactory to
them, to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and such opinions shall not have been
withdrawn; provided, however, that if the counsel to either Parent or Company
does not render such opinion, this condition shall nonetheless be deemed to be
satisfied with respect to such party if counsel to the other party renders such
opinion to such party; provided, further, that this Section 7.1.H. shall not be
a condition to the obligations of the parties to consummate the Merger if,
pursuant to Section 8.1.H. hereof, Parent shall agree to pay cash in the amount
of $.2372 per share of Company Common Stock in lieu of each share of Company
Common Stock being automatically converted into the right to receive Parent
Common Stock as set forth in Section 2.5.A. The parties to this Agreement agree
to make such reasonable representations as requested by such counsel for the
purpose of rendering such opinions.
5. THE MERGER AGREEMENT BE AND HEREBY IS AMENDED TO DELETE SECTION 8.1.H.
IN ITS ENTIRETY AND TO INSERT IN LIEU THEREOF THE FOLLOWING AS SECTIONS
8.1.H. AND 8.1.I.:
H. By Company, if the Share Value, as defined below, is less than Three and
45/100 Dollars ($3.45) unless Parent shall agree (i) to adjust the Common
Exchange Ratio to be equal to the product of .06873 multiplied by a fraction,
the numerator of which is Three and 45/100 Dollars ($3.45) and the denominator
of which is the Share Value or (ii) in lieu of each share of Company Common
Stock being automatically converted into the right to receive Parent Common
Stock as set forth in Section 2.5.A. hereof, to pay cash in the amount of $.2372
per share of Company Common Stock. For purposes hereof, the term "Share Value"
shall mean an amount equal to the average closing price of a share of Parent
Common Stock as reported on NASDAQ for the twenty (20) consecutive trading days
ending on (and including) the fourth (4th) trading day immediately prior to the
date on which the Company receives the Shareholder Approval. On the fourth (4th)
trading day immediately prior to the date for which the Shareholder meeting
("Meeting") is scheduled (or any date on which the Meeting is scheduled to
reconvene following an adjournment or to be held following a rescheduling of the
Meeting), if the Share Value is less than Three and 45/100 Dollars ($3.45) and
Company elects to terminate the Agreement pursuant to this Section 8.1.H.,
Company shall deliver a written notice of termination to Parent before 5:00
p.m., eastern time, on such date. If Parent elects to change the consideration
as set forth in this Section 8.1.H., it shall deliver a written notice to
Company by 8:00 p.m., eastern time, on such date indicating whether it will (i)
adjust the Common Stock Exchange Ratio or (ii) pay cash in the amount of $.2372
per share of Company Common Stock in lieu of issuing Parent Common Stock. If,
subsequent to the
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giving of any notice of termination by Company or notice by Parent that it has
elected to change the consideration, the Meeting is adjourned without the
Company receiving the Shareholder Approval or if the Meeting is otherwise
delayed or rescheduled without being held, such notices shall have no effect and
the provisions of this Section 8.1.H. relating to the timing of such notices
shall apply on the fourth (4th) trading day prior to the date on which the
Meeting is scheduled to be reconvened or the date for which the Meeting is
rescheduled. The preceding sentence shall apply in the case of each adjournment
or rescheduling of the Meeting until the Shareholder Approval is received by
Company. Termination of the Agreement under this section does not entitle either
party to any termination fee, reimbursement of expenses, or payment of a penalty
of any kind;
I. By Parent, if the Share Value is greater than Six and 41/100 Dollars
($6.41). Termination of the Agreement under this section does not entitle
Company to any termination fee, reimbursement of expenses, or payment of a
penalty of any kind.
6. COUNTERPARTS. This First Amendment to the Merger Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original copy of this Agreement, and all of which, when taken together, shall be
deemed to constitute, but one and the same agreement.
7. NO OTHER MODIFICATIONS. The Merger Agreement remains in full force and
effect except as specifically modified hereby.
8. APPROVALS AND RECOMMENDATIONS. The Boards of Directors of Company and
Parent have approved and declared advisable this Amendment, and have approved
the Merger and the other transactions contemplated by this Agreement and have
determined to recommend that the shareholders of Company adopt and approve (i)
the Merger Agreement; (ii) this Amendment to the Merger Agreement and (iii) the
Merger transaction.
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IN WITNESS WHEREOF, the Company, Merger Sub and Parent, by their duly
authorized officers, have each caused this Agreement to be executed as of the
date first written above.
PARENT:
InfoCure Corporation
By: /s/ RICHARD E. PERLMAN
-----------------------------------
Name: Richard E. Perlman
Title: Chairman
MERGER SUB:
CADI Acquisition Corporation
By: /s/ RICHARD E. PERLMAN
-----------------------------------
Name: Richard E. Perlman
Title: Chief Financial Officer and
Treasurer
COMPANY:
Medical Dynamics, Inc.
By: /s/ VAN A. HORSLEY
-----------------------------------
Name: Van A. Horsley
Title: President and CEO
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SECOND AMENDMENT TO THE
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
MEDICAL DYNAMICS, INC., A COLORADO CORPORATION,
INFOCURE CORPORATION, A DELAWARE CORPORATION
AND
CADI ACQUISITION CORPORATION, A COLORADO CORPORATION
DATED: DECEMBER 19, 2000
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SECOND AMENDMENT TO THE AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS SECOND AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION (this "Agreement"), is made and entered into as of
this 19th day of December, 2000, by and among INFOCURE CORPORATION, a Delaware
corporation ("Parent"), CADI ACQUISITION CORPORATION, a Colorado corporation and
a wholly-owned subsidiary of Parent ("Merger Sub") and MEDICAL DYNAMICS, INC., a
Colorado corporation ("Company").
RECITALS:
A. The Parent, the Merger Sub and the Company entered into an Amended and
Restated Agreement and Plan of Merger and Reorganization as of October 10, 2000
and a First Amendment thereto on October 30, 2000 (the "Merger Agreement").
B. Parent is contemplating that it will complete the proposed PracticeWorks
Spin-off prior to the Closing, through declaring a dividend of shares of common
stock of PracticeWorks, Inc., a Delaware corporation ("PracticeWorks"), as
otherwise described in the Merger Agreement (the "Spin-off").
C. Company has agreed to waive its right to require that the Merger be
consummated prior to the Spin-off as provided in Section 5.9 of the Merger
Agreement.
D. If the Spin-off occurs, the parties hereto desire that Parent assign all
its rights and obligations under the Merger Agreement to PracticeWorks, and the
parties wish to take the other actions described in this Agreement.
E. The parties desire to amend the Merger Agreement as described herein.
F. Unless otherwise defined herein, capitalized terms used in this
Agreement have the same definitions given them in the Merger Agreement, as
amended to date.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. FORWARD MERGER. Any references in the Merger Agreement to Merger
Sub merging with and into Company are hereby modified such that Company
will merge with and into Merger Sub, with Merger Sub being the surviving
corporation. All references in the Merger Agreement to the Surviving
Corporation shall be deemed to refer to Merger Sub.
2. ARTICLES OF INCORPORATION; BYLAWS. The first two (2) paragraphs of
Section 2.4 of the Merger Agreement shall be and are hereby amended to read
as follows:
"At the Effective Time, the Articles of Incorporation of the
Surviving Corporation, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving
Corporation and thereafter shall continue to be its Articles of
Incorporation (until amended as provided under Colorado Law).
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The Bylaws of the Surviving Corporation, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation and thereafter shall continue to be its bylaws (until
amended as provided therein and under Colorado Law)."
3. WAIVER OF COVENANT. Company waives Parent's compliance with the
covenant of Parent set forth in Section 5.9.
4. PROVISION OF ADDITIONAL LOAN BY PARENT TO COMPANY. The parties
agree to promptly amend the existing loan agreement and related documents
(collectively, the "Loan Documents") to provide for an additional advance
by Parent of One Hundred Thousand and No/100 Dollars ($100,000.00) to
Company and Subsidiary to be used for general working capital purposes,
which advance shall be made on or before January 15, 2001. Upon such
advance, the total aggregate principal loan balance outstanding will be
$1,650,000.00. The Loan Documents will be further modified to reflect a
change in the Maturity Date from September 30, 2001 to December 31, 2001.
5. CHANGE IN MERGER CONSIDERATION. The Merger Agreement, as amended,
hereby is further amended to delete Sections 8.1.H. and 8.1.I. in their
entirety.
6. TERMINATION DATE. Section 8.1.B. of this Agreement shall be and
hereby is amended to read in its entirety as follows:
"B. By either Company or Parent if the Merger shall not have been
consummated for any reason (i) by March 31, 2001, if the Spin-off has
occurred or (ii) by April 30, 2001, if the Spin-off has not occurred;
provided, however, that the right to terminate this Agreement under this
Section 8.1.B. shall not be available to any party whose action or
failure to act has been a principal cause of or resulted in the failure
of the Merger to occur on or before such date and such action or failure
to act constitutes a breach of this Agreement;"
7. PRACTICEWORKS SPIN-OFF. The Merger Agreement hereby is amended by
inserting the following as a new Section 2.12:
"2.12 PRACTICEWORKS SPIN-OFF. If the PracticeWorks Spin-off is
completed on or prior to February 28, 2001 (such completion date being
the "Spin-off Date"), the parties hereto shall have taken, or shall
take, each of the following actions:
A. ASSIGNMENT OF MERGER SUB STOCK AND AGREEMENT. On the
Spin-off Date, InfoCure Corporation shall (i) assign to
PracticeWorks all of the outstanding shares of capital stock of
Merger Sub; (ii) assign to PracticeWorks all of InfoCure
Corporation's rights under this Agreement and (iii) cause
PracticeWorks to assume from InfoCure Corporation all of InfoCure
Corporation's obligations under this Agreement, except its
obligations to provide shares of common stock, $.001 par value per
share, of InfoCure ("InfoCure Common Stock") pursuant to Section
2.5.A.(ii) hereof; provided, however, that such assignment and
assumption shall not relieve InfoCure Corporation from any
liability to the Company for any breach of this Agreement by
InfoCure Corporation prior to the Spin-off Date. From and after the
Spin-off Date, all references to "Parent" in this
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Agreement shall mean PracticeWorks, except where the context
clearly requires otherwise.
B. PRACTICEWORKS REPRESENTATIONS AND WARRANTIES. Within ten
(10) business days after the Spin-off Date, PracticeWorks shall
deliver to the Company a disclosure schedule meeting the
requirements described in the first paragraph of Article 4 (the
"PracticeWorks Disclosure Schedule"), certified by a duly
authorized officer of PracticeWorks. It is acknowledged and agreed
that the representations and warranties of PracticeWorks (as
modified by the PracticeWorks Disclosure Schedule) made pursuant to
Article 4 shall be made only as of the Spin-off Date and as of the
Closing Date.
8. POST SPIN-OFF MERGER CONSIDERATION. Effective on the Spin-off
Date, Section 2.5.A. of the Merger Agreement shall be and hereby is amended
to read in its entirety as follows:
"A. CONVERSION OF COMPANY COMMON STOCK. Each share of common
stock, $.001 par value per share, of Company (the "Company Common
Stock") issued and outstanding immediately prior to the Effective Time,
other than any shares of Company Common Stock to be canceled pursuant to
Section 2.5.B. and any Dissenting Shares (as defined and to the extent
provided in Section 2.5.I.), will be canceled and extinguished and
automatically converted (subject to Section 2.5.F.) into the right to
receive (i) 0.017183 of a share, unless adjusted as provided for herein,
of Parent Common Stock ("Common Exchange Ratio"); (ii) 0.06873 of a
share of InfoCure Common Stock and (iii) 0.07558 of a share of Parent
Preferred Stock. The issuance of the InfoCure Common Stock is subject to
all of the conditions relating to adjustment, conditional stock and
dissenters rights, etc. as set forth in Sections 2.5 (E., G., and I.),
2.6, 2.7 and 2.8 hereof, as such sections would apply to InfoCure's
issuance of its common stock if the Spin-off had not occurred. In
addition, the issuance of InfoCure Common Stock pursuant to this Section
2.5.A. will not apply to fractional shares of InfoCure Common Stock, but
in lieu thereof, the holder of any shares of Company Common Stock who
would otherwise be entitled to receive a fraction of a share of InfoCure
Common Stock shall receive cash in an amount equal to the value of such
fractional share, which shall be equal to the fraction of a share of
InfoCure Common Stock that would otherwise be issued multiplied by Four
93/100 Dollars ($4.93)."
9. POST SPIN-OFF FRACTIONAL SHARES. Effective on the Spin-off Date,
the last sentence of Section 2.5.F. of the Merger Agreement shall be and
hereby is amended to read in its entirety as follows:
"No fractional shares of Parent Common Stock or Parent Preferred
Stock will be issued in connection with the Merger, but in lieu thereof,
the holder of any shares of Company Common Stock who would otherwise be
entitled to receive (i) a fraction of a share of Parent Common Stock
shall receive cash in an amount equal to the value of such fractional
share, which shall be equal to the fraction of a share of Parent Common
Stock that would otherwise be issued multiplied by Nineteen and 72/100
Dollars ($19.72) or (ii) a fraction of a share of Parent Preferred Stock
shall receive cash in an amount equal to the value of such fractional
share, which shall be equal to the fraction of a share of Parent
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Preferred Stock that would otherwise be issued multiplied by Five and
44/100 Dollars ($5.44)."
10. POST SPIN-OFF ODD LOT CASH-OUT. Effective on the Spin-off Date,
Section 2.5.H. of the Merger Agreement shall be and hereby is amended to
read in its entirety as follows:
"H. ODD LOT CASH-OUT. Notwithstanding Sections 2.5.A. and 2.5.F.
above, any holder, owning in the aggregate, one hundred (100) or fewer
shares of Company Common Stock ("Odd Lot Shareholder"), shall instead
receive cash in an amount equal to 75/100 Dollars ($0.75) per share of
Company Common Stock held by such Odd Lot Shareholder."
11. POST SPIN-OFF PROXY STATEMENT/REGISTRATION STATEMENT; SHAREHOLDER
APPROVAL. Effective on the Spin-off Date, Section 6.1.D. of the Merger
Agreement shall be and hereby is amended to read in its entirety as
follows:
"D. PROXY STATEMENT/REGISTRATION STATEMENT; SHAREHOLDER APPROVAL.
Following the execution of this Agreement, InfoCure Corporation, Parent,
Merger Sub and the Company will mutually cooperate to prepare and file
with the SEC a preliminary proxy statement relating to the Merger (the
"Proxy Statement") and InfoCure Corporation and Parent will prepare and
file with the SEC the Registration Statement in which the Proxy
Statement will be included as a prospectus. Each of InfoCure
Corporation, Parent, Merger Sub and the Company will respond to any
comments of the SEC and will use its best efforts to have the
Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing and when the Registration
Statement is declared effective by the SEC, the Company will thereafter
promptly cause the Proxy Statement to be mailed to its stockholders. In
connection therewith, InfoCure Corporation, Parent, Merger Sub and the
Company will prepare and file any other filings required under the
Exchange Act, the Securities Act or any other Federal or blue sky laws
relating to the Merger and the transactions contemplated by this
Agreement (the "Other Filings"). Each party will notify the other party
promptly upon the receipt of any comments from the SEC or its staff and
of any supplements to the Registration Statement, the Proxy Statement or
any Other Filing or for additional information and will supply the other
party with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or other
government officials, on the other hand, with respect to the
Registration Statement, the Proxy Statement, the Merger or any Other
Filing. The Proxy Statement, the Registration Statement and the Other
Filings will comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated
thereunder. Each party agrees to cooperate with the other to provide all
materials, documents, exhibits and other requested information necessary
to assure such compliance. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement,
the Registration Statement or any Other Filing, InfoCure Corporation,
Parent or the Company, as the case may be, will promptly inform the
other party of such occurrence and cooperate in filing with the SEC or
its staff or any other government officials, and/or mailing to
stockholders of the Company, such amendment or supplement. The Proxy
Statement will also include the approval of this Agreement and the
Merger and the recommendation of the Board of Directors of the Company
to Company's
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shareholders that they vote in favor of approval of this Agreement and
the Merger, subject to the right of the Board of Directors of the
Company to withdraw its recommendation and recommend a Superior Proposal
determined to be such in compliance with Section 5.1. of this Agreement;
provided, however, that the Board of Directors of Company shall submit
this Agreement to Company's shareholders whether or not at any time
subsequent to the date hereof such board determines that it can no
longer make such recommendation. Promptly after the date hereof, the
Company will exercise its best efforts and take all action necessary in
accordance with Colorado law and its Articles of Incorporation and
Bylaws to convene the Meeting to be held as promptly as practicable, and
in any event within (forty (40)) days after the declaration of
effectiveness of the Registration Statement, for the purpose of voting
upon this Agreement. Unless Company's Board of Directors has withdrawn
its recommendation of this Agreement and the Merger in compliance with
Section 5.1., Company shall use all reasonable efforts to solicit from
its shareholders proxies in favor of the approval of this Agreement and
the Merger pursuant to the Proxy Statement and shall take all other
action necessary or advisable to secure the vote or consent of
shareholders required by Colorado Law or applicable stock exchange
requirements to obtain such approval. Notwithstanding any provision in
this Agreement to the contrary, the Company acknowledges and agrees that
InfoCure Corporation and/or Parent may, by notice to the Company,
postpone the filing of the Registration Statement, the request to
accelerate the declaration of effectiveness of the Registration
Statement, or the mailing of the Proxy Statement to the Company's
shareholders if at any time the Board of Directors of InfoCure
Corporation or Parent, in good faith, determines that it would be
detrimental to InfoCure Corporation, the Parent or Company for such
Registration Statement to be filed or declared effective, or for such
Proxy Statement to be mailed to the shareholders of the Company;
provided, that any such postponement shall not exceed ninety (90) days
in duration."
12. POST SPIN-OFF STOCK OPTIONS AND WARRANTS. Effective on the
Spin-off Date, Section 6.4.A. of the Merger Agreement shall be and hereby
is amended to read in its entirety as follows:
"A. At the Effective Time, the Company's obligations with respect
to each outstanding Option or Warrant, whether vested or unvested, will
be terminated and such Option or Warrant shall be replaced with an
option or warrant, as the case may be, (such replacement options or
warrants shall hereinafter be referred to collectively as "Parent
Securities" or individually as "Parent Security") to acquire shares of
Parent Common Stock equal to the product of the number of shares of
Company Common Stock that were purchasable under such Option or Warrant
immediately prior to the Effective Time multiplied by .0380324, rounded
up to the nearest whole number of shares of Parent Common Stock. The per
share exercise price for the shares of Parent Common Stock issuable upon
exercise of such Parent Security will be equal to the quotient
determined by dividing the exercise price per share of Company Common
Stock at which the related Option or Warrant was exercisable immediately
prior to the Effective Time by .0380324 and rounding the resulting
exercise price up to the nearest whole cent. Each Parent Security shall
be evidenced by an option or warrant agreement in a form acceptable to
Parent and shall contain the following additional provisions: (i) with
respect to any Parent Security to be issued to
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Messrs. Horsley, Bayne and Bilanich or to individuals who are former
employees or directors of either Company or Subsidiary as of the date of
this Agreement, the expiration date of such Parent Security shall be the
same expiration date as presently provided in such party's existing
option or warrant agreement with the Company and (ii) with respect to
any Parent Security to be issued to any other party not described in
clause (i) above, the expiration date of such Parent Security shall be
the later of (x) one (1) year from the date of Closing or (y) the
thirtieth (30th) day following termination of such employee's employment
with the Company or Subsidiary, but in no event shall such expiration
date extend beyond the expiration date presently provided in such
party's existing option or warrant agreement with the Company."
13. COUNTERPARTS. This Second Amendment to the Merger Agreement may
be executed in one or more counterparts, each of which shall be deemed to
be an original copy of this Agreement, and all of which, when taken
together, shall be deemed to constitute, but one and the same agreement.
14. NO OTHER MODIFICATIONS. The Merger Agreement remains in full
force and effect except as specifically modified hereby.
15. APPROVALS AND RECOMMENDATIONS. The Boards of Directors of Company
and Parent have approved and declared advisable this Amendment, and have
approved the Merger and the other transactions contemplated by this
Agreement and have determined to recommend that the shareholders of Company
adopt and approve (i) the Merger Agreement; (ii) this Amendment to the
Merger Agreement and (iii) the Merger transaction.
[Signatures appear on following page]
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IN WITNESS WHEREOF, the Company, Merger Sub and Parent, by their duly
authorized officers, have each caused this Agreement to be executed as of the
date first written above.
PARENT:
InfoCure Corporation
By: /s/ RICHARD E. PERLMAN
-----------------------------------
Name: Richard E. Perlman
Title: Chairman
MERGER SUB:
CADI Acquisition Corporation
By: /s/ RICHARD E. PERLMAN
-----------------------------------
Name: Richard E. Perlman
Title: Chairman and Treasurer
COMPANY:
Medical Dynamics, Inc.
By: /s/ VAN A. HORSLEY
-----------------------------------
Name: Van A. Horsley
Title: President and CEO
ACKNOWLEDGED AND AGREED, THIS 19th DAY OF DECEMBER, 2000:
PracticeWorks, Inc.
By: /s/ RICHARD E. PERLMAN
-----------------------------------
Name: Richard E. Perlman
Title: Chairman
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MEDICAL DYNAMICS, INC.
99 Inverness Drive East
Englewood, CO 80112
Telephone: 303-790-2990, Ext. 13
Facsimile: 303-708-8557
March 2, 2001
InfoCure Corporation
Attn.: James K. Price
1765 The Exchange
Atlanta, Georgia 30339
Re: Amended and Restated Agreement and Plan of Merger and Reorganization
("Agreement")
Dear Jim:
Please allow this letter to serve as confirmation of our conversation
whereby Medical Dynamics, Inc. consents to and acknowledges that (1) the
Spin-off Date, as defined in the Amended and Restated Agreement and Plan of
Merger and Reorganization ("Agreement"), as amended, shall be extended from
February 28, 2001 to March 15, 2001 and (2) the March 31, 2001 and April 30,
2001 dates for termination as more fully described in Section 8.1.B. of the
Agreement, as amended, shall both be extended to May 31, 2001. This letter
agreement to the extent signed and delivered by means of a facsimile machine,
will be treated in all manner and respects as an original letter agreement and
will be considered to have the same binding legal effect as if it were the
original signed version thereof delivered in person.
Very truly yours,
Medical Dynamics, Inc.
By: /s/ VAN A. HORSLEY
--------------------------------------
Its: President and CEO
AGREED AND ACCEPTED THIS 5th DAY OF
MARCH, 2001.
By: /s/ RICHARD E. PERLMAN
- --------------------------------------
Its: Chairman
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FOURTH AMENDMENT TO THE
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
MEDICAL DYNAMICS, INC., A COLORADO CORPORATION,
INFOCURE CORPORATION, A DELAWARE CORPORATION,
PRACTICEWORKS, INC.,
AND
CADI ACQUISITION CORPORATION, A COLORADO CORPORATION
DATED: APRIL 16, 2001
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FOURTH AMENDMENT TO THE
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS FOURTH AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION (this "Agreement"), is made and entered into as of
this 16th day of April, 2001, by and among INFOCURE CORPORATION, a Delaware
corporation ("InfoCure"), PracticeWorks, Inc., a Delaware corporation
("Parent"), CADI ACQUISITION CORPORATION, a Colorado corporation and a
wholly-owned subsidiary of Parent ("Merger Sub") and MEDICAL DYNAMICS, INC., a
Colorado corporation ("Company").
RECITALS:
A. InfoCure, the Merger Sub and the Company entered into an Amended and
Restated Agreement and Plan of Merger and Reorganization as of October 10, 2000
and a First Amendment thereto on October 30, 2000, a Second Amendment thereto on
December 19, 2000 and a Third Amendment thereto on March 5, 2001 (the "Merger
Agreement").
B. On March 5, 2000, InfoCure declared a dividend of shares of common stock
of PracticeWorks (the "Spin-off").
C. As a result of the Spin-off, InfoCure assigned all its rights and
obligations under the Merger Agreement to PracticeWorks, except its obligation
to issue the InfoCure Common Stock pursuant to Section 2.5.A. of the Merger
Agreement.
D. Unless otherwise defined herein, capitalized terms used in this
Agreement have the same definitions given them in the Merger Agreement, as
amended to date.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. TERMINATION DATE. Section 8.1.B. of this Agreement shall be and hereby
is amended to read in its entirety as follows:
"B. By either Company or Parent if the Merger shall not have been
consummated for any reason by June 15, 2001; provided, however, that the
right to terminate this Agreement under this Section 8.1.B. shall not be
available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement;"
2. CERTIFICATE OF DESIGNATIONS. The parties hereby acknowledge that the
designations, preferences and rights of the Parent Preferred Stock to be issued
in connection with the merger shall be as set forth on Exhibit A attached
hereto:
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IN WITNESS WHEREOF, the Company, Merger Sub and Parent, by their duly
authorized officers, have each caused this Agreement to be executed as of the
date first written above.
PARENT:
PracticeWorks, Inc.
By: /s/ RICHARD E. PERLMAN
--------------------------------------
Name: Richard E. Perlman
Title: Chairman
MERGER SUB:
CADI Acquisition Corporation
By: /s/ RICHARD E. PERLMAN
--------------------------------------
Name: Richard E. Perlman
Title: Chairman
COMPANY:
Medical Dynamics, Inc.
By: /s/ VAN A. HORSLEY
--------------------------------------
Name: Van A. Horsley
Title: President and CEO
ACKNOWLEDGED AND AGREED, THIS 16TH DAY OF APRIL, 2001:
InfoCure Corporation
By: /s/ STEPHEN L. HICKS
--------------------------------------
Name: Stephen L. Hicks
Title: Vice President
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MEDICAL DYNAMICS, INC.
400 INVERNESS DRIVE SOUTH, SUITE 200
ENGLEWOOD, CO 80112
May 30, 2001
PracticeWorks, Inc
Attn.: James K. Price
1765 The Exchange
Atlanta, Georgia 30339
Re: Amended and Restated Agreement and Plan of Merger and Reorganization
Dear Jim:
Please allow this letter to serve as confirmation of our agreement that
neither Medical Dynamics, Inc. ("Medical Dynamics") nor PracticeWorks, Inc.
("PracticeWorks") will exercise its right to terminate the Amended and Restated
Agreement and Plan of Merger and Reorganization, as amended ("Agreement"),
pursuant to Section 8.1.B. of the Agreement on or before September 30, 2001.
In addition, PracticeWorks agrees to use its commercially reasonable efforts
to obtain the consent of its primary lender to modify the Loan Documents (as
defined in the Agreement) to extend the maturity date thereunder to March 31,
2002 and Medical Dynamics agrees that prior to the execution of any amendment to
the Loan Documents, it shall have obtained the consent of the Principal
Shareholders (as defined in the Loan Documents) to the reaffirmation of the
subordination agreements executed by the Principal Shareholders in connection
with the Loan Documents.
From June 1, 2001 and continuing until the earlier of (i) the termination of
the Agreement or (ii) the Closing Date (as defined in the Agreement),
PracticeWorks will reimburse Computer Age Dentist, Inc., a wholly-owned
subsidiary of the Company ("Computer Age"), on a monthly basis for the
percentage of the costs and expenses, including salary, benefits, commissions
and travel or related expenses associated with Karen Siggel that is equal to the
percentage of time and effort that Mrs. Siggel devotes to the sale, training or
support of PracticeWorks' products and services. PracticeWorks will reimburse
Computer Age for 20% of such costs and expenses for the period April 1, 2001
through May 31, 2001.
This letter agreement to the extent signed and delivered by means of a
facsimile machine, will be treated in all manner and respects as an original
letter agreement and will be considered to have the same binding legal effect as
if it were the original signed version thereof delivered in person.
Very truly yours,
Medical Dynamics, Inc.
By: /s/ VAN A. HORSLEY
-----------------------------------
Its: CEO
-----------------------------------
Agreed and Accepted this 30th Day of May, 2001.
PracticeWorks, Inc.
By: /s/ JAMES A. COCHRAN
--------------------------------------------------
Its: CFO
--------------------------------------------------
331
APPENDIX B
ARTICLE 113 OF THE COLORADO BUSINESS CORPORATION ACT
PART 1
RIGHT OF DISSENT -- PAYMENT FOR SHARES
7-113-101. DEFINITIONS.
For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section
7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102. RIGHT TO DISSENT.
(1) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event of
any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if:
(I) Approval by the shareholders of that corporation is required
for the merger by section 7-111-103 or 7-111-104 or by the articles of
incorporation; or
(II) The corporation is a subsidiary that is merged with its parent
corporation under section 7-111-104;
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(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for which a
shareholder vote is required under section 7-112-102 (1); and
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled by the
corporation if the shareholders of the corporation were entitled to vote
upon the consent of the corporation to the disposition pursuant to section
7-112-102 (2).
(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the national association of securities dealers
automated quotation system, or were held of record by more than two thousand
shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders' meeting at
which the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to the corporate action;
or
(c) The effective date of the corporate action if the corporate action
is authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall
not apply if the shareholder will receive for the shareholder's shares, pursuant
to the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan
of merger or share exchange;
(b) Shares of any other corporation which at the effective date of the
plan of merger or share exchange either will be listed on a national
securities exchange registered under the federal "Securities Exchange Act
of 1934", as amended, or on the national market system of the national
association of securities dealers automated quotation system, or will be
held of record by more than two thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu
of fractional shares.
(2) (Deleted by amendment, L. 96, p. 1321, sec. 30, effective June 1,
1996.)
(2.5) A shareholder, whether or not entitled to vote, is entitled to
dissent and obtain payment of the fair value of the shareholder's shares in the
event of a reverse split that reduces the number of shares owned by the
shareholder to a fraction of a share or to scrip if the fractional share or
scrip so created is to be acquired for cash or the scrip is to be voided under
section 7-106-104.
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(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
7-113-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and causes the corporation to receive written notice which states such
dissent and the name, address, and federal taxpayer identification number, if
any, of each person on whose behalf the record shareholder asserts dissenters'
rights. The rights of a record shareholder under this subsection (1) are
determined as if the shares as to which the record shareholder dissents and the
other shares of the record shareholder were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
PART 2
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
7-113-201. NOTICE OF DISSENTERS' RIGHTS.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting, the notice
of the meeting shall be given to all shareholders, whether or not entitled to
vote. The notice shall state that shareholders are or may be entitled to assert
dissenters' rights under this article and shall be accompanied by a copy of this
article and the materials, if any, that, under articles 101 to 117 of this
title, are required to be given to shareholders entitled to vote on the proposed
action at the meeting. Failure to give notice as provided by this subsection (1)
shall not affect any action taken at the shareholders' meeting for which the
notice was to have been
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given, but any shareholder who was entitled to dissent but who was not given
such notice shall not be precluded from demanding payment for the shareholder's
shares under this article by reason of the shareholder's failure to comply with
the provisions of section 7-113-202(1).
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken pursuant to section 7-107-104 for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202(2).
7-113-202. NOTICE OF INTENT TO DEMAND PAYMENT.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting and if
notice of dissenters' rights has been given to such shareholder in connection
with the action pursuant to section 7-113-201 (1), a shareholder who wishes to
assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken,
written notice of the shareholder's intention to demand payment for the
shareholder's shares if the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104 and if notice of dissenters' rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201(2), a
shareholder who wishes to assert dissenters' rights shall not execute a writing
consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
7-113-203. DISSENTERS' NOTICE.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this article.
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(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for certificated
shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall not be
less than thirty days after the date the notice required by subsection (1)
of this section is given;
(f) State the requirement contemplated in section 7-113-103 (3), if
such requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204. PROCEDURE TO DEMAND PAYMENT.
(1) A shareholder who is given a dissenters' notice pursuant to section
7-113-203 and who wishes to assert dissenters' rights shall, in accordance with
the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be
the payment demand form contemplated in section 7-113-203(2)(d), duly
completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand
for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
7-113-205. UNCERTIFICATED SHARES.
(1) Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
thereof.
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(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206. PAYMENT.
(1) Except as provided in section 7-113-208, upon the effective date of the
corporate action creating dissenters' rights under section 7-113-102 or upon
receipt of a payment demand pursuant to section 7-113-204, whichever is later,
the corporation shall pay each dissenter who complied with section 7-113-204, at
the address stated in the payment demand, or if no such address is stated in the
payment demand, at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares, the
amount the corporation estimates to be the fair value of the dissenter's shares,
plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's balance sheet
as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, and, if the
corporation customarily provides such statements to shareholders, a
statement of changes in shareholders' equity for that year and a statement
of cash flow for that year, which balance sheet and statements shall have
been audited if the corporation customarily provides audited financial
statements to shareholders, as well as the latest available financial
statements, if any, for the interim or full-year period, which financial
statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
section 7-113-209; and
(e) A copy of this article.
7-113-207. FAILURE TO TAKE ACTION.
(1) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 does not occur within sixty days after the date
set by the corporation by which the corporation must receive the payment demand
as provided in section 7-113-203, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections
7-113-204 to 7-113-209 shall again be applicable.
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7-113-208. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT OF
PROPOSED CORPORATE ACTION.
(1) The corporation may, in or with the dissenters' notice given pursuant
to section 7-113-203, state the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action creating
dissenters' rights under section 7-113-102 and state that the dissenter shall
certify in writing, in or with the dissenter's payment demand under section
7-113-204, whether or not the dissenter (or the person on whose behalf
dissenters' rights are asserted) acquired beneficial ownership of the shares
before that date. With respect to any dissenter who does not so certify in
writing, in or with the payment demand, that the dissenter or the person on
whose behalf the dissenter asserts dissenters' rights acquired beneficial
ownership of the shares before such date, the corporation may, in lieu of making
the payment provided in section 7-113-206, offer to make such payment if the
dissenter agrees to accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206 (2).
7-113-209. PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and of the
amount of interest due and may demand payment of such estimate, less any payment
made under section 7-113-206, or reject the corporation's offer under section
7-113-208 and demand payment of the fair value of the shares and interest due,
if:
(a) The dissenter believes that the amount paid under section
7-113-206 or offered under section 7-113-208 is less than the fair value of
the shares or that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206
within sixty days after the date set by the corporation by which the
corporation must receive the payment demand; or
(c) The corporation does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares as
required by section 7-113-207 (1).
(2) A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301. COURT ACTION.
(1) If a demand for payment under section 7-113-209 remains unresolved, the
corporation may, within sixty days after receiving the payment demand, commence
a proceeding and petition the court to determine the fair value of the shares
and accrued
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interest. If the corporation does not commence the proceeding within the
sixty-day period, it shall pay to each dissenter whose demand remains unresolved
the amount demanded.
(2) The corporation shall commence the proceeding described in subsection
(1) of this section in the district court of the county in this state where the
corporation's principal office is located or, if the corporation has no
principal office in this state, in the district court of the county in which its
registered office is located. If the corporation is a foreign corporation
without a registered office, it shall commence the proceeding in the county
where the registered office of the domestic corporation merged into, or whose
shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unresolved parties to the proceeding commenced
under subsection (2) of this section as in an action against their shares, and
all parties shall be served with a copy of the petition. Service on each
dissenter shall be by registered or certified mail, to the address stated in
such dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to such order. The parties to
the proceeding are entitled to the same discovery rights as parties in other
civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
subsection (2) of this section is entitled to judgment for the amount, if any,
by which the court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or for the fair value,
plus interest, of the dissenter's shares for which the corporation elected to
withhold payment under section 7-113-208.
7-113-302. COURT COSTS AND COUNSEL FEES.
(1) The court in an appraisal proceeding commenced under section 7-113-301
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation; except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the
court finds the corporation did not substantially comply with the
requirements of part 2 of this article; or
(b) Against either the corporation or one or more dissenters, in favor
of any other party, if the court finds that the party against whom the fees
and expenses are
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assessed acted arbitrarily, vexatiously, or not in good faith with respect
to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefitted.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a Delaware
corporation to indemnify officers, directors, employees and agents for actions
taken in good faith and in a manner they reasonably believed to be in, or not
opposed to, the best interests of the corporation, and with respect to any
criminal action, which they had no reasonable cause to believe was unlawful. The
Delaware General Corporation Law provides that a corporation may pay expenses
(including attorneys' fees) incurred by an officer or director in defending any
civil, criminal, administrative or investigative action, and must reimburse a
successful defendant for expenses, including attorney's fees, actually and
reasonably incurred, and permits a corporation to purchase and maintain
liability insurance for its directors and officers. The Delaware General
Corporation Law provides that indemnification may not be made for any claim,
issue or matter as to which a person has been adjudged by a court of competent
jurisdiction to be liable to the corporation, unless and only to the extent a
court determines that the person is entitled to indemnity for such expenses as
the court deems proper.
InfoCure's bylaws provide that InfoCure shall, to the full extent permitted
by Section 145, indemnify any person, made or threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is, was or is about to become an officer, director, employee or agent of
InfoCure. InfoCure shall pay the expenses (including attorneys' fees) incurred
by a person in defending any proceeding in advance of its final disposition,
provided, however, that, to the extent required by law, such payment of expenses
in advance of the final disposition of the proceeding shall be made by InfoCure
only upon receipt of an undertaking by the person to repay all amounts advanced
if it should be ultimately determined that the person is not entitled to be
indemnified.
In addition, InfoCure's certificate of incorporation eliminates or limits
personal liability of its directors to the full extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.
Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or negligent conduct
in paying dividends or repurchasing stock out of other than lawfully available
funds or (iv) for any transaction from which the director derived an improper
personal benefit. No such provision shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such provision
becomes effective.
PracticeWorks' bylaws allow, and in some cases require, the indemnification
of directors and officers under certain circumstances and grant our directors
and officers a right to indemnification to the full extent permitted by law for
all expenses relating to civil, criminal, administrative or investigative
procedures to which they are a party (1) by reason of the fact that they are or
were PracticeWorks' directors or officers or (2) by reason of
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the fact that, while they are or were PracticeWorks' directors or officers, they
are or were serving at PracticeWorks' request as a director, officer or employee
of another enterprise. PracticeWorks' bylaws further provide that an advancement
for any such expenses shall only be made upon delivery to PracticeWorks by the
indemnitee of an undertaking to repay all amounts so advanced if it is
ultimately determined that such indemnitee is not entitled to be indemnified by
PracticeWorks.
PracticeWorks has entered into indemnification agreements with its
directors and officers. These agreements will require PracticeWorks to indemnify
these directors and officers with respect to their activities as its directors
or officers or when serving at its request as a director, officer or trustee of
another corporation, joint venture, trust or other enterprise against expenses,
including attorney's fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by them in any threatened, pending or completed
suit or proceeding to which they are, or are threatened to be made, parties as a
result of their service to PracticeWorks. PracticeWorks will agree to indemnify
each indemnitee for any one or a combination of the following, whichever is most
advantageous to the indemnitee: (1) the benefits provided by PracticeWorks'
certificate of incorporation and bylaws in effect on the date of the
indemnification agreement; (2) the benefits provided by PracticeWorks'
certificate of incorporation and bylaws at the time expenses are incurred by the
indemnitee; (3) the benefits allowable under Delaware law in effect on the date
of the indemnification agreement; (4) the benefits allowable under the law of
the jurisdiction under which PracticeWorks exists at the time expenses are
incurred by the indemnitee; (5) benefits available under liability insurance
obtained by PracticeWorks; and (6) such other benefits as may be otherwise
available to indemnitee under PracticeWorks' existing practices. Under the
indemnification agreements, each indemnitee will continue to be indemnified even
after ceasing to occupy a position as PracticeWorks' officer, director, employee
or agent with respect to suits or proceedings arising out of acts or omissions
during his or her services to PracticeWorks.
Each indemnitee will agree to notify PracticeWorks promptly of any
proceedings brought or threatened and not to make any admission or settlement
without PracticeWorks' consent, unless the indemnitee determines to undertake
his or her own defense and waives the benefits of the indemnification agreement.
For four years after the effective time of the merger, PracticeWorks has
agreed to indemnify and hold harmless, to the fullest extent permitted under
applicable law, its certificate of incorporation and bylaws, each present or
former director or officer of Medical Dynamics or any of its subsidiaries
(including his or her heirs, executors and assigns) against any costs, expenses
and amounts paid in settlement of any claim, action, suit, proceeding or
investigation arising out of any act or omission in his or her capacity as a
director, or officer which occurred before the effective time of the merger.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 -- Amended and Restated Agreement and Plan of Merger and
Reorganization by and among Medical Dynamics, Inc., InfoCure
Corporation and CADI Acquisition Corporation, Inc. dated
October 10, 2000, as amended on October 30, 2000, December
19, 2000, March 5, 2001, April 16, 2001 and May 23, 2001
(incorporated by reference to Appendix A to the proxy
statement-prospectus contained in this registration
statement).
2.2 -- Shareholder Agreement by and between InfoCure Corporation
and certain stockholders of Medical Dynamics, Inc.
(incorporated by reference to Exhibit 2.2 to InfoCure's
Registration Statement on Form S-4, filed with the
Commission on November 13, 2000).
2.3 -- Agreement and Plan of Distribution, dated as of February 21,
2001, by and between InfoCure Corporation and PracticeWorks,
Inc. (incorporated by reference to Exhibit 2.1 to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
2.4 -- Agreement and Plan of Merger by and among OMSystems, Inc,
the Shareholders of OMSystems, Inc., InfoCure Systems, Inc.
and InfoCure Corporation dated February 8, 1999
(incorporated by reference to Exhibit 2.1 to InfoCure's
Annual Report on Form 10-K for the year ended December 31,
1999).
2.5 -- Agreement and Plan of Merger by and among Datamedic Holding
Corp., Certain Principal Shareholders of Datamedic Holding
Corp., InfoCure Corporation and InfoCure Systems, Inc. dated
September 3, 1999 (incorporated herein by reference to
Appendix A to InfoCure's Registration Statement on Form S-4
(Registration No. 333-87867) filed on September 27, 1999).
2.6 -- Agreement and Plan of Distribution, dated as of February 21,
2001, by and between InfoCure Corporation and PracticeWorks,
Inc. (incorporated by reference to Exhibit 2.1 to InfoCure's
Current Report on Form 8-K, filed with the Commission on
March 20, 2001).
3.1 -- Certificate of Incorporation of PracticeWorks, Inc.
(incorporated by reference to Exhibit 3.1 to PracticeWorks
Registration Statement on Form 10, filed with the Commission
on August 22, 2000).
3.2(a) -- Certificate of Designations of Series A Preferred Stock of
PracticeWorks, Inc. issued to Ceramco, Inc. (incorporated by
reference to Exhibit 3.2(b) to PracticeWorks' Current Report
on Form 8-K, filed with the Commission on March 22, 2001).
3.2(c) -- Certificate of Designations of Series C Preferred Stock of
PracticeWorks, Inc. issued to Crescent International Ltd.
(incorporated by reference to Exhibit 3.2(c) to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
3.3 -- By-Laws of PracticeWorks, Inc. (incorporated by reference to
Exhibit 3.1 to PracticeWorks Registration Statement on Form
10, filed with the Commission on August 22, 2000).
3.4 -- Certificate of Incorporation of InfoCure Corporation with
all amendments (incorporated by reference to Exhibit 3.1 to
InfoCure's Annual Report on Form 10-K for the year ended
December 31, 1999).
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.5 -- Second Amended and Restated Bylaws of InfoCure (incorporated
by reference to Exhibit 3.2 to InfoCure's Annual Report on
Form 10-K for the year ended December 31, 1999).
4.1* -- Form of Certificate of Designation of PracticeWorks Series B
Convertible Redeemable Preferred Stock
4.2 -- Form of certificate representing PracticeWorks, Inc. common
stock (incorporated by reference to Exhibit 4.1 to Amendment
No. 1 to PracticeWorks' Registration Statement on Form 10,
filed with the Commission on December 21, 2000).
4.3(a) -- Warrant dated March 5, 2001 by and between PracticeWorks,
Inc. and FINOVA Capital Corporation. (incorporated by
reference to Exhibit 4.2(a) to PracticeWorks' Current Report
on Form 8-K, filed with the Commission on March 22, 2001).
4.3(b) -- Warrant dated March 5, 2001 by and between PracticeWorks,
Inc. and FINOVA Capital Corporation. (incorporated by
reference to Exhibit 4.2(b) to PracticeWorks' Current Report
on Form 8-K, filed with the Commission on March 22, 2001).
4.4 -- Warrant dated March 6, 2001 by and between PracticeWorks,
Inc. and Crescent International Ltd. (incorporated by
reference to Exhibit 3.2(a) to PracticeWorks' Current Report
on Form 8-K, filed with the Commission on March 22, 2001).
4.5 -- See Exhibits 3.4 and 3.5 for provisions of the Certificate
of Incorporation, as amended, and Bylaws of InfoCure
defining rights of the holders of common stock of InfoCure.
4.6 -- Specimen Certificate for shares of common stock
(incorporated by reference to Exhibit 4.2 to InfoCure's
Registration Statement on Form SB-2) (Registration No.
333-18923).
5.1* -- Opinion of Morris, Manning & Martin, L.L.P. regarding the
legality of the InfoCure securities being issued
5.2* -- Opinion of Morris, Manning & Martin, L.L.P. regarding the
legality of the PracticeWorks securities being issued.
8.1* -- Opinion of Morris, Manning & Martin, L.L.P. regarding the
federal income tax consequences of the merger
10.1 -- Tax Disaffiliation Agreement, dated as of March 5, 2001, by
and between InfoCure Corporation and PracticeWorks, Inc.
(incorporated by reference to Exhibit 10.1 to PracticeWorks'
Current Report on Form 8-K, filed with the Commission on
March 22, 2001).
10.2 -- Transition Services Agreement, dated as of March 5, 2001, by
and between InfoCure Corporation and PracticeWorks, Inc.
(incorporated by reference to Exhibit 10.2 to PracticeWorks'
Current Report on Form 8-K, filed with the Commission on
March 22, 2001).
10.3 -- Agreement and Plan of Distribution (filed as Exhibit 2.3).
10.4 -- Employee Benefits and Compensation Allocation Agreement,
dated as of March 5, 2001, by and between InfoCure
Corporation and PracticeWorks, Inc. (incorporated by
reference to Exhibit 10.4 to PracticeWorks Current Report on
Form 8-K, filed with the Commission on March 20, 2001).
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.5(a) -- Intellectual Property License Agreement, dated as of March
5, 2001, by and between InfoCure Corporation and
PracticeWorks Systems, LLC. (incorporated by reference to
Exhibit 10.5(a) to PracticeWorks' Current Report on Form
8-K, filed with the Commission on March 22, 2001).
10.5(b) -- Intellectual Property License Agreement, dated as of March
5, 2001, by and between InfoCure Corporation and
PracticeWorks Systems, LLC. (incorporated by reference to
Exhibit 10.5(b) to PracticeWorks' Current Report on Form
8-K, filed with the Commission on March 22, 2001).
10.5(c) -- Assignment of Copyrights, dated as of March 5, 2001, by and
between InfoCure Corporation and PracticeWorks Systems, LLC.
(incorporated by reference to Exhibit 10.5(c) to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
10.5(d) -- Assignment of Trademarks, dated as of March 5, 2001, by and
between InfoCure Corporation and PracticeWorks Systems, LLC.
(incorporated by reference to Exhibit 10.5(d) to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
10.6 -- Amended and Restated PracticeWorks, Inc. 2000 Stock Option
Plan (incorporated by reference to Exhibit 10.6 to Amendment
No. 1 to PracticeWorks' Registration Statement on Form 10,
filed with the Commission on December 21, 2000).
10.7(a) -- Indemnification Agreement, dated March 5, 2001, by and
between PracticeWorks, Inc. and Richard E. Perlman
(incorporated by reference to Exhibit 10.7(a) to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
10.7(b) -- Indemnification Agreement, dated March 5, 2001, by and
between PracticeWorks, Inc. and James K. Price (incorporated
by reference to Exhibit 10.7(b) to PracticeWorks' Current
Report on Form 8-K, filed with the Commission on March 22,
2001).
10.7(c) -- Indemnification Agreement, dated March 5, 2001, by and
between PracticeWorks, Inc. and James A. Cochran
(incorporated by reference to Exhibit 10.7(c) to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
10.7(d) -- Indemnification Agreement, dated March 5, 2001, by and
between PracticeWorks, Inc. and James C. Davis (incorporated
by reference to Exhibit 10.7(d) to PracticeWorks' Current
Report on Form 8-K, filed with the Commission on March 22,
2001).
10.8(a) -- Employment Agreement, dated March 5, 2001, by and between
PracticeWorks, Inc. and Richard E. Perlman (incorporated by
reference to Exhibit 10.8(a) to PracticeWorks' Current
Report on Form 8-K, filed with the Commission on March 22,
2001).
10.8(b) -- Employment Agreement, dated March 5, 2001, by and between
PracticeWorks, Inc. and James K. Price (incorporated by
reference to Exhibit 10.8(b) to PracticeWorks' Current
Report on Form 8-K, filed with the Commission on March 22,
2001).
10.8(c) -- Employment Agreement, dated March 5, 2001, by and between
PracticeWorks, Inc. and James A. Cochran (incorporated by
reference to Exhibit 10.8(c) to PracticeWorks' Current
Report on Form 8-K, filed with the Commission on March 22,
2001).
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.8(d) -- Employment Agreement, dated March 5, 2001, by and between
PracticeWorks, Inc. and James C. Davis (incorporated by
reference to Exhibit 10.8(d) to PracticeWorks' Current
Report on Form 8-K, filed with the Commission on March 22,
2001).
10.9+ -- Inventory Control System Development & Marketing Agreement
by and between Ormco Corporation and InfoCure Corporation,
dated as of June 23, 1999 (incorporated by reference to
Exhibit 10.9 to Amendment No. 1 to PracticeWorks'
Registration Statement on Form 10, filed with the Commission
on December 21, 2000).
10.10+ -- InfoCure Corporation E-Commerce Agreement by and between
United Stationers Supply Co. and InfoCure Corporation, dated
as of January 18, 2000 (incorporated by reference to Exhibit
10.10 to Amendment No. 1 to PracticeWorks' Registration
Statement on Form 10, filed with the Commission on December
21, 2000).
10.11+ -- E-Commerce Agreement by and between Summit Marketing Group,
Inc. and InfoCure Corporation, dated as of November 18,
1999. (incorporated by reference to Exhibit 10.11 to
Amendment No. 1 to PracticeWorks' Registration Statement on
Form 10, filed with the Commission on December 21, 2000).
10.12+ -- Purchase and Marketing Agreement by and between Dell
Marketing, L.P. and InfoCure Corporation, dated as of August
1, 2000 (incorporated by reference to Exhibit 10.12 to
Amendment No. 1 to PracticeWorks' Registration Statement on
Form 10, filed with the Commission on December 21, 2000).
10.13 -- Master Service Agreement by and between Global Center, Inc.
and PracticeWorks, Inc., dated as of September 13, 2000
(incorporated by reference to Exhibit 10.13 to
PracticeWorks' Registration Statement on Form 10, filed with
the Commission on November 13, 2000).
10.14 -- Contribution Agreement, dated as of December 27, 2000, by
and between InfoCure Corporation, PracticeWorks, Inc.,
DENTSPLY International, Inc., Ceramco, Inc. and SoftDent LLC
(incorporated by reference to Exhibit 10.14 to
PracticeWorks' Registration Statement on Form S-1, filed
with the Commission on January 16, 2001).
10.15 -- Registration Rights Agreement dated as of March 7, 2001
between PracticeWorks, Inc. and Ceramco, Inc. (incorporated
by reference to Exhibit 10.15 to PracticeWorks' Current
Report on Form 8-K, filed with the Commission on March 22,
2001).
10.16 -- Stock Purchase Agreement dated as of March 5, 2001, between
PracticeWorks, Inc. and Crescent International Ltd.
(incorporated by reference to Exhibit 10.16 to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
10.17 -- Registration Rights Agreement, dated as of March 5, 2001,
between PracticeWorks, Inc. and Crescent International Ltd.
(incorporated by reference to Exhibit 10.17 to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
10.18(a) -- Stock Purchase Agreement, dated as of March 6, 2001, between
PracticeWorks, Inc. and Crescent International Ltd.
(incorporated by reference to Exhibit 10.18(a) to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.18(b) -- Registration Rights Agreement dated as of March 6, 2001
between PracticeWorks, Inc. and Crescent International Ltd.
(incorporated by reference to Exhibit 10.18(b) to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
10.19 -- Amended and Restated Agreement and Plan of Merger and
Reorganization by and among Medical Dynamics, Inc., InfoCure
Corporation and CADI Acquisition Corporation, dated October
10, 2000 (incorporated by reference to Exhibit 10.19 to
PracticeWorks' Registration Statement on Form S-1, filed
with the Commission on January 16, 2001).
10.20 -- First Amendment to the Amended and Restated Agreement and
Plan of Merger and Reorganization by and among Medical
Dynamics, Inc., InfoCure Corporation and CADI Acquisition
Corporation, dated October 30, 2000 (incorporated by
reference to Exhibit 10.20 to PracticeWorks' Registration
Statement on Form S-1, filed with the Commission on January
16, 2001).
10.21 -- Second Amendment to the Amended and Restated Agreement and
Plan of Merger and Reorganization by and among Medical
Dynamics, Inc., InfoCure Corporation and CADI Acquisition
Corporation, dated December 19, 2000 (incorporated by
reference to Exhibit 10.21 to PracticeWorks' Registration
Statement on Form S-1, filed with the Commission on January
16, 2001).
10.22 -- Loan Agreement dated as of March 5, 2001, by and between
PracticeWorks, Inc., as borrower, and FINOVA Capital
Corporation, as lender. (incorporated by reference to
Exhibit 10.22 to PracticeWorks' Current Report on Form 8-K,
filed with the Commission on March 22, 2001).
10.23 -- Incentive Warrant issuable to Crescent International Ltd.
(incorporated by reference to Exhibit 10.23 to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
10.24 -- Protective Warrant issuable to Crescent International Ltd.
(incorporated by reference to Exhibit 10.24 to
PracticeWorks' Current Report on Form 8-K, filed with the
Commission on March 22, 2001).
10.25 -- Letter Agreement, dated as of March 5, 2001, amending
certain terms of the Amended and Restated Agreement and Plan
of Merger and Reorganization, by and among InfoCure
Corporation, CADI Acquisition Corporation and Medical
Dynamics, Inc. (incorporated by reference to Exhibit 10.25
to PracticeWorks' Annual Report on Form 10-K for the year
ended December 31, 2000).
10.26* -- Fourth Amendment to the Amended and Restated Agreement and
Plan of Merger and Reorganization by and among Medical
Dynamics, Inc., InfoCure Corporation and CADI Acquisition
Corporation, dated April 16, 2001.
10.27 -- Employment Agreement between InfoCure and Frederick L. Fine
dated July 1998 (incorporated by reference to Exhibit 10.1
filed with InfoCure's Annual Report on Form 10-KSB on
February 26, 1999).
10.28 -- Amendment to Employment Agreement, dated June 9, 1999
between InfoCure and Frederick L. Fine (incorporated by
reference to Exhibit 10.2 to InfoCure's Annual Report on
Form 10-K for the year ended December 31, 1999).
10.29 -- Employment Agreement between InfoCure and James K. Price
dated July 1998 (incorporated by reference to Exhibit 10.2
filed with InfoCure's Annual Report on Form 10-KSB on
February 26, 1999).
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.30 -- Amendment to Employment Agreement, dated June 9, 1999
between InfoCure and James K. Price (incorporated by
reference to Exhibit 10.4 to InfoCure's Annual Report on
Form 10-K for the year ended December 31, 1999).
10.31 -- Employment Agreement between InfoCure and Richard E. Perlman
dated January 1998 (incorporated by reference to Exhibit
10.3 filed with InfoCure's Annual Report on Form 10-KSB on
February 26, 1999).
10.32 -- Amendment to Employment Agreement, dated June 9, 1999
between InfoCure and Richard E. Perlman (incorporated by
reference to Exhibit 10.6 to InfoCure's Annual Report on
Form 10-K for the year ended December 31, 1999).
10.33 -- Employment Agreement between InfoCure and James A. Cochran
dated August 2, 1999 (incorporated by reference to Exhibit
10.7 to InfoCure's Annual Report on Form 10-K for the year
ended December 31, 1999).
10.34 -- Loan Agreement among InfoCure Corporation, InfoCure Systems,
Inc., Thoroughbred Acquisition, Inc. and FINOVA Capital
Corporation dated August 11, 1999 (incorporated by reference
to Exhibit 10.8 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1999).
10.35 -- InfoCure Corporation 1996 Stock Option Plan (incorporated by
reference to Exhibit 10.1 filed with InfoCure's Registration
Statement on Form SB-2) (Registration No. 333-18923).
10.36 -- Form of Incentive Stock Option Agreement of InfoCure
Corporation (incorporated by reference to Exhibit 10.2 filed
with InfoCure's Registration Statement on Form SB-2)
(Registration No. 333-18923).
10.37 -- American Medcare Corporation 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.19 filed with
InfoCure's Registration Statement on Form SB-2)
(Registration No. 333-18923).
10.38 -- Form of Incentive Stock Option Agreement of American Medcare
Corporation (incorporated by reference to Exhibit 10.20
filed with InfoCure's Registration Statement on Form SB-2)
(Registration No. 333-18923).
10.39 -- InfoCure Corporation 1997 Directors' Stock Option Plan
(incorporated by reference to Exhibit 10.48 filed with
InfoCure's Annual Report on Form 10-KSB on April 1, 1998).
10.40 -- InfoCure Corporation Length-of-Service Nonqualified Stock
Option Plan (incorporated by reference to Exhibit 10.49
filed with InfoCure's Annual Report on Form 10-KSB on April
1, 1998).
10.41 -- Amendment to InfoCure Corporation 1996 Stock Option Plan
(incorporated by reference to Exhibit 10.15 to InfoCure's
Annual Report on Form 10-K for the year ended December 31,
1999).
10.42 -- Amendment to InfoCure Corporation Length-of-Service
Nonqualified Stock Option Plan (incorporated by reference to
Exhibit 10.16 to InfoCure's Annual Report on Form 10-K for
the year ended December 31, 1999).
10.43 -- Amendment to InfoCure Corporation Employee Stock Purchase
Plan (incorporated by reference to Exhibit 10.17 to
InfoCure's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.44 -- InfoCure Corporation Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.50 filed with
InfoCure's Annual Report on Form 10-KSB on April 1, 1998).
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.45 -- Deferred Compensation Agreement between InfoCure and
Frederick L. Fine (incorporated by reference to Exhibit
10.19 to InfoCure's Annual Report on Form 10-K for the year
ended December 31, 1999).
10.46 -- Deferred Compensation Agreement between InfoCure and James
K. Price (incorporated by reference to Exhibit 10.20 to
InfoCure's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.47 -- Deferred Compensation Agreement between InfoCure and Richard
E. Perlman (incorporated by reference to Exhibit 10.21 to
InfoCure's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.48 -- Form of Stock Option Grant Certificate and schedule of
recipients of such options (incorporated by reference to
Exhibit 10.22 to InfoCure's Annual Report on Form 10-K for
the year ended December 31, 1999).
10.49 -- Form of Stock Option Grant Certificate and schedule of
recipients of such options (incorporated by reference to
Exhibit 10.23 to InfoCure's Annual Report on Form 10-K for
the year ended December 31, 1999).
10.50 -- Stock Option Grant Certificate for Stock Option Grant to
Michael Warren (incorporated by reference to Exhibit 10.24
to InfoCure's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.51 -- American Medcare Corporation 1994 Stock Option Plan
(incorporated by reference to Exhibit 10.25 to InfoCure's
Annual Report on Form 10-K for the year ended December 31,
1999).
10.52 -- Amendment Number One to Loan Agreement by and among InfoCure
Corporation, InfoCure Systems, Inc. and Thoroughbred
Acquisition, Inc. and FINOVA Capital Corporation
(incorporated by reference to Exhibit 10.1 to InfoCure's
Quarterly Report on Form 10-Q, for the quarter ended June
30, 2000).
10.53 -- Common Stock Purchase Agreement, dated August 1, 2000,
between InfoCure Corporation and Acqua Wellington North
American Equities Fund, Ltd. (incorporated by reference to
Exhibit 10.2 to InfoCure's Quarterly Report on Form 10-Q,
for the quarter ended June 30, 2000).
10.54 -- Form of Officer Promissory Note with schedule of makers and
principal amount of notes (incorporated by reference to
Exhibit 10.3 to InfoCure's Quarterly Report on Form 10-Q,
for the quarter ended June 30, 2000).
10.55 -- Tax Disaffiliation Agreement, dated as of March 5, 2001, by
and between InfoCure Corporation and PracticeWorks, Inc.
(incorporated by reference to Exhibit 10.1 to InfoCure's
Current Report on Form 8-K, filed with the Commission on
March 20, 2001).
10.56 -- Transition Services Agreement, dated as of March 5, 2001, by
and between InfoCure Corporation and PracticeWorks, Inc.
(incorporated by reference to Exhibit 10.2 to InfoCure's
Current Report on Form 8-K, filed with the Commission on
March 20, 2001).
10.57 -- Employee Benefits and Compensation Allocation Agreement,
dated as of March 5, 2001, by and between InfoCure
Corporation and PracticeWorks, Inc. (incorporated by
reference to Exhibit 10.4 to InfoCure's Current Report on
Form 8-K, filed with the Commission on March 20, 2001).
10.58 -- Intellectual Property License Agreement, dated as of March
5, 2001, by and between InfoCure Corporation and
PracticeWorks Systems, LLC (corporated by reference to
Exhibit 10.5(a) to InfoCure's Current Report on Form 8-K,
filed with the Commission on March 20, 2001).
II-9
349
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.59 -- Intellectual Property License Agreement, dated as of March
5, 2001, by and between InfoCure Corporation and
PracticeWorks Systems, LLC (incorporated by reference to
Exhibit 10.5(b) to InfoCure's Current Report on Form 8-K,
filed with the Commission on March 20, 2001).
10.60 -- Assignment of Copyrights, dated as of March 5, 2001, by and
between InfoCure Corporation and PracticeWorks Systems, LLC
(incorporated by reference to Exhibit 10.5(c) to InfoCure's
Current Report on Form 8-K, filed with the Commission on
March 20, 2001).
10.61 -- Assignment of Trademarks, dated as of March 5, 2001, by and
between InfoCure Corporation and PracticeWorks Systems, LLC
(incorporated by reference to Exhibit 10.5(d) to InfoCure's
Current Report on Form 8-K, filed with the Commission on
March 20, 2001).
10.62 -- Employment Agreement, dated July 24, 2000, by and between
InfoCure Corporation and Joseph M. Walsh (incorporated by
reference to Exhibit 10.6(a) to InfoCure's Current Report on
Form 8-K, filed with the Commission on March 20, 2001).
10.63 -- Employment Agreement, dated November 10, 2000, by and
between InfoCure Corporation and Frederick L. Fine.
(incorporated by reference to Exhibit 10.6(b) to InfoCure's
Current Report on Form 8-K, filed with the Commission on
March 20, 2001).
10.64 -- Employment Agreement, dated July 24, 2000, by and between
InfoCure Corporation and Steven N. Kahane (incorporated by
reference to Exhibit 10.6(c) to InfoCure's Current Report on
Form 8-K, filed with the Commission on March 20, 2001).
10.65 -- Employment Agreement, dated July 24, 2000, by and between
InfoCure Corporation and Michael A. Manto (incorporated by
reference to Exhibit 10.6(d) to InfoCure's Current Report on
Form 8-K, filed with the Commission on March 20, 2001).
10.66 -- Second Amendment to Loan Agreement and Other Loan Documents,
dated March 5, 2001, by and among InfoCure Corporation,
InfoCure Systems, Inc., Thoroughbred Acquisition, Inc.,
certain subsidiaries of InfoCure Corporation and FINOVA
Capital Corporation (incorporated by reference to Exhibit
10.7 to InfoCure's Current Report on Form 8-K, filed with
the Commission on March 20, 2001).
10.67 -- InfoCure Corporation 2000 Broad-Based Stock Plan
(incorporated by reference to Exhibit 10.1 to InfoCure's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000).
10.68 -- Amended and Restated Warrant, originally issued to FINOVA
Capital Corporation on October 23, 1998, as amended and
restated on March 5, 2001. (incorporated by reference to
Exhibit 10.42 to InfoCure's Annual Report on Form 10-K for
the year ended December 31, 2000).
10.69 -- Amended and Restated Warrant, originally issued to FINOVA
Capital Corporation on January 21, 1999, as amended and
restated on March 5, 2001. (incorporated by reference to
Exhibit 10.43 to InfoCure's Annual Report on Form 10-K for
the year ended December 31, 2000).
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350
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.70 -- Amended and Restated Warrant, originally issued to Crescent
International Ltd. on September 28, 1998, as amended and
restated on March 6, 2001. (incorporated by reference to
Exhibit 10.44 to InfoCure's Annual Report on Form 10-K for
the year ended December 31, 2000).
10.71** -- Letter Agreement, dated May 30, 2001, and relating to
Amended and Restated Agreement and Plan of Merger and
Reorganization, by and among Medical Dynamics, Inc.,
InfoCure Corporation and CADI Acquisition Corporation.
10.72 -- Separation Agreement, dated June 6, 2001, by and between
InfoCure Corporation and Frederick L. Fine (incorporated by
reference to Exhibit 10.1 to InfoCure's Current Report on
Form 8-K filed with the Commission on June 6, 2001).
12.1** -- Calculation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
21.1 -- List of Subsidiaries. (incorporated by reference to Exhibit
21.1 to PracticeWorks' Current Report on Form 8-K, filed
with the Commission on March 22, 2001).
21.2 -- List of Subsidiaries (incorporated by reference to Exhibit
10.25 to InfoCure's Current Report on Form 8-K, filed with
the Commission on March 20, 2001).
23.1** -- Consent of BDO Seidman, LLP
23.2** -- Consent of Hein + Associates LLP
23.3 -- Consent of Morris, Manning & Martin, L.L.P. (included in
Exhibit 5.1)
23.4 -- Consent of Morris, Manning & Martin, L.L.P. (included in
Exhibit 5.2)
23.5 -- Consent of Morris, Manning & Martin, L.L.P. (included in
Exhibit 8.1)
24.1* -- InfoCure Powers of Attorney (included on signature page)
24.2* -- PracticeWorks Powers of Attorney (included on signature
page)
99.1** -- Form of Proxy for Medical Dynamics, Inc. stockholders.
- ---------------
*Previously filed
** Filed herewith
+ PracticeWorks applied for confidential treatment of portions of these
exhibits. Accordingly, portions thereof have been omitted and were filed
separately with the Securities and Exchange Commission on November 13, 2000.
(b) Financial Statement Schedules
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors
PracticeWorks
(A Division of InfoCure Corporation)
The audits referred to in our report of PracticeWorks (a Division of
InfoCure Corporation), dated February 9, 2001 (except for Note 14, which is as
of March 7, 2001) which is contained in the Prospectus constituting a part of
this Registration Statement, included an audit of the schedule listed under Item
14(a)(2). This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such schedule presents fairly, in all material respects,
the information set forth therein.
BDO Seidman, LLP
Atlanta, Georgia
February 9, 2001
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SCHEDULE II
PRACTICEWORKS (A DIVISION OF INFOCURE CORPORATION)
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
Allowance for Doubtful Accounts
Year ended December 31,
2000...................... 1,113 611 -- (621)(A) 1,103
Year ended December 31,
1999...................... 339 998 -- (224)(A) 1,113
Year ended December 31,
1998...................... 92 504 -- (257)(A) 339
Deferred Tax Asset Valuation
Allowance
Year ended December 31,
2000...................... -- 7,362(B) -- -- 7,362
Year ended December 31,
1999...................... -- -- -- -- --
Year ended December 31,
1998...................... 285 -- -- (285) --
- ---------------
(A) Uncollected receivables written off.
(B) Net operating loss carryforwards to remain with InfoCure Corporation as a
result of the Distribution.
All financial statement schedules not listed are omitted because they are
inapplicable or the requested information is shown in the financial statements
of the Registrant or in the related notes to the financial statements.
ITEM 22. UNDERTAKINGS
(a) (1) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act, and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(2) The undersigned registrants hereby undertake as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c)
promulgated pursuant to the Securities Act, the issuers undertake that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
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(3) The registrants undertake that every prospectus (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 promulgated
pursuant to the Securities Act, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(4) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933 (as amended and the
rules and regulations thereunder, the "Securities Act"), each filing of the
registrants' annual reports pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (as amended and the rules and regulations
thereunder, the "Exchange Act") (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth
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in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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355
INFOCURE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 3 to the Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Ridgefield, Connecticut on the 18th day of June, 2001.
InfoCure Corporation
By: /s/ JOSEPH M. WALSH
-----------------------------------
Joseph M. Walsh
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on June 18, 2001.
SIGNATURE TITLE
--------- -----
/s/ JOSEPH M. WALSH Chairman, Chief Executive Officer,
- ----------------------------------------------------- President and Director
Joseph M. Walsh
* Vice Chairman, Chief Strategy
- ----------------------------------------------------- Officer and Director
Stephen N. Kahane
/s/ MICHAEL A. MANTO Executive Vice President and
- ----------------------------------------------------- Director
Michael A. Manto
* Chief Financial Officer (Principal
- ----------------------------------------------------- Financial and Accounting Officer)
James A. Cochran
* Director
- -----------------------------------------------------
Steven J. DeNelsky
* Director
- -----------------------------------------------------
Kenneth R. Adams
* Pursuant to Power of Attorney
/s/ MICHAEL A. MANTO
- -----------------------------------------------------
Michael A. Manto
Attorney-in-Fact
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PRACTICEWORKS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the Registration Statement on Form S-4
to be signed on its behalf by the undersigned, thereunto, duly authorized, in
the City of Atlanta, State of Georgia, on June 18th, 2001.
PracticeWorks, Inc.
By: /s/ JAMES K. PRICE
--------------------------------------
James K. Price
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on June 18th, 2001.
SIGNATURE CAPACITY
--------- --------
/s/ JAMES K. PRICE President, Chief Executive Officer
- ----------------------------------------------------- and Director (Principal Executive
James K. Price Officer)
* Chairman and Director
- -----------------------------------------------------
Richard E. Perlman
* Executive Vice President and Chief
- ----------------------------------------------------- Financial Officer (Principal
James A. Cochran Financial Officer and Principal
Accounting Officer)
* Executive Vice President and
- ----------------------------------------------------- Director
James C. Davis
* Director
- -----------------------------------------------------
Raymond H. Welsh
* Director
- -----------------------------------------------------
William A. Shutzer
* Director
- -----------------------------------------------------
William R. Jellison
* Pursuant to Power of Attorney
By: /s/ JAMES K. PRICE
-------------------------------------------------
James K. Price
Attorney-in-Fact
II-17