AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 2003
REGISTRATION STATEMENT NO. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
PROXYMED, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 7374 65-0202059
------- ---- ----------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
2555 DAVIE ROAD, SUITE 110
FORT LAUDERDALE, FLORIDA 33317
(954) 473-1001
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
MICHAEL K. HOOVER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2555 DAVIE ROAD, SUITE 110
FORT LAUDERDALE, FLORIDA 33317
(954) 473-1001
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
DAVID SHOBE, ESQ.
RODNEY H. BELL, ESQ. RAFAEL RODRIGUEZ, ESQ. OLGA PINA, ESQ.
HOLLAND & KNIGHT LLP PROXYMED, INC. FOWLER WHITE BOGGS BANKER P.A.
701 BRICKELL AVENUE, SUITE 3000 2555 DAVIE ROAD, SUITE 110 501 KENNEDY BLVD., SUITE 1700
MIAMI, FLORIDA 33131 FORT LAUDERDALE, FLORIDA 33317 TAMPA, FLORIDA 33602
PHONE: (305) 789-7639 PHONE: (954) 473-1001 PHONE: (813) 222-1123
FAX: (305) 789-7799 FAX: (954) 473-2341 FAX: (813) 228-9401
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective time of the merger described herein.
If the 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, please 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 Maximum Maximum
Amount to be Offering Price Aggregate Amount of
Title of Each Class of Securities Registered per Share Offering Price Registration
to be Registered (1) (2) (2) Fee
--------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share......... 3,600,000 N/A $98,329,637 $7,954.87
--------------------------------------------------------------------------------------------------------------------
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(1) Represents the estimated maximum number of shares of the common stock
of the Registrant that may be issued to the holders of shares of common stock
and series C preferred stock of PlanVista pursuant to an Agreement and Plan of
Merger, dated as of December 5, 2003.
(2) Estimated solely for purposes of calculating the registration fee.
Pursuant to paragraphs (c) and (f)(1) of Rule 457 under the Securities Act, the
registration fee has been calculated based on the product of (i) $1.875, the
average of the high and low sale prices of PlanVista Corporation common stock on
the over-the-counter bulletin board on December 4, 2003, and (ii) 52,442,483,
representing the maximum number of shares of PlanVista Corporation common stock
outstanding on December 4, 2003 (including 25,215,048 shares of PlanVista common
stock issuable upon conversion of outstanding shares of preferred stock,
5,426,869 shares issuable upon the exercise of options outstanding, and
4,985,085 shares of PlanVista common stock issuable upon exercise of warrants or
conversion of notes outstanding) which are to be cancelled (or are subject to
warrants assumed) in connection with the merger.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
[ProxyMed LOGO]
[PlanVista LOGO]
February __, 2004
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
Dear ProxyMed and PlanVista Shareholders:
On behalf of the boards of directors of ProxyMed, Inc. (referred to as
ProxyMed) and PlanVista Corporation (referred to as PlanVista), we are pleased
to deliver our joint proxy statement/prospectus for the proposed merger
involving ProxyMed and PlanVista. ProxyMed and PlanVista are seeking the
approval of both ProxyMed and PlanVista shareholders with respect to this
transaction.
Upon completion of the merger, PlanVista common stockholders will be
entitled to receive, for each share of PlanVista common stock then held by them
(other than shares with respect to which a PlanVista stockholder has exercised
appraisal rights), a fraction of one fully paid and nonassessable share of
ProxyMed common stock, the numerator of which is (1) 1,826,829 (subject to the
conversion of any shares of PlanVista series C preferred stock) and the
denominator of which is (2) the total number of issued and outstanding shares of
PlanVista common stock immediately prior to the effective time of the merger.
Upon completion of the merger, holders of PlanVista's series C preferred stock
will be entitled to receive, for each share of PlanVista series C preferred
stock then held by them (other than shares of series C preferred stock with
respect to which a PlanVista series C preferred stockholder has exercised
appraisal rights), a fraction of one fully paid and nonassessable share of
ProxyMed common stock, the numerator of which is (1) 1,773,171 (subject to the
conversion of any shares of PlanVista series C preferred stock) and the
denominator of which is (2) the total number of issued and outstanding shares of
PlanVista series C preferred stock immediately prior to the effective time of
the merger. We refer to the fractions in the two preceding sentences as the
"exchange ratios." The total number of shares of ProxyMed common stock issuable
as merger consideration is subject to a downward adjustment in the event certain
fees, expenses and other obligations of PlanVista arising as a result of the
merger exceed a specified amount. PVC Funding Partners, LLC, the holder of 96%
of the outstanding PlanVista series C preferred stock, has agreed not to convert
its series C preferred stock into common stock prior to the consummation of the
merger. If any of the holders of the remaining PlanVista series C preferred
stock convert their shares of PlanVista series C preferred stock into PlanVista
common stock prior to closing, the number of ProxyMed shares allocated to the
PlanVista common stockholders will be increased by the number of ProxyMed shares
which the converting PlanVista series C preferred stockholders will receive upon
consummation of the merger as a result of such conversion and the number of
ProxyMed shares allocated to the remaining holders of the PlanVista series C
preferred stock will be decreased by a like number. In the event that the amount
owed by PlanVista to Commonwealth Associates Group Holdings, LLC pursuant to the
advisory agreement exceeds a fixed amount, Commonwealth has agreed to accept
payment for any excess fees in shares of PlanVista common stock to be issued by
PlanVista prior to the closing of the merger. Such shares of PlanVista common
stock will be valued at the price per share that the holders of PlanVista common
stock will be realizing as a result of the issuance of ProxyMed common stock in
the merger.
The shares of ProxyMed common stock issued to PlanVista stockholders in
connection with the merger are expected to represent approximately 30% of the
outstanding shares of ProxyMed common stock immediately following the
consummation of the merger, based on the number of shares of ProxyMed and
PlanVista common stock outstanding on December 5, 2003, and as adjusted for the
number of shares to be issued by ProxyMed in a private equity offering that will
be consummated at the same time as the merger. ProxyMed common stock is traded
on the Nasdaq National Market under the trading symbol "PILL." On December 5,
2003, the closing sale price of ProxyMed common stock was $16.01 as reported on
the Nasdaq National Market.
For ProxyMed and PlanVista to complete the merger, ProxyMed
shareholders must vote (i) to approve the issuance of shares of ProxyMed common
stock in connection with the merger; (ii) to approve the issuance of shares of
ProxyMed common stock in connection with the ProxyMed private equity offering,
the proceeds of which are being used by ProxyMed in connection with the merger;
and (iii) to approve the amendment to ProxyMed's articles of incorporation to
increase the total number of authorized shares of ProxyMed common stock from
13,333,333 1/3 shares to 30 million shares; and PlanVista stockholders
must vote to adopt the merger agreement. Each of ProxyMed and PlanVista will
hold a special meeting of shareholders to obtain these and other approvals.
The boards of directors of ProxyMed and PlanVista strongly recommend
the merger and believe that the combination of the two companies is advisable
and in the best interest of their respective stockholders based upon the months
of analysis, investigation and deliberation conducted by both ProxyMed and
PlanVista.
AFTER CAREFUL CONSIDERATION, THE PROXYMED BOARD OF DIRECTORS RECOMMENDS
THAT PROXYMED SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE ISSUANCE OF
SHARES OF PROXYMED COMMON STOCK IN CONNECTION WITH THE MERGER; "FOR" THE
PROPOSAL TO APPROVE THE ISSUANCE OF SHARES OF PROXYMED COMMON STOCK IN
CONNECTION WITH THE PROXYMED PRIVATE EQUITY OFFERING; AND "FOR" THE PROPOSAL TO
AMEND PROXYMED'S ARTICLES OF INCORPORATION TO INCREASE THE TOTAL NUMBER OF
AUTHORIZED SHARES OF PROXYMED COMMON STOCK FROM 13,333,333 1/3 SHARES TO 30
MILLION SHARES. IN ADDITION, THE PROXYMED BOARD OF DIRECTORS RECOMMENDS THAT THE
PROXYMED SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO AMEND THE PROXYMED 2002 STOCK
OPTION PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER SUCH
PLAN FROM 600,000 TO 1,350,000.
AFTER CAREFUL CONSIDERATION, THE PLANVISTA BOARD OF DIRECTORS
RECOMMENDS THAT PLANVISTA STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO ADOPT THE
MERGER AGREEMENT THAT HAS BEEN ENTERED INTO BETWEEN THE PARTIES.
The ProxyMed special meeting of shareholders will be held on March __,
2004 at 10:00 a.m. local time at ProxyMed's offices at 2555 Davie Road, Suite
110, Fort Lauderdale, Florida 33317. The PlanVista special meeting of
stockholders will be held on March __, 2004 at 10:00 a.m. local time at
PlanVista's offices located at 4010 Boy Scout Boulevard, Suite 200, Tampa,
Florida 33607. All shareholders are cordially invited to attend.
We encourage you to read this joint proxy statement/prospectus for
important information about the merger and the special meetings of ProxyMed and
PlanVista. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE
SECTION OF THIS JOINT PROXY STATEMENT/PROSPECTUS ENTITLED "RISK FACTORS"
BEGINNING ON PAGE 22.
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU
OWN. Whether or not you plan to attend the special meetings of shareholders of
ProxyMed and PlanVista, please take the time to vote by completing and mailing
the enclosed proxy card or voting instruction card and returning it in the
pre-addressed envelope provided as soon as possible.
Sincerely, Sincerely,
Michael K. Hoover Phillip S. Dingle
Chairman and CEO of ProxyMed, Inc. Chairman and CEO of PlanVista Corporation
PLEASE VOTE YOUR PROXY TODAY
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED THAT THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED FEBRUARY __, 2004, AND IS FIRST
BEING MAILED TO THE SHAREHOLDERS OF PROXYMED AND PLANVISTA ON OR ABOUT FEBRUARY
__, 2004.
[ProxyMed LOGO]
PROXYMED, INC.
2555 DAVIE ROAD, SUITE 110
FORT LAUDERDALE, FLORIDA 33317
(954) 473-1001
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH __, 2004
To the shareholders of ProxyMed:
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of
ProxyMed, Inc., a Florida corporation, will be held on March __, 2004 at 10:00
a.m., local time, at ProxyMed's offices at 2555 Davie Road, Suite 110, Fort
Lauderdale, Florida 33317, for the following purposes:
(1) To consider and vote upon a proposal to approve the issuance
of shares of ProxyMed common stock to PlanVista stockholders pursuant to the
Agreement and Plan of Merger, dated as of December 5, 2003, by and among
ProxyMed, Planet Acquisition Corp., a wholly-owned subsidiary of ProxyMed, and
PlanVista;
(2) To consider and vote upon a proposal to approve the issuance
of shares of ProxyMed common stock in connection with the private equity
offering being completed by ProxyMed in connection with the merger;
(3) To consider and vote upon a proposal to approve and adopt an
amendment to ProxyMed's articles of incorporation to increase the total number
of authorized shares of ProxyMed common stock from 13,333,333 1/3 shares to 30
million shares; and
(4) To consider and vote upon a proposal to amend the ProxyMed
2002 Stock Option Plan to increase the total number of shares available for
issuance under such plan from 600,000 to 1,350,000.
The board of directors of ProxyMed is not aware of any other business
that will be considered at the meeting.
These proposals are more fully described in the attached joint proxy
statement/prospectus. Please give your careful attention to all of the
information in the joint proxy statement/prospectus.
The board of directors of ProxyMed has fixed the close of business on
__, 2004 as the record date for determining which ProxyMed shareholders of
record are entitled to receive notice of, and to vote at, the ProxyMed special
meeting and any adjournment or postponement thereof. Only holders of record of
shares of ProxyMed common stock and ProxyMed series C preferred stock on the
record date, or their proxies can vote at this special meeting or any
adjournment(s) or postponement(s) that may take place. You should be prepared to
present photo identification for admittance. In addition, if you are a record
holder, your name will be verified against the list of record holders on the
record date prior to being admitted to the meeting. If you are not a record
holder but hold shares through a broker or nominee (i.e., in "street name"), you
should provide proof of beneficial ownership on the record date, such as your
most recent account statement prior to __, 2004, or other similar evidence of
ownership. If you do not provide photo identification or comply with the other
procedures outlined above upon request, you may not be admitted to the special
meeting. The special meeting will begin promptly at 10:00 a.m., local time.
Check-in will begin at 9:00 a.m., local time, and you should allow ample time
for the check-in procedures.
The amendment to ProxyMed's articles of incorporation to increase the
number of authorized shares of ProxyMed common stock will require the
affirmative vote of holders of at least a majority of the outstanding shares of
ProxyMed common stock entitled to vote at the ProxyMed special meeting,
including the shares of ProxyMed series C preferred stock entitled to vote as a
class with the holders of ProxyMed common stock. The issuances of the shares of
ProxyMed common stock in connection with the ProxyMed private equity offering
and the merger and the amendment to the ProxyMed 2002 Stock Option Plan to
increase the number of shares available for issuance under such plan will each
require the affirmative vote of a majority of the total shares cast at the
ProxyMed special meeting, including the shares of ProxyMed series C preferred
stock entitled to vote as a class with the holders of ProxyMed common stock.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the special
meeting in person, we request that you complete, sign, date and return the
enclosed proxy or voting instruction card as soon as possible. For specific
instructions on how to vote your shares, please refer to the section of this
joint proxy statement/prospectus entitled "The Special Meeting of ProxyMed
Shareholders" beginning on page 46 and the instructions on the enclosed proxy
card or voting instruction card. If you are a stockholder of record and you send
in your proxy and then decide to attend the special meeting to vote your shares
in person, you may still do so. If you need any assistance in the voting of your
proxy, please contact Judson E. Schmid at (800)997-7699 (call toll-free) or
(954)473-1001 (call collect).
By order of the board of directors,
Michael K. Hoover
Chairman and Chief Executive Officer
of ProxyMed, Inc.
_______, 2004
Fort Lauderdale, Florida
[PlanVista LOGO]
PLANVISTA CORPORATION
4010 BOY SCOUT BOULEVARD, SUITE 200
TAMPA, FLORIDA 33607
(813) 353-2300
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH __, 2004
To the stockholders of PlanVista:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of
PlanVista Corporation, a Delaware corporation, will be held on March __, 2004 at
10:00 a.m., local time, at PlanVista's offices located at 4010 Boy Scout
Boulevard, Suite 200, Tampa, Florida 33607, for the following purpose:
1. To consider and vote upon a proposal to adopt the Agreement
and Plan of Merger, dated as of December 5, 2003, among PlanVista, ProxyMed and
Planet Acquisition Corp.
The board of directors of PlanVista is not aware of any other business
that will be considered at the meeting.
These proposals are described more fully in the attached joint proxy
statement/prospectus. Please give your careful attention to all of the
information in the joint proxy statement/prospectus.
The board of directors of PlanVista has fixed the close of business on
__, 2004 as the record date for determining which PlanVista stockholders of
record are entitled to receive notice of, and to vote at, the PlanVista special
meeting and any adjournment or postponement thereof. Only stockholders of record
of PlanVista common stock and PlanVista series C preferred stock on the record
date, or their proxies can vote at this special meeting or any adjournment(s) or
postponement(s) that may take place. You should be prepared to present photo
identification for admittance. In addition, if you are a record holder or hold
your shares through PlanVista's Employee Stock Purchase Plan, your name will be
verified against the list of record holders or plan participants on the record
date prior to being admitted to the meeting. If you are not a record holder but
hold shares through a broker or nominee (i.e., in "street name"), you should
provide proof of beneficial ownership on the record date, such as your most
recent account statement prior to ________, 2004, or other similar evidence of
ownership. If you do not provide photo identification or comply with the other
procedures outlined above upon request, you will not be admitted to the special
meeting. The special meeting will begin promptly at 10:00 a.m., local time.
Check-in will begin at 9:00 a.m., local time, and you should allow ample time
for the check-in procedures.
Adoption of the merger agreement requires the affirmative vote of a
majority of the votes entitled to be cast by the holders of the shares of
PlanVista's common stock and PlanVista series C preferred stock outstanding on
the record date. Additionally, it is a condition to PlanVista's obligation to
consummate the merger that the holders of a majority of the outstanding shares
of PlanVista common stock voting at the PlanVista stockholders meeting and not
taking into account any votes cast by holders of the series C preferred stock,
by Commonwealth Associates, L.P., or any affiliates or officers or directors
thereof, or any director or executive officer of PlanVista, vote to adopt the
merger agreement.
PlanVista stockholders have the right to dissent from the merger and
obtain payment in cash for the fair value of their shares of PlanVista common
stock or PlanVista series C preferred stock under applicable provisions of
Delaware law. In order to perfect and exercise appraisal rights, PlanVista
stockholders must give written demand for appraisal of their shares to PlanVista
before the taking of the vote on the merger at the special meeting and must not
vote in favor of the merger. A copy of the applicable Delaware statutory
provisions is included as Annex D of the attached joint proxy
statement/prospectus, and a summary of these provisions can be found under the
section entitled "The Merger--Appraisal Rights" beginning on page 90 of the
attached joint proxy statement/prospectus.
YOUR VOTE IS IMPORTANT. Whether or not you expect to attend the special
meeting in person, you are urged to complete, sign, date and return the enclosed
proxy card or voting instruction card as soon as possible. Instructions for
voting your shares are included on the enclosed proxy or voting instruction
card. For specific instructions on how to vote your shares, please refer to the
section of this joint proxy statement/prospectus entitled "The Special Meeting
of PlanVista Stockholders" beginning on page 53. If you are a stockholder of
record and you send in your proxy and then decide to attend the special meeting
to vote your shares in person, you may still do so. If you need any assistance
in the voting of your proxy, please contact Bennett Marks at (813)353-2300
(call collect).
By order of the board of directors,
Phillip S. Dingle
Chairman and CEO of PlanVista
Corporation
________, 2004
Tampa, Florida
TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER............................................................................v
SUMMARY...........................................................................................................1
The Companies...............................................................................................1
The Merger..................................................................................................2
Reasons for the Merger......................................................................................3
Risk factors................................................................................................4
Recommendations of the ProxyMed board of directors..........................................................4
Recommendations of the PlanVista board of directors.........................................................4
Special meeting of ProxyMed shareholders....................................................................5
Special meeting of PlanVista stockholders...................................................................5
Voting agreements...........................................................................................5
Opinion of ProxyMed's financial advisor.....................................................................6
Opinion of PlanVista's financial advisor....................................................................6
Interests of certain persons in the merger..................................................................6
Conditions to the Completion of the Merger..................................................................9
Termination of the Merger Agreement........................................................................10
Expenses and Termination Fees..............................................................................11
No Solicitation of Transactions............................................................................11
Accounting Treatment of the Merger.........................................................................12
Directors and Executive Officers of ProxyMed Following the Merger..........................................12
Appraisal Rights...........................................................................................12
Comparison of Shareholder Rights...........................................................................12
Market Price Information...................................................................................13
Listing of ProxyMed common stock and deregistration of PlanVista common stock..............................13
Restrictions on the ability to sell ProxyMed common stock..................................................13
Material Federal Income Tax Considerations.................................................................13
ProxyMed and PlanVista Comparative Historical and Pro Forma Pre Share Data.................................14
Summary Selected Historical Financial Data.................................................................15
Selected Historical Financial Information of ProxyMed......................................................15
Selected Historical Financial Information of PlanVista.....................................................16
Summary Selected Unaudited Pro Forma Condensed Combined Consolidated Financial Data........................18
Comparative Per Share Market Price and Dividend Information................................................20
RISK FACTORS.....................................................................................................22
Risks Related to the Merger................................................................................22
Industry and Business Risks Related to ProxyMed and Its Business...........................................29
Industry and Business Risks Related to PlanVista and its Business..........................................35
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.......................................................45
THE SPECIAL MEETING OF PROXYMED SHAREHOLDERS.....................................................................46
THE SPECIAL MEETING OF PLANVISTA STOCKHOLDERS....................................................................53
THE MERGER.......................................................................................................56
General....................................................................................................56
Background of Merger.......................................................................................57
Description of existing contracts and other arrangements between ProxyMed and PlanVista....................59
ProxyMed's reasons for the merger..........................................................................60
PlanVista Reasons for the Merger...........................................................................64
Recommendation of PlanVista Board of Directors.............................................................67
Opinion of ProxyMed's Financial Advisor....................................................................68
Opinion of PlanVista's financial advisor...................................................................75
Interests of certain persons in the merger.................................................................82
Completion and Effectiveness of the Merger.................................................................86
Management and Operations Following the Merger.............................................................86
Treatment of PlanVista Common Stock........................................................................86
Exchange of PlanVista Stock Certificates for ProxyMed Stock Certificates...................................87
Accounting Treatment.......................................................................................87
i
Governmental and regulatory matters........................................................................87
Material Federal Income Tax Considerations.................................................................88
Appraisal rights...........................................................................................90
Listing of ProxyMed common stock to be issued in the merger................................................93
Cessation of trading and deregistration of PlanVista common stock..........................................93
Restriction on resales of ProxyMed common stock by affiliates..............................................93
Operations Following the Merger............................................................................94
Certificate of Incorporation and Bylaws of PlanVista.......................................................94
THE MERGER AGREEMENT.............................................................................................95
The Merger.................................................................................................95
The Effective Time.........................................................................................95
Directors and Officers of PlanVista After the Merger.......................................................95
Conversion of Shares of PlanVista Stock in the Merger......................................................95
PlanVista's Stock Options..................................................................................96
The Exchange and Paying Agent..............................................................................96
Procedures for Exchanging Stock Certificates...............................................................96
Distributions with Respect to Unexchanged Shares...........................................................96
No Fractional Shares.......................................................................................97
Shares Subject to Properly Exercised Appraisal Rights......................................................97
Representations and Warranties.............................................................................97
PlanVista's Representations and Warranties.................................................................97
Representations and Warranties of ProxyMed and Planet Acquisition Corp.....................................99
Conduct of Each Company's Business Before the Closing of the Merger.......................................100
No Other Negotiations.....................................................................................103
Board Recommendations.....................................................................................105
Employee Benefit Plans....................................................................................105
Director and Officer Indemnification......................................................................105
Board of Directors of ProxyMed Following the Merger.......................................................106
ProxyMed Private Equity Offering..........................................................................106
Conditions to Closing the Merger..........................................................................106
Termination of the Merger Agreement.......................................................................108
Termination Fees..........................................................................................110
Amendment, Extension and Waiver of the Merger Agreement...................................................111
VOTING AGREEMENTS...............................................................................................112
PVC Funding Partners Voting Agreement.....................................................................112
General Atlantic Partners Voting Agreement................................................................113
EMPLOYMENT ARRANGEMENTS.........................................................................................115
DIRECTORS AND MANAGEMENT OF PROXYMED FOLLOWING THE MERGER.......................................................117
DESCRIPTION OF PROXYMED.........................................................................................121
General...................................................................................................121
Overview of ProxyMed. Where Healthcare Connects(TM).......................................................123
Current Products and Services.............................................................................126
Product and Services Development..........................................................................126
Marketing.................................................................................................126
Competition...............................................................................................127
Healthcare and Privacy Related Legislation................................................................127
Intellectual Property.....................................................................................129
Employees.................................................................................................129
Available Information.....................................................................................129
Properties................................................................................................129
Legal Proceedings.........................................................................................130
PROXYMED SELECTED HISTORICAL FINANCIAL DATA.....................................................................131
PROXYMED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...........................................................................................133
General...................................................................................................133
Results of Operations.....................................................................................133
ii
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002.....................133
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001.....................................137
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000.....................................140
Liquidity and Capital Resources...........................................................................142
Critical Accounting Policies and Estimates................................................................144
New Accounting Pronouncements.............................................................................145
Quantitative And Qualitative Disclosures About Market Risk................................................146
PROXYMED MANAGEMENT.............................................................................................147
Compensation Committee Interlocks and Insider Participation...............................................147
Compensation of ProxyMed Directors........................................................................147
Executive Compensation....................................................................................148
Employment and Deferred Compensation Agreements...........................................................151
Certain Relationships and Related Transactions of ProxyMed................................................152
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PROXYMED......................................154
DESCRIPTION OF PROXYMED CAPITAL STOCK...........................................................................157
Common Stock..............................................................................................157
Preferred Stock...........................................................................................157
Series C Preferred Stock..................................................................................157
Certain Provisions of Florida Law.........................................................................157
Transfer Agent and Registrar..............................................................................157
DESCRIPTION OF PLANVISTA........................................................................................158
General...................................................................................................158
Business Strategy.........................................................................................158
Recent Developments.......................................................................................159
PlanVista's Services......................................................................................160
Intellectual Property and Technology......................................................................163
Competition...............................................................................................164
PlanVista's History.......................................................................................165
Government Regulation.....................................................................................168
Employees.................................................................................................170
Available Information.....................................................................................170
Properties................................................................................................170
Legal Proceedings.........................................................................................170
PLANVISTA SELECTED HISTORICAL FINANCIAL DATA....................................................................172
PLANVISTA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................174
Results Of Operations.....................................................................................174
Nine Months Ended September 30, 2003 compared to Nine Months Ended September 30, 2002.....................175
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001.....................................176
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000.....................................178
Liquidity and Capital Resources...........................................................................179
PlanVista Recent Accounting Pronouncements................................................................182
PlanVista Quantitative and Qualitative Disclosures About Market Risk......................................183
PLANVISTA MANAGEMENT............................................................................................184
Compensation Committee Interlocks and Insider Participation...............................................184
Executive Compensation....................................................................................184
Employment Agreements with Executive Officers.............................................................187
Certain Relationships and Related Transactions............................................................189
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PLANVISTA.....................................192
COMPARISON OF SHAREHOLDER RIGHTS................................................................................197
Voting Rights.............................................................................................197
iii
Shareholders' Votes on Certain Transactions...............................................................198
Action by Written Consent.................................................................................199
Dividends.................................................................................................199
Provisions Relating to Share Acquisitions and Certain Business Combinations...............................200
Special Meetings of Shareholders..........................................................................201
Dissenters' Rights........................................................................................201
Preemptive Rights.........................................................................................202
Number and Vacancy of Directors...........................................................................203
Indemnification of Officers and Directors.................................................................203
Removal of Directors......................................................................................204
PROXYMED MARKET PRICE AND DIVIDEND INFORMATION..................................................................205
PLANVISTA MARKET PRICE AND DIVIDEND INFORMATION.................................................................206
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF PROXYMED AND PLANVISTA.....................................207
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS.....................................................211
LEGAL MATTERS...................................................................................................215
EXPERTS.........................................................................................................215
WHERE YOU CAN FIND MORE INFORMATION.............................................................................215
OTHER MATTERS...................................................................................................216
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.....................................................................FS-1
INFORMATION NOT REQUIRED IN PROSPECTUS; UNDERTAKINGS...........................................................II-1
ANNEX A - AGREEMENT AND PLAN OF MERGER..................................................................... A-1
ANNEX B - FAIRNESS OPINION OF WILLIAM BLAIR & COMPANY, L.L.C............................................... B-1
ANNEX C - FAIRNESS OPINION OF PETER J. SOLOMON COMPANY, L.P................................................ C-1
ANNEX D - SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW.............................................. D-1
ANNEX E - GENERAL ATLANTIC PARTNERS VOTING AGREEMENT....................................................... E-1
ANNEX F - PVC FUNDING PARTNERS VOTING AGREEMENT............................................................ F-1
ANNEX G - ARTICLES OF AMENDMENT TO RESTATED ARTICLES OF INCORPORATION OF PROXYMED, INC..................... G-1
iv
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to address briefly
some commonly asked questions regarding the ProxyMed and PlanVista special
meetings, and in particular, the merger. These questions and answers may not
address all questions that may be important to you as a ProxyMed or PlanVista
shareholder. Please refer to the more detailed information contained elsewhere
in this joint proxy statement/prospectus and the annexes attached to this joint
proxy statement/prospectus.
Q: WHY AM I RECEIVING THIS JOINT PROXY STATEMENT/PROSPECTUS?
A: ProxyMed and PlanVista have agreed to merge pursuant to the terms of a
merger agreement that is described in this joint proxy
statement/prospectus. A copy of the merger agreement is attached as
Annex A. For specific information regarding the merger agreement,
please refer to the section entitled "The Merger Agreement" beginning
on page 95 of this joint proxy statement/prospectus.
To complete the merger, ProxyMed shareholders must approve the issuance
of shares of ProxyMed common stock in connection with the merger, the
issuance of shares of ProxyMed common stock in connection with the
ProxyMed private equity offering, and the amendment to ProxyMed's
articles of incorporation to increase the number of shares of common
stock that ProxyMed is authorized to issue from 13,333,333 1/3 shares
to 30 million shares, and PlanVista stockholders must adopt the merger
agreement, and all other conditions of the merger must be satisfied or
waived.
In addition, ProxyMed shareholders are being asked to approve an
amendment to the ProxyMed 2002 Stock Option Plan to increase the total
number of shares of common stock available for issuance under such plan
from 600,000 to 1,350,000. The vote by the ProxyMed shareholders on
this proposal is not contingent upon the approval by the ProxyMed
shareholders of the merger and will have no impact on whether the
merger is approved by the ProxyMed shareholders.
ProxyMed and PlanVista will hold separate special meetings of their
respective shareholders to obtain these approvals. This joint proxy
statement/prospectus contains important information about the merger
and the ProxyMed and PlanVista special shareholder meetings, and you
should read it carefully. The enclosed voting materials allow you to
vote your shares without attending your special meeting.
Your vote is important and you are encouraged to vote as soon as
possible. For more specific information on how to vote, please see the
questions and answers for ProxyMed and PlanVista shareholders below.
GENERAL QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE MERGER?
A: In the merger, a wholly-owned subsidiary of ProxyMed, named Planet
Acquisition Corp., will be merged with and into PlanVista. PlanVista
will survive the merger as a wholly-owned subsidiary of ProxyMed and
will not change its name. The time of filing of a certificate of merger
in the office of the Secretary of State of the State of Delaware is
referred to in this joint proxy statement/prospectus as the effective
time of the merger.
For a more complete description of the merger, see the section entitled
"The Merger" on page 56.
Q: WHY ARE PROXYMED AND PLANVISTA PROPOSING THE MERGER?
A: The boards of directors and managements of ProxyMed and PlanVista
believe that the merger is in the best interests respectively of
ProxyMed, PlanVista and their respective shareholders, customers and
partners. Both companies believe that the merger will position the
combined company as a leading electronic healthcare transaction
processing services company with the ability to provide an innovative
and comprehensive medical cost containment service and business
process outsourcing platforms principally for insurance payers. After
reviewing
v
numerous strategic alternatives to address the opportunities and
challenges facing ProxyMed and PlanVista, the boards of directors of
both ProxyMed and PlanVista reached the same conclusion - this merger
represents the single best strategic alternative for ProxyMed's and
PlanVista's respective business and is the strategy most likely to
deliver increased value to ProxyMed's and PlanVista's respective
shareholders. ProxyMed and PlanVista believe that potential benefits to
the merger include:
- combined technological resources that may allow the combined
company to develop new services and greater functionality for
existing services primarily for its payer customers;
- greater marketing resources and financial strength that may
present improved opportunities for marketing the service
offerings of the combined company;
- new sales opportunities that may result from combining the
customer bases of ProxyMed and PlanVista; and
- potential synergistic cost savings in the operations of
running only one public company.
For a more complete description of the factors considered by the board
of directors of ProxyMed underlying the recommendation of the ProxyMed
board, please refer to the section of this joint proxy
statement/prospectus entitled "The Merger--ProxyMed's Reasons for the
Merger" beginning on page 60, and for a more complete description of
the factors considered by the board of directors of PlanVista
underlying the recommendation of the PlanVista board, please refer to
the section of this joint proxy statement/prospectus entitled "The
Merger--PlanVista's Reasons for the Merger" beginning on page 64.
Q: ARE ANY SHAREHOLDERS ALREADY COMMITTED TO VOTING IN FAVOR OF THE
MERGER?
A. Yes. Stockholders of PlanVista who collectively own approximately 96%
of the series C preferred stock entitled to vote at the PlanVista
special stockholders meeting have agreed to vote their shares of stock
in favor of the proposal to adopt the merger agreement. These shares
represent approximately 55.6% of the total shares entitled to vote in
favor of the proposal to adopt the merger agreement. However, it is a
condition to PlanVista's obligation to consummate the merger that the
holders of a majority of the outstanding shares of PlanVista common
stock voting at the PlanVista stockholders meeting and not taking into
account any votes cast by holders of the series C preferred stock,
including the holders of the shares already committed to vote in favor
of the adoption of the merger agreement by Commonwealth Associates,
L.P., or by any affiliates or officers or directors thereof, or by any
director or executive officer of PlanVista, vote to adopt the merger
agreement.
Shareholders of ProxyMed who collectively own approximately 23.1% of
the outstanding shares of ProxyMed common stock outstanding on December
4, 2003 have agreed to vote their shares of ProxyMed common stock in
favor of the proposals to issue shares of ProxyMed common stock
pursuant to the merger agreement, to issue shares of ProxyMed common
stock in connection with the ProxyMed private equity offering being
conducted in connection with the merger, and to amend the articles of
incorporation of ProxyMed to increase the number of authorized shares
of common stock from 13,333,333 1/3 shares to 30 million shares.
For a more complete description of voting arrangements please refer to
the sections of this joint proxy statement/prospectus entitled "Voting
agreements--General Atlantic Partners Voting Agreement" beginning on
page 113 and "Voting Agreements--PVC Funding Partners Voting
Agreement" beginning on page 112. The full text of the General Atlantic
Partners Voting Agreement is set forth in Annex E and the full text of
the PVC Funding Partners Voting Agreement is set forth in Annex F.
Q: MAY I VOTE IN PERSON?
A: Yes. If you are a shareholder of record, you may attend your company's
special meeting of shareholders and vote your shares in person rather
than signing and returning your proxy card. If your shares are held in
a brokerage account or if your shares are held by a bank or nominee
(i.e., in "street name"), you must obtain a proxy from your broker or
bank in order to attend your company's special meeting of shareholders
and vote.
vi
Q: WHAT WILL THE STOCKHOLDERS OF PLANVISTA RECEIVE IN THE MERGER?
A: Upon completion of the merger, each share of PlanVista common stock
then outstanding (other than shares with respect to which a PlanVista
stockholder has exercised appraisal rights) will be canceled and
automatically converted into the right to receive a fraction of one
fully paid and nonassessable share of ProxyMed common stock, the
numerator of which is (1) 1,826,829 (subject to the conversion of any
shares of PlanVista series C preferred stock) and the denominator of
which is (2) the total number of issued and outstanding shares of
PlanVista common stock immediately prior to the effective time of the
merger. Upon completion of the merger, holders of PlanVista's series C
preferred stock will be entitled to receive, for each share of
PlanVista series C preferred stock then held by them (other than shares
of series C preferred stock with respect to which a PlanVista series C
preferred stockholder has exercised appraisal rights), a fraction of
one fully paid and nonassessable share of ProxyMed common stock, the
numerator of which is (1) 1,773,171 (subject to the conversion of any
shares of PlanVista series C preferred stock) and the denominator of
which is (2) the total number of issued and outstanding shares of
PlanVista series C preferred stock immediately prior to the effective
time of the merger. The total number of shares of ProxyMed common stock
issuable as merger consideration is subject to a downward adjustment in
the event certain fees, expenses and other obligations of PlanVista
arising as a result of the merger exceed a specified amount. PVC
Funding Partners, LLC, the holder of 96% of the outstanding PlanVista
series C preferred stock, has agreed not to convert its series C
preferred stock into PlanVista common stock prior to the consummation
of the merger. If any of the remaining PlanVista series C preferred
stock are converted into PlanVista common stock prior to the closing of
the merger, the number of ProxyMed shares allocated to the PlanVista
common stockholders will be increased by the number of ProxyMed shares
that the converting PlanVista series C preferred stockholders will
receive upon consummation of the merger as a result of such conversion
and the number of ProxyMed shares allocated to the remaining holders of
the PlanVista series C preferred stock will be decreased by a like
number. In the event that the amount owed by PlanVista to Commonwealth
Associates Group Holdings, LLC pursuant to the advisory agreement
causes certain fees, expenses and obligations of PlanVista in
connection with the merger to exceed a specified amount, Commonwealth
Associates Group Holdings, LLC has agreed to accept payment for such
excess amount in shares of PlanVista common stock to be issued by
PlanVista prior to the closing of the merger. Such shares of PlanVista
common stock will be valued at the price per share that the holders of
PlanVista common stock will be receiving as a result of the issuance of
ProxyMed common stock in the merger.
Based on the market price of ProxyMed's common stock on December 5,
2003, PlanVista's common stockholders would receive approximately $1.39
per share of their PlanVista common stock in the merger and the
PlanVista series C preferred stockholders would receive approximately
$1.09 for each share of PlanVista common stock into which their shares
of series C preferred stock are convertible. This assumes that PVC
Funding Partners, LLC and Centra Benefit Services, Inc. debt is
converted into PlanVista common stock prior to the merger.
PlanVista stockholders will receive cash for any fractional shares they
would otherwise receive in the merger. The amount of cash for
fractional shares will be calculated by multiplying the fractional
share interest to which each such stockholder would be entitled by the
average closing sale price of one share of ProxyMed common stock for
the ten (10) most recent trading days that ProxyMed common stock has
traded ending on the trading day one day prior to the closing date of
the merger, as reported on the Nasdaq National Market.
Following the completion of the merger and the private equity offering,
current ProxyMed shareholders will own approximately 77% of ProxyMed
and former PlanVista stockholders will own approximately 23% of
ProxyMed, in each case on a fully diluted basis as of _____, 2004.
Q: WILL A PORTION OF THE SHARES ISSUED IN THE MERGER BE PLACED IN ESCROW?
A: No.
Q: WHAT HAPPENS IF I DO NOT RETURN A PROXY OR VOTING INSTRUCTION CARD OR
OTHERWISE VOTE?
vii
A: Both companies urge you to vote at your company's special meeting.
ProxyMed Shareholders. If you abstain from voting or do not vote
(either in person or by proxy), it will have the same effect as a vote
against the proposal to amend ProxyMed's articles of incorporation to
increase the number of shares of common stock ProxyMed is authorized to
issue. If you abstain from voting or do not vote, it will have no
effect (assuming a quorum is present and that the total votes cast is
more than 50% of all ProxyMed common stock entitled to vote at the
ProxyMed special meeting, including the shares of ProxyMed series C
preferred stock entitled to vote as a class with the holders of
ProxyMed common stock) in determining whether the amendment to the
ProxyMed 2002 Stock Option Plan, the issuance of shares of ProxyMed
common stock in connection with the merger or the issuance of shares of
ProxyMed common stock in connection with the ProxyMed private equity
offering will be approved. Brokers who hold shares of ProxyMed common
stock in street name for customers who are the beneficial owners of
those shares may not give a proxy to vote those shares without specific
instructions from their customers. These non-voted shares are referred
to as broker non-votes and will have no effect (assuming a quorum is
present) in determining whether the issuance of shares of ProxyMed
common stock in connection with the merger, the issuance of shares of
ProxyMed common stock in connection with the ProxyMed private equity
offering, or the amendment to the ProxyMed 2002 Stock Option Plan will
be approved. Such broker non-votes will have the same effect as a vote
against the proposal to amend the ProxyMed articles of incorporation to
increase the number of authorized shares of ProxyMed common stock. All
shares of ProxyMed common stock and ProxyMed series C preferred stock
represented at the ProxyMed special meeting, but not voting, including
abstentions and broker non-votes, will be treated as present for
determining the presence or absence of a quorum for all matters for
consideration at the ProxyMed special meeting. If proxies are returned
without indication as to how to vote, the ProxyMed common stock and
ProxyMed series C preferred stock represented by each such proxy will
be considered to be voted in favor of all matters for consideration at
the ProxyMed special meeting.
PlanVista Stockholders. If you abstain from voting or do not vote
(either in person or by proxy) it will have the same effect as a vote
against the proposal to adopt the merger agreement. All shares of
PlanVista common stock and PlanVista series C preferred stock
represented at the PlanVista special meeting, but not voting, including
abstentions and broker non-votes, will be treated as present for
purposes of determining the presence or absence of a quorum for all
matters for consideration at the PlanVista special meeting.
For a more complete description of the voting procedures, please refer
to the sections of this joint proxy statement/prospectus entitled "The
Special Meeting of ProxyMed Shareholders" beginning on page 46 and "The
Special Meeting of PlanVista Stockholders" beginning on page 53.
Q: WHEN WILL I BE ABLE TO SELL MY SHARES?
A: Upon completion of the merger, all shares of ProxyMed common stock
received by PlanVista stockholders in connection with the merger will
be tradable on the Nasdaq National Market. If a shareholder is
considered an affiliate of PlanVista or ProxyMed under the Securities
Act of 1933, as amended, in order to sell shares of ProxyMed common
stock, that shareholder must comply with the resale provisions of Rule
145(d) under the Securities Act of 1933 or sell the shares as otherwise
permitted under the Securities Act of 1933. For a more complete
description of these restrictions, see the section entitled
"The Merger--Restrictions on Resales of ProxyMed Common Stock by
Affiliates" on page 93.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: ProxyMed and PlanVista are working toward completing the merger as soon
as practicable after the ProxyMed and PlanVista shareholders approve
the proposals to be considered at their respective special meetings.
The merger is subject to a number of conditions, however, including but
not limited to obtaining shareholder approvals and regulatory
approvals, and all closing conditions set forth in the merger agreement
must be satisfied or waived. We hope to complete the merger by March
31, 2004.
Q: WILL I RECOGNIZE A GAIN OR LOSS ON THE TRANSACTION?
viii
A: ProxyMed and PlanVista expect that if the merger is completed, you will
not recognize gain or loss for federal income tax purposes. You are
urged to consult your own tax advisor to determine your particular tax
consequences.
For a more complete description of the tax consequences of the merger,
see the section entitled "The Merger - Material Federal Income Tax
Considerations" on page 88.
Q. WHAT SHOULD I DO IF I RECEIVE MORE THAN ONE SET OF VOTING MATERIALS?
A. Please complete, sign, date and return each proxy card or voting
instruction card that you receive. You may receive more than one set of
voting materials, including multiple copies of this joint proxy
statement/prospectus and multiple proxy cards or voting instruction
cards. For example, if you hold shares in more than one brokerage
account, you will receive a separate voting instruction card for each
brokerage account in which you hold shares. If your shares are held in
more than one name, you will receive more than one proxy or voting
instruction card. In addition, if you are a shareholder of both
ProxyMed and PlanVista, you may receive one or more separate proxy or
voting instruction cards for each company. If you are in this
situation, please return proxy or instruction cards for both companies.
Therefore, please sign, date and return each proxy or voting
instruction card you receive, whether from ProxyMed or PlanVista.
Q: MAY I CHANGE MY VOTE?
A: Yes. You may change your vote at any time before your proxy card is
voted at your company's special meeting. You can do this in one of
three ways. First, you can send a written, dated notice stating that
you would like to revoke your proxy. Second, you can complete, date and
submit a new proxy voting instruction card or later-dated voting
instruction card. If you choose either of these two methods, you must
submit your notice of revocation or your new proxy card or later-dated
voting instruction card for ProxyMed shares to its corporate office as
indicated on the special meeting notice and for PlanVista shares to its
corporate office as indicated on the special meeting notice for
delivery by ______, 2004. Third, you can attend your company's special
meeting and vote your shares in person. Your attendance alone will not
revoke your proxy. If you have instructed a broker to vote your shares,
you must follow the directions received from your broker to change
those instructions.
Q: WHOM SHOULD I CONTACT WITH QUESTIONS?
A: If you have more questions about the merger, you should contact:
ProxyMed, Inc. PlanVista Corporation
2555 Davie Road, Suite 110 4010 Boy Scout Boulevard,
Fort Lauderdale, Florida 33317 Suite 200
Attn: Judson E. Schmid Tampa, Florida 33607
Phone: (954) 473-1001 Attn: Bennett Marks
Phone: (813) 353-2300
You may also obtain additional information about ProxyMed and PlanVista
from documents filed with the Securities and Exchange Commission by
following the instructions in the section entitled "Where You Can Find
More Information" on page 215.
QUESTIONS AND ANSWERS FOR PROXYMED SHAREHOLDERS
Q: WHEN AND WHERE IS THE PROXYMED SPECIAL MEETING?
A: The ProxyMed special meeting will take place at ProxyMed's offices at
2555 Davie Road, Suite 110, Fort Lauderdale, Florida 33317, on March
__, 2004 at 10:00 a.m., local time.
ix
Q: HOW CAN I OBTAIN ADMISSION TO THE PROXYMED SPECIAL MEETING?
A: You are entitled to attend the special meeting only if you were a
ProxyMed shareholder as of the close of business on _________, 2004 or
hold a valid proxy for the special meeting. You should be prepared to
present photo identification for admittance. In addition, if you are a
record holder, your name is subject to verification against the list of
record holders on the record date prior to being admitted to the
meeting. If you are not a record holder but hold shares through a
broker or nominee (i.e., in street name), you should be prepared to
provide proof of beneficial ownership on the record date, such as your
most recent account statement prior to ____________, 2004, or similar
evidence of ownership. If you do not provide photo identification or
comply with the other procedures outlined above upon request, you will
not be admitted to the special meeting.
Q: WHAT MATTERS ARE PROXYMED SHAREHOLDERS BEING ASKED TO APPROVE AT THE
PROXYMED SPECIAL MEETING?
A: ProxyMed shareholders are being asked to vote "FOR", at the ProxyMed
special meeting: (1) approval of the proposal to issue shares of
ProxyMed common stock pursuant to the merger agreement with PlanVista;
(2) approval of the proposal to issue shares of ProxyMed common stock
in connection with the ProxyMed private equity offering; (3) approval
of the proposal to amend ProxyMed's articles of incorporation to
increase the total number of authorized shares of ProxyMed common stock
from 13,333,333 1/3 shares to 30 million shares; and (4) approval of
the proposal to amend the ProxyMed 2002 Stock Option Plan to increase
the number of shares available for issuance under such plan from
600,000 to 1,350,000.
No other business will be considered at the ProxyMed special meeting.
Q. WHAT IS THE PROXYMED PRIVATE EQUITY OFFERING?
A: On December 5, 2003, pursuant to a stock purchase agreement, ProxyMed
agreed to sell an aggregate of 1,691,229 shares of its common stock at
a price of $14.25 per share to General Atlantic Partners 77, L.P., GAP
Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG., PVC
Funding Partners, LLC, Comvest Venture Partners, L.P., Shea Ventures,
LLC, and Robert Priddy. Upon closing of the transaction, ProxyMed will
receive net proceeds of approximately $24,100,000 in the private equity
offering, which it intends to use in connection with the merger. Upon
closing of the transaction, the purchasers will collectively acquire in
the private equity offering approximately 14% of the outstanding shares
of ProxyMed's common stock. ProxyMed granted the purchasers and certain
of their transferees and affiliates certain demand and "piggy back"
registration rights, pursuant to an amended and restated registration
rights agreement. Each of the purchasers agrees not to, directly or
indirectly, sell or otherwise dispose of any of the shares it receives
in connection with the private equity offering and certain other shares
owned by it or its affiliates prior to the first anniversary of the
closing date, except to their respective affiliates, in an amount
during any three month period that does not exceed the volume
limitations set forth in Rule 144(e) of the Securities Act of 1933, in
connection with a sale of ProxyMed, or in a transaction approved in
advance by ProxyMed's board of directors. We refer to this transaction
as the ProxyMed private equity offering. You may also obtain additional
information regarding the ProxyMed private equity offering in the
section entitled "The Special Meeting of the ProxyMed Shareholders"
beginning on page 46.
In connection with and subject to the closing, ProxyMed has agreed to
contribute a portion of the proceeds from the ProxyMed private equity
offering to PlanVista as an additional capital contribution in order to
enable PlanVista to pay off in full PlanVista's debt to its lenders for
whom Wachovia Bank acts as agent, in an aggregate amount of not more
than $18,000,000. ProxyMed has agreed to cause the letter of credit
currently issued by Wachovia for the benefit of CG Insurance Services,
Inc. to be (a) replaced with a letter of credit on another bank, (b)
replaced with other satisfactory collateral, or (c) paid in full.
Q: HOW DOES THE PROXYMED BOARD OF DIRECTORS RECOMMEND THAT I VOTE?
x
A: ProxyMed's board of directors recommends that ProxyMed shareholders
vote "FOR" the proposal to approve the issuance of ProxyMed common
stock to the PlanVista stockholders pursuant to the merger agreement;
"FOR" the proposal to approve the issuance of shares of ProxyMed common
stock in connection with the ProxyMed private equity offering; "FOR"
the proposal to amend ProxyMed's articles of incorporation to increase
the total number of authorized shares of ProxyMed common stock from
13,333,333 1/3 shares to 30 million shares; and "FOR" the proposal to
amend the ProxyMed 2002 Stock Option Plan to increase the number of
shares available for issuance under such plan from 600,000 to
1,350,000. For a description of the reasons underlying the
recommendations of the ProxyMed board of directors, please refer to the
section of this joint proxy statement/prospectus entitled "The
Merger--ProxyMed's Reasons for the Merger" beginning on page 60.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER?
A: Yes. Set forth under the heading "Risk Factors" beginning on page 22 of
this joint proxy statement/prospectus are a number of risk factors that
you should consider carefully before voting.
Q: WHAT VOTE OF PROXYMED SHAREHOLDERS IS REQUIRED TO APPROVE THE ISSUANCE
OF SHARES OF PROXYMED COMMON STOCK PURSUANT TO THE MERGER AGREEMENT AND
THE ISSUANCE OF SHARES OF PROXYMED COMMON STOCK IN CONNECTION WITH THE
PROXYMED PRIVATE EQUITY OFFERING, THE AMENDMENT TO PROXYMED'S ARTICLES
OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
PROXYMED COMMON STOCK, AND THE AMENDMENT TO THE PROXYMED 2002 STOCK
OPTION PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE
UNDER SUCH PLAN?
A: Approval of the proposals to issue shares of ProxyMed common stock
pursuant to the merger agreement, to issue shares of ProxyMed common
stock in connection with the ProxyMed private equity offering, and to
amend the ProxyMed 2002 Stock Option Plan to increase the number of
shares available for issuance under such plan requires the presence, in
person or by proxy, of the holders of a majority of the shares
outstanding as of ___________, 2004, and the affirmative vote of a
majority of the total votes cast at the special meeting so long as a
quorum is present. Approval of the proposal to amend ProxyMed's
articles of incorporation to increase the total number of authorized
shares of ProxyMed common stock from 13,333,333 1/3 shares to 30
million shares requires the affirmative vote of holders of at least a
majority of the outstanding shares of ProxyMed common stock entitled to
vote at the ProxyMed special meeting, including the shares of ProxyMed
series C preferred stock entitled to vote as a class with the holders
of ProxyMed common stock on an as converted basis. For a more complete
description of voting, please refer to the section of this joint proxy
statement/prospectus entitled "The Special Meeting of ProxyMed
Shareholders" beginning on page 46.
Q: WILL THERE BE ANY OTHER BUSINESS CONDUCTED?
A: The only items of business to be considered at the special meeting are
the proposals to authorize the issuance of shares of ProxyMed common
stock in connection with PlanVista merger and the issuance of shares of
ProxyMed common stock in connection with the ProxyMed private equity
offering, the proposal to amend ProxyMed's articles of incorporation to
increase the total number of authorized shares of ProxyMed common stock
from 13,333,333 1/3 shares to 30 million shares, and the proposal to
amend the ProxyMed 2002 Stock Option Plan to increase the number of
shares available for issuance under such plan from 600,000 to
1,350,000.
Q: HOW DO SHAREHOLDERS VOTE?
A: If you are a ProxyMed shareholder of record, you may submit a proxy for
ProxyMed's special meeting by: completing, signing, dating and
returning the proxy card in the pre-addressed envelope provided; using
the telephone; or using the Internet. For specific instructions on how
to use the telephone or the Internet to submit a proxy for the special
meeting, please refer to the instructions on your proxy card.
xi
If you hold your shares of ProxyMed common stock or ProxyMed series C
preferred stock in a brokerage account or if your shares are held in
"street name", you must provide the shareholder of record of your
shares with instructions on how to vote your shares. Please check the
voting instruction card included by your broker or nominee for
directions on providing instructions to vote your shares and to see if
you may use the telephone or the Internet to provide instructions on
how to vote your shares.
If you are a shareholder of record, you may also vote at ProxyMed's
special meeting. If you hold shares in street name, you may not vote in
person at the special meeting unless you obtain a signed proxy from the
record holder giving you the right to vote the shares.
Q: WHAT HAPPENS IF I DO NOT INDICATE HOW TO VOTE ON MY PROXY OR VOTING
INSTRUCTION CARD?
A: If you sign and send in your proxy or voting instruction card and do
not indicate how you want to vote, your proxy will be counted as a vote
"FOR" the issuance of shares of ProxyMed common stock in connection
with the merger, a vote "FOR" the issuance of shares of ProxyMed common
stock in connection with the ProxyMed private equity offering, a vote
"FOR" the amendment to ProxyMed's articles of incorporation to increase
the number of authorized shares of ProxyMed common stock, and a vote
"FOR" the amendment to the ProxyMed 2002 Stock Option Plan to increase
the number of shares available for issuance under such plan.
QUESTIONS AND ANSWERS FOR PLANVISTA STOCKHOLDERS
Q: WHEN AND WHERE IS THE PLANVISTA SPECIAL MEETING?
A: The PlanVista special meeting will take place at PlanVista's offices
located at 4010 Boy Scout Boulevard, Suite 200, Tampa, Florida 33607,
on March __, 2004 at 10:00 a.m., local time.
Q: HOW CAN I OBTAIN ADMISSION TO THE PLANVISTA SPECIAL MEETING?
A: You are entitled to attend the special meeting only if you were a
PlanVista stockholder as of the close of business on ___________, 2004
or hold a valid proxy for the special meeting. You should be prepared
to present photo identification for admittance. In addition, if you are
a record holder, your name is subject to verification against the list
of record holders on the record date prior to being admitted to the
meeting. If you are not a record holder but hold shares through a
broker or nominee (i.e., in street name), you should be prepared to
provide proof of beneficial ownership on the record date, such as your
most recent account statement prior to ____________, 2004, or similar
evidence of ownership. If you do not provide photo identification and
comply with the other procedures outlined above upon request, you will
not be admitted to the special meeting.
The special meeting will begin promptly at 10:00 a.m. local time.
Check-in will begin at 9:00 a.m. local time, and you should allow ample
time for check-in procedures.
Q: WHAT ARE THE PLANVISTA STOCKHOLDERS BEING ASKED TO APPROVE?
A: The PlanVista stockholders are being asked to adopt the merger
agreement.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER?
A: Yes. Set forth under the heading "Risk Factors" beginning on page 22 of
this joint proxy statement/prospectus are a number of risk factors that
you should consider carefully before voting.
Q: HOW DO STOCKHOLDERS VOTE?
A: If you are a PlanVista stockholder of record, you may submit a proxy
for PlanVista's special meeting by: completing, signing, dating and
returning the proxy card in the pre-addressed envelope provided; using
the
xii
telephone; or using the Internet. For specific instructions on how to
use the telephone or the Internet to submit a proxy for the special
meeting, please refer to the instructions on your proxy card.
If you hold your shares of PlanVista common stock or PlanVista series C
preferred stock in a brokerage account or if your shares are held in
"street name," you must provide the stockholder of record of your
shares with instructions on how to vote your shares. Please check the
voting instruction card included by your broker or nominee for
directions on providing instructions to vote your shares and to see if
you may use the telephone or the Internet to provide instructions on
how to vote your shares.
If you are a stockholder of record, you may also vote at PlanVista's
special meeting. If you hold shares in street name, you may not vote in
person at the special meeting unless you obtain a signed proxy from the
record holder giving you the right to vote the shares.
Q: WHAT WILL HAPPEN TO PLANVISTA'S OUTSTANDING STOCK OPTIONS UNDER ITS
EQUITY COMPENSATION PLANS?
A: Options to purchase shares of PlanVista common stock will be canceled.
At the effective time of the merger, the compensation committee of the
board of directors of ProxyMed will grant to certain of the officers
and employees of PlanVista identified by PlanVista's compensation
committee options under ProxyMed's stock option plans to purchase an
aggregate of 200,000 shares of ProxyMed common stock in individual
amounts as determined by PlanVista's compensation committee and
approved by ProxyMed's compensation committee. Those options will have
an exercise price equal to the lower of the last reported sale price of
ProxyMed's common stock on the Nasdaq National Market on the date of
the merger or $17.74 per share. All of those options will generally
vest over a three-year period commencing on the grant date, such that
two-thirds of each option will vest on the first anniversary of the
grant date, and the remaining one-third of each option will vest on the
third anniversary of the grant date.
Q: HOW DOES THE BOARD OF DIRECTORS OF PLANVISTA RECOMMEND THAT I VOTE?
A: After careful consideration, the PlanVista board of directors has
unanimously (with the exception of Michael Falk, who abstained from
voting) determined that the merger with ProxyMed is advisable, fair to
and in the best interests of PlanVista and its stockholders and has
approved the merger agreement and the merger. Accordingly, the
PlanVista board of directors has declared the advisability of the
merger and the merger agreement and recommends that PlanVista
stockholders vote "FOR" the proposal to adopt the merger agreement. For
a description of the reasons underlying the recommendation of the
PlanVista board of directors with respect to the merger, please refer
to the section of this joint proxy statement/prospectus entitled "The
Merger--PlanVista's Reasons for the Merger" beginning on page 64.
Q: WHAT VOTE OF PLANVISTA STOCKHOLDERS IS REQUIRED TO ADOPT THE MERGER
AGREEMENT?
A: Under Delaware law, the adoption of the merger agreement requires the
affirmative vote of a majority of the votes entitled to be cast by the
holders of the shares of PlanVista common stock and PlanVista series C
preferred stock outstanding on ____________, 2004. Additionally, it is
a condition to PlanVista's obligation to consummate the merger that the
holders of a majority of the outstanding shares of PlanVista common
stock voting at the PlanVista stockholders meeting and not taking into
account any votes cast by holders of the series C preferred stock, by
Commonwealth Associates, L.P., or any affiliates or officers or
directors thereof, or any director or executive officer of PlanVista,
vote to adopt the merger agreement.
Q: HOW WILL VOTING ON ANY OTHER BUSINESS BE CONDUCTED?
A: No other business will be conducted at the special meeting.
Q: WHAT HAPPENS IF I DO NOT INDICATE HOW TO VOTE ON MY PROXY CARD?
A: If you sign and send in your proxy card and do not indicate how you
want to vote, your proxy will be counted as a vote "FOR" adoption of
the merger agreement.
xiii
Q: SHOULD PLANVISTA STOCKHOLDERS SEND IN THEIR PLANVISTA STOCK
CERTIFICATES NOW?
A: No. You should not send in your stock certificate with your proxy.
Following the merger, a letter of transmittal will be sent to PlanVista
stockholders informing them where to deliver their PlanVista stock
certificates in order to receive stock certificates representing
ProxyMed common stock. You should not send in your PlanVista stock
certificates prior to receiving this letter of transmittal.
Q: ARE PLANVISTA STOCKHOLDERS ENTITLED TO APPRAISAL RIGHTS?
A: Yes. Under Delaware law PlanVista stockholders may exercise appraisal
rights in connection with the merger. The provisions of Delaware law
governing appraisal rights are complex, and you should study them
carefully if you wish to exercise appraisal rights. A stockholder may
take actions that prevent that stockholder from successfully asserting
these rights, and multiple steps must be taken to properly exercise and
perfect the rights. A copy of Section 262 of the General Corporation
Law of the State of Delaware, is attached to this joint proxy
statement/prospectus as Annex D.
For a more complete description of the appraisal rights, please refer
to the section of this joint proxy statement/prospectus entitled "The
Merger--Appraisal Rights" beginning on page 90.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO PLANVISTA
STOCKHOLDERS?
A: ProxyMed and PlanVista each expect the merger to qualify as a
reorganization for United States federal income tax purposes. If the
merger qualifies as a reorganization for United States federal income
tax purposes, PlanVista stockholders will recognize gain or loss on the
receipt of cash in lieu of a fractional share or the receipt of cash as
a result of the exercise of appraisal rights.
We urge you to consult your own tax advisor for a full understanding of
the tax consequences of the merger to you.
For a more detailed description of the tax consequences of the merger,
please refer to the section of this joint proxy statement/prospectus
entitled "The Merger--Material Federal Income Tax Considerations"
beginning on page 88.
Q: WILL PLANVISTA STOCKHOLDERS BE ABLE TO TRADE THE PROXYMED COMMON STOCK
RECEIVED IN CONNECTION WITH THE MERGER?
A: The shares of ProxyMed common stock issued in connection with the
proposed merger will be freely tradable, unless you are an "affiliate"
of PlanVista (as defined in the Securities Act of 1933), and will be
listed on the Nasdaq National Market under the symbol "PILL." If you
are an affiliate of PlanVista, you will be required to comply with
applicable restrictions of Rule 145 of the Securities Act of 1933 in
order to resell shares of ProxyMed common stock you receive in the
merger.
Q: WHAT DO I NEED TO DO NOW?
A: PlanVista stockholders should mail their completed and signed proxy
card in the enclosed postage-paid envelope addressed to PlanVista's
corporate headquarters to the attention of the secretary, as soon as
possible.
Please carefully review this joint proxy statement/prospectus and vote
the proxy card or voting instruction card you receive or, if available,
vote by Internet or telephone as soon as possible so that your shares
may be represented at the special meeting of stockholders of PlanVista.
xiv
SUMMARY
This summary, together with the preceding Questions and Answers
section, highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information about the merger
that is important to you. To understand the merger fully and for a more complete
description of the terms of the merger, you should read carefully this entire
document and the documents to which ProxyMed and PlanVista have referred you.
See "Where You Can Find More Information" on page 215. ProxyMed and PlanVista
have included page references parenthetically to direct you to a more complete
description of the topics in this summary.
THE COMPANIES
PROXYMED, INC.
2555 Davie Road, Suite 110
Fort Lauderdale, Florida 33317
Phone: (954) 473-1001
ProxyMed, incorporated in Florida in 1989, is an electronic healthcare
transaction processing services company providing connectivity services and
related value-add products to physician offices, payers, medical laboratories,
pharmacies and other healthcare institutions. Unlike ProxyMed's competitors,
ProxyMed maintains an open electronic network for electronic transactions with
no equity ownership in businesses engaged in the front-end (i.e., physician
practice management software system vendors and other physician desk top
vendors) or in the back-end (i.e., payers, laboratories and pharmacies).
ProxyMed's business strategy is to leverage ProxyMed's leadership position in
connectivity services in order to establish ProxyMed as the premier provider of
automated financial, clinical and administrative transaction services primarily
between small physician offices (offices with one to nine physicians) and
payers, clinical laboratories and pharmacies.
ProxyMed's electronic transaction processing services support a broad
range of financial, clinical, and administrative transactions. To facilitate
these services, ProxyMed operates Phoenix, ProxyMed's secure, proprietary
national electronic information platform, which provides physicians and other
healthcare providers with direct connectivity to one of the industry's largest
list of payers, the industry's largest list of chain and independent pharmacies
and the largest list of clinical laboratories. ProxyMed's products and services
are provided from ProxyMed's operational facilities located in Fort Lauderdale,
Florida; New Albany, Indiana; Santa Ana, California; Norcross, Georgia; and
Sioux Falls, South Dakota. ProxyMed also operates its clinical computer network
and portions of its financial and real time production computer networks from a
secure, third-party co-location site in Atlanta, Georgia.
ProxyMed common stock is traded on the Nasdaq National Market (symbol:
PILL).
PLANET ACQUISITION CORP.
2555 Davie Road, Suite 110
Fort Lauderdale, Florida 33317
Phone: (954) 473-1001
Planet Acquisition Corp. is a wholly-owned subsidiary of ProxyMed,
formed solely to effect the merger with PlanVista, and Planet Acquisition Corp.
has not conducted any business. Pursuant to the merger agreement Planet
Acquisition Corp. will merge with and into PlanVista, and PlanVista will
continue as the surviving corporation.
PLANVISTA CORPORATION
4010 Boy Scout Boulevard, Suite 200
Tampa, Florida 33607
Phone: (813) 353-2300
PlanVista, incorporated in Delaware in 1994, provides medical cost
containment and business process outsourcing solutions for the medical insurance
and managed care industries. PlanVista's customers include
1
healthcare payers such as insurance carriers, self-insured employers, third
party administrators, health maintenance organizations, sometimes referred to as
HMO's, and other entities that pay claims on behalf of health plans. PlanVista
also provides services for health care providers, including individual
providers, preferred provider organizations, sometimes referred to as PPO's, and
other provider groups.
PlanVista provides healthcare payers with access to its preferred
provider network, known as the National Preferred Provider Network, which offers
payers discounts on participating provider medical services. The National
Preferred Provider Network is a "network of networks," comprised of more than 30
local PPO networks and independent physician associations with which PlanVista
contracts, as well as directly contracted independent providers in some cases.
The National Preferred Provider Network includes approximately 400,000
physicians, 4,000 acute care hospitals, and 55,000 ancillary care providers. In
addition to offering payers in-network discounts, PlanVista has added medical
bill review and negotiation through key strategic alliances. PlanVista's cost
containment customers also benefit from its advanced claims repricing and
network and data management services.
PlanVista has leveraged its leading edge technology and management
expertise to offer its clients network and data management outsourcing services
that are independent of the National Preferred Provider Network access business.
PlanVista's PayerServ business helps payers manage all of their network
relationships, whether or not the payers also access the National Preferred
Provider Network. PlanServ, PlanVista's other management offering, provides
claims repricing and network and data management services that help PPOs support
all of their payer relationships, not simply payer relationships that they
maintain through National Preferred Provider Network.
During the second quarter of 2003, PlanVista entered into a joint
marketing and distribution agreement with ProxyMed pursuant to which PlanVista
has access to ProxyMed's significant payer customers for purposes of marketing
PlanVista's services.
PlanVista common stock is traded on the Over-The-Counter Bulletin Board
(symbol: PVST.OB).
THE MERGER
In the merger, Planet Acquisition Corp., a wholly-owned subsidiary of
ProxyMed, will merge with and into PlanVista, and as a result PlanVista will be
the surviving corporation of the merger. If the merger becomes effective, each
share of PlanVista common stock then outstanding will be canceled and converted
into the right to receive a fraction of one fully paid and nonassessable share
of ProxyMed common stock, the numerator of which is (1) 1,826,829 (subject to
the conversion of any shares of PlanVista series C preferred stock) and the
denominator of which is (2) the total number of issued and outstanding shares of
PlanVista common stock immediately prior to the effective time of the merger.
Upon completion of the merger, holders of PlanVista's series C preferred stock
will be entitled to receive, for each share of PlanVista series C preferred
stock then held by them (other than shares of series C preferred stock with
respect to which a PlanVista series C preferred stockholder has exercised
appraisal rights), a fraction of one fully paid and nonassessable share of
ProxyMed common stock, the numerator of which is (1) 1,773,171 (subject to the
conversion of any shares of PlanVista series C preferred stock) and the
denominator of which is (2) the total number of issued and outstanding shares of
PlanVista series C preferred stock immediately prior to the effective time of
the merger. The total number of shares of ProxyMed common stock issuable as
merger consideration is subject to a downward adjustment in the event certain
fees, expenses and other obligations of PlanVista arising as a result of the
merger exceed a specified amount. PVC Funding Partners, LLC, the holder of 96%
of the outstanding PlanVista series C preferred stock, has agreed not to convert
its series C preferred stock into common stock prior to the consummation of the
merger. If any of the remaining PlanVista series C preferred stock are converted
into PlanVista common stock prior to the closing of the merger, the number of
ProxyMed shares allocated to the PlanVista common stockholders will be increased
by the number of ProxyMed shares that the converting PlanVista series C
preferred stockholders will receive upon consummation of the merger as a result
of such conversion and the number of ProxyMed shares allocated to the remaining
holders of the PlanVista series C preferred stock will be decreased by a like
number. In the event that the amount owed by PlanVista to Commonwealth
Associates Group Holdings, LLC pursuant to the advisory agreement causes certain
fees, expenses and obligations of PlanVista in connection with the merger to
exceed a specified amount, Commonwealth Associates Group Holdings, LLC has
agreed to accept payment for such excess amount in shares of PlanVista common
stock to be issued by PlanVista prior to the closing of the merger. Such shares
of PlanVista common stock will be valued at the price per share that the holders
of PlanVista common stock will be realizing as a result of the issuance of
ProxyMed common stock in the merger.
2
PlanVista stock options. If the merger is consummated, each outstanding
option to purchase PlanVista common stock will be canceled. At the effective
time of the merger, the compensation committee of the board of directors of
ProxyMed will grant to those officers and employees of PlanVista identified by
PlanVista's compensation committee options under ProxyMed's stock option plans
to purchase an aggregate of 200,000 shares of ProxyMed common stock in
individual amounts as determined by PlanVista's compensation committee and
approved by ProxyMed's compensation committee. Those options will have an
exercise price equal to the lower of the last reported sale price of ProxyMed's
common stock on the Nasdaq National Market on the date of the merger or $17.74
per share. All of those options will generally vest over a three year period
commencing on the grant date, such that two-thirds of each option will vest on
the first anniversary of the grant date, and the remaining one-third of each
option will vest on the third anniversary of the grant date.
Ownership of ProxyMed after the merger and after the private equity
offering. Upon completion of the merger, PlanVista's outstanding stock is
expected to be converted into ProxyMed common stock representing approximately
23% of the shares ProxyMed on a fully-converted basis and the current holders of
ProxyMed's outstanding stock, options and warrants will retain approximately 77%
of ProxyMed.
The Agreement and Plan of Merger, or merger agreement, is attached to
this joint proxy statement/prospectus as Annex A. ProxyMed and PlanVista
encourage you to read the merger agreement carefully.
REASONS FOR THE MERGER
The PlanVista board of directors approved the merger for a number of
compelling business, financial and strategic reasons, including the following
(please see the section entitled "The Merger--PlanVista's Reasons for the
Merger" on page 64 for a more complete discussion).
- Improved Growth Prospects with Larger Payers;
- Improved Receptivity by Providers;
- Combining the Service Offerings of the Two Companies Better
Serves the Customers of Both;
- Combined Technological Expertise Will Benefit Both Companies;
- ProxyMed's Resources Will Aid in Sales Promotion;
- Better Competitive Position;
- Increased Competition;
- Elimination of the Competitive Disadvantage Posed by the
Uncertainties of PlanVista's Current Financial Structure;
- Additional Cost-Savings and Benefits;
- Resolves PlanVista's Refinancing Pressures;
- Provides Improved Stockholder Liquidity;
- Pricing;
- Requires Stockholder Approval; and
- Common Stockholders Will Receive a Proportionately Higher
Percentage of Consideration than Preferred Stockholders.
3
In short, the PlanVista board of directors believes that the merger
offers PlanVista's stockholders, customers and employees, a unique opportunity
to realize the benefits created by combining the two companies.
The ProxyMed board of directors believes that the merger presents
ProxyMed with an opportunity to expand its current claims processing transaction
services into a comprehensive and innovative "end-to-end" claim processing and
adjudication solution for its insurance payer customers. ProxyMed's board of
directors also approved the merger for the following reasons:
- Entry into New Line of Business;
- New "End-To-End" Service Offering;
- Increased Sales Opportunities With Payers;
- Strengthened Business Ties With Select Customers;
- Expanded Technological Capabilities;
- Operating Cost Reductions; and
- Enhanced Public Profile.
In short, the ProxyMed board of directors believes that the merger
offers ProxyMed's shareholders, customers, and employees an attractive and
compelling opportunity to expand its business and product and service offerings.
Despite the foregoing, the potential benefits of the merger may not be
achieved. See the sections entitled "Risk Factors--Risks Related to the Merger"
on page 22, "The Merger -- ProxyMed Reasons for the Merger" on page 60 and "The
Merger -- PlanVista Reasons for the Merger" on page 64.
RISK FACTORS
The "Risk Factors" should be considered carefully by ProxyMed
shareholders in evaluating whether to approve the proposal to amend ProxyMed's
articles of incorporation and the proposals to issue ProxyMed common stock
pursuant to the merger agreement and in connection with the ProxyMed private
equity offering, and by PlanVista stockholders in evaluating whether to adopt
the merger agreement. These risk factors should be considered along with any
additional risk factors in the periodic reports of ProxyMed and PlanVista filed
with the Securities and Exchange Commission and any other information included
in this joint proxy statement/prospectus.
RECOMMENDATIONS OF THE PROXYMED BOARD OF DIRECTORS
After careful consideration, the ProxyMed board of directors determined
that the merger and the other proposals are advisable and in the best interests
of ProxyMed and its shareholders, and unanimously, except for abstentions,
recommends that ProxyMed shareholders vote "FOR" the proposal to issue ProxyMed
common stock pursuant to the merger agreement, "FOR" the proposal to approve the
issuance of shares of ProxyMed common stock in connection with the ProxyMed
private equity offering, "FOR" the proposal to amend ProxyMed's articles of
incorporation to increase the total number of authorized shares of ProxyMed
common stock from 13,333,333 1/3 shares to 30 million shares, and "FOR" the
proposal to amend the ProxyMed 2002 Stock Option Plan to increase the number of
shares available for issuance under such plan from 600,000 to 1,350,000.
RECOMMENDATIONS OF THE PLANVISTA BOARD OF DIRECTORS
After careful consideration, the PlanVista board of directors
determined that the merger is advisable and in the best interests of PlanVista
and its stockholders, and approved the merger agreement. The PlanVista board of
directors recommends that the PlanVista stockholders vote "FOR" the proposal to
adopt the merger agreement.
4
SPECIAL MEETING OF PROXYMED SHAREHOLDERS
You can vote at the ProxyMed special meeting if you owned ProxyMed
common stock or ProxyMed series C preferred stock at the close of business on
____________, 2004, the record date for the ProxyMed special meeting. On that
date, there were _____ shares of ProxyMed common stock and _____ shares of
ProxyMed series C preferred stock outstanding and entitled to vote. You can cast
one vote for each share of ProxyMed common stock and each share of ProxyMed
series C preferred stock that you owned on that date. Approval of the proposal
to amend ProxyMed's articles of incorporation to increase the total number of
authorized shares of ProxyMed common stock from 13,333,333 1/3 shares to 30
million shares requires the affirmative vote of a majority of the outstanding
shares of ProxyMed's common stock and ProxyMed series C preferred stock.
Approval of the proposals to issue shares of ProxyMed common stock pursuant to
the merger agreement, to issue shares of ProxyMed common stock in connection
with the ProxyMed private equity offering, which are sometimes referred to
hereinafter as the "issuance proposals," and the proposal to amend the ProxyMed
2002 Stock Option Plan to increase the number of shares available for issuance
under such plan from 600,000 to 1,350,000 requires the affirmative vote of a
majority of the total votes cast at the special meeting by holders of ProxyMed's
common stock outstanding as of the record date, including the shares of ProxyMed
series C preferred stock entitled to vote as a class with the holders of
ProxyMed common stock, provided that a quorum is present. As of the ProxyMed
record date, ProxyMed's executive officers, directors and entities affiliated
with them owned, in the aggregate, approximately ___% of ProxyMed's
outstanding common stock and ProxyMed series C preferred stock.
SPECIAL MEETING OF PLANVISTA STOCKHOLDERS
You can vote at the PlanVista special meeting if you owned PlanVista
common stock or PlanVista series C preferred stock at the close of business on
_____________, 2004, the record date for the PlanVista special meeting. On that
date, there were ______ shares of PlanVista common stock and ______ shares of
PlanVista series C preferred stock outstanding and entitled to vote. Approval of
the proposal to adopt the merger agreement, which is sometimes referred to
hereafter as the "merger proposal," requires the affirmative vote of a majority
of the votes entitled to be cast by the holders of the shares of PlanVista
common stock and PlanVista series C preferred stock. Additionally, it is a
condition to PlanVista's obligation to consummate the merger that the holders of
a majority of the outstanding shares of PlanVista common stock voting at the
PlanVista stockholders meeting and not taking into account any votes cast by
holders of the series C preferred stock, by Commonwealth Associates, L.P., or
any affiliates or officers or directors thereof, or any director or executive
officer of PlanVista, vote to adopt the merger agreement. As of the PlanVista
record date, PlanVista's executive officers, directors and entities affiliated
with them owned, in the aggregate, approximately ___% of PlanVista's outstanding
common stock and PlanVista series C preferred stock.
VOTING AGREEMENTS
Certain ProxyMed shareholders holding approximately 23.1% of the
outstanding shares of ProxyMed common stock as of the record date have entered
into voting agreements with PlanVista and ProxyMed agreeing to vote all the
shares of ProxyMed common stock they own in favor of the issuances proposals and
the amendment to ProxyMed's articles of incorporation.
Certain PlanVista stockholders holding less than 1% of the outstanding
shares of PlanVista common stock and 96% of the outstanding shares of PlanVista
series C preferred stock have entered into voting agreements with ProxyMed and
PlanVista. The voting agreements require these stockholders to vote all of the
shares of PlanVista common stock and PlanVista series C preferred stock they own
in favor of the adoption of the merger agreement.
For a more detailed description of the voting agreements, please refer
to the section of this joint proxy statement/prospectus entitled "Voting
Agreements" beginning on page 112 and Annexes E and F. We urge you to read these
voting agreements carefully.
5
OPINION OF PROXYMED'S FINANCIAL ADVISOR
On December 4, 2003, William Blair & Company, L.L.C. delivered its oral
opinion, and subsequently confirmed in writing to the ProxyMed board of
directors that, as of such date and based upon and subject to the various
considerations set forth in its opinion, the consideration to be paid by
ProxyMed in the merger was fair, from a financial point of view, to ProxyMed.
William Blair & Company, L.L.C. provided its opinion to the ProxyMed board of
directors in connection with the board's consideration of the merger. The
William Blair & Company, L.L.C. opinion is not a recommendation as to how any
ProxyMed shareholder should vote with respect to the proposal to approve the
issuance of shares of ProxyMed common stock in connection with the merger.
The full text of the written opinion of William Blair & Company,
L.L.C., which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with its opinion, is attached to this joint
proxy statement/prospectus as Annex B. Shareholders of ProxyMed are urged to
read the opinion carefully and in its entirety.
OPINION OF PLANVISTA'S FINANCIAL ADVISOR
Peter J. Solomon Company, L.P. has delivered a written opinion, dated
December 5, 2003, to the board of directors of PlanVista stating that, as of
that date and subject to the various considerations set forth in its opinion,
the consideration to be received by the holders of PlanVista common stock (other
than Commonwealth Associates Group Holdings, LLC and its affiliates and
associates) in connection with the merger was fair from a financial point of
view. The full text of this opinion is attached to this joint proxy
statement/prospectus as Annex C. Holders of PlanVista common stock (other than
Commonwealth Associates Group Holdings, LLC and its affiliates and associates)
are urged to read the opinion carefully in its entirety to understand the
procedures followed, assumptions made, matters considered and limitations on the
review undertaken by Peter J. Solomon Company, L.P. in providing its opinion.
The opinion of Peter J. Solomon Company, L.P. is directed to the board of
directors of PlanVista and does not constitute a recommendation as to how any
PlanVista stockholder should vote with respect to any matter relating to the
merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Some directors and executive officers of ProxyMed have particular interests in
the proposed merger.
When ProxyMed shareholders consider the recommendation of the ProxyMed
board of directors that they vote in favor of (i) the issuance of ProxyMed
common stock pursuant to the merger agreement, (ii) the issuance of shares of
ProxyMed common stock in connection with the ProxyMed private equity offering,
and (iii) the amendment to ProxyMed's articles of incorporation. ProxyMed
shareholders should be aware that some ProxyMed directors and executive officers
may have interests in the merger that may be different from, or in addition to,
their interests as shareholders of ProxyMed. These include interests and
potential claims arising in connection with:
- the retention of all ProxyMed directors to serve on the board
of directors of ProxyMed;
- the retention of the officers of ProxyMed to serve as officers
of ProxyMed;
- the possible granting of options to the officers and directors
of ProxyMed;
- the service of the one of the ProxyMed directors on the board
of directors of PlanVista; and
- the sale of ProxyMed common stock in connection with the
private equity offering at a price below the trading price on
the date that the Stock Purchase Agreement was entered into by
ProxyMed.
The ProxyMed board of directors was aware of these interests during its
deliberations of the merits of the merger and in determining to recommend to
ProxyMed shareholders that they vote for the proposal to approve the issuance of
ProxyMed common stock pursuant to the merger agreement, the issuance of shares
of ProxyMed common stock in connection with the ProxyMed private equity
offering, and the amendment to ProxyMed's articles of incorporation. As a
result, Michael Falk abstained from voting on the proposal to approve the
issuance of the
6
shares of ProxyMed common stock in connection with the merger, the proposal to
approve the issuance of shares of ProxyMed common stock in connection with the
ProxyMed private equity offering, and the proposal to amend ProxyMed's articles
of incorporation to increase the total number of authorized shares of ProxyMed
common stock from 13,333,333 1/3 shares to 30 million shares, and Braden Kelly
abstained from voting on the proposal to approve the issuance of shares of
ProxyMed common stock in connection with the ProxyMed private equity offering.
Some directors and executive officers of PlanVista have particular interests in
the proposed merger.
When PlanVista stockholders consider the recommendation of the
PlanVista board of directors that they vote in favor of adoption of the merger
agreement, PlanVista stockholders should be aware that some PlanVista directors
and executive officers may have interests in the merger that may be different
from, or in addition to, their interests as stockholders of PlanVista. These
interests include:
- the agreement of ProxyMed to issue stock options to certain
officers and directors of PlanVista following the merger;
- employment arrangements that ProxyMed has entered into with
Phillip S. Dingle, the Chairman and Chief Executive Officer of
PlanVista and Jeffrey L. Markle, the President and Chief
Operating Officer of PlanVista, pursuant to which Mr. Dingle
and Mr. Markle will continue to serve as officers of PlanVista
and ProxyMed following the merger;
- significant cash bonuses that will be payable to Mr. Dingle
and Mr. Markle upon consummation of the merger;
- significant cash bonuses that will be payable to numerous
PlanVista employees, including executive officers, under
PlanVista's Incentive and Retention Program in the event of a
merger where the consideration payable to PlanVista
stockholders is at least equal to $1.00 or more per share of
PlanVista Common Stock;
- PlanVista's directors' and officers' insurance coverage and
continuing indemnification arrangements; and
- the appointment of one independent director of PlanVista
selected by PlanVista and one additional independent director,
who is affiliated with ProxyMed or PlanVista identified by the
PlanVista board of directors, and who is reasonably acceptable
to ProxyMed, to serve on the board of directors of ProxyMed.
The PlanVista board of directors was aware of and considered these
potentially conflicting interests when they approved the merger agreement. As a
result, Michael Falk abstained from voting on the proposal to adopt the merger
agreement.
Michael Falk is a director and beneficial owner of securities of both PlanVista
and ProxyMed and controls Commonwealth Associates Group Holdings, LLC, one of
PlanVista's advisors and its controlling shareholder.
Michael Falk serves as one of the four directors of PlanVista
designated by the PlanVista series C preferred stockholders. Mr. Falk is also
the beneficial owner of the PlanVista series C preferred stock owned by PVC
Funding Partners, LLC. He is a controlling owner of Commonwealth Associates
Group Holdings, LLC, which is the managing member of PVC Funding Partners, LLC
which owns 96% of the outstanding PlanVista series C preferred stock and
represents 64.6% of the combined voting power of the common stock and series C
preferred stock of PlanVista. Commonwealth Associates Group Holdings, LLC acted
as one of PlanVista's investment advisers in connection with the merger and will
receive upon consummation of the merger an investment advisory fee of
approximately $1,398,500, subject to among other things, the price of the
ProxyMed common stock at the effective time of the merger. For more information
on Mr. Falk's ownership in PlanVista, please see the section entitled the
"Security Ownership of Certain Beneficial Owners and Management of PlanVista"
beginning on page 192.
7
Mr. Falk is also a director of ProxyMed. He is the beneficial owner of
434,568 shares of ProxyMed common stock. Mr. Falk will also be the beneficial
owner of 428,070 shares issued in connection with the private equity offering.
For more information on Mr. Falk's ownership in ProxyMed, please see the section
entitled the "Security Ownership of Certain Beneficial Owners and Management of
ProxyMed" beginning on page 154.
Mr. Falk abstained from voting on the proposal to approve the issuance
of the shares of ProxyMed common stock in connection with the merger, the
proposal to approve the issuance of shares of ProxyMed common stock in
connection with the ProxyMed private equity offering, and the proposal to amend
ProxyMed's articles of incorporation to increase the total number of authorized
shares of ProxyMed common stock from 13,333,333 1/3 shares to 30 million shares
and on the proposal for PlanVista to adopt the merger agreement. These interests
may create potential conflicts of interest.
Harold Blue, a former director and officer of ProxyMed and current director of
PlanVista, owes ProxyMed approximately $186,000.
Mr. Blue serves as one of the four PlanVista directors designated by
the PlanVista series C preferred stockholders and serves at the pleasure of Mr.
Falk by reason of his control of PVC Funding Partners, LLC.
In April 1997, ProxyMed made loans totaling $350,000 to Harold Blue,
ProxyMed's former chairman of the board and chief executive officer. The funds
were advanced pursuant to two demand promissory notes in the principal amounts
of $290,000 and $60,000, respectively, each bearing interest at a rate of 7-3/4%
per annum. On June 30, 2000, ProxyMed amended the terms of these notes whereby
interest on the notes ceased to accrue subsequent to July 1, 2000 and the loan
plus accrued interest, totaling $435,900 at June 30, 2000, would be payable in a
balloon payment in December 2001. In December 2001, a payment of $250,000 was
received from Mr. Blue and applied against the outstanding balance of the loans.
ProxyMed agreed to refinance the remaining $185,983 balance and a new promissory
note was executed by Mr. Blue. The note is collateralized with options to
purchase 36,667 shares of common stock granted to Mr. Blue under the ProxyMed
stock option plans along with additional warrants granted to Mr. Blue from
various other public companies. In January 2002, Mr. Blue resigned from
ProxyMed's board of directors and the remaining board members agreed to extend
the exercise period of the stock options held as collateral for the note in an
effort to maximize the potential for repayment. In June 2003, ProxyMed amended
the promissory note executed in June 2000 by Mr. Blue. The amendment extended
the maturity date of the promissory note for an additional twelve months to
December 31, 2004 and also allowed Mr. Blue to offset any principal owed with
certain amounts payable to Mr. Blue by ProxyMed as a result of a finder's fee
arrangement with ProxyMed.
Mr. Blue also serves as the President and Chief Operating officer of
Commonwealth Associates Group Holdings, LLC, which is controlled by Michael
Falk. Commonwealth Associates Group Holdings, LLC acted as one of PlanVista's
investment advisers in connection with the transaction and will receive upon
consummation of the merger an investment advisory fee of approximately
$1,398,500, subject to among other things, the price of the ProxyMed common
stock at the effective time of the merger. Mr. Blue will receive a part of this
fee.
Other interested directors and officers
Richard Corbin and Gary Mansfield serve as two of the four PlanVista
directors designated by the PlanVista series C preferred stockholders and as
such serve at the pleasure of Mr. Falk by reason of his control of PVC Funding
Partners, LLC. From 1995 to 1998, Gary Mansfield was a director of ProxyMed, and
from 1993 to 1998, he was an executive officer of ProxyMed.
James K. Murray, III, a director of PlanVista, is a limited liability
member of PVC Funding Partners, LLC.
A. Thomas Hardy, Senior Vice President of ProxyMed, and Edwin M.
Cooperman, a ProxyMed director, each own minority interests in certain entities
affiliated with Commonwealth Associates Group Holdings, LLC.
From 1993 to 2000, Bennett Marks, the current Chief Financial Officer
of PlanVista, was the Executive Vice President-Finance, Chief Financial Officer
and director of ProxyMed.
8
William L. Bennett, a current director of PlanVista, will become a
director of ProxyMed following the merger. Following the consummation of the
merger, PlanVista will continue to be obligated under a promissory note issued
to William Bennett in the amount of $250,000.
CONDITIONS TO THE COMPLETION OF THE MERGER
The completion of the merger is subject to the prior satisfaction or
waiver of a number of conditions, including the following:
- the merger agreement must be adopted by the stockholders of
PlanVista;
- the issuance of the shares of ProxyMed common stock to be
issued in connection with the merger, the issuance of shares
of ProxyMed common stock in connection with the ProxyMed
private equity offering, and the amendment to ProxyMed's
articles of incorporation must all be approved by ProxyMed's
shareholders;
- ProxyMed's registration statement, of which this joint proxy
statement/prospectus is a part, must be effective, no stop
order suspending its effectiveness may be in effect and no
proceedings for suspending its effectiveness shall have been
issued and no proceeding for that purpose, and no similar
proceeding related to the joint proxy statement/prospectus,
shall have been initiated or threatened in writing by the
Securities and Exchange Commission;
- no governmental entity shall have enacted or issued any law,
regulation or order that is in effect and has the effect of
making the merger illegal or otherwise prohibiting the
closing;
- all required material governmental consents and approvals
shall have been obtained;
- all waiting periods under the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976, as amended, if applicable, must have
expired or been terminated;
- the shares of ProxyMed common stock to be issued in the merger
must have been approved for listing on the Nasdaq National
Market, subject to notice of issuance;
- no governmental entity will have commenced or threatened in
writing any proceeding preventing the merger or requiring
ProxyMed to make certain divestitures;
- the representations and warranties of each party in the merger
agreement must be true and correct, subject to various
qualifications;
- the parties must have complied in all material respects with
their respective agreements in the merger agreement;
- no material adverse effect with respect to either ProxyMed or
PlanVista shall have occurred since the date of the merger
agreement;
- the merger agreement shall have been adopted by holders of at
least a majority of the outstanding shares of PlanVista common
stock voting at the PlanVista stockholders meeting and not
taking into account any votes cast by holders of the series C
preferred stock, by Commonwealth Associates, L.P., or any
affiliates or officers or directors thereof, or any director
or executive officer of PlanVista; and
- holders of not more than ten percent (10%) of PlanVista's
issued and outstanding common stock shall have demanded
appraisal of their shares of PlanVista common stock under the
Delaware General Corporation Law.
9
TERMINATION OF THE MERGER AGREEMENT
Before completion of the merger, and subject to certain qualifications,
the merger agreement may be terminated by any of the parties under any of the
following circumstances:
- by mutual consent duly authorized by the boards of directors
of ProxyMed and PlanVista;
- by ProxyMed or PlanVista, if the merger is not completed by
April 30, 2004, except that the right to terminate the merger
agreement under this provision is not 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 by
April 30, 2004, and this action or failure to act constitutes
a material breach of the merger agreement;
- by ProxyMed or PlanVista, if a governmental authority has
issued a final nonappealable order, decree or ruling or taken
any other action, in any case having the effect of permanently
enjoining, restraining or prohibiting the merger;
- by ProxyMed or PlanVista, if the merger is not approved by the
stockholders of PlanVista, except that the right to terminate
the merger agreement under this provision is not available to
PlanVista where the failure to obtain stockholder approval was
caused by an action or failure to act by PlanVista that
constitutes a breach of the merger agreement;
- by ProxyMed or PlanVista, if the issuance of shares of
ProxyMed common stock in the merger, the issuance of shares of
ProxyMed common stock in connection with the ProxyMed private
equity offering, and the amendment to ProxyMed's articles of
incorporation shall not have been approved by ProxyMed's
shareholders, except that the right to terminate the merger
agreement under this provision is not available to ProxyMed if
the failure to obtain shareholder approval was caused by an
action or failure to act by ProxyMed that constitutes a breach
of the merger agreement;
- by ProxyMed at any time prior to the adoption and approval of
the merger agreement and the merger by the required vote of
stockholders of PlanVista, if a triggering event with respect
to PlanVista occurs (each of these events is further described
under the section of this joint proxy statement/prospectus
entitled "The Merger Agreement--Termination of the Merger
Agreement" beginning on page 108);
- by PlanVista at any time prior to the approval of the issuance
of shares of ProxyMed common stock in the merger by the
required vote of shareholders of ProxyMed, if a triggering
event with respect to ProxyMed occurs (each of these events is
further described under the section of this joint proxy
statement/prospectus entitled "The Merger
Agreement--Termination of the Merger Agreement" beginning on
page 108);
- by PlanVista upon a breach of any representation, warranty,
covenant or agreement on the part of ProxyMed, or if any of
ProxyMed's representations or warranties have become untrue,
so that the corresponding condition to closing the merger
would not be met, or if a material adverse effect with respect
to ProxyMed shall have occurred; however, if the breach or
inaccuracy or material adverse effect on ProxyMed is curable
and ProxyMed continues to exercise all reasonable efforts to
cure the breach or inaccuracy or material adverse effect, then
PlanVista may not terminate the merger agreement if, in the
case of a breach or inaccuracy, it is cured within 30 days
after delivery of the notice of breach or inaccuracy or, in
the case of a material adverse effect on ProxyMed, it is cured
within 45 days after delivery of the notice of material
adverse effect, or if PlanVista has materially breached the
merger agreement;
- by ProxyMed upon a breach of any representation, warranty,
covenant or agreement on the part of PlanVista under the
merger agreement, or if any of PlanVista's representations or
warranties have become untrue, so that the corresponding
condition to closing the merger would not be met, or if a
material adverse effect shall have occurred; however, if the
breach or inaccuracy or material adverse effect on PlanVista
is curable and PlanVista continues to exercise all reasonable
efforts to cure the
10
breach or inaccuracy or material adverse effect, then ProxyMed
may not terminate the merger agreement if, in the case of a
breach or inaccuracy, it is cured within 30 days after
delivery of the notice of breach or inaccuracy or, in the case
of a material adverse effect on PlanVista, it is cured within
45 days after delivery of the notice of material adverse
effect, or if ProxyMed has materially breached the merger
agreement;
- by PlanVista in respect of a superior offer (as defined
below); or
- by PlanVista or ProxyMed, if either party does not mail the
joint proxy statement/prospectus to its respective
shareholders by February 12, 2004, provided that each party
has used all commercially reasonable efforts to mail the proxy
by such date.
EXPENSES AND TERMINATION FEES
All fees and expenses incurred in connection with the merger agreement
shall be paid by the party incurring such expenses whether or not the merger is
consummated; provided, however, that ProxyMed and PlanVista shall share equally
(i) all fees and expenses, other than attorneys' and accountants' fees and
expenses, incurred in relation to the printing and filing with the SEC of this
joint proxy statement/prospectus (including any preliminary materials related
thereto) and this registration statement (including financial statements and
exhibits) and any amendments or supplements thereto and (ii) the filing fee(s)
for the antitrust filings, if any.
PlanVista Fees
PlanVista has agreed to pay ProxyMed a termination fee equal to
$2,000,000 in immediately available funds in the event that the merger agreement
is terminated:
- by ProxyMed at any time prior to approval of the merger by
PlanVista's stockholders because a triggering event has
occurred with respect to PlanVista;
- by PlanVista because of a superior offer; or
- as a result of the failure of PlanVista to obtain the
PlanVista stockholder approval of the merger if prior to
termination of the merger agreement, an acquisition proposal
(see page 104) with respect to PlanVista was publicly
disclosed and within twelve months following the termination
of the merger agreement, either an acquisition with respect to
PlanVista was consummated, or PlanVista enters into a contract
providing for an acquisition which is later consummated,
whether during or after such twelve-month period.
PlanVista has agreed to immediately reimburse ProxyMed for all the
transaction expenses incurred by ProxyMed, up to a maximum of $500,000, in the
event that PlanVista obtains stockholder approval of the adoption of the merger
agreement, but does not obtain approval by a majority of the outstanding shares
of PlanVista common stock voting at the PlanVista stockholders meeting and not
taking into account any votes cast by holders of the series C preferred stock,
by Commonwealth Associates, L.P., or any affiliates or officers or directors
thereof, or any director or executive officer of PlanVista, and PlanVista does
not waive such condition to closing.
NO SOLICITATION OF TRANSACTIONS
Until the merger is completed or the merger agreement is terminated,
PlanVista has agreed not to take any action with regard to an acquisition
proposal, as described on page 103 of this joint proxy statement/prospectus,
unless it receives an unsolicited acquisition proposal prior to its
stockholders' meeting and its board of directors concludes in good faith that
such acquisition proposal is reasonably likely to result in a superior offer, as
described on page 104 of this joint proxy statement/prospectus. If PlanVista
receives an acquisition proposal which its board of directors considers to be a
superior offer PlanVista may, subject to the conditions specified on page 103 of
this joint proxy statement/prospectus, furnish non-public information regarding
itself and may enter into discussions with the person who made the acquisition
proposal.
11
PlanVista has agreed to inform ProxyMed promptly as to any acquisition
proposal, or request for non-public information, or any inquiry that it
reasonably believes would lead to an acquisition proposal. PlanVista has agreed
to inform ProxyMed of the status and details of any acquisition proposal.
PlanVista has agreed to provide to ProxyMed a copy of all written and other
materials provided to it in connection with any acquisition proposal request or
inquiry.
ACCOUNTING TREATMENT OF THE MERGER
ProxyMed intends to account for the merger using the purchase method of
accounting for business combinations, with ProxyMed being considered the
acquirer of PlanVista, in conformity with accounting principles generally
accepted in the United States of America. This means that ProxyMed will allocate
the purchase price to the fair value of assets, including identifiable
intangible assets acquired and liabilities assumed from PlanVista at the
effective time of the merger, with the excess purchase price being recorded as
goodwill. Under the purchase method of accounting, goodwill is not amortized but
is tested for impairment at the time of the acquisition and at least annually
thereafter.
DIRECTORS AND EXECUTIVE OFFICERS OF PROXYMED FOLLOWING THE MERGER
At the effective time of the merger, ProxyMed's board of directors
shall appoint one independent director of PlanVista selected by PlanVista and
one additional independent director, who is not affiliated with ProxyMed or
PlanVista identified by the PlanVista board of directors, and who is reasonably
acceptable to ProxyMed, to serve on the board of directors of ProxyMed. William
L. Bennett, a current independent director of PlanVista, will be appointed to
serve as a director of ProxyMed following the merger.
APPRAISAL RIGHTS
Under Delaware law, PlanVista stockholders are entitled to appraisal
rights with respect to the merger and, if the merger is completed and they
perfect their appraisal rights, to receive payment in cash for the fair value of
their shares of PlanVista stock. In general, to preserve their appraisal rights,
PlanVista stockholders who wish to exercise these rights must:
- deliver a written demand for appraisal to PlanVista at or
before the time the vote is taken at the PlanVista special
meeting;
- not vote their shares for adoption of the merger agreement;
- continuously hold their shares of PlanVista stock from the
date they make the demand for appraisal through the closing of
the merger; and
- comply with the other procedures set forth in Section 262 of
the Delaware General Corporation Law.
The text of Section 262 of the Delaware General Corporation Law
governing appraisal rights is attached to this joint proxy statement/prospectus
as Annex D. Your failure to comply with the procedures described in Annex D will
result in the loss of appraisal rights. We urge you to read the text of Section
262 governing appraisal rights carefully.
COMPARISON OF SHAREHOLDER RIGHTS
The rights of stockholders of PlanVista as shareholders of ProxyMed
after the merger will be governed by ProxyMed's existing amended and restated
articles of incorporation and its existing amended and restated bylaws, as such
documents may be amended in the future. Those rights significantly differ from
the current rights of PlanVista stockholders under PlanVista's certificate of
incorporation and bylaws.
12
MARKET PRICE INFORMATION
Shares of ProxyMed common stock are listed on the Nasdaq National
Market. On December 5, 2003, the last full trading day prior to the public
announcement of the proposed merger, ProxyMed's common stock closed at $16.01
per share. On ____________, 2004, the latest practicable date before the
printing of this joint proxy statement/prospectus, ProxyMed's common stock
closed at $______ per share. The common stock of PlanVista is traded on the
Over-The-Counter Bulletin Board. On December 5, 2003, the last full trading day
prior to the public announcement of the proposed merger, PlanVista's common
stock closed at $1.90 per share. On ____________, 2004, the latest practicable
date before the printing of this joint proxy statement/prospectus, PlanVista's
common stock closed at $_______ per share. The companies urge you to obtain
current market quotations for ProxyMed common stock.
LISTING OF PROXYMED COMMON STOCK AND DEREGISTRATION OF PLANVISTA COMMON STOCK
ProxyMed's common stock is currently traded on the Nasdaq National
Market under the symbol "PILL." The ProxyMed common stock to be issued in the
merger will be listed for trading on the Nasdaq National Market.
If the merger is completed, PlanVista common stock will cease to be
traded on the Over-The-Counter Bulletin Board and will be deregistered under the
Securities and Exchange Act of 1934, and PlanVista will no longer file periodic
reports with the Securities and Exchange Commission.
RESTRICTIONS ON THE ABILITY TO SELL PROXYMED COMMON STOCK
All shares of ProxyMed common stock to be received by PlanVista
stockholders in connection with the merger will be freely transferable unless
the holder is an affiliate of either PlanVista or ProxyMed under the Securities
Act of 1933.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The merger generally is intended to qualify as a tax-free transaction
and it is a condition to the merger that ProxyMed and PlanVista each receive
legal opinions from counsel to the effect that the merger will constitute a
reorganization within the meaning of 368(a) of the Internal Revenue Code.
Assuming the merger qualifies as a reorganization, PlanVista stockholders who
realize a loss as a result of the merger will not be allowed to recognize such
loss for U.S. federal income tax purposes, and PlanVista stockholders who
recognize a gain as a result of the exchange of PlanVista common stock for
shares of ProxyMed common stock (and cash received in lieu of fractional shares)
will be required to recognize such gain for U.S. federal income tax purposes but
only to the extent of the cash received.
Tax matters are very complicated, and the tax consequences of the
merger to you will depend on the facts of your own situation. You should consult
your tax advisor for a full understanding of the tax consequences of the merger
to you.
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT
TO YOU. YOU SHOULD CAREFULLY READ THIS ENTIRE DOCUMENT AND THE OTHER DOCUMENTS
INCLUDED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS FOR A MORE COMPLETE
UNDERSTANDING OF THE MERGER. IN PARTICULAR, YOU SHOULD READ THE DOCUMENTS
ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING THE MERGER
AGREEMENT, WHICH IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX
A.
13
PROXYMED AND PLANVISTA COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following table reflects the historical cash dividends declared per
share, net income (loss) and book value per share of ProxyMed common stock and
the historical cash dividends declared per share, net income (loss) and book
value per share of PlanVista common stock in comparison with unaudited pro forma
cash dividends declared per share, net loss and book value per share after
giving effect to the pending merger of ProxyMed and PlanVista. The information
in the following table should be read in conjunction with the unaudited pro
forma condensed combined consolidated financial statements and the ProxyMed
historical consolidated financial statements and the PlanVista historical
consolidated financial statements included elsewhere in this joint proxy
statement/prospectus. The pro forma information is presented for illustrative
purposes only. You should not rely on the pro forma financial data as an
indication of the combined financial position or results of operations of future
periods or the results that actually would have been realized had the entities
been a single entity during the period or as of the date presented.
The historical book value per share information presented is computed
by dividing total shareholders' equity for each of ProxyMed or PlanVista by the
number of shares of ProxyMed or PlanVista common stock, respectively,
outstanding as of the respective balance sheet date.
The pro forma combined net loss per share information is computed by
dividing the pro forma combined net income (loss) by the sum of ProxyMed's
weighted average common shares outstanding during each period and the number of
shares of ProxyMed common stock to be issued in connection with the proposed
merger and the $24.1 million private equity offering, as if both transactions
had been consummated on January 1, 2002.
The unaudited pro forma condensed combined consolidated book value per
ProxyMed share is computed by dividing total pro forma combined shareholders'
equity by the pro forma number of shares of ProxyMed common stock outstanding at
September 30, 2003 assuming the merger and the $24.1 million private equity
offering had occurred on that date.
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
2002 SEPTEMBER 30, 2003
------------ ------------------
PROXYMED HISTORICAL:
Cash dividends declared per common share $ -- $ --
Basic net income (loss) per common share $ 0.21 $ 0.59
Diluted net income (loss) per common share $ 0.21 $ 0.58
Book value per common share at the end of the period $ 7.48 $ 7.66
PLANVISTA HISTORICAL:
Cash dividends declared per common share $ -- $ --
Basic and diluted net income per share applicable to common stockholders $(2.72) $(2.90)
Book value per common share at the end of the period $(5.99) $(8.47)
UNAUDITED PRO FORMA COMBINED PER SHARE DATA
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
2002 SEPTEMBER 30, 2003
------------ ------------------
PROXYMED AND PLANVISTA PRO FORMA COMBINED:
Pro forma combined cash dividends per common share $ -- $ --
Pro forma basic and diluted combined net loss per common share $(2.25) $ $ (0.02)
Pro forma combined book value per share as of the end of the period $ 10.51
14
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL INFORMATION OF PROXYMED
The following table sets forth ProxyMed's selected consolidated
financial data for each of the five years ended December 31, 2002 and the nine
month periods ended September 30, 2003 and 2002, respectively. Such information
has been prepared from the audited consolidated financial statements and the
unaudited consolidated financial statements of ProxyMed. You should read this
information together with the consolidated financial statements and other
financial information contained elsewhere in this joint proxy
statement/prospectus.
Nine Months Ended
September 31, Year Ended December 31,
------------------------- ---------------------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
----------- ---------- ---------- ----------- ----------- ----------- -----------
STATEMENT OF OPERATIONS DATA:
Revenues $ 53,194 $ 36,988 $ 50,182 $ 43,230 $ 33,441 $ 29,023 $ 22,249
Operating income (loss) $ (3,021) $ 703 $ 1,340 $ (6,712) $ (23,460) $ (20,019) $ (11,087)
Income (loss) from
continuing operations $ 1,200 $ 1,219 $ 1,950 $ (6,798) $ (26,927) $ (20,120) $ (11,194)
Income (loss) from
discontinued operations $ -- $ -- $ -- $ -- $ 241 $ (1,714) $ (595)
Net income (loss) applicable
to common shareholders $ 1,200 $ 607 $ 1,338 $ (19,060) $ (48,052) $ (21,856) $ (11,788)
PER SHARE DATA:
Basic and diluted net loss
per share of common
stock:
Income (loss) from
continuing operations $ 0.18 $ 0.10 $ 0.21 $ (8.81) $ (37.03) $ (16.75) $ (10.73)
Income (loss) from
discontinued operations $ -- $ -- $ -- $ -- $ 0.19 $ (1.43) $ (0.57)
Net income (loss) $ 0.18 $ 0.10 $ 0.21 $ (8.81) $ (36.84) $ (18.18) $ (11.30)
Diluted Weighted average
Common shares outstanding 6,815,247 6,282,258 6,396,893 2,162,352 1,304,342 1,202,136 1,043,558
DIVIDEND DATA:
Dividends on
common stock $ -- $ -- $ -- $ -- $ -- $ -- $ --
Dividends on
cumulative preferred stock $ -- $ -- $ -- $ 1,665 $ 1,275 $ 22 $ --
September 30, December 31,
------------------- -------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
------- ------- ------- ------- ------- ------- -------
BALANCE SHEET DATA:
Working capital $14,714 $29,140 $ 8,749 $ 9,393 $12,156 $12,580 $ 7,565
Convertible notes $13,400 $ -- $13,400 $ -- $ -- $ -- $ --
Other long-term obligations $ 4,001 $ 307 $ 2,581 $ 442 $ 729 $ 583 $ 1,367
Total assets $81,810 $56,136 $88,704 $35,882 $27,666 $44,773 $46,903
Net assets of
discontinued operations $ -- $ -- $ -- $ -- $ -- $ 3,022 $ 4,040
Stockholders' equity $51,942 $49,553 $50,735 $22,873 $22,377 $37,756 $40,279
15
SELECTED HISTORICAL FINANCIAL INFORMATION OF PLANVISTA
The following table sets forth PlanVista's selected historical
consolidated financial data for each of the five years ended December 31, 2002,
2001, 2000, 1999, and 1998, and the nine month periods ended September 30, 2003
and 2002, respectively. Such information has been prepared from PlanVista's
audited consolidated financial statements and its unaudited condensed
consolidated financial statements. This information should be read in
conjunction with the related consolidated financial statements and notes thereto
appearing elsewhere in this joint proxy statement/prospectus.
Nine Months Ended
September 30 Year Ended December 31,
-------------------- ----------------------------------------------------------
2003 2002 2002 2001(1) 2000(1) 1999(1) 1998(1)
-------- -------- -------- --------- --------- -------- --------
(unaudited)
STATEMENT OF OPERATIONS DATA:
(In thousands, except per share amounts)
Operating revenue $ 23,954 $ 24,746 $ 33,141 $ 32,918 $ 26,964 $ 18,691 $ 10,024
-------- -------- -------- --------- --------- -------- --------
Cost of operating revenue:
Personnel expense 6,568 6,617 8,474 9,137 8,301 8,189 4,937
Network access fees 4,575 4,014 5,122 5,343 3,896 2,521 1,894
Other 4,191 4,353 5,826 6,521 4,288 4,013 4,058
Depreciation 425 384 528 467 303 723 247
Costs related to ProxyMed agreement 846 -- -- -- -- -- --
-------- -------- -------- --------- --------- -------- --------
Total cost of operating revenue 16,605 15,368 19,950 21,468 16,788 15,446 11,136
Bad debt expense 1,262 1,980 3,356 3,348 649 624 --
Offering costs -- -- 1,213 -- -- -- --
Amortization of goodwill -- -- -- 1,378 1,380 1,388 967
Loss on impairment of intangible assets -- -- -- -- 5,513 -- --
Loss (gain) on sale of investments, net -- -- -- 2,503 (332) (4,630) (33,240)
Interest expense 2,032 4,649 5,628 12,098 10,489 7,737 5,540
Other (income) expense (650) -- -- (175) 868 (373) 11,921
Equity in loss of joint venture -- -- -- -- -- 208 --
-------- -------- -------- --------- --------- -------- --------
Income (loss) before (benefit) provision for
income taxes, minority interest,
discontinued operations, loss on sale of
discontinued operations, extraordinary loss,
and cumulative effect of change in
accounting principle 4,705 2,749 2,994 (7,702) (8,391) (1,709) 13,700
Net income (loss) 3,486 3,702 4,185 (45,221) (104,477) 104 9,698
Preferred stock accretion and
preferred stock dividend (52,286) (31,080) (48,777) -- -- -- --
Loss (income) applicable to common
stockholders (48,800) (27,378) (44,592) (45,221) (104,477) 104 9,698
Basic and diluted net income (loss) per share
from continuing operations before
minority interest, discontinued operations,
loss on sale of assets, extraordinary item,
and cumulative effect of change in
accounting principle $ 0.21 $ 0.23 $ 0.25 $ (2.37) $ (0.37) $ (0.08) $ 0.55
Basic and diluted net (loss)
income per share applicable to
common stockholders $ (2.90) $ (1.68) $ (2.72) $ (3.11) $ (7.64) $ 0.01 $ 0.67
Dividends declared per share of
common stock -- -- -- -- -- $ 0.4125 --
Average common shares outstanding:
Basic 16,822 16,311 16,427 14,558 13,679 13,742 14,353
Diluted 16,822 16,311 16,427 14,558 13,679 13,922 14,584
As of
September 30, As of December 31,
---------------- --------------------------------------------------------------
2003 2002 2002 2001(1) 2000(1) 1999(1) 1998(1)
---- ---- ---- ------- ------- ------- -------
BALANCE SHEET DATA:
Working capital (deficit) $ (33,938) $ 1,170 $ 1,178 $ (7,901) $(104,859) $ (44,329) $ (93,903)
Total assets 43,091 43,839 42,585 40,125 104,668 236,683 217,002
Total debt 44,420 45,701 45,544 76,086 66,038 95,762 97,322
Series C preferred stock
(As Restated) 129,503 59,520(2) 77,217(2) -- -- -- --
Stockholders' equity (deficit)
(As Restated for 2002) (143,682) (78,393)(2) (95,606)(2) (53,290) (20,340) 86,281 91,652
---------------
(1) PlanVista has reclassified the business units sold in 2001 and 2000 as
discontinued operations in the Consolidated Statements of Operations. During
2000, PlanVista sold its unemployment compensation, workers' compensation,
workers' compensation managed care organization, and self-funded businesses. In
2001, PlanVista sold its third party administration and managing general
underwriter business units.
16
(2) Restated for the classification of the series C preferred stock as
described in Note 18 to the audited consolidated financial statements.
17
SUMMARY SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
DATA
The following summary selected unaudited pro forma condensed combined
consolidated financial data gives effect to the proposed merger between ProxyMed
and PlanVista using the purchase method of accounting for the business
combination. The pro forma condensed combined consolidated financial data also
gives effect to the $24.1 million in capital being raised in a private placement
by ProxyMed whereby such proceeds are being used to retire debt of PlanVista and
provide for payment of certain expenses associated with the transaction. In
addition, the pro forma condensed consolidated financial data also gives effect
to the ProxyMed acquisition of MedUnite on December 31, 2002. This data should
be read in conjunction with ProxyMed's unaudited pro forma condensed combined
consolidated financial statements and related notes thereto, which you can find
beginning on page 207 of this joint proxy statement/prospectus.
As of December 5, 2003, the pro forma condensed combined consolidated
financial statements have been presented assuming an exchange ratio of 0.0869
shares of ProxyMed common stock in exchange for each share of PlanVista common
stock and an exchange ratio of 0.0685 shares of ProxyMed common stock in
exchange for each share of PlanVista series C preferred stock pursuant to the
merger agreement and shares of ProxyMed common stock in exchange for each share
of PlanVista series C preferred stock pursuant to the merger agreement.
There can be no assurance that ProxyMed and PlanVista will not incur
charges in excess of those included in the pro forma adjustments related to the
merger or that ProxyMed's management will be successful in its effort to
integrate the operations of the companies.
The summary selected unaudited pro forma condensed combined
consolidated financial data is derived from the unaudited pro forma condensed
combined consolidated financial statements included elsewhere in this joint
proxy statement/prospectus.
The unaudited pro forma condensed combined consolidated balance sheet
data of ProxyMed gives effect to the proposed merger as if it had occurred on
September 30, 2003, and combines the unaudited historical consolidated balance
sheet of ProxyMed as of September 30, 2003, with the unaudited historical
consolidated balance sheet of PlanVista as of September 30, 2003.
The unaudited pro forma condensed combined consolidated statement of
operations data of ProxyMed gives effect to the proposed merger and that of
MedUnite as if they had been consummated on January 1, 2002. The unaudited pro
forma condensed combined consolidated statement of operations data of ProxyMed
for the year ended December 31, 2002 combines the audited historical
consolidated statement of operations of ProxyMed for the year ended December 31,
2002, the audited historical consolidated statement of operations of PlanVista
for the year ended December 31, 2002 and the audited historical statement of
operations of MedUnite. Under Article 11-02 of Regulation S-X, the operations of
MedUnite, along with pro forma adjustments, are required to be presented when
more than one transaction has occurred or is probable to occur. The pro forma
adjustments for MedUnite were previously filed by ProxyMed under a Form 8-K on
March 17, 2002.
The unaudited pro forma condensed combined consolidated statement of
operations data of ProxyMed for the nine months ended September 30, 2003
combines the unaudited historical consolidated statement of operations of
ProxyMed for the nine months ended September 30, 2003 with the unaudited
historical consolidated statement of operations of PlanVista for the nine months
ended September 30, 2003.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results that would have
occurred if the proposed merger and the MedUnite merger had been consummated on
January 1, 2002 or the financial position that would have occurred if the
proposed merger had been consummated on September 30, 2003, nor is it
necessarily indicative of future operating results or financial position. In
regard to the ProxyMed/PlanVista merger, pro forma adjustments are based upon
information and assumptions available at the time of the filing of the
18
registration statement of which this joint proxy statement/prospectus is a part.
The pro forma information should be read in conjunction with the unaudited pro
forma condensed combined consolidated financial statements and related notes
thereto included elsewhere in this joint proxy statement/prospectus and with
ProxyMed's and PlanVista's historical consolidated financial statements and
related notes thereto included in this joint proxy statement/prospectus.
As part of the transaction, stock options of ProxyMed are being granted
to certain PlanVista employees. Although the strike price of these options has
been fixed at the lower of $17.74 or the market price on the date the merger is
consummated, no effect to any compensation expense (if any is needed) has been
provided for in the pro forma statements of operations or the balance sheet due
to the market price of the Company's stock as of December 5, 2003 being below
$17.74. At the time such options are actually granted, compensatory charges, if
incurred, would be reflected in the financial statements of ProxyMed.
Based on the preliminary valuation of identifiable amortizable
intangible assets of PlanVista and allocation of the purchase price, the
amortization expense associated with these assets is expected to be
approximately $4.1 million over the five years after the consummation of the
acquisition. Such expense may have a material impact on the combined companies
calculation of net income and earnings per share. A preliminary allocation of
the cost of the merger has been made based upon currently available information
and management's estimates. The actual allocation and its results on operations
may differ significantly from the pro forma amounts included herein.
The impact of the merger on the overall effective tax rate of the
combined company is uncertain. Although the combined company will attempt to
optimize its overall effective tax rate and utilize all available net operating
losses (subject to certain limitations), the pro forma tax provision reflects a
full valuation allowance relative to net operating loss carryforwards and other
net deferred tax assets.
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 2002 SEPTEMBER 30, 2003
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues $ 102,857 $ 77,148
Income (loss) before income taxes $ (25,461) $ (254)
Benefit (provision) for income taxes $ -- $ --
Net income (loss) applicable to common stockholders $ (26,073) $ (254)
Basic and diluted net loss per common share $ (2.25) $ (0.02)
PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET DATA:
Working capital $ 13,084
Total assets $ 191,527
Total shareholders' equity $ 126,909
19
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
RECENT SHARE PRICES
ProxyMed's common stock has been quoted on the Nasdaq National Market
under the symbol "PILL" since its initial public offering in August, 1993. Since
October 4, 2002, PlanVista's common stock has been quoted on the
Over-The-Counter Bulletin Board under the symbol "PVST.OB." Prior to that time,
PlanVista's stock was traded on the New York Stock Exchange. PlanVista's New
York Stock Exchange symbol was "HPS" from May 1995 until April 2001, when
PlanVista changed its symbol to "PVC" in connection with the change of its
corporate name from HealthPlan Services Corporation to PlanVista Corporation.
The table below sets forth the high and low sales prices of ProxyMed common
stock and PlanVista common stock for the periods indicated. The prices indicated
below have been appropriately adjusted to give retroactive effect to all stock
splits that have occurred through the date of this joint proxy
statement/prospectus.
PROXYMED PLANVISTA
COMMON COMMON
STOCK STOCK
--------------------- ---------------------
HIGH LOW HIGH LOW
------ ------ ------ ------
YEAR ENDING DECEMBER 31, 2003:
First Quarter $11.45 $ 7.25 $ 1.80 $ 0.70
Second Quarter $13.25 $ 7.08 $ 2.05 $ 0.75
Third Quarter $16.40 $12.01 $ 3.65 $ 1.30
Fourth Quarter (through December 4, 2003) $17.64 $14.55 $ 3.35 $ 1.74
YEAR ENDING DECEMBER 31, 2002:
First Quarter $22.35 $15.00 $ 6.40 $ 4.25
Second Quarter $21.99 $17.21 $ 6.30 $ 3.40
Third Quarter $20.44 $10.50 $ 3.50 $ 1.06
Fourth Quarter $15.95 $ 9.48 $ 2.50 $ 0.73
YEAR ENDING DECEMBER 31, 2001:
First Quarter $23.44 $14.07 $ 9.44 $ 6.20
Second Quarter $17.55 $10.05 $ 8.35 $ 6.60
Third Quarter $17.00 $10.80 $ 7.97 $ 4.20
Fourth Quarter $22.35 $11.25 $ 5.83 $ 4.14
ProxyMed share prices prior to the fourth quarter of 2001 have been
adjusted to reflect a 1-for-15 reverse stock split effected on August 17, 2001.
The above table shows only historical comparisons and may not provide
meaningful information to PlanVista stockholders in determining whether to
approve the merger proposal or ProxyMed shareholders in determining whether to
approve the charter amendment proposal or the issuance proposal. ProxyMed and
PlanVista shareholders are urged to obtain current market quotations for
ProxyMed and PlanVista common stock and to carefully review the other
information contained in this joint proxy statement/prospectus in considering
whether to adopt the merger agreement. Please refer to the section of this joint
proxy statement/prospectus entitled "Where You Can Find More Information"
beginning on page 215.
The following table provides the closing prices per share of ProxyMed
common stock as reported on the Nasdaq National Market, and of PlanVista common
stock as reported on the Over-The-Counter Bulletin Board, in each case on
December 5, 2003, the last full trading day preceding public announcement that
ProxyMed and PlanVista had entered into the merger agreement, and _______, 2004,
the last full trading day for which closing prices were available at the time of
the printing of this joint proxy statement/prospectus. This table also sets
forth the equivalent price per share of PlanVista common stock on those dates.
20
PROXYMED PLANVISTA
COMMON COMMON
STOCK STOCK
------- ---------
December 5, 2003 $16.01 $1.90
_________, 2004 $ $
No assurance can be given as to the market prices of ProxyMed common
stock or PlanVista common stock at any time before the consummation of the
merger or as to the market price of ProxyMed common stock at any time after the
merger. Because the exchange ratios are subject to a fixed "ceiling," the
exchange ratios will not be adjusted upward to compensate PlanVista stockholders
for decreases in the market price of ProxyMed common stock that could occur
before the merger becomes effective. In the event the market price of ProxyMed
common stock decreases or increases prior to the consummation of the merger, the
value of ProxyMed common stock to be received in the merger in exchange for
PlanVista common stock and PlanVista series C preferred stock would
correspondingly decrease or increase.
DIVIDEND INFORMATION
Except for cash dividends paid by PlanVista in 1999, neither ProxyMed
nor PlanVista has ever paid any cash dividends on their shares of common stock.
Under the merger agreement, PlanVista has agreed not to pay cash dividends
pending the completion of the merger, without the written consent of ProxyMed.
Additionally, PlanVista's present lending agreement prohibits the payment of
cash dividends. If the merger is not consummated, the PlanVista board of
directors presently intends that it would continue its policy of retaining all
earnings to finance the expansion of its business. The ProxyMed board of
directors presently intends to retain all earnings for use in its business and
has no present intention to pay cash dividends before or after the merger.
NUMBER OF SHAREHOLDERS
As of December 4, 2003, there were approximately 312 shareholders of
record of ProxyMed's common stock and approximately 4 stockholders of record of
ProxyMed series C preferred stock. As of December 4, 2003, there were
approximately 176 stockholders of record of PlanVista's common stock and
approximately 8 stockholders of record of PlanVista series C preferred stock.
21
RISK FACTORS
In addition to the risks described in each company's reports on Forms
10-K and 10-Q relating to each company as an independent business, you should
carefully consider the following matters in deciding whether to vote in favor of
the merger. These matters have been grouped under three separate headings:
"Risks Related to the Merger," which discusses the risks of combining ProxyMed's
and PlanVista's companies, risks under the merger agreement and potential
conflicts of interest, "Industry and Business Risks Related to ProxyMed and Its
Business," which discusses the risks of ProxyMed's industry and ProxyMed's
business and "Industry and Business Risks Related to PlanVista and Its
Business," which discusses the risks of PlanVista's industry and PlanVista's
business. If any of these risks actually materialize, the business, financial
condition or prospects of ProxyMed and PlanVista may be seriously harmed. In
such case, the market price of ProxyMed common stock may decline, and you may
lose all or part of your investment. See "Cautionary Statement Concerning
Forward-Looking Statements" on page 45.
RISKS RELATED TO THE MERGER
The merger involves risk for ProxyMed and PlanVista shareholders.
PlanVista stockholders will be choosing to invest in ProxyMed common stock by
voting in favor of the merger. In addition to other information included in this
joint proxy statement/prospectus, including the matters addressed in the section
of this joint proxy statement/prospectus entitled "Cautionary Statements
Concerning Forward-Looking Statements" beginning on page 45, you should
carefully consider the following risks before deciding whether to vote in favor
of adoption of the merger agreement, in the case of PlanVista stockholders, or
for the amendment to the articles of incorporation, the issuance of shares of
ProxyMed common stock pursuant to the merger agreement and the issuance of
shares of ProxyMed common stock in connection with the ProxyMed private equity
offering, in the case of ProxyMed shareholders. Additional risks and
uncertainties not presently known to ProxyMed or PlanVista or that are not
currently believed to be important to you may also adversely affect the merger
and ProxyMed following the merger.
PROXYMED AND PLANVISTA MAY BE UNABLE TO OBTAIN THE SHAREHOLDER APPROVALS
REQUIRED TO COMPLETE THE MERGER.
The closing of the merger is subject to certain approvals by the
shareholders of PlanVista and ProxyMed, which might not be obtained. The
issuance of shares of ProxyMed common stock pursuant to the merger agreement and
the issuance of shares of ProxyMed common stock in connection with the ProxyMed
private equity offering require the affirmative vote of a majority of the total
votes cast at the ProxyMed special meeting, including the shares of ProxyMed
series C preferred stock entitled to vote as a class with the holders of
ProxyMed common stock, provided a quorum is present at the meeting. The
amendment to ProxyMed's articles of incorporation requires the affirmative vote
of the holders of at least a majority of the outstanding shares of ProxyMed
common stock entitled to vote at the ProxyMed special meeting, including the
shares of ProxyMed series C preferred stock entitled to vote as a class with the
holders of ProxyMed common stock. Adoption of the merger agreement by PlanVista
requires the affirmative vote of a majority of the PlanVista common shares and
series C preferred stock outstanding. If any of these shareholder approvals are
not obtained, the conditions to the closing of the merger will not be satisfied
and the closing of the merger will not occur. Additionally, it is a condition to
PlanVista's obligations to consummate the merger that a majority of the common
stock represented at the PlanVista meeting and not taking into account any votes
cast by holders of the series C preferred stock, by Commonwealth Associates,
L.P., or any affiliates or officers or directors thereof, or any director or
executive officer of PlanVista, be voted in favor of the adoption of the merger
agreement.
THE NUMBER OF SHARES THAT PLANVISTA STOCKHOLDERS WILL BE ENTITLED TO RECEIVE IS
FIXED; IF THE MARKET PRICE OF PROXYMED'S COMMON STOCK DECLINES THE VALUE OF THE
PROXYMED COMMON STOCK BEING ISSUED TO PLANVISTA STOCKHOLDERS WILL BE REDUCED.
Upon the closing of the merger, each holder of shares of PlanVista
stock will be entitled to receive a fixed number (which will be less than one)
of shares of ProxyMed common stock for each share of PlanVista stock held by
such stockholder at the closing of the merger. The market value of ProxyMed's
shares fluctuates based upon general market and economic conditions, ProxyMed's
business and prospects and other factors. Because the value of the consideration
being paid to the PlanVista stockholders in the merger depends on the value of
ProxyMed's
22
common stock at the closing, the exact value of the consideration that PlanVista
stockholders will be entitled to receive in the merger cannot now be determined.
Additionally, any issuances of PlanVista common stock prior to the closing,
including issuances of common stock in connection with (i) the conversion of the
promissory note in favor of PVC Funding Partners, LLC, (ii) the conversion of
the promissory notes and warrants in favor of Centra Benefits Services, Inc.,
(iii) PlanVista's make-whole obligation to HealthPlan Holdings, Inc., (iv) the
exercise of outstanding stock options, (v) the payment of certain fees to
Commonwealth Associates Group Holdings, LLC in shares of common stock, and (vi)
the payment of incentive bonus payments of PlanVista in shares of common stock,
would result in an increase in the total number of shares of PlanVista common
stock outstanding prior to the effective time of the merger and thereby result
in a decrease in the number of shares each PlanVista shareholder will be
entitled to receive. Accordingly, even if the market price of the PlanVista
stock increases prior to the merger, PlanVista stockholders will not be entitled
to additional compensation.
There will be no upward adjustment to the exchange ratio (except for
reclassifications to reflect the effect of any stock split, reverse stock split,
stock dividend, reorganization, recapitalization, reclassification or other like
change with respect to ProxyMed common stock or PlanVista common stock), and the
parties do not have the right to terminate the merger agreement based upon
changes in the market price of either ProxyMed common stock or PlanVista common
stock. The total number of shares of ProxyMed common stock issuable as merger
consideration is subject to a downward adjustment in the event certain fees,
expenses and other obligations of PlanVista arising as a result of the merger
exceed a specified amount. In the event that the amount owed by PlanVista to
Commonwealth Associates Group Holdings, LLC pursuant to the advisory agreement
exceeds a fixed amount, Commonwealth Associates Group Holdings, LLC has agreed
to accept payment for any excess fees in shares of PlanVista common stock to be
issued by PlanVista prior to the closing of the merger. Such shares of PlanVista
common stock will be valued at the price per share that the holders of PlanVista
common stock will be realizing as a result of the issuance of ProxyMed common
stock in the merger. Accordingly, if ProxyMed's stock price decreases or if
certain fees, expenses and other obligations of PlanVista exceed a specified
amount, PlanVista's stockholders will receive less in value for their shares of
PlanVista stock.
SOME OF THE DIRECTORS AND EXECUTIVE OFFICERS OF PROXYMED AND PLANVISTA HAVE
INTERESTS AND ARRANGEMENTS THAT COULD HAVE AFFECTED THEIR DECISIONS TO SUPPORT
OR APPROVE THE TRANSACTION.
All ProxyMed officers and directors and all PlanVista officers will
continue to serve their respective company as of the closing date of the merger
with the exception of Bennett Marks, PlanVista's Chief Financial Officer.
Michael Falk is a director and beneficial owner of securities of both PlanVista
and ProxyMed and controls Commonwealth Associates Group Holdings, LLC, one of
PlanVista's advisors and its controlling shareholder.
Michael Falk serves as one of the four directors of PlanVista
designated by the PlanVista series C preferred stockholders. Mr. Falk is also
the beneficial owner of the PlanVista series C preferred stock owned by PVC
Funding Partners, LLC. He is a controlling owner of Commonwealth Associates
Group Holdings, LLC, which is the managing member of PVC Funding Partners, LLC
which owns 96% of the outstanding PlanVista series C preferred stock and
represents 64.6% of the combined voting power of the common stock and series C
preferred stock of PlanVista. Commonwealth Associates Group Holdings, LLC acted
as one of PlanVista's investment advisers in connection with the merger and will
receive upon consummation of the merger an investment advisory fee of
approximately $1,398,500, subject to among other things, the price of the
ProxyMed common stock at the effective time of the merger. For more information
on Mr. Falk's ownership in PlanVista, please see the section entitled the
"Security Ownership of Certain Beneficial Owners and Management of PlanVista"
beginning on page 192.
Mr. Falk is also a director of ProxyMed. He is the beneficial owner of
434,568 shares of ProxyMed common stock. Mr. Falk will also be the beneficial
owner of 428,070 shares issued in connection with the private equity offering.
For more information on Mr. Falk's ownership in ProxyMed, please see the section
entitled the "Security Ownership of Certain Beneficial Owners and Management of
ProxyMed" beginning on page 154.
Mr. Falk abstained from voting on the proposal to approve the issuance
of the shares of ProxyMed common stock in connection with the merger, the
proposal to approve the issuance of shares of ProxyMed common stock in
connection with the ProxyMed private equity offering, and the proposal to amend
ProxyMed's articles of incorporation to increase the total number of authorized
shares of ProxyMed common stock from 13,333,333 1/3 shares to 30 million shares
and on the proposal for PlanVista to adopt the merger agreement. These interests
may create potential conflicts of interest.
23
Harold Blue, a former director and officer of ProxyMed and current director of
PlanVista, owes ProxyMed approximately $186,000.
Mr. Blue serves as one of the four PlanVista directors designated by
the PlanVista series C preferred stockholders and serves at the pleasure of Mr.
Falk by reason of his control of PVC Funding Partners, LLC.
In April 1997, ProxyMed made loans totaling $350,000 to Harold Blue,
ProxyMed's former chairman of the board and chief executive officer. The funds
were advanced pursuant to two demand promissory notes in the principal amounts
of $290,000 and $60,000, respectively, each bearing interest at a rate of 7-3/4%
per annum. On June 30, 2000, ProxyMed amended the terms of these notes whereby
interest on the notes ceased to accrue subsequent to July 1, 2000 and the loan
plus accrued interest, totaling $435,900 at June 30, 2000, would be payable in a
balloon payment in December 2001. In December 2001, a payment of $250,000 was
received from Mr. Blue and applied against the outstanding balance of the loans.
ProxyMed agreed to refinance the remaining $185,983 balance and a new promissory
note was executed by Mr. Blue. The note is collateralized with options to
purchase 36,667 shares of common stock granted to Mr. Blue under the ProxyMed
stock option plans along with additional warrants granted to Mr. Blue from
various other public companies. In January 2002, Mr. Blue resigned from
ProxyMed's board of directors and the remaining board members agreed to extend
the exercise period of the stock options held as collateral for the note in an
effort to maximize the potential for repayment. In June 2003, ProxyMed amended
the promissory note executed in June 2000 by Mr. Blue. The amendment extended
the maturity date of the promissory note for an additional twelve months to
December 31, 2004 and also allowed Mr. Blue to offset any principal owed with
certain amounts payable to Mr. Blue by ProxyMed as a result of a finder's fee
arrangement with ProxyMed.
Mr. Blue also serves as the President and Chief Operating officer of
Commonwealth Associates Group Holdings, LLC, which is controlled by Michael
Falk. Commonwealth Associates Group Holdings, LLC acted as one of PlanVista's
investment advisers in connection with the transaction and will receive upon
consummation of the merger an investment advisory fee of approximately
$1,398,500, subject to among other things, the price of the ProxyMed common
stock at the effective time of the merger. Mr. Blue will receive a part of this
fee.
Other interested directors and officers
Richard Corbin and Gary Mansfield serve as two of the four PlanVista
directors designated by the PlanVista series C preferred stockholders and as
such serve at the pleasure of Mr. Falk by reason of his control of PVC Funding
Partners, LLC. From 1995 to 1998, Gary Mansfield was a director of ProxyMed and
from 1993 to 1998, he was an executive officer of ProxyMed.
James K. Murray, III, a director of PlanVista, is a limited liability
member of PVC Funding Partners, LLC.
A. Thomas Hardy, Senior Vice President of ProxyMed, and Edwin M.
Cooperman, a ProxyMed director, each own minority interests in certain entities
affiliated with Commonwealth Associates Group Holdings, LLC.
From 1993 to 2000, Bennett Marks was the Executive Vice
President-Finance, Chief Financial Officer and director of ProxyMed.
William L. Bennett, a current director of PlanVista, will become a
director of ProxyMed following the merger. Following the consummation of the
merger, PlanVista will continue to be obligated under a promissory note issued
to William Bennett in the amount of $250,000.
Following the consummation of the merger, PlanVista will continue to be
obligated under a promissory note issued to John Race, a former director of
PlanVista, in the amount of $250,000.
The directors and executive officers of PlanVista will receive
continuing indemnification against certain liabilities and some of the directors
and executive officers of PlanVista hold PlanVista stock options that
potentially provide them with interests in the merger. At the effective time of
the merger, ProxyMed's board of directors will appoint William L. Bennett, an
independent director of PlanVista selected by PlanVista and one additional
24
independent director, who is not affiliated with ProxyMed or PlanVista,
identified by the PlanVista board of directors, and who is reasonably acceptable
to ProxyMed, to serve on the board of directors of ProxyMed. In addition Phillip
S. Dingle, Jeffrey L. Markle, James T. Kearns, Robert A. Martin, David C. Reilly
and Richard L. Lungen have each entered into employment arrangements with
ProxyMed. Each of these agreements becomes effective upon the consummation of
the merger. Under the agreements, these individuals are entitled to receive
compensation and benefits as described under the section of this joint proxy
statement/prospectus. For more information on these employment arrangements, see
"The Merger--Interests of Certain Persons in the Merger" beginning on page 82.
THE STOCK PRICES AND BUSINESSES OF PROXYMED AND PLANVISTA MAY BE ADVERSELY
AFFECTED IF THE MERGER IS NOT COMPLETED.
If the merger is not completed, the market prices of ProxyMed common
stock and PlanVista common stock may decline. In addition, ProxyMed's and
PlanVista's businesses and operations may be harmed to the extent that
customers, suppliers and others believe that the companies cannot effectively
compete in the marketplace without the transaction, or there is customer or
employee uncertainty surrounding the future direction of the product and service
offerings and strategy of ProxyMed or PlanVista on a standalone basis.
Completion of the merger is subject to several closing conditions, including
obtaining requisite regulatory and shareholder approvals, and ProxyMed and
PlanVista may be unable to obtain such approvals on a timely basis or at all. If
the transaction is not completed, ProxyMed would not derive the strategic
benefits expected to result from the transaction. ProxyMed and PlanVista will
also be required to pay significant costs incurred in connection with the
transaction, including legal, accounting and financial advisory fees, whether or
not the transaction is completed. Moreover, under specified circumstances
described in this joint proxy statement/prospectus and the merger agreement,
PlanVista may be required to pay ProxyMed a termination fee of up to $2.0
million pursuant to the merger agreement, in connection with the termination of
the merger agreement.
THE SUCCESS OF THE EXISTING COMMERCIAL RELATIONSHIP BETWEEN PROXYMED AND
PLANVISTA AND THE FUTURE PROFITABILITY OF THE RELATIONSHIP MAY BE ADVERSELY
AFFECTED IF THE MERGER IS NOT COMPLETED.
In June 2003, ProxyMed and PlanVista entered into a joint marketing and
distribution agreement to provide ProxyMed's electronic healthcare transaction
processing services and PlanVista's network access and repricing service product
as an integrated package to existing and prospective payer customers. The
success of the joint marketing and distribution arrangement may be harmed to the
extent that customers, suppliers, and others believe that the companies cannot
effectively compete in the marketplace without the transaction or that the
companies cannot work together effectively in marketing and selling their
integrated products.
ALTHOUGH WE EXPECT THAT THE MERGER WILL RESULT IN BENEFITS TO THE COMBINED
COMPANY, THE COMBINED COMPANY MAY NOT REALIZE THOSE BENEFITS BECAUSE OF
INTEGRATION AND OTHER CHALLENGES.
Any failure of the combined company to meet the challenges involved in
integrating the operations of ProxyMed and PlanVista successfully or to realize
any of the anticipated benefits or synergies of the merger could seriously harm
the results of the combined company. Realizing the benefits of the merger will
depend in part on the ability of the combined company to overcome significant
challenges, including timely, efficient and successful execution of post-merger
strategies, including:
- integrating and combining certain of the operations of the two
companies;
- retaining and assimilating the key personnel of each company;
- retaining existing customers of each company and attracting
new customers;
- retaining strategic partners of each company and attracting
new strategic partners; and
- creating and maintaining uniform standards, controls,
procedures, policies and information.
25
The risks related to the execution of these post-merger strategies
include:
- the potential disruption of the combined company's on-going
business and distraction of its management;
- the difficulty inherent in combining product offerings and
coordinating sales and marketing efforts to effectively
communicate the capabilities of the combined company;
- the potential need to demonstrate to customers that the merger
will not result in adverse changes in customer service
standards or business; and
- the impairment of relationships with employees, suppliers and
customers as a result of any integration of new management
personnel.
THE SIGNIFICANT COSTS ASSOCIATED WITH THE MERGER MAY NOT PROVE TO BE JUSTIFIED
IN LIGHT OF THE BENEFITS ULTIMATELY REALIZED AND COULD ADVERSELY AFFECT FUTURE
LIQUIDITY AND OPERATING RESULTS.
ProxyMed estimates that it will incur direct transaction costs of
approximately $1,550,000 associated with the merger, which will be included as a
part of the total purchase cost for accounting purposes. In addition, PlanVista
estimates that it will incur direct transaction costs estimated to be
$5,650,000, which will be included as a part of the total purchase cost for
accounting purposes. These numbers are estimates that are subject to increase. A
portion of the PlanVista costs will be determined upon the closing. ProxyMed and
PlanVista believe the combined entity may incur charges to operations, which are
not currently reasonably estimable, in the quarter in which the merger is
completed or the following quarters, to reflect costs associated with
integrating certain operations of the two companies. The combined company may
incur additional material charges in subsequent quarters to reflect additional
costs associated with the merger. The significant costs associated with the
merger may not prove to be justified in light of the benefits ultimately
realized and could adversely affect future liquidity and operating results.
CHARGES TO EARNINGS MAY ADVERSELY AFFECT THE MARKET VALUE OF THE COMBINED
COMPANY'S COMMON STOCK FOLLOWING THE MERGER.
In accordance with accounting principles generally accepted in the
United States of America, the combined company will account for the merger using
the purchase method of accounting, which will result in charges to earnings that
could have a material adverse effect on the market value of ProxyMed common
stock following the closing of the merger. Under the purchase method of
accounting, the combined company will allocate the total estimated purchase
price to PlanVista's net tangible assets, amortizable intangible assets, and
intangible assets with indefinite lives based on their fair values as of the
date of the closing of the merger, and record the excess of the purchase price
over those fair values as goodwill. ProxyMed will incur additional depreciation
and amortization expense over the useful lives of certain of the net tangible
and intangible assets acquired in connection with the merger. In addition, to
the extent the value of goodwill or intangible assets with indefinite lives
becomes impaired, ProxyMed may be required to incur material charges relating to
the impairment of those assets. These depreciation, amortization and potential
impairment charges could have a material adverse effect on ProxyMed's results of
operations.
IN ORDER TO BE SUCCESSFUL, THE COMBINED COMPANY MUST RETAIN AND MOTIVATE KEY
EMPLOYEES, WHICH WILL BE MORE DIFFICULT IN LIGHT OF UNCERTAINTY REGARDING THE
MERGER, AND FAILURE TO DO SO COULD SERIOUSLY HARM THE COMBINED COMPANY.
In order to be successful, the combined company must retain and
motivate executives and other key employees, including those in managerial,
sales and technical positions. Employees of ProxyMed or PlanVista may experience
uncertainty about their future role with the combined company until or after
strategies with regard to the combined company are announced or executed. These
circumstances may adversely affect the combined company's ability to attract and
retain key management, sales and technical personnel. The combined company also
must
26
continue to motivate employees and keep them focused on the strategies and goals
of the combined company, which may be particularly difficult because of the
potential distractions of the merger.
RESALES OF PROXYMED COMMON STOCK FOLLOWING THE MERGER MAY CAUSE THE MARKET PRICE
OF PROXYMED'S COMMON STOCK TO DECREASE.
As of December 4, 2003, ProxyMed had 6,783,493 shares of common stock
outstanding, and an aggregate of 3,575,729 shares of ProxyMed common stock were
issuable upon the conversion, redemption or exercise, as applicable, of ProxyMed
convertible debt, preferred stock and warrants and the exercise of outstanding
employee or director stock options. ProxyMed expects that it will issue
3,600,000 shares of ProxyMed common stock in connection with the merger, 200,000
stock options and 1,691,229 shares of ProxyMed common stock in connection with
the ProxyMed private equity offering. The issuance of these new shares of
ProxyMed common stock and the sale of additional shares of ProxyMed common stock
that may become eligible for sale in the public market from time to time upon
exercise of options or other rights will increase the total number of shares of
ProxyMed common stock outstanding. This increase will be substantial.
Additionally, in connection with the ProxyMed private equity offering, ProxyMed
has agreed to grant General Atlantic Partners 74, L.P., General Atlantic
Partners 77, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH
& Co. KG., PVC Funding Partners, LLC, Comvest Venture Partners, L.P., Shea
Ventures, L.P., and Robert Priddy certain demand and "piggy back" registration
rights, pursuant to an amended and restated registration rights agreement. Sales
of a significant number of shares of ProxyMed common stock could have the effect
of depressing the market price for ProxyMed common stock.
PROXYMED WILL HAVE MORE INDEBTEDNESS AFTER THE MERGER.
ProxyMed's debt outstanding as of November 30, 2003 was approximately
$17.7 million. ProxyMed's pro forma debt outstanding as of September 30, 2003,
after giving effect to the merger (as described in "Unaudited Pro Forma
Condensed Combined Financial Information") would have been approximately $44
million on a consolidated basis. As a result of this increase in debt, demands
on ProxyMed's cash resources will increase after the merger, which could have
important effects on an investment in ProxyMed common stock. For example, the
increased levels of indebtedness could, among other things:
- adversely affect the cost and availability of funds from
commercial lenders, debt financing transactions and other
sources;
- reduce funds available for capital investment; and
- create competitive disadvantages compared to other companies
with lower debt levels.
In connection with the merger, ProxyMed will be refinancing PlanVista's
obligation to PVC Funding Partners, LLC in the principal amount of $20,500,000,
as well as PlanVista's other obligations to HealthPlan Holdings, Inc. If
ProxyMed is unable to refinance these obligations or obtain the funding
necessary to repay these obligations on or before May 2005, it could have a
material adverse effect on ProxyMed's business, financial condition and results
of operations.
PROXYMED AND PLANVISTA MAY LOSE CUSTOMERS AS A RESULT OF THE MERGER.
Whether or not the merger is completed, the announcement of the merger
may cause disruptions, including potential loss of customers and other business
partners, in the business of ProxyMed or PlanVista, which could have material or
adverse effects on each company's or the combined company's business and
operations.
In addition, whether or not the merger is completed, ProxyMed's and
PlanVista's customers, licensors and other business partners, in response to the
announcement of the merger, may adversely change or terminate their
relationships with either company or the combined company, which could have a
material adverse effect on the business of the company concerned. Certain of
ProxyMed's or PlanVista's current or potential customers may cancel or defer
requests for each company's services. In addition, customers of both companies
may expect
27
preferential pricing as a result of the merger or the announcement of the
merger. The announcement of the merger may also adversely affect the companies'
ability to attract new customers.
THE MERGER MAY BE COMPLETED EVEN THOUGH MATERIAL ADVERSE CHANGES MAY RESULT FROM
THE ANNOUNCEMENT OF THE MERGER, INDUSTRY-WIDE CHANGES AND OTHER CAUSES.
In general, either party may refuse to complete the offer or the merger
if there is a material adverse change affecting the other party before the
closing. Certain types of changes, however, will not prevent the completion of
the merger, even if they would have a material adverse effect on ProxyMed or
PlanVista, including:
- changes in general economic or financial market conditions;
- changes in conditions generally affecting the industry in
which the company operates;
- any litigation or other similar proceeding arising out of or
in connection with the merger or the merger agreement;
- changes in the market price or trading volume of ProxyMed or
PlanVista capital stock or any failure of ProxyMed or
PlanVista to meet published revenue or earnings projections,
not excluding any underlying effects which is attributable to
any of the foregoing and may have caused such failure to meet
revenue or earnings projections;
- compliance with express terms and conditions of the merger
agreement;
- the announcement or the pendency of the merger or any other
transaction contemplated by the merger agreement;
- any election of PlanVista stockholders seeking appraisal of
their shares in accordance with Delaware General Corporation
Law; or
- any change in accounting requirements or principles or any
change in applicable laws, rules or regulations or the
interpretation thereof.
If material adverse changes occur but ProxyMed and PlanVista still
complete the merger, ProxyMed's stock price may suffer. This in turn may reduce
the value of the merger to PlanVista stockholders.
THE PRO FORMA FINANCIAL STATEMENTS ARE NOT AN INDICATOR OF THE COMBINED
COMPANY'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS FOLLOWING THE MERGER.
The pro forma financial statements contained in this joint proxy
statement/prospectus are not an indicator of the combined company's financial
condition or results of operations following the merger for several reasons. The
pro forma financial statements have been derived from the historical financial
statements of ProxyMed and PlanVista and many adjustments and assumptions have
been made regarding the combined company after giving effect to the merger. The
information upon which these adjustments and assumptions have been made is
preliminary, and these kinds of adjustments and assumptions are difficult to
make with complete accuracy. As a result, the actual financial condition and
results of operations of the combined company following the merger may not be
consistent with, or evident from, these pro forma financial statements.
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In addition, the actual earnings per share, which is referred to as
EPS, of the combined company following the merger may decrease below that
reflected in the pro forma financial information, which is lower than historical
results of ProxyMed, for several reasons. The assumptions used in preparing the
pro forma financial information may not prove to be accurate and other factors
may affect the combined company's actual EPS following the merger. See the
section entitled "Unaudited Pro Forma Condensed Combined Financial Information"
beginning on page 207. Any potential decline in ProxyMed's EPS may cause
significant variations in the stock price of the combined company.
THE EFFECTIVE TAX RATE OF THE COMBINED COMPANY IS UNCERTAIN AS IT WILL BE THE
RESULT OF NUMEROUS FACTORS INCLUDING EACH COMPANY'S ABILITY TO USE ITS NET
OPERATING TAX LOSSES.
The impact of the merger on the overall effective tax rate of the
combined company is uncertain as it is the result of a variety of factors
including the net effect of each company's specific tax rates and circumstances
prior to the merger. PlanVista has been able to utilize certain net operating
losses to reduce its effective tax rate, in compliance with applicable tax laws.
Following the merger, such net operating losses will be subject to further
restrictions and will likely not be able to be deducted by the combined entity
at the same rate as PlanVista had prior to the merger for purposes of reducing
the effective tax rate of the combined company. Although the combined company
will attempt to optimize its overall effective tax rate, it is impossible to
predict the effective tax rate of the combined company accurately. The
combination of the operations of ProxyMed and PlanVista may result in an overall
effective tax rate for the combined company that is higher than ProxyMed's
currently reported tax rate, and it is possible that the effective tax rate of
ProxyMed and PlanVista as a combined company may exceed the weighted average of
the pre-merger tax rates of ProxyMed and PlanVista.
INDUSTRY AND BUSINESS RISKS RELATED TO PROXYMED AND ITS BUSINESS
If the merger is successfully completed, holders of PlanVista stock
will become holders of ProxyMed common stock. ProxyMed's business differs from
PlanVista's business, and ProxyMed's results of operations, as well as the price
of ProxyMed common stock, may be affected by factors different than those
affecting PlanVista's results of operations and the price of PlanVista common
stock before the merger.
PROXYMED'S BUSINESS WILL SUFFER IF PROXYMED FAILS TO SUCCESSFULLY INTEGRATE INTO
ITS BUSINESS THE CUSTOMERS, PRODUCTS, AND TECHNOLOGY OF THE COMPANIES IT
ACQUIRES.
ProxyMed has undertaken several acquisitions in the past few years as
part of a business strategy to expand its business, and ProxyMed may continue in
the future to acquire businesses, assets, services, products, and technologies
from other persons or entities. During fiscal 2002, ProxyMed completed the
acquisition of all of the outstanding stock of KenCom Communications & Services,
Inc. and MedUnite, Inc. in May and December, respectively. In addition, ProxyMed
acquired substantially all of the assets of MDIP, Inc. in July 2003 and the
physician customer base of Claimsnet.com in September 2003. The anticipated
efficiencies and other benefits to be derived from these acquisitions and future
acquisitions may not be realized if ProxyMed is unable to successfully integrate
the acquired businesses into ProxyMed's operations, including customers,
personnel, product lines, and technology. ProxyMed is currently in the process
of integrating into ProxyMed's operations, the customers, products, personnel
and technology of MedUnite. There is no guaranty that ProxyMed will be able to
successfully integrate MedUnite or any future acquired businesses into
ProxyMed's operations. Integration of acquired businesses can be expensive, time
consuming, and may strain ProxyMed's resources. Integration may divert
management's focus and attention from other business concerns and expose
ProxyMed to unforeseen liabilities and risks. ProxyMed may also lose key
employees, strategic partners, and customers as a result of ProxyMed's inability
to successfully integrate in a timely matter or as a result of relationships the
acquired businesses may have with ProxyMed's competitors or the competitors of
ProxyMed's customers and strategic partners. Some challenges that ProxyMed faces
in successfully integrating PlanVista, MedUnite and other acquired businesses
into ProxyMed's operations include:
- conflicts or potential conflicts with customers, suppliers,
and strategic partners;
- integration of platforms, product lines, networks, and other
technology;
- the migration of new customers and products to ProxyMed's
existing network;
- the ability to cross-sell products and services to ProxyMed's
new and existing customer base;
29
- retention of key personnel;
- consolidation of accounting, operational and administrative
functions;
- coordinating new product and process development;
- increasing the scope, geographic diversity and complexity of
operations;
- difficulties in consolidating facilities and transferring
processes and know-how; and
- other difficulties in the assimilation of acquired operations,
technologies or products.
GOVERNMENT REGULATION AND NEW LEGISLATION MAY HAVE A NEGATIVE IMPACT ON
PROXYMED'S BUSINESS AND RESULTS OF OPERATIONS.
As discussed below under the caption, "Healthcare and Privacy Related
Legislation", the healthcare industry is highly regulated and is subject to
extensive and frequently changing federal and state healthcare laws. Several
state and federal laws govern the collection, dissemination, use and
confidentiality of patient health care information. Final HIPAA rules on
standards governing privacy of patient health care information were published in
2000. The implementation deadline for HIPAA's privacy related regulations was
April 14, 2003. Although ProxyMed has undertaken several measures, including the
adoption of policies and procedures for the handling of patient healthcare
information, to ensure compliance with the privacy measures by the deadline and
believes that ProxyMed is in compliance, the privacy regulations are broad in
scope, and will require constant vigilance for ongoing compliance. ProxyMed
cannot guarantee that ProxyMed, ProxyMed's business partners or customers are or
will be in compliance in the future.
HIPAA also mandates the use of standard transactions, standard
identifiers, security and other provisions for electronic claims transactions.
The deadline for compliance with the transaction code set aspects of HIPAA was
October 16, 2003. However, covered entities, including ProxyMed and its
physician and payer customers, may continue to process non-compliant
transactions after October 16, 2003 so long as that covered entity is compliant
with the "contingency planning" guidelines provided by CMS. A substantial number
of ProxyMed's transactions, including those related to its acquisition of
MedUnite, on behalf of its physician and payer customers are currently being
processed in a non-HIPAA compliant manner in accordance with ProxyMed's
contingency plan.
ProxyMed expects, but cannot guarantee, that it will be able to
complete the migration of these transactions into a HIPAA-compliant format on
ProxyMed's Phoenix(TM) platform in an accurate and timely manner, and in close
coordination with its physician and payer customers. ProxyMed may be subject to
complaints by its customers with regard to the accuracy and timeliness of this
migration, which complaints may lead to demands for credits from, or termination
of contracts with, ProxyMed.
ProxyMed's contracts with customers, strategic partners, providers,
payers and other healthcare entities may mandate that ProxyMed's products and
services be HIPAA compliant. If ProxyMed's products and services are not in
compliance with HIPAA or any other alternative guidelines issued by CMS on or
before the deadline and on an ongoing basis thereafter, ProxyMed's customers,
strategic partners, and other healthcare providers with whom it contracts may
terminate their contracts with ProxyMed or sue ProxyMed for breach of contract.
Additionally, ProxyMed's revenues may be reduced as some of ProxyMed's
non-compliant payer partners may be forced to accept paper-based transactions
for which transactions ProxyMed it may not be the recipient for processing.
ProxyMed may be also subject to penalties for non-compliance by federal and
state government agencies, and patients who believe that their confidential
health information have been misused or improperly disclosed may have certain
causes of action under applicable state privacy or HIPAA-like laws against
ProxyMed, ProxyMed's partners, or customers.
30
PROXYMED'S NETWORKS MAY NOT BE ABLE TO SCALE TO SUPPORT PROXYMED'S CONTINUED
RAPID GROWTH, AND PROXYMED'S NETWORK INTEGRATION EFFORTS MAY NOT BE AS
SUCCESSFUL OR TIMELY AS PROXYMED EXPECTS.
ProxyMed's goal is to operate Phoenix(TM), its secure proprietary
national electronic information platform, as one consolidated network that will
provide for cost efficient scalability as ProxyMed continues to grow ProxyMed's
customer base and transaction volumes. ProxyMed has a network upgrade project
underway to enhance the scalability aspects of Phoenix(TM) as well as to
integrate the transaction processing platforms that ProxyMed has acquired. If
ProxyMed's network upgrade and integration projects are not completed in a
timely basis, this could have a detrimental effect on ProxyMed's ability to
process transactions efficiently and could result in lost customers and
revenues.
WHILE PROXYMED GENERATED POSITIVE EARNINGS IN THIS PAST FISCAL YEAR AND IN THE
NINE MONTHS ENDED SEPTEMBER 30, 2003, PROXYMED HAS INCURRED LOSSES IN THE PAST.
THERE IS NO ASSURANCE THAT PROXYMED WILL CONTINUE TO GENERATE POSITIVE EARNINGS
IN THE FUTURE AND THIS COULD HAVE A DETRIMENTAL EFFECT ON THE MARKET PRICE OF
PROXYMED'S STOCK.
While 2002 was ProxyMed's first full year of positive earnings,
ProxyMed has incurred substantial losses, including losses of $19.1 million and
$48.1 million for the fiscal years ended December 31, 2001 and 2000,
respectively. As of December 31, 2002 and September 30, 2003, ProxyMed had
accumulated deficits of $95.3 million and $94.1 million, respectively. While
ProxyMed believes that ProxyMed's business model supports earnings growth in the
future, various factors that may affect loss of customers and related revenues
or increased and unforeseen expenses could cause ProxyMed to fall short of
ProxyMed's financial goals. Such shortfall could have a detrimental effect on
the market price of ProxyMed's stock.
THE ACCEPTANCE OF ELECTRONIC TRANSACTION PROCESSING IN THE HEALTHCARE INDUSTRY
IS STILL IN ITS EARLY STAGES; THUS, THE FUTURE OF PROXYMED'S BUSINESS IS
UNCERTAIN.
ProxyMed's strategy anticipates that electronic processing of
healthcare transactions, including transactions involving clinical as well as
financial information, will become more widespread and that providers and
third-party payers increasingly will use electronic transaction processing
networks for the processing and transmission of data. Electronic transmission of
healthcare transactions (and, in particular, the use of the Internet to transmit
them) is still developing, and complexities in the nature and types of
transactions which must be processed have hindered, to some degree, the
development and acceptance of electronic transaction processing in this
industry. While HIPAA and other government enacted legislation might be a
catalyst for the use of the electronic processing of healthcare transactions,
ProxyMed cannot assure that continued conversion from paper and phone-based
transaction processing to electronic transaction processing in the healthcare
industry, using proprietary physician management systems or the Internet, will
occur.
BUSINESSES PROXYMED ACQUIRES MAY HAVE UNDISCLOSED LIABILITIES THAT MAY HAVE A
NEGATIVE IMPACT ON PROXYMED'S RESULTS OF OPERATIONS AND REQUIRE UNANTICIPATED
EXPENSE.
In pursuing ProxyMed's acquisition strategy, ProxyMed's investigations
of the acquisition candidates may fail to discover undisclosed liabilities of
the acquisition candidates. If ProxyMed acquires a company having undisclosed
liabilities, as a successor owner ProxyMed may be responsible for such
undisclosed liabilities. ProxyMed tries to minimize ProxyMed's exposure to such
liabilities by conducting appropriate due diligence, by requiring audited
financial statements, by in some cases obtaining indemnification from the seller
of the acquired companies, by in some cases deferring payment of a portion of
the purchase price as security for the indemnification or by acquiring only
specified assets. However, ProxyMed cannot insure that it will be able to obtain
indemnifications or that they will be enforceable, collectible or sufficient in
amount, scope or duration to fully offset any undisclosed liabilities arising
from ProxyMed's acquisitions. PlanVista will not be indemnifying ProxyMed in
connection with the merger. In connection with the MedUnite acquisition,
ProxyMed has only limited indemnification rights that may not be sufficient in
amount or scope to offset losses resulting from unknown and undisclosed
liabilities. Furthermore, the introduction of new products and services from
acquired companies such as MedUnite may have a greater risk of undetected or
unknown errors, "bugs," or liabilities than ProxyMed's historic products.
31
PROXYMED'S BUSINESS AND FUTURE SUCCESS MAY DEPEND ON PROXYMED'S ABILITY TO
CROSS-SELL PROXYMED'S PRODUCTS AND SERVICES.
ProxyMed's ability to generate revenue and growth depends on ProxyMed's
ability to cross-sell its products and services to its existing customers and
new customers resulting from acquisitions. ProxyMed's ability to successfully
cross-sell its products and services is one of the most significant factors
influencing ProxyMed's growth. There is no guaranty that ProxyMed will be
successful in cross-selling its products and services, and ProxyMed's failure in
this area would likely have an adverse affect on its business.
PROXYMED HAS IMPORTANT BUSINESS RELATIONSHIPS WITH OTHER COMPANIES TO MARKET AND
SELL SOME OF PROXYMED'S CLINICAL AND FINANCIAL PRODUCTS AND SERVICES. IF THESE
COMPANIES TERMINATE THEIR RELATIONSHIPS WITH PROXYMED, OR ARE LESS SUCCESSFUL IN
THE FUTURE, PROXYMED WILL NEED TO ADD THIS EMPHASIS INTERNALLY, WHICH MAY DIVERT
PROXYMED'S EFFORTS AND RESOURCES FROM OTHER PROJECTS.
For the marketing and sale of some of ProxyMed's products and services,
ProxyMed entered into important business relationships with physician office
management information system vendors, with electronic medical record vendors,
and with other distribution partners. These business relationships, which have
required and may continue to require significant commitments of effort and
resources, are an important part of ProxyMed's distribution strategy and
generate substantial recurring revenue. Most of these relationships are on a
non-exclusive basis, and ProxyMed cannot assure that its electronic commerce
partners and other strategic partners, most of whom have significantly greater
financial and marketing resources than ProxyMed does, will not develop and
market products and services in competition with ProxyMed in the future or will
not otherwise discontinue their relationship with ProxyMed. Also, ProxyMed's
arrangements with some of ProxyMed's partners involve negotiated payments to the
partners based on percentages of revenues generated by the partners. If the
payments prove to be too high, ProxyMed may be unable to realize acceptable
margins, but if the payments prove to be too low, the partners may not be
motivated to produce a sufficient volume of revenues. The success of ProxyMed's
important business relationships will depend in part upon its partners' own
competitive, marketing and strategic considerations, including the relative
advantages of alternative products being developed and marketed by such
partners. If any such partners are unsuccessful in marketing ProxyMed's
products, it will need to place added emphasis on these aspects of ProxyMed's
business internally, which may divert ProxyMed's planned efforts and resources
from other projects.
BECAUSE AN ERROR BY ANY PARTY IN THE PROCESS OF PROVIDING CLINICAL CONNECTIVITY,
SUCH AS PRESCRIBING DRUGS, FILLING PRESCRIPTIONS, AND TRANSMITTING LABORATORY
ORDERS AND RESULTS COULD RESULT IN SUBSTANTIAL INJURY TO A PATIENT, PROXYMED'S
LIABILITY INSURANCE MAY NOT BE ADEQUATE IN A CATASTROPHIC SITUATION.
ProxyMed's business exposes ProxyMed to potential liability risks that
are unavoidably part of being in the healthcare electronic transaction
processing industry. Since many of ProxyMed's products and services relate to
the prescribing and refilling of drugs and the transmission of medical
laboratory orders and results, an error by any party in the process could result
in substantial injury to a patient. As a result, ProxyMed's liability risks are
significant.
ProxyMed cannot assure that ProxyMed's insurance will be sufficient to
cover potential claims arising out of ProxyMed's current or proposed operations,
or that ProxyMed's present level of coverage will be available in the future at
a reasonable cost. A partially or completely uninsured claim against ProxyMed,
if successful and of sufficient magnitude, would have significant adverse
financial consequences. ProxyMed's inability to obtain insurance of the type and
in the amounts it requires could generally impair ProxyMed's ability to market
ProxyMed's products and services.
PROXYMED DEPENDS ON CONNECTIONS TO INSURANCE COMPANIES AND OTHER PAYERS, AND IF
IT LOSES THESE CONNECTIONS, PROXYMED'S SERVICE OFFERINGS WOULD BE LIMITED AND
LESS DESIRABLE TO HEALTHCARE PARTICIPANTS.
ProxyMed's business is enhanced by the substantial number of payers,
such as insurance companies, Medicare and Medicaid agencies, to which ProxyMed
has electronic connections. These connections may either be made directly or
through a clearinghouse. ProxyMed has attempted to enter into suitable
contractual relationships to ensure long-term payer connectivity; however,
ProxyMed cannot assure that ProxyMed will be able to maintain its
32
links with all these payers. In addition, ProxyMed cannot assure that ProxyMed
will be able to develop new connections, either directly or through
clearinghouses, on satisfactory terms. Lastly, some third-party payers provide
systems directly to healthcare providers, bypassing ProxyMed and other
third-party processors. ProxyMed's failure to maintain existing connections with
payers and clearinghouses or to develop new connections as circumstances
warrant, or an increase in the utilization of direct links between providers and
payers, could cause ProxyMed's electronic transaction processing system to be
less desirable to healthcare participants, which would slow down or reduce the
number of transactions that ProxyMed processes and for which ProxyMed is paid.
PROXYMED'S LABORATORY COMMUNICATION DEVICES MAY BE REPLACED WITH WEB-BASED
TECHNOLOGY FOR LAB RESULTS DELIVERY, AND PROXYMED MAY NOT BE SUCCESSFUL IN
CONVERTING PROXYMED'S CUSTOMERS TO PHOENIX AND TO PROXYMED'S OWN INTERNET SITE
AT PROXYMED.NET, WHICH WOULD ADVERSELY IMPACT PROXYMED'S REVENUES.
A key element of ProxyMed's longer-term Laboratory Services business
strategy is to market ProxyMed's intelligent laboratory results reporting
devices and related services, and ProxyMed's web-based solutions directly to
independent and hospital-based medical laboratories. As the Internet becomes a
more acceptable method of transmitting laboratory orders and reporting results
because of the efficiencies and savings believed to be available, ProxyMed hopes
to leverage ProxyMed's more than 25 years of goodwill (through ProxyMed's Key
Communications Service subsidiary) and reputation for quality of products and
superior service to migrate ProxyMed's customers over to Phoenix(TM), more
specifically to ProxyMed's Internet site at ProxyMed.com. ProxyMed expects
others to develop similar web-based solutions and compete aggressively in an
attempt to capture ProxyMed's large customer base. In addition, many of
ProxyMed's device customers may choose to offer Internet services themselves,
rather than utilizing a third party. ProxyMed has no assurances that ProxyMed
will be able to retain or continue to grow ProxyMed's customer base. Further,
even as to the continuing sales of ProxyMed's laboratory communication devices,
ProxyMed is unable to control many of the factors that influence ProxyMed's
customers' buying decisions, including ProxyMed's customers' budgets and
procedures for approving expenditures, and the changing political, economic and
regulatory influences which affect the purchasing practices and operation of
healthcare organizations.
EVOLVING INDUSTRY STANDARDS AND RAPID TECHNOLOGICAL CHANGES COULD RESULT IN
PROXYMED'S PRODUCTS BECOMING OBSOLETE OR NO LONGER IN DEMAND.
Rapidly changing technology, evolving industry standards and the
frequent introduction of new and enhanced Internet-based services characterize
the market for ProxyMed's products and services. ProxyMed's success will depend
upon ProxyMed's ability to enhance ProxyMed's existing services, introduce new
products and services on a timely and cost-effective basis to meet evolving
customer requirements, achieve market acceptance for new products or services
and respond to emerging industry standards and other technological changes.
ProxyMed cannot assure you that it will be able to respond effectively to
technological changes or new industry standards. Moreover, we cannot assure that
other companies will not develop competitive products or services, or that any
such competitive products or services will not cause ProxyMed's products and
services to become obsolete or no longer in demand.
IF ELECTRONIC TRANSACTION PROCESSING PENETRATES THE HEALTHCARE INDUSTRY,
PROXYMED MAY FACE PRESSURE TO REDUCE PROXYMED'S PRICES WHICH POTENTIALLY MAY
CAUSE PROXYMED TO NO LONGER BE COMPETITIVE.
If electronic transaction processing extensively penetrates the
healthcare market or becomes highly standardized, it is possible that
competition among electronic transaction processors will focus increasingly on
pricing. This competition may put intense pressure on ProxyMed to reduce
ProxyMed's pricing in order to retain market share. If ProxyMed is unable to
reduce ProxyMed's costs sufficiently to offset declines in ProxyMed's prices, or
if ProxyMed is unable to introduce new, innovative service offerings with higher
prices, we may not be competitive.
33
COMPUTER NETWORK SYSTEMS LIKE PROXYMED'S COULD SUFFER SECURITY AND PRIVACY
BREACHES THAT COULD HARM PROXYMED'S CUSTOMERS AND PROXYMED.
ProxyMed currently operates servers and maintains connectivity from
multiple facilities. Despite ProxyMed's implementation of standard network
security measures, ProxyMed's infrastructure may be vulnerable to computer
viruses, break-ins and similar disruptive problems caused by customers or other
users. Computer viruses, break-ins or other security problems could lead to
interruption, delays or cessation in service to ProxyMed's customers. These
problems could also potentially jeopardize the security of confidential
information stored in the computer systems of ProxyMed's customers, which may
deter potential customers from doing business with ProxyMed and give rise to
possible liability to users whose security or privacy has been infringed. The
security and privacy concerns of existing and potential customers may inhibit
the growth of the healthcare information services industry in general, and
ProxyMed's customer base and business in particular. A significant security
breach could result in loss of customers, loss of revenues, damage to ProxyMed's
reputation, direct damages, costs of repair and detection and other unplanned
expenses. While ProxyMed carries professional liability insurance to cover such
breaches, the coverage may not be adequate to compensate ProxyMed for losses
that may occur.
PROXYMED DEPENDS ON UNINTERRUPTED COMPUTER ACCESS FOR PROXYMED'S CUSTOMERS; ANY
PROLONGED INTERRUPTIONS IN PROXYMED'S OPERATIONS COULD CAUSE PROXYMED'S
CUSTOMERS TO SEEK ALTERNATIVE PROVIDERS OF PROXYMED'S SERVICES.
ProxyMed's success is dependent on ProxyMed's ability to deliver
high-quality, uninterrupted computer networking and hosting, requiring ProxyMed
to protect ProxyMed's computer equipment and the information stored in servers
against damage by fire, natural disaster, power loss, telecommunications
failures, unauthorized intrusion and other catastrophic events. To mitigate this
risk, ProxyMed has commenced the movement of ProxyMed's production computer
networks to a secure, third-party co-location site located in Atlanta, Georgia.
This site has back-up site capability and a program to manage technology to
reduce risks in the event of a disaster, including periodic "back-ups" of
ProxyMed's computer programs and data.
While ProxyMed still continues to operate production networks in
ProxyMed's Santa Ana, Norcross and Richmond facilities, any damage or failure
resulting in prolonged interruptions in ProxyMed's operations could cause
ProxyMed's customers to seek alternative providers of ProxyMed's services. In
particular, a system failure, if prolonged, could result in reduced revenues,
loss of customers and damage to ProxyMed's reputation, any of which could cause
ProxyMed's business to suffer. While ProxyMed carries property and business
interruption insurance to cover operations, the coverage may not be adequate to
compensate ProxyMed for losses that may occur.
PROXYMED MAY NOT BE ABLE TO RETAIN KEY PERSONNEL OR REPLACE THEM IF THEY LEAVE.
ProxyMed's success is largely dependent on the personal efforts of
Michael K. Hoover, ProxyMed's Chairman of the Board and Chief Executive Officer
and Nancy J. Ham, ProxyMed's President and Chief Operating Officer. Although
ProxyMed has entered into employment agreements with Mr. Hoover, Ms. Ham and
other senior executives, the loss of any of their services could cause
ProxyMed's business to suffer. ProxyMed's success is also dependent upon its
ability to hire and retain qualified operations, development and other
personnel. Competition for qualified personnel in the healthcare information
services industry is intense, and ProxyMed cannot assure that ProxyMed will be
able to hire or retain the personnel necessary for ProxyMed's planned
operations.
PROXYMED MAY ISSUE ADDITIONAL SHARES THAT COULD ADVERSELY AFFECT THE MARKET
PRICE OF PROXYMED'S COMMON STOCK.
Certain events over which you have no control could result in the
issuance of additional shares of ProxyMed's common stock or series C preferred
stock, which would dilute your ownership percentage in ProxyMed and could
adversely affect the market price of ProxyMed's common stock. ProxyMed may issue
additional shares of common stock or series C preferred stock for many reasons
including:
- to raise additional capital or finance acquisitions;
34
- upon the exercise or conversion or an exchange of outstanding
options, warrants and shares of convertible preferred stock;
or
- in lieu of cash payment of dividends.
In addition, the number of shares of common stock that ProxyMed is
required to issue in connection with ProxyMed's outstanding warrants may
increase if certain anti-dilution events occur (such as certain issuances of
common stock, options and convertible securities).
THE TRADING PRICE OF PROXYMED'S COMMON STOCK MAY BE VOLATILE.
The stock market, including the Nasdaq National Market on which the
shares of ProxyMed's common stock are listed, has from time to time experienced
significant price and volume fluctuations that may be unrelated to the operating
performance of particular companies. In addition, the market price of ProxyMed's
common stock, like the stock prices of many publicly traded companies in the
healthcare industry, has been and may continue to be highly volatile.
INDUSTRY AND BUSINESS RISKS RELATED TO PLANVISTA AND ITS BUSINESS
Any investor in PlanVista's stock or business, and any party
considering an investment in PlanVista, should carefully consider the following
factors and cautionary statements, as well as the other information set forth in
this joint proxy statement/prospectus. If any of the following risks were to
actually occur, PlanVista's business, financial condition, or results of
operations could be materially harmed and this could in turn have a significant
effect on the value of the stock of ProxyMed after the merger.
Risks Related to PlanVista's Financial Obligations and Capital Structure
FAILURE TO OBTAIN ALTERNATIVE FINANCING TO RESTRUCTURE ITS DEBT MAY RESULT IN
PLANVISTA'S INABILITY TO COMPLY WITH FINANCIAL COVENANTS UNDER THE RESTRUCTURED
CREDIT FACILITY OR TO REPAY DEBT AT MATURITY, WHICH WILL CAUSE A DEFAULT UNDER
THE TERM LOAN IF THE MERGER TRANSACTION IS NOT APPROVED.
PlanVista completed a restructuring of its credit facilities with its
bank lenders in April 2002. PlanVista replaced approximately $69.0 million of
indebtedness to its lenders, including outstanding principal and accrued and
unpaid interest and bank fees, with a $40.0 million term loan with a maturity
date of May 2004 and collateralized by all of its assets. The term loan requires
PlanVista to achieve financial covenants, including minimum monthly EBITDA
levels, maximum quarterly and annual capital expenditures, a minimum quarterly
fixed charge ratio, and maximum quarterly and annual extraordinary expenses.
Failure to comply with the term loan's financial covenants is an event of
default and would permit the lenders to immediately require PlanVista to repay
the term loan. This may have a material adverse effect on PlanVista's business,
operating results and financial condition, and could require PlanVista to seek
protection under available bankruptcy laws. During December 2002, PlanVista was
not in compliance with its EBITDA covenant and subsequently obtained a waiver
from its senior lenders for this non-compliance.
While focusing on the transaction with ProxyMed, PlanVista's management
has not been and will not be able to actively pursue other financing
alternatives that would enable PlanVista to restructure its debt or recapitalize
PlanVista. If the merger is not approved by the PlanVista stockholders or
ProxyMed shareholders or the merger agreement is otherwise terminated, PlanVista
may not have sufficient time to identify and obtain financing from an alternate
financing source prior to the maturity date of its senior credit facility, and
this would constitute a default under the restructured credit facility, which
default would have a material adverse effect on PlanVista's business.
35
PLANVISTA'S OBLIGATIONS TO ISSUE ADDITIONAL SHARES OF ITS COMMON STOCK AND TO
REGISTER OUTSTANDING AND ISSUABLE SHARES MAY RESULT IN SUBSTANTIAL DILUTION OF
STOCKHOLDER VALUE.
In connection with a transaction with HealthPlan Holdings, PlanVista
issued to HealthPlan Holdings a convertible subordinated note which
automatically converted into 813,273 shares of PlanVista's common stock in April
2002. The number of conversion shares is equal to $5.0 million, divided by
$6.15, which was the average closing price of the stock on the New York Stock
Exchange during the ten trading days immediately prior to the conversion.
PlanVista's agreement with HealthPlan Holdings requires that PlanVista issue and
distribute to HealthPlan Holdings additional shares of PlanVista's common stock
to compensate them to the extent that the amount of proceeds HealthPlan Holdings
realizes from the sale of the conversion shares is less than $5.0 million.
PlanVista has granted HealthPlan Holdings registration rights with respect to
these shares and other outstanding shares of PlanVista's common stock held by
HealthPlan Holdings, except for the 813,273 conversion shares with respect to
which HealthPlan Holdings no longer has registration rights because such shares
are freely saleable under Rule 144(k) of the Securities and Exchange Act of
1934, and 100,000 shares issued as penalty shares with respect to which
registration rights were not granted.
In connection with the restructuring of PlanVista's credit facility in
April 2002, PlanVista issued to its senior lenders 29,000 shares of its newly
authorized series C preferred stock. On March 7, 2003, PVC Funding Partners,
LLC, an affiliate of Commonwealth Associates, L.P. and Comvest Venture Partners,
L.P., acquired 29,851 shares of PlanVista's series C preferred stock,
representing 96% of the then outstanding series C preferred stock. PlanVista has
issued an additional 4,536 shares of series C preferred stock as dividends on
the initial 29,000 shares of PlanVista series C preferred stock, pro rata to all
series C preferred stockholders. The series C preferred stock may be converted
at any time into shares of PlanVista's common stock at the rate of 751.88 shares
of common stock for each preferred share, or a total of 25,215,038 shares (or
59.7%) of PlanVista's common stock upon full conversion, subject to adjustment.
The series C preferred stock has weighted-average anti-dilution protection and a
provision that in no event will the series C preferred stock convert into less
than 51.0% of PlanVista's outstanding shares of common stock. PlanVista granted
the series C preferred stockholders registration rights with respect to the
shares of common stock that are issuable upon conversion.
On March 31, 2003, PlanVista renegotiated approximately $4.8 million in
convertible notes that were originally issued to Centra Benefit Services, Inc.
(sometimes referred to herein as Centra). In connection with the restructuring,
PVC Funding Partners, LLC acquired slightly more than 50% of the aggregate
principal amount of the notes. The remaining interest is held by Centra. At any
time, Centra or PVC Funding Partners, LLC may convert the notes into shares of
PlanVista's common stock, at a price of $1.00 per share, subject to adjustment
in accordance with anti-dilution protections. In connection with the previous
restructuring of the convertible notes, PlanVista also issued to Centra warrants
for the purchase of an aggregate of 200,000 shares of PlanVista's common stock
at an exercise price of $6.398 per share.
PlanVista has also reserved an aggregate of 6,210,000 shares of common
stock for future issuance to its officers, non-employee directors, employees,
and consultants pursuant to its existing stock incentive plans. PlanVista has
outstanding options with respect to 5,522,869 of these shares.
As of March 27, 2002, PlanVista retired a subordinated note payable to
New England Financial, including accrued interest, totaling approximately $2.5
million, by issuing 274,369 shares of PlanVista's common stock, based on a per
share price of $5.54, which was the closing price of PlanVista's common stock
one day immediately prior to the retirement date of the note. New England
Financial subsequently assigned the 274,369 shares to New England Financial
Distributors. PlanVista has agreed to register these shares.
In connection with the HealthPlan Holdings transaction and the
restructuring of PlanVista's credit facility, PlanVista issued a total of
150,000 shares of its common stock to its senior lenders in 2001 and 2002.
PlanVista has granted the senior lenders registration rights with respect to
these shares.
On July 9, 2001, PlanVista completed a $3.8 million private placement
of 553,500 shares of PlanVista's common stock to certain investment accounts
managed by DePrince, Race & Zollo. PlanVista has agreed to register these
shares.
36
Future issuances of substantial amounts of common stock, or the
perception that such sales could occur, and the registration of currently
unregistered shares, could have a material adverse effect on the value of
PlanVista common stock. Also, any additional issuances of common stock prior to
the effective time of the merger will decrease the compensation to each current
common stockholder in the merger since the number of ProxyMed shares to be
received as merger consideration is fixed. See "Description of
PlanVista--PlanVista's History" on page 165 and "PlanVista Management's
Discussion and Analysis of Operations - Liquidity and Capital Resources" on page
179 for more information regarding the transactions described above.
CERTAIN OF PLANVISTA'S EXISTING STOCKHOLDERS HAVE SIGNIFICANT VOTING CONTROL
OVER MATTERS REQUIRING STOCKHOLDER APPROVAL.
The holders of the series C preferred stock have the right to vote as a
single class with the common stockholders on all matters other than the election
of directors on an "as-converted" basis, with each share of series C preferred
stock having a number of votes equal to the number of shares of common stock
into which it would be converted. The "as-converted" rights became effective
upon PlanVista's failure to redeem all of the series C preferred shares by
October 12, 2003. In addition to the rights of series C preferred stockholders,
certain holders of PlanVista's common stock also have significant voting control
over matters requiring stockholder approval. As of December 1, 2003, PlanVista's
executive officers, directors, and their affiliates beneficially owned, in the
aggregate, approximately 62.9% PlanVista's outstanding common stock (including
their series C preferred shares on an "as-converted" basis), and PlanVista's
other existing 5% or greater stockholders beneficially owned, in the aggregate,
in excess of 30% of PlanVista's outstanding common stock. While the merger
agreement contains a provision that requires the consent of the majority of the
votes entitled to be cast at the special meeting without taking into account
votes cast by certain of these signed stockholders, this protection of the
minority stockholders may be waived by the board of directors of PlanVista. Such
a waiver would effectively permit those existing stockholders with significant
voting control to decide whether to adopt the merger agreement on behalf of all
of PlanVista's stockholders.
PLANVISTA MAY LACK FUNDS FOR FUTURE REQUIREMENTS.
PlanVista may not be able to pursue expansion, develop or enhance its
products or services, or respond to competitive pressures if it lacks adequate
funds, which would hurt PlanVista's business. PlanVista does not currently have
an available line of credit with a lender, and PlanVista manages its business
from existing cash flow. PlanVista may need to raise additional funds to operate
PlanVista's business, to develop new or enhanced services, or to respond to
competitive pressures and its inability to do so could hurt PlanVista's business
prospects whether or not the merger is approved.
PLANVISTA HAS CONTINGENT OBLIGATIONS FROM THE SALE OF ITS THIRD PARTY
ADMINISTRATION AND MANAGING GENERAL UNDERWRITER BUSINESSES.
In connection with the sale of its third party administration and
managing general underwriter businesses in 2001 and 2000, PlanVista incurred
indemnification obligations for representations, warranties, and covenants, and
for liabilities arising prior to the sale of these businesses. Consequently,
PlanVista has assumed the defense of a number of claims for liabilities arising
prior to the sale of these businesses. There may be unknown liabilities arising
from PlanVista's contingent obligations for which PlanVista has not established
reserves or there may be liabilities for which PlanVista has not accrued
adequate reserves and, if these liabilities were to occur, PlanVista, or
ProxyMed as the successor company, might have to reorganize or liquidate under
the bankruptcy laws in order to discharge them. PlanVista cannot assure you of
the outcome of any matter arising under PlanVista's contingent obligations, and
if the outcome is adverse, these obligations could have a material adverse
effect on PlanVista's or ProxyMed's operating results and financial condition.
Risks Related to PlanVista's Business
A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF PLANVISTA'S
OPERATING REVENUE.
The loss of one or more of PlanVista's significant customers could
cause its business to suffer. PlanVista's top three customers accounted for
17.2%, 24.6%, and 33.0% of PlanVista's operating revenue for the years ended
December 31, 2002, 2001, and 2000, respectively. For the nine months ended
September 30, 2003 and for the years ended
37
December 31, 2002 and 2001, no single customer accounted for more than 10% of
total operating revenue. For the nine months ended September 30, 2003 and for
the year ended December 31, 2002, three of PlanVista's largest customers
accounted for approximately 25.7% and 17.2% respectively, of total operating
revenue. These customers may account for a significant portion of its operating
revenue through the remainder of 2003, depending upon PlanVista's ability to
grow its business by and with similarly-sized customers in the foreseeable
future. Since PlanVista's customer contracts generally are terminable within 90
days, any of these customers could terminate their relationship with PlanVista
at any time. In addition, companies in the healthcare industry generally have
been consolidating, resulting in a limited number of payers and PPOs controlling
an increasing portion of claims. Therefore, PlanVista believes that its
operating revenues will be largely dependent upon product acceptance by a
smaller number of payers and PPOs. If PlanVista loses any one of its major
customers or any of its major customers negotiate less favorable terms with
PlanVista, then PlanVista will lose operating revenue, which would adversely
affect its financial condition and results of operations.
THE TERMS OF PLANVISTA'S CUSTOMER CONTRACTS PROVIDE NO GUARANTEE OF LONG-TERM
RELATIONSHIPS OR PAYMENTS.
PlanVista's payer customers generally can terminate National Preferred
Provider Network access contracts for any reason on 90 days' notice. In 2002 and
for the nine months ended September 30, 2003, PlanVista had a customer turnover
rate of 3.1% in each period, representing the loss of 23 and 25 customer
contracts, respectively. In addition, the majority of PlanVista's contracts
contain payment terms that are based on a percentage of savings to the customer
or on the number of covered employees. In 2002, PlanVista experienced a decline
in percentage of savings revenue from existing customers due to a decrease in
the amount of high dollar claims PlanVista received from these customers.
Although 2002 revenue from new clients offset revenue lost from departing
clients and from decreases in large claim submissions, the termination of
additional customer contracts, or PlanVista's inability to generate significant
savings with respect to customer claims, could adversely affect PlanVista's
financial condition and results of operations.
PLANVISTA'S PROVIDER ARRANGEMENTS PROVIDE NO GUARANTEE OF LONG-TERM
RELATIONSHIPS.
All of PlanVista's contracts with PPOs and providers can be terminated
without cause, generally on 90 days' notice. The termination of any PPO contract
would render PlanVista unable to provide its customers with network access to
that PPO, and therefore would adversely affect PlanVista's ability to reprice
claims and derive revenues. Furthermore, as a "network of networks," PlanVista
relies on its participating PPOs and provider groups to ensure participation by
such providers. PlanVista's PPO contracts generally do not provide PlanVista
with a direct recourse against a participating provider that chooses not to
honor its obligation to provide a discount, or chooses to discontinue its
participation in PlanVista's National Preferred Provider Network. In 2002,
PlanVista contracts with three former networks terminated, representing a loss
of approximately 140 hospitals and 31,000 physicians. In the nine months ended
September 30, 2003, PlanVista's contracts with one former network terminated,
representing a loss of approximately 200 hospitals and 9,500 physicians.
Although PlanVista replaced the terminated networks with new network
arrangements that in each instance substantially offset these hospital and
physician losses, termination of provider contracts or other changes in the
manner in which these parties conduct their business are outside of PlanVista's
control and could negatively affect PlanVista's ability to provide services to
PlanVista customers.
SOME PROVIDERS HAVE HISTORICALLY BEEN RELUCTANT TO PARTICIPATE IN SECONDARY
NETWORKS.
PlanVista's percentage of savings business model sometimes allows a
payer to utilize PlanVista network discounts in circumstances where PlanVista's
National Preferred Provider Network is not the payer's primary network. In these
circumstances, PlanVista's National Preferred Provider Network participating
providers are not traditionally given the same assurances of patient flow that
they receive when they are part of a primary network. Historically, some
providers have been reluctant to participate in network arrangements that do not
guarantee a high degree of patient steerage. Although PlanVista thinks that the
steerage provided by its payers as a whole and the speed and efficiency with
which PlanVista provides claims repricing services make National Preferred
Provider Network affiliation an attractive option for providers, there can be no
assurance that PlanVista's business model will not discourage providers from
commencing or maintaining an affiliation with the National Preferred Provider
Network.
38
PLANVISTA'S OPERATING HISTORY IS NOT INDICATIVE OF PLANVISTA FUTURE PERFORMANCE.
During the period 2000-2001, PlanVista sold its third party
administration business and managing general underwriter business. Revenue from
discontinued operations was $0 in 2002, $36.4 million in 2001, and $157.9
million in 2000, which significantly exceeded operating revenue from continuing
operations for 2001 and 2000. Operating revenue from continuing operations was
$33.1 million, $32.9 million and $27.0 million in 2002, 2001 and 2000,
respectively. Accordingly, PlanVista's operating history is not indicative of
its projected future performance as a business focused exclusively on medical
cost management and network and data management business process outsourcing.
In addition, PlanVista's growth rate is partially attributable to
healthcare expenditures nationally and the related growth of claims PlanVista
processes. PlanVista may not continue to grow in the future, and if PlanVista
does grow, PlanVista's growth may not be at or near historical levels.
PLANVISTA'S BUSINESS MODEL IS UNPROVEN.
Although PlanVista's National Preferred Provider Network business unit
began doing business in 1994, the increasing popularity and use of electronic
claims and data processing tools and the Internet have occurred only recently
and, as a result, the focus of PlanVista's business has changed significantly.
Since PlanVista's completion of the sale of its third party administration and
managing general underwriter businesses to HealthPlan Holdings, it began
concentrating exclusively on medical cost management, at which time it began to
build its network and data management business process outsourcing businesses,
including PlanVista PayerServ and PlanServ products. These businesses did not
begin earning revenue until the first quarter of 2002 and currently represent
6.1% of PlanVista's revenue through September 30, 2003. There can be no
guarantee that these businesses will acquire new customers or will generate
significant operating revenue in the future. PlanVista's business prospects
should be evaluated in light of a variety of risks including:
- a concentration on relatively few customers;
- unproven market acceptance of PlanVista's new products;
- dependence on healthcare payers, provider networks, strategic
relationships, and technology solutions;
- industry consolidation and increased in-house performance of
the services PlanVista offers;
- unpredictability of operating results and future revenues;
- increased competition; and
- general economic and market conditions.
PlanVista may not be successful in addressing any or all of these
risks. Any failure to address these risks could have a material adverse effect
on PlanVista's business, operating results, and financial condition.
PLANVISTA'S QUARTERLY OPERATING RESULTS MAY BE VOLATILE.
PlanVista will have difficulty predicting future revenues because its
network and data management business process outsourcing business is relatively
new. PlanVista also will have difficulty in accurately forecasting operating
revenues from sales of PlanVista services because PlanVista does not know the
sales cycle involved in selling PlanVista's new services, and PlanVista cannot
predict customer claims experience. This makes it difficult to predict the
quarter in which sales will occur. Any significant shortfall of operating
revenues in relation to PlanVista's expectations could cause significant
declines in PlanVista's quarterly operating results or cause PlanVista to not
meet certain financial covenants under PlanVista's loan agreements with its
senior lenders.
39
PLANVISTA MAY BE UNABLE TO ADJUST FIXED EXPENSES TO COMPENSATE FOR OPERATING
REVENUE SHORTFALLS.
PlanVista's expense levels are based, in part, on its expectations
regarding future operating revenues, and its expenses are generally fixed,
particularly in the short term. PlanVista may be unable to adjust spending in a
timely manner to compensate for unexpected revenue shortfalls. A shortfall in
operating revenues or a delay in the collection of outstanding accounts
receivable could have an adverse effect on PlanVista's ability to meet payment
obligations or meet financial covenants to which it is subject under its
agreements with its senior lenders and vendors, and could have a material
adverse effect on PlanVista's business, operating results, and financial
condition.
PLANVISTA HAS MANY COMPETITORS.
PlanVista faces competition from HMOs, PPOs, third party
administrators, and other managed healthcare companies, such as Blue Cross Blue
Shield, McKesson/HBOC, The TriZetto Group, Inc., HealthAxis, Avidyn/ppoOne,
Inc., BCE Emergis/eHealth Solutions Group, Concentra, Inc., Beech Street
Corporation, MultiPlan, Inc., Private Healthcare Systems (PHCS), and Coalition
America, Inc. PlanVista believes that, as managed care continues to gain
acceptance in the marketplace and more sophisticated technology is adopted, its
competition will increase. In addition, legislative reform may intensify
competition in the markets PlanVista serves. Many of PlanVista's current and
potential competitors have greater financial and marketing resources than
PlanVista has. PlanVista cannot assure you that it will continue to maintain its
existing customers or to maintain at least its past level of operating
performance. PlanVista also cannot assure you that it will be successful with
any new products or in any new markets that it may enter.
PLANVISTA MAY NOT BE ABLE TO SUCCESSFULLY MANAGE ITS GROWTH.
Prior to the proposed merger with ProxyMed, PlanVista's strategy was to
expand through internal growth. Expenses arising from efforts to increase
PlanVista market penetration may have a negative impact on operating results. As
a result, PlanVista is subject to certain growth-related risks, including the
risk that PlanVista will be unable to retain personnel or acquire the resources
necessary to service its internal growth adequately.
PLANVISTA IS HIGHLY DEPENDENT ON ITS SENIOR MANAGEMENT.
PlanVista is highly dependent on its senior management, particularly
PlanVista's Chairman and Chief Executive Officer, Phillip S. Dingle and
PlanVista's President and Chief Operating Officer Jeffrey L. Markle. The loss of
these members of PlanVista's senior management team could harm PlanVista and its
prospects significantly. PlanVista has employment agreements with each of Mr.
Dingle and Mr. Markle, but these employment agreements do not obligate these
executive officers to remain in PlanVista's employ.
THE INABILITY OF PLANVISTA CUSTOMERS TO PAY FOR PLANVISTA SERVICES COULD
DECREASE PLANVISTA'S REVENUE.
PlanVista's health insurance and HMO payer customers may be required to
maintain restricted cash reserves and satisfy strict balance sheet ratios
promulgated by state regulatory agencies. In addition, the financial stability
of PlanVista's payer customers may be adversely affected by physician groups or
associations within their organizations that become subject to costly litigation
or become insolvent. PlanVista's ability to collect fees for its services may
become impaired if PlanVista's payer customers are unable to pay for PlanVista's
services because they need to maintain cash reserves, if they fail to maintain
required balance sheet ratios, or if they become insolvent. Although PlanVista
has not experienced any material problems with collecting fees for its services
to date, any financial instability of its customers in the future could
adversely affect PlanVista's revenues.
PLANVISTA'S ACCOUNTS RECEIVABLE ARE SUBJECT TO ADJUSTMENT.
PlanVista generally records revenue for its services when the services
are performed, less amounts reserved for claim reversals and bad debts. The
estimates for claim reversals and bad debts are based on judgment and historical
experience. To the extent that actual claim reversals and bad debts exceed the
amounts reserved for, such difference could have a material adverse impact on
PlanVista's results of operations and cash flows.
40
PLANVISTA MAY NOT PREVAIL IN ONGOING LITIGATION AND MAY BE REQUIRED TO PAY
SUBSTANTIAL DAMAGES.
PlanVista is party to various legal actions as either plaintiff or
defendant in the ordinary course of business. While PlanVista believes that the
final outcome of these proceedings will not have a material adverse effect on
PlanVista's financial position, cash flows or results of operations, PlanVista
cannot assure the ultimate outcome of these actions and the estimates of the
potential future impact on PlanVista's financial position, cash flows or results
of operations for these proceedings could change in the future. In addition,
PlanVista will continue to incur additional legal costs in connection with
pursuing and defending such actions.
Risks Related to PlanVista's Technology
PROBLEMS WITH PLANVISTA'S COMPUTERS OR OTHER TECHNOLOGY COULD NEGATIVELY AFFECT
PLANVISTA'S BUSINESS.
Aspects of PlanVista's business depend upon PlanVista's ability to
store, retrieve, process, and manage data and to maintain and upgrade its data
processing capabilities. If PlanVista's data processing capabilities were to be
interrupted for any extended period of time, or if PlanVista were to lose stored
data, experience failures in its backup operations, or experience programming
errors, or if other computer problems were to arise, PlanVista could lose
customers and revenue. PlanVista expects that its future growth will depend on
its ability to process and manage claims data more efficiently, and to provide
more meaningful healthcare information to its customers, than PlanVista's
competitors. PlanVista may not be able to efficiently upgrade its systems to
meet future demands, and it may not be able to develop, license, or otherwise
acquire software to address these market demands as well or as readily as its
competitors.
PLANVISTA IS DEPENDENT ON THE GROWTH OF THE INTERNET AND ELECTRONIC HEALTHCARE
INFORMATION MARKETS.
Many of PlanVista's products and services, such as ClaimPassXL v. 3.5,
PlanVista's Internet repricing system, are geared toward the Internet and
electronic healthcare information markets. These markets are in the early stages
of development and are rapidly evolving. A number of market entrants have
introduced or developed products and services that are competitive with
PlanVista's products and services. PlanVista expects that additional companies
will continue to enter these markets. In new and rapidly evolving industries,
there is significant uncertainty and risk as to the demand for, and market
acceptance of, recently introduced products and services. Because the markets
for certain of PlanVista's products and services are new and evolving, PlanVista
is not able to predict the size and growth rate of those markets with any
certainty. PlanVista cannot assure you that markets for its products and
services will develop or that, if they do, they will be strong and continue to
grow at a sufficient pace. If markets fail to develop, develop more slowly than
expected, or become saturated with competitors, PlanVista's business prospects
will be impaired.
LACK OF INTERNET SECURITY COULD DISCOURAGE USERS OF PLANVISTA'S SERVICES.
The difficulty of securely transmitting confidential information over
the Internet has been a significant barrier to conducting e-commerce and
engaging in sensitive communications over the Internet. PlanVista's strategy
relies in part on the use of the Internet to transmit confidential information.
PlanVista believes that any well-publicized compromise of Internet security may
deter people from using the Internet to conduct transactions that involve
transmitting confidential healthcare information. PlanVista relies principally
on its security systems, confidentiality procedures, and employee non-disclosure
agreements to maintain the confidentiality and security of confidential
information. It is possible that third parties could penetrate PlanVista's
network security or otherwise misappropriate patient information and other data.
If this happens, PlanVista's operations could be interrupted, and it could be
subject to liability. PlanVista may have to devote significant financial and
other resources to protect against security breaches or to alleviate problems
caused by breaches. PlanVista could face financial loss, litigation, and other
liabilities to the extent that its activities or the activities of third party
contractors involving the storage and transmission of confidential information
such as patient records or credit information are compromised. In addition,
PlanVista could incur additional expenses if new regulations regarding the use
of personal information are introduced.
41
THE PROTECTION OF PLANVISTA'S INTELLECTUAL PROPERTY REQUIRES SUBSTANTIAL
RESOURCES.
PlanVista relies largely on its own security systems and
confidentiality procedures, and employee nondisclosure agreements for certain
employees, to maintain the confidentiality and security of its proprietary
information, including PlanVista's trade secrets and internally developed
computer applications. If third parties gain unauthorized access to PlanVista's
information systems, or if anyone misappropriates PlanVista's proprietary
information, this may have a material adverse effect on PlanVista's business and
results of operations. In addition, PlanVista's technology has not been patented
nor has PlanVista registered any copyrights with respect to such technology.
Trade secrets laws offer limited protection against third party development of
competitive products or services. Because it lacks the protection of patents or
registered copyrights for its internally-developed software and software
applications, PlanVista is more vulnerable to misappropriation of its
proprietary technology by third parties or competitors. The failure to
adequately protect its technology could adversely affect PlanVista's business.
PLANVISTA MAY BE SUBJECT TO TRADEMARK AND SERVICE MARK INFRINGEMENT CLAIMS IN
THE FUTURE.
As PlanVista's competitors' healthcare information systems increase in
complexity and overall capabilities, and the functionality of these systems
further overlap, PlanVista could be subject to claims that its technology
infringes on the proprietary rights of third parties. These claims, even if
without merit, could subject PlanVista to costly litigation and could require
the resources, time, and attention of PlanVista's technical, legal, and
management personnel to defend. The failure to develop non-infringing technology
or trade names, or to obtain a license on commercially reasonable terms, could
adversely affect PlanVista's operations and revenues.
IF PLANVISTA'S ABILITY TO EXPAND ITS NETWORK INFRASTRUCTURE IS CONSTRAINED,
PLANVISTA COULD LOSE CUSTOMERS AND THAT LOSS COULD ADVERSELY AFFECT ITS
OPERATING RESULTS.
PlanVista must continue to expand and adapt its network and technology
infrastructure to accommodate additional users, increased transaction volumes,
and changing customer requirements. PlanVista may not be able to accurately
project the rate or timing of increases, if any, in the volume of transactions
it reprices or otherwise services or be able to expand and upgrade its systems
and infrastructure to accommodate such increases. PlanVista may be unable to
expand or adapt its network infrastructure to meet additional demand or its
customers' changing needs on a timely basis, at a commercially reasonable cost
or at all. PlanVista's current information systems, procedures, and controls may
not continue to support PlanVista's operations while maintaining acceptable
overall performance and may hinder PlanVista's ability to exploit the market for
healthcare applications and services. Service lapses could cause PlanVista's
users to switch to the services of PlanVista's competitors.
Risks Related to PlanVista's Industry
GOVERNMENT REGULATION OF THE HEALTHCARE INDUSTRY MAY CHANGE AND ADVERSELY AFFECT
PLANVISTA'S BUSINESS.
As a participant in the healthcare industry, PlanVista is affected by
or may be affected by regulations related to privacy of patient information,
provider contracting, claims adjudication procedures, licensing, and the
Internet. During the past several years, the healthcare industry has been
subject to increasing levels of government regulation of reimbursement rates and
certain capital expenditures, among other things. In addition, federal and state
governments have considered proposals to reform the healthcare system. These
proposals, if enacted, may further increase government involvement in
healthcare, lower reimbursement rates, and otherwise adversely affect the
healthcare industry, which could adversely affect PlanVista's business. The
impact of regulatory developments in the healthcare industry is complex and
difficult to predict, and PlanVista's business could be adversely affected by
existing or new healthcare regulatory requirements or interpretations. While
PlanVista believes its operations are in material compliance with applicable
laws as currently interpreted, the regulatory environment in which PlanVista
operates may change significantly in the future, which could restrict
PlanVista's existing operations, expansion, financial condition, or
opportunities for success. See "PlanVista's Business - Government Regulation."
on page 168.
42
CONSOLIDATION IN THE HEALTHCARE INDUSTRY MAY GIVE PLANVISTA CUSTOMERS GREATER
BARGAINING POWER AND LEAD PLANVISTA TO REDUCE ITS PRICES.
Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As provider
networks and managed care organizations consolidate, competition to provide
products and services such as those PlanVista provides will become more intense,
and the importance of establishing and maintaining relationships with key
industry participants will become greater. These industry participants may try
to use their market power to negotiate price reductions for PlanVista products
and services. If PlanVista is forced to reduce its prices, its margins will
decrease, unless PlanVista is able to achieve corresponding reductions in
expenses.
Risks Related to PlanVista Common Stock
PLANVISTA'S STOCK PRICE HAS BEEN VOLATILE AND MAY CONTINUE TO FLUCTUATE.
PlanVista's common stock has experienced significant price and volume
fluctuations. PlanVista's stock price ranged from a high of $6.40 per share to a
low of $0.73 per share during the year ended December 31, 2002. On December 5,
2003, PlanVista's closing common stock price was $1.90 per share. These
fluctuations are not necessarily directly related to PlanVista's operating
performance. PlanVista's common stock may not continue to trade at the current
price level. See "PlanVista Market Price and Dividend Information" on page 206
for more information on the trading price of PlanVista's common stock. The
market price for PlanVista's common stock may continue to fluctuate widely in
response to factors such as the following:
- failure to meet PlanVista's product development and sales
milestones;
- failure to comply with PlanVista's debt and series C preferred
stock covenants;
- demand for PlanVista's common stock;
- technological innovations by PlanVista or its competitors or
in competing technologies;
- new product announcements by PlanVista or by its competitors;
- timeliness in introduction of new products;
- announcements by PlanVista or its competitors of significant
contracts, acquisitions, partnerships, joint ventures, or
capital commitments;
- failure to successfully build PlanVista's new outsourcing
business units;
- operating revenues and operating results failing to meet the
expectations of securities analysts or investors in any
quarter;
- announcements by third parties of significant claims or
proceedings against PlanVista;
- disclosure of unsuccessful results in PlanVista's efforts to
expand its ability to market, sell and provide its services or
its ability to enhance its existing products or develop new
products;
- changes in financial estimates by securities analysts;
- investor perception of PlanVista's industry or its prospects;
and
- general technological or economic trends.
43
Many of these factors are beyond PlanVista's control. In addition, the
stock market has in the past experienced price and volume fluctuations that have
particularly affected companies in the healthcare and managed care markets,
resulting in changes in the market price of the stock of many companies that may
not have been directly related to the operating performance of those companies.
THE VOLATILITY OF THE PRICE OF PLANVISTA'S COMMON STOCK OR SUBSTANTIAL DILUTION
TO PLANVISTA STOCKHOLDERS COULD SUBJECT PLANVISTA TO COSTLY LITIGATION.
Some companies that have experienced volatility in the market price of
their stock or have had their stock subject to substantial dilution have been
sued in securities class action litigation. In light of the fluctuations in
PlanVista's stock price and dilution to PlanVista's stockholders, it is possible
that PlanVista may be the subject of securities class action litigation in the
future. This type of litigation is generally costly and often results in a
diversion of management's attention and resources and could harm PlanVista's
business, prospects, results of operations, and financial condition.
44
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
ProxyMed and PlanVista believe this document contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are subject to risks and uncertainties and are based
on the beliefs and assumptions of management of ProxyMed and PlanVista, based on
information currently available to each company's management. When we use words
such as "believes," "expects," "anticipates," "intends," "plans," "estimates,"
"should," "likely" or similar expressions, ProxyMed and PlanVista are making
forward-looking statements. Forward-looking statements include the information
concerning possible or assumed future results of operations of ProxyMed set
forth under "Summary," "Risk Factors," "The Merger -- Background of the Merger,"
"The Merger -- ProxyMed Reasons for the Merger," "The Merger -- PlanVista
Reasons for the Merger," "The Merger -- Recommendation of PlanVista Board of
Directors," "Description of ProxyMed" and "Description of PlanVista." All
statements other than statements of historical fact are statements that could be
deemed forward-looking statements, including any projections of earnings,
revenues, synergies, accretion, margins or other financial items; any statements
of the plans, strategies and objectives of management for future operations,
including the execution of integration and restructuring plans and the
anticipated timing of filings, approvals and closings relating to the merger or
other planned acquisitions; any statements concerning proposed new products,
services, developments or industry rankings; any statements regarding future
economic conditions or performance; any statements of belief; and any statements
of assumptions underlying any of the foregoing.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and shareholder
values of ProxyMed may differ materially from those expressed in the
forward-looking statements. Many of the factors that will determine these
results and values are beyond ProxyMed's ability to control or predict.
Shareholders are cautioned not to put undue reliance on any forward-looking
statements. For those statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
For a discussion of some of the factors that may cause actual results
to differ materially from those suggested by the forward-looking statements,
please read carefully the information under "Risk Factors."
You should read this joint proxy statement/prospectus and the other
documents referred to in this joint proxy statement/prospectus completely and
with the understanding that actual future results could materially differ from
those anticipated in these forward-looking statements as a result of a number of
factors, including the risk factors described below. All forward-looking
statements attributable to ProxyMed and PlanVista are expressly qualified by
these cautionary statements. ProxyMed and PlanVista disclaims any obligation to
update any forward-looking statements to reflect events or circumstances after
the date of this registration statement.
45
THE SPECIAL MEETING OF PROXYMED SHAREHOLDERS
ProxyMed is furnishing this joint proxy statement/prospectus to holders
of ProxyMed common stock and ProxyMed series C preferred stock to provide its
shareholders with important information in connection with the solicitation of
proxies by for use at the special meeting of ProxyMed shareholders and at any
adjournment or postponement of the special meeting. This includes information
regarding the proposed amendment of ProxyMed's articles of incorporation to
increase the authorized number of shares of ProxyMed common stock from
13,333,333 ? shares to 30 million shares, the proposed amendment to the ProxyMed
2002 Stock Option Plan to increase the total number of shares available for
issuance under such plan from 600,000 to 1,350,000, and the issuance of shares
of ProxyMed common stock pursuant to the merger agreement and the issuance of
shares of ProxyMed common stock in connection with the ProxyMed private equity
offering. ProxyMed first mailed this joint proxy statement/prospectus and the
accompanying form of proxy to its shareholders on or about ____________, 2004.
DATE, TIME AND PLACE OF THE PROXYMED SPECIAL MEETING
ProxyMed will hold a special meeting of its shareholders on March __,
2004 at 10:00 a.m., local time, at ProxyMed's offices, 2555 Davie Road, Suite
110, Fort Lauderdale, Florida 33317.
PURPOSE OF THE PROXYMED SPECIAL MEETING
At the special meeting ProxyMed shareholders will be asked to consider
and vote upon the following proposals:
(1) To consider and vote upon a proposal to approve the issuance of
shares of ProxyMed common stock to PlanVista stockholders pursuant to the
Agreement and Plan of Merger, dated as of December 5, 2003, by and among
ProxyMed, Planet Acquisition Corp., a wholly-owned subsidiary of ProxyMed, and
PlanVista;
(2) To consider and vote upon a proposal to approve the issuance of
shares of ProxyMed common stock in connection with the private equity offering
being completed by ProxyMed in connection with the merger;
(3) To consider and vote upon a proposal to approve and adopt an
amendment to ProxyMed's articles of incorporation to increase the total number
of authorized shares of ProxyMed common stock from 13,333,333 1/2 shares to 30
million shares; and
(4) To consider and vote upon a proposal to approve and adopt an
amendment to the ProxyMed 2002 Stock Option Plan to increase the total number of
shares available for issuance under such plan from 600,000 to 1,350,000.
PROPOSAL 1: ISSUANCE OF SHARES OF PROXYMED COMMON STOCK IN CONNECTION WITH THE
MERGER WITH PLANVISTA
On December 4, 2003, the board of directors of ProxyMed adopted
resolutions approving the issuance of shares of ProxyMed common stock in
connection with the merger with PlanVista. These shares will not be issued
unless the merger is completed. This share issuance proposal is being submitted
for approval by the shareholders of ProxyMed pursuant to the requirements of the
Nasdaq Stock Market, Inc. applicable to companies with securities quoted on the
Nasdaq National Market. The affirmative vote of a majority of the total votes
cast at the special meeting by holders of ProxyMed's common stock outstanding as
of the record date, including the shares of ProxyMed series C preferred stock
entitled to vote as a class with the holders of ProxyMed common stock, provided
that a quorum is present, is required to approve the issuance of shares of
ProxyMed common stock pursuant to the merger.
A copy of the merger agreement is attached to this document as Annex A.
ProxyMed shareholders are encouraged to read the merger agreement in its
entirety. For a detailed summary of the merger agreement, please see the section
of this document entitled "The Merger Agreement" beginning on page 95.
46
THE BOARD OF DIRECTORS OF PROXYMED RECOMMENDS A VOTE "FOR" THE ISSUANCE
OF PROXYMED COMMON STOCK IN CONNECTION WITH THE MERGER WITH PLANVISTA.
PROPOSAL 2: ISSUANCE OF SHARES OF PROXYMED COMMON STOCK IN CONNECTION WITH THE
PROXYMED PRIVATE EQUITY OFFERING
On December 4, 2003, the board of directors of ProxyMed adopted a
resolution approving the issuance of shares of ProxyMed common stock in
connection with the private equity offering being completed by ProxyMed in
connection with the merger. These shares will not be issued unless the merger is
completed. This share issuance proposal is being submitted for approval by the
shareholders of ProxyMed pursuant to the requirements of the Nasdaq Stock
Market, Inc. applicable to companies with securities quoted on the Nasdaq
National Market. The affirmative vote of a majority of the total votes cast at
the special meeting by holders of ProxyMed's common stock outstanding as of the
record date, including the shares of ProxyMed series C preferred stock entitled
to vote as a class with the holders of ProxyMed common stock, provided that a
quorum is present, is required to approve the issuance of shares of ProxyMed
common stock pursuant to the private equity offering.
On December 5, 2003, pursuant to a stock purchase agreement, ProxyMed
agreed to sell 1,691,229 shares of its common stock at a price of $14.25 per
share to General Atlantic Partners 77, L.P., GAP Coinvestment Partners II, L.P.,
GapStar, LLC, GAPCO GmbH & Co. KG., PVC Funding Partners, LLC, Comvest Venture
Partners, L.P., Shea Ventures, LLC, and Robert Priddy. Upon closing of the
transaction, ProxyMed will receive net proceeds of approximately $24,100,000 in
the private equity offering, which it intends to use in connection with the
merger. Upon closing of the transaction, the purchasers will collectively own
approximately 14% of the outstanding shares of ProxyMed's common stock. The
General Atlantic Partners related entities will collectively own approximately
23.5% of the ProxyMed common stock and will be entitled to purchase up to
793,161 additional shares of ProxyMed common stock pursuant to the exercise of
certain warrants held by entities related to General Atlantic Partners.
ProxyMed has agreed to grant the purchasers and certain of their
transferees and affiliates certain demand and "piggy back" registration rights,
pursuant to an amended and restated registration rights agreement. Each of the
purchasers agrees not to, directly or indirectly, sell or otherwise dispose of
any of the shares it receives in connection with the private equity offering and
certain other shares owned by it or its affiliates prior to the first
anniversary of the closing date, except to their respective affiliates, in an
amount during any three month period that does not exceed the volume limitations
set forth in Rule 144(e) of the Securities Act of 1933, in connection with a
sale of ProxyMed, or in a transaction approved in advance by ProxyMed's board of
directors.
In November 2003, ProxyMed engaged William Blair & Company, L.L.C. to
act as a financial advisor with respect to the terms of the private equity
offering. On December 4, 2003, William Blair & Company, L.L.C. delivered its
oral opinion, subsequently confirmed in writing, to the ProxyMed board of
directors that, as of such date and based upon and subject to the various
considerations set forth in its opinion, the consideration to be received by
ProxyMed for the shares to be issued by ProxyMed in connection with the private
equity offering is fair, from a financial point of view, to ProxyMed. The
William Blair & Company, L.L.C. opinion is not a recommendation as to how any
ProxyMed shareholder should vote with respect to the proposal to approve the
issuance of shares of ProxyMed common stock in connection with the ProxyMed
private equity offering.
Shareholders should read the complete text of the Purchase Agreement
and the amended and restated registration rights agreement, copies of which have
been filed by ProxyMed with the Securities Exchange Commission with the
registration statement filed on December 8, 2003. The summary of the Purchase
Agreement and the registration rights agreement contained in the registration
statement does not purport to be complete and is subject to and qualified in its
entirety by reference to the complete text of such documents.
47
ProxyMed believes that the private equity offering is in the best
interests of ProxyMed and its shareholders because such equity offering allows
ProxyMed to raise capital on terms that compare favorably to ProxyMed's other
financing options. In reaching its decision to recommend this proposal to
ProxyMed's shareholders, the board considered, among other things, ProxyMed's
long-term strategic plan, its capital structure, its resources, operations,
management and historical and potential earnings, as well as ProxyMed's future
prospects both with and without the private equity offering, and ProxyMed's
other financing options.
THE BOARD OF DIRECTORS OF PROXYMED RECOMMENDS A VOTE "FOR" THE ISSUANCE
OF PROXYMED COMMON STOCK IN CONNECTION WITH THE PRIVATE EQUITY OFFERING BEING
COMPLETED BY PROXYMED IN CONNECTION WITH THE MERGER.
PROPOSAL 3: AMENDMENT TO PROXYMED'S ARTICLES OF INCORPORATION TO INCREASE THE
TOTAL NUMBER OF AUTHORIZED SHARES FROM 13,333,333 1/3 SHARES TO 30,000,000
SHARES
ProxyMed's articles of incorporation provide that the total number of
shares of common stock which ProxyMed shall have the authority to issue is
13,333,333 1/3 shares of common stock, par value $0.001 per share. ProxyMed's
board of directors adopted a resolution recommending that the shareholders adopt
an amendment to Article III of ProxyMed's articles of incorporation in order to
increase the authorized number of shares of ProxyMed's common stock from
13,333,333 1/3 shares to 30 million shares. A copy of the proposed amendment to
the articles of incorporation is attached as Annex G to this registration
statement.
To complete the merger and the private equity offering, ProxyMed
shareholders must approve the amendment to ProxyMed's articles of incorporation
to increase the number of shares that ProxyMed is authorized to issue from
13,333,333 1/3 shares to 30 million shares. Other than the shares to be issued
in connection with the merger and the shares to be issued in connection with the
ProxyMed private equity offering, ProxyMed has no immediate plans, nor are there
any existing or proposed agreements or understandings to issue any of the
additional shares of common stock other than pursuant to warrants, options and
convertible notes previously offered by the board of directors. ProxyMed's board
of directors believes that the increased number of authorized shares of common
stock contemplated by the proposed amendment is desirable in order that
additional shares be available for issuance from time to time, without further
action or authorization by the shareholders (except as required by law), if
needed for such corporate purposes as may be determined by the board of
directors. Such corporate purposes might include the acquisition of other
businesses in exchange for shares of ProxyMed's stock; facilitating broader
ownership of ProxyMed's stock by effecting stock splits or issuing a stock
dividend; flexibility for possible future financings; and attracting and
retaining valuable employees and directors by the issuance of additional stock
options or awards. The board of directors considers the authorization of
additional shares advisable to ensure prompt availability of shares for issuance
should the occasion arise.
Adoption of this proposal requires the affirmative vote of the holders
of a majority of the outstanding shares of common stock entitled to vote at the
special meeting, including the shares of ProxyMed series C preferred stock
entitled to vote as a class with the holders of ProxyMed common stock.
Abstentions and broker non-votes have the effect of a vote against the proposal.
THE BOARD OF DIRECTORS OF PROXYMED RECOMMENDS A VOTE "FOR" THE ADOPTION
OF THE AMENDMENT TO PROXYMED'S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK FROM 13,333,333 1/3 SHARES TO 30 MILLION
SHARES.
PROPOSAL 4: AMEND THE PROXYMED 2002 STOCK OPTION PLAN TO INCREASE THE TOTAL
NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER SUCH PLAN FROM 600,000 TO
1,350,000
On May 22, 2002, ProxyMed's shareholders approved the ProxyMed 2002
Stock Option Plan for the employees, officers and directors of ProxyMed. The
purpose of the Stock Option Plan is to attract and retain directors, officers,
other key employees and consultants, to encourage stock ownership by such
persons and to give them a greater personal interest in the success of ProxyMed.
As of December 4, 2003, there were 166,525 shares of common stock remaining
available for issuance under the Stock Option Plan. Pursuant to the merger
agreement with PlanVista, ProxyMed has agreed to grant to certain officers and
employees of PlanVista
48
options under ProxyMed's Stock Option Plan to purchase an aggregate of 200,000
shares of ProxyMed common stock in amounts as determined by the ProxyMed. The
board of directors believes that it is in ProxyMed's best interest to increase
the total number of shares available for issuance under the Stock Option Plan,
and therefore recommends an amendment to the Stock Option Plan to increase the
total number of shares available for issuance under such plan from 600,000 to
1,350,000.
If the proposed amendment is approved, the first sentence of the
Section 6 entitled "Stock Subject to the Plan" of the Stock Option Plan will be
amended to read as follows:
"The maximum number of shares of Common Stock as to which Options may
be granted pursuant to this Plan is 1,350,000 shares."
The following description of the 2002 Plan is qualified by reference to
the complete text of such plan which is set forth on Exhibit A of the Proxy
Statement filed with the Securities and Exchange Commission on April 22, 2002.
The plan currently provides for the issuance of up to 600,000 shares
upon exercise of options designated as either "incentive stock options" or
"non-qualified options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended. The plan is administered by the compensation
committee of the board of directors which determines, among other things, the
persons to be granted options under the plan, the number of shares subject to
each option and the option price. The exercise price of any incentive stock
option granted under the plan may not be less than the fair market value of the
shares subject to the option on the date of grant; provided, however, that the
exercise price of any incentive stock option granted to an eligible employee
owning more than 10% of the outstanding common stock may not be less than 110%
of the fair market value of the shares underlying such options on the date of
grant. Non-qualified options may not be granted with exercise prices less than
the fair market value of the shares subject to the option on the date of grant.
The term of each option and the manner in which it may be exercised is
determined by the board of directors or a committee appointed by the board of
directors provided that no option may be exercisable more than ten years after
the date of grant and, in the case of an incentive stock option granted to an
eligible employee owning more than 10% of the common stock, no more than five
years after the date of grant. Incentive stock options may be granted only to
employees and no option granted to an employee may be exercised unless, at the
time of exercise, the grantee is an employee of ProxyMed or a subsidiary, and in
the event of death, options may be exercised during a twelve month period
following such event. ProxyMed may grant an employee options for any number of
shares, except that the value of the shares subject to one or more incentive
stock options first exercisable in any calendar year may not exceed $100,000
(determined at the date of grant). Options are not transferable, except upon the
death of the optionee or for estate planning purposes under certain
circumstances and if approved by the board of directors. The plan has change of
control provisions.
A summary of the federal income tax treatment under the Internal
Revenue Code, as presently in effect, of options granted under the plan is as
follows. ProxyMed recommends that optionees seek independent tax advice with
respect to their options.
With respect to incentive stock options, an optionee will not recognize
any taxable income at the time an incentive stock option is granted and ProxyMed
will not be entitled to a federal income tax deduction at that time. No ordinary
income will be recognized by the holder of an incentive stock option at the time
of exercise. The excess of the market value of the shares of ProxyMed's common
stock at the time of exercise over the aggregate option price will be an
adjustment to alternative minimum taxable income for purposes of the federal
"alternative minimum tax" at the date of exercise. If the optionee holds the
shares of ProxyMed's common stock acquired upon exercise of the incentive stock
option for the greater of two years after the date the option was granted or one
year after the acquisition of such shares, the difference between the aggregate
option price and the amount realized upon disposition of the shares will
constitute a long-term capital gain or loss, as the case may be, and ProxyMed
will not be entitled to a federal income tax deduction. If the shares of
ProxyMed's common stock are disposed of in a sale, exchange of other
"disqualifying disposition" within two years after the date of grant or within
one year after the date of exercise, the optionee will realize ordinary income
in an amount equal to the excess of the market value of the shares of ProxyMed's
common stock at the time of exercise, over the aggregate option price. ProxyMed
may be entitled to a federal income tax deduction equal to such amount.
49
With respect to non-qualified stock options, the granting of a
non-qualified option does not produce taxable income to the recipient or a tax
deduction to ProxyMed. Taxable ordinary income will be recognized by the holder
at the time of such exercise in an amount equal to the excess of the market
value of shares of ProxyMed's common stock purchased at the time of such
exercise over the aggregate option price. ProxyMed may be entitled to a
corresponding federal income tax deduction. Upon a subsequent disposition of the
shares of ProxyMed's common stock, optionee will generally recognize taxable
capital gain or loss based upon the difference between the per share market
value at the time of exercise and the per share selling price. Taxable income at
the time of exercise will constitute wages subject to withholding of income tax
and ProxyMed will be required to make whatever arrangements are necessary to
insure that funds equaling the amount of tax required to be withheld are
available for payment. The tax basis for the shares of ProxyMed's common stock
acquired is the option price plus the taxable income recognized.
Adoption of this proposal requires the affirmative vote of a majority
of the total votes cast at the special meeting by holders of ProxyMed's common
stock outstanding as of the record date, including the shares of ProxyMed series
C preferred stock entitled to vote as a class with the holders of ProxyMed
common stock, provided that a quorum is present.
THE BOARD OF DIRECTORS OF PROXYMED RECOMMENDS THAT ALL SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE PROXYMED 2002 STOCK OPTION PLAN TO
INCREASE THE TOTAL NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER SUCH PLAN FROM
600,000 to 1,350,000.
RECORD DATE FOR THE PROXYMED SPECIAL MEETING; SHARES HELD BY DIRECTORS AND
EXECUTIVE OFFICERS
The ProxyMed board of directors has fixed the close of business on ___,
2004 as the record date for determination of ProxyMed shareholders entitled to
notice of and to vote at the special meeting. Only holders of record of ProxyMed
common stock or ProxyMed series C preferred stock as of the close of business on
that date are entitled to vote at the special meeting. As of the record date,
there were ___ shares of ProxyMed common stock issued and outstanding, held by
approximately ___ shareholders of record and ___ shares of ProxyMed series C
preferred stock issued and outstanding, held by approximately ___ shareholders
of record. As of the record date, the directors and executive officers of
ProxyMed and their affiliates held approximately ___ outstanding shares, or
approximately ___% of the total outstanding shares, of ProxyMed common stock and
ProxyMed series C preferred stock. Each share of ProxyMed common stock issued
and outstanding as of the ProxyMed record date entitles its holder to cast one
vote at the special meeting, and each share of ProxyMed series C preferred stock
entitles its holder to cast approximately 6.67 votes at the ProxyMed special
meeting.
VOTING OF PROXIES AT THE SPECIAL MEETING AND REVOCATION OF PROXIES
The ProxyMed proxy accompanying this joint proxy statement/prospectus
is solicited on behalf of the board of directors of ProxyMed for use at the
ProxyMed special meeting.
GENERAL. Shares represented by a properly signed and dated proxy will
be voted at the special meeting in accordance with the instructions indicated on
the proxy. Proxies that are properly signed and dated but which do not contain
voting instructions will be voted "FOR" the proposal to amend ProxyMed's
articles of incorporation to increase the authorized number of shares of
ProxyMed common stock from 13,333,333 1/3 shares to 30 million shares, "FOR" the
proposal to amend the ProxyMed 2002 Stock Option Plan to increase the total
number of shares available for issuance under such plan from 600,000 to
1,350,000, "FOR" the proposal to approve the issuance of shares of ProxyMed
common stock to PlanVista stockholders in the merger, and "FOR" the proposal to
approve the issuance of shares of ProxyMed common stock in connection with the
ProxyMed private equity offering. The proxy holder may vote the proxy in its
discretion as to any other matter that may properly come before the ProxyMed
special meeting. The affirmative vote of the holders of record of at least a
majority of the votes entitled to be cast by holders of shares of ProxyMed
common stock and ProxyMed series C preferred stock, is required to approve and
adopt the amendment to ProxyMed's articles of incorporation. A majority of the
votes cast by the holders of ProxyMed's common stock and ProxyMed series C
preferred stock at the meeting (a quorum being present), must be voted in
50
favor of the proposal to approve the issuances of shares of ProxyMed common
stock and the proposal to amend the ProxyMed 2002 Stock Option Plan in order for
such proposals to pass.
ABSTENTIONS. ProxyMed will count a properly executed proxy marked
"ABSTAIN" as present for purposes of determining whether a quorum is present,
but the shares represented by that proxy will not be voted at the special
meeting. If a ProxyMed shareholder abstains from voting or does not vote (either
in person or by proxy) it will have the same effect as a vote against the
proposal to amend ProxyMed's articles of incorporation. Abstentions on the
issuance proposals and the proposed amendment to the ProxyMed 2002 Stock Option
Plan will be treated as neither a vote "FOR" nor a vote "AGAINST" these
proposals for purposes of determining whether they have been approved, and thus
will have no effect on the outcome.
BROKER NON-VOTES. If your shares are held by your broker, your broker
will not be able to vote your shares for you on the proposals without
instructions from you on how to vote your shares. You should follow the
directions provided by your broker regarding how to instruct your broker to vote
your shares. If a ProxyMed shareholder abstains from voting or does not vote
(either in person or by proxy) it will have the same effect as a vote against
the proposal to amend ProxyMed's articles of incorporation. Failure to instruct
your broker how to vote on the issuance proposals and the proposed amendment to
the ProxyMed 2002 Stock Option Plan will be treated as neither a vote "FOR" nor
a vote "AGAINST" these proposals for purposes of determining whether the
proposals have been approved, and thus will have no effect on the outcome.
VOTING SHARES IN PERSON THAT ARE HELD THROUGH BROKERS. If your shares
are held by your broker or another nominee and you wish to vote those shares in
person at the special meeting, you must obtain from the nominee holding your
ProxyMed common stock a properly executed legal proxy identifying you as a
ProxyMed shareholder, authorizing you to act on behalf of the nominee at the
special meeting and identifying the number of shares with respect to which the
authorization is granted.
HOW TO REVOKE A PROXY
If you submit a proxy, you may revoke it at any time before it is voted
by:
- delivering to the Secretary of ProxyMed a written notice,
dated later than the proxy you wish to revoke, stating that
proxy is revoked;
- submitting to the Secretary of ProxyMed a new, signed proxy
with a date later than the proxy you wish to revoke; or
- attending the special meeting and voting in person.
Notices to the Secretary of ProxyMed should be addressed to Secretary,
ProxyMed, Inc., 2555 Davie Road, Suite 110, Fort Lauderdale, Florida 33317.
QUORUM AND ABSTENTIONS
In order to conduct business at the special meeting, a quorum must be
present. ProxyMed's bylaws provide that a quorum at the special meeting will be
the holders of a majority of the stock outstanding on the record date for the
meeting. ProxyMed will treat shares of common stock represented by a properly
signed and returned proxy, including abstentions and broker non-votes, as
present at the meeting for purposes of determining the existence of a quorum. If
sufficient votes to constitute a quorum are not received by the date of the
special meeting, the persons named as proxies may propose one or more
adjournments of the meeting to permit further solicitation of proxies. The
inspector of elections appointed for the ProxyMed special meeting will tabulate
the votes. The persons named as proxies would generally exercise their authority
to vote in favor of adjournment.
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SOLICITATION OF PROXIES AND EXPENSES
ProxyMed and PlanVista will equally share the costs of soliciting
proxies for the special meetings. Certain directors, officers and employees of
ProxyMed may solicit proxies, without additional remuneration, by telephone,
facsimile, electronic mail, telegraph and in person. ProxyMed expects that the
expenses of this special solicitation will be nominal. Following the mailing of
this joint proxy statement/prospectus, ProxyMed will request brokers,
custodians, nominees and other record holders to forward copies of this joint
proxy statement/prospectus to persons for whom they hold shares of common stock
and to request authority for the exercise of proxies. In such cases, ProxyMed,
upon the request of the record holder, will reimburse such holders for their
reasonable expenses.
If your shares are registered in the name of a bank or brokerage firm,
you may be eligible to vote your shares by telephone or Internet. A large number
of banks and brokerage firms are participating in the ADP Investor Communication
Services telephone or Internet voting program. This program provides eligible
shareholders the opportunity to vote by telephone or Internet. If your bank or
brokerage firm is participating in ADP's program, your voting form will provide
instructions. If your voting form does not reference telephone or Internet
information, please complete and return the paper proxy card in the
self-addressed, postage-paid envelope provided. If you have any questions about
executing your proxy or require assistance, please contact: Judson E. Schmid
at (954) 473-1001.
BOARD OF DIRECTORS RECOMMENDATIONS
After careful consideration, the board of directors of ProxyMed
believes that the merger is in consistent with, and in furtherance of,
ProxyMed's long-term business strategy and the merger is advisable, and fair to,
and in the best interests of ProxyMed and its shareholders. The ProxyMed board
of directors recommends that its shareholders vote "FOR" the proposal to amend
ProxyMed's articles of incorporation to increase the authorized number of shares
of ProxyMed common stock from 13,333,333 1/3 shares to 30 million shares, "FOR"
the proposal to amend the ProxyMed 2002 Stock Option Plan to increase the total
number of shares available for issuance under such plan from 600,000 to
1,350,000, "FOR" the proposal to approve the issuance of shares of ProxyMed
common stock pursuant to the merger agreement and "FOR" the proposal to approve
the issuance of shares of ProxyMed common stock in connection with the ProxyMed
private equity offering.
GENERAL ATLANTIC PARTNERS VOTING AGREEMENT
ProxyMed shareholders holding approximately 23.1% of the outstanding
voting power of ProxyMed common stock as of December 5, 2003 entitled to vote at
the ProxyMed special meeting have agreed to vote all of their shares of ProxyMed
common stock in favor of the proposal to approve the issuance of ProxyMed common
stock pursuant to the merger agreement, the proposal to approve the issuance of
shares of ProxyMed common stock in connection with the ProxyMed private equity
offering, and the amendment to ProxyMed's articles of incorporation, and have
executed proxies with respect to their shares in favor of these proposals.
Please refer to the section of this joint proxy statement/prospectus entitled
"Voting agreements -- General Atlantic Partners Voting Agreement" beginning on
page 113. Also, a copy of the General Atlantic Partners Voting Agreement is
attached as Annex E.
52
THE SPECIAL MEETING OF PLANVISTA STOCKHOLDERS
This joint proxy statement/prospectus is being sent to you as PlanVista
stockholder in order to provide you with important information regarding the
proposed merger in connection with the solicitation of proxies by PlanVista's
board of directors for use at the special meeting of its stockholders and at any
adjournment or postponement of the special meeting.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
PlanVista will hold a special meeting of its stockholders on March
___, 2004, at 10:00 a.m., local time, at PlanVista's offices at 4010 Boy Scout
Boulevard, Suite 200, Tampa, Florida 33607.
MATTERS FOR CONSIDERATION
At the special meeting, PlanVista stockholders will be asked to
consider and vote upon a proposal to adopt the merger agreement. PlanVista does
not currently contemplate that any other matters will be presented at the
PlanVista special meeting. PlanVista's bylaws provide that no matter may be
brought before a special meeting unless that matter is stated in the notice of
the special meeting.
BOARD OF DIRECTORS' RECOMMENDATION
After careful consideration, the PlanVista board of directors has
approved the merger agreement and the merger. The PlanVista board of directors
believes that the merger is fair to and in the best interests of PlanVista and
its stockholders and that the merger is advisable. The PlanVista board of
directors recommends that the PlanVista stockholders vote "FOR" the proposal to
adopt the merger agreement.
RECORD DATE; SHARES HELD BY DIRECTORS AND EXECUTIVE OFFICERS
The record date for determining the PlanVista stockholders entitled to
vote at the PlanVista special meeting is ___, 2004. Only stockholders of record
of PlanVista common stock and PlanVista series C preferred stock as of the close
of business on that date are entitled to vote at the PlanVista special meeting.
As of the PlanVista record date, there were ___ shares of PlanVista common stock
and ___ shares of PlanVista series C preferred stock issued and outstanding,
held by approximately ___ stockholders of record. Each share of PlanVista common
stock issued and outstanding as of the PlanVista record date entitles its holder
to cast one vote at the PlanVista special meeting, and each share of PlanVista
series C preferred stock entitles its holder to cast approximately 751 votes at
the PlanVista special meeting.
As of the PlanVista record date, the directors and executive officers
of PlanVista and their affiliates held ___ outstanding shares of common stock
and ___ outstanding shares of series C preferred stock, or approximately ___% of
the total outstanding shares of PlanVista common stock and ___% of the total
outstanding shares of PlanVista series C preferred stock.
PVC FUNDING PARTNERS VOTING AGREEMENT
Under the terms of voting agreement entered into between ProxyMed and
PVC Funding Partners, LLC, PVC Funding Partners, LLC has agreed, subject to the
terms and conditions set forth in the voting agreement, to vote their shares of
PlanVista common stock and PlanVista series C preferred stock for the adoption
of the merger agreement. PVC Funding Partners, LLC owns and is entitled to ___
votes or approximately ___%, of the total votes entitled to be cast as of the
record date. Please refer to the section of this joint proxy
statement/prospectus entitled "Voting Agreements -- PVC Funding Partners Voting
Agreement" beginning on page 112 and Annex F.
QUORUM AND VOTE REQUIRED
In order to conduct business at the PlanVista special meeting, a quorum
must be present. The holders of a majority of the PlanVista common stock and
PlanVista series C preferred stock outstanding on the record date for
53
the PlanVista special meeting present in person or represented by proxy at the
special meeting and entitled to vote at the special meeting constitute a quorum
under PlanVista's bylaws. PlanVista will treat shares of PlanVista common stock
and PlanVista series C preferred stock represented by a properly signed and
returned proxy, including abstentions and broker non-votes, as present at the
PlanVista special meeting for purposes of determining the existence of a quorum.
If sufficient votes to constitute a quorum or to adopt the merger agreement are
not received by the date of the special meeting, the persons named as proxies
may propose one or more adjournments of the meeting to permit further
solicitation of proxies.
The affirmative vote of a majority of the votes entitled to be cast by
the holders of the shares of PlanVista's common stock and PlanVista series C
preferred stock outstanding on the PlanVista record date in favor of the
proposal to adopt the merger agreement is required in order for the merger
proposal to pass. In addition, it is a condition to PlanVista's obligation to
consummate the merger that the holders of a majority of the votes cast by
holders of the outstanding shares of PlanVista common stock voting at the
PlanVista stockholders meeting and and not taking into account any votes cast by
holders of the series C preferred stock, by Commonwealth Associates, L.P., or
any affiliates or officers or directors thereof, or any director or executive
officer of PlanVista, vote to adopt the merger agreement.
ADJOURNMENT AND POSTPONEMENT
If a quorum is not present or represented at a stockholder meeting,
PlanVista's bylaws permit a majority of the stockholders entitled to vote at
such meeting, present in person or represented by proxy, to adjourn such
meeting, or, if no stockholder is present, PlanVista's bylaws permit an officer
entitled to preside at or act as Secretary of such meeting to adjourn the
meeting, without notice other than announcement at the meeting; provided,
however, that if the date of any adjourned meeting is more than 30 days after
the date for which the meeting was originally noticed, or if a new record date
is fixed for the adjourned meeting, written notice of the place, date and time
of the adjourned meeting shall be given.
VOTING OF PROXIES
The PlanVista proxy accompanying this joint proxy statement/prospectus
is solicited on behalf of the PlanVista board of directors for use at the
PlanVista special meeting.
GENERAL
Shares represented by a properly signed and dated proxy will be voted
at the special meeting in accordance with the instructions indicated on the
proxy. Proxies that are properly signed and dated but which do not contain
voting instructions will be voted "FOR" the proposal to adopt the merger
agreement.
ABSTENTIONS
PlanVista will count a properly executed proxy marked "ABSTAIN" as
present for purposes of determining whether a quorum is present, but the shares
represented by that proxy will not be voted at the special meeting. Because the
affirmative vote of a majority of the votes entitled to be cast by the holders
of the outstanding shares of PlanVista common stock and PlanVista series C
preferred stock is required to adopt the merger agreement, if you mark your
proxy "ABSTAIN," it will have the effect of a vote against the proposal to adopt
the merger agreement.
BROKER NON-VOTES
If your shares are held in street name, your broker will vote your
shares for you only if you provide instructions to your broker on how to vote
your shares. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares. Your broker cannot vote your
shares of PlanVista common stock or PlanVista series C preferred stock without
specific instructions from you. Because the affirmative vote of a majority of
the votes entitled to be cast by the holders of the outstanding shares of
PlanVista common
54
stock and PlanVista series C preferred stock is required to adopt the merger
agreement, if you do not instruct your broker how to vote, it will have the
effect of a vote against the proposal to adopt the merger agreement.
VOTING SHARES IN PERSON THAT ARE HELD IN STREET NAME
If your shares are held in street name and you wish to vote those
shares in person at the special meeting, you must obtain from your broker
holding your PlanVista common stock or PlanVista series C preferred stock a
properly executed legal proxy identifying you as a PlanVista stockholder,
authorizing you to act on behalf of the nominee at the special meeting and
identifying the number of shares with respect to which the authorization is
granted.
HOW TO REVOKE A PROXY
If you submit a proxy, you may revoke it at any time before it is
voted by:
- delivering to the Corporate Secretary of PlanVista a written
notice, dated later than the proxy you wish to revoke, stating
that the proxy is revoked;
- submitting to the Corporate Secretary of PlanVista a new,
signed proxy with a date later than the proxy you wish to
revoke; or
- attending the special meeting and voting in person.
Notices to the Corporate Secretary of PlanVista should be addressed to
Corporate Secretary, PlanVista, 4010 Boy Scout Boulevard, Suite 200, Tampa,
Florida 33607.
If you hold your shares in street name, you must give new instructions
to your broker prior to the special meeting or obtain a signed "legal proxy"
from the broker to revoke your prior instructions and vote in person at the
meeting.
SOLICITATION OF PROXIES AND EXPENSES
PlanVista and ProxyMed will equally share the costs of soliciting
proxies for the special meetings. Certain directors, officers and employees of
PlanVista may solicit proxies, without additional remuneration, by telephone,
facsimile, electronic mail, telegraph and in person. PlanVista expects that the
expenses of this special solicitation will be nominal. Following the mailing of
this joint proxy statement/prospectus, PlanVista will request brokers,
custodians, nominees and other record holders to forward copies of this joint
proxy statement/prospectus to persons for whom they hold shares of common stock
and to request authority for the exercise of proxies. In such cases, PlanVista,
upon the request of the record holder, will reimburse such holders for their
reasonable expenses.
In addition, PlanVista has retained [INSERT PROXY SOLICITOR], to assist
in soliciting proxies, for which services PlanVista will pay a fee not expected
to exceed $___, plus out-of-pocket expenses. If you have any questions about
executing your proxy or require assistance, please contact:
[Contact information for proxy solicitor]
55
THE MERGER
This section of this joint proxy statement/prospectus describes some
aspects of the proposed merger. While ProxyMed and PlanVista believe that the
description covers the material terms of the merger and the related
transactions, this summary may not contain all of the information that is
important to you. You should read this entire document and the other documents
referred to in this joint proxy statement/prospectus, including the merger
agreement, a copy of which is attached to this joint proxy statement/prospectus
as Annex A, carefully for a more complete understanding of the merger. In
addition, important business and financial information about ProxyMed and
PlanVista is contained elsewhere in this joint proxy statement/prospectus.
GENERAL
The ProxyMed board of directors and the PlanVista board of directors
have each approved the merger agreement pursuant to which the businesses of
ProxyMed and PlanVista will be combined. At the effective time of the merger,
Planet Acquisition Corp., a newly formed, wholly-owned subsidiary of ProxyMed,
will merge with and into PlanVista, with PlanVista surviving the merger and
continuing as a wholly-owned subsidiary of ProxyMed under the name PlanVista
Corporation.
Upon completion of the merger, each share of PlanVista common stock
then outstanding (other than shares with respect to which a PlanVista
stockholder has exercised appraisal rights) will be canceled and automatically
converted into the right to receive a fraction of one fully paid and
nonassessable share of ProxyMed common stock, the numerator of which is (1)
1,826,829 (subject to the conversion of any shares of PlanVista series C
preferred stock) and the denominator of which is (2) the total number of issued
and outstanding shares of PlanVista common stock immediately prior to the
effective time of the merger. Upon completion of the merger, holders of
PlanVista's series C preferred stock will be entitled to receive, for each share
of PlanVista series C preferred stock then held by them (other than shares of
series C preferred stock with respect to which a PlanVista series C preferred
stockholder has exercised appraisal rights), a fraction of one fully paid and
nonassessable share of ProxyMed common stock, the numerator of which is (1)
1,773,171 (subject to the conversion of any shares of PlanVista series C
preferred stock) and the denominator of which is (2) the total number of issued
and outstanding shares of PlanVista series C preferred stock immediately prior
to the effective time of the merger. The total number of shares of ProxyMed
common stock issuable as merger consideration is subject to adjustment in the
event certain fees, expenses and obligations arising as a result of the merger
of PlanVista exceed a specified amount. PVC Funding Partners, LLC, the holder of
96% of the outstanding PlanVista series C preferred stock, has agreed not to
convert its series C preferred stock into common stock prior to the consummation
of the merger. If any of the remaining PlanVista series C preferred stock are
converted into PlanVista common stock prior to the closing of the merger, the
number of ProxyMed shares allocated to the PlanVista common stockholders will be
increased by the number of ProxyMed shares that the converting PlanVista series
C preferred stockholders will receive upon consummation of the merger as a
result of such conversion and the number of ProxyMed shares allocated to the
remaining holders of the PlanVista series C preferred stock will be decreased by
a like number. In the event that the amount owed by PlanVista to Commonwealth
Associates Group Holdings, LLC pursuant to the advisory agreement exceeds a
fixed amount, Commonwealth Associates Group Holdings, LLC has agreed to accept
payment for any excess fees in shares of PlanVista common stock to be issued by
PlanVista prior to the closing of the merger. Such shares of PlanVista common
stock will be valued at the price per share that the holders of PlanVista common
stock will be realizing as a result of the issuance of ProxyMed common stock in
the merger.
The number of shares of ProxyMed common stock issuable pursuant to the
merger agreement will be proportionately adjusted for any stock split, reverse
stock split, stock dividend or similar event with respect to shares of ProxyMed
common stock or PlanVista common stock effected between the date of the merger
agreement and the effective time of the merger.
ProxyMed will issue 3,600,000 shares of ProxyMed common stock in the
merger, 1,691,229 shares in connection with the ProxyMed private equity offering
and will reserve 200,000 additional shares of ProxyMed common stock for future
issuance upon the exercise of ProxyMed stock options to be issued to certain
employees and officers of PlanVista.
56
At the effective time of the merger, each outstanding option to
purchase PlanVista common stock will cease to represent a right to acquire
shares of PlanVista common stock and will be canceled.
Immediately after the effective time, ProxyMed will cause the exchange
agent to mail to the holders of record of PlanVista common stock a letter of
transmittal and instructions on how to surrender PlanVista stock certificates in
exchange for ProxyMed common stock certificates. Holders of PlanVista common
stock should not mail their PlanVista stock certificates at this time. Upon
surrendering their PlanVista common stock, the letter of transmittal and any
other documents required by the exchange agent, the holders of PlanVista stock
certificates will be entitled to receive a certificate representing that number
of whole shares of ProxyMed common stock which that holder has the right to
receive, cash for fractional shares of ProxyMed common stock and cash dividends
or other distributions, if any, to which the holder is entitled.
BACKGROUND OF MERGER
In January 2003, Mr. Phillip S. Dingle, the Chairman of PlanVista's
board of directors and its Chief Executive Officer, Mr. Jeffrey L. Markle,
PlanVista's President and Chief Operating Officer, Mr. Michael Falk, a member of
the board of directors of both ProxyMed and PlanVista and the Chief Executive
Officer of Commonwealth Associates Group Holdings, LLC, the financial advisor to
PlanVista, and Mr. Harold Blue, a director of PlanVista and the President and
Chief Operating Officer of Commonwealth Associates Group Holdings, LLC and
former Chairman, Chief Executive Officer and director of ProxyMed, met with Mr.
Michael Hoover, the Chairman and Chief Executive Officer of ProxyMed to discuss
the possibility of developing a joint marketing arrangement between ProxyMed and
PlanVista.
From January 2003 through June 2003, management of each company
negotiated the terms of the joint marketing and distribution arrangement. On May
20, 2003 at a regular meeting of ProxyMed's board of directors, Michael Hoover
first informed the board of the new business opportunity that ProxyMed may
have with PlanVista in marketing PlanVista's claims repricing services to
ProxyMed's payers. On June 10, 2003, PlanVista and ProxyMed executed a Joint
Marketing and Distribution Agreement pursuant to which ProxyMed agreed to market
PlanVista's services to ProxyMed's client base. In connection with this joint
marketing arrangement, ProxyMed received warrants to purchase up to 15% of the
PlanVista common stock.
During June and July 2003, ProxyMed marketed the joint
ProxyMed/PlanVista products to existing ProxyMed clients pursuant to the Joint
Marketing and Distribution Agreement. During this time ProxyMed's management
concluded that the joint sales efforts between the two companies could be even
more effective if the two companies were more tightly integrated. In August
2003, Mr. Hoover informally contacted Mr. Dingle regarding the possibility of
combining ProxyMed and PlanVista, and later Mr. Hoover and Mr. Dingle scheduled
a meeting to pursue more formal discussions regarding such a business
combination.
On August 20, 2003, Messrs. Hoover, Dingle, and Blue met to discuss the
general financial framework under which the companies might be combined and the
potential benefits to the companies of such a potential combination.
On August 21, 2003, Mr. Hoover sent to Mr. Dingle a proposal outlining
certain of the material terms of a possible merger of ProxyMed and PlanVista,
including the proposed number of shares that ProxyMed would issue in the
transaction and various conditions that would need to be met in order to
finalize the transaction.
On August 27, 2003, the executive committee of the PlanVista board of
directors, one of the independent directors of PlanVista and a representative of
Fowler White Boggs Banker PA, outside legal counsel to PlanVista, met to discuss
the ProxyMed proposal. Mr. Dingle then sent a revised proposal to ProxyMed.
On August 29, 2003, Mr. Hoover sent to Mr. Dingle a revised proposal
outlining certain of the material terms of a possible merger of ProxyMed and
PlanVista, and proposing a timetable for continuing the discussions between the
two companies.
On September 3, 2003, the PlanVista board of directors met with Fowler
White to review the revised proposal from ProxyMed. Mr. Falk, a PlanVista
director, discussed with the PlanVista board that he beneficially owned stock of
ProxyMed and that he serves as a director of ProxyMed. The PlanVista board also
noted that Mr. Falk is the controlling equity owner of Commonwealth Associates
Group Holdings, LLC, which controls PVC Funding Partners, LLC, the holder of
approximately 96% of PlanVista's series C preferred stock, and that Commonwealth
Associates Group Holdings, LLC was currently acting as an
57
financial advisor to PlanVista pursuant to an Investment Advisory Agreement.
Messrs. Blue and Corbin also indicated that, as had been previously disclosed,
each of them were designated to serve as PlanVista directors by the holders of
the series C preferred stock and each also had employment or other relationships
with Commonwealth. Mr. Murray indicated that he had an interest in PVC Funding
Partners, LLC as a limited liability member. Because of the potential divergence
of interests between the PlanVista common stockholders and the PlanVista
preferred stockholders in addition to the previously disclosed relationships
with ProxyMed, the PlanVista board of directors determined to establish a
special committee composed of Mr. William Bennett and Mr. Gary Mansfield for the
purpose of reviewing, negotiating, and determining whether to accept or reject
any proposed transaction with ProxyMed, and authorized the special committee to
hire such advisors and legal counsel as it determined to be appropriate.
During the first week of September 2003, management of ProxyMed and
PlanVista continued to negotiate the terms of a proposed term sheet and a mutual
confidentiality agreement. On September 4, 2003, the two companies entered into
a term sheet and a confidentiality agreement.
On September 9, 2003, Mr. Hoover met with the ProxyMed board of
directors and informed the board of the proposal set forth in the term sheet
with PlanVista. The ProxyMed Board authorized ProxyMed's management to proceed
to conduct a preliminary due diligence review of PlanVista.
During September 2003, members of PlanVista's management met with
Braden Kelly of General Atlantic Partners, ProxyMed's largest shareholder, and
Keven McNamara, both members of the board of directors of ProxyMed, in order to
allow General Atlantic Partners and the ProxyMed board to conduct a due
diligence review of PlanVista. Also during September 2003, each company's
management and their respective financial and legal advisors met in person or by
telephone with their counterparts to conduct a comprehensive due diligence
review of the other company.
On September 19, 2003, the ProxyMed board of directors discussed with
ProxyMed's management and representatives of Holland & Knight LLP, ProxyMed's
outside legal counsel, their preliminary due diligence findings with respect to
PlanVista.
On September 24, 2003, PlanVista's special committee met with Richards,
Layton & Finger, its outside legal counsel, to review the independence of Mr.
Mansfield in relation to the proposed transaction with ProxyMed. Mr. Mansfield
indicated he would consider resigning from service on the special committee in
order to avoid the appearance of any conflict of interest in light of his
relationship with certain affiliates of Commonwealth Associates. The special
committee then determined to engage Jefferies & Company, Inc. as the independent
financial advisor to the special committee for the purpose of considering the
proposed transaction with ProxyMed. Subsequently, Mr. Mansfield resigned from
service as a member of the special committee.
During the months of October and November 2003, Jefferies & Company, on
behalf of the PlanVista special committee, and William Blair & Company, L.L.C.
on behalf of ProxyMed, conducted financial and other due diligence in connection
with their service to the respective companies.
On October 7, 2003, the special committee met with representatives of
Jefferies and Richards, Layton & Finger to discuss certain issues, including
pricing issues, the allocation of consideration between the common stockholders
and the preferred stockholders of PlanVista, the PlanVista capital structure and
other issues affecting PlanVista.
On October 10, 2003, the ProxyMed board of directors held a meeting to
review certain of management's and Holland & Knight's findings during the
initial due diligence review of PlanVista. The ProxyMed board requested that
ProxyMed management discuss their preliminary due diligence findings with
PlanVista's management.
On October 16 and 17, 2003, meetings were held between members of
PlanVista's management team, members of ProxyMed's management team, Carl
Kleidman of Commonwealth Associates and certain other representatives involved
in the due diligence reviews. During these meetings, the terms and conditions of
the possible transaction between the two companies as well as due diligence
issues were discussed.
On October 22, 2003, the ProxyMed board of directors met with the
ProxyMed management team and representatives of Holland & Knight to review the
due diligence issues that were previously identified to the ProxyMed board in
addition to other due diligence matters.
On October 29, 2003, Mr. Hoover updated the ProxyMed board of directors
on the status of the negotiations with PlanVista and related due diligence
matters. Mr. Hoover also discussed the terms of a private equity offering that
ProxyMed would be required to complete in order to consummate the proposed
merger with PlanVista. Mr. Hoover informed the board of his conversations with
General Atlantic Partners and Commonwealth Associates regarding their
willingness to participate in the required private equity offering. ProxyMed's
management was directed by the board to engage William Blair & Company, L.L.C.
to act as a financial advisor in connection with the proposed merger and to
consider the fairness of the proposed transaction with PlanVista to ProxyMed,
from a financial point of view.
During the months of October and November, 2003, Mr. Dingle, assisted
by Mr. Kleidman and Mr. Blue, and in consultation with Mr. Bennett, negotiated
various aspects of the proposed transaction with Mr. Hoover and other members of
the ProxyMed management, including revisions to the proposed term sheet. The
primary business issues involved the number of shares that would be issued by
ProxyMed in the merger, the total amount of debt that PlanVista would owe upon
the consummation of the merger, the amount of capital that ProxyMed would be
required to contribute to PlanVista upon consummation of the merger, the number
of stock options that ProxyMed would be obligated to issue to PlanVista officers
and directors, and the amount of fees and expenses that PlanVista would incur as
a result of the merger. Mr. Bennett, on behalf of the special committee, and Mr.
Blue, as representative of the series C preferred stockholders, negotiated terms
relating to the division of consideration between the common stockholders and
the preferred stockholders of PlanVista. Jefferies held a series of meetings
with management of PlanVista and ProxyMed and assisted in the review of
documentation and the deliberations of the PlanVista special committee. Due
diligence discussions continued.
From October 29, 2003 to December 4, 2003, management of both
companies, and their respective financial and legal advisors, continued to
negotiate the terms of the merger and the other transactions associated with the
merger. The negotiated terms included the form of voting agreements, the form of
stock purchase agreement for the ProxyMed private equity financing, the
representations and warranties of both companies, the conditions to the closing
of the merger, and the termination provisions of the merger agreement. During
this period, PlanVista and Commonwealth Associates continued to discuss issues
regarding the allocation of the consideration being paid in the transaction
between the holders of the PlanVista common stock and the PlanVista preferred
stock.
Between October 31, 2003 and November 17, 2003, the PlanVista special
committee negotiated with ProxyMed management to have the merger be conditioned
upon adoption of the Merger Agreement by a majority of the PlanVista common
shares held by stockholders
58
other than PVC Funding Partners, LLC, any affiliates or associates thereof,
other holders of the PlanVista Series C preferred stock, or any executive
officer or director of PlanVista, and to have the merger agreement be terminable
by PlanVista in the event that PlanVista receives a superior offer that meets
certain criteria.
On November 7, 2003, a meeting of the PlanVista special committee was
held regarding the status of the negotiations with ProxyMed. Present at the
meeting were representatives of Jefferies and Richards, Layton & Finger. The
PlanVista board of directors also held a meeting regarding the status of the
negotiations with ProxyMed. Representatives of Fowler White participated in the
meeting.
On November 7, 2003, the ProxyMed board of directors held a telephonic
meeting regarding the status of the negotiations with PlanVista. Representatives
of William Blair & Company, L.L.C. and Holland & Knight participated in the
telephonic meeting.
On November 10 and 11, 2003, the PlanVista special committee met with
representatives of Richards, Layton & Finger and reviewed, among other things,
the proposed allocation of the equity consideration to be paid by ProxyMed in
the transaction between the PlanVista common stockholders and the PlanVista
preferred stockholders, pursuant to which the holders of the PlanVista common
stock would be entitled to receive on a per share basis a greater number of
shares of ProxyMed common stock pursuant to the merger than would the PlanVista
preferred stockholders.
On November 13, 2003, the PlanVista special committee met with
representatives of Richards, Layton & Finger and a representative of Jefferies
and reviewed the status of the negotiations. Jefferies reported on its
activities and analysis to date.
On November 17, 2003, the PlanVista special committee was informed that
after further review and consideration of its relationships with PlanVista and
ProxyMed Jefferies had determined that it would be unable to continue its work
with the special committee. Jefferies noted that certain relationships between
Jefferies and PlanVista, ProxyMed and others could give rise to the appearance
of a conflict of interest and that such appearance could undermine the
effectiveness of any opinion to be rendered by Jefferies as to the fairness of
the transaction to the holders of the PlanVista common stock.
Subsequently, Mr. Bennett informed the PlanVista board of directors
that he believed that in light of his health concerns and continuing time
commitments for other personal and professional obligations, he could no longer
devote the time and effort necessary to continue serving as the sole member of
the PlanVista special committee. Mr. Bennett reported that significant progress
had been made by the PlanVista special committee toward reaching a definitive
agreement with ProxyMed that would result in a materially improved transaction
from the perspective of PlanVista's common stockholders. Specifically, Mr.
Bennett noted the "majority of the minority" stockholder vote that is a
condition to PlanVista's obligation to consummate the merger, the termination
provisions, and the disproportionate allocation of merger consideration to the
PlanVista common stockholders. Mr. Bennett then resigned from service on the
special committee.
On November 21, 2003, the PlanVista board of directors met to discuss
the recent developments including the resignation of Jefferies and the
resignation of Mr. Bennett from service on the special committee. The PlanVista
board of directors considered the qualifications of several independent
investment banking firms that had been contacted by PlanVista management in
light of the resignation of Jefferies, and after reviewing their respective
qualifications and receiving management's report on the discussions that took
place with the candidate firms, the board authorized the engagement of the
investment banking firm of Peter J. Solomon Company, L.P. The PlanVista board
also reviewed the status of the negotiations with ProxyMed and directed
management to continue such negotiations while the new financial advisor
conducted its due diligence.
Between November 21, 2003 and December 4, 2003, representatives of
Peter J. Solomon Company, L.P. met with management of ProxyMed and PlanVista and
conducted their financial and business due diligence with respect to both
companies.
On November 28, 2003, executives of both PlanVista and ProxyMed and
representatives of Fowler White, Holland & Knight, and Commonwealth held a
teleconference to discuss further revisions and comments to the merger
agreement. Issues discussed included due diligence matters, the amount of debt
to which PlanVista would be subject at the closing of the merger, the amount of
fees, expenses and other obligations that PlanVista would incur in connection
with the merger, and adjustments to the number of shares that ProxyMed would
issue in connection with the merger.
On November 30, 2003, representatives of Peter J. Solomon Company, L.P.
met with management of PlanVista at PlanVista's corporate offices to continue
their due diligence.
On December 1, 2003, representatives of Peter J. Solomon Company, L.P.
met with management of ProxyMed at ProxyMed's corporate offices to continue
their due diligence.
On December 4, 2003, the ProxyMed board of directors again met to
consider the terms of the merger and the proposed equity financing transaction.
Representatives from Holland & Knight and William Blair & Company, L.L.C. also
participated telephonically in the board meeting. Representatives from William
Blair & Company, L.L.C. presented its financial analysis with respect to the
business combination and the private equity financing and delivered its fairness
opinions.
On December 5, 2003, the PlanVista board of directors again met to
consider the terms of the merger. Representatives from Fowler White and Peter J.
Solomon Company, L.P. also participated in the board meeting. Representatives
from Peter J. Solomon Company, L.P. presented a financial analysis with respect
to the business combination and delivered its fairness opinion. Certain
PlanVista executives received and signed formal employment letters for continued
employment at PlanVista effective upon consummation of the merger.
The PlanVista board of directors upon a motion proposed by William
Bennett voted unanimously (with Michael Falk abstaining) to approve the merger
and recommend its adoption by the PlanVista stockholders.
On December 5, 2003, ProxyMed and PlanVista executed and delivered the
merger agreement.
DESCRIPTION OF EXISTING CONTRACTS AND OTHER ARRANGEMENTS BETWEEN PROXYMED AND
PLANVISTA
On June 10, 2003, PlanVista and one of its subsidiaries, National
Network Services, Inc., entered into a three year joint distribution and
marketing agreement with ProxyMed. Pursuant to the agreement, PlanVista's
network repricing services and network management services are offered to
ProxyMed's existing and prospective payer customers. Upon execution of the
agreement, PlanVista paid ProxyMed $200,000 for access to certain data. In
addition, PlanVista paid ProxyMed $150,000 to be ProxyMed's exclusive partner
during the first 12 months of the arrangement. PlanVista also issued to ProxyMed
a warrant to acquire 15% of PlanVista's outstanding common stock, calculated on
a fully-diluted basis as of the time of exercise, at an exercise price of $1.95
per share. The warrant has an initial term of six months with two three-month
renewal options based on achieving certain revenue-based milestones, as defined
in the agreement. The fair value of the warrant of $496,000 on the date the
warrant was
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granted was determined by an independent consultant using the Black-Scholes
pricing model. The warrant expired on December 7, 2003.
PROXYMED'S REASONS FOR THE MERGER
ProxyMed's board of directors has approved the merger agreement and
recommended that the ProxyMed shareholders vote to approve the amendment to
ProxyMed's articles of incorporation to increase the authorized number of shares
of ProxyMed common stock from 13,333,333 1/3 shares to 30 million shares, the
amendment to the ProxyMed 2002 Stock Option Plan to increase the total number of
shares available for issuance under such plan from 600,000 to 1,350,000, and the
issuance of shares of ProxyMed common stock pursuant to the terms of the merger
agreement and in connection with the ProxyMed private equity offering. In
reaching its decision, the ProxyMed board of directors identified several
reasons for and potential benefits of the merger to ProxyMed shareholders. These
potential benefits include the following:
- ENTRY INTO NEW LINE OF BUSINESS. ProxyMed's current
transaction business is focused on automating the process of
providers conducting financial and administrative business
with payers. One of ProxyMed's key business strategies is the
creation or acquisition of new high value transaction products
and services to cross-sell to its existing customers. By
acquiring PlanVista, ProxyMed gains an excellent foundation in
a new line of business, medical cost containment and business
process outsourcing.
- NEW "END-TO-END" SERVICE OFFERING. Today, ProxyMed only
participates in a portion of the end-to-end claims processing
cycle between providers and payers, which is the transmitting
of claims to payers for adjudication. ProxyMed does not
participate in post-adjudication processes, such as medical
cost containment through repricing out of network claims or
bill negotiation. This limits ProxyMed's ability to provide
comprehensive processing solutions. Through the acquisition of
PlanVista and the integration of the service offerings of both
companies, ProxyMed can create an innovative new process model
and platform that combines electronic healthcare transaction
processing services, medical cost containment and business
process outsourcing. This new business line will allow
ProxyMed to offer its payer customers true end-to-end claims
automated processing solutions, creating a compelling new
value proposition to its payers.
- INCREASED SALES OPPORTUNITIES WITH PAYERS. ProxyMed has
excellent relationships with over 450 payers, including a
number of the nation's largest insurance companies.
Historically PlanVista has served small and medium payers, and
has had limited success in selling upward into the larger
payers. As a result, there is very little overlap between the
customer bases of the two companies. ProxyMed believes that it
can successfully integrate PlanVista's cost containment
services into ProxyMed's claims submission offering that it
sells to the large payer marketplace, thus providing a new
market for PlanVista's offerings.
- STRENGTHENED BUSINESS TIES WITH SELECT CUSTOMERS. In
ProxyMed's prior acquisition of MedUnite, ProxyMed issued
convertible debt to the former shareholders of MedUnite,
including seven of the nation's largest insurance companies:
Aetna, Inc., Anthem Insurance Company, Inc., CIGNA Health
Corporation, Oxford Health Plans, Inc., WellPoint Health
Networks, Inc., Health Net, Inc., and PacifiCare Health
Systems, Inc. Under the terms of the convertible debt, the
former MedUnite shareholders can earn the right to convert
their debt into ProxyMed common stock at $18.32 by
increasing their volume of business with ProxyMed over a
forty-two (42) month period. ProxyMed believes that these
companies will find the medical cost containment and
business processing outsourcing services of PlanVista an
attractive service offering and an opportunity to increase
their volume of business with ProxyMed.
- EXPANDED TECHNOLOGICAL CAPABILITIES. PlanVista is a technology
leader in the medical cost containment area and possesses
significant technology capabilities and resources. The
combination of
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PlanVistas's technological resources with those of ProxyMed
will allow ProxyMed to compete more effectively by enhancing
its ability to develop new services and add functionality to
existing services;
- OPERATING COST REDUCTIONS. The merger will provide an
opportunity to reduce costs of operations by eliminating
PlanVista's administrative cost of complying with public
company regulations and duplications of accounting and finance
functions.
- ENHANCED PUBLIC PROFILE. ProxyMed believes that the increase
in its combined revenues, operating profits and earnings per
share that will result from the combination of ProxyMed and
PlanVista will increase its profile in the financial
marketplace. Any such increase in attention may lead to
increased interest in ProxyMed and its investment potential.
Based on these and other strategic factors, the ProxyMed board of
directors determined that approval of the merger agreement and the merger were
in the best interests of ProxyMed and its shareholders. Accordingly, the board
of directors voted to approve the merger.
RECOMMENDATION OF THE MERGER BY THE PROXYMED BOARD OF DIRECTORS
At a meeting held on December 4, 2003, the ProxyMed board of directors:
- determined that the merger is strategic, advisable, and is
fair to and in the best interests of ProxyMed and its
shareholders;
- approved the amendment to ProxyMed's articles of incorporation
to increase the authorized number of shares of ProxyMed common
stock from 13,333,333 1/3 shares to 30 million shares;
- approved the amendment to the ProxyMed 2002 Stock Option Plan
to increase the total number of shares available for issuance
under such plan from 600,000 to 1,350,000;
- approved the merger agreement, the merger and the issuance of
ProxyMed common stock in connection with the strategic merger;
- approved the private equity offering and the issuance of
ProxyMed common stock in connection with the ProxyMed private
equity offering;
- directed that the amendment of ProxyMed's articles of
incorporation to increase the authorized number of shares of
ProxyMed common stock from 13,333,333 1/3 shares to 30 million
shares, the amendment to the ProxyMed 2002 Stock Option Plan
to increase the total number of shares available for issuance
under such plan from 600,000 to 1,350,000, the issuance of
ProxyMed common stock in connection with the merger, and the
issuance of ProxyMed common stock in connection with the
ProxyMed private equity offering be presented for approval by
ProxyMed shareholders at the ProxyMed special meeting; and
- resolved to recommend that the ProxyMed shareholders approve
the amendment of ProxyMed's articles of incorporation to
increase the authorized number of shares of ProxyMed common
stock from 13,333,333 1/3 shares to 30 million shares, the
amendment to the ProxyMed 2002 Stock Option Plan to increase
the total number of shares available for issuance under such
plan from 600,000 to 1,350,000, the issuance of ProxyMed
common stock in connection with the merger, and the issuance
of ProxyMed common stock in connection with the ProxyMed
private equity offering.
In the course of reaching its decision to approve the merger agreement,
ProxyMed's board of directors consulted with ProxyMed's senior management, legal
counsel and financial advisors, and reviewed a significant amount of information
and considered the following factors:
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- the strategic reasons for the merger (described in the section
of this joint proxy statement/prospectus entitled "The Merger
-- ProxyMed's Reasons for the Merger" beginning on page 60);
- general market conditions and the competitive environment for
ProxyMed's products and services;
- the potential benefits to ProxyMed shareholders as a result of
growth opportunities following the merger;
- financial market conditions, historical market prices,
volatility and trading information with respect to ProxyMed's
common stock and PlanVista's common stock;
- historical and current information about ProxyMed's and
PlanVista's businesses, prospects, financial performance and
condition, operations, technology, management and competitive
position, including public reports concerning results of
operations during the most recent fiscal year and fiscal
quarter of each company filed with the SEC, analyst estimates,
market data and management's knowledge of the industry;
- the opinion of William Blair & Company, L.L.C. dated December
5, 2003 that, as of that date, the consideration to be paid by
ProxyMed in connection with the merger was fair, from a
financial point of view, to ProxyMed. A copy of the William
Blair & Company, L.L.C. opinion relating to the merger is
attached to this joint proxy statement/prospectus as Annex B.
This written opinion should be read in its entirety for a
description of the procedures followed, assumptions and
qualifications made, matters considered and limitations of the
review undertaken by William Blair & Company, L.L.C. -- please
refer to the section of this joint proxy statement/prospectus
"The Merger -- Opinion of ProxyMed's Financial Advisor"
beginning on page 68;
- the potential impact of the merger on ProxyMed's customers;
- the fact that the shareholders of ProxyMed will have the
opportunity to vote upon the amendment to ProxyMed's articles
of incorporation to increase the authorized number of shares
of ProxyMed common stock from 13,333,333 1/3 shares to 30
million shares;
- the likelihood that ProxyMed and PlanVista will be able to
complete the transaction;
- reports from ProxyMed's management, legal advisors and
financial advisors about the results of the due diligence
investigation of PlanVista;
- the terms and conditions of the merger agreement, including:
-- the no solicitation provisions and each party's
ability to engage in negotiations with, provide any
confidential information or data to, and otherwise
have certain discussions with, any person relating to
an alternative acquisition proposal under certain
circumstances,
-- the conditions to each party's obligation to effect
the merger,
-- the definition of "material adverse effect," and
-- the limited ability of PlanVista to terminate the
merger agreement;
- ProxyMed's prospects going forward without the combination
with PlanVista; and
- the potential for other third parties to enter into strategic
relationships with or to acquire PlanVista.
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In reaching its determination, the ProxyMed board of directors believes
that the factors described above generally figured positively with respect to
the acquisition, as advantages or opportunities to be derived from the merger,
except for the first factor above, which figured both positively and negatively.
The ProxyMed board of directors also considered the following potentially
negative factors in its deliberations concerning the merger:
- the possibility that the merger might not be consummated and
the effect of a public announcement of the merger on:
-- ProxyMed's revenues and other operating results,
-- ProxyMed's ability to attract and retain key
management, marketing and technical personnel, and
-- customer relationships;
- the risk that the potential benefits sought in the merger
might not be realized;
- the substantial expenses to be incurred in connection with the
merger, including costs of integrating the businesses and
transaction expenses arising from the merger;
- the risk that key technical and management personnel might not
remain employed by the combined company and key customers
might terminate their relationships with the combined company;
- the possibility ProxyMed would suffer an economic detriment as
a result of the market price of ProxyMed common stock
increasing prior to the closing of the merger, because the
stock portion of the merger consideration to be received by
PlanVista stockholders is fixed;
- the terms of the merger agreement regarding PlanVista's right
to consider and negotiate other acquisition proposals in
certain circumstances, as well as the possible effects of the
provisions in the merger agreement regarding termination fees;
- various other risks associated with the merger and the
business of ProxyMed and the combined company described in the
section of this joint proxy statement/prospectus entitled
"Risk Factors"; and
- The significant amount of debt that ProxyMed and PlanVista
will be required to repay following the consummation of the
merger.
The above discussion of the material factors is not intended to be
exhaustive, but does set forth the principal factors considered by the ProxyMed
board of directors. After due consideration, the ProxyMed board of directors
concluded that the potential benefits of the merger outweighed the risks
associated with the merger.
In view of the wide variety of factors considered by the ProxyMed board
of directors in connection with the evaluation of the merger and the complexity
of these matters, the ProxyMed board of directors did not consider it practical
to quantify, rank or otherwise assign relative weights to the foregoing factors,
and it did not attempt to do so. Rather, the ProxyMed board of directors made
its recommendation based on the totality of the information presented to it, and
the investigation conducted by it. The ProxyMed board of directors considered
all these factors and determined that these factors, as a whole, supported the
conclusions and recommendations described above.
In considering the recommendation of the ProxyMed board of directors to
approve the issuance of shares of ProxyMed common stock in connection with the
merger and the ProxyMed private equity offering and the amendment to ProxyMed's
articles of incorporation, ProxyMed shareholders should be aware that some
officers and directors of ProxyMed have interests in the proposed merger that
are different from and in addition to the interests of ProxyMed shareholders
generally. The ProxyMed board of directors was aware of these interests and
considered
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them in approving the merger agreement and the merger. Please refer to the
section of this joint proxy statement/prospectus entitled "The Merger --
Interests of Certain Persons in the Merger" beginning on page 82.
After carefully evaluating these factors, both positive and negative,
the board of directors of ProxyMed has determined that the merger is in the best
interests of ProxyMed and its shareholders. The ProxyMed board of directors
recommends that you vote FOR the proposed amendment to the ProxyMed articles of
incorporation to increase the authorized number of shares of ProxyMed common
stock from 13,333,333 1/3 shares to 30 million shares, the proposed amendment to
the ProxyMed 2002 Stock Option Plan to increase the total number of shares
available for issuance under such plan from 600,000 to 1,350,000, and the
issuance of shares of ProxyMed common stock pursuant to the merger agreement and
the issuance of shares of ProxyMed common stock in connection with the ProxyMed
private equity offering.
PLANVISTA REASONS FOR THE MERGER
The decision of the PlanVista board of directors to enter into the
merger agreement and to recommend that PlanVista stockholders adopt the merger
agreement was the result of the PlanVista board of director's careful
consideration of a range of strategic alternatives, including its previous
efforts to raise capital and refinance PlanVista's debt, potential business
combinations with companies other than ProxyMed, and the pursuit of a long-term
independent business strategy for PlanVista that might involve additional
financing.
During the course of its deliberations, the board of directors of
PlanVista considered, with the assistance of management and financial advisors
and legal counsel, a number of factors that the board of directors believes make
the merger attractive to PlanVista's stockholders and could contribute to the
success of the surviving corporation, including the following:
- IMPROVED GROWTH PROSPECTS WITH LARGER PAYERS. PlanVista
traditionally has not been able to attract larger payers to
utilize its services, which has inhibited the growth potential
for PlanVista. ProxyMed's presence as the nation's
second-largest clearinghouse with direct electronic data
interchange connectivity to 450 of the nation's 500 largest
medical claims payers will give the combined company recurring
and permanent access to a customer base for which PlanVista
has had limited access in the past and should improve the
receptivity of large payers to PlanVista's services. Since
there is virtually no overlap between ProxyMed's and
PlanVista's respective current customer bases, the ProxyMed
customer base will add a significant marketing opportunity for
PlanVista.
- IMPROVED RECEPTIVITY BY PROVIDERS. PlanVista's primary product
is its provider base of doctors, hospitals, and ancillary care
providers throughout the U.S. Agreements with those providers
and PPOs are generally short term in nature. Some industry
experts believe that providers have shown a reluctance to
participate in secondary networks like PlanVista's. ProxyMed's
primary constituents are its providers, and ProxyMed has
strong relationships and general acceptance within the
provider community. PlanVista envisions that it will be able
to reinforce its position and strength within the provider
community by exploiting ProxyMed's provider relationships.
- COMBINING THE SERVICE OFFERINGS OF THE TWO COMPANIES BETTER
SERVES THE CUSTOMERS OF BOTH. Combining ProxyMed's strength in
electronic healthcare transaction processing services with
PlanVista's strength in medical cost containment and business
process outsourcing enables the combined companies to create a
platform that encompasses electronic healthcare transaction
processing services and medical cost containment and business
process outsourcing which will add value for the customers of
both companies.
- COMBINED TECHNOLOGICAL EXPERTISE WILL BENEFIT BOTH COMPANIES.
PlanVista's strength in technology and expertise in designing
software products for medical cost containment and business
process outsourcing, when combined with ProxyMed's
technological expertise in claims transmission, will create a
stronger platform for future product development for both
companies.
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- PROXYMED'S RESOURCES WILL AID IN SALES PROMOTION. The merger
would provide PlanVista access to ProxyMed's greater
financial, technological and human resources to continue to
develop PlanVista's services and greater sales and marketing
resources to help promote those services more broadly.
- BETTER COMPETITIVE POSITION. PlanVista faces increasing
competition from other medical cost containment and business
process outsourcing firms. PlanVista believes that a
combination with a larger company with the resources of
ProxyMed may provide a number of competitive advantages. By
combining with ProxyMed, PlanVista may also reduce the risks
associated with seeking additional financing and pursuing its
revenue goals as an independent company.
- ELIMINATION OF THE COMPETITIVE DISADVANTAGE POSED BY THE
UNCERTAINTIES OF PLANVISTA'S CURRENT FINANCIAL STRUCTURE. The
amount of PlanVista's debt and the prospect of having to
refinance PlanVista's debt by the end of May 2004 has in the
past and increasingly continues to be an impediment to
PlanVista's ability to attract new customers and retain its
existing customers. Both of these circumstances have made it
difficult for PlanVista to continue to grow and have focused
PlanVista's senior management's efforts to a large extent on
refinancing rather than growth. The merger would eliminate
this impediment to growth and reassure PlanVista's customer
base.
- ADDITIONAL COST-SAVINGS AND BENEFITS. The merger will provide
an opportunity to reduce costs of operations by eliminating
PlanVista's administrative cost of complying with public
company regulations and duplications of accounting and finance
functions.
- RESOLVES PLANVISTA'S REFINANCING PRESSURES. PlanVista must
refinance over $40 million of debt prior to May 31, 2004.
PlanVista has been unsuccessful in refinancing this debt on
acceptable terms on at least three prior attempts over the
last three years and faces the prospect of defaulting on the
debt. Refinancing, if available, may also entail substantial
dilution to the PlanVista stockholders, if PlanVista were to
continue on an independent basis with a refinanced balance
sheet. The merger would eliminate this pressure.
- PROVIDES IMPROVED STOCKHOLDER LIQUIDITY. PlanVista's stock was
delisted from the New York Stock Exchange in October 2002
because PlanVista failed to meet the listing requirements.
Since that time, PlanVista's stock has traded on the
Over-the-Counter Bulletin Board because PlanVista does not
meet the listing standards for any other recognized national
securities exchange or national stock market. This has
resulted in a low trading profile for PlanVista's stock, a
limitation on the volume of shares that can be sold, and
possibly an inefficient market for determining the price of
PlanVista's stock. By combining with a larger company whose
stock is traded on the Nasdaq National Market, PlanVista's
stockholders should have improved liquidity with respect to
their shares.
- PRICING. The board of directors of PlanVista believes that the
price offered by ProxyMed is reflective of or in excess of the
price that PlanVista could expect to receive if it were to be
able to complete an equity offering of its own stock.
PlanVista attempted to sell stock to the public and private
markets in July through August of 2002 and in June through
August of 2003, respectively, but in neither instance was able
to complete the offering and in each instance the prices being
discussed were below the price currently being offered in the
merger to the common shareholders. Additionally, the board of
directors was made aware of the opinion of Peter J. Solomon
Company, L.P., dated December 5, 2003, to the effect that the
consideration to be received by the PlanVista common
stockholders (other than Commonwealth Associates Group
Holdings, LLC and its affiliates and associates) for the
shares of PlanVista common stock in connection with the merger
was, as of that date, fair from a financial point of view to
such holders of PlanVista common stock.
- REQUIRES STOCKHOLDER APPROVAL. Adoption of the merger
agreement is conditioned upon, among other things, the
approval of a majority of the votes cast by those PlanVista
stockholders present and voting at the meeting, and not taking
into account any votes cast by holders of the series C
preferred stock, by Commonwealth Associates, L.P., or any
affiliates or officers or directors thereof, or any director
or executive officer of PlanVista.
65
- COMMON STOCKHOLDERS WILL RECEIVE A PROPORTIONATELY HIGHER
PERCENTAGE OF CONSIDERATION THAN SERIES C PREFERRED
STOCKHOLDERS. The series C preferred stockholders have agreed
to waive their right to treat the merger as a liquidation and
to receive a proportionately lower percentage of the total
equity consideration being paid by ProxyMed than they would
otherwise be entitled to under PlanVista Certificate of
Incorporation PVC Funding Partners, LLC, the holder of 96% of
the series C preferred stock, has agreed to refrain from
converting its preferred stock into common stock before the
merger is consummated and has agreed to give up additional
shares if any shares of preferred stock that they do not
control are converted prior to the closing of the merger. As a
result, the common stockholders as of the date of the signing
of the merger agreement are assured that they will get the
same number of ProxyMed shares without regard to any such
conversion. Based on the market price of ProxyMed's common
stock on December 5, 2003, PlanVista's common stockholders
would receive approximately $1.39 per share of their PlanVista
common stock in the merger and the PlanVista series C
preferred stockholders would receive approximately $1.09 for
each share of PlanVista common stock into which their shares
of series C preferred stock are convertible. This assumes that
PVC Funding Partners, LLC and Centra Benefit Services, Inc.'s
debt is converted into PlanVista common stock prior to the
merger.
PlanVista's board of directors also believed that the merger would
offer the stockholders of the combined company the potential benefits described
above under the heading "The Merger -- ProxyMed Reasons for the Merger."
In addition, PlanVista's board of directors considered a number of
potentially negative factors relating to the merger, including the following:
- REDUCTION IN RECENTLY QUOTED STOCK PRICE. By agreeing to the
merger and announcing a transaction at the expected merger
price, which is below the recent prices at which PlanVista's
common stock has been trading on the Over-the-Counter Bulletin
Board, it is likely that PlanVista's quoted stock price will
immediately be reduced, causing a perceived loss of
stockholder value, and if the merger is not completed,
PlanVista's stock may never again achieve the higher prices at
which it has recently traded;
- LOSS OF TIME TO SEEK OPPORTUNITY TO REFINANCE. By entering
into the merger agreement and focusing PlanVista's attention
toward completion of the merger, PlanVista will be foregoing
opportunities to continue to try to refinance its debt, which
will be due in May 2004. If the merger agreement for any
reason is not approved or the merger does not otherwise occur
because of the conditions to closing, PlanVista may be faced
with little or no time to refinance, which could lead to a
default on PlanVista's indebtedness. This could have an
adverse effect upon the price at which PlanVista's stock
trades, cause substantial dilution to PlanVista's common
stockholders, and have other material consequences to
PlanVista;
- LOSS OF AUTONOMY. By becoming a part of a much larger company,
PlanVista will have less autonomy and independence in setting
its strategic goals;
- THE NUMBER OF SHARES TO BE RECEIVED IS FIXED. The fixed number
of shares of ProxyMed to be issued in the merger to
PlanVista's stockholders may lead to a reduction in the value
of the equity consideration being paid by ProxyMed if
ProxyMed's stock price declines;
- BENEFITS MAY NOT BE REALIZABLE. There is a risk that the
potential benefits of the merger may not be realized;
- EMPLOYEE RETENTION RISK. There is a risk that PlanVista may
find it more difficult to attract and retain skilled employees
during the pendency of the merger;
- MANAGEMENT RISK. There is a risk that the merger may divert
management's attention from PlanVista's business operations;
and
- OTHER RISKS. Other risks are described in this joint proxy
statement/prospectus under "Risk Factors."
66
This discussion of factors considered by the PlanVista board of
directors is not intended to be exhaustive, but is intended to include the
material factors considered.
RECOMMENDATION OF PLANVISTA BOARD OF DIRECTORS
At a meeting held on December 5, 2003, the PlanVista board of
directors:
- determined that the merger is advisable, and is fair to and in
the best interests of PlanVista and its stockholders;
- approved the merger agreement;
- directed that the merger agreement be submitted for
consideration by PlanVista stockholders at a PlanVista special
meeting; and
- resolved to recommend that the PlanVista stockholders adopt
the merger agreement.
In the course of reaching its decision to approve the merger agreement,
PlanVista's board of directors consulted with senior management, its legal
counsel and its financial advisor, and reviewed a significant amount of
information and considered the foregoing material factors, as well as the
following:
- the then current financial market conditions, and historical
market prices, volatility and trading information with respect
to PlanVista's common stock and ProxyMed's common stock;
- historical and current information concerning PlanVista's and
ProxyMed's respective businesses, prospects, financial
performance and condition, operations, technology, management
and competitive position, including, without limitation,
public reports concerning results of operations during the
most recent calendar year and calendar quarter of each company
filed with the SEC;
- PlanVista's management's view of the financial condition,
results of operations and businesses of PlanVista and ProxyMed
before and after giving effect to the merger and based on,
among other things, the results of due diligence on ProxyMed,
analyst estimates, market data and management's knowledge of
the industry;
- the terms and conditions of the merger agreement, including:
-- the no solicitation provisions and PlanVista's
ability to engage in negotiations with, provide any
confidential information or data to, and otherwise
have certain discussions with, any person relating to
an alternative acquisition proposal under certain
circumstances,
-- the conditions to ProxyMed's obligation to effect the
merger,
-- the definition of "material adverse effect," and
-- the limited ability of ProxyMed to terminate the
merger agreement;
- PlanVista's view of its prospects of PlanVista as an
independent company;
- the potential for other third parties to enter into strategic
relationships with or to acquire PlanVista;
- the fact that the transaction was intended to be structured
such that PlanVista stockholders would not be immediately
taxed on the stock merger consideration;
67
- the opinion of Peter J. Solomon Company, L.P. dated December
5, 2003 that, as of that date and based upon the assumptions
made, procedures followed, matters considered and limits of
review set forth in Peter J. Solomon Company, L.P. 's written
opinion, the consideration to be paid to the holders of
PlanVista common stock (other than Commonwealth Associates
Group Holdings, LLC and its affiliates and associates) in
connection with the merger was fair to such stockholders from
a financial point of view. A copy of the Peter J. Solomon
Company, L.P. opinion is attached to this proxy statement as
Annex C. This written opinion should be read in its entirety
for a description of the assumptions made, procedures
followed, matters considered and limitations on the scope of
the review undertaken by Peter J. Solomon Company, L.P. in
delivering its opinion. Please refer to the section of this
joint proxy statement/prospectus entitled "The Merger --
Opinion of PlanVista's Financial Advisor" beginning on page
75; and
- the impact of the merger on PlanVista's customers and
potential business partners other than ProxyMed.
In reaching its determination, the PlanVista board of directors
considered both the positive and negative factors described above and determined
that the positive factors outweighed the negative factors.
In view of the wide variety of factors considered by the PlanVista
board of directors in connection with the evaluation of the merger and the
complexity of these matters, the PlanVista board of directors did not consider
practical, and did not attempt, to quantify, rank or otherwise assign relative
weights to, the foregoing material factors. Rather, the PlanVista board of
directors made its recommendation based on the totality of the information
presented to, and the investigation conducted by it. The PlanVista board of
directors considered all these material factors and determined that these
factors, as a whole, supported the conclusions and recommendations described
above.
In considering the recommendation of the PlanVista board of directors
to adopt the merger agreement, PlanVista stockholders should be aware that
certain officers and directors of PlanVista have certain interests in the
proposed merger that are different from and in addition to the interests of
PlanVista stockholders generally. The PlanVista board of directors was aware of
these interests and considered them in approving the merger agreement and the
merger. The action of the board of directors was unanimous and all directors
including those who were deemed independent supported the recommendation. Please
refer to the section of this joint proxy statement/prospectus entitled "The
Merger -- Interests of Certain Persons in the Merger" beginning on page 82.
After carefully evaluating these factors, both positive and negative,
the board of directors of PlanVista has determined that the merger is in the
best interests of PlanVista and its stockholders. The PlanVista board of
directors recommends that you vote FOR the adoption of the merger agreement.
OPINION OF PROXYMED'S FINANCIAL ADVISOR
William Blair & Company, L.L.C. was engaged by the ProxyMed board of
directors on October 29, 2003 to act as a financial advisor to ProxyMed with
respect to pursuing the merger with PlanVista. As part of its engagement,
ProxyMed requested that William Blair & Company, L.L.C. render its opinion as to
whether the consideration to be paid by ProxyMed in connection with the merger
was fair to ProxyMed from a financial point of view. On December 4, 2003,
William Blair & Company, L.L.C. delivered its oral opinion, subsequently
confirmed in writing, to the effect that, as of that date and based upon and
subject to the assumptions and qualifications stated in its opinion, the
consideration was fair, from a financial point of view, to ProxyMed.
68
William Blair & Company, L.L.C. provided the opinion described above
for the information and assistance of the ProxyMed board of directors in
connection with its consideration of the merger. The terms of the merger
agreement, however, were determined through negotiations between ProxyMed and
PlanVista, and were approved by the ProxyMed board of directors.
THE FULL TEXT OF WILLIAM BLAIR & COMPANY, L.L.C.'S WRITTEN OPINION,
DATED DECEMBER 5, 2003, IS ATTACHED AS ANNEX B TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND INCORPORATED INTO THIS DOCUMENT BY REFERENCE. YOU ARE
URGED TO READ THE ENTIRE OPINION CAREFULLY TO LEARN ABOUT THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE SCOPE OF THE REVIEW
UNDERTAKEN BY WILLIAM BLAIR & COMPANY, L.L.C. IN RENDERING ITS OPINION. WILLIAM
BLAIR & COMPANY, L.L.C.'S OPINION RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL
POINT OF VIEW, OF THE CONSIDERATION TO BE PAID BY PROXYMED IN THE MERGER
PURSUANT TO THE MERGER AGREEMENT, DOES NOT ADDRESS ANY OTHER ASPECT OF THE
PROPOSED MERGER OR ANY RELATED TRANSACTION, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW THAT SHAREHOLDER SHOULD VOTE WITH
RESPECT TO THE MERGER. WILLIAM BLAIR & COMPANY, L.L.C. DID NOT ADDRESS THE
MERITS OF THE UNDERLYING DECISION BY PROXYMED TO ENGAGE IN THE MERGER. THE
FOLLOWING SUMMARY OF WILLIAM BLAIR & COMPANY, L.L.C.'S OPINION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. THE OPINION WAS
DIRECTED TO THE BOARD OF DIRECTORS OF PROXYMED FOR ITS BENEFIT AND USE IN
EVALUATING THE FAIRNESS OF THE CONSIDERATION TO BE PAID BY PROXYMED. WE URGE YOU
TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY.
In connection with its opinion, William Blair & Company, L.L.C.
examined or discussed:
- The merger agreement dated December 5, 2003 (and drafts
thereof);
- certain audited historical financial statements of ProxyMed
and of PlanVista for the three years ended December 31, 2002;
- certain unaudited financial statements of ProxyMed and
PlanVista for the nine months ended September 30, 2003;
- certain internal business, operating and financial information
provided by ProxyMed and PlanVista and forecasts of ProxyMed
and PlanVista prepared by the senior management of ProxyMed
and PlanVista, respectively;
- information regarding the strategic, financial and operational
benefits anticipated from the merger and the prospects of
ProxyMed (with and without the merger) prepared by senior
management of ProxyMed and PlanVista;
- the pro forma impact of the merger on the financial results
and condition of ProxyMed, based on certain pro forma
financial information prepared by the senior management of
ProxyMed;
- information regarding publicly available financial terms of
certain other business combinations William Blair & Company,
L.L.C. deemed relevant;
- the financial position and operating results of ProxyMed
compared with those of certain other publicly traded companies
William Blair & Company, L.L.C. deemed relevant;
- current and historical market prices and trading volumes of
the common stock of ProxyMed and PlanVista; and
- certain other publicly available information on ProxyMed and
PlanVista.
William Blair & Company, L.L.C. also held discussions with members of
the senior management of ProxyMed and PlanVista regarding the foregoing,
considered other matters which William Blair & Company,
69
L.L.C. deemed relevant to its inquiry and took into account such accepted
financial and investment banking procedures and considerations that it deemed
relevant.
In rendering its opinion, William Blair & Company, L.L.C. has assumed
and relied, without independent verification, upon the accuracy and completeness
of all the information examined by or otherwise reviewed or discussed with
William Blair & Company, L.L.C. for purposes of its opinion, including without
limitation the forecasts provided by senior management of ProxyMed and
PlanVista. William Blair & Company, L.L.C. has not made or obtained an
independent valuation or appraisal of the assets, liabilities or solvency of
ProxyMed or PlanVista. William Blair & Company, L.L.C. has been advised by the
senior management of ProxyMed and PlanVista that the forecasts examined by
William Blair & Company, L.L.C. have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the senior
management of ProxyMed and PlanVista. In that regard, William Blair & Company,
L.L.C. has assumed, with ProxyMed's consent, that (i) the forecasts will be
achieved in the amounts and at the times contemplated thereby and (ii) all
material assets and liabilities (contingent or otherwise) of ProxyMed and
PlanVista are as set forth in the financial statements or other information made
available to William Blair & Company, L.L.C. by ProxyMed or PlanVista,
respectively. William Blair & Company, L.L.C. expresses no opinion with respect
to the forecasts or the estimates and judgments on which they are based. William
Blair & Company, L.L.C. was not requested to, and did not consider, and its
opinion does not address, the relative merits of the merger as compared to any
alternative business strategies that might exist for ProxyMed or the effect of
any other transaction in which ProxyMed might engage. William Blair & Company,
L.L.C.'s opinion is based upon economic, market, financial and other conditions
existing on, and other information disclosed to William Blair & Company, L.L.C.,
as of the date of its opinion. It should be understood that, although subsequent
developments may affect its opinion, William Blair & Company, L.L.C. does not
have any obligation to update, revise or reaffirm its opinion. William Blair &
Company, L.L.C. has assumed that the merger will be consummated on the terms
described in the merger agreement, without any waiver of any material terms or
conditions by ProxyMed. William Blair & Company, L.L.C. has not provided any
legal advice to ProxyMed and ProxyMed acknowledges that it has relied on its own
counsel for all legal determinations. William Blair & Company, L.L.C. was not
requested to, nor did it, seek alternative participants for the proposed merger.
William Blair & Company, L.L.C. did not express any opinion as to the
price at which the common stock of ProxyMed or PlanVista will trade at any
future time. Such trading prices may be affected by a number of factors,
including but not limited to:
- dispositions of the common stock of ProxyMed by shareholders
within a short period of time after the effective date of the
merger;
- changes in the prevailing interest rates and other factors
which generally influence the price of securities;
- adverse changes in the current capital markets;
- the occurrence of adverse changes in the financial condition,
business, assets, results of operations or prospects of
ProxyMed or of PlanVista or in the healthcare market in
general;
- any necessary actions by or restrictions of federal, state or
other governmental agencies or regulatory authorities; and
- timely completion of the merger on the terms and conditions
that are acceptable to all parties at interest.
The following is a summary of the material financial analyses performed
and material factors considered by William Blair & Company, L.L.C. to arrive at
its opinion. William Blair & Company, L.L.C. performed certain procedures,
including each of the financial analyses described below, and reviewed with the
ProxyMed board of directors the assumptions upon which such analyses were based,
as well as other factors. Although the summary does not purport to describe all
of the analyses performed or factors considered by William Blair & Company,
70
L.L.C. in this regard, it does set forth those considered by William Blair &
Company, L.L.C. to be material in arriving at its opinion. Certain of the
summaries of financial analyses include information presented in tabular format.
In order to fully understand the financial analyses used by William Blair &
Company, L.L.C., the tables must be read together with the text of each summary.
The tables alone do not constitute a complete description of the financial
analyses. Accordingly, the analyses listed in the tables and described below
must be considered as a whole. Considering any portion of such analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying William Blair &
Company, L.L.C.'s opinion.
Selected Public Company Analysis. William Blair & Company, L.L.C.
reviewed and compared certain financial information relating to PlanVista to
corresponding financial information, ratios and public market multiples for
certain publicly traded companies with operations in the healthcare transaction
processing industry and certain other publicly traded companies with operations
in the healthcare outsourcing and other services industry that William Blair &
Company, L.L.C. deemed relevant. The companies selected by William Blair &
Company, L.L.C. in the healthcare transaction processing industry were:
- NDCHealth Corporation;
- Trizetto Group, Inc.; and
- WebMD Corporation.
The companies selected by William Blair & Company, L.L.C. in the
healthcare outsourcing and other services industry were:
- BCE Emergis Inc.;
- CorVel Corporation;
- First Consulting Group, Inc.;
- First Health Corporation;
- Per-Se Technologies, Inc.;
- Quovadx, Inc.; and
- Superior Consultant Holdings.
Among the information William Blair & Company, L.L.C. considered was
revenue, earnings before interest and taxes, commonly referred to as EBIT, and
earnings before interest, taxes, depreciation and amortization, commonly
referred to as EBITDA, for each company for the last twelve months, commonly
referred to as LTM, along with projected 2004 net income. The operating results
and the corresponding derived multiples for PlanVista and each of the selected
companies were based on each company's most recent available publicly disclosed
financial information, the forecasts for PlanVista and closing share prices as
of December 3, 2003. The total value of the transaction is based on the equity
value implied by the purchase price plus total debt, less cash and cash
equivalents.
William Blair & Company, L.L.C. then compared the implied transaction
multiples for PlanVista based on its LTM and estimated 2003 revenue EBIT and
EBITDA as well as its projected 2004 net income to the range of trading
multiples for the selected companies. Information regarding the multiples from
William Blair & Company, L.L.C.'s analysis of selected publicly traded companies
is set forth in the following table.
71
SELECTED PUBLIC COMPANY
IMPLIED LTM VALUATION MULTIPLES
TRANSACTION -----------------------------------------
MULTIPLE MULTIPLES MIN MEAN MEDIAN MAX
-------- ----------- ----- ----- ------ -----
Total Value/LTM Revenue 3.08x 0.25x 1.70x 1.60x 3.17x
Total Value/2003 Estimated Revenue 2.99x
Total Value/LTM EBIT 10.6x 8.6x 12.7x 12.9x 15.7x
Total Value/2003 Estimated EBIT 10.0x
Total Value/LTM EBITDA 10.0x 6.9x 13.5x 9.8x 36.3
Total Value/2003 Estimated EBITDA 9.5x
None of the selected companies is identical to PlanVista. Accordingly,
any analysis of the selected publicly traded companies necessarily involved
complex considerations and judgments concerning the differences in financial and
operating characteristics and other factors that would necessarily affect the
analysis of trading multiples of the selected publicly traded companies.
Selected M&A Transactions Analysis. William Blair & Company, L.L.C.
performed an analysis of selected recent business combinations consisting of
transactions announced subsequent to January 1, 2000 and primarily involving
healthcare transaction processing, healthcare information technology, healthcare
outsourcing and other services companies based on publicly available
information. The selected transactions were not intended to be representative of
the entire range of possible transactions in the healthcare industry as a whole.
The ten transactions examined were (target/acquirer):
- CareScience, Inc. / Quovadx, Inc.
- PracticeWorks, Inc. / Eastman Kodak Company
- AVIDYN, Inc. / FiServ, Inc.
- ALI Technologies, Inc. / McKesson Corporation
- SunQuest Information Systems, Inc. / Misys plc
- CCN, Inc. / First Health Group
- Healthcare.com / Xcare.net
- Shared Medical Systems Corporation / Siemens Medical
Engineering Group
- Medical Manager Corporation / Healtheon/WebMD
- Envoy / Healtheon/WebMD
William Blair & Company, L.L.C. reviewed the consideration paid in the
selected transactions in terms of the total value of such transactions as a
multiple of LTM revenue and EBITDA prior to the announcement of these
transactions. William Blair & Company, L.L.C. compared the resulting range of
transaction multiples of revenue and EBITDA for the selected transactions to the
implied transaction multiples for PlanVista based on the LTM and estimated 2003
revenue and EBITDA for PlanVista. Information regarding the multiples from
William Blair & Company, L.L.C.'s analysis of selected transactions is set forth
in the following table:
72
IMPLIED SELECTED TRANSACTION VALUATION MULTIPLES
TRANSACTION ------------------------------------------
MULTIPLE MULTIPLES MIN MEAN MEDIAN MAX
-------- ----------- ----- ----- ------ ------
Total Value/LTM Revenue 3.08x 0.71x 2.32x 3.80x 11.17x
Total Value/2003 Estimated Revenue 2.99x
Total Value/LTM EBITDA 10.0x 10.7x 27.4x 29.1x 56.0x
Total Value/2003 Estimated EBITDA 9.5x
Although William Blair & Company, L.L.C. analyzed the multiples implied
by the selected transactions and compared them to the implied transaction
multiples of PlanVista, none of these transactions or associated companies is
identical to the merger or PlanVista. Accordingly, any analysis of the selected
transactions necessarily involved complex considerations and judgments
concerning the differences in financial and operating characteristics, parties
involved and terms of their transactions and other factors that would
necessarily affect the implied value of PlanVista versus the values of the
companies in the selected transactions.
Discounted Cash Flow Analysis. William Blair & Company, L.L.C. utilized
PlanVista's forecasts to perform a discounted cash flow analysis of PlanVista's
projected future cash flows for the period commencing January 1, 2004 and ending
December 31, 2008. Using discounted cash flow methodology, William Blair &
Company, L.L.C. calculated the present values of the projected free cash flows
for PlanVista. In this analysis, William Blair & Company, L.L.C. assumed
terminal value multiples ranging from 8.0x to 10.0x the projected 2008 EBITDA
and discount rates ranging from 12% to 16%. William Blair & Company, L.L.C.
aggregated (i) the present value of the free cash flows over the applicable
forecast period with (ii) the present value of the range of terminal values. The
aggregate present value of these items represented the enterprise value range.
The implied range of enterprise values for PlanVista implied by the discounted
cash flow analysis ranged from approximately $70 million to $210 million, as
compared to the enterprise value for PlanVista of approximately $99.8 million
implied by the merger.
Earnings Accretion/Dilution Analysis. William Blair & Company, L.L.C.
analyzed certain pro forma effects resulting from the merger, including the
potential impact of the merger on projected 2004 earnings per share of ProxyMed
following the merger. William Blair & Company, L.L.C. assumed that ProxyMed
common shares were issued in a private placement to finance a portion of the
transaction; utilized the forecasts for ProxyMed and PlanVista; assumed that
there would be no synergies; and William Blair & Company, L.L.C. assumed an
estimated allocation of purchase price to amortizable intangible assets with an
approximate blended useful life for those intangible assets per discussions with
ProxyMed. Based on this analysis, the merger is anticipated to be accretive to
ProxyMed's estimated 2004 earnings per share.
Contribution Analysis. William Blair & Company, L.L.C. performed an
analysis comparing the relative contributions of ProxyMed and PlanVista to the
combined pro forma company's LTM and projected 2003 revenue and EBITDA. The LTM
data for both ProxyMed and PlanVista were based on publicly available
information. 2003 projections for ProxyMed and PlanVista were based on the
forecasts. These relative contributions were compared to the relative split of
the transaction enterprise value of 53.5% and 46.5% for ProxyMed and PlanVista
respectively. No synergies were assumed. Information regarding the relative
contributions of ProxyMed and PlanVista from William Blair & Company, L.L.C.'s
contribution analysis is set forth in the following table:
PROXYMED PLANVISTA
-------- ---------
Revenue:
LTM 67.2% 32.8%
2003 Projected 68.3% 31.7%
EBITDA:
LTM 20.5% 79.5%
2003 Projected 23.1% 76.9%
Relative Split of Transaction Enterprise Value 53.5% 46.5%
73
General. The preparation of an opinion regarding fairness is a complex
analytic process involving various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances, and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. The preparation of an
opinion regarding fairness does not involve a mathematical evaluation or
weighing of the results of the individual analyses performed, but requires
William Blair & Company, L.L.C. to exercise its professional judgment, based on
its experience and expertise, in considering a wide variety of analyses taken as
a whole. Each of the analyses conducted by William Blair & Company, L.L.C. was
carried out in order to provide a different perspective on the financial terms
of the proposed merger and add to the total mix of information available.
William Blair & Company, L.L.C. did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion about the fairness of the consideration to be paid by ProxyMed. Rather,
in reaching its conclusion, William Blair & Company, L.L.C. considered the
results of the analyses in light of each other and ultimately reached its
opinion based on the results of all analyses taken as a whole. William Blair &
Company, L.L.C. did not place particular reliance or weight on any particular
analysis, but instead concluded that its analyses, taken as a whole, supported
its determination. Accordingly, notwithstanding the separate factors summarized
above, William Blair & Company, L.L.C. believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, may
create an incomplete view of the evaluation process underlying its opinion. No
company or transaction used in the above analyses as a comparison is directly
comparable to ProxyMed, PlanVista or the merger. In performing its analyses,
William Blair & Company, L.L.C. made numerous assumptions with respect to
industry performance, business and economic conditions and other matters. The
analyses performed by William Blair & Company, L.L.C. are not necessarily
indicative of future actual values and future results, which may be
significantly more or less favorable than suggested by such analyses.
William Blair & Company, L.L.C. is a nationally recognized firm and, as
part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with merger transactions and
other types of strategic combinations and acquisitions. PlanVista engaged
William Blair & Company, L.L.C. to act as its financial advisor in connection
with a potential private placement of securities and debt restructuring in 2001.
This engagement terminated in 2002 and no outstanding fees are due under this
prior engagement. Furthermore, in the ordinary course of its business, William
Blair & Company, L.L.C. and its affiliates may beneficially own or actively
trade common shares and other securities of ProxyMed or PlanVista for its own
account and for the accounts of customers, and, accordingly, may at any time
hold a long or short position in these securities.
ProxyMed hired William Blair & Company, L.L.C. based on its
qualifications and expertise in providing financial advice to companies and its
reputation as a nationally recognized investment banking firm. As compensation
for its services in connection with the merger, ProxyMed is obligated to pay
William Blair & Company, L.L.C. a fee upon the delivery of William Blair &
Company, L.L.C.'s opinion. Additional compensation will be payable on completion
of the merger. In addition, ProxyMed has agreed to reimburse William Blair &
Company, L.L.C. for reasonable out-of-pocket expenses incurred in connection
with the merger and to indemnify William Blair & Company, L.L.C. for certain
liabilities that may arise out of its engagement by ProxyMed and the rendering
of William Blair & Company, L.L.C.'s opinion.
74
OPINION OF PLANVISTA'S FINANCIAL ADVISOR
Peter J. Solomon Company, L.P. was retained by the PlanVista board of
directors to advise it with respect to the fairness, from a financial point of
view, to the holders of PlanVista common stock (other than Commonwealth
Associates Group Holdings, LLC and its affiliates and associates) of the
consideration to be received by them in connection with the merger. At a meeting
of the PlanVista board on December 5, 2003, Peter J. Solomon Company, L.P.
delivered its oral opinion, subsequently confirmed in a written opinion of that
same date, to the effect that, based upon and subject to various considerations
set forth in such opinion, as of December 5, 2003, the consideration proposed to
be paid to the holders of PlanVista common stock (other than Commonwealth
Associates Group Holdings, LLC and its affiliates and associates) in the merger
is fair, from a financial point of view, to such holders of PlanVista common
stock. No limitations were imposed by the PlanVista board of directors upon
Peter J. Solomon Company, L.P., with respect to investigations made or
procedures followed by such financial advisor in rendering its opinion.
The full text of the opinion of Peter J. Solomon Company, L.P., which
sets forth assumptions made, procedures followed, matters considered,
limitations on and scope of the review by the financial advisor in rendering its
opinion, is attached to this statement as Annex C and is incorporated by
reference herein. The opinion of Peter J. Solomon Company, L.P. is directed only
to the fairness, from a financial point of view, of the consideration proposed
to be paid to the holders of PlanVista common stock (other than Commonwealth
Associates Group Holdings, LLC and its affiliates and associates) in the merger,
has been provided to the PlanVista board of directors in connection with its
evaluation of the merger, does not address any other aspect of the merger and
does not constitute a recommendation to any holder of PlanVista common stock as
to how such holder should vote at any stockholders meeting with respect to the
merger. The summary of the opinion of Peter J. Solomon Company, L.P. set forth
in this statement is qualified in its entirety by reference to the full text of
such opinion. Holders of PlanVista common stock (other than Commonwealth
Associates Group Holdings, LLC and its affiliates and associates) are urged to
read the opinion of Peter J. Solomon Company, L.P. carefully and in its
entirety.
In connection with its opinion, Peter J. Solomon Company, L.P. has:
- reviewed certain publicly available financial statements and
other information of PlanVista and ProxyMed, respectively;
- reviewed certain internal financial statements and other
financial and operating data concerning PlanVista and ProxyMed
prepared by the management of PlanVista and ProxyMed,
respectively;
- reviewed certain financial projections for PlanVista and
ProxyMed furnished to Peter J. Solomon Company, L.P. by the
management of PlanVista and ProxyMed, respectively;
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- discussed the past and current operations, financial condition
and prospects of PlanVista and ProxyMed with management of
PlanVista and ProxyMed, respectively;
- visited certain facilities of PlanVista and ProxyMed;
- reviewed the reported prices and trading activity of PlanVista
common stock and ProxyMed common stock;
- compared the financial performance and condition of PlanVista
and ProxyMed and the reported prices and trading activity of
PlanVista common stock and ProxyMed common stock with that of
certain other comparable publicly traded companies and their
securities;
- reviewed publicly available information regarding the
financial terms of certain transactions comparable, in whole
or in part, to the merger;
- reviewed a draft of the merger agreement, dated as of December
3, 2003;
- reviewed a draft of the ProxyMed stock purchase agreement,
dated as of November 20, 2003; and
- performed such other analyses as the financial advisor deemed
appropriate.
In arriving at its opinion, the financial advisor was not authorized to
solicit, and did not solicit, interest from any party with respect to a merger
or other business combination transaction involving PlanVista or any of its
assets.
Peter J. Solomon Company, L.P. has assumed and relied upon the accuracy
and completeness of the information reviewed by it for the purposes of its
opinion and has not assumed any responsibility for independent verification of
such information. Peter J. Solomon Company, L.P. has assumed that the final form
of the merger agreement and the ProxyMed stock purchase agreement will be
substantially the same as the last drafts of these documents reviewed by it,
that all of the representations and warranties contained in these agreements
were and will be true and correct as of the date or dates when made or deemed
made and that all of the covenants and agreements in these agreements will be
timely performed. Peter J. Solomon Company, L.P. has also assumed that all
material governmental, regulatory and other consents and approvals will be
obtained and that no action required in connection with obtaining any consent or
approval will have a material adverse effect upon PlanVista, ProxyMed or the
merger. With respect to the financial projections, Peter J. Solomon Company,
L.P. has further assumed that the financial projections were reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
future financial performance of PlanVista and ProxyMed, respectively. Peter J.
Solomon Company, L.P. has not assumed any responsibility for any independent
valuation or appraisal of the assets or liabilities of PlanVista or ProxyMed,
and Peter J. Solomon Company, L.P. has not been furnished with any independent
valuation or appraisal. Peter J. Solomon Company, L.P.'s opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to it as of December 5, 2003. Although subsequent
developments may
76
affect its Opinion, Peter J. Solomon Company, L.P. does not have an obligation
to update, revise or reaffirm its opinion.
The forecasts or projections furnished to Peter J. Solomon Company,
L.P. for PlanVista and ProxyMed were prepared by the management of PlanVista and
ProxyMed, respectively. These forecasts, projections and estimates were based on
numerous variables and assumptions which are inherently uncertain and which may
not be within the control of the management of PlanVista and ProxyMed,
including, without limitation, general economic, regulatory and competitive
conditions. Accordingly, actual results could vary materially from those set
forth in such forecasts, projections and estimates.
The following summarizes the significant financial analyses performed
by Peter J. Solomon Company, L.P. and reviewed with the PlanVista board of
directors on December 5, 2003 in connection with the delivery of its Opinion:
PlanVista Common Stock Performance. Peter J. Solomon Company, L.P.
reviewed the closing prices and trading volumes of PlanVista common stock on the
OTC Bulletin Board Market from December 4, 2000 to December 4, 2003 (the last
trading day prior to the signing of the merger agreement). During this period,
the high closing price for PlanVista common stock was $9.94 per share and the
low closing price was $0.70 per share. During the twelve months ended December
4, 2003, the high closing price for PlanVista common stock was $3.55 per share
and the low closing price was $0.70 per share. During the period from September
5, 2003 to December 4, 2003, the high closing price for PlanVista common stock
was $3.38 per share and the low closing price was $1.75 per share.
ProxyMed Common Stock Performance. Peter J. Solomon Company, L.P.
reviewed the closing prices and trading volumes of ProxyMed common stock on the
Nasdaq National Market from December 4, 2000 to December 4, 2003 (the last
trading day prior to the announcement of the merger agreement). During this
period, the high closing price for ProxyMed common stock was $22.50 per share
and the low closing price was $7.15 per share. During the twelve months ended
December 4, 2003, the high closing price for ProxyMed common stock was $17.30
per share and the low closing price was $7.15 per share. During the period from
September 5, 2003 to December 4, 2003, the high closing price for ProxyMed
common stock was $17.30 per share and the low closing price was $14.21 per
share.
Analysis of Selected Publicly Traded Comparable Companies. Using
publicly available information, Peter J. Solomon Company, L.P. reviewed and
compared selected financial data of PlanVista with similar data of the following
group of publicly traded companies engaged in the healthcare services industry:
BCE Emergis, Inc., CorVel Corp., Eclipsys Corp. and First Health Group Corp.,
referred to as the comparable companies selected by the financial advisor.
Peter J. Solomon Company, L.P. calculated and compared various
financial multiples and ratios, including, among other things: (1) the stock
price per share as a multiple of earnings per share for the twelve months ended
September 30, 2003, and estimated earnings per share for the calendar years 2003
and 2004 based upon (a) in the case of PlanVista, two sets of projections
prepared by PlanVista's management, one of which assumed a 2% compound annual
growth rate in revenues and the other of which assumed a 17% compound annual
growth rate in revenues and (b) in the case of the
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comparable companies selected by the financial advisor, estimates of earnings
per share from First Call Investment Research as of December 4, 2003; and (2)
enterprise value (which represents total equity value plus book values of total
debt, preferred stock and minority interests less cash) as a multiple of
revenue for the twelve months ended September 30, 2003, earnings before interest
and taxes, sometimes referred to as EBIT, and earnings before interest, taxes,
depreciation and amortization, sometimes referred to as EBITDA.
Based on this data as of December 4, 2003, the financial advisor
developed (i) a range of closing stock prices to earnings per share for the
twelve months ended September 30, 2003 of 13.5x to 34.1x for the comparable
companies selected by the financial advisor compared to 19.0x for PlanVista at
the offer price; (ii) a range of closing stock prices to 2003 estimated earnings
per share of 13.1x to 30.4x for the comparable companies selected by the
financial advisor compared to 14.4x for PlanVista at the offer price; (iii) a
range of closing stock prices to 2004 estimated earnings per share of 13.1x to
24.8x for the comparable companies selected by the financial advisor compared to
11.5x for PlanVista (based on a 17% compound annual growth rate in revenues) and
57.6x for PlanVista (based on a 2% compound annual growth rate in revenues), in
each case at the offer price; (iv) a range of enterprise value as a multiple of
revenue for the twelve months ended September 30, 2003 of 1.3x to 2.3x for the
comparable companies selected by the financial advisor compared to 3.1x for
PlanVista at the offer price; (v) a range of enterprise value as a multiple of
EBIT for the twelve months ended September 30, 2003 of 8.1x to 27.6x for the
comparable companies selected by the financial advisor compared to 10.6x for
PlanVista at the offer price; and (vi) a range of enterprise value as a multiple
of EBITDA for the twelve months ended September 30, 2003 of 6.5x to 10.4x for
the comparable companies selected by the financial advisor compared to 10.0x for
PlanVista at the offer price.
Analysis of Selected Comparable Transactions. Using publicly available
information, Peter J. Solomon Company, L.P. reviewed certain mergers and
acquisitions transactions in the healthcare services industry. It calculated the
equity value paid by selected acquirors in the transactions as a multiple of net
income for the twelve months ended September 30, 2003, and the enterprise value
paid by selected acquirors as a multiple of revenue, EBIT and EBITDA for the
twelve months ended September 30, 2003. This analysis resulted in (i) a range of
equity values as a multiple of net income for the twelve months ended September
30, 2003 in the comparable transactions of 19.8x to 22.3x compared to price as a
multiple of earnings per share for the twelve months ended September 30, 2003 in
the comparable transactions of 19.0x for PlanVista at the offer price; (ii) a
range of enterprise value as a multiple of revenue for the twelve months ended
September 30, 2003 in the comparable transactions of 0.5x to 4.9x compared to an
enterprise value as a multiple of revenue for the twelve months ended September
30, 2003 of 3.1x for PlanVista at the offer price; (iii) a range of enterprise
value as a multiple of EBIT for the twelve months ended September 30, 2003 in
the comparable transactions of 11.6x to 12.4x compared to an enterprise value as
a multiple of EBIT for the twelve months ended September 30, 2003 of 10.6x for
PlanVista at the offer price; and (iv) a range of enterprise value as a multiple
of EBITDA for the twelve months ended September 30, 2003 in the comparable
transactions of 9.2x to 13.9x compared to an enterprise value as a multiple of
EBITDA for the twelve months ended September 30, 2003 of 10.0x for PlanVista at
the offer price.
Discounted Cash Flow Analysis. Peter J. Solomon Company, L.P. performed
a discounted cash flow analysis to calculate the net present value per share of
PlanVista common stock based on PlanVista's management financial projections
which were prepared on the assumption of a 2% compound annual growth rate in
revenues and a 17% compound annual growth rate in revenues, in each case for the
fiscal years ending December 31, 2004 through 2008. In performing its discounted
cash flow analysis, Peter J. Solomon Company, L.P. considered various
assumptions that it deemed appropriate based on a review with the management of
PlanVista of PlanVista's prospects and risks. The financial advisor believed it
appropriate to utilize various discount rates ranging from 10.0% to 14.0% and
free cash flow perpetuity growth rates ranging from 2% to 4% to apply to
forecasted free cash flow for the fiscal year 2008.
Based on the foregoing, this analysis yielded a range of net present
values of (a) ($1.31) to $0.93 per share in the case of the projections prepared
on the assumption of a 2% and a 17% compound annual growth rate in revenues and
(b) $1.49 to $3.74 per share in the case of projections prepared on the
assumption of a 2% compound annual growth rate in revenues.
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Contribution Analysis. Peter J. Solomon Company, L.P. reviewed the
relative contributions of ProxyMed and PlanVista with respect to revenue, EBIT,
EBITDA and net income, in each case on a pro forma basis assuming the companies
had been combined for (i) each of the fiscal years ended December 31, 2000, 2001
and 2002, (ii) the twelve months ended September 30, 2003, (iii) estimated
fiscal year 2003 and (iv) for each of the projected fiscal years ending December
31, 2004 through 2008. The relative contributions of the companies for each of
the projected fiscal years ending December 31, 2003 through 2008 are based on
PlanVista's management's financial projections prepared assuming a 2% compound
annual growth rate in revenues and a 17% compound annual growth rate in
revenues, and the financial projections of ProxyMed's management, exclude all
non-recurring items and, in the case of ProxyMed, assume that MedUnite achieved
its estimated financial performance in the second half of fiscal year 2003 for
the twelve months ended September 30, 2003 and fiscal year 2003.
This analysis showed that ProxyMed would have contributed (i) 55.4%,
56.8% and 60.2% of the pro forma combined revenues for the fiscal years ended
December 31, 2000, 2001 and 2002, (ii) 68.5% of the pro forma combined revenues
for the twelve months ended September 30, 2003, (iii) 68.2% of the pro forma
estimated revenues for fiscal year 2003, (iv) between 71.7% and 81.8% of the pro
forma combined revenues for each of the fiscal years ending December 31, 2004 to
2008, based on the financial projections prepared assuming a 2% compound annual
growth rate in revenues and (v) between 67.9% and 69.2% for each of the fiscal
years ending December 31, 2004 to 2008, based on the financial projections
prepared assuming a 17% compound annual growth rate in revenues.
This analysis also showed that PlanVista would have contributed (i)
272.4%, 85.6% and 72.1% of the pro forma combined EBITDA for the fiscal years
ended December 31, 2000, 2001 and 2002, (ii) 64.1% of the pro forma combined
EBITDA for the twelve months ended September 30, 2003, (iii) 64.4% of the pro
forma estimated EBITDA for fiscal year 2003, (iv) between 18.3% and 52.7% of the
pro forma combined EBITDA for each of the fiscal years ending December 31, 2004
to 2008, based on the financial projections prepared assuming a 2% compound
annual growth rate in revenues and (v) between 35.7% and 60.0% for each of the
fiscal years ending December 31, 2004 to 2008, based on the financial
projections prepared assuming a 17% compound annual growth rate in revenues.
This analysis further showed that PlanVista would have contributed (i)
129.1% and 87.7% of the pro forma combined EBIT for the fiscal years ended
December 31, 2001 and 2002 (the results for fiscal year 2000 were not
meaningful), (ii) 108.0% of the pro forma combined EBIT for the twelve months
ended September 30, 2003, (iii) 105.7% of the pro forma estimated EBIT for
fiscal year 2003, (iv) between 20.7% and 79.9% of the pro forma combined EBIT
for each of the fiscal years ending December 31, 2004 to 2008, based on the
financial projections prepared assuming a 2% compound annual growth rate in
revenues and (v) between 40.8% and 84.5% for each of the fiscal years ending
December 31, 2004 to 2008, based on the financial projections prepared assuming
a 17% compound annual growth rate in revenues.
This analysis further showed that PlanVista would have contributed (i)
22.0% of the pro forma combined net income for the fiscal year ended December
31, 2002 (the results for fiscal years 2000 and 2001 were not meaningful), (ii)
268.1% of the pro forma combined estimated net income for 2003 (the results for
the twelve months ended September 30, 2003 were not meaningful), (iii) between
(2.1)% and 22.6% of the pro forma combined net income for each of the fiscal
years ending December 31, 2004 to 2008, based on the financial projections
prepared assuming a 2% compound annual growth rate in revenues and (iv) between
35.4%
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and 62.5% for each of the fiscal years ending December 31, 2004 to 2008, based
on the financial projections prepared assuming a 17% compound annual growth rate
in revenues.
Pro Forma Merger Analysis. Peter J. Solomon Company, L.P. analyzed
certain pro forma effects of the transaction on PlanVista's earnings per share
for the fiscal years ending December 31, 2004, 2005 and 2006, assuming the
transaction is completed on December 31, 2003. Such analysis was based upon
PlanVista's management projections prepared assuming a 2% compound annual growth
rate in revenues and a 17% compound annual growth rate in revenues and
ProxyMed's management projections. Peter J. Solomon Company, L.P. analyzed the
impact of the merger including the issuance of new equity by ProxyMed, the
amortization of intangible assets recorded in connection with the merger and
cost savings and one-time costs estimated to be realized in the merger. Based on
the foregoing, this analysis showed that the merger would be (a) accretive to
PlanVista's earnings per share for fiscal years 2004, 2005 and 2006, assuming a
2% compound annual growth rate in revenues and (b) dilutive to PlanVista's
earnings per share for fiscal years 2004, 2005 and 2006, assuming a 17% compound
annual growth rate in revenues.
In arriving at its opinion, Peter J. Solomon Company, L.P. performed a
variety of financial analyses, the material portions of which are summarized
above. The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances. Therefore, such an opinion is not necessarily susceptible to a
partial analysis or summary description. In arriving at its opinion, Peter J.
Solomon Company, L.P. did not attribute any particular weight to any one
financial analysis or factor considered by it, but rather made qualitative
judgments as to significance and relevance of each analysis and factor.
Accordingly, Peter J. Solomon Company, L.P. believes that its analysis must be
considered as a whole and that selecting portions of its analysis, without
considering all such analyses, could create an incomplete view of the process
underlying its opinion.
In performing its analyses, Peter J. Solomon Company, L.P. relied on
numerous assumptions made by the management of PlanVista and ProxyMed and made
numerous judgments of its own with regard to current and future industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of PlanVista and ProxyMed. Actual values will
depend upon several factors, including changes in interest rates, dividend
rates, market conditions, general economic conditions and other factors that
generally influence the price of securities. The analyses performed by the
financial advisor are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as a part of the financial
advisor's analysis of the fairness, from a financial point of view, of the
consideration proposed to be paid to the holders of PlanVista common stock
(other than Commonwealth Associates Group Holdings, LLC and its affiliates and
associates) pursuant to the merger agreement and were provided to the PlanVista
board of directors in connection with the delivery of its opinion. The analyses
do not purport to be appraisals or necessarily reflective of the prices at which
businesses or securities might actually be sold, which prices are inherently
subject to uncertainty. Since such matters are inherently subject to
uncertainty, none of PlanVista, ProxyMed, the financial advisor or any other
person assumes responsibility for their accuracy. With regard to the comparable
public company analysis and the comparable transactions analysis summarized
above, Peter J. Solomon Company, L.P. selected comparable public companies on
the basis of various factors for reference purposes only; no public
80
company or transaction utilized for comparative purposes is fully comparable to
PlanVista or this transaction. Accordingly, an analysis of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the acquisition or
public trading value of the comparable companies and transactions to which
PlanVista and this transaction are being compared. In addition, as described
above, the opinion of Peter J. Solomon Company, L.P. and the information
provided by it to the PlanVista board of directors were two of many factors
taken into consideration by the PlanVista board of directors in making its
determination to approve the merger. Consequently, the Peter J. Solomon Company,
L.P. analyses described above should not be viewed as determinative of the
opinion of the PlanVista board of directors or the view of Company management
with respect to the value of PlanVista.
As part of its investment banking activities, Peter J. Solomon Company,
L.P. is regularly engaged in the evaluation of businesses and their securities
in connection with mergers and acquisitions, restructurings and valuations for
corporate or other purposes. The PlanVista board of directors selected Peter J.
Solomon Company, L.P. to deliver an opinion with respect to this transaction on
the basis of such experience.
81
INTERESTS OF CERTAIN PERSONS IN THE MERGER
PlanVista stockholders considering the recommendation of the PlanVista
board of directors regarding the merger should be aware that some of PlanVista's
directors and officers have interests in the merger that are different from, or
in addition to, their interests as PlanVista stockholders. ProxyMed shareholders
considering the recommendation of the ProxyMed board of directors regarding the
issuance proposal should be aware that some of ProxyMed's directors and
executive officers have interests in the merger that are different from, or in
addition to, their interests as ProxyMed shareholders. These interests may
create potential conflicts of interest. The boards of directors of ProxyMed and
PlanVista were aware of these interests and took these interests into account in
approving the merger and the transactions contemplated by the merger documents.
Michael Falk is a director and beneficial owner of securities of both
PlanVista and ProxyMed and controls Commonwealth Associates Group Holdings, LLC,
one of PlanVista's financial advisors and its controlling shareholder.
Michael Falk serves as one of the four directors of PlanVista
designated by the PlanVista series C preferred stockholders. Mr. Falk is also
the beneficial owner of the PlanVista series C preferred stock owned by PVC
Funding Partners, LLC. He is a controlling owner of Commonwealth Associates
Group Holdings, LLC, which is the managing member of PVC Funding Partners, LLC
which owns 96% of the outstanding PlanVista series C preferred stock and
represents 64.6% of the combined voting power of the common stock and series C
preferred stock of PlanVista. Commonwealth Associates Group Holdings, LLC acted
as one of PlanVista's investment advisers in connection with the merger and will
receive upon consummation of the merger an investment advisory fee of
approximately $1,398,500 subject to among other things, the price of the
ProxyMed common stock at the effective time of the merger. For more information
on Mr. Falks' ownership in PlanVista, please see the section entitled the
"Security Ownership of Certain Beneficial Owners and Management of PlanVista"
beginning on page 192.
Mr. Falk is also a director of ProxyMed. He is the beneficial owner of
434,568 shares of ProxyMed common stock. Mr. Falk will also be the beneficial
owner of 428,070 shares issued in connection with the private equity offering.
For more information on Mr. Falk's ownership in ProxyMed, please see the section
entitled the "Security Ownership of Certain Beneficial Owners and Management of
ProxyMed" beginning on page 154.
Mr. Falk abstained from voting on the proposal to approve the issuance
of the shares of ProxyMed common stock in connection with the merger, the
proposal to approve the issuance of shares of ProxyMed common stock in
connection with the ProxyMed private equity offering, and the proposal to amend
ProxyMed's articles of incorporation to increase the total number of authorized
shares of ProxyMed common stock from 13,333,333 and 1/3 shares to 30 million
shares and on the proposal for PlanVista to adopt the merger agreement. These
interests may create potential conflicts of interest.
Harold Blue, a former director and officer of ProxyMed and current director of
PlanVista, owes ProxyMed approximately $186,000.
Mr. Blue serves as one of the four PlanVista directors designated by
the PlanVista series C preferred stockholders and serves at the pleasure of Mr.
Falk by reason of his control of PVC Funding Partners, LLC.
In April 1997, ProxyMed made loans totaling $350,000 to Harold Blue,
ProxyMed's former chairman of the board and chief executive officer. The funds
were advanced pursuant to two demand promissory notes in the principal amounts
of $290,000 and $60,000, respectively, each bearing interest at a rate of 7-3/4%
per annum. On June 30, 2000, ProxyMed amended the terms of these notes whereby
interest on the notes ceased to accrue subsequent to July 1, 2000 and the loan
plus accrued interest, totaling $435,900 at June 30, 2000, would be payable in a
balloon payment in December 2001. In December 2001, a payment of $250,000 was
received from Mr. Blue and applied against the outstanding balance of the loans.
ProxyMed agreed to refinance the remaining $185,983 balance and a new promissory
note was executed by Mr. Blue. The note is collateralized with options to
purchase
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36,667 shares of common stock granted to Mr. Blue under the ProxyMed stock
option plans along with additional warrants granted to Mr. Blue from various
other public companies. In January 2002, Mr. Blue resigned from ProxyMed's board
of directors and the remaining board members agreed to extend the exercise
period of the stock options held as collateral for the note in an effort to
maximize the potential for repayment. In June 2003, ProxyMed amended the
promissory note executed in June 2000 by Mr. Blue. The amendment extended the
maturity date of the promissory note for an additional twelve months to December
31, 2004 and also allowed Mr. Blue to offset any principal owed with certain
amounts payable to Mr. Blue by ProxyMed as a result of a finder's fee
arrangement with ProxyMed.
Mr. Blue also serves as the President and Chief Operating officer of
Commonwealth Associates Group Holdings, LLC, which is controlled by Michael
Falk. Commonwealth Associates Group Holdings, LLC acted as one of PlanVista's
investment advisers in connection with the transaction and will receive upon
consummation of the merger an investment advisory fee of approximately
$1,398,500, subject to among other things, the price of the ProxyMed common
stock at the effective time of the merger. Mr. Blue will receive a part of this
fee.
Other interested directors and officers
Richard Corbin and Gary Mansfield serve as two of the four PlanVista
directors designated by the PlanVista series C preferred stockholders and as
such serve at the pleasure of Mr. Falk by reason of his control of PVC Funding
Partners, LLC. From 1995 to 1998, Gary Mansfield was a director of ProxyMed and
from 1993 to 1998, he was an executive officer of ProxyMed.
James K. Murray, III, a director of PlanVista, is a limited liability
member of PVC Funding Partners, LLC.
Thomas Hardy, Senior Vice President of ProxyMed, and Edwin M.
Cooperman, a ProxyMed director, each own minority interests in certain entities
affiliated with Commonwealth Associates Group Holdings, LLC.
From 1993 to 2000, Bennett Marks was the Executive Vice
President-Finance, Chief Financial Officer and director of ProxyMed.
William L. Bennett, a current director of PlanVista, will become a
director of ProxyMed following the merger. Following the consummation of the
merger, PlanVista will continue to be obligated under a promissory note issued
to William Bennett in the amount of $250,000.
Following the consummation of the merger, PlanVista will continue to be
obligated under a promissory note issued to John Race, a former director of
PlanVista, in the amount of $250,000.
GENERAL ATLANTIC PARTNERS VOTING AGREEMENT. The following ProxyMed
shareholders have entered into voting agreements and irrevocable proxies
pursuant to which they have agreed to vote shares of ProxyMed common stock in
favor of the issuance of shares of ProxyMed common stock to PlanVista
stockholders pursuant to the merger agreement and the issuance of shares of
ProxyMed common stock in connection with the private equity offering and the
amendment to the ProxyMed articles of incorporation to increase the number of
authorized shares of common stock to 30 million shares:
- General Atlantic Partners 74, L.P.;
- GAP Coinvestment Partners II, L.P.;
- GapStar, LLC; and
- GAPCO GmbH & Co. KG.
PVC FUNDING PARTNERS VOTING AGREEMENT. The following PlanVista
stockholders have entered into voting agreements and irrevocable proxies
pursuant to which they have agreed to vote shares of PlanVista common
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stock or PlanVista series C preferred stock for which they exercise voting
control in favor of the adoption of the merger agreement:
- PVC Funding Partners, LLC
STOCK OPTIONS HELD BY PLANVISTA DIRECTORS AND OFFICERS. If the merger
is completed, each outstanding option to purchase shares of PlanVista common
stock will be canceled. At the effective time of the merger, the compensation
committee of the board of directors of ProxyMed will grant to certain of the
officers and employees of PlanVista identified by PlanVista's compensation
committee and approved by ProxyMed's compensation committee options under
ProxyMed's stock option plans to purchase an aggregate of 200,000 shares of
ProxyMed common stock. Those options will have an exercise price equal to the
lower of the last reported sale price of ProxyMed's common stock on the Nasdaq
National Market on the date of the merger or $17.74 per share. Those options
will generally vest over a three-year period commencing on the grant date, such
that two-thirds of each option will generally vest on the first anniversary of
the grant date, and the remaining one-third of each option will generally vest
on the third anniversary of the grant date.
EMPLOYMENT ARRANGEMENTS WITH PLANVISTA OFFICERS
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In connection with the merger agreement negotiations, ProxyMed entered
into employment arrangements with each of Phillip S. Dingle and Jeffrey L.
Markle, and PlanVista entered into employment arrangements with each of James T.
Kearns, Robert A. Martin, David C. Reilly, and Richard L. Lungen. Each
employment arrangement provides the executive's position, reporting structure
and compensation, including term and annual salary. These benefits are
summarized in the table below:
ANNUAL
NAME AND NEW TITLE SALARY
------------------ --------
Phillip S. Dingle - CEO of PlanVista and EVP of ProxyMed $200,000
Jeffrey L. Markle - President of PlanVista and SVP of ProxyMed $197,000
James T. Kearns - SVP - Operations of PlanVista $185,000
David C. Reilly - EVP - Operations and Technology at PlanVista $175,000
Robert A. Martin - SVP - PlanServ at PlanVista $168,000
Richard L. Lungen - VP - New Business Solutions at PlanVista $145,000
Only Phillip S. Dingle and Jeffrey L. Markle will be employees of both
ProxyMed and PlanVista. Under these employment arrangements, these executives
are granted the right to participate on the same terms as other executive vice
presidents of ProxyMed or PlanVista, as the case may be, in all ProxyMed or
PlanVista sponsored benefit plans, such as health, dental, life, and short term
disability and long term disability insurances. The executives are entitled to
and may earn such bonuses as may be awarded from time to time by the board of
directors of ProxyMed or PlanVista pursuant to any bonus or commission plan
implemented by ProxyMed or PlanVista, as the case may be, and to participate in
any stock option plans or other bonus plans which ProxyMed or PlanVista may now
have, or develop in the future. Each executive must enter into a definitive
employment agreement with ProxyMed or PlanVista, as the case may be, prior to
the effective date of the merger.
OPTION GRANTS TO PLANVISTA OFFICERS. ProxyMed has agreed to grant to
the following executives options to purchase an aggregate of 161,843 shares of
ProxyMed common stock upon the consummation of the merger. These options vest
over a three-year period commencing on the grant date, such that two-thirds of
each option will vest on the first anniversary of the grant date, and the
remaining one-third of each option will vest on the third anniversary of the
grant date.
NAME AND NEW TITLE OPTION AWARD
------------------ ------------
Phillip S. Dingle - CEO of PlanVista and EVP of ProxyMed 68,642
Jeffrey L. Markle - President of PlanVista and SVP of ProxyMed 54,850
James T. Kearns - SVP - Operations of PlanVista 9,000
David C. Reilly - EVP - Operations and Technology at PlanVista 12,613
Robert A. Martin - SVP - PlanServ at PlanVista 14,199
Richard L. Lungen - VP - New Business Solutions at PlanVista 2,539
INDEMNIFICATION. The merger agreement provides that ProxyMed will cause
the surviving company:
- from and after the effective time of the merger, to fulfill
and honor, subject to applicable law, PlanVista's obligations
under any indemnification agreements with its directors and
officers that exist at the effective time of the merger and
any indemnification provisions under PlanVista's certificate
of incorporation and bylaws that were in effect on the date of
the merger agreement; and
- for a period of six years after the effective time of the
merger, to maintain in effect a "tail policy" based on the
current policies of directors' and officers' liability
insurance maintained by PlanVista with respect to claims
arising from or related to facts or events which occurred at
or before the effective time.
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In addition, ProxyMed has agreed to maintain in the certificate of
incorporation and bylaws of the surviving corporation provisions relating to
exculpation and indemnification that are at least as favorable to the
indemnified directors and officers as those contained in PlanVista's
organizational documents that were in effect on the date of the merger
agreement, subject to applicable law.
APPOINTMENT OF PLANVISTA DESIGNEES AS PROXYMED BOARD MEMBERS. At the
effective time of the merger, ProxyMed's board of directors shall appoint
William L. Bennett, an independent director of PlanVista selected by PlanVista
and one additional independent director, who is not affiliated with ProxyMed or
PlanVista identified by the PlanVista board of directors, and who is reasonably
acceptable to ProxyMed, to serve on the board of directors of ProxyMed.
PROXYMED OFFICERS AND DIRECTORS. None of the directors and officers of
ProxyMed is expected to terminate his or her services to ProxyMed as a result of
the merger.
As a result of interests described above under each heading, these
executive officers and directors could be more likely to vote to approve, and
recommend the approval of, the merger and the merger agreement, than if they did
not hold these interests.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion
of the merger are satisfied or waived, including the adoption of the merger
agreement by the affirmative vote of a majority of the votes entitled to be cast
by the holders of the outstanding shares of PlanVista common stock and PlanVista
series C preferred stock entitled to vote at the special meeting and the
majority vote of the common stock represented at the meeting and not taking into
account any votes cast by holders of the series C preferred stock, by
Commonwealth Associates, L.P., or any affiliates or officers or directors
thereof, or any director or executive officer of PlanVista. The merger will
become effective upon the filing of certificate of merger in the office of the
Secretary of State of the State of Delaware.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Upon completion of the merger, the board of directors of ProxyMed will
be expanded to consist of nine (9) members, which will include the existing
board of directors of ProxyMed and two designees of PlanVista. The ProxyMed
directors who will serve on the board of the surviving company subsidiary have
not yet been identified.
At the effective time of the merger, ProxyMed's board of directors
shall appoint William L. Bennett, an independent director of PlanVista and one
additional independent director, who is not affiliated with ProxyMed or
PlanVista identified by the PlanVista board of directors, and who is reasonably
acceptable to ProxyMed, to serve on the board of directors of ProxyMed. See the
section entitled "The Merger Agreement--Board of Directors of ProxyMed Following
the Merger" beginning on page 106.
At the effective time of the merger, ProxyMed will designate the
officers of the company surviving the merger.
TREATMENT OF PLANVISTA COMMON STOCK
Upon completion of the merger, PlanVista common stockholders will be
entitled to receive, for each share of PlanVista common stock then held by them
(other than shares with respect to which a PlanVista stockholder has exercised
appraisal rights), a fraction of one fully paid and nonassessable share of
ProxyMed common stock, the numerator of which is (1) 1,826,829 (subject to the
conversion of any shares of PlanVista series C preferred stock) and the
denominator of which is (2) the total number of issued and outstanding shares of
PlanVista common stock immediately prior to the effective time of the merger.
Upon completion of the merger, holders of PlanVista's series C preferred stock
will be entitled to receive, for each share of PlanVista series C preferred
stock then held by them
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(other than shares of series C preferred stock with respect to which a PlanVista
series C preferred stockholder has exercised appraisal rights), a fraction of
one fully paid and nonassessable share of ProxyMed common stock, the numerator
of which is (1) 1,773,171 (subject to the conversion of any shares of PlanVista
series C preferred stock) and the denominator of which is (2) the total number
of issued and outstanding shares of PlanVista series C preferred stock
immediately prior to the effective time of the merger. The total number of
shares of ProxyMed common stock issuable as merger consideration is subject to a
downward adjustment in the event certain fees, expenses and other obligations of
PlanVista arising as a result of the merger exceed a specified amount. PVC
Funding Partners, LLC, the holder of 96% of the outstanding PlanVista series C
preferred stock, has agreed not to convert its series C preferred stock into
common stock prior to the consummation of the merger. If any of the remaining
PlanVista series C preferred stock are converted into PlanVista common stock
prior to the closing of the merger, the number of ProxyMed shares allocated to
the PlanVista common stockholders will be increased by the number of ProxyMed
shares that the converting PlanVista series C preferred stockholders will
receive upon consummation of the merger as a result of such conversion and the
number of ProxyMed shares allocated to the remaining holders of the PlanVista
series C preferred stock will be decreased by a like number. In the event that
the amount owed by PlanVista to Commonwealth Associates Group Holdings, LLC
pursuant to the advisory agreement exceeds a fixed amount, Commonwealth
Associates Group Holdings, LLC has agreed to accept payment for any excess fees
in shares of PlanVista common stock to be issued by PlanVista prior to the
closing of the merger. Such shares of PlanVista common stock will be valued at
the price per share that the holders of PlanVista common stock will be realizing
as a result of the issuance of ProxyMed common stock in the merger.
EXCHANGE OF PLANVISTA STOCK CERTIFICATES FOR PROXYMED STOCK CERTIFICATES
Immediately after the effective time of the merger, ProxyMed will cause
the exchange agent to mail to the holders of record of PlanVista common stock a
letter of transmittal and instructions on how to surrender PlanVista stock
certificates in exchange for ProxyMed common stock certificates. Upon
surrendering their PlanVista common stock, the letter of transmittal and any
other documents required by the exchange agent, the holders of PlanVista stock
certificates will be entitled to receive a certificate representing that number
of whole shares of ProxyMed common stock which that holder has the right to
receive, cash for fractional shares of ProxyMed common stock and cash dividends
or other distributions to which the holder is entitled.
ACCOUNTING TREATMENT
ProxyMed intends to account for the merger using the purchase method of
accounting for business combinations, with ProxyMed being considered the
acquirer of PlanVista, in conformity with accounting principles generally
accepted in the United States of America. This means that ProxyMed will allocate
the purchase price to the fair value of assets, including identifiable
intangible assets acquired and liabilities assumed from PlanVista at the
effective time of the merger, with the excess purchase price being recorded as
goodwill. Under the purchase method of accounting, goodwill is not amortized but
is tested for impairment at the time of the acquisition and at least annually
thereafter.
GOVERNMENTAL AND REGULATORY MATTERS
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Neither ProxyMed nor PlanVista is aware of any material governmental or
regulatory approval required for completion of the merger, other than the
effectiveness of the registration statement of which this joint proxy
statement/prospectus is a part, compliance with applicable corporate law of
Delaware and Florida, and compliance with applicable state "blue sky" laws.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of material United States
federal income tax consequences to PlanVista stockholders who receive ProxyMed
stock (and cash in lieu of fractional shares of ProxyMed stock) pursuant to the
merger agreement. This discussion is based upon the Internal Revenue Code of
1986, as amended, which we refer to as the Code, and the regulations promulgated
thereunder, judicial precedent relating thereto, and current rulings and
administrative practice of the Internal Revenue Service, in each case as in
effect as of the date of this joint proxy statement/prospectus and all of which
are subject to change at any time, possibly with retroactive effect. This
discussion assumes that holders of PlanVista common stock hold their stock as
capital assets within the meaning of Section 1221 of the Code. This discussion
does not address all aspects of United States federal income taxation that may
be important to the following types of PlanVista stockholders in light of their
particular circumstances or particular tax status:
- stockholders of PlanVista who are not citizens or residents of
the United States or certain U.S. expatriates or that are foreign
corporations, foreign partnerships or foreign trusts for U.S.
federal income tax purposes;
- entities treated as partnerships for U.S. federal income tax
purposes or PlanVista stockholders that hold their shares through
entities treated as partnerships for U.S. federal income tax
purposes;
- financial institutions;
- tax-exempt organizations;
- pension funds;
- insurance companies;
- dealers in securities or foreign currencies;
- stockholders who acquired or received their shares of PlanVista
capital stock through the exercise of options or similar
derivative securities or otherwise as compensation;
- stockholders who hold their shares of PlanVista common stock as
part of a straddle, conversion, appreciated financial position,
hedge, synthetic security or other risk reduction transaction;
and
- PlanVista stockholders whose functional currency is not the U.S.
dollar.
Neither ProxyMed nor PlanVista has sought a ruling from the IRS with
respect to the income tax consequences of the merger and related transactions,
and there can be no assurance that the IRS will not assert, or that a court will
not sustain, a position contrary to the tax consequences set forth below.
Holders of PlanVista common stock should consult with their tax
advisors as to the particular tax consequences to them of the merger, including
the applicability and effect of any federal, state, local, estate, gift and
foreign tax laws.
Tax consequences of the merger. The merger is intended to qualify as a
reorganization under Section 368(a) of the Code. No rulings have been or will be
sought from the IRS concerning the tax consequences of the merger.
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Assuming that the merger qualifies as a reorganization within the
meaning of Section 368(a) of the Code, the merger will have the following United
States federal income tax consequences:
Treatment of stock received in the merger. PlanVista stockholders who
realize loss will not be allowed to currently recognize such loss for United
States federal income tax purposes as a result of the merger. PlanVista
stockholders who receive ProxyMed stock (and cash received in lieu of fractional
shares as discussed below) in exchange for shares of PlanVista common stock
pursuant to the merger and who realize gain will be required to recognize such
gain for United States federal income tax purposes but only to the extent of the
cash received in lieu of fractional shares. For this purpose, a stockholder must
calculate gain or loss separately for each identifiable block of stock exchanged
by such stockholder, and a stockholder cannot offset a loss recognized on one
block of such stock against a gain recognized on another block of such stock.
The gain recognized will be capital gain unless the receipt of cash in lieu of
fractional shares by the stockholder has the effect of a distribution of a
dividend, in which case such gain will be treated as ordinary dividend income to
the extent of the stockholder's ratable share of accumulated earnings and
profits as calculated for United States federal income tax purposes. For
purposes of determining whether the receipt of cash in lieu of fractional shares
by the stockholder has the effect of a distribution of a dividend, a stockholder
will be treated as if the holder first exchanged all of its stock solely for
ProxyMed common stock and then ProxyMed immediately redeemed a portion of such
stock for the cash that such holder actually received pursuant to the merger.
The IRS has indicated in rulings that any reduction in the interest of a
minority stockholder that owns a small number of shares in a publicly and widely
held corporation and that exercises no control over corporate affairs would
result in capital gain (as opposed to dividend) treatment. In determining the
interest of a stockholder in a corporation, certain constructive ownership rules
must be taken into account. If, at the effective time of the merger, a PlanVista
stockholder has held the shares of PlanVista common stock then exchanged for
more than one year, capital gain recognized by such stockholder at the effective
time will be long-term capital gain. Under current law, long-term capital gains
of individuals are taxed at a maximum rate of 15%. Short-term capital gain
attributable to individuals will be taxed at ordinary income rates. Any dividend
income recognized in the merger by an individual PlanVista stockholder
generally, subject to certain exceptions, will be subject to income tax at a
maximum rate of 15%.
Basis and holding period of ProxyMed common stock received. The
aggregate basis of the ProxyMed common stock to be received by a PlanVista
stockholder will be the same as the aggregate basis of the PlanVista common or
preferred stock surrendered in exchange therefor, decreased by the portion of
the stockholder's basis that is allocable to a fractional share, and increased
by the amount of gain recognized on the exchange (including any portion of such
gain that was treated as a dividend and taxed as ordinary income). The holding
period of the ProxyMed common stock to be received by a PlanVista stockholder
will include the holding period of the PlanVista common or preferred stock
surrendered in exchange therefor.
Cash in lieu of fractional shares. A PlanVista stockholder who receives
cash in lieu of a fractional share of ProxyMed common stock will generally be
obligated to report capital gain or loss equal to the difference between the
cash received and the portion of the stockholder's basis in his or her PlanVista
common stock allocable to such fractional share interest. Such gain or loss will
be long-term if such PlanVista common stock has been held by the stockholder for
more than one year at the effective time of the merger.
Cash received by dissenting shareholders. An eligible PlanVista
stockholder who perfects his, her or its appraisal rights generally should
recognize capital gain or loss at the effective time of the merger in an amount
equal to the difference between the "amount realized" and the tax basis of such
stockholder's PlanVista shares. For this purpose, although there is no authority
directly on point, the "amount realized" generally should equal the trading
price of the PlanVista shares at the effective time of the merger. Capital gain
or loss should also be recognized by such PlanVista stockholder at the time the
appraisal proceeds are received, to the extent that the amount of such proceeds
exceeds or is less than the amount realized by such PlanVista stockholder at the
effective time of the merger. In addition, a portion of such proceeds may be
characterized as interest income, thus reducing the amount of such capital gain
or increasing the amount of such capital loss (as the case may be). PlanVista
stockholders are encouraged to consult their tax advisers as to the tax
consequences of exercising appraisal rights.
Backup withholding. Under the Code, a payment to a PlanVista
stockholder may be subject, under certain circumstances, to backup withholding
at a 28% rate, unless such stockholder provides proof of an applicable
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exemption or a correct taxpayer identification number, and otherwise complies
with applicable requirements of the backup withholding rules. Any amounts
withheld under the backup withholding rules are not an additional tax and may be
refunded or credited against the holder's federal income tax liability, provided
the required information is furnished to the IRS.
Reporting requirements. PlanVista stockholders receiving ProxyMed
common stock in the merger must file a statement with their U.S. federal income
tax returns setting forth their tax basis in the PlanVista common stock
exchanged in the merger and the fair market value of the ProxyMed common stock
and the amount of any cash received in the merger. In addition, PlanVista
stockholders will be required to retain permanent records of these facts
relating to the merger.
APPRAISAL RIGHTS
Under Section 262 of the Delaware General Corporation Law, PlanVista
stockholders may object to the merger and demand in writing that the company
surviving the merger pay the fair value of their shares if the merger is
completed. Section 262 which sets forth the procedures a stockholder requesting
appraisal must follow is reprinted in its entirety as Annex D to this joint
proxy statement/prospectus. The following discussion is not a complete statement
of the law relating to appraisal rights under Section 262 and is qualified in
its entirety by reference to Annex D. This discussion and Annex D should be
reviewed carefully by any stockholder who wishes to exercise appraisal rights or
who wishes to preserve the right to do so, as failure to strictly comply with
the procedures set forth in this section of the joint proxy statement/prospectus
or Section 262 will result in the loss of appraisal rights.
Under Section 262, when a merger agreement is to be submitted for
approval at a meeting of stockholders, such as the special meeting, the
corporation, not less than 20 days prior to the meeting, must notify each of the
holders of its stock for whom appraisal rights are available that such appraisal
rights are available and include in each such notice a copy of Section 262. This
joint proxy statement/prospectus shall constitute that notice to the record
holders of PlanVista stock. Neither ProxyMed nor PlanVista will give you any
notice of your appraisal rights other than as described in this document and as
required by the Delaware General Corporation Law.
GENERAL REQUIREMENTS. Section 262 generally requires the following:
- Written demand for appraisal. You must deliver a written demand
for appraisal to PlanVista before the vote is taken at the
PlanVista stockholders' meeting. This written demand for
appraisal must be separate from the proxy and must reasonably
inform PlanVista of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
stockholder's shares. In other words, failure to return the proxy
or returning the proxy with a notation on it will not alone
constitute demand for appraisal. Similarly, a vote against the
merger will not satisfy your obligation to make written demand
for appraisal. You should read the paragraphs below for more
details on making a demand for appraisal.
- Refrain from voting for or consenting to the merger proposal. You
must not vote in favor of the merger agreement or the merger or
consent to either in writing. If you return a properly executed
proxy or otherwise vote in favor of the merger agreement or the
merger, your right to appraisal will terminate, even if you
previously filed a written demand for appraisal. You do not have
to vote against the merger in order to preserve your appraisal
rights.
- Continuous ownership of PlanVista shares. You must continuously
hold your shares of PlanVista stock from the date you make the
demand for appraisal through the closing of the merger.
REQUIREMENTS FOR WRITTEN DEMAND FOR APPRAISAL. A written demand for
appraisal of PlanVista stock is only effective if it is signed by, or for, the
stockholder of record who owns the shares at the time the demand is made. The
demand must be signed as the stockholder's name appears on its stock
certificate(s). If you are a beneficial owner of PlanVista stock (such as a
broker, fiduciary, trustee, guardian or custodian, depositary or other nominee),
but not a
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stockholder of record, you must have the stockholder of record for the shares
sign a demand for appraisal on your behalf.
If you own PlanVista stock in a fiduciary capacity, such as a trustee,
guardian or custodian, you must disclose the fact that you are signing the
demand for appraisal in that capacity.
If you own PlanVista stock with one or more other persons, such as in a
joint tenancy or tenancy in common, all of the owners must sign, or have signed
for them, the demand for appraisal. An authorized agent, which could include one
or more of the owners, may sign the demand for appraisal for a stockholder of
record; however, the agent must expressly disclose who the stockholder of record
is and that he or she is signing the demand as that shareholder's agent. If a
stockholder holds shares of PlanVista stock through a broker who in turn holds
the shares through a central securities depository nominee such as Cede & Co., a
demand for appraisal of such shares must be made by or on behalf of the
depository nominee and must identify the depository nominee as record holder.
If you are a record owner, such as a broker, fiduciary, depositary or
other nominee, who holds PlanVista stock as a nominee for others, you may
exercise a right of appraisal with respect to the shares held for one or more
beneficial owners, while not exercising that right for other beneficial owners.
In such a case, you should specify in the written demand the number of shares as
to which you wish to demand appraisal. If you do not specify the number of
shares, ProxyMed will assume that your written demand covers all of the shares
of PlanVista stock that are in your name. Stockholders who hold either shares in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights are urged to consult with their brokers to determine the appropriate
procedure for the making of a demand for appraisal by such a nominee.
If you are a PlanVista stockholder, you should address the written
demand to PlanVista Corporation, 4010 Boy Scout Boulevard, Suite 200, Tampa,
Florida 33607, Attention: Secretary. It is important that PlanVista receive all
written demands before the vote concerning the merger is taken. As explained
above, this written demand should be signed by, or on behalf of, the stockholder
of record. The written demand for appraisal should specify the stockholder's
name and mailing address, the number of shares of stock owned, and that the
stockholder is thereby demanding appraisal of such stockholder's shares.
WRITTEN NOTICE. Within 10 days after the closing of the merger,
PlanVista must give written notice that the merger has become effective to each
stockholder who has fully complied with the conditions of Section 262 and who
has not voted in favor of or consented to the merger or the merger agreement.
Except as required by law, PlanVista will not notify stockholders of any dates
by which appraisal rights must be exercised.
PETITION WITH THE CHANCERY COURT. Within 120 days after the closing of
the merger, either PlanVista or any stockholder who has complied with the
conditions of Section 262 may file a petition in the Delaware Court of Chancery.
This petition should request that the chancery court determine the value of the
shares of PlanVista stock held by all of the stockholders who are entitled to
appraisal rights. If you intend to exercise your rights of appraisal, you should
file a petition in the chancery court. PlanVista has no intention at this time
to file a petition. Because PlanVista has no obligation to file a petition, if
you do not file such a petition within 120 days after the closing, you will lose
your rights of appraisal.
WITHDRAWAL OF DEMAND. If you change your mind and decide you no longer
want an appraisal, you may withdraw your demand for appraisal at any time within
60 days after the closing of the merger. You may also withdraw your demand for
appraisal after 60 days after the closing of the merger, but only with the
written consent of PlanVista. If you withdraw your demand for appraisal, you
will be entitled receive the merger consideration provided in the merger
agreement.
REQUEST FOR APPRAISAL RIGHTS STATEMENT. If you have complied with the
conditions of Section 262, you will be entitled to receive a statement from
PlanVista setting forth the number of shares for which appraisal rights have
been exercised and the number of stockholders who own those shares. In order to
receive this statement, you must send a written request to PlanVista within 120
days after the closing of the merger. After the merger, PlanVista will have the
later of 10 days after receiving a request or 10 days after the expiration of
the period for the delivery of demands for appraisal as described above to mail
the statement to the stockholder.
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CHANCERY COURT PROCEDURES. If you properly file a petition for
appraisal in the chancery court and deliver a copy to PlanVista, PlanVista will
then have 20 days to provide the chancery court with a list of the names and
addresses of all stockholders who have demanded appraisal and have not reached
an agreement with PlanVista as to the value of their shares. The chancery court
will then send notice to all of the stockholders who have demanded appraisal. If
the chancery court decides it is appropriate, it has the power to conduct a
hearing to determine whether the stockholders have fully complied with Section
262 of the Delaware General Corporation Law and whether they are entitled to
appraisal under that section. The chancery court may also require you to submit
your stock certificates to the Delaware Registry in Chancery so that it can note
on the certificates that an appraisal proceeding is pending. If you do not
follow the chancery court's directions, you may be dismissed from the
proceeding.
APPRAISAL OF SHARES. After the chancery court determines which
stockholders are entitled to appraisal rights, the chancery court will appraise
the shares of PlanVista common stock. To determine the fair value of the shares,
the chancery court is required to take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining the fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered and that "[f]air price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court has stated that in making this determination of fair
value, the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which could be
ascertained as of the date of the merger which throw any light on the future
prospects of the combined company. Section 262 provides that fair value is to be
"exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Cede & Co. v. Technicolor, Inc., the Delaware
Supreme Court stated that such exclusion is a "narrow exclusion [that] does not
encompass known elements of value," but which rather applies only to the
speculative elements of value arising from such accomplishment or expectation.
In Weinberger, the Delaware Supreme Court construed Section 262 to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof, as of the date of the merger and not the product
of speculation, may be considered."
After the chancery court determines the fair value of the shares, it
will direct PlanVista to pay that value to the stockholders who are entitled to
appraisal. The chancery court can also direct PlanVista to pay interest, simple
or compound, on that value if the chancery court determines that interest is
appropriate. In order to receive the fair value for your shares, you must
surrender your stock certificates to PlanVista.
The chancery court could determine that the fair value of shares of
PlanVista stock is more than, the same as, or less than the merger
consideration. In other words, if you demand appraisal rights, you could receive
less consideration than you would under the merger agreement.
U.S. FEDERAL INCOME TAX CONSEQUENCES. Please refer to the section of
the joint proxy statement/prospectus "The Merger--Material Federal
Income Tax Considerations" on page 88.
COSTS AND EXPENSES OF APPRAISAL PROCEEDING. The costs and expenses of
the appraisal proceeding may be assessed against PlanVista and the stockholders
participating in the appraisal proceeding, as the chancery court deems equitable
under the circumstances. However, costs generally do not include legal and
expert witness fees and each dissenting stockholder generally is responsible for
his or her legal and expert witness expenses. You can request that the chancery
court determine the amount of interest, if any, that PlanVista should pay on the
value of stock owned by stockholders entitled to the payment of interest. You
may also request that the chancery court allocate the expenses of the appraisal
action, including, in limited circumstances, legal and expert witness expenses,
incurred by any stockholder pro rata against the value of all of the shares
entitled to appraisal.
LOSS OF STOCKHOLDER RIGHTS. If you demand appraisal, after the closing
of the merger you will not be entitled to:
- vote shares of stock for which you have demanded appraisal for
any purpose;
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- receive payment of dividends or any other distribution with
respect to your shares, except for dividends or distributions, if
any, that are payable to holders of record as of a record date
before the closing of the merger; or
- receive the consideration provided for in the merger agreement.
However, you can regain these rights if no petition for an appraisal is
filed within 120 days after the closing of the merger, or if you deliver to
PlanVista a written withdrawal of your demand for an appraisal and your
acceptance of the merger and the merger consideration, either within 60 days
after the closing of the merger or with the written consent of PlanVista. As
explained above, these actions will also terminate your appraisal rights.
However, an appraisal proceeding in the chancery court cannot be dismissed
without the chancery court's approval. The chancery court may condition its
approval upon any terms that it deems just.
If no petition for appraisal is filed with the chancery court within
120 days after the closing of the merger, the PlanVista stockholders' rights to
appraisal will cease, and all holders of shares of PlanVista stock will be
entitled to receive the merger consideration.
IF YOU FAIL TO COMPLY STRICTLY WITH THESE PROCEDURES YOU WILL LOSE YOUR
APPRAISAL RIGHTS. CONSEQUENTLY, IF YOU WISH TO EXERCISE YOUR APPRAISAL RIGHTS,
WE STRONGLY URGE YOU TO CONSULT A LEGAL ADVISOR BEFORE ATTEMPTING TO EXERCISE
YOUR APPRAISAL RIGHTS.
LISTING OF PROXYMED COMMON STOCK TO BE ISSUED IN THE MERGER
ProxyMed has agreed to cause the shares of ProxyMed common stock issued
in the merger to be approved for listing on the Nasdaq National Market, subject
to official notice of issuance.
CESSATION OF TRADING AND DEREGISTRATION OF PLANVISTA COMMON STOCK
If the merger is consummated, the PlanVista common stock will cease to
be traded on the Over-The-Counter Bulletin Board and will be deregistered under
the Securities Exchange Act of 1934.
RESTRICTION ON RESALES OF PROXYMED COMMON STOCK BY AFFILIATES
The ProxyMed common stock to be issued in the merger will be registered
under the Securities Act of 1933. These shares may be traded freely and without
restriction by those stockholders not deemed to be "affiliates" of PlanVista as
that term is defined under the Securities Act of 1933. An affiliate of a
corporation, as defined by the rules promulgated under the Securities Act of
1933, is a person who directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control with, that
corporation. Any transfer by an affiliate of PlanVista must be one permitted by
the resale provisions of Rule 145 promulgated under the Securities Act of 1933.
If a PlanVista affiliate becomes an affiliate of ProxyMed, any transfer must be
permitted by the resale provisions of Rule 144 promulgated under the Securities
Act of 1933 or otherwise permitted under the Securities Act of 1933. These
restrictions are expected to apply to the executive officers, directors and
significant stockholders of PlanVista. Affiliates of PlanVista have agreed to
comply with these restrictions.
In connection with the private equity offering, ProxyMed has agreed to
grant General Atlantic Partners 74, L.P., General Atlantic Partners 77, L.P.,
GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG., PVC
Funding Partners, LLC, Comvest Venture Partners, L.P., Shea Ventures, LLC, and
Robert Priddy, certain demand and "piggy back" registration rights, pursuant to
an amended and restated registration rights agreement. Each of the purchasers
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agrees not to, directly or indirectly, sell or otherwise dispose of any of the
shares it receives in connection with the private equity offering and certain
other shares owned by it or its affiliates prior to the first anniversary of the
closing date, except to a permitted transferee and except to their respective
affiliates, in an amount during any three month period that does not exceed the
volume limitations set forth in Rule 144(e) of the Securities Act of 1933, in
connection with a sale of ProxyMed, or in a transaction approved in advance by
ProxyMed's board of directors.
OPERATIONS FOLLOWING THE MERGER
After completion of the merger, PlanVista will continue its operations
as a wholly-owned subsidiary of ProxyMed under the name "PlanVista Corporation."
The stockholders of PlanVista will become shareholders of ProxyMed, and their
rights as shareholders will be governed by ProxyMed's existing amended and
restated articles of incorporation, ProxyMed's existing amended and restated
bylaws and the laws of the State of Florida. See "Comparison of Shareholder
Rights."
CERTIFICATE OF INCORPORATION AND BYLAWS OF PLANVISTA
Upon completion of the merger, the certificate of incorporation of
PlanVista will be amended to read in its entirety as set forth in Exhibit C to
the merger agreement, and, as so amended, will be the certificate of
incorporation of the surviving corporation, once it is merger with Planet
Acquisition Corp., a wholly owned subsidiary of ProxyMed. Additionally, the
bylaws of Planet Acquisition Corp. as in effect immediately prior to the
effective time of the merger will be the bylaws of PlanVista, as the surviving
corporation, until otherwise changed or amended.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the
merger agreement, a copy of which is attached as Annex A, which agreement is
hereby incorporated by reference into this joint proxy statement/prospectus.
Shareholders of ProxyMed and PlanVista are urged to read the merger agreement in
its entirety for a more complete description of the merger. In the event of any
discrepancy between the terms of the merger agreement and the following summary,
the merger agreement will control.
THE MERGER
Following the approval of the merger proposal by the stockholders of
PlanVista, the approval of the charter amendment proposal and the issuance
proposals by the shareholders of ProxyMed, and the satisfaction or waiver of the
other conditions to the merger set forth in the merger agreement, Planet
Acquisition Corp., a wholly-owned subsidiary of ProxyMed will merge with and
into PlanVista, with PlanVista continuing as the surviving corporation under the
name "PlanVista Corporation" and as a wholly-owned subsidiary of ProxyMed.
THE EFFECTIVE TIME
The parties will cause the merger to become effective by filing a
certificate of merger with the Delaware Secretary of State. The parties
anticipate that the closing of the merger will occur during ProxyMed's and
PlanVista's quarter ending March 31, 2004.
DIRECTORS AND OFFICERS OF PLANVISTA AFTER THE MERGER
At the effective time of the merger, the directors of Planet
Acquisition Corp. will remain the directors of the company surviving the merger.
At the effective time of the merger, ProxyMed will designate the officers of the
company surviving the merger.
CONVERSION OF SHARES OF PLANVISTA STOCK IN THE MERGER
If the merger is completed, PlanVista stockholders who do not perfect
appraisal rights under the Delaware General Corporation Law will be entitled to
receive for each share of PlanVista common stock then held by them, a fraction
of one fully paid and nonassessable share of ProxyMed common stock, the
numerator of which is (1) 1,826,829 (subject to the conversion of any shares of
PlanVista series C preferred stock) and the denominator of which is (2) the
total number of issued and outstanding shares of PlanVista common stock
immediately prior to the effective time of the merger. Upon completion of the
merger, holders of PlanVista's series C preferred stock will be entitled to
receive, for each share of PlanVista series C preferred stock then held by them
(other than shares of series C preferred stock with respect to which a PlanVista
series C preferred stockholder has exercised appraisal rights), a fraction of
one fully paid and nonassessable share of ProxyMed common stock, the numerator
of which is (1) 1,773,171 (subject to the conversion of any shares of PlanVista
series C preferred stock) and the denominator of which is (2) the total number
of issued and outstanding shares of PlanVista series C preferred stock
immediately prior to the effective time of the merger. The total number of
shares of ProxyMed common stock issuable as merger consideration is subject to a
downward adjustment in the event certain fees, expenses and other obligations of
PlanVista arising as a result of the merger exceed a specified amount. PVC
Funding Partners, LLC, the holder of 96% of the outstanding PlanVista series C
preferred stock, has agreed not to convert its series C preferred stock into
common stock prior to the consummation of the merger. If any of the remaining
PlanVista series C preferred stock are converted into PlanVista common stock
prior to the closing of the merger, the number of ProxyMed shares allocated to
the PlanVista common stockholders will be increased by the number of ProxyMed
shares that the converting PlanVista series C preferred stockholders will
receive upon consummation of the merger as a result of such conversion and the
number of ProxyMed shares allocated to the remaining holders of the PlanVista
series C preferred stock will be decreased by a like number. In the event that
the amount owed by PlanVista to Commonwealth Associates Group Holdings, LLC
pursuant to the advisory agreement exceeds a fixed amount, Commonwealth
Associates Group Holdings, LLC has agreed to accept payment for any excess fees
in shares of PlanVista common stock to be issued by PlanVista prior to the
closing of the merger. Such shares of PlanVista
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common stock will be valued at the price per share that the holders of PlanVista
common stock will be realizing as a result of the issuance of ProxyMed common
stock in the merger.
PLANVISTA'S STOCK OPTIONS
If the merger is completed, each outstanding option to purchase shares
of PlanVista common stock will be canceled. At the effective time of the merger,
the compensation committee of the board of directors of ProxyMed will grant to
certain of the officers and employees of PlanVista identified by PlanVista's
compensation committee and approved by ProxyMed's compensation committee options
under ProxyMed's stock option plans to purchase an aggregate of 200,000 shares
of ProxyMed common stock in individual amounts as determined by PlanVista's
compensation committee. Those options will have an exercise price equal to the
lower of the last reported sale price of ProxyMed's common stock on the Nasdaq
National Market on the date of the merger or $17.74 per share. Those options
will generally vest over a three-year period commencing on the grant date, such
that two-thirds of each option will vest on the first anniversary of the grant
date, and the remaining one-third of each option will vest on the third
anniversary of the grant date.
THE EXCHANGE AND PAYING AGENT
At the effective time of the merger, ProxyMed is required to deliver to
the exchange agent the shares of ProxyMed common stock to be exchanged for
shares of PlanVista common stock and PlanVista series C preferred stock, and
cash to pay for fractional shares and any dividends or distributions to which
holders of PlanVista common stock and PlanVista series C preferred stock may be
entitled under the merger agreement.
PROCEDURES FOR EXCHANGING STOCK CERTIFICATES
Immediately after the effective time of the merger, ProxyMed will cause
the exchange agent to mail to the holders of record of PlanVista stock
certificates (1) a letter of transmittal and (2) instructions on how to
surrender PlanVista stock certificates in exchange for ProxyMed common stock
certificates. Holders of PlanVista stock certificates should not mail their
certificates at this time.
Upon surrendering their PlanVista stock certificates, the completed and
executed letter of transmittal and any other documents reasonably required by
the exchange agent, the holders of PlanVista stock certificates will be entitled
to receive a certificate representing that number of whole shares of ProxyMed
common stock which that holder has the right to receive, cash for fractional
shares of ProxyMed common stock and cash dividends or other distributions to
which the holder is entitled. Until surrendered to the exchange agent,
outstanding PlanVista stock certificates will be deemed from and after the
effective time to evidence only (i) the ownership of the number of full shares
of ProxyMed common stock into which their shares of PlanVista common stock were
converted at the effective time, and (ii) the right to receive an amount in cash
for any fractional shares and any dividends or distributions payable under the
merger agreement.
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES
PlanVista stockholders are not entitled to receive any dividends or
other distributions on ProxyMed common stock until the merger is completed and
they have surrendered their PlanVista stock certificates in exchange for
ProxyMed stock certificates. Once a PlanVista stockholder surrenders a PlanVista
stock certificate to the exchange agent, he, she or it will be entitled to
receive:
- a certificate representing shares of ProxyMed common stock;
- cash, without interest, as payment for fractional shares; and
- cash, without interest, as payment for any dividends or other
distributions declared or made by ProxyMed after the effective
time of the merger. ProxyMed does not anticipate paying any
dividends with respect to its stock.
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NO FRACTIONAL SHARES
PlanVista stockholders will be entitled to receive payment in cash,
without interest, in lieu of any fractional shares of ProxyMed common stock that
would otherwise have been issuable to them in the merger. The amount of cash to
be received by such PlanVista stockholder will be equal to the fraction of such
share that stockholder would have received multiplied by the average closing
sale price of one share of ProxyMed common stock for the 10 most recent trading
days that ProxyMed common stock has traded ending the trading day one day prior
to the closing date of the merger, as reported on the Nasdaq National Market.
SHARES SUBJECT TO PROPERLY EXERCISED APPRAISAL RIGHTS
The shares of PlanVista stock held by PlanVista stockholders who
properly demand appraisal for their shares in accordance with the Delaware
General Corporation Law will not be converted into the right to receive shares
of ProxyMed common stock and cash in lieu of fractional shares of ProxyMed
common stock to which they would otherwise be entitled, but will instead be
converted into the right to receive such consideration as may be determined to
be due with respect to such shares pursuant to the Delaware General Corporation
Law. If any PlanVista stockholder fails to make an effective demand for payment
or otherwise loses his, her or its appraisal rights, ProxyMed will, as of the
later of the effective time of the merger or ten business days from the
occurrence of such event, issue and deliver upon surrender of PlanVista stock
certificates, shares of ProxyMed common stock, any cash payment in lieu of
fractional shares and any dividends or other distributions with respect to
ProxyMed common stock to which such stockholder would have been entitled,
subject to the other terms of the merger agreement.
REPRESENTATIONS AND WARRANTIES
ProxyMed, PlanVista and Planet Acquisition Corp. each made
representations and warranties in the merger agreement to each other regarding
aspects of its business, financial condition, structure and other facts
pertinent to the merger. These representations and warranties are further
described below.
PLANVISTA'S REPRESENTATIONS AND WARRANTIES
PlanVista's representations and warranties include representations as
to:
- its corporate organization, good standing and qualification to do
business;
- its and its subsidiaries' certificates of incorporation and
bylaws;
- permits required to conduct its business and compliance with
those permits;
- its subsidiaries and ownership interests in other entities;
- its capitalization;
- its equity or partnership interests, or obligations to issue or
encumber its securities or ownership interests;
- its authority to enter into the merger agreement and any
agreements ancillary thereto to which it is a party;
- approval by its board of directors;
- state anti-takeover, control share acquisition, fair price,
moratorium or other similar statues or regulations being
inapplicable to the execution, delivery or performance of the
merger agreement or the consummation of the merger;
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- the restrictions on business combinations in Section 203 of the
Delaware General Corporation Law being inapplicable to the merger
agreement or the merger;
- the effect of the merger, or entering into the merger agreement,
on its outstanding obligations;
- the absence of conflicts with and defaults under PlanVista's
charter documents, contracts, permits and similar instruments and
under applicable laws resulting from the execution of the merger
agreement and the consummation of the merger, where any such
conflict or default would have a material adverse effect (as that
term is defined below under "The Merger Agreement - Conditions to
closing the merger");
- required consents, waivers and approvals;
- regulatory approvals required to complete the merger;
- PlanVista's filings and reports with the SEC;
- its financial statements and liabilities;
- information supplied by it in this joint proxy
statement/prospectus and the related registration statement filed
by ProxyMed;
- changes in its business since December 31, 2002;
- its taxes;
- litigation;
- its employees, employee compensation and employee benefit plans;
- its compliance with applicable laws;
- the absence of any illegal payments by it or its subsidiaries;
- its agreements, contracts and commitments;
- its intellectual property, intellectual property that it uses and
non-infringement of the intellectual property rights of third
parties;
- brokers' and finders' fees and other estimated expenses in
connection with the merger;
- the receipt by PlanVista's board of directors of a fairness
opinion from its financial advisor;
- title to and operation of the properties and other assets it owns
and leases;
- its insurance;
- identification of its affiliates and transactions with related
parties;
- compensation and benefits to which PlanVista's executive officers
and certain other key employees are or may become entitled;
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- its twenty largest customers and networks during 2002 and 2003;
- its accounts receivable; and
- its hazardous material activities and environmental liabilities.
REPRESENTATIONS AND WARRANTIES OF PROXYMED AND PLANET ACQUISITION CORP.
ProxyMed's and, as the case may be, Planet Acquisition Corp.'s,
representations and warranties include representations as to:
- its and the merger subsidiary's corporate organization, good
standing and qualification to do business;
- its and the merger subsidiary's charter documents and bylaws;
- ProxyMed's subsidiaries and ownership interests in other
entities;
- its equity or partnership interests, or obligations to issue or
encumber its securities or ownership interests;
- its and the merger subsidiary's capitalization;
- authorization, execution and delivery of the merger agreement by
it and the merger subsidiary;
- the effect of the merger, or entering into the merger agreement,
on its outstanding obligations;
- the absence of conflicts with and defaults under ProxyMed's and
Planet Acquisition Corp.'s charter documents, contracts, permits
and similar instruments and under applicable laws resulting from
the execution of the merger agreement and the consummation of the
merger, where any such conflict or default would have a material
adverse effect (as that term is defined below under "The Merger
Agreement - Conditions to closing the merger");
- required consents, waivers and approvals;
- regulatory approvals required to complete the merger;
- information supplied by it in this joint proxy
statement/prospectus, or the related registration statement filed
by ProxyMed;
- ProxyMed's filings and reports with the SEC;
- its financial statements;
- changes in its business since December 31, 2002;
- its material contracts;
- approval by its board of directors;
- brokers' and finders' fees in connection with the merger;
- taxes;
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- its employees, employee compensation and employee benefit plans;
- compliance with applicable laws;
- litigation with respect to ProxyMed and Planet Acquisition Corp.;
- the absence of any illegal payments by it or its subsidiaries;
- intellectual property, intellectual property it uses and
non-infringement of the intellectual property rights of third
parties;
- its hazardous material activities and environmental liabilities;
- identification of its affiliates and transactions with related
parties.
- its twenty largest customers and payers in 2002 and 2003; and
- its accounts receivable.
The representations and warranties in the merger agreement are
complicated and are not easily summarized. ProxyMed and PlanVista urge you to
read carefully the articles in the merger agreement entitled "Representations
and Warranties of the Company," and "Representations and Warranties of Parent
and Sub."
CONDUCT OF EACH COMPANY'S BUSINESS BEFORE THE CLOSING OF THE MERGER
PlanVista
PlanVista has agreed that until the closing (or the merger agreement is
terminated), or unless ProxyMed consents in writing, PlanVista and each of its
subsidiaries will conduct its business in the usual, regular and ordinary
course, and in substantially the same manner in which it was previously
conducted. PlanVista has also agreed to use all commercially reasonable efforts
to:
- keep intact its present business organization;
- keep available the services of its present officers and
employees; and
- maintain its relationships with customers, suppliers, licensors,
licensees, and others with which it has business dealings.
In addition, until the closing (or the merger agreement is terminated),
or unless ProxyMed consents in writing, PlanVista has agreed to conduct its
business in compliance with specific restrictions relating to the following:
- declaring or paying dividends or making other distributions, or
effecting any stock splits or combinations, with respect to its
capital stock other than dividends and distributions by a direct
or indirect wholly owned subsidiary of PlanVista to its parent,
payment in kind shares issued as dividends on the series C
preferred stock and as interest on the notes held by PVC Funding
Partners, LLC and Centra Benefits Services, Inc.;
- acquiring or redeeming shares of its capital stock;
- issuing, delivering, selling or granting PlanVista securities
other than issuances of PlanVista common stock upon exercise of
outstanding options on the date of the merger agreement;
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- amending its charter or bylaws or the charter or bylaws of any of
its subsidiaries;
- acquiring or agreeing to merge or consolidate with or acquire the
assets of, or making equity investments in, other entities, or
otherwise acquiring or agreeing to acquire any assets that are
individually or collectively material to the business of
PlanVista;
- increasing compensation or benefits to any employee, director or
consultant of PlanVista except to the extent required under its
employment agreements and other than in the ordinary course of
business, or entering into any employment arrangement;
- granting any severance or termination pay except under written
agreements or policies then in effect on the date of the merger
agreement, adopting any new severance plans or entering into any
employment-related agreement with any person or entering into any
collective bargaining agreements;
- changing accounting methods, practices or principles materially
affecting the reported consolidated assets, liabilities or
results of operations of PlanVista, except as required by
accounting principles generally accepted in the United States of
America;
- selling, leasing, licensing, encumbering or otherwise disposing
of property or assets that are material to the business of
PlanVista other than the sale of obsolete assets or inventory in
the ordinary course of PlanVista's business consistent with past
practices;
- incurring or guaranteeing indebtedness, issuing or selling or
guaranteeing any debt securities, or entering into any agreement
to maintain the financial condition of another person;
- lending funds, advancing credit, or making capital contributions
to another person other than in the ordinary course;
- making any material capital expenditures that are in excess of an
average of $25,000 per calendar month in the aggregate between
the date of the merger agreement and February 28, 2004;
- purchasing new accounting software;
- electing or changing an election, agreeing to a settlement or
compromise with respect to material taxes;
- paying, discharging, settling or satisfying any claims,
liabilities or obligations, except for claims, liabilities
reserved against or reflected in PlanVista's financial statements
under the terms thereof, or paid, discharged, settled or
satisfied in the ordinary course of business and not in excess of
$10,000 individually or $100,000 in the aggregate;
- canceling any indebtedness owed to it or its subsidiaries in
excess of $5,000 individually or $50,000 in the aggregate;
- canceling any indebtedness owed to PlanVista or its subsidiaries
in excess of $20,000 individually or $400,000 per month in the
aggregate as adjustments to client accounts in the normal course
of business;
- waiving, modifying, terminating or otherwise failing to enforce
any agreement covering PlanVista's confidential information;
- materially modifying, amending or terminating any lease or
similar commitment;
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- permitting any material insurance policy naming it as a
beneficiary or loss payable payee to be canceled or terminated
without the consent of ProxyMed;
- permitting PlanVista's directors and officers liability insurance
policy, and any excess liability policy related thereto, to be
canceled, terminated or otherwise not be renewed or replaced with
at least an equivalent amount of coverage and on other terms no
less favorable to PlanVista and its officers and directors;
- transferring, licensing or modifying in any material respect
intellectual property rights;
- adopting a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of it or any of its subsidiaries; and
- taking or agreeing to commit to take any action that would make
any representation or warranty by it in the merger agreement
inaccurate as of the closing of the merger agreement.
ProxyMed
ProxyMed has agreed to conduct its business in the ordinary customary
course consistent with past practice and to use its best efforts to keep intact
its present business organization and to maintain its relationships with
customers, suppliers, employees, creditors and business partners.
ProxyMed has also agreed that until the closing of the merger (or
termination of the merger agreement), or unless PlanVista consents in writing,
ProxyMed and each of its subsidiaries will conduct its business in compliance
with specific restrictions relating to the following:
- issuing, delivering, selling or granting ProxyMed securities, any
Voting Parent Debt or other voting securities, or any securities
convertible or exchangeable for, or any options, warrants or
rights to acquire, any such shares, Voting Parent Debt, voting
securities or convertible or exchangeable securities or any
"phantom" stock, "phantom" stock rights, stock appreciation
rights or stock-based performance units, other than the issuance
of Parent Common Stock upon the exercise of Parent Stock Options
outstanding on the date of this Agreement and in accordance with
their present terms, except for (i) ProxyMed common stock issued
in connection with the private equity offering, (ii) the sale of
up to an additional $3,000,000 of ProxyMed common stock at a
price per share of not less than $13.50, (iii) the issuance of
ProxyMed common stock pursuant to the exercise or conversion of
warrants or other rights outstanding on the date of the merger
agreement, or (iv) the granting of stock options under the
ProxyMed stock option plans;
- declaring or paying dividends or making other distributions, or
effecting any stock splits or combinations, with respect to its
capital stock;
- acquiring or agreeing to merge or consolidate with or acquire the
assets of, or making equity investments in, other entities, or
otherwise acquiring or agreeing to acquire any assets that are
individually or collectively material to the business of ProxyMed
and its subsidiaries;
- amending its charter or bylaws;
- changing accounting principles, unless required by GAAP;
- taking any action that would reasonably be expected to cause the
merger to fail to qualify as a "reorganization" under specific
tax laws;
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- selling, leasing, licensing, encumbering or otherwise disposing
of property or assets that are material to the business of
ProxyMed other than the sale of obsolete assets or inventory in
the ordinary course of ProxyMed's business consistent with past
practices;
- incurring or guaranteeing indebtedness, issuing or selling or
guaranteeing any debt securities, or entering into any agreement
to maintain the financial condition of another person;
- lending funds, advancing credit, or making capital contributions
to another person other than in the ordinary course;
- adopting a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of it or any of its subsidiaries; and
- taking or agreeing to commit to take any action that would make
any representation or warranty by it in the merger agreement
inaccurate as of the closing of the merger agreement.
The agreements related to the conduct of the companies' business in the
merger agreement are complicated and not easily summarized. You should read the
articles in the merger agreement entitled "Covenants Relating to Conduct of
Business" carefully.
NO OTHER NEGOTIATIONS
Until the merger is completed or the merger agreement is terminated,
PlanVista has agreed not to take any of the following actions directly or
indirectly:
- solicit, initiate, seek, entertain, encourage, intentionally
facilitate, support or induce the making, submission or
announcement of any acquisition proposal, as defined below;
- participate in any discussions or negotiations regarding, or
deliver or make available to any person any non-public
information with respect to, or take any other action to
knowingly facilitate any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, 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 any other agreement of any
nature contemplating or otherwise relating to any acquisition
proposal.
However, if prior to its shareholder approval of the merger agreement,
PlanVista receives an unsolicited, written, bona fide acquisition proposal that
its board of directors concludes in good faith (after receiving advice from its
outside legal counsel and from a financial advisor of national standing) is
reasonably likely to result in a superior offer, as defined below, PlanVista may
deliver or make available non-public information regarding it and its
subsidiaries to, and may enter into discussions with, the person or group who
has made (and not withdrawn) that acquisition proposal, if:
- none of PlanVista, its subsidiaries or its representatives or the
representatives of its subsidiaries shall have violated the
restrictions relating to other negotiations set forth above;
- within 24 hours of receipt of the acquisition proposal, it
notifies ProxyMed in writing of the identity of the person or
group making the acquisition proposal, all of the material terms
and conditions thereof
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and its intent to deliver or make available non-public
information to, or enter into discussions with, with this person
or group;
- prior to delivering or making available the non-public
information or entering into discussions with the person or group
making the acquisition proposal, PlanVista receives from the
person or group a confidentiality agreement requiring the
confidential treatment of that information that is at least as
restrictive to this person or group as the confidentiality
agreement between ProxyMed and PlanVista; and
- it delivers the non-public information to ProxyMed, if not
previously provided, at the same time that it delivers or makes
available that information to the person or group that has
submitted the acquisition proposal.
PlanVista has agreed to inform ProxyMed orally and in writing as
promptly as practicable, and in any event within 24 hours, of any request for
non-public information that PlanVista reasonably believes may lead to an
acquisition proposal or of any acquisition proposal, the material terms and
conditions of that request, acquisition proposal or inquiry, and the identity of
the person or group making any request, acquisition proposal or inquiry. In
addition, PlanVista will keep ProxyMed informed as promptly as practicable in
all material respects of the status and details (including any amendments,
modifications or proposed amendments or modifications) of any such request,
acquisition proposal or inquiry. PlanVista has also agreed to provide as
promptly as practicable a copy of all written and other materials and
information provided to it in connection with any such request, acquisition
proposal or inquiry.
An acquisition proposal is any offer or proposal by a third party
relating to or involving:
- the acquisition or purchase by any person or group of more than a
15% interest in the total outstanding voting securities of
PlanVista or any of its subsidiaries;
- any tender offer or exchange offer that if consummated would
result in any person or group beneficially owning 15% or more of
the total outstanding voting securities of PlanVista or any of
its subsidiaries;
- any merger, consolidation, or similar transaction involving
PlanVista or any of its subsidiaries;
- any sale, lease, exchange, transfer, license, acquisition or
disposition of 15% or more of the assets of PlanVista or any of
its subsidiaries; or
- any liquidation or dissolution of PlanVista or any of its
subsidiaries.
A superior offer with respect to PlanVista is an unsolicited, bona fide
written offer made by a third party to acquire, directly or indirectly, pursuant
to a tender offer, exchange offer, merger, consolidation or other business
combination:
- all or substantially all of the assets of PlanVista or its
subsidiaries; or
- a majority of the total outstanding voting securities of
PlanVista or its subsidiaries, and, on terms that its board of
directors in good faith concludes (after consulting with its
outside legal counsel and from its financial advisor), taking
into account, among other things, all legal, financial,
regulatory and other aspects of the offer and the person making
the offer, to be more favorable to its stockholders than the
terms of the merger and is reasonably capable of being
consummated.
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BOARD RECOMMENDATIONS
The PlanVista board of directors may withhold, withdraw, amend or
modify its recommendation in favor of the merger proposal if the PlanVista board
of directors concludes in good faith, after consulting with its outside counsel,
that such change, withholding, withdrawal, amendment or modification of its
recommendation is required for the board of directors to comply with its
fiduciary obligations to the PlanVista stockholders under applicable law.
The PlanVista board of directors may, in the case of a superior offer,
terminate the merger agreement or withhold, withdraw, amend or modify, its
recommendation in favor of the merger proposal if, prior to the PlanVista
stockholders meeting:
- PlanVista receives a superior offer that is not withdrawn;
- PlanVista provides written notice to ProxyMed no later than three
business days after receiving the superior offer, advising that
PlanVista has received a superior offer and that it intends (or
may intend) to terminate the merger agreement or change its
recommendation and the manner and timing in which it intends (or
may intend) to do so, specifying all the material terms and
conditions of, and identifying the third party making, the
superior offer;
- ProxyMed does not, within three business days after receiving the
written notice, make an offer that PlanVista's board of directors
determines in its good faith judgment (after consulting with a
financial advisor of national standing) to be at least as
favorable to stockholders of PlanVista as the superior offer; and
- PlanVista has not violated the restrictions in the merger
agreement regarding other negotiations or changing its board
recommendation in favor of the merger proposal.
The ProxyMed board of directors may withhold, withdraw, amend or modify
its recommendation in favor of the merger proposal if, prior to its shareholders
meeting the ProxyMed board of directors concludes in good faith, after
consulting with its outside counsel, that such change, withholding, withdrawal,
amendment or modification of its recommendation is required for the board of
directors to comply with its fiduciary obligations to the ProxyMed shareholders
under applicable law.
Even if their respective board of directors' recommendation is
withheld, withdrawn, amended or modified, PlanVista and ProxyMed must
nevertheless hold and convene their respective shareholders meetings. PlanVista
also has agreed to provide ProxyMed with prior notice of any meeting of its
board at which its board of directors is reasonably expected to consider any
acquisition proposal to determine whether the acquisition proposal constitutes a
superior offer.
EMPLOYEE BENEFIT PLANS
PlanVista employees whose employment continues with the surviving
corporation following the merger shall be entitled to participate in the
employee benefit plans administered by ProxyMed, and to get credit under those
plans for service provided to PlanVista as if those services were provided to
ProxyMed. If requested by ProxyMed, prior to the closing, PlanVista will
terminate any 401(k) plans and all group severance, separation, retention and
salary continuation plans, programs, agreements or arrangements that it can
unilaterally terminate under their terms.
DIRECTOR AND OFFICER INDEMNIFICATION
From and after the effective time of the merger, ProxyMed will cause
the surviving corporation to fulfill and honor, subject to applicable law,
PlanVista's obligations under any indemnification agreements with its
105
directors and officers that exist at the effective time of the merger and any
indemnification provisions under PlanVista's certificate of incorporation and
bylaws that were in effect on the date of the merger agreement.
The certificate of incorporation and bylaws of the surviving
corporation following the merger will contain provisions relating to
exculpation, advancement of expenses, and indemnification that are at least as
favorable to the indemnified directors and officers as those contained in
PlanVista's organizational documents that were in effect on the date of the
merger agreement. Subject to applicable law, these indemnification provisions
will not be amended, repealed or otherwise modified for six years after the
effective time of the merger if doing so would adversely affect the rights of
individuals who were directors, officers, employees or agents of PlanVista
immediately prior to the effective time of the merger.
For a period of six years after the effective time of the merger,
ProxyMed will cause the surviving company to maintain in effect a "tail policy"
based on the current policies of directors' and officers' liability insurance
maintained by PlanVista with respect to claims arising from or related to facts
or events which occurred at or before the effective time.
BOARD OF DIRECTORS OF PROXYMED FOLLOWING THE MERGER
At the effective time of the merger, ProxyMed's board of directors
shall appoint one independent director of PlanVista selected by PlanVista and
one additional independent director, who is not affiliated with ProxyMed or
PlanVista identified by the PlanVista board of directors, and who is reasonably
acceptable to ProxyMed, to serve on the board of directors of ProxyMed. William
L. Bennett, a current independent director of PlanVista, will be appointed to
serve as a director of ProxyMed following the merger.
PROXYMED PRIVATE EQUITY OFFERING
Prior to the closing, ProxyMed will sell a sufficient number of shares
of its authorized common stock at a price per share of not less than $13.50 in
order to generate gross proceeds of $21,100,000, and will contribute the
proceeds thereof to PlanVista as an additional capital contribution to enable
PlanVista to pay off in full PlanVista's debt to its lenders for whom Wachovia
Bank acts as agent in an aggregate amount of not more than $18,000,000. ProxyMed
has agreed to cause the letter of credit currently issued by Wachovia for the
benefit of CG Insurance Services, Inc. to be (a) replaced with a letter of
credit on another bank, (b) replaced with other satisfactory collateral, or (c)
paid in full.
CONDITIONS TO CLOSING THE MERGER
ProxyMed's and PlanVista's obligations to complete the merger are
subject to the satisfaction or waiver of each of the following conditions before
the closing:
- the merger agreement must be adopted by stockholders of
PlanVista;
- the issuance of the shares of ProxyMed common stock to be issued
in connection with the merger, the issuance of the shares of
ProxyMed common stock to be issued in connection with the private
equity offering, and the amendment to ProxyMed's articles of
incorporation must be approved by ProxyMed's shareholders;
- ProxyMed's registration statement, of which this joint proxy
statement/prospectus is a part, must be effective, no stop order
suspending its effectiveness may be in effect and no proceeding
for that purpose, and no similar proceeding related to this joint
proxy statement/prospectus, shall have been initiated or
threatened in writing by the SEC;
- no governmental entity shall have enacted or issued any law,
regulation or order that has the effect of making the merger
illegal or otherwise prohibiting the consummation of the merger;
106
- all material required governmental consents and approvals shall
have been obtained;
- the shares of ProxyMed common stock to be issued in the merger
must be approved for listing on the Nasdaq National Market,
subject to notice of issuance; and
- there shall not be pending or overtly threatened any action or
proceeding by a governmental entity seeking to restrain or
prohibit the merger.
PlanVista's obligations to complete the merger are subject to the
satisfaction or waiver of each of the following additional conditions:
- the representations and warranties of ProxyMed and Planet
Acquisition Corp. contained in the merger agreement, disregarding
all qualifications and exceptions contained therein relating to
materiality or material adverse effect or any similar standard or
qualification, must be true and correct as of December 5, 2003
and as of the date of closing with the same force and effect as
if made on that date (except that those representations and
warranties which address matters only as of a particular date
shall remain true and correct only as of such date), except where
the failure of such representations or warranties to be true or
correct would not have, individually or in the aggregate, a
material adverse effect on ProxyMed;
- ProxyMed and Planet Acquisition Corp. must have performed or
complied in all material respects with all of its agreements and
covenants required by the merger agreement to be performed or
complied with by it on or prior to the closing;
- the merger agreement must have been approved by a majority of the
outstanding shares of PlanVista common stock voting at the
PlanVista stockholders meeting and not taking into account any
votes cast by holders of the series C preferred stock, by
Commonwealth Associates, L.P., or any affiliates or officers or
directors thereof, or any director or executive officer of
PlanVista; and
- no material adverse effect with respect to ProxyMed shall have
occurred.
ProxyMed and Planet Acquisition Corp.'s obligations to complete the
merger are subject to the satisfaction or waiver of each of the following
additional conditions:
- the representations and warranties of PlanVista contained in the
merger agreement, disregarding all qualifications and exceptions
contained therein relating to materiality or material adverse
effect or any similar standard or qualification, must be true and
correct as of December 5, 2003 and as of the date of closing with
the same force and effect as if made on that date (except that
those representations and warranties which address matters only
as of a particular date shall remain true and correct only as of
such date), except where the failure of such representations or
warranties to be true or correct would not have, individually or
in the aggregate, a material adverse effect on PlanVista;
provided, that the representations and warranties of PlanVista in
specified sections of the merger agreement related to its debt on
the closing date and broker, investment banker and financial
advisor fees must be true and correct in all material respects;
- PlanVista must have performed or complied in all material
respects with all of its agreements and covenants required by the
merger agreement to be performed or complied with by PlanVista on
or before the closing of the merger;
- no material adverse effect with respect to PlanVista shall have
occurred;
- all consents or approvals necessary to the consummation of the
merger must have been obtained, other than consents the failure
of which to obtain could not reasonably be expected to have a
material adverse effect on PlanVista; and
107
- holders of no more than 10% of PlanVista's common stock shall
have demanded appraisal of their shares pursuant to the Delaware
General Corporation Law.
A material adverse effect is defined to be any change, event,
violation, inaccuracy, circumstance or effect that, individually or when taken
together with all other changes, events, violations, inaccuracies, circumstances
or effects, is, or is reasonably likely to be, materially adverse to the
business, tangible and intangible assets, liabilities, capitalization, financial
condition, operations or results of operations of the applicable party or its
subsidiaries taken as a whole, or materially impedes the ability of the
applicable party to consummate the merger within the time frame the merger would
otherwise be consummated in the absence thereof or the ability of ProxyMed to
operate PlanVista's business and each of PlanVista's subsidiaries immediately
after the closing date of the merger. Except in the case of a material
impediment to the consummation of the merger, a material adverse effect
determination does not take into account any of the following, alone or in
combination:
- general economic or financial market conditions;
- conditions generally affecting the industry in which the company
operates;
- any litigation or other similar proceeding arising out of or in
connection with the merger or the merger agreement;
- changes in the market price or trading volume of ProxyMed or
PlanVista capital stock or any failure of ProxyMed or PlanVista
to meet published revenue or earnings projections, not excluding
any underlying effects which is attributable to any of the
foregoing and may have caused such failure to meet revenue or
earnings projections;
- compliance with express terms and conditions of the merger
agreement;
- the announcement or the pendency of the merger or any other
transaction contemplated by the merger agreement;
- any election of PlanVista stockholders seeking appraisal of their
shares in accordance with Delaware General Corporation Law; or
- any change in accounting requirements or principles or any change
in applicable laws, rules or regulations or the interpretation
thereof.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the
effective date of the merger, whether before or after the requisite shareholder
approval:
- by mutual consent duly authorized by the boards of directors of
ProxyMed and PlanVista;
- by ProxyMed or PlanVista, if the merger is not completed by April
30, 2004, except that the right to terminate the merger agreement
under this provision is not 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 by April 30, 2004, and
this action or failure to act constitutes a material breach of
the merger agreement;
- by ProxyMed or PlanVista, if a governmental authority has issued
a final nonappealable order, decree or ruling or taken any other
action, in any case having the effect of permanently enjoining,
restraining or prohibiting the merger;
108
- by ProxyMed or PlanVista, if the merger is not approved by the
stockholders of PlanVista, except that the right to terminate the
merger agreement under this provision is not available to
PlanVista where the failure to obtain stockholder approval was
caused by an action or failure to act by PlanVista that
constitutes a breach of the merger agreement;
- by ProxyMed or PlanVista, if the issuance of shares of ProxyMed
common stock in the merger, the issuance of shares of ProxyMed
common stock in connection with the ProxyMed private equity
offering, and the amendment to ProxyMed's articles of
incorporation shall not have been approved by ProxyMed's
shareholders, except that the right to terminate the merger
agreement under this provision is not available to ProxyMed if
the failure to obtain shareholder approval was caused by an
action or failure to act by ProxyMed that constitutes a breach of
the merger agreement;
- by ProxyMed at any time prior to the adoption and approval of the
merger agreement and the merger by the required vote of
stockholders of PlanVista, if a triggering event with respect to
PlanVista, as described below, occurs;
- by PlanVista at any time prior to the approval of the issuance of
shares of ProxyMed common stock in the merger by the required
vote of shareholders of ProxyMed, if a triggering event with
respect to ProxyMed, as described below, occurs;
- by PlanVista upon a breach of any representation, warranty,
covenant or agreement on the part of ProxyMed, or if any of
ProxyMed's representations or warranties have become untrue, so
that the corresponding condition to closing the merger would not
be met, or if a material adverse effect with respect to ProxyMed
shall have occurred; however, if the breach or inaccuracy or
material adverse effect on ProxyMed is curable and ProxyMed
continues to exercise all reasonable efforts to cure the breach
or inaccuracy or material adverse effect, then PlanVista may not
terminate the merger agreement if, in the case of a breach or
inaccuracy, it is cured within 30 days after delivery of the
notice of breach or inaccuracy or, in the case of a material
adverse effect on ProxyMed, it is cured within 45 days after
delivery of the notice of material adverse effect, or if
PlanVista has materially breached the merger agreement;
- by ProxyMed upon a breach of any representation, warranty,
covenant or agreement on the part of PlanVista under the merger
agreement, if any of PlanVista's representations or warranties
have become untrue, so that the corresponding condition to
closing the merger would not be met, or if a material adverse
effect shall have occurred; however, if the breach or inaccuracy
or material adverse effect on PlanVista is curable and PlanVista
continues to exercise all reasonable efforts to cure the breach
or inaccuracy or material adverse effect, then ProxyMed may not
terminate the merger agreement if, in the case of a breach or
inaccuracy, it is cured within 30 days after delivery of the
notice of breach or inaccuracy or, in the case of a material
adverse effect on PlanVista, it is cured within 45 days after
delivery of the notice of material adverse effect, or if ProxyMed
has materially breached the merger agreement;
- by PlanVista in respect of a superior offer; or
- by PlanVista or ProxyMed, if either party does not mail the joint
proxy statement/prospectus to its respective shareholders by
February 12, 2004, provided that each party has used all
commercially reasonable efforts to mail the proxy by such date.
A triggering event will occur with respect to PlanVista if:
- PlanVista's board of directors or any committee withholds,
withdraws, amends or modifies in a manner adverse to ProxyMed its
recommendation in favor of the adoption of the merger agreement;
109
- PlanVista fails to include in this joint proxy
statement/prospectus the recommendation of its board of directors
in favor of the adoption of the merger agreement;
- PlanVista's board of directors or any committee fails to reaffirm
its recommendation in favor of adoption of the merger agreement
within 10 business days after ProxyMed requests in writing that
this recommendation be reaffirmed;
- PlanVista's board of directors or any committee approves or
publicly recommends any acquisition proposal;
- PlanVista enters into a letter of intent or other contract
accepting an acquisition proposal;
- PlanVista shall have breached the non-solicitation provisions of
the merger agreement or the provisions of the merger agreement
relating to holding PlanVista's stockholders meeting and
recommending adoption of the merger agreement; or
- if a tender or exchange offer relating to the securities of
PlanVista is commenced by a person unaffiliated with ProxyMed,
and PlanVista does not send to its stockholders, within 10
business days after the tender or exchange offer is first
commenced, a statement disclosing that PlanVista recommends
rejection of the tender or exchange offer.
A triggering event will occur with respect to ProxyMed if:
- ProxyMed's board of directors or any committee withholds,
withdraws, amends or modifies in a manner adverse to PlanVista
its recommendation in favor of the approval of the issuance of
shares of ProxyMed common stock in the merger;
- ProxyMed fails to include in this joint proxy
statement/prospectus the recommendation of its board of directors
in favor of the approval of the issuance of shares of ProxyMed
common stock in the merger; or
- ProxyMed's board of directors fails to reaffirm its
recommendation in favor of the approval of the issuance of shares
of ProxyMed common stock in the merger within 10 business days
after PlanVista requests in writing that this recommendation be
reaffirmed.
TERMINATION FEES
PlanVista has agreed to pay ProxyMed a termination fee equal to
$2,000,000 in immediately available funds in the event that the merger agreement
is terminated:
- by ProxyMed at any time prior to approval of the merger by
PlanVista's stockholders because a triggering event has occurred
with respect to PlanVista;
- by PlanVista because of a superior offer; or
- as a result of the failure of PlanVista to obtain PlanVista
stockholder approval if prior to termination of the merger
agreement, an acquisition proposal with respect to PlanVista was
publicly disclosed and within twelve months following the
termination of the merger agreement, either an Acquisition with
respect to PlanVista was consummated, or PlanVista enters into an
agreement providing for an Acquisition which is later
consummated, whether during or after such twelve-month period.
PlanVista has agreed to immediately reimburse ProxyMed for all the
transaction expenses incurred by ProxyMed, up to a maximum of $500,000, in the
event that PlanVista obtains stockholder approval of the adoption
110
of the merger agreement, but does not obtain approval by a majority of the
outstanding shares of PlanVista common stock voting at the PlanVista
stockholders meeting and not taking into account any votes cast by holders of
the series C preferred stock, by Commonwealth Associates, L.P., or any
affiliates or officers or directors thereof, or any director or executive
officer of PlanVista, and PlanVista does not waive such condition to closing.
An acquisition is any of the following:
- a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving
PlanVista or ProxyMed, as the case may be, in which its
shareholders immediately preceding the transaction hold less than
85% of the aggregate equity interests in the surviving or
resulting entity of the transaction;
- a sale or other disposition by PlanVista or ProxyMed, as the case
may be, of its subsidiaries of assets representing in excess of
50% of the aggregate fair market value of its business
immediately prior to the sale; or
- the acquisition by any person or group, including by way of a
tender offer or an exchange offer or issuance by PlanVista or
ProxyMed, 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 capital stock of PlanVista or ProxyMed.
AMENDMENT, EXTENSION AND WAIVER OF THE MERGER AGREEMENT
The merger agreement may be amended by mutual written consent of
ProxyMed, PlanVista and Planet Acquisition Corp., subject to all applicable
laws. Any amendment proposed after obtaining the required approvals of ProxyMed
and PlanVista shareholders may not be made without further approval of these
shareholders, if required by applicable laws or the rules of any relevant stock
exchange or the Nasdaq National Market. At any time prior to the effective time
of the merger, any party to the merger agreement may extend the other party's or
parties' time for the performance of any of the obligations or other acts under
the merger agreement, except that ProxyMed may not extend for the benefit of
Planet Acquisition Corp. and vice versa, waive any inaccuracies in the other
party's or parties' representations or warranties made to such party or parties
and waive compliance by the other party's or parties' with any of the agreements
or conditions benefiting such party or parties contained in the merger
agreement.
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VOTING AGREEMENTS
The following summarizes material provisions of the voting agreements which are
attached as Annexes E and F to this joint proxy statement/prospectus and are
incorporated by reference herein. The rights and obligations of the parties to
the voting agreements are governed by the express terms and conditions of the
voting agreements and not this summary or any other information contained in
this joint proxy statement/prospectus. ProxyMed and PlanVista shareholders are
urged to read the voting agreements carefully and in their entirety.
PVC FUNDING PARTNERS VOTING AGREEMENT
PVC Funding Partners, LLC, which has the right to vote as of the
PlanVista record date a total of 29,049 shares of PlanVista common stock (less
than 1% of the outstanding shares of PlanVista common stock) and 32,195 shares
of PlanVista series C preferred stock (which have the right to cast 24,206,767
votes at the PlanVista stockholders meeting) (or approximately 96% of the
outstanding shares of PlanVista series C preferred stock), has entered into a
voting agreement with ProxyMed and Planet Acquisition Corp. agreeing to vote all
of its shares of PlanVista common stock and PlanVista series C preferred stock,
including shares of PlanVista common stock acquired after the date of the voting
agreements, as follows:
- in favor of the adoption of the merger agreement and the approval
of other actions contemplated by the merger agreement and any
actions required in furtherance thereof;
- against any action or agreement that would result in a breach in
any respect of any covenant, representation, warranty or any
other obligation or agreement of PlanVista under the merger
agreement or the voting agreement;
- against any other action or agreement that is intended, or could
reasonably be expected to, impede, interfere with, delay, or
attempt to discourage the merger.
PVC Funding Partners, LLC has also granted to ProxyMed an irrevocable
proxy to vote the shares of PlanVista common stock subject to the voting
agreements in accordance with its terms and has agreed not to exercise any
rights of appraisal or any dissenters' rights it or its affiliates may have or
could potentially have or acquire in connection with the merger. The voting
agreement and irrevocable proxy terminates upon the earlier of the termination
of the merger agreement, or the consummation of the merger.
The voting agreement prohibits the signing stockholder from selling or
disposing of any shares or options of PlanVista common stock beneficially owned
by the signing stockholder.
The voting agreement provides that the voting agreement will not, and
it was the intent of the parties that the voting agreement would not, preclude
the board of directors of PlanVista or any member of the PlanVista board of
directors from exercising their fiduciary duties as required by applicable law.
However, PVC Funding Partners, LLC is not required to vote any shares
of PlanVista common stock beneficially owned by it if prior to the adoption of
the merger agreement by the PlanVista stockholders:
- the PlanVista board of directors has made a change in
recommendation;
- PlanVista receives a superior offer that is not withdrawn;
- PlanVista provides written notice to ProxyMed no later than three
business days after receiving the superior offer, advising that
PlanVista has received a superior offer and that it intends (or
may intend) to terminate the merger agreement or change its
recommendation and the manner and timing in which it intends (or
may intend) to do so, specifying all the material terms and
conditions of, and identifying the third party making, the
superior offer;
112
- ProxyMed does not, within three business days after receiving the
written notice, make an offer that PlanVista's board of directors
determines in its good faith judgment (after consulting with a
financial advisor of national standing) to be at least as
favorable to stockholders of PlanVista as the superior offer; and
- PlanVista has not violated the restrictions in the merger
agreement regarding other negotiations or changing its board
recommendation in favor of the merger proposal.
The voting agreement will be governed by and construed in accordance
with the laws of the State of Delaware, without regard to principles of
conflicts of law thereof.
GENERAL ATLANTIC PARTNERS VOTING AGREEMENT
Each of General Atlantic Partners 74, L.P., GAP Coinvestment Partners
II, L.P., GapStar, LLC and GAPCO GmbH & Co. KG, referred to as the General
Atlantic Partners shareholders, which collectively have the right to vote as of
the ProxyMed record date a total of 1,569,366 shares of ProxyMed common stock
(or approximately 23.1% of the outstanding shares of ProxyMed common stock), has
entered into a voting agreement with PlanVista agreeing to vote all of its
shares of ProxyMed common stock, including shares of ProxyMed common stock
acquired after the date of the voting agreements, as follows:
- in favor of the adoption of the merger agreement and the approval
of other actions contemplated by the merger agreement and any
actions required in furtherance thereof;
- in favor of the approval of the issuance of shares of ProxyMed
common stock in connection with merger pursuant to the terms of
the merger agreement;
- in favor of the amendment to ProxyMed's articles of incorporation
to increase the total number of authorized shares of ProxyMed
common stock from 13,333,333 1/3 shares to 30 million shares;
- against any action or agreement that would result in a breach in
any respect of any covenant, representation, warranty or any
other obligation or agreement of ProxyMed or Planet Acquisition
Corp. under the merger agreement or the voting agreement; and
- against any other action or agreement that is intended, or could
reasonably be expected to, impede, interfere with, delay, or
attempt to discourage the merger.
Each of these shareholders has also granted to PlanVista an irrevocable
proxy to vote the shares of ProxyMed common stock subject to the voting
agreements in accordance with its terms. The voting agreement and irrevocable
proxy terminates upon the earlier of the termination of the merger agreement, or
the consummation of the merger.
The voting agreement prohibits the signing shareholders from selling or
disposing of any shares or options of ProxyMed common stock owned directly or
indirectly by the signing shareholders.
The voting agreement provides that the voting agreement will not, and
it is the intent of the parties that the voting agreement will not, preclude the
board of directors of ProxyMed or any member thereof from exercising their
fiduciary duties as required by applicable law.
However, the General Atlantic Partners shareholders are not required to
vote any shares of ProxyMed common stock beneficially owned by it if prior to
the approval of (i) the issuance of ProxyMed common stock in connection with the
merger, (ii) the issuance of ProxyMed common stock in connection with the
private equity offering, and (iii) the amendment to ProxyMed's articles of
incorporation by the ProxyMed shareholders:
- the ProxyMed board of directors has made a change in
recommendation;
113
The voting agreement will be governed by and construed in accordance
with the laws of the State of Delaware, without regard to principles of
conflicts of law thereof.
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EMPLOYMENT ARRANGEMENTS
AGREEMENTS WITH EXECUTIVES
In connection with the merger agreement negotiations, ProxyMed entered
into employment arrangements with each of Phillip S. Dingle and Jeffrey L.
Markle, and PlanVista entered into employment arrangements with each of James T.
Kearns, Robert A. Martin, David C. Reilly, and Richard L. Lungen. Each
employment arrangement provides the executive's position, reporting structure
and compensation, including term and annual salary. The annual salary amount is
set forth in the table below:
ANNUAL
NAME AND NEW TITLE SALARY
------------------ ---------
Phillip S. Dingle - CEO of PlanVista and EVP of ProxyMed $200,000
Jeffrey L. Markle - President of PlanVista and SVP of ProxyMed $197,000
James T. Kearns - SVP - Operations of PlanVista $185,000
David C. Reilly - EVP - Operations and Technology at PlanVista $175,000
Robert A. Martin - SVP - PlanServ at PlanVista $168,000
Richard L. Lungen - VP - New Business Solutions at PlanVista $145,000
Only Phillip S. Dingle and Jeffrey L. Markle will be employees of both
ProxyMed and PlanVista. Under these employment arrangements, these executives
are granted the right to participate on the same terms as other executive vice
presidents of ProxyMed or PlanVista, as the case may be, in all ProxyMed or
PlanVista sponsored benefit plans, such as health, dental, life, and short term
disability and long term disability insurances. The executives are entitled to
and may earn such bonuses as may be awarded from time to time by the board of
directors of ProxyMed or PlanVista pursuant to any bonus or commission plan
implemented by ProxyMed or PlanVista, as the case may be, and to participate in
any stock option plans or other bonus plans which ProxyMed or PlanVista may now
have, or develop in the future. Each executive must enter into a definitive
employment agreement with ProxyMed or PlanVista, as the case may be, prior to
the effective date of the merger on terms substantially similar to the terms
described herein.
OPTION GRANTS TO PLANVISTA OFFICERS. ProxyMed has agreed to grant to
these executives options to purchase an aggregate of 161,843 shares of ProxyMed
common stock. These options vest over a three-year period commencing on the
grant date, such that two-thirds of each option will vest on the first
anniversary of the grant date, and the remaining one-third of each option will
vest on the third anniversary of the grant date.
NAME AND NEW TITLE OPTION AWARD
------------------ ------------
Phillip S. Dingle - CEO of PlanVista and EVP of ProxyMed 68,642
Jeffrey L. Markle - President of PlanVista and SVP of ProxyMed 54,850
James T. Kearns - SVP - Operations of PlanVista 9,000
David C. Reilly - EVP - Operations and Technology at PlanVista 12,613
Robert A. Martin - SVP - PlanServ at PlanVista 14,199
Richard L. Lungen - VP - New Business Solutions at PlanVista 2,539
INDEMNIFICATION. The merger agreement provides that ProxyMed will cause
the surviving company:
- from and after the effective time of the merger, to fulfill and
honor, subject to applicable law, PlanVista's obligations under
any indemnification agreements with its directors and officers
that exist at the effective time of the merger and any
indemnification provisions under PlanVista's certificate of
incorporation and bylaws that were in effect on the date of the
merger agreement; and
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- for a period of six years after the effective time of the merger,
to maintain in effect a "tail policy" based on the current
policies of directors' and officers' liability insurance
maintained by PlanVista with respect to claims arising from or
related to facts or events which occurred at or before the
effective time.
In addition, ProxyMed has agreed to maintain in the certificate of
incorporation and bylaws of the surviving corporation provisions relating to
exculpation and indemnification that are at least as favorable to the
indemnified directors and officers as those contained in PlanVista's
organizational documents that were in effect on the date of the merger
agreement, subject to applicable law.
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DIRECTORS AND MANAGEMENT OF PROXYMED FOLLOWING THE MERGER
At the time the merger is completed, the board of directors
and management of ProxyMed will consist of the following directors and executive
officers of ProxyMed:
Year First Became
Name Positions Age a Director
---- --------- --- -----------------
William L. Bennett Director 54 2004
Edwin M. Cooperman (1) Director 59 2000
Phillip S. Dingle Executive Vice President and Chief 42 --
Executive Officer of PlanVista
Corporation
Michael S. Falk (2) Director 41 2000
John Paul Guinan Executive Vice President - Prescription 42 --
Services
Nancy J. Ham President and Chief Operating Officer 42 --
Lonnie W. Hardin Senior Vice President - Payer Services 48 --
A. Thomas Hardy Senior Vice President - Laboratory 49 --
Services and President - Key
Communications Service, Inc.
Thomas E. Hodapp (2) Director 43 2000
Michael K. Hoover Chairman of the Board and Chief 47 2000
Executive Officer
Braden R. Kelly (2) Director 32 2002
Jeffrey L. Markle Senior Vice President and President of 54 --
PlanVista Corporation
Kevin M. McNamara (1) Director 47 2002
Rafael G. Rodriguez Vice President, Senior Corporate Counsel 34 --
and Secretary
Judson E. Schmid Executive Vice President, Chief 41 --
Financial Officer and Treasurer
Eugene R. Terry (1) Director 64 1995
Timothy J. Tolan Executive Vice President - Business 44 --
Development
Thomas C. Wohlford Senior Vice President - Submitter 50 --
Services
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----------------------
(1) Member of the Audit Committee, the Chairman of which is Mr. McNamara.
(2) Member of the Compensation Committee, the Chairman of which is Mr. Falk.
WILLIAM L. BENNETT has been Vice Chairman of the Board of PlanVista
since January 1998. Mr. Bennett served as the Chairman of the Board from
December 1994 to December 1997 and has been a director since August 1994. Since
February 2000, Mr. Bennett has been a partner and is Director of Global
Recruiting and Managing Director of Monitor Company Group, L.P., a strategy
consulting firm and merchant bank. From May 1991 to May 2001, he was a director
of Allegheny Energy, Inc., an electric utility holding company. Until March
1995, Mr. Bennett served as Chairman and Chief Executive officer of Noel Group,
Inc., a publicly traded company that held controlling interests in small to
medium-sized operating companies. Previously, Mr. Bennett was Co-Chairman and
Chief Executive officer of Noel Group, Inc. from November 1991 to July 1994. Mr.
Bennett is a director of Sylvan, Inc., a publicly traded company that produces
mushroom spawn and fresh mushrooms.
EDWIN M. COOPERMAN has served as a director of ProxyMed since July
2000. He is a principal of T.C. Solutions, a privately-held investment and
financial services consulting firm. Previously, Mr. Cooperman was Chairman of
the Travelers Bank Group and Executive Vice President, Travelers Group, where he
was responsible for strategic marketing, the integration of Travelers brands and
products, joint and cross marketing efforts and corporate identity strategies,
as well as expanding the Travelers Bank Group's credit card portfolios. After
joining Travelers in 1991, Mr. Cooperman became Chairman and CEO of Primerica
Financial Services Group, which comprises Primerica Financial Services, Benefit
Life Insurance Company and Primerica Financial Services Canada. Prior to this,
Mr. Cooperman served at American Express where he became Chairman and Co-Chief
Executive of Travel Related Services, North America. Mr. Cooperman is also a
director of Comdial Corporation, US Wireless Data, Inc. and Grannum Value Mutual
Fund.
PHILLIP S. DINGLE has been a director, Chairman of the Board, and Chief
Executive officer of PlanVista since May 2001, and was President and Chief
Executive officer from October 2000 to May 2001. Mr. Dingle served as President
and Chief Operating officer of the Company from June 2000 to September 2000, as
Executive Vice President and Chief Financial Officer from January 1999 to May
2000, and as Senior Vice President and Chief Counsel from August 1996 to
December 1998. Prior to August 1996, Mr. Dingle was a partner with the law firm
of Hill, Ward & Henderson, P.A. in Tampa, Florida.
MICHAEL S. FALK has served as a director of ProxyMed since July 2000.
Mr. Falk co-founded Commonwealth Associates, L.P. in 1988, and in 1995 he became
Chairman and Chief Executive Officer. Commonwealth Associates, L.P. is a
merchant and investment bank that provides financing for small to medium size
publicly traded growth businesses. He is also a director of Comdial Corporation
and Managing Partner of Comvest Venture Partners, a merchant banking investment
partnership. Mr. Falk is a graduate of the Stanford University Executive Program
for Smaller Companies, and holds a Bachelor's degree with honors in Economics
from Queens College.
JOHN PAUL GUINAN joined ProxyMed in April 1993 and currently serves as
Executive Vice President and Chief Technology Officer. Mr. Guinan served as
President and a director of ProxyMed between June 1995 and December 1999. He was
also its Chief Operating Officer from August 1996 to January 1998. He was an
Executive Vice President of ProxyMed from July 1993 until June 1995. From March
1993 to June 1993, Mr. Guinan was the Chief Executive Officer and co-founder of
ProxyScript, Inc., which ProxyMed acquired in June 1993. From 1989 until April
1993, Mr. Guinan founded and developed two companies: The Desktop Professionals,
Inc., a company which supplied automation systems to South Florida professional
offices; and POSitive Thinking, Inc., a software development company which
specialized in point-of-sale systems. He received both a BS in Computer Science
and his Juris Doctor degree from the University of Miami.
NANCY J. HAM joined ProxyMed in October 2000 and currently serves as
President and Chief Operating Officer. Prior to joining ProxyMed in October
2000, Ms. Ham served as General Manager, Institutional and Connectivity Services
of Healtheon/WebMD Corporation from June 1999 to March 2000. She originally
joined Healtheon in May 1998 with its acquisition of ActaMed Corporation, where
she had served with Mr. Michael K. Hoover, ProxyMed's Chairman and CEO, as Chief
Financial Officer and Senior Vice President, Business Development. Upon the
merger with WebMD Corporation, she became General Manager. Before joining
ActaMed
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in 1993, Ms. Ham was a Director, Corporate Finance at Equifax, Inc. from
1992-1993, and prior to that spent five years with GE Capital's Corporate
Finance Group. Ms. Ham has a B.A. from Duke University and a Masters in
International Business Studies from the University of South Carolina.
LONNIE W. HARDIN joined ProxyMed in November 1997 in connection with
its acquisition of US Health Data Interchange, Inc., and since October 2000 has
been serving as Senior Vice President of Payer Services and from November 1997
to October 2000 as the Senior Vice President of Field Claims Operations. Prior
to joining ProxyMed, Mr. Hardin was employed by US Health Data Interchange, Inc.
from 1991 through 1997, during which time he held the positions of Vice
President - Sales/Marketing and General Manager.
A. THOMAS HARDY joined ProxyMed in December 1998 in conjunction with
ProxyMed's acquisition of Key Communications Service, Inc. and since January
2000, has served as President and Chief Operating Officer of Key Communications.
From October 2000, Mr. Hardy has also served as Senior Vice President of
Laboratory Services of ProxyMed. Mr. Hardy joined Key Communications in 1995
where he served as Key Communications' Executive Vice President and Chief
Financial Officer. Mr. Hardy is a certified public accountant and has a BBA in
Business from Georgia College & State University and an MBA degree from the
University of Arkansas.
THOMAS E. HODAPP has served as a director of ProxyMed since July 2000.
In 1999, Mr. Hodapp founded Access Capital Management, a private banking and
management firm dedicated to providing financial and strategic advisory services
to select, early stage private healthcare and information technology companies.
From 1992 to 1998, Mr. Hodapp was a Managing Director for Robertson Stephens &
Company, LLC, a leading international investment banking firm, overseeing the
firm's Healthcare Managed Care Research Group, with a focus on the managed care,
practice management and healthcare information services industries. From 1988 to
1992, he was with Montgomery Medical Ventures, a venture firm focused on the
biotechnology, medical device and healthcare service fields. MMV I and II
actively managed long-term investments in over 40 early stage companies, many of
which the firm was involved in co-founding. Prior to that, Mr. Hodapp researched
the healthcare industry as an industry analyst with Goldman, Sachs & Company,
S.G. Warburg Securities and Volpe & Covington. Additionally, Mr. Hodapp has been
published in a number of major financial and healthcare industry journals and
publications, was a two-time selection to the Wall Street Journal Research
Analyst All-Star Team, and is a frequent speaker at national healthcare
investment and strategy forums.
MICHAEL K. HOOVER was appointed Chairman of the Board and Chief
Executive Officer of ProxyMed in July 2000. He served as President and Director
of Healtheon/WebMD Corporation after Healtheon acquired ActaMed Corporation, an
eHealth information systems and transaction company similar to ProxyMed in May
1998. Mr. Hoover co-founded ActaMed in May 1992 and served as its President from
its inception to May 1998, and as its President and Chief Executive Officer from
December 1995 to May 1998. From 1989 to 1992, Mr. Hoover served as the Executive
Director of Financial Services of the MicroBilt Division of First Financial
Management Corporation. Prior to that, he founded FormMaker Software
Corporation, a producer of electronic forms automation systems, and served as
its Chief Executive Officer from 1982 to 1988.
BRADEN R. KELLY was appointed director of ProxyMed in April 2002. Mr.
Kelly is a Managing Member of General Atlantic Partners, LLC, a private equity
investment firm that invests in information, communications and media companies
on a global basis, where he has been employed in various capacities since 1995.
Prior to joining General Atlantic, Mr. Kelly was a member of the Mergers,
Acquisitions, and Restructurings Department at Morgan Stanley & Co. He also
serves as a director of Eclipsys Corporation, Tickets.com, HEALTHvision, Inc.
and Schaller Anderson, Inc. Mr. Kelly received his B.A. in Finance and Business
Economics from the University of Notre Dame.
JEFFREY L. MARKLE has been the President and Chief Operating officer of
PlanVista since May 2001 and served as a director from July 2001 to April 2002.
From July 1999 to May 2001, Mr. Markle was the Executive Vice President--Medical
Cost Management and from June 1998 to June 1999, Mr. Markle was the Senior Vice
President--Medical Loss Management. From 1996 to 1998, Mr. Markle was Vice
President of the US Group Operations for Swiss Re Life & Health, a reinsurance
company in Toronto. From 1994 to 1996, he was Vice President and General Manager
of the Canadian Operations of Osten Kimberly Quality Care, a home healthcare
company. From 1991 to 1993, he was Chief Operating Officer of Medisys Health
Group, Inc., a preventive
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healthcare company in Canada, and from 1989 to 1991 he was President and Chief
Executive Officer of Oaurentian Health Services, an executive and occupational
health services company.
KEVIN M. MCNAMARA was appointed as a Director of ProxyMed in September
2002. He has served as a principal with Voyent Partners, a private equity firm,
since August 2001. Mr. McNamara served as the Chief Executive Officer for
Private Business, Inc. from 1999 until 2001. From 1996 to 1999, he served as
Chief Financial Officer for ENVOY Corporation, and was President of Merchant
Services Division of National Bancard Corporation (NaBANCO) from 1994 to 1995.
Mr. McNamara also serves as a director of Enhancement Services Corporation,
HEALTHvision, Inc. and Digiscripts, Inc. Mr. McNamara received his undergraduate
degree at Virginia Commonwealth University and his Masters of Business
Administration at the University of Richmond, Virginia. Mr. McNamara is a
certified public accountant in Virginia.
RAFAEL G. RODRIGUEZ re-joined ProxyMed in January 2002 and currently
serves as Vice President, Senior Corporate Counsel and Secretary. Mr. Rodriguez
was Associate Counsel of ProxyMed from June 1997 to February 1999. Between
February 1999 and April 2001, he served as Counsel to Milgo Solutions, LLC (now
NextiraOne), a Platinum Equity portfolio company. Prior to first joining
ProxyMed in 1997, Mr. Rodriguez was Associate Counsel for GMIS, a McKesson HBOC,
Inc. company. Mr. Rodriguez graduated from the University of Pennsylvania School
of Law in 1994, and he is admitted to practice law in the states of
Pennsylvania, New Jersey and Florida.
JUDSON E. SCHMID currently serves as Executive Vice President, Chief
Financial Officer and Treasurer of ProxyMed. From April 1996 to October 2000, he
was ProxyMed's Vice President - Corporate Finance and Corporate Controller. From
August 1994 to September 1995, Mr. Schmid was the Corporate Controller for
CardioLife Corporation, a privately-held medical provider of transtelephonic
cardiac monitoring services. From September 1990 to August 1994, he was the
Corporate Controller of Sports-Tech International, Inc., a publicly-held
developer and supplier of computer controlled video editing systems for the
sports industry. From September 1985 to September 1990, he worked as an Audit
Supervisor for two public accounting firms, including KPMG. Mr. Schmid received
his undergraduate degree at the University of Florida and his Masters of
Accounting at Florida Atlantic University. Mr. Schmid is a certified public
accountant in Florida (inactive status elected).
EUGENE R. TERRY has been a director of ProxyMed since August 1995. Mr.
Terry is a pharmacist and is a principal of T.C. Solutions, a privately-held
investment and financial services consulting firm. Until 2001, Mr. Terry was a
director on the board of In-Home Health, a home health care company acquired by
Manor Care, Inc. In 1971, Mr. Terry founded Home Nutritional Support, Inc., one
of the first companies established in the home infusion industry. In 1984, Home
Nutritional Support, Inc. was sold to Healthdyne, Inc. Home Nutritional Support,
Inc. was later sold to the W.R. Grace Group. From 1975 to 1984, Mr. Terry was
also founder and Chief Executive Officer of Paramedical Specialties, Inc., a
respiratory and durable medical equipment company, which was also sold to
Healthdyne, Inc. Since April 2002, Mr. Terry also serves as chairman of Gender
Sciences, Inc. a Nasdaq nutraceutical company headquartered in New Jersey.
TIMOTHY J. TOLAN was appointed Senior Vice President of Business
Development in January 2001. Before joining ProxyMed, Mr. Tolan was Vice
President of Sales for ePhysician, Inc from May 2000 until his appointment at
ProxyMed. He was Vice President of Sales - Lab/PBM for Healtheon/WebMD
Corporation from August 1998 through May 2000. Prior to Healtheon/WebMD, Mr.
Tolan also held the position of Vice President of Sales - Eastern Region for
CITATION Computer Systems, a laboratory information system company. Prior to
CITATION, Mr. Tolan spent twelve years in the physician practice management
market.
THOMAS C. WOHLFORD joined ProxyMed as Senior Vice President of
Submitter Services as part of the MedUnite acquisition. Mr. Wohlford was Vice
President of Operations at MedUnite since January 2002. Prior to joining
MedUnite, Mr. Wohlford was Vice President of Strategic Partnering with Helus,
Inc., a Chicago based e-health company. From 1993 to 1999, Mr. Wohlford held
executive positions with CNA Health Partners (formerly CoreSourceBurgett &
Dietrich) and CNA. From 1989 to 1993, Mr. Wohlford was responsible for
healthcare cost containment for Georgia-Pacific Corporation. Prior to joining
G-P, he led all network development for Travelers Health Network as Vice
President of Network Development from 1986 to 1989.
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DESCRIPTION OF PROXYMED
GENERAL
ProxyMed incorporated in Florida in 1989, is an electronic healthcare
transaction processing services company providing connectivity services and
related value-add products to physician offices, payers, medical laboratories,
pharmacies and other healthcare institutions. Unlike ProxyMed's competitors,
ProxyMed maintains an open electronic network for electronic transactions with
no equity ownership in businesses engaged in the front-end (i.e., physician
practice management software system vendors and other physician desk top
vendors) or in the back-end (i.e., payers, laboratories and pharmacies).
ProxyMed's business strategy is to leverage ProxyMed's leadership position in
connectivity services in order to establish ProxyMed as the premier provider of
automated financial, clinical and administrative transaction services primarily
between small physician offices (offices with one to nine physicians) and
payers, clinical laboratories and pharmacies. With ProxyMed's neutral position,
ProxyMed believes that it can better attract both front-end and back-end
partners who may be more comfortable doing business with a non-competitive
partner.
ProxyMed's electronic transaction processing services support a broad
range of financial, clinical, and administrative transactions. To facilitate
these services, ProxyMed operates Phoenix(TM), ProxyMed's secure, proprietary
national electronic information platform, which provides physicians and other
healthcare providers with direct connectivity to one of the industry's largest
list of payers, the industry's largest list of chain and independent pharmacies
and the largest list of clinical laboratories. ProxyMed's products and services
are provided from ProxyMed's operational facilities located in Fort Lauderdale,
Florida; New Albany, Indiana; Santa Ana, California; Norcross, Georgia; and
Sioux Falls, South Dakota. ProxyMed also operates its clinical computer network
and portions of its financial and real time production computer networks from a
secure, third-party co-location site in Atlanta, Georgia.
According to industry analysts, the healthcare marketplace was over a
$1.4 trillion industry in 2001, with 600,000 physicians controlling over 80% of
the spending. The healthcare industry is one of the most transaction oriented
industries in the country and generates over 30 billion financial and clinical
transactions each year, including new prescription orders, refill
authorizations, laboratory orders and results, medical insurance claims,
insurance eligibility inquiries, encounter notifications, and referral requests
and authorizations. Even with healthcare information technology spending at $22
billion per year and growing at rates of 10% to 20% annually, ProxyMed believes
that the healthcare industry's use of technology lags behind many other
transaction-intensive industries, with the vast majority of these healthcare
transactions being performed manually and on paper.
For physician offices, payers, laboratories and pharmacies to meet the
financial, clinical and administrative demands of an evolving managed care
system, ProxyMed believes that participants in the healthcare system will need
to process many of these types of transactions electronically. In fact, under
new legislation known as HIPAA (see Healthcare and Privacy Related Legislation
below) eight major transaction types, including claims, eligibility inquiries
and claims status inquiries, are generally required to be conducted
electronically. Because of the number of participants, the challenges of meeting
HIPAA requirements and the complexity of establishing reliable and secure
communication networks, the healthcare industry needs companies such as ProxyMed
with its secure, proprietary systems to facilitate the processing of these
transactions, its extensive connectivity to back-end healthcare institutions,
and its ability to market to the underserved niche of small physician office
practices.
Acquisition of MedUnite
On December 31, 2002, ProxyMed acquired all of the outstanding stock of
MedUnite, Inc., referred to as MedUnite, for $10.0 million in cash, $13.4
million in 4% convertible promissory notes, and $8,321,000 in transaction and
exit related costs. Interest on the convertible notes is payable in cash on a
quarterly basis. The convertible promissory notes are payable in full on
December 31, 2008 and are convertible into an aggregate of 731,322 shares of
ProxyMed's common stock if the founders of MedUnite achieve certain
revenue-based triggers over the next three and one-half year period. The shares
of ProxyMed's common stock issuable upon conversion of the convertible notes
will be registered by ProxyMed promptly after a shareholder achieves a
conversion trigger
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event. If and when these notes become convertible, ProxyMed will record a
beneficial conversion charge in operations to the extent that the fair market
value of the common stock is in excess of the conversion price.
MedUnite was founded in June 2000 by seven of the nation's leading
health insurers -- Aetna, Anthem, CIGNA, Health Net, Inc., Oxford Health Plans,
PacifiCare Health Systems, and Wellpoint Health Network -- and its technology
includes one of the industry's largest Internet-based real time transaction
networks, in addition to electronic data interchange, referred to as EDI, based
processes. Exiting 2002, MedUnite's legacy claims platform, which was acquired
from NDCHealth Corporation in 2001, was annually processing over 85 million
transactions with approximately 4.7 million real-time transactions processed by
MedUnite's new state-of-the-art platform. The acquisition of MedUnite added an
additional 30,000 physicians to ProxyMed's network and provides unique
opportunities for cross-selling products and services to ProxyMed's existing and
new customer base.
ProxyMed's acquisition of MedUnite resulted in an organization serving
140,000 physicians and other healthcare providers and processing over 200
million healthcare transactions processed annually, making ProxyMed the nation's
second largest physician-based transaction processing company, second only to
WebMD Corporation. In addition, in conjunction with the acquisition of MedUnite,
ProxyMed formed a strategic relationship with NDCHealth Corporation, Med Unite's
8th founder, for processing claims and real-time transactions and now have
potential access to over 100,000 physicians who utilize NDCHealth Corporation's
various practice management systems.
Acquisition of MDIP
In August 2002, ProxyMed acquired substantially all of the assets of
MDIP, Inc., an entity which does business under the name Medical Data Insurance
Processing, a privately-owned company located in Sioux Falls, South Dakota, for
$2,400,000 in cash and acquisition-related costs of $9,000. ProxyMed's
acquisition of the assets of MDIP, Inc. provided ProxyMed with institutional and
dental claims processing capabilities. Like ProxyMed, MDIP, Inc. was an
Electronic Healthcare Network Accreditation Commission accredited clearinghouse.
Acquisition of KenCom
In May 2002, ProxyMed acquired all of the capital stock of KenCom
Communications & Services, Inc., a privately-owned provider of laboratory
communication solutions, for $3,237,000 in cash ($3,275,000 original cash
portion of purchase price less adjustment of $38,000 upon settlement of cash
holdback), 30,034 shares of unregistered ProxyMed common stock (valued at
$600,000), and acquisitions-related costs of $52,000. The shares of common stock
were held in escrow by ProxyMed against any unknown liabilities and were
released. As a result of the acquisition, ProxyMed strengthened ProxyMed's
presence in the Northeast United States, enhanced ProxyMed's ability to provide
multiple offerings to the laboratory industry including penetration into the
anatomical pathology laboratory market, and reaffirmed ProxyMed's position as
the nationwide leader of laboratory communication products and services. In
March 2003, KenCom Communications & Services, Inc. merged into KeyCom.
Private Placement
In April 2002, ProxyMed sold 1,569,366 shares of unregistered common
stock at $15.93 per share in a private placement to four entities affiliated
with General Atlantic Partners, LLC, a private equity investment fund resulting
in net proceeds to ProxyMed of $24.9 million. No placement agent was used in
this transaction. In addition, ProxyMed also agreed to issue a two-year warrant
for the purchase of 549,279 shares of common stock at $15.93 per share. ProxyMed
has agreed to grant General Atlantic Partners, LLC certain demand and "piggy
back" registration rights starting one year from closing. Additionally, in
connection with the transaction, ProxyMed's board of directors appointed a
managing member of General Atlantic Partners, LLC to fill a vacancy on
ProxyMed's board.
* * *
ProxyMed's corporate offices are located at 2555 Davie Road, Suite 110,
Fort Lauderdale, Florida 33317-7424, and ProxyMed's telephone number is (954)
473-1001.
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As used in this report, unless the context requires otherwise,
"ProxyMed" or "ProxyMed's" means ProxyMed and its consolidated subsidiaries.
Italicized terms in this document indicate trademarks or other protected
intellectual property that ProxyMed owns or licenses.
OVERVIEW OF PROXYMED. WHERE HEALTHCARE CONNECTS(TM)
ProxyMed's mission statement is as follows: "ProxyMed solves the
business problems of healthcare providers offices every day by automating their
financial, administrative and clinical transactions with their healthcare
institution partners. ProxyMed exceeds customer expectations through its
expertise, proven methodologies and dedication to service excellence."
ProxyMed's focus is connecting small physician offices with their
contracted financial and clinical partners so that they can conduct transactions
electronically. ProxyMed is organized into two business segments: Transaction
Services and Laboratory Communication Solutions. Transaction Services includes
transaction and value-added services principally between physician offices and
insurance companies (Payer Services) and physician offices and
pharmacies/pharmacy benefit managers (Prescription Services); and Laboratory
Communication Solutions includes the sale, lease and service of communication
devices principally to laboratories and the contract manufacturing of printed
circuit boards and other value-add services (Laboratory Services).
Since the beginning of 2001, ProxyMed's focus has been to double the
number of physicians and other healthcare providers ProxyMed serves as well as
to increase the utilization of ProxyMed's transaction-based services amongst
them over the following five years. ProxyMed's success is largely dependent upon
ProxyMed's ability to cross-sell ProxyMed's services across ProxyMed's provider
base; to offer new transactions and services as they become available; and to
achieve economies of scale in ProxyMed's operations resulting from the
consolidation of ProxyMed's operation centers, including production networks,
from ProxyMed's various acquisitions.
ProxyMed believes it is well positioned today in each of ProxyMed's
business units. With ProxyMed's recently completed acquisition of MedUnite,
ProxyMed believes it is the second largest medical claims clearinghouse for
physician offices, the largest provider of intelligent laboratory results
reporting devices, and the largest provider of retail pharmacy-to-physician
connectivity. In 2002, ProxyMed processed approximately 114.2 million electronic
transactions among physician offices, payers, laboratories and pharmacies.
ProxyMed leverages the connectivity of ProxyMed's back-end transaction network,
Phoenix(TM), and continues to add partners by developing new value-added
products and services, by adding additional payer transaction types such as
improved eligibility and claim status reports, and by expanding ProxyMed's
Internet-based transaction offerings such as claims, lab orders, lab results
reporting and prescription refills through ProxyMed's Internet website,
ProxyMed.net. ProxyMed is an attractive, neutral partner to front-end electronic
healthcare companies who are focused on physician office services, as ProxyMed
remains the only national and independent transaction center that does not
compete with them for the physician's desktop and that can connect their
physician offices on the back-end to carry on electronic transactions between
them and their payers, laboratories and pharmacies. Financial information
relating to ProxyMed's segments, including revenue, segment operating margin and
assets attributable to each segment for each of the fiscal years ending 2000,
2001 and 2002 is presented in Note 6 of the Notes to Consolidated Financial
Statements on page FS-19.
ProxyMed's business is driven by the healthcare community's need to process
information more efficiently.
With more than 30 billion financial and clinical transactions being
generated each year, the major driver of ProxyMed's business is the increasing
number of physicians who wish to adopt secure electronic solutions that improve
the quality of their patient care while reducing costs and administration time.
ProxyMed believes that it is just a matter of time before the majority of
physicians, payers, laboratories and pharmacies embrace the electronic
transmission and processing of virtually all of a patient's clinical and
financial transactions. ProxyMed's efforts concentrate on the innovative design
of ProxyMed's products and services that make these electronic transactions easy
to use, fast, reliable and secure. Phoenix(TM), ProxyMed's secure, proprietary
national healthcare information network, is the key enabler that makes this
possible. ProxyMed is a leader in providing these back-end connections
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and offers a host of transaction services to smaller physician offices which
ProxyMed believes reduce costs by increasing efficiency, reducing payment cycle
time, and enabling physicians to make more informed decisions at the point of
care.
Connectivity to institutions and to physicians are key strengths
ProxyMed's advantage lies in two critical areas. First, ProxyMed offers
the industry's broadest range of financial, clinical and administrative
connectivity available from a single company. ProxyMed's existing connectivity
to payers positions ProxyMed as the second largest medical claims clearinghouse
in the industry with 94% of ProxyMed's annual transaction volume sent directly
to the designated payer rather than being routed through other transaction
centers. In addition, ProxyMed is the largest provider of intelligent laboratory
results reporting devices and the largest provider of retail pharmacy
connectivity. ProxyMed's electronic transaction processing services support a
broad range of financial transactions (such as claims, patient statements,
claims status reports, eligibility verification, explanations of benefits and
electronic remittance advices); clinical transactions (such as laboratory
results, new prescription orders and prescription refills); and administrative
transactions (such as referrals and pre-certifications). These connections allow
information to reliably move back and forth from the physician's office to the
appropriate healthcare institution (payer, laboratory and pharmacy) facilitating
diagnosis, treatment and payment.
ProxyMed's second advantage is ProxyMed's extensive physician
relationships. Following ProxyMed's acquisition of MedUnite, ProxyMed has almost
140,000 physicians directly or indirectly using at least one of ProxyMed's
existing solutions. To reach these direct and partnered physicians, ProxyMed has
licensing and connectivity agreements with many national and regional companies,
such as practice management system vendors, billing services, and electronic
healthcare companies, and with physician offices directly. These relationships
offer ProxyMed an opportunity to cross-sell ProxyMed's products and services to
ProxyMed's existing physician office customer base.
ProxyMed has built a comprehensive back-end model which would be difficult and
time-consuming to replicate
ProxyMed was an early entrant into the healthcare electronic
transaction industry, having developed, as a result of ProxyMed's own efforts
and through acquisitions, ProxyMed's back-end connectivity for both financial
and clinical transactions. ProxyMed believes that the development and
maintenance of ProxyMed's connections from both a technical and relationship
perspective were costly, complex and time-consuming, and represent a barrier to
entry for would-be competitors. Having accomplished much of this task, there is
an opportunity for ProxyMed to leverage ProxyMed's existing connectivity and
existing relationships, especially since ProxyMed believes it is the only
connectivity company that is, in fact, processing new prescriptions, refill
prescriptions, laboratory test results reports and financial transactions over a
single network.
CURRENT PRODUCTS AND SERVICES
ProxyMed offers a variety of financial and clinical electronic
processing services through ProxyMed's suite of Windows(R)-based(1) products,
through ProxyMed's Internet portal, ProxyMed.net and through various direct
network connection programs. Each of these entry points connects physician
offices to ProxyMed's network and then routes transactions to their contracted
payer, laboratory and pharmacy partners.
Claims submission and reporting, insurance eligibility verification,
claims status inquiries, referral management, laboratory test results reporting
and prescription refills are all available today through ProxyMed.net. ProxyMed
continues to expand ProxyMed's offerings through ProxyMed.net to include new
financial and clinical transactions such as claims response management,
electronic remittance advices, encounters and new prescriptions. ProxyMed's
acquisition of MedUnite has brought ProxyMed enhanced capabilities for several
of these transactions. All of ProxyMed's existing web-based applications can be
private-labeled and are being marketed through ProxyMed's channel partners to
increase distribution opportunities.
--------
(1) Windows is a registered trademark of Microsoft Corporation.
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Payer Services
In ProxyMed's Payer Services business unit, ProxyMed offers several
Windows-based products, including claims submission through ProxyMed's
ProxyClaim software product and claims tracking through ProxyMed's ProxyTracker
product. ProxyMed also offer Statlink, MedUnite's Windows-based desktop
application that can be used to submit claims, eligibility and claims status.
Other non-Internet services include a point-of-service terminal that allows for
a low cost, stand-alone solution for electronic eligibility verification,
patient statement processing, paper claims printing and Explanation of Benefits
scanning.
With regard to Internet services, ProxyMed developed and has been
operating ProxyMed's provider transaction services web portal ProxyMed.com for
over three years. With ProxyMed's acquisition of MedUnite and its MedUnite.net
web portal, ProxyMed is now operating two provider web portals. Currently
available web-based transactions include claims submission and reporting,
eligibility verification, claims status inquiries, referral management and
pre-certifications.
Certain areas of ProxyMed's operations that have duplicate offerings
due to ProxyMed's MedUnite acquisition. ProxyMed has a plan in progress to
integrate the two provider portals into one platform, ProxyMed.net. The project
to consolidate the portals is based on integrating the ProxyMed.net individual
application services with the ProxyMed.net menu system, user access management,
enrollment and other infrastructure components. The user interface and other
business related functionality of the MedUnite application services will not
significantly change but will just be accessed through ProxyMed.net. The
combined portal was launched in July 2003, and the majority of transactions and
customers have been migrated from ProxyMed.com and MedUnite.net to the new
portal.
In addition, MedUnite had been offering, and ProxyMed will continue to
offer, to software developers and large customers and partners an Application
Programming Interface to connect to the MedUnite real-time transaction platform
and directly submit XML or X12 based transactions. MedUnite had referred to this
as their business-to-business offering or the "MedUnite Exchange". The platform
which supported the business-to-business offering was based on a proprietary XML
transaction format. The platform and the Application Programming Interface as
implemented were not HIPAA-compliant and MedUnite had an ongoing project to
bring the platform and Application Programming Interface to HIPAA-compliance.
ProxyMed completed this project in 2003.
MedUnite also had an active program in place to connect its founding
payers, as well as other payers, to its network to conduct real-time
transactions. The MedUnite Payer Interface Platform was based on the MedUnite
proprietary XML which was not HIPAA-compliant. Much like the other services,
ProxyMed was also actively implementing connections and interfaces with payers
to conduct real-time transactions. As in other areas, ProxyMed will be
consolidating overlapping and duplicative efforts so that there is just one
connection to each payer.
ProxyMed had an ongoing project with dedicated resources to modify the
Payer Interface Platform so that it is HIPAA-compliant. This project was
completed in 2003 along with parallel effort to work with each connected payer
to remediate its connection for HIPAA-compliance.
Prescription Services
In ProxyMed's Prescription Services business unit, ProxyMed offers both
new prescription ordering and refill management through ProxyMed's PreScribe(R)
family of products. There are currently over 1,200 physician clients using
PreScribe. PreScribe(R) and Phoenix(TM) support the largest and oldest
electronic and fax gateway infrastructure with connectivity to over 30,000
pharmacies nationwide. ProxyMed also offer a private-label version of ProxyMed's
web-based refill prescription application.
Laboratory Services
ProxyMed's Laboratory Services business unit offers lab order entry and
results reporting through ProxyMed's recently announced QuickReq product.
ProxyMed believes the QuickReq advantage is its enterprise
125
scope with a modular approach, giving even the smallest labs the ability to
deploy an order entry and results reporting solution. In addition to QuickReq,
ProxyMed offers a family of intelligent remote reporting devices for
communicating lab results to physician clients. ProxyMed's devices are installed
in more than 100,000 physician offices throughout the United States. ProxyMed's
FleetWatch(SM) monitors and reports the status of individual remote reporting
devices within a fleet. This service is valuable to laboratories in its ability
to detect and proactively resolve problems, many times before clients ever
notice a disruption in service.
PRODUCT AND SERVICES DEVELOPMENT
In Payer Services, several initiatives are underway to convert all
current transactions to their respective HIPAA-compliant formats (see
"Healthcare and Privacy Related Legislation" below). To date, ProxyMed's
institutional, professional and dental claims (837); electronic remittance
advice (835); eligibility (270/271); and claims status (276-277) transactions
have been certified as HIPAA-compliant by Claredi, one of the nation's leading
commercial providers of HIPAA EDI compliance testing and certification services.
ProxyMed is actively engaged in migrating all of its existing payer and provider
connections to a HIPAA-compliant format, in conjunction with its contingency
plan for HIPAA compliance. HIPAA also affords ProxyMed many opportunities to
increase both the number and type of transactions ProxyMed offers to both
physicians and payers.
In addition to processing the basic HIPAA defined transactions,
ProxyMed seeks to expand its product and service offerings to include other
value-added services for its providers and payers. In furtherance of this
strategy, ProxyMed formed a strategic relationship in July 2003 with First Data
Corporation. By leveraging ProxyMed's deep payer and provider connectivity with
First Data's financial transaction expertise, the two companies are jointly
marketing FirstProxy, a new suite of innovative solutions that streamline and
expedite healthcare claim, payment and settlement processes. The first offering,
FirstProxy ERA/EFT, will transform the remittance advice and payment process
from paper-based to electronic.
Together, ProxyMed and First Data will allow healthcare providers and
insurance companies to rapidly convert existing paper-based checks and
explanation of benefits into secure, HIPAA-compliant electronic ERAs with
electronic funds transfer. The processing and settlement of the financial
transactions and payments will start and end within the First Data processing
system. FirstProxy ERA/EFT will also ensure that insurers and providers are
compliant with upcoming HIPAA regulation deadlines that require standards for
health information security and privacy as well as the implementation of
electronic data interchange for ERAs. In addition, ProxyMed announced in June
2003 that it entered into a joint marketing program to offer ProxyMed's
electronic healthcare transaction processing services and PlanVista's network
access product as an integrated package to existing and prospective payer
customers. ProxyMed will integrate PlanVista's network, repricing services and
network management services with ProxyMed's physician and hospital claims
processing services. The resulting leading-edge medical cost management
solutions will include medical claim repricing, flexible EDI connectivity and
national PPO access through PlanVista's preferred provider network, NPPN.
Combining these solutions will allow ProxyMed to offer a one-stop shop for all
its customers' claims needs, which will include a guaranteed 24-hour turn-around
time and bill negotiation. These services are available immediately for ProxyMed
payer customers
In Laboratory Services, ProxyMed was pursuing opportunities to convert
ProxyMed's business from the traditional sale, lease and service of intelligent
laboratory reporting devices to recurring transaction-based revenue streams.
Although this is a factor in ProxyMed's long-term growth strategy, to date, the
marketplace has been slow to adopt this economic model and ProxyMed has had
limited success with this service. As a result, ProxyMed has postponed any
further development or deployment at this time.
The total amount capitalized for purchased technology, capitalized
software and other intangible assets as of December 31, 2002 and September 30,
2003, was approximately $18.2 million and $17.2 million, respectively, net of
amortization. This amount includes $1.2 million ascribed to the MedUnite legacy
platform and $4.8 million ascribed to MedUnite's real-time platforms.
ProxyMed's research and development expense was approximately $3.4
million in the nine months ended September 30, 2003, $3.2 million in 2002, $2.0
million in 2001, and $3.1 million in 2000.
MARKETING
ProxyMed has a direct sales force and customer support staff that
serves physician offices, payers, laboratories and pharmacies. In addition,
since ProxyMed does not compete for the physician desktop and allows for private
branding of ProxyMed's value-added products and services, ProxyMed is able to
leverage the marketing and sales efforts of ProxyMed's partners by giving them
even greater added value to drive ProxyMed's revenues and transactions.
ProxyMed's marketing efforts are focused on providing connectivity
solutions for the 326,000 small physician offices (one-to-nine physicians) in
the United States, a niche that is underserved by ProxyMed's competitors.
ProxyMed utilizes a unique sales and marketing methodology called
"FOCUS," an acronym for Find, Obtain, Capture, Utilize and Service, for
targeting, acquiring, retaining and maximizing the utilization of ProxyMed's
services at the small physician office. Working with ProxyMed's payer and
pharmacy partners to identify high volume paper claim submitters and
prescription writing physicians as qualified sales leads, the results of
ProxyMed's FOCUS program indicate quick contract-to-implementation time frames,
low attrition rates and high post-implementation satisfaction levels.
126
ProxyMed utilizes the following distribution channels for ProxyMed's
products and services to maximize connectivity between physician offices,
payers, laboratories, pharmacies and other healthcare providers:
Channel Focus
------ -----
Direct ProxyMed has a direct sales force of account
executives, inside telemarketers, account managers and
customer care representatives who serve ProxyMed's
physician offices, payers, laboratories and
pharmacies. ProxyMed licenses access to ProxyMed's
proprietary network, Phoenix(TM), and provide intelligent
laboratory results reporting devices for
communications between physicians and laboratories.
Partners ProxyMed works with the vendors of physician and
pharmacy office management systems so that they may
enable their existing applications to process
transactions through Phoenix(TM) between physicians and
payers, laboratories and pharmacies. ProxyMed also
licenses these customers to offer ProxyMed's products
and services under their own private label. ProxyMed
also connect other electronic transaction processing
networks to Phoenix(TM) so that the participants on both
networks can communicate with each other in National
Council of Pharmacy Drug Program (NCPDP) standard,
HIPAA approved formats, and the HL-7 standard format
for laboratories.
Internet ProxyMed is a provider of financial, clinical, and
administrative electronic transaction processing
services through ProxyMed's website, ProxyMed.net,
which may be easily accessed by any physician office
with an Internet connection.
COMPETITION
ProxyMed faces competition from many healthcare information systems
companies and other technology companies. Many of ProxyMed's competitors are
significantly larger and have greater financial resources than ProxyMed does and
have established reputations for success in implementing healthcare electronic
transaction processing systems. Other companies, including WebMD Corporation,
NDCHealth Corporation, Per-Se Technologies, and other healthcare related
entities such as RxHub LLC, have targeted this industry for growth, including
the development of new technologies utilizing Internet-based systems. While
ProxyMed's ability to compete has been enhanced by ProxyMed's acquisition of
MedUnite and its Internet-based platform for real-time transactions, ProxyMed
cannot assure you that ProxyMed will be able to compete successfully with these
companies or that these or other competitors will not commercialize products,
services or technologies that render ProxyMed's products, services or
technologies obsolete or less marketable.
HEALTHCARE AND PRIVACY RELATED LEGISLATION
ProxyMed and ProxyMed's customers are subject to extensive and
frequently changing federal and state healthcare laws and regulations.
Political, economic and regulatory influences are subjecting the healthcare
industry in the United States to fundamental change. Potential reform
legislation may include:
- mandated basic healthcare benefits;
- controls on healthcare spending through limitations on the
growth of private health insurance premiums and Medicare and
Medicaid reimbursement;
- the creation of large insurance purchasing groups;
- fundamental changes to the healthcare delivery system;
127
- FTC enforcement actions of existing privacy laws relating to
the Internet; or
- Medicare or Medicaid prescription benefit plans.
Several state and federal laws govern the collection, dissemination,
use and confidentiality of patient healthcare information. The federal Health
Insurance Portability and Accountability Act of 1996, known as HIPAA, was signed
into law on August 21, 1996. HIPAA was designed to improve the efficiency and
effectiveness of the healthcare system by standardizing the interchange of
electronic data for certain administrative and financial transactions and to
protect the confidentiality of patient information. HIPAA's privacy regulations
impose extensive requirements on healthcare providers, clearinghouses, and
plans. The deadline for compliance with the privacy aspects of HIPAA was April
14, 2003. Although ProxyMed has undertaken several measures to ensure compliance
with the privacy measures by the deadline and believe that ProxyMed is in
compliance, the privacy regulations are less definitive than other HIPAA
regulations, are broad in scope, and will require constant vigilance for ongoing
compliance.
HIPAA also mandates the use of standard transactions, standard
identifiers, security and other provisions for electronic claims transactions.
HIPAA specifically designates clearinghouses (including ProxyMed and other
financial network operators) as the compliance facilitators for healthcare
providers and payers. On August 17, 2000, the U.S. Department of Health and
Human Services published final regulations to govern eight of the most common
electronic transactions involving health information. Under a revised bill
passed by the U.S. Congress, the deadline for the transaction code set aspects
of HIPAA was extended to October 16, 2003, provided that a formal request for
extension and plan for compliance was submitted by October 16, 2002. HIPAA also
mandates the use of standard transactions, standard identifiers, security and
other provisions for electronic claims transactions. HIPAA specifically
designates clearinghouses (including ProxyMed and other financial network
operators) as the compliance facilitators for healthcare providers and payers.
On August 17, 2000, the U.S. Department of Health and Human Services published
final regulations to govern eight of the most common electronic transactions
involving health information. Under a revised bill passed by the U.S. Congress,
the deadline for the transaction code set aspects of HIPAA was extended to
October 16, 2003, provided that a formal request for extension and plan for
compliance was submitted by October 16, 2002. However, covered entities,
including ProxyMed and its physician and payer customers, may continue to
process non-compliant transactions after October 16, 2003 so long as that
covered entity is compliant with the "contingency planning" guidelines provided
by CMS. A substantial number of ProxyMed's transactions, including those related
to its acquisition of MedUnite, on behalf of its physician and payer customers
are currently being processed in a non-HIPAA compliant manner in accordance with
ProxyMed's contingency plan.
While ProxyMed has incurred and will continue to incur substantial
costs to become compliant with HIPAA regulations governing transaction
processing and privacy, ProxyMed does not believe the regulations will have a
material impact on the ProxyMed's results of operations.
Another area in which privacy regulatory developments may impact the
way ProxyMed does business is Internet privacy. Internet user privacy and the
extent to which consumer protection and privacy laws apply to the Internet is an
area of uncertainty in which future regulatory, judicial, and legislative
developments may have a significant impact on the way ProxyMed does business,
including ProxyMed's ability to collect, store, use and transmit personal
information. Internet activity has come under heightened scrutiny in recent
years, including several investigations in the healthcare industry by various
state and federal agencies, including the Federal Trade Commission.
ProxyMed anticipates that Congress and state legislatures will continue
to review and assess alternative healthcare delivery systems and payment
methods, as well as Internet and healthcare privacy legislation, and that public
debate of these issues will likely continue in the future. Because of
uncertainties as to these reform initiatives and their enactment and
implementation, ProxyMed cannot predict which, if any, of such reform proposals
will be adopted, when they may be adopted or what impact they may have on
ProxyMed.
ProxyMed's HIPAA readiness statement can be found on ProxyMed's
website at www.ProxyMed.com.
128
INTELLECTUAL PROPERTY
In large part, ProxyMed's success is dependent on ProxyMed's
proprietary information and technology. ProxyMed relies on a combination of
contracts, copyright, trademark and trade secret laws and other measures to
protect ProxyMed's proprietary information and technology. Although ProxyMed
does not currently hold any patents, as a result of the MedUnite acquisition
ProxyMed acquired rights under four patent applications filed by MedUnite for
its healthcare transaction processing platform and method for facilitating the
exchange of healthcare transactional information, in addition to rights under
various trademarks and trademark applications. ProxyMed has twelve (12)
copyright registrations covering ProxyMed's various software and proprietary
products. As part of ProxyMed's confidentiality procedures, ProxyMed generally
enters into nondisclosure agreements with ProxyMed's employees, distributors and
customers, and limits access to and distribution of ProxyMed's software,
databases, documentation and other proprietary information. ProxyMed cannot
assure you that the steps taken by ProxyMed will be adequate to deter
misappropriation of ProxyMed's proprietary rights or that third parties will not
independently develop substantially similar products, services and technology.
Although ProxyMed believes its products, services and technology do not infringe
on any proprietary rights of others, as the number of software products
available in the market increases and the functions of those products further
overlap, ProxyMed and other software and Internet developers may become
increasingly subject to infringement claims. These claims, with or without
merit, could result in costly litigation or might require ProxyMed to enter into
royalty or licensing agreements, which may not be available on terms acceptable
to ProxyMed.
EMPLOYEES
As of December 5, 2003, ProxyMed employed 407 full-time employees and
10 part-time employees. ProxyMed is not and never has been a party to a
collective bargaining agreement. ProxyMed considers its relationship with its
employees to be good.
AVAILABLE INFORMATION
ProxyMed's internet address is www.ProxyMed.com. ProxyMed makes
available free of charge on or through its internet website its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities and Exchange Act of 1934 as soon as reasonably
practicable after such material was electronically filed with, or furnished to
the SEC. The public may read and copy any materials filed by ProxyMed with the
SEC at the SEC's Public Reference Room at 450 Fifth Street NW, Washington DC
20549 and may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at www.sec.gov.
PROPERTIES
ProxyMed's significant offices are located as follows:
BUSINESS APPROXIMATE
SEGMENT LOCATION DESCRIPTION SQUARE FOOTAGE
---------------------------------- ------------------------- -------------------------------------- ----------------
CORPORATE/PRESCRIPTION SERVICES Fort Lauderdale, Florida Corporate headquarters/operations 20,500
office
PAYER SERVICES Santa Ana, California Operations office/data center 19,600
San Diego, California Development office 4,700
Norcross, Georgia Operations office/data center 31,200
129
BUSINESS APPROXIMATE
SEGMENT LOCATION DESCRIPTION SQUARE FOOTAGE
---------------------------------- ------------------------- -------------------------------------- ----------------
Sioux Falls, South Operations office 3,700
Dakota
Richmond, Virginia Operations office/data center 3,000
LABORATORY SERVICES New Albany, Indiana Operations office/manufacturing 42,000
facility
Moorestown, New Jersey Operations office/depot service 4,000
facility
ProxyMed also maintains portions of its Phoenix(TM) network at a
secure, third-party co-location center in Atlanta, Georgia. In addition,
ProxyMed also leases several remote sales offices and mini-warehouses.
ProxyMed's leases and subleases generally contain renewal options and require
ProxyMed to pay base rent, plus property taxes, maintenance and insurance.
ProxyMed considers its present facilities adequate for its operations.
LEGAL PROCEEDINGS
ProxyMed does not have any material legal proceedings pending.
130
PROXYMED SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated financial
information for ProxyMed as of and for each of the five years leading up to the
period ended December 31, 2002 and for the nine months ended September 30, 2003.
The data for the five years ended December 31, 2002 have been derived
from ProxyMed's audited consolidated financial statements. In March 1995,
ProxyMed's business focus changed from primarily the sale of prescription drugs
to providing connectivity services and related value-add products to physicians,
payers, medical laboratories, pharmacies and other healthcare providers.
Accordingly, financial information relating to ProxyMed's prescription drug
dispensing and network integration businesses (both disposed of in 2000) has
been reclassified as discontinued operations.
As described more fully in Note 2 to ProxyMed's consolidated financial
statements beginning on page FS-11, ProxyMed acquired MedUnite on December 31,
2002 for $10.0 million in cash and $13.4 million in 4% convertible notes due
December 31, 2008. As a result of this acquisition, ProxyMed also recorded
approximately $8.3 million in transaction and exit costs, of which $1.1 million
is included in long-term obligations in the table below. The operations of
MedUnite are not included in ProxyMed's 2002 results since the acquisition
occurred after the close of business on the last day of 2002.
The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and ProxyMed's Consolidated Financial Statements and related notes.
(amounts in thousands except for share and per share data)
Nine Months
Ended
September Year Ended December 31,
30, 2003 --------------------------------------------------------------------------
(unaudited) 2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
STATEMENT OF
OPERATIONS DATA:
Revenues $ 53,194 $ 50,182 $ 43,230 $ 33,441 $ 29,023 $ 22,249
Operating income (loss) $ (3,021) $ 1,340 $ (6,712) $ (23,460) $ (20,019) $ (11,087)
Income (loss) from
continuing operations $ 1,200 $ 1,950 $ (6,798) $ (26,927) $ (20,120) $ (11,194)
Income (loss) from
discontinued operations $ -- $ -- $ -- $ 241 $ (1,714) $ (595)
Net income (loss)
applicable to common $ 1,200 $ 1,338 $ (19,060) $ (48,052) $ (21,856) $ (11,788)
shareholders
PER SHARE DATA:
Basic and diluted net loss
per share of common stock:
Income (loss) from
continuing operations $ 0.18 $ .21 $ 8.81 $ (37.03) $ (16.75) $ (10.73)
Income (loss) from
discontinued operations $ -- $ -- $ -- $ .19 $ (1.43) $ (.57)
Net income (loss) $ 0.18 $ .21 $ 8.81 $ (36.84) $ (18.18) $ (11.30)
131
Nine Months
Ended
September December 31,
30, 2003 --------------------------------------------------------------------------
(unaudited) 2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
Diluted weighted average
common shares outstanding 6,815,247 6,396,893 2,162,352 1,304,342 1,202,136 1,043,558
DIVIDEND DATA:
Dividends on common stock $ -- $ -- $ -- $ -- $ -- $ --
Dividends on cumulative
preferred stock $ -- $ -- $ 1,665 $ 1,275 $ 22 $ --
December 31,
September 30, -------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
----------- ---------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Working capital $ 14,714 $ 8,749 $ 9,393 $ 12,156 $ 12,580 $ 7,565
Convertible notes $ 13,400 $ 13,400 $ -- $ -- $ -- $ --
Other long-term
obligations $ 4,001 $ 2,581 $ 442 $ 729 $ 583 $ 1,367
Total assets $ 81,810 $ 88,704 $ 35,882 $ 27,666 $ 44,773 $ 46,903
Net assets of
discontinued operations $ -- $ -- $ -- $ -- $ 3,022 $ 4,040
Shareholders' equity $ 51,942 $ 50,735 $ 22,873 $ 22,377 $ 37,756 $ 40,279
132
PROXYMED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
ProxyMed is the nation's second largest provider-based electronic
healthcare transaction services company. ProxyMed provides connectivity services
and related value-added products to physicians, payers, pharmacies, medical
laboratories, and other healthcare providers and suppliers. ProxyMed's services
support a broad range of both financial and clinical transactions, and are
HIPAA-certified through Claredi, an independent certification and testing
services company specializing in HIPAA compliance. To facilitate these services,
ProxyMed operates Phoenix(TM), its secure national electronic information
platform, which provides physicians and other healthcare providers with direct
connectivity to one of the industry's largest list of payers, the industry's
largest list of chain and independent pharmacies and the largest list of
clinical laboratories. ProxyMed's products and services are currently provided
from its main operating facilities located in Fort Lauderdale, Florida; New
Albany, Indiana; Santa Ana, California; Norcross, Georgia; and Sioux Falls,
South Dakota. ProxyMed also operates its clinical network and portions of its
financial and real-time production computer networks from a secure co-location
site in Atlanta, Georgia.
ProxyMed's primary strategy is focused on leveraging its leading
position as an independent back-end connectivity provider to small physician
offices. Through strategic relationships and partnerships with front-end
solution providers, ProxyMed's goal is to drive more healthcare transactions
through Phoenix(TM) while remaining neutral in the battle for the physician's
desktop. Additionally, since ProxyMed has an existing customer base of
physicians and other healthcare providers, they expect that there will be
opportunities to increase revenues by cross-selling our existing products and
services to these current customers, as well as revenue opportunities from the
development of new services from our development efforts, including
Internet-based transaction services. ProxyMed remains committed to developing
additional capabilities and value-added products and services, and to expanding
its back-end connectivity network. In conjunction with this philosophy, ProxyMed
has recently introduced ProxyMed.net, its new web portal for providers, and
"Phoenix(TM)", its new transaction processing platform which has been
HIPAA-certified through Claredi. ProxyMed has also added new services offerings
for its payer customers through agreements with PlanVista Corporation, referred
to as PlanVista, for claims re-pricing services and First Data Corporation for a
jointly marketed suite of services being offered under the brand name
"FirstProxy".
On December 31, 2002, ProxyMed acquired all of the outstanding stock of
MedUnite, Inc., referred to as MedUnite, for $10 million in cash and an
aggregate of $13.4 million principal amount of 4% convertible promissory notes.
In addition, ProxyMed estimated approximately $8.3 million in transaction and
exit related costs. Interest on the convertible notes is payable in cash on a
quarterly basis. The convertible promissory notes are payable in full on
December 31, 2008 and are convertible into an aggregate of 731,322 shares of our
common stock if the founders of MedUnite achieve certain revenue-based triggers
over the next three and one-half year period. The shares of ProxyMed common
stock issuable upon conversion of the convertible notes will be registered by
ProxyMed promptly after a stockholder achieves a conversion trigger event. The
operations of MedUnite are reflected with those of ProxyMed for the three and
nine months ended September 30, 2003. Additionally, although the integration of
MedUnite into our existing operations will continue throughout 2003, currently
the organizations are run and managed as one operating unit. As a result,
meaningful separate results and statistics are no longer available.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2002
Net Revenues. Consolidated net revenues for the nine months ended
September 30, 2003 increased by $16.2 million, or 44%, to $53.2 million from
consolidated net revenues of $37.0 million for the nine months ended September
30, 2002. Net revenues classified by ProxyMed's reportable segments are as
follows (in thousands):
133
2003 2002
-------- --------
Transaction Services $ 35,102 $ 16,345
Laboratory Communication Solutions 18,092 20,643
-------- --------
$ 53,194 $ 36,988
======== ========
Net revenues in ProxyMed's Transaction Services segment increased by
115% over the 2002 period. This increase was driven by strong internal growth
and more significantly by transactions generated at MedUnite.
Total healthcare transactions processed during the nine months ended
September 30, 2003 were 168.5 million equating to an annualized run rate of
almost 225 million transactions processed. Core transaction growth between the
nine-month period ending September 30, 2002 and the same period in 2003 was
132%. While ProxyMed's encounter volume dropped between the periods, the net
increases were generally the result of transactions acquired from MedUnite and
new sales, including transactions generated by newer vendor partners that
resulted in greater claim and patient statement processing transactions. A
summary of the number of transactions processed by ProxyMed for the periods
presented is as follows (in thousands):
2003 2002
-------- --------
Core Transactions 150,052 64,588
Encounters 18,494 19,473
-------- --------
Total transactions 168,546 84,061
======== ========
"Core" transactions represent all transactions except for encounters.
"Encounters" are an administrative reporting transaction for payers but do not
generate revenue for the provider who must submit them. Accordingly, rather than
submitting on a routine basis, most providers choose to periodically "catch up"
on their submissions, creating monthly and quarterly swings in both the number
of encounters ProxyMed processes and the percentage of ProxyMed's transaction
mix they represent. Since encounters are at a significantly lower price point
than claims, these swings make it difficult to easily analyze
quarter-over-quarter growth in ProxyMed's core business. In addition, ProxyMed
does not expect its encounter volume to grow on an annual basis, as payers are
not expanding the capitated service model that is the foundation of encounters.
Therefore, ProxyMed believes that breaking out encounters shows more clearly the
growth in core transactions, which is the growth engine for ProxyMed's
Transaction Services segment.
For the 2003 period, approximately 66% of ProxyMed's revenues came from
the Transaction Services segment compared to 44% from this segment for the 2002
period. For the remainder of 2003 and beyond, it is anticipated that ProxyMed's
greatest growth will come from this segment.
Laboratory Communication Solutions' net revenues decreased by 12% from
the 2002 period. As the sluggish economy continued for the first half of 2003,
ProxyMed has seen a slowdown in contract manufacturing sales and sales of
communication devices at ProxyMed's smaller labs and hospital labs. ProxyMed
expects this slowdown to continue for the remainder of 2003. ProxyMed's future
goals for this business include creating new opportunities with existing
customers and capitalizing on ProxyMed's relationships for transaction-based
solutions.
Cost of Sales. Consolidated cost of sales decreased as a percentage of
net revenues to 42% for the nine months ended September 30, 2003 from 46% for
the nine months ended September 30, 2002. Cost of sales classified by reportable
segment is as follows (in thousands):
134
2003 2002
-------- --------
Transaction Services $ 12,327 $ 6,449
Laboratory Communication Solutions 9,861 10,612
-------- --------
$ 22,188 $ 17,061
======== ========
Cost of sales in ProxyMed's Transaction Services segment consists of
transaction fees, services and license fees, third-party electronic transaction
processing costs, certain telecommunication and co-location center costs,
revenue sharing arrangements with ProxyMed's business partners, third-party
database licenses, and certain travel expenses. Cost of sales as a percentage of
revenues decreased to 35% in the 2003 period compared to 39% in the same period
last year primarily due to a change in the mix of transaction types from higher
cost patient statements to lower cost claims and real-time transactions (such as
eligibility verification) through the additional transactions acquired from
MedUnite.
Cost of sales in the Laboratory Communication Solutions segment
includes hardware, third-party software and consumable materials. Cost of sales
as a percentage of revenues increased to 55% in the 2003 period compared to 51%
in the same period last year primarily due to a change in the mix from lower
cost leases to higher cost contract manufacturing.
Selling, General and Administrative Expenses. Consolidated SG&A
increased for the nine months ended September 30, 2003 by $12.5 million, or 72%,
to $29.8 million from consolidated SG&A of $17.3 million for the nine months
ended September 30, 2002. Consolidated SG&A expenses as a percentage of
consolidated revenues increased to 56% for the 2003 period compared to 47% in
the same period last year. SG&A expenses classified by ProxyMed's reportable
segments are as follows (in thousands):
2003 2002
-------- --------
Transaction Services $ 20,763 $ 8,498
Laboratory Communication Solutions 6,339 6,915
Corporate 2,653 1,914
-------- --------
$ 29,755 $ 17,327
======== ========
SG&A expenses in Transaction Services increased 144% for the nine
months September 30, 2003 over the same period last year, primarily due to the
incremental expenses incurred in the operations of MedUnite, costs related to
ProxyMed's HIPAA compliance efforts, implementation staffing and sales/marketing
programs implemented since last year.
While ProxyMed expected to incur significant SG&A costs related to the
MedUnite operations in the first half of 2003, ProxyMed also expected to reduce
them at a higher rate than achieved during the first quarter of 2003. Despite
these challenges, ProxyMed exited the first quarter on an expense run rate in
line with initial expectations, and in the second quarter of 2003, ProxyMed was
successful in eliminating or renegotiating substantial telecommunication
expenses and duplicative contact management, human resources and customer
relationship management systems. As a result of these cost cutting measures,
ProxyMed achieved positive cash flow in the MedUnite operations in the third
quarter of 2003. However, ProxyMed does expect SG&A costs to increase in the
fourth quarter of 2003 as the development projects related to the integration of
MedUnite are moved into production resulting in a decrease in the amount of
capitalized development related to the real-time and Phoenix(TM) platforms.
SG&A expenses in ProxyMed's Laboratory Communications Solutions segment
decreased by 8% for the nine months ended September 30, 2003 from the same
period last year primarily due to cost cutting measures implemented last year.
Segment SG&A expenses as a percentage of segment net revenues increased to 35%
for the 2003 period compared to 33% for the same period last year due to lower
revenues in the 2003 period.
Corporate SG&A expenses increased 39% for the nine months ended
September 30, 2003 compared to the same period last year primarily due to
increased insurance premiums, professional fees and personnel costs.
135
Depreciation and Amortization. Consolidated depreciation and
amortization increased by $2.3 million to $4.2 million for the nine months ended
September 30, 2003 from $1.9 million for the same period last year. This
increase was primarily due to $1.5 million for the amortization of intangible
assets acquired in the MedUnite acquisition, which includes amortization of
ProxyMed.net, ProxyMed's real-time network based on the technology platform
acquired from MedUnite. Amortization of intangible assets related to additional
capitalized software development will increase in the fourth quarter as ProxyMed
places the Phoenix(TM) platform into production and commences the amortization
of this asset. Depreciation and amortization classified by reportable segments
is as follows (in thousands):
2003 2002
-------- --------
Transaction Services $ 3,287 $ 1,144
Laboratory Communication Solutions 722 601
Corporate 144 152
-------- --------
$ 4,153 $ 1,897
======== ========
Loss on Disposal of Assets. As a result of the consolidation of the
ProxyMed and MedUnite offices in Atlanta during the quarter ended March 31,
2003, ProxyMed recorded $0.1 million in net losses primarily related to the
disposition of certain assets owned and leased that were acquired in the
acquisition of MDP Corporation in 2001. The consolidation of ProxyMed's and
MedUnite's Atlanta offices is expected to save us over $0.3 million on an annual
basis going forward in rents and other occupancy costs.
Operating Income (Loss). As a result of the foregoing, consolidated
operating loss for the nine months ended September 30, 2003 was $3.0 million
compared to operating income of $0.7 million for the same period last year.
Operating income (loss) classified by reportable segments is as follows (in
thousands):
2003 2002
-------- --------
Transaction Services $ (1,382) $ 254
Laboratory Communication Solutions 1,168 2,515
Corporate (2,807) (2,066)
-------- --------
$ (3,021) $ 703
======== ========
Interest, Net. Consolidated net interest expense for the nine months
ended September 30, 2003 was $0.6 million compared to net interest income of
$0.3 million for the same period last year. This increase in expense is
primarily due to interest related to ProxyMed's convertible debt issued to the
former owners of MedUnite and the financing of certain liabilities of MedUnite
during the 2003 period and lower interest income earned on a smaller investment
base at lower interest rates.
Other Income. In conjunction with ProxyMed's distribution and marketing
agreement with PlanVista for claims re-pricing services signed in June 2003,
ProxyMed received a warrant to purchase up to 15% of PlanVista. At the end of
September 2003, the value of this warrant increased by $4.8 million to $5.3
million. However, if the warrant is never exercised, then ProxyMed will have to
record an impairment charge equal to the warrant's remaining value, if any,
carried on the books. At the present time, ProxyMed has no intention of
exercising this warrant and ProxyMed will record an impairment charge in the
fourth quarter of 2003.
Net Income. As a result of the foregoing, consolidated net income was
$1.2 million for both the nine months ended September 30, 2003 and 2002.
Deemed Dividends. ProxyMed incurred deemed dividends of $0.6 million
during the nine months ended September 30, 2002 as a result of non-cash
accounting charges for the conversion of 31,650 preferred shares into 242,510
shares of common stock by ProxyMed's series C preferred shareholders in 2002
pursuant to ProxyMed's offer to convert their shares commencing in December
2001.
136
Net Income Applicable to Common Shareholders. As a result of the
foregoing, ProxyMed reported net income applicable to common shareholders of
$1.2 million for the nine months ended September 30, 2003 compared to $0.6
million for the nine months ended September 30, 2002.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001.
Net Revenues. Consolidated net revenues for 2002 increased by
$7.0 million or 16%, to $50.2 million from consolidated net revenues of $43.2
million for 2001. Net revenues classified by ProxyMed's reportable segments are
as follows (in thousands):
2002 2001
-------- --------
Electronic healthcare transaction processing $ 22,439 $ 16,938
Laboratory communication solutions 27,743 26,292
-------- --------
$ 50,182 $ 43,230
======== ========
Net revenues in ProxyMed's electronic healthcare transaction processing
segment increased by 32% primarily due to a 30% increase in the number of
electronic clinical and financial healthcare transactions processed through
Phoenix. Total transactions grew from 87.9 million transactions in the 2001
period to 114.2 million transactions in 2002. Core transaction growth is up 47%
from the 2001 period. The increase in transaction volume was primarily
attributable to internal growth in both claims and statements processed.
Additionally, ProxyMed continued to make progress in ProxyMed's cross-selling
efforts to ProxyMed's existing customers resulting in an increase of transaction
services utilized per directly contracted provider from a 1.3 (estimated) in
2001 to 2.5 in 2002. A summary of the number of transactions ProxyMed processed
for the periods presented is as follows (in thousands):
2002 2001
-------- --------
Core transactions 89,123 60,523
Encounters 25,045 27,419
-------- --------
Total transactions 114,168 87,942
======== ========
"Core" transactions represent all transactions except for encounters.
"Encounters" are an administrative reporting transaction for payers but do not
generate revenue for the provider who must submit them. Accordingly, rather than
submitting on a routine basis, most providers choose to periodically "catch up"
on their submissions, creating monthly and quarterly swings in both the number
of encounters ProxyMed processes and what percentage of ProxyMed's transaction
mix they represent. Since encounters are at a significantly lower price point
than claims, these swings make it difficult to easily analyze ProxyMed's
quarter-over-quarter growth in ProxyMed's core business. In addition, ProxyMed
does not expect its encounter volume to grow on an annual basis, as payers are
not expanding the capitated service model that is the foundation of encounters.
Therefore, ProxyMed believes that breaking out encounters shows more clearly
ProxyMed's growth in core transactions, which are the growth engine for
ProxyMed's Electronic healthcare transaction services segment.
ProxyMed exited the year on an annualized run rate of over 120 million
total transactions for ProxyMed on a stand-alone basis. The acquisition of
MedUnite added another 90 million transactions; therefore, ProxyMed exited 2002
with a combined annualized run rate of almost 210 million total transactions.
For 2002, approximately 45% of ProxyMed's revenues came from ProxyMed's
Electronic healthcare transaction processing segment, compared to 39% from this
segment for 2001.
137
Laboratory communication solutions segment net revenues increased by 6%
primarily due to the acquisition of KenCom Communications & Services, Inc. and
an increase in contract manufacturing revenues, offset by decreases in sales and
leases of communication devices, and field service revenues.
Cost of Sales. Consolidated cost of sales decreased from 47% in 2001 to
46% in 2002. Cost of sales classified by ProxyMed's reportable segments is as
follows (in thousands):
2002 2001
-------- --------
Electronic healthcare transaction processing $ 8,793 $ 6,531
Laboratory communication solutions 14,230 13,877
-------- --------
$ 23,023 $ 20,408
======== ========
Cost of sales in the Electronic healthcare transaction processing
segment consists of transaction fees, services and license fees, third-party
electronic transaction processing costs, certain telecommunication and
co-location center costs, revenue sharing arrangements with ProxyMed's business
partners, third-party database licenses, and certain labor and travel expenses.
Cost of sales as a percentage of revenues remained constant at 39% for 2002 and
2001.
Cost of sales in the Laboratory communication solutions segment
includes hardware, third-party software, and consumable materials. Cost of sales
as a percentage of revenues decreased to 51% for 2002 compared to 53% for 2001
primarily as a result of a change in the mix of revenues from higher margin
leases of communication devices (as ProxyMed's lease base shrinks) to lower
margin device sales and contract manufacturing.
Selling, General and Administrative Expenses. Consolidated SG&A
increased for 2002 by $1.8 million, or 9%, to $23.1 million from consolidated
SG&A of $21.3 million for 2001. Consolidated SG&A expenses as a percentage of
consolidated revenues decreased to 46% for 2002 compared to 49% in 2001. SG&A
expenses classified by ProxyMed's reportable segments are as follows (in
thousands):
2002 2001
-------- --------
Electronic healthcare transaction processing $ 11,430 $ 9,906
Laboratory communication solutions 9,121 8,168
Corporate 2,594 3,193
-------- --------
$ 23,145 $ 21,267
======== ========
Electronic healthcare transaction processing segment SG&A expenses for
2002 increased 15% over 2001 primarily due to adding associates in ProxyMed's
Payer Services transaction business sales and marketing teams to drive
ProxyMed's core revenue growth and in ProxyMed's technical and development areas
as it relates to ProxyMed's HIPAA compliance efforts, and incremental expenses
incurred at ProxyMed's South Dakota operations as a result of ProxyMed's
acquisition of MDIP, Inc's assets. These increases were offset by the
capitalization of payroll and other costs for HIPAA and private label
internal-use software projects for 2002. Segment SG&A expenses as a percentage
of segment net revenues decreased to 51% for 2002 compared to 58% for 2001 due
to the operational leverage inherent in the business. As ProxyMed increases the
number of transactions ProxyMed process, ProxyMed does not experience a direct
correlation in ProxyMed's costs due to the semi-fixed nature of operating
expenses in this segment.
Laboratory communication solutions segment SG&A expenses for 2002
increased by 12% primarily due to incremental expenses incurred for the May 2002
acquisition and operations of KenCom Communications & Services, Inc. plus
increases in contract manufacturing personnel. As a result, segment SG&A
expenses as a percentage of segment net revenues increased to 33% for 2002
compared to 31% for 2001. However, in the fourth quarter of 2002, ProxyMed
enacted several cost containment programs in an effort to curtail spending.
Corporate SG&A expenses decreased 19% for 2002 compared to 2001
primarily due to the non-cash compensatory warrants and the additional accrual
recorded for ProxyMed's software licensing contingency for 2001.
138
Depreciation and Amortization. Consolidated depreciation and
amortization decreased by $5.6 million to $2.6 million for 2002 from $8.2
million for 2001. This decrease was primarily from a reduction in amortization
expense due to the conclusion of amortization of certain intangible assets in
2001 related to prior acquisitions in ProxyMed's Electronic healthcare
transaction processing segment and the adoption of SFAS No. 142 on January 1,
2002, offset by amortization of identifiable intangible assets (other than
goodwill) related to the acquisitions of KenCom Communications & Services, Inc.,
MDIP, Inc., and the customer relationships of Claimsnet.com in September 2002
for $0.7 million. Amortization expense related to these acquisitions is expected
to be approximately $0.1 million per quarter through the first quarter of 2005.
Depreciation and amortization classified by ProxyMed's reportable segments is as
follows (in thousands):
2002 2001
-------- --------
Electronic healthcare transaction processing $ 1,581 $ 7,285
Laboratory communication solutions 857 561
Corporate 198 330
-------- --------
$ 2,636 $ 8,176
======== ========
Operating Income (Loss). As a result of the foregoing, consolidated
operating income for 2002 was $1.3 million compared to a loss of $6.7 million
for 2001. Operating income (loss) classified by ProxyMed's reportable segments
is as follows (in thousands):
2002 2001
-------- --------
Electronic healthcare transaction processing $ 597 $ (6,859)
Laboratory communication solutions 3,535 3,686
Corporate (2,792) (3,539)
-------- --------
$ 1,340 $ (6,712)
======== ========
Write-off of Obsolete and Impaired Assets. ProxyMed wrote off $38,000
in capitalized programming costs in connection with the development of
ProxyMed's real-time transaction processing applications as a result of
acquiring the same functionality in the software platforms acquired from
MedUnite in December 2002.
Interest, net. Consolidated net interest income for 2002 was $0.3
million compared to net interest expense of $0.1 million for 2001. This net
increase is primarily due to higher cash balances as a result of ProxyMed's
investment from GAP in April 2002, even though effective interest rates are
lower for 2002 compared to 2001 on the cash invested.
Net Income (Loss). As a result of the foregoing, consolidated net
income for 2002 was $2.0 million compared to a net loss of $6.8 million for
2001.
Deemed Dividends and Other Charges. ProxyMed incurred deemed dividends
and other charges of $0.6 million for 2002 as a result of non-cash accounting
charges for the conversion of 31,650 preferred shares into 242,510 shares of
common stock by ProxyMed's series C preferred shareholders in 2002 pursuant to
ProxyMed's offer to convert their shares commencing in December 2001. For the
2001 period, ProxyMed incurred total deemed dividend and other charges of $12.3
million primarily as a result of non-cash accounting charges from the
anti-dilution reset in number and price of certain warrants issued to ProxyMed's
series B preferred shareholders in February 2001, non-cash accounting charges
from the exchange of 271,700 warrants into 218,828 shares of common stock by
ProxyMed's series B preferred shareholders in April 2001, non-cash accounting
charges from the exchange of 1,412,033 warrants into 1,050,691 shares of common
stock by ProxyMed's series C preferred shareholders in August 2001, non-cash
accounting charges related to the conversion of ProxyMed's series C preferred
stock into 1,296,126 shares of common stock pursuant to ProxyMed's conversion
offer through December 31, 2001, non-cash charges from the anti-dilution reset
in number and price of certain warrants issued to ProxyMed's remaining series B
preferred warrant holder in December 2001 as a result of the reduced conversion
price pursuant to ProxyMed's conversion offer to series C preferred stockholders
and dividends paid to the holder of ProxyMed's Series B
139
Preferred stock (which was fully converted in October 2001) and dividends paid
to ProxyMed's Series C preferred shareholders through the issuance of shares of
common stock.
Net Income (Loss) Applicable to Common Shareholders. As a result of the
foregoing, ProxyMed reported net income applicable to common shareholders of
$1.3 million for 2002 compared to a net loss applicable to common shareholders
of $19.1 million for 2001.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Net Revenues. Consolidated net revenues for 2001 increased by $9.8
million, or 29%, to $43.2 million from consolidated net revenues of $33.4
million for 2000. Net revenues classified by ProxyMed's reportable segments are
as follows (in thousands):
2001 2000
-------- --------
Electronic healthcare transaction processing $ 16,938 $ 10,103
Laboratory communication solutions 26,292 23,338
-------- --------
$ 43,230 $ 33,441
======== ========
Electronic healthcare transaction processing segment net revenues
increased by 68% primarily due to a 48% increase in the number of electronic
clinical and financial healthcare transactions processed through Phoenix from
59.2 million transactions for 2000 to 87.9 million transactions for 2001. Core
transaction growth was up 85% from prior year (including 13.5 million patient
statement and electronic claims transactions from ProxyMed's acquisition of
MDP). A summary of the number of transactions ProxyMed processed for the periods
presented is as follows (in thousands):
2001 2000
-------- --------
Core transactions 60,523 32,756
Encounters 27,419 26,465
-------- --------
Total transactions 87,942 59,221
======== ========
For 2001, approximately 39% of ProxyMed's revenues came from ProxyMed's
Electronic healthcare transaction processing segment, compared to only 30% from
this segment for 2000.
Laboratory communication solutions segment net revenues increased by
13% primarily as a result of increased sales in communication device units and
contract manufacturing offset by decreases in other laboratory services such as
communication device leases and field service events.
Cost of Sales. Consolidated cost of sales increased from 37% in 2000 to
48% in 2001. Cost of sales classified by ProxyMed's reportable segments is as
follows(in thousands):
2001 2000
-------- --------
Electronic healthcare transaction processing $ 6,531 $ 1,918
Laboratory communication solutions 13,877 10,331
-------- --------
$ 20,408 $ 12,249
======== ========
Cost of sales in the Electronic healthcare transaction processing
segment consists of transaction fees, services and license fees, third-party
electronic transaction processing costs, certain telecommunication and
co-location center costs, revenue sharing arrangements with ProxyMed's business
partners, third-party database licenses, and certain labor and travel expenses.
Cost of sales as a percentage of revenues increased from 19% for 2000 to 39% for
2001 primarily due to an increase in patient statement processing services
(which have a higher direct
140
cost compared to the traditional financial transactions that ProxyMed offers) as
a result of ProxyMed's MDP acquisition in May 2001.
Cost of sales in the Laboratory communication solutions segment
includes hardware, third-party software, and consumable materials. Cost of sales
as a percentage of revenues increased to 53% for 2001 compared to 44% for 2000
primarily due to a shift in the revenue mix from lower cost leases to higher
cost communication device units and contract manufacturing.
Selling, General and Administrative Expenses. Consolidated SG&A
decreased for 2001 by $5.8 million, or 22%, to $21.3 million from consolidated
SG&A of $27.1 million for 2000. Consolidated SG&A expenses as a percentage of
consolidated revenues decreased to 49% for 2001 compared to 81% for 2000. SG&A
expenses classified by ProxyMed's reportable segments are as follows (in
thousands):
2001 2000
-------- --------
Electronic healthcare transaction processing $ 9,906 $ 12,255
Laboratory communication solutions 8,168 8,443
Corporate 3,193 6,399
-------- --------
$ 21,267 $ 27,097
======== ========
Electronic healthcare transaction processing segment SG&A expenses for
2001 decreased by 19% compared to 2000 primarily due to decreases in net
payroll, outside labor and related expenses due to the effect of ProxyMed's
restructuring plan which commenced in May 2000 and additional personnel
reductions enacted at the end of 2000 and in the first quarter of 2001. Segment
SG&A expenses as a percentage of segment net revenues decreased to 58% for 2001
compared to 121% for 2000 as operational leverage continues to be recognized.
Laboratory communication solutions segment SG&A expenses for 2001
decreased by 3% compared to 2000.
Corporate SG&A expenses decreased 50% for 2001 compared to 2000
primarily due to decreases in net payroll, other selling, general and
administrative expenses due to the effect of ProxyMed's restructuring plan and
the non-cash compensatory warrants to outside consultants as fees related to
ProxyMed's financial advisory agreement with Commonwealth Associates Group
Holdings, LLC which ceased to be amortized after April 2001.
Depreciation and Amortization. Consolidated depreciation and
amortization decreased by $5.2 million to $8.2 million for 2001 from $13.4
million for 2000. This net decrease was primarily from a reduction in
amortization expense due to the conclusion of amortization of certain intangible
assets in 2001 related to prior acquisitions in ProxyMed's Electronic healthcare
transaction processing segment. Depreciation and amortization classified by
ProxyMed's reportable segments is as follows (in thousands):
2001 2000
-------- --------
Electronic healthcare transaction processing $ 7,285 $ 12,147
Laboratory communication solutions 561 722
Corporate 330 506
-------- --------
$ 8,176 $ 13,375
======== ========
Operating Income (Loss). As a result of the foregoing, consolidated
operating loss for 2001 was $6.7 million compared to a loss of $23.5 million in
2000. Operating income (loss) classified by ProxyMed's reportable segments is as
follows (in thousands):
141
2001 2000
-------- --------
Electronic healthcare transaction processing $ (6,859) $(18,949)
Laboratory communication solutions 3,686 3,724
Corporate (3,539) (6,905)
Restructuring -- (1,330)
-------- --------
$ (6,712) $(23,460)
======== ========
Write-off of Obsolete and Impaired Assets. As a result of ProxyMed's
periodic review of fixed assets and co-location of ProxyMed's clinical
production network, in December 2001 ProxyMed wrote off $0.1 million in obsolete
fixed assets, primarily computer hardware and software. These write-offs are
expected to lower ProxyMed's depreciation and amortization charges by
approximately $0.1 million in 2002.
Interest, net. Consolidated net interest expense decreased by $4.0
million to $0.1 million for 2001 from $4.1 million in 2000. This decrease is
primarily due to charges in 2000 related to the amortization of costs from
ProxyMed's private placement of convertible debt securities completed in June
2000, and a beneficial conversion charge resulting from the conversion price of
the convertible debt being less than the market price of ProxyMed's stock on the
dates of issuance in 2000.
Loss from Continuing Operations. As a result of the foregoing, the
consolidated loss from continuing operations was $6.8 million for 2001 compared
to a loss of $26.9 million for 2000.
Deemed Dividends and Other Charges. ProxyMed incurred deemed dividends
and other charges of $12.3 million in 2001 primarily as a result of non-cash
accounting charges from the anti-dilution reset in number and price of certain
warrants issued to ProxyMed's series B preferred stockholders in February 2001;
non-cash accounting charges of from the exchange of 271,700 warrants into
218,828 shares of common stock by certain of ProxyMed's series B preferred
stockholders in April 2001; non-cash accounting charges of from the exchange of
1,412,033 warrants into 1,050,691 shares of common stock by certain of
ProxyMed's series C preferred stockholders in August 2001; non-cash accounting
charges related to the conversion of 169,149 shares of ProxyMed's series C
preferred into 1,296,126 shares of common stock pursuant to ProxyMed's
Conversion Offer through December 31, 2001; non-cash accounting charges from the
anti-dilution reset in number and price of certain warrants issued to ProxyMed's
remaining series B preferred warrant holder in December 2001 as a result of the
reduced conversion price pursuant to ProxyMed's conversion offer to series C
preferred and cash dividends paid to ProxyMed's series B preferred shareholders
and dividends paid to ProxyMed's series C preferred shareholders through the
issuance of shares of common stock.
Net Loss Applicable to Common Shareholders. As a result of the
foregoing, ProxyMed reported a net loss applicable to common shareholders of
$19.1 million for 2001 compared to a net loss applicable to common shareholders
of $48.1 million for 2000.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended September 30, 2003, cash provided by operating
activities totaled $0.5 million. During this period, ProxyMed paid $5.7 million
in acquisition-related costs for MedUnite; paid $3.3 million for fixed assets
and capitalized software; paid $1.8 million against ProxyMed's notes payable and
certain long term debt; and transferred $0.3 million as support for a letter of
credit used to collateralize the financing of a certain liability insurance
policy. These activities were principally financed through available cash
resources. After these activities, ProxyMed had cash and cash equivalents
totaling $6.9 million as of September 30, 2003. These available funds will be
used for operations, strategic acquisitions, the further development of
ProxyMed's products and services, and other general corporate purposes. ProxyMed
continues to evaluate other acquisition opportunities and strategic alternatives
that may add synergies to ProxyMed's product offerings and business strategy.
At the current time, ProxyMed does not have any material commitments
for capital expenditures other than the final payment of three equal
installments of approximately $0.2 million related to the licensing of software
for
142
use in ProxyMed's internal systems. In February 2003, ProxyMed paid the second
$0.2 million towards this commitment.
At the beginning of 2003, before considering any capital spending needs
at MedUnite, ProxyMed anticipated spending approximately $2.6 million in capital
expenditures (including the licensing fees above) plus an additional $0.6
million for various development projects scheduled to be undertaken by ProxyMed
in 2003. Through September 30, 2003, with assets available at MedUnite, ProxyMed
has been able to limit its capital spending to $1.7 million (excluding $0.4
million spent for capital expenditures at MedUnite) with approximately $0.3
million to be spent for the balance of the year on network improvements,
ProxyMed's new accounting system and other projects. Additionally, ProxyMed
expected to incur significant additional development and related
hardware/software costs over time related to the completion of enhancements for
the real-time network platform acquired from MedUnite. Through September 30,
2003, ProxyMed has spent approximately $1.2 million in capitalized software
development projects related to both the development of Phoenix(TM) and
ProxyMed.net and expects to incur another $0.2 million in the remainder of 2003
to complete the Phoenix(TM) project and start on others. By the end of the year,
ProxyMed's total capital spending (including MedUnite) is expected to be above
ProxyMed's originally anticipated amounts.
During the 2002 year, ProxyMed consistently improved operating results
as a result of both internal and external growth, successful cross selling of
ProxyMed's transaction services, and ProxyMed's ability to monitor expenses.
With ProxyMed's additional equity financing at the end of the first quarter of
2002, ProxyMed was able to consummate four acquisitions during the year,
culminating with the acquisition of MedUnite at the end of the year.
Unfortunately, MedUnite had incurred significant losses since its inception and
was utilizing cash significantly in excess of amounts it was generating
primarily due to technical and research and development activities related to
its various processing platforms. As a result, at the time ProxyMed acquired
MedUnite, there were substantial liabilities and obligations as well as future
commitments (both recorded and unrecorded at December 31, 2002) associated with
the business in addition to the transaction and exit costs associated with the
acquisition.
In an effort to immediately curtail and reduce the expenditure levels,
MedUnite's senior management team was terminated along with approximately 20% of
the general workforce and in February 2003, ProxyMed moved its Atlanta facility
into MedUnite's Norcross facility. While ProxyMed did not achieve the expected
reductions in MedUnite's costs early in the first quarter, ProxyMed did exit the
first quarter on an expense run rate in line with ProxyMed's expectations.
Furthermore, during the second and third quarters of 2003, ProxyMed continued
expense reductions by successfully eliminating or renegotiating substantial
telecommunication expenses and eliminating duplicative contact management, human
resources and customer relationship management systems. Additionally, in April
2003, ProxyMed terminated the San Diego facility lease effective July 1, 2003 in
return for a $0.8 million letter of credit held by the current landlord and
furniture at that facility.
By June 30, 2003, ProxyMed had paid all of the significant transaction
and exit costs associated with the MedUnite acquisition. All remaining costs are
expected to be paid by the end of 2003. As a result of ProxyMed's negotiations,
the original $8.3 million in transaction and exit costs will ultimately be
settled for approximately $6.8 million, representing a savings of $1.5 million.
Additionally, other MedUnite contractual obligations have been canceled
or renegotiated with the respective vendors. ProxyMed has entered into financing
agreements with certain major vendors as a means of settling liabilities that
existed at December 31, 2002, and to date have financed $3.4 million of
liabilities to one vendor; $2.0 million in net liabilities to a former owner of
MedUnite; and $0.4 million for a required insurance policy as part of the
acquisition. Between these financing agreements, existing capital leases, and
the convertible notes issued in the acquisition, ProxyMed will incur significant
interest expense charges in 2003.
With ProxyMed's distribution and marketing agreement with PlanVista for
ProxyMed's new claims re-pricing services, ProxyMed was granted a warrant to
purchase 15% of the number of outstanding shares of PlanVista common stock on a
fully-diluted basis as of the time of exercise for $1.95 per share. If exercised
for cash, this would currently amount to approximately $13.3 million.
Alternatively, ProxyMed has the option of exercising the warrant in exchange for
ProxyMed common stock in which case ProxyMed would be required to pursue an
acquisition of PlanVista according to the terms of the warrant. If the warrant
is never exercised, ProxyMed will have to record an impairment charge for the
then carrying value of the warrant. At the present time, ProxyMed has no
143
intention of exercising this warrant and ProxyMed expects to record an
impairment charge in the fourth quarter of 2003.
In December 2003, ProxyMed closed on a $12.5 million asset-based line
of credit with its commercial bank. Borrowing under such facility is subject to
eligible cash, accounts receivable, and inventory and other conditions.
Borrowings will bear interest at the prime rate plus 0.5% or at LIBOR plus 2.25%
(or LIBOR plus 0.75% in the case of borrowings against eligible cash only).
The following table represents ProxyMed's contractual cash obligations
due over the next several years. At the present time, none of ProxyMed's
contractual cash obligations extend beyond 2006 except for the maturity of
ProxyMed's $13.4 million in convertible notes on December 31, 2008 (assuming no
prior conversion). Operating leases are shown net of any sublease agreements (in
thousands).
Q4 2003 2004 2005 2006 2007
------- ------- ------- ------- -------
Interest on convertible notes (1) $ 134 $ 536 $ 536 $ 536 $ 536
Notes payable 491 1,890 1,758 354 --
Capital lease obligations 110 262 139 21 1
Operating leases 489 1,357 421 9 --
Acquisition related costs 575 -- -- -- --
Other obligations -- 167 -- -- --
Totals $ 1,799 $ 4,212 $ 2,854 $ 920 $ 537
------------------
(1) Assumes no conversion of convertible notes.
ProxyMed believes that it has sufficient cash and cash equivalents on
hand and access through its asset-based line of credit to fund future
operational capital requirements and expenditures, and a sufficient level of
capital in order to fund specific research and development projects or to pursue
smaller additional strategic acquisitions. However, if ProxyMed requires
additional capital funding in the future to further ProxyMed's strategic plans,
there can be no assurance that any additional funding will be available to
ProxyMed, or if available, that it will be available on acceptable terms. If
ProxyMed is successful in obtaining additional financing, the terms of the
financing may have the effect of significantly diluting or adversely affecting
the holdings or the rights of the holders of ProxyMed common stock. ProxyMed
believes that if ProxyMed is not successful in obtaining additional financing
for further product development or strategic acquisitions, such inability may
adversely impact ProxyMed's ability to successfully execute ProxyMed's business
plan and may put it at a competitive disadvantage.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
ProxyMed's discussion and analysis of ProxyMed's financial condition
and results of operations are based on its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of ProxyMed's financial
statements requires ProxyMed to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. ProxyMed bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions but ProxyMed believes that
any variation in results would not have a material effect on its financial
condition. ProxyMed evaluates estimates on an ongoing basis.
ProxyMed believes the following critical accounting policies affect
ProxyMed's more significant judgments and estimates used in the preparation of
consolidated financial statements. For a detailed discussion on the application
of these and other accounting policies, see Note 1 in the Notes to Consolidated
Financial Statements beginning on Page FS-10.
144
Revenue Recognition - Electronic transaction processing fee revenue is
recorded in the period the service is rendered. Certain transaction fee revenue
may be subject to revenue sharing per agreements with resellers, vendors or
gateway partners and are recorded as gross revenues. Revenue from sales of
inventory and manufactured goods is recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the price is fixed or determinable
and collectibility is probable. Revenue from certain up-front fees is amortized
ratably over the expected life of the customer or contract. Revenue from
hardware leases, network access and maintenance fees is recognized ratably over
the applicable period.
Goodwill - ProxyMed adopted the provisions of SFAS No. 142, "Goodwill
and Other Intangible Assets" effective January 1, 2002. Under SFAS No. 142,
goodwill is reviewed at least annually for impairment. This adoption resulted in
the reduction of approximately $.8 million of amortization relating to its
existing goodwill each quarter, which would have otherwise been recorded through
the first quarter of 2004. SFAS No. 142 requires that goodwill be tested for
impairment at the reporting unit level at adoption and at least annually
thereafter, utilizing a "fair value" methodology versus an undiscounted cash
flow method required under previous accounting rules. In accordance with its
adoption of FAS No. 142, ProxyMed completed its initial impairment test of
goodwill during the first quarter of 2002 and its annual test at December 31,
2002 utilizing various valuation techniques including a market value analysis.
No impairment charges were recorded as a result of these tests.
Capitalized Software Development and Research and Development - Costs
incurred internally and fees paid to outside contractors and consultants during
the application development stage of ProxyMed's internally used software
products are capitalized. Costs of upgrades and major enhancements that result
in additional functionality are also capitalized. Costs incurred for maintenance
and minor upgrades are expensed as incurred. All other costs are expensed as
incurred as research and development expenses (which are included in "Selling,
General and Administrative Expenses"). Application development stage costs
generally include software configuration, coding, installation to hardware and
testing. Once the project is completed, capitalized costs are amortized over
their remaining estimated economic life. ProxyMed's judgment is used in
determining whether costs meet the criteria for immediate expense or
capitalization. ProxyMed periodically reviews projected cash flows and other
criteria in assessing the impairment of any internal-use capitalized software
and take impairment charges as needed.
Equity Transactions - Over the past two years, ProxyMed has engaged in
various equity transactions. These transactions were aimed initially at
providing capital to continue to operate and grow our business and later at
simplifying our capital structure. These transactions are complex and require
the application of various accounting rules and standards that have resulted in
significant cash and non-cash charges reflected primarily as deemed dividend
charges included in ProxyMed's net loss applicable to common shareholders.
Additionally, the valuation of the PlanVista warrant is based on a series of
assumptions that are used in a complex financial model. Any change in these
assumptions may have a material effect on the valuation of the warrant, which
may affect ProxyMed's reported operating results.
Bad Debt Estimates - ProxyMed relies on estimates to determine the bad
debt expense and the adequacy of the reserve for doubtful accounts receivable.
These estimates are based on ProxyMed's historical experience and the industry
in which ProxyMed operates. If the financial condition of ProxyMed's customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
NEW ACCOUNTING PRONOUNCEMENTS
In April 2003, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities". SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, except for
certain provision that relate to SFAS No. 133 implementation issues that have
been effective for fiscal quarters that began prior to June 15, 2003 and for
hedging relationships designated after June 30, 2003. ProxyMed does not believe
that the implementation SFAS No. 149 will have a material effect on its
consolidated financial statements and related disclosures.
145
In May 2003, the Financial Accounting Standards Board issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity". SFAS No. 150 specifies that instruments within its
scope embody obligations of the issuer and that, therefore, the issuer must
classify them as liabilities. SFAS No. 150 requires issuers to classify as
liabilities the following three types of freestanding financial instruments: (1)
mandatory redeemable financial instruments; (2) obligations to repurchase the
issuer s equity shares by transferring assets; and (3) certain obligations to
issue a variable number of shares. SFAS No. 150 defines a freestanding financial
instrument as a financial instrument that (1) is entered into separately and
apart from any of the entity's other financial instruments or equity
transactions; or (2) is entered into in conjunction with some other transaction
and can be legally detached and exercised on a separate basis. For all financial
instruments entered into or modified after May 31, 2003, SFAS No. 150 is
effective immediately. For all other instruments of public companies, SFAS No.
150 goes into effect at the beginning of the first interim period beginning
after June 15, 2003. For contracts that were created or modified before May 31,
2003 and still exist at the beginning of the first interim period beginning
after June 15, 2003, entities should record the transition to SFAS No. 150 by
reporting the cumulative effect of a change in an accounting principle. SFAS No.
150 prohibits entities from restating financial statements for earlier years
presented. ProxyMed does not expect the adoption of SFAS No. 150 to have a
material impact on its financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ProxyMed is exposed to market risks in the value of its PlanVista
Corporation warrant from changes in the fair market value of the underlying
stock. ProxyMed's ability to limit its exposure to market risk is restricted as
a result of its inability to control the market value of the underlying common
stock of the warrant.
ProxyMed is exposed to market risks in the value of its PlanVista
Corporation warrant from changes in the fair market value of the underlying
common stock. ProxyMed's ability to limit its exposure to market risk is
restricted as a result of its inability to control the market value of the
underlying common stock of the warrant.
ProxyMed derives no revenues from international operations and does not
believe that it is exposed to material risks related to foreign currency
exchange rates.
146
PROXYMED MANAGEMENT
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 2002,
- None of the members of the Compensation Committee was an
officer (or former officer) or employee of ProxyMed or any of
its subsidiaries;
- None of the members of the Compensation Committee had any
relationship requiring disclosure under any paragraph of Item
404 of Regulation S-K;
- None of ProxyMed's executive officers served on the
compensation committee (or another board committee with
similar functions) of any entity where one of that entity's
executive officers served on ProxyMed's Compensation
Committee;
- None of ProxyMed's executive officers was a director of
another entity where one of that entity's executive officers
served on ProxyMed's Compensation Committee; and
- None of ProxyMed's executive officers served on the
compensation committee (or another board committee with
similar functions) of another entity where one of that
entity's executive officers served as a director on ProxyMed's
board.
COMPENSATION OF PROXYMED DIRECTORS
ProxyMed's employee directors are not compensated for their services as
directors. Non-employee directors are compensated with stock options for their
services as directors as follows: Effective beginning May 22, 2002, each
non-employee director will be granted 15,000 stock options upon his or her
initial appointment or election to the board of directors by the shareholders
with such grant vesting equally over the following three years. On each
subsequent election by the shareholders, each non-employee director receives an
additional 5,000 share stock option grant which vests immediately. Additionally,
each non-employee director receives an annual 2,500 share stock option grant for
each subcommittee membership. Such subcommittee grants vest in full after three
years but may be accelerated to vest immediately on a prorata basis (based on
four projected subcommittee meetings per election year) as determined by the
attendance of the director at each subcommittee meeting. For the 2002-2003
election year, options to purchase a total of 71,875 shares of common stock at
exercise prices of $12.54 to $20.20 were granted pursuant to the above
guidelines. For the 2003-2004 election year, options to purchase a total of
45,000 shares of common stock at an exercise price of $10.63 were granted
pursuant to the above guidelines. Of this amount, 7,500 stock options were
accelerated to vest by December 5, 2003. Additionally, all directors are
reimbursed for reasonable expenses incurred in attending board meetings.
On April 16, 2003, ProxyMed's six outside directors were each granted
10,000 stock options at an exercise price of $7.28 per share. Such options are
for a ten-year term and vest equally over the following three years.
147
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the past
three fiscal years to ProxyMed's Chief Executive Officers and ProxyMed's other
four most highly compensated executive officers during year 2002 with annual
compensation over $100,000 for such years, referred to as the Named Executive
Officers:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- -------------------------- -------
OTHER RESTRICTED SECURITIES ALL
NAME AND ANNUAL STOCK UNDERLYING LTIP OTHER
PRINCIPAL SALARY BONUS COMP. AWARD(s) OPTIONS/ PAYOUTS COMPEN-
POSITION YEAR ($) ($) ($) ($) SARS (#) ($) SATION ($)
--------------------- ---- --------- -------- -------- ---------- ---------- ------- ----------
Michael K. Hoover 2002 150,000 15,000(2) -- -- 45,508 -- --
Chairman and Chief 2001 110,019 -- -- -- 19,104 -- 1,000(6)
Executive Officer 2000 56,553(1) -- 285,000(1) -- 333,333 -- 1,000(6)
John Paul Guinan 2002 180,192 2,500(2) -- -- 29,788(8) -- --
EVP - Prescription 2001 175,155 -- -- -- 2,740 -- 1,000(6)
Services 2000 188,059 -- -- -- 26,667 -- 1,000(6)
Nancy J. Ham 2002 163,269 15,000(2) 34,481(3)(4) -- 38,572 -- --
President and Chief 2001 141,096 -- 26,180(4) -- 9,596 -- 1,000(6)
Operating Officer 2000 35,585(5) 5,000(2) -- -- 43,333 -- --
Lonnie W. Hardin 2002 164,057 10,000(2) -- -- 21,522(8) -- --
SVP, Payer Services 2001 137,800 14,138(2) -- -- 3,000 -- 1,000(6)
2000 137,800 8,750(2) -- -- 13,333 -- 1,000(6)
A. Thomas Hardy 2002 182,346 2,500(2) -- -- 25,921(8) -- --
SVP - Lab Services 2001 199,904 -- -- -- 12,624 -- 1,000(6)
and President of Key 2000 230,602 20,000(2) -- -- 20,000 -- 8,667(7)
Communications
Service, Inc.
------------------
(1) Mr. Hoover joined ProxyMed on July 28, 2000. As part of his employment
agreement dated July 28, 2000, Mr. Hoover was awarded 13,333 shares of
common stock valued at $285,000.
(2) Earned in current fiscal year but paid in following fiscal year.
(3) Consists of reimbursement of relocation expenses of $9,461, including
tax reimbursement of $3,122.
(4) Consists of reimbursement of living expenses for Florida housing,
including tax reimbursements of $7,020 and $4,580 in 2002 and 2001,
respectively.
(5) Ms. Ham joined ProxyMed on October 16, 2000.
(6) Matching employer contributions made under the ProxyMed 401(k) Plan.
(7) Includes matching employer contributions of $8,000 the Key
Communications Service, Inc. 401(k) Plan and $667 made under the
ProxyMed 401(k) Plan for 2000.
(8) Includes stock options canceled and reissued as follows: 13,333 options
for Mr. Guinan, 1,434 options for Mr. Hardin, and 9,466 options for Mr.
Hardy.
OPTION GRANTS IN 2002
ProxyMed's shareholders approved the 2000 Incentive Stock Option Plan
at the 2000 Annual Shareholders' Meeting. Grants of ProxyMed stock options under
the Plan are intended to provide an incentive for key employees to achieve
short- to medium-range performance goals of ProxyMed. This is done generally by
tying the vesting of granted options to the grantee's region or profit center
achieving pre-tax earnings reflecting a compound annual growth in excess of 15%
over pre-tax earnings for 1999, the Plan's base year, for the period ending
December 31,
148
2002. The granted options will vest as these performance standards are achieved
or on the day prior to the ten-year anniversary date of the grant, whichever is
earlier. Vested stock options may be exercised only pursuant to a schedule set
forth in each grantee's agreement with ProxyMed. The grantee may not sell or
transfer any granted stock options. The table below sets forth the number of
options granted to the Named Executive Officers in 2000.
The following table provides information on stock option grants during
fiscal year 2002 to each of the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
INDIVIDUAL GRANTS OF STOCK PRICE APPRECIATION
FOR OPTION TERM*
------------------------------------------------------------------------------------ ---------------------------
# OF SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/ GRANTED TO EXERCISE
SARS EMPLOYEE IN OR BASE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
------------------ -------------- ------------ --------- ---------- -------- -----------
Michael K. Hoover 45,508 13.8% $17.36 6/18/12 $496,839 $1,259,087
John Paul Guinan 29,788 9.0% $15.55 9/27/12 $291,306 $ 738,227
Nancy J. Ham 2,640 0.8% $16.82 3/31/07 $ 12,268 $ 27,110
Nancy J. Ham 35,932 10.9% $17.36 6/18/12 $392,292 $ 994,144
Lonnie W. Hardin 21,522 6.5% $15.55 9/27/12 $210,470 $ 533,373
A. Thomas Hardy 25,921 7.8% $15.55 9/27/12 $253,490 $ 642,392
* The assumed annual rates of stock price appreciation are required
disclosures, and are not intended to forecast future stock appreciation.
AGGREGATE OPTION EXERCISES IN 2000
The following table sets forth certain information concerning
unexercised options held by each of the Named Executive Officers:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FY-END (#) OPTIONS/SARS AT FY-END ($)**
----------------------------- -----------------------------
# OF SHARES
ACQUIRED
ON $ VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------- ----------- -------- ----------- ------------- ----------- -------------
Michael K. Hoover -- -- 253,343 144,602 $ -- $ --
John Paul Guinan -- -- 27,404 31,791 $ -- $ --
Nancy J. Ham -- -- 51,444 40,057 $ -- $ --
Lonnie W. Hardin -- -- 18,673 19,182 $ -- $ --
A. Thomas Hardy -- -- 29,714 28,831 $ -- $ --
** Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the fiscal year-end
market value of the common stock, which was $10.44 on December 31, 2002.
149
There were no awards made to Named Executive Officers in the last
completed fiscal year under any long-term incentive plan for performance to
occur over a period longer than one fiscal year. ProxyMed does not have any
defined benefit or actuarial plans for ProxyMed's employees.
The following table sets forth certain information concerning repriced
stock options held by each of the Named Executive Officers:
TEN YEAR OPTIONS/SAR REPRICINGS
NUMBER OF
SECURITIES MARKET PRICE LENGTH OF ORIGINAL
UNDERLYING OF STOCK AT OPTION TERM
OPTIONS/SARS TIME OF EXERCISE PRICE NEW REMAINING AT
REPRICED OR REPRICING OR AT TIME OF EXERCISE DATE OF
AMENDED AMENDMENT REPRICING OR PRICE REPRICING OR
NAME DATE (#) ($) AMENDMENT ($) AMENDMENT
----------------------- ---------- ---------------- -------------- --------------- ------------- -------------------
John Paul Guinan 9/27/02 10,000 $15.55 $ 57.45 $15.55 1.1 years
John Paul Guinan 9/27/02 1,000 $15.55 $104.10 $15.55 4.1 years
John Paul Guinan 9/27/02 2,333 $15.55 $198.75 $15.55 1.8 years
Lonnie W. Hardin 9/27/02 667 $15.55 $148.20 $15.55 1.4 years
Lonnie W. Hardin 9/27/02 767 $15.55 $198.75 $15.55 1.8 years
A. Thomas Hardy 9/27/02 6,533 $15.55 $165.00 $15.55 1.9 years
A. Thomas Hardy 9/27/02 2,933 $15.55 $176.25 $15.55 6.3 years
Certain stock options for executive officers and directors were amended
in 2000 and 2001 to allow for extensions of exercise periods (typically one to
three years) after termination of employment. Additionally, in January 2002, the
exercise period of certain vested options held by ProxyMed's three resigning
directors were extended through December 31, 2003. In January 2002, ProxyMed's
board of directors agreed to cancel a total of 37,767 stock options with
exercise prices ranging from $57.45 to $202.50 previously issued to employees
with the intent of reissuing the same number of options in the future at the
then current market price. In September 2002, ProxyMed issued 36,867 stock
options at an exercise price of $15.55 per share pursuant to these instructions,
including 24,233 stock options to the named executives in the above table. In
all cases noted here, the market price of ProxyMed's common stock was below the
exercise price of the options at the time of amendment.
In April 2003, the six outside directors of ProxyMed were each granted
10,000 stock options at an exercise price of $7.28 per share. Such options were
granted pursuant to ProxyMed's approved stock option plans and are for a
ten-year term and vest equally over three years from the date of grant.
Additionally, in May 2003, ProxyMed's outside directors were granted a total of
30,000 and 15,000 options at an exercise price of $10.63 to compensate the
directors upon re-election to the board and participation in sub-committees,
respectively, pursuant to guidelines adopted by ProxyMed's board of directors in
May 2002. In October 2003, the compensation committee approved grants of 125,000
and 50,000 stock options at an exercise price of $15.90 per share to Michael K.
Hoover, ProxyMed's chairman and chief executive officer, and Nancy J. Ham,
ProxyMed's president and chief operating officer, respectively. Such options are
for a ten-year term and vest equally over three years from the date of grant.
In January 2002, the Compensation Committee of ProxyMed's board of
directors agreed to authorize bonuses for members of executive and senior
management in the event of a change in control of ProxyMed. These bonuses would
be based on the calculated per share value of the transaction, are payable in
cash and/or stock, and are contingent upon certain conditions including
obtaining a minimum per share value and being an active employee at the time of
such event.
150
EQUITY COMPENSATION PLANS
ProxyMed has various stock option plans for employees, directors and
outside consultants, under which both incentive stock options and non-qualified
options may be issued. Under such plans, options to purchase up to 1,281,017
shares of common stock may be granted. Options may be granted at prices equal to
the fair market value at the date of grant, except that incentive stock options
granted to persons owning more than 10% of the outstanding voting power must be
granted at 110% of the fair market value at the date of grant. At ProxyMed's
Annual Meeting of Shareholders held on May 22, 2002, the shareholders approved a
new 2002 Stock Option Plan pursuant to which options to purchase 600,000 shares
of common stock may be issued to employees, officers and directors. In addition,
as of December 31, 2002, options for the purchase of 418,142 shares to
newly-hired employees remain outstanding. Stock options issued by ProxyMed
generally vest within three years, and expire up to ten years from the date
granted. See Note 14 to the Consolidated Financial Statements and related notes
beginning on page FS-24 for more information on our equity compensation plans.
The following table sets forth information regarding our compensation
plans under which equity securities are authorized for issuance as of December
31, 2002:
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF NUMBER OF
SECURITIES SECURITIES
TO BE ISSUED WEIGHTED-AVERAGE REMAINING
UPON EXERCISE EXERCISE PRICE AVAILABLE FOR
OF OUTSTANDING OF OUTSTANDING FUTURE ISSUANCE
PLAN OPTIONS, WARRANTS OPTIONS, WARRANTS UNDER EQUITY
CATEGORY AND RIGHTS AND RIGHTS COMPENSATION PLANS
---------------------------------------- -------------------- --------------------- ----------------------
Equity compensation plans approved 666,413 $22.12 575,042
by security holders
Equity compensation plans not approved 418,142 $25.10 --
by security holders (1)
Total 1,084,555 $23.27 575,042
-----------------------
(1) ProxyMed maintains a stock option plan to grant stock options to newly-hired
employees. Such plan was not required to be approved by the shareholders of
ProxyMed. Since January 2002, no additional grants of options have been made
from this plan. Any grants to newly-hired employees since January 2002 have
since been made from plans approved by our shareholders.
EMPLOYMENT AND DEFERRED COMPENSATION AGREEMENTS
In July 2000, ProxyMed entered into an employment agreement with Mr.
Hoover. The agreement is for a three-year term and automatically extends from
year to year thereafter unless terminated by ProxyMed upon 90 days' written
notice or by the employee upon 30 days' written notice prior to the end of the
initial term or any extension. Mr. Hoover currently receives an annual base
salary of $225,000 (effective January 1, 2003) and is entitled to such bonuses
as may be awarded from time to time and to participate in any stock option plans
that we may now have or in the future develop. In October 2003, the Compensation
Committee agreed to increase Mr. Hoover's base salary to $275,000 effective
January 1, 2004. He may be terminated for "cause" as defined in his agreement.
If terminated for cause, he will be entitled to base salary earned, and he will
retain all vested stock options. If, upon 90 days' prior written notice, he is
terminated "without cause", he will be entitled to receive an amount equal to
his base salary plus bonus, if any, and continuation of health insurance for six
months following termination, plus any unvested options shall vest. In addition,
the agreement contains confidentiality and non-competition covenants.
In October 2000, ProxyMed entered into an employment agreement with Ms.
Ham. The agreement is for a three-year term and automatically extends from year
to year thereafter unless terminated by ProxyMed upon 90
151
days' written notice or by the employee upon 30 days' written notice prior to
the end of the initial term or any extension. Ms. Ham currently receives an
annual base salary of $200,000 (effective January 1, 2003) and is entitled to
such bonuses as may be awarded from time to time and to participate in any stock
option plans that we may now have or in the future develop. Upon her promotion
to president in October 2001, Ms. Ham was awarded a $25,000 salary increase
which she deferred until April 1, 2002. In lieu of this increase, she was
granted 2,640 stock options at an exercise price of $16.82 per share; these
options vested on March 31, 2002. In October 2003, the Compensation Committee
agreed to increase Ms. Ham's base salary to $225,000 effective January 1, 2004.
She may be terminated for "cause" as defined in her agreement. If terminated for
cause, she will be entitled to base salary earned, and she will retain all
vested stock options. If, upon 90 days' prior written notice, she is terminated
"without cause", she will be entitled to receive an amount equal to her base
salary plus bonus, if any, and continuation of health insurance for six months
following termination, plus any unvested options shall vest. In addition, the
agreement contains confidentiality and non-competition covenants.
In December 1995, ProxyMed entered into an employment agreement with
Mr. Guinan, which is automatically extended from year to year unless terminated
by either party upon 60 days' written notice. Mr. Guinan currently receives an
annual base salary of $185,000 (effective January 1, 2003) and is entitled to
such bonuses as may be awarded from time to time by the board of directors and
to participate in any stock option plans that we may now have or in the future
develop. Mr. Guinan may be terminated for "cause" as defined in the agreement.
If he is terminated for cause, he will be entitled to base salary earned, and he
will retain all vested stock options. If he is terminated "without cause", then
he will be entitled to receive an amount equal to his base salary and bonus, if
any, and continuation of health insurance for six months following termination,
plus any unvested options shall vest. In addition, the agreement contains
confidentiality and non-competition covenants.
In March 2001, ProxyMed entered into an employment agreement with Mr.
Hardin. The agreement is for a three-year term and automatically extends from
year to year thereafter unless terminated by ProxyMed upon 90 days' written
notice or by the employee upon 30 days' written notice prior to the end of the
initial term or any extension. Mr. Hardin currently receives an annual base
salary of $185,000 (effective January 1, 2003), and is entitled to such bonuses
as may be awarded from time to time and to participate in any stock option plans
that we may now have or in the future develop. He may be terminated for "cause"
as defined in his agreement. If terminated for cause, he will be entitled to
base salary earned, and he will retain all vested stock options. If, he is
terminated "without cause," he will be entitled to receive an amount equal to
his base salary plus bonus, if any, and continuation of health insurance for six
months following termination, plus any unvested options shall vest. In addition,
the agreement contains confidentiality and non-competition covenants.
In December 1998, upon acquiring Key Communications, ProxyMed entered
into a three-year employment agreement with Mr. Hardy. Under this agreement, Mr.
Hardy received an annual base salary of $225,000 and was eligible to receive an
annual bonus up to $40,000 as may be awarded by the board of directors. In
December 2001, ProxyMed entered into a new employment agreement with Mr. Hardy.
The agreement is for a three-year term and automatically extends from year to
year thereafter unless terminated by ProxyMed upon 90 days' written notice or by
the employee upon 30 days' written notice prior to the end of the initial term
or any extension. Under this new agreement, Mr. Hardy currently receives an
annual base salary of $185,000 (effective January 1, 2003) and is entitled to
such bonuses as may be awarded from time to time and to participate in any stock
option plans which we may now have or in the future develop. He may be
terminated for "cause" as defined in his agreement. If terminated for cause, he
will be entitled to base salary earned, and he will retain all vested stock
options. If he is terminated "without cause", he will be entitled to receive an
amount equal to his base salary plus bonus, if any, and continuation of health
insurance for six months following termination, plus any unvested options shall
vest. In addition, the agreement contains confidentiality and non-competition
covenants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF PROXYMED
In April 1997, ProxyMed made loans totaling $350,000 to Mr. Harold
Blue, ProxyMed's former chairman of the board and chief executive officer. The
funds were advanced pursuant to two demand promissory notes in the principal
amounts of $290,000 and $60,000, respectively, each bearing interest at a rate
of 7-3/4% per annum. On June 30, 2000, we amended the terms of these notes
whereby interest on the notes ceased to accrue subsequent to July 1, 2000 and
the loan plus accrued interest, totaling $435,900 at June 30, 2000, would be
payable in a balloon
152
payment in December 2001. The loans were collateralized with options to purchase
36,667 shares of common stock granted to Mr. Blue under ProxyMed's stock option
plans. As of December 31, 1999, these loans were included in other assets on the
balance sheet; as of December 31, 2000, all amounts owed under these loans were
reclassified to shareholders' equity.
In December 2001, a payment of $250,000 was received from Mr. Blue and
applied against the outstanding balance of the loans. ProxyMed agreed to
refinance the remaining $185,983 balance and a new promissory note was executed
by Mr. Blue. This new note requires monthly interest payments at prime rate plus
1%, established at the beginning of each calendar quarter, and is payable in a
balloon payment on or before December 31, 2003. The note is collateralized with
options to purchase 36,667 shares of common stock granted to Mr. Blue under the
ProxyMed stock option plans along with additional warrants granted to Mr. Blue
from various other public companies. In January 2002, Mr. Blue resigned from
ProxyMed's board of directors and the remaining Board members agreed to extend
the exercise period of the stock options held as collateral for the note in an
effort to maximize the potential for repayment.
In March 2001, Mr. Guinan entered into an uncollateralized promissory
note for $45,400 for amounts previously borrowed from ProxyMed. The promissory
note calls for minimum bi-weekly payments of $350 deducted directly from Mr.
Guinan's payroll until the note is paid in full on or before February 2006. The
note is non-interest bearing but interest is imputed annually based on the
Internal Revenue Service Applicable Federal Rate at the time the note was
originated (4.98%). Under terms of the promissory note, if Mr. Guinan is
terminated without cause, the note is due in full after nine months from the
date of termination as long as the scheduled bi-weekly payments continue to be
made. As of December 5, 2003, the unpaid principal balance of the note is
$14,400.
In June 2003, ProxyMed amended the promissory note executed in June
2000 by Mr. Blue. The amendment extended the maturity date of the promissory
note for an additional twelve months to December 31, 2004 and also allowed Mr.
Blue to offset any principal owed with certain amounts payable to Mr. Blue by
ProxyMed as a result of a finder's fee arrangement with ProxyMed.
ProxyMed entered into a joint distribution and marketing agreement with
PlanVista in June 2003. PlanVista is controlled by an affiliate of Commonwealth
Associates Group Holdings, LLC, whose principal, Michael Falk, is a director of
both ProxyMed and PlanVista. Additionally, one senior executive of ProxyMed has
an immaterial ownership interest in PlanVista.
153
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PROXYMED
The following table sets forth information to ProxyMed's knowledge or
as reported to ProxyMed regarding the beneficial ownership of ProxyMed's common
stock as of December 5, 2003 (before the transaction) and after the consummation
of the acquisition of PlanVista (including the issuance of 1,691,229 shares of
ProxyMed common stock issued in a private placement) with respect to (i) each
person known to ProxyMed to be the beneficial owner of more than 5% of
ProxyMed's common stock, including exercisable options and warrants; (ii) each
director; (iii) each corporate officer named in the Summary Compensation Table
below; and (iv) all of ProxyMed's directors and executive officers as a group.
Beneficial ownership is determined under the rules and regulations of the
Securities and Exchange Commission, referred to as the SEC.
Shares Owned Before the Shares Owned After the
Transaction Transaction
------------------------------ -- --------------------------------
Name and Address (1) # of Shares (2) % of Class # of Shares (2) % of Class
----------------- --------------- ---------- --------------- ----------
William L. Bennett (3) -- 0% 20,757 *
2 Canal Park
Cambridge, MA 02141
Edwin M. Cooperman (4) 33,147 * 33,147 *
Phillip S. Dingle (5) -- 0% 1,341 *
4010 Boy Scout Blvd.
Suite 200
Tampa, FL 33607
Michael S. Falk (6) 434,568 6.4% 2,596,352 21.5%
John Paul Guinan (7) 39,487 * 39,487 *
Nancy J. Ham (8) 73,306 1.1% 73,306 *
Lonnie W. Hardin (9) 25,340 * 25,340 *
A. Thomas Hardy (10) 88,480 1.3% 88,480 *
Thomas E. Hodapp (11) 30,150 * 30,150 *
Michael K. Hoover (12) 510,569 7.1% 510,569 4.1%
Braden R. Kelly (13) 2,132,395 29.0% 3,395,553 26.9%
Jeffrey S. Markle (14) -- 0% 565 *
4010 Boy Scout Blvd.
Suite 200
Tampa, FL 33607
Kevin M. McNamara (15) 13,125 * 13,125 *
Rafael G. Rodriguez (16) 2,000 * 2,000 *
Judson E. Schmid (17) 27,233 * 27,233 *
154
Shares Owned Before the Shares Owned After the
Transaction Transaction
---------------------------- ----------------------------
Name and Address(1) # of Shares(2) % of Class # of Shares(2) % of Class
------------------- -------------- ---------- -------------- ----------
Eugene R. Terry (18) 28,083 * 28,083 *
Timothy J. Tolan (19) 29,992 * 29,992 *
Thomas C. Wohlford -- 0% -- 0%
General Atlantic Partners, LLC (13) 2,118,645 28.9%
Three Pickwick Plaza
Greenwich, CT 06830
Cramer Rosenthal & McGlynn, LLC (20) 363,826 5.3% 363,826 3.0%
520 Madison Avenue
New York, NY 10022
All directors and corporate officers as a 3,490,599 43.2% 7,279,306 51.8%
group (27 persons before transaction/30
persons after transaction) (21)
---------------------
*Less than 1%
(1) The address for each person, unless otherwise noted, is 2555 Davie
Road, Suite 110, Fort Lauderdale, Florida 33317-7424.
(2) In accordance with Rule 13d-3 of the Securities and Exchange Act of
1934, shares that are not outstanding, but that are subject to options,
warrants, rights or conversion privileges exercisable within 60 days
from December 4, 2003, have been deemed to be outstanding for the
purpose of computing the percentage of outstanding shares owned by the
individual having such right, but have not been deemed outstanding for
the purpose of computing the percentage for any other person.
(3) After the transaction, includes 20,757 shares held of record.
(4) Includes 5,450 shares held of record and 27,697 shares issuable upon
the exercise of currently exercisable stock options.
(5) After the transaction, includes 1,341 shares held of record.
(6) Before the transaction, includes 132,190 shares held of record by
Michael Falk and various Falk family trusts and foundations and 11,617
shares issuable upon the exercise of currently exercisable stock
options and warrants. Additionally, includes (i) 19,402 shares held of
record by Commonwealth Associates, LP for which Mr. Falk is a control
person; (ii) 16,278 shares held of record by ComVest Capital Partners,
LLC for which Mr..Falk is a managing member; and (iii) 248,446 shares
held of record and 6,635 shares issuable upon the exercise of currently
exercisable warrants by Commonwealth Liquidation, LLC for which Mr.
Falk is a controlling member as reported in Form 4 filed with the SEC
on March 6, 2003. After the transaction, the number of shares held of
record by Mr. Falk and related parties will increase to a total of
2,596,352 shares representing 2,161,784 additional shares received as
follows: (i) 4,845 shares of record as a result of the acquisition of
PlanVista, (ii) 1,868,600 shares received by PVC Funding Partners, LLC,
an affiliate of Commonwealth Associates, L.P., as a result of the
acquisition of PlanVista, (iii) 619 shares received by Commonwealth
Associates, L.P. as a result of the acquisition of PlanVista, and (iv)
287,720 shares received by ComVest Venture Partners, L.P. and PVC
Funding Partners, L.P. in the private equity financing of $6.1 million
of ProxyMed common stock.
(7) Includes 67 shares held of record and 39,420 shares issuable upon the
exercise of currently exercisable stock options.
(8) Includes 4,083 shares held of record and 69,223 shares issuable upon
the exercise of currently exercisable stock options.
(9) Includes 25,340 shares issuable upon exercise of currently exercisable
stock options.
(10) Includes 48,943 shares held of record and 39,537 shares issuable upon
exercise of currently exercisable stock options.
(11) Includes 3,067 shares held of record and 27,083 shares issuable upon
exercise of currently exercisable stock options.
(12) Includes 141,114 shares held of record and 369,455 shares issuable upon
exercise of currently exercisable stock options.
155
(13) Before the transaction, includes 13,750 shares issuable upon exercise
of currently exercisable stock options for Mr. Kelly. Additionally,
includes the following shares of common stock held by various General
Atlantic entities: (i) 1,289,821 shares owned by General Atlantic
Partners 74, L.P.; (ii) 175,141 shares owned by GAP Coinvestment
Partners II, L.P.; (iii) 101,833 shares owned by GapStar, LLC; and (iv)
2,571 shares owned by GAPCO GmbH & Co. KG. These shares, along with
warrants to purchase an aggregate of 549,279 shares of common stock
were acquired in a private placement transaction completed on April 5,
2002. Braden R. Kelly, a director of ProxyMed, is a managing member of
General Atlantic Partners, LLC and general partner of GAP Coinvestment
Partners II, L.P. General Atlantic Partners, LLC is the general partner
of General Atlantic Partners 74, L.P. and the manager member of
GapStar, LLC. All but one of the managing members of General Atlantic
Partners, LLC are also the general partners of GAP Coinvestment
Partners II, L.P. Certain of the managing members of General Atlantic
Partners, LLC are authorized and empowered to vote and dispose of the
shares held by GAPCO GmbH & Co KG. Mr. Kelly disclaims beneficial
ownership of the shares referred in clauses (i), (ii), (iii) and (iv)
above, except to the extent of his pecuniary interest therein.
Beneficial ownership for Mr. Kelly and the four entities affiliated
with General Atlantic Partners excludes 243,882 shares of common stock
that may be awarded under warrants issued to these entities in July
2003. Such warrants are contingently exercisable only upon the
achievement of certain periodic revenue thresholds achieved by ProxyMed
related to services derived from ProxyMed's "FirstProxy" joint
marketing agreement with First Data Corporation. After the transaction,
the number of shares held of record by various General Atlantic
entities will increase by 1,263,157 shares representing shares received
in the private equity offering of ProxyMed common stock.
(14) After the transaction, includes 565 shares held of record.
(15) Includes 13,125 shares issuable upon exercise of currently exercisable
stock options.
(16) Includes 2,000 shares issuable upon exercise of currently exercisable
stock options.
(17) Includes 1,186 shares held of record and 26,047 shares issuable upon
exercise of currently exercisable stock options.
(18) Includes 28,083 shares issuable upon exercise of currently exercisable
stock options.
(19) Includes 1,333 shares held of record and 28,659 shares issuable upon
exercise of currently exercisable stock options.
(20) Includes 363,826 shares held of record by Cramer Rosenthal McGlynn, LLC
as reported in Form 13D filed with the SEC as of September 30, 2003.
(21) Before the transaction, includes 2,190,926 shares held of record by the
named officers and directors and their related parties and 1,299,673
shares issuable upon exercise of currently exercisable stock options
and warrants. After the transaction, includes 5,769,575 shares held of
record by the named officers and directors and their related parties
and 1,299,673 shares issuable upon exercise of currently exercisable
stock options and warrants.
156
DESCRIPTION OF PROXYMED CAPITAL STOCK
ProxyMed's authorized capital stock consists of 13,333,333 1/3 shares
of common stock, par value $.001 per share, and 2,000,000 shares of preferred
stock, par value $.01 per share, of which 445,000 shares have been designated as
series A (130,000 shares designated and issued), series B (15,000 shares
designated and issued) or series C (300,000 shares designated and 253,265 shares
issued) with currently no series A or B preferred shares outstanding and only
2,000 series C preferred shares outstanding, convertible into 13,333 shares of
common stock.
The following description summarizes the terms of ProxyMed's common
stock and series C preferred stock only and does not purport to be complete.
Such description is subject to and qualified by the actual agreements relating
to ProxyMed's series C preferred stock, its amended and restated articles of
incorporation and by-laws, all of which have been filed with the SEC, and by
applicable law.
COMMON STOCK
The issued and outstanding shares of common stock are validly issued,
fully paid and non-assessable. All shares of common stock have equal voting
rights and, when validly issued and outstanding, have one vote per share in all
matters to be voted upon by the shareholders. Cumulative voting in the election
of directors is not allowed, which means that the holders of more than 50% of
the outstanding shares can elect all the directors if they choose to do so and,
in such event, the holders of the remaining shares will not be able to elect any
directors. The shares have no preemptive, subscription, conversion or redemption
rights. Upon liquidation, dissolution or winding-up of ProxyMed, the holders of
common stock are entitled to receive pro rata the assets of ProxyMed which are
legally available for distribution to shareholders. On August 17, 2001, ProxyMed
announced a 1-for-15 reverse stock split of ProxyMed's common stock whereby each
15 shares of common stock were exchanged for one new share of common stock. The
holders of outstanding shares of common stock are entitled to receive dividends
out of assets legally available for them at such times and in such amounts as
the board of directors may from time to time determine. ProxyMed has not paid
any dividends and does not expect to pay cash dividends on its common stock in
the foreseeable future.
PREFERRED STOCK
In addition to series A, B and C preferred Stock, ProxyMed's board of
directors has the authority to issue 1,555,000 additional shares of preferred
stock in one or more series and to fix the designation, relative powers,
preferences and rights and qualifications, limitations or restrictions of all
shares of each such series, including dividend rates, conversion rights, voting
rights, redemption and sinking fund provisions, liquidation preferences and the
number of shares constituting each such series, without any further vote or
action by the shareholders. The issuance of preferred stock could decrease the
amount of earnings and assets available for distribution to holders of common
stock or adversely affect the rights and powers, including voting rights, of the
holders of common stock and could have the effect of delaying, deferring or
preventing a change in control of ProxyMed without further action by the
shareholders.
SERIES C PREFERRED STOCK
Pursuant to the terms of a Subscription Agreement dated June 15, 2000,
ProxyMed sold, in a private placement to institutional and individual investors
a total of $24,310,000 of 7% convertible senior secured notes due January 1,
2001. Together with the notes, ProxyMed issued five-year warrants for the
purchase of an aggregate of 810,333 shares of common stock at an exercise price
of $15.00 per share. All of the Notes have been converted into shares of series
C preferred stock. The conversion price of the series C preferred stock, the
warrant exercise price, and number of shares of common stock issuable upon
exercise of the warrants are subject to adjustment upon the occurrence of
certain dilution events including, without limitation, certain issuances of
common stock, stock options or convertible securities issued after June 2001, or
certain corporate transactions such as stock splits, mergers or asset sales.
Certain of the foregoing adjustments, however, are no longer applicable. Shares
of series C preferred stock are immediately convertible into common stock at any
time by the holder at an initial conversion price of $15.00 per share. Shares of
series C preferred stock are subject to mandatory conversion if ProxyMed raises
more than $30 million in gross proceeds from the issuance of securities in a
private or public placement or if the closing stock price of ProxyMed's common
stock is trading at $45.00 for 20 consecutive trading days. If declared by
ProxyMed's board of directors in its sole discretion, the series C preferred
stock is entitled to receive a 7% annual non-cumulative dividend, payable
quarterly in cash or shares of common stock at our option. If paid in common
stock, the common stock is valued at $15.00 per share, subject to adjustment.
Dividends on Series C Preferred Stock are non-cumulative. Holders of more than
two thirds of the outstanding series C preferred stock have voted to amend the
articles of designation governing the series C preferred stock and the
subscription agreement dated as of June 15, 2000. These amendments eliminate
certain rights of the series C preferred shareholders, including anti-dilution
provisions, voting rights and certain restrictive covenants agreed to by
ProxyMed. In the event of liquidation of ProxyMed, the holders of the series C
preferred stock will continue to be entitled to a liquidation preference before
any amounts are paid to the holders of common stock or any other security junior
to series C preferred stock. The liquidation preference is equal to an amount
originally paid for the series C preferred stock ($100 per share) plus accrued
and unpaid dividends on any outstanding series C preferred stock through the
date of determination, if previously declared by ProxyMed's board of directors
in its sole discretion. The holders of series C preferred stock are entitled to
one vote per share of common stock issuable upon the conversion of the series C
preferred stock and, except as otherwise provided by law, will vote as a single
class with the holders of common stock on all matters submitted to a vote.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Florida Business Corporation Act prohibits the voting of shares in
a publicly-held Florida corporation that are acquired in a "control share
acquisition" unless the holders of a majority of the corporation's voting shares
(exclusive of shares held by officers of the corporation, inside directors or
the acquiring party) approve the granting of voting rights as to the shares
acquired in the control share acquisition or unless the acquisition is approved
by the corporation's board of directors. A "control share acquisition" is
defined as an acquisition that immediately thereafter entitles the acquiring
party to vote in the election of directors within each of the following ranges
of voting power: (i) one-fifth or more but less than one-third of such voting
power; (ii) one-third or more but less than a majority of such voting power; and
(iii) more than a majority of such voting power. The Florida Business
Corporation Act also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
"interested shareholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder;
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years; or (iii) the transaction is
approved by the holders of two-thirds of the corporation's voting shares other
than those owned by the interested shareholder. An interested shareholder is
defined as a person who together with affiliates and associates beneficially
owns more than 10% of the corporation's outstanding voting shares.
ProxyMed is not subject to the Florida anti-takeover provisions under
the Florida Business Corporation Act because ProxyMed has elected to opt out of
those provisions in its articles of incorporation or bylaws as permitted by the
Florida laws.
Transfer Agent and Registrar
Registrar and Transfer Company serves as transfer agent and registrar
for ProxyMed common stock. It's telephone number is (800) 525-7686.
157
DESCRIPTION OF PLANVISTA
GENERAL
PlanVista provides medical cost containment and business process
outsourcing solutions for the medical insurance and managed care industries
through its operating subsidiary, PlanVista Solutions, Inc. PlanVista's
customers include healthcare payers such as self-insured employers, medical
insurance carriers, third party administrators, health maintenance
organizations, sometimes referred to as HMOs, and other entities that pay claims
on behalf of health plans. PlanVista also provides network and data management
business process outsourcing services for health care providers, including
individual providers, preferred provider organizations, sometimes referred to as
PPOs, and other provider groups.
PlanVista provides healthcare payers with access to its preferred
provider network, known as the National Preferred Provider Network, which offers
payers discounts on participating provider medical services. The National
Preferred Provider Network is a "network of networks," comprised of more than 30
local PPO networks and independent physician associations with which PlanVista
contracts, as well as directly contracted independent physicians in some cases.
PlanVista's National Preferred Provider Network includes approximately 400,000
physicians, 4,000 acute care hospitals, and 55,000 ancillary care providers. In
addition to offering payers in-network discounts, PlanVista has added medical
bill review and negotiation through key strategic alliances. PlanVista's cost
containment customers also benefit from its advanced claims repricing and
network and data management services.
PlanVista has leveraged its leading edge technology and management
expertise to offer its clients network and data management outsourcing services
that are independent of the National Preferred Provider Network access business.
In late 2001, PlanVista launched its PayerServ business, which helps payers
manage all of their network relationships, whether or not the payers also access
the National Preferred Provider Network. PlanServ, the other business initiative
PlanVista implemented in late 2001, provides claims repricing and network and
data management services that help PPOs support all of their payer
relationships, not simply payer relationships that they maintain through the
National Preferred Provider Network.
Prior to 2002, the National Preferred Provider Network access business
accounted for all of PlanVista's operating revenue. Plan Vista's new business
process outsourcing products, PayerServ and PlanServ, secured their first
customers in November 2001 and February 2002, respectively, and, together with
PlanVista's bill negotiation business and other new business initiatives,
collectively generated over 5.0% of PlanVista's operating revenue for 2002 and
10.7% through September 30, 2003.
BUSINESS STRATEGY
PlanVista plans to grow operating revenue and profits by increasing the
market share of its medical cost containment business, building its existing
network and data management business process outsourcing businesses, introducing
new medical cost management solutions for its customers and accessing
significant payer customers through its joint marketing agreement with ProxyMed.
PlanVista's strategy to date has been to market its established National
Preferred Provider Network brand as a leading national preferred provider
network and to provide a broad array of technology-based business process
outsourcing services to existing and new customers. This strategy is designed to
help customers maximize their total savings on medical claims and administration
through PlanVista's advanced network and administrative capabilities.
FOCUSED PENETRATION OF PAYER MARKET
PlanVista plans to increase the operating revenue from, and the
profitability of, its National Preferred Provider Network access business by
increasing its payer customer base. PlanVista believes that it can increase its
market share by marketing its claims repricing technology, its ability to
capture discounts on a large percentage of claims due to the size of its
National Preferred Provider Network, and the attractiveness to payer customers
of its percentage of savings revenue model, as discussed in more detail below.
PlanVista also cross-sells its PayerServ products to its existing National
Preferred Provider Network access customers. Additionally, because its National
158
Preferred Provider Network is a network comprised in part of a number of
regional PPOs, PlanVista believes that it will have the ability to market its
PlanServ products to these PPOs. PlanVista believes that its ability to market
its products to PPOs is enhanced because, in operating the National Preferred
Provider Network, PlanVista has gained experience in managing the back office,
automation, and technology challenges that most PPOs face.
EMPHASIS ON SUPERIOR TECHNOLOGY
PlanVista intends to continue differentiating itself as a technology
leader by using its electronic claims repricing technology to increase its
customer base. In June 2003, PlanVista completed the migration of all its
clients to its "MedEngine" repricing system on the Oracle Database, thereby
updating its technology-enabled services to further improve speed and accuracy
and achieve greater operational efficiencies and enhanced claim data integrity.
This technology update took place over the course of two years and represented a
significant achievement for PlanVista, allowing it to handle the most demanding
claim repricing tasks.
The latest version of PlanVista's Internet claims repricing system,
ClaimPassXL(R) v. 3.5, allows PlanVista to shift claims repricing submissions
from paper or fax to the Internet, which reduces its claims processing costs
from between $0.75 and $0.80 per claim to $0.15 per claim, and reduces
turnaround times from 72 hours to real-time for most claims. PlanVista believes
that faster turnaround of claims repricing will become more important to payers
as state insurance regulators increase their scrutiny of claims payment
turnaround times. Since the March 2001 release of ClaimPassXL(R) v. 3.0, the
predecessor to ClaimPassXL(R) v. 3.5, PlanVista's volume of Internet repriced
claims has increased steadily. PlanVista processed approximately 138,000
Internet claims in the fourth quarter of 2002, up from 84,000 in the fourth
quarter of 2001, and approximately 147, 000 Internet claims in the third quarter
of 2003. During 2002, approximately 250 customers used PlanVista's
ClaimPassXL(R) system, resulting in more than 528,000 claims processed and more
than $10.4 million in operating revenue for the year, with 275 customers and
432,000 claims processed through the third quarter of 2003.
RECENT DEVELOPMENTS
In June 2000, PlanVista initiated a strategic turnaround program
designed to (1) divest its third party administration businesses, (2) reduce its
senior debt, (3) focus its efforts on enhancing its medical cost containment
business, and (4) restructure its balance sheet. PlanVista disposed of all of
its third party administration and managing general underwriter businesses in a
series of transactions during 2000 and 2001.
Upon completion of the disposition of its former business units,
PlanVista was left with a capital and debt structure that its remaining medical
cost containment core business was not able to service, and PlanVista was unable
to pay its senior secured debt in the principal amount of approximately $69.0
million when it matured in August 2001. PlanVista entered into a forbearance
agreement with its senior lenders under which PlanVista operated until
completion of a new credit facility and debt restructuring transaction in April
2002. Pursuant to this restructuring, PlanVista obtained a revised term loan for
$40.0 million, which is collateralized by all of its assets, and exchanged $29.0
million of senior secured debt for 29,000 shares of its newly authorized series
C preferred stock and an additional note for $184,872, which was repaid on July
1, 2003, its maturity date.
On March 13, 2003, PVC Funding Partners, LLC, an affiliate of
Commonwealth Associates, L.P. and Comvest Venture Partners, L.P., filed a form
13D with the Securities and Exchange Commission in which they indicated that on
March 7, 2003, they acquired 29,851, or 96.0%, of the outstanding series C
preferred stock from PlanVista's senior lenders. These series C preferred shares
were purchased from such senior lenders on a prorata basis at a price of $33.50
per share. The selling lenders continue to hold the remaining 4.0% of the series
C preferred stock. In connection with the transaction, PVC Funding Partners also
acquired $20.5 million in principal amount of the outstanding bank debt from
PlanVista's senior lenders.
On March 31, 2003, PlanVista renegotiated approximately $4.8 million in
convertible notes that were originally issued to Centra Benefit Services, Inc.,
sometimes referred to as Centra. Pursuant to the renegotiated terms, PlanVista
has extended the maturity date of the notes from December 1, 2004 to April 1,
2006, reduced the interest rate from 12.0% per annum to 6.0% per annum, and
fixed the conversion price at $1.00, subject to adjustment in accordance with
anti-dilution protections. The previous conversion price was based on the
trading
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price of the PlanVista common stock. Immediately upon completion of this
restructuring, PVC Funding Partners acquired slightly more than 50% of the face
value of the notes from Centra. The remaining interest is held by Centra.
The terms of the restructured credit arrangements, the series C
preferred stock, the PVC Funding Partners transaction, and the Centra
convertible notes are discussed in more detail below in "- PlanVista's History"
and in "Management's Discussion and Analysis of Financial Conditions and Results
of Operations - Liquidity and Capital Resources."
PLANVISTA'S SERVICES
MEDICAL COST CONTAINMENT SERVICES
Network Access
The National Preferred Provider Network is comprised of PPOs,
independent physician associations, and individually contracted providers that
offer discounts on medical services. These providers and provider groups
participate in the National Preferred Provider Network to increase patient flow
and benefit from the National Preferred Provider Network's prompt, efficient
claims repricing services. Healthcare payers access the National Preferred
Provider Network to benefit from the discounts offered by participating
providers. The size of the National Preferred Provider Network and the level of
National Preferred Provider Network discounts provide PlanVista's payer
customers with significant reductions in medical claims costs.
The National Preferred Provider Network access agreements generally
require PlanVista's customers to pay PlanVista a percentage of the cost savings
generated by the National Preferred Provider Network discounts. In the medical
cost containment industry, this payment arrangement is called a "percentage of
savings" revenue model. A typical percentage of savings customer maintains
arrangements with more than one PPO network. Most of these payer customers
utilize the National Preferred Provider Network as an additional network to
contain costs when a covered person obtains medical services from a provider
outside of the payer's primary PPO network. When PlanVista receives a provider
bill for medical services that are covered by the National Preferred Provider
Network discount arrangements, PlanVista electronically reviews the bill and
reprices it to conform to the negotiated discounted rate, which is typically
lower than the invoiced amount. PlanVista charges payers an average of 18.0% of
the savings that the payer realizes from the discount. Operating revenue from
the National Preferred Provider Network access was $31.3 million for the year
ended December 31, 2002, including $27.8 million of operating revenue from
percentage of savings contracts, and $23.9 million for the nine months ended
September 30, 2003, including $21.0 million of operating revenue from percentage
of savings contracts. PlanVista derives the balance of its National Preferred
Provider Network operating revenue from payer customers that pay a flat fee per
month based on the number of enrolled members. These customers generally access
the National Preferred Provider Network as their primary PPO network.
As of September 30, 2003, PlanVista had approximately 750 network
access customers located throughout the country, with approximately 2.0 million
estimated members. PlanVista's network access customer agreements are generally
terminable upon 90 days notice. While no single customer accounts for over 10%
of revenues, during the nine months ended September 30, 2003 and the year ended
December 31. 2002, PlanVista's three largest network access clients and their
affiliates accounted for an aggregate of 25.7% and 17.2%, respectively of
PlanVista's net operating revenues. The loss of any of these client groups could
have a material adverse effect on PlanVista's financial results.
PlanVista's contracts with PPO participants and other participating
providers generally have renewable terms ranging from one to two years, but in
most cases are terminable by either party without cause on 90 days' notice. The
termination of any PPO contracts would render PlanVista unable to provide
customers with access to the PPO's provider discounts, and therefore would
eliminate PlanVista's ability to reprice claims and derive operating revenue
accordingly. More than 80.0% of PlanVista's participating providers have been
part of the National Preferred Provider Network for more than three years, with
some relationships spanning nine years, since the beginning of the National
Preferred Provider Network's inception in 1994. Since the majority of the
provider
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arrangements are through other networks, PlanVista depends on its contracted
networks to maintain provider relationships and ensure provider compliance with
the terms of the network arrangements.
Electronic Claims Repricing
In connection with its National Preferred Provider Network access
business, PlanVista provides electronic claims repricing services that benefit
both its payer clients and its participating providers. A participating provider
submits a claim at the full, undiscounted provider rate. The provider sends the
claim directly to PlanVista or to the payer, which then forwards the bill to
PlanVista. Because there are a wide variety of provider systems for submitting
claims, PlanVista accepts claims by traditional methods such as mail and fax, as
well as through the Internet and by electronic data interchange. PlanVista
converts paper and faxed claims to an electronic format, and then electronically
reprices the claims by calculating the reduced price based on its National
Preferred Provider Network's negotiated discount. PlanVista returns the repriced
claims file to the payer electronically, in most cases within a 72-hour
ProxyMed's period.
PlanVista's ClaimPassXL(R) Internet and electronic data interchange
services speed the claims repricing process for its customers. By logging onto
PlanVista's ClaimPassXL(R) Internet site, a payer can input claims information
directly into PlanVista's claims system. PlanVista electronically reprices the
claim and delivers the repriced claim information to the payer customer through
the Internet. PlanVista's electronic data interchange, sometimes referred to as
EDI, system provides an alternative way for customers to simplify the claims
repricing process. EDI customers do not have to key claims information into
PlanVista's Internet site. Instead, PlanVista's EDI system interfaces directly
with the payer's claims file configuration, which allows the payer to send
PlanVista its claims file in its existing electronic format. After PlanVista
electronically reprices the claims, PlanVista sends the customer an electronic
file of claims information that the payers can incorporate into its claims
database automatically.
Although PlanVista does not charge its network access customers a
separate fee for claims repricing, PlanVista believes that its advanced
repricing system provides significant benefits that make PlanVista's network
access services more attractive to payers. It is time consuming and expensive
for a payer to load PPO rates and demographic information into its claims system
and to create a system that accepts the various forms in which claims
information is submitted. PlanVista offers a turnkey solution that requires only
a limited number of payer personnel. PlanVista can reduce claims turnaround
times and provide efficient claims transmission options. PlanVista's system also
can reduce lost claims, reduce the number of undiscounted claims, support high
claim volume customers, and improve accuracy over manually processed claims.
PlanVista's customers also are relieved of some of the burden of complying with
the Health Insurance Portability and Accountability Act, sometimes referred to
as HIPAA, which imposes privacy and data configuration requirements that apply
to claims repricing. PlanVista believes that its claims processing procedures
are in compliance with current HIPAA requirements and will be compliant with
future requirements. Providers also benefit from PlanVista's streamlined claims
system, which helps increase the speed with which they get paid and the accuracy
of the claim payments.
Network and Data Management
PlanVista uses its information system capabilities to provide network
and data management services for the payers that access the National Preferred
Provider Network. For some network access payers, PlanVista acts as the payers
mailroom for receipt of all provider claims, converting payer and fax claims to
an electronic format, identifying the correct network fee schedule applicable to
each claim, and electronically repricing the claim accordingly. PlanVista
prepares detailed reports regarding repricing turnaround times and the savings
that each payer realizes, itemized by the total number of claims incurred, the
number of claims discounted, and the average discount. Payers can use this
information to help design health plans that effectively control costs, enhance
member benefits, and yield a more favorable loss ratio, which is the ratio of
paid medical claims compared to collected premiums. As a provider of data
management services, PlanVista maintains provider demographics and fee schedules
and updates provider directories. PlanVista integrates several components of
certain licensed reporting software to provide both payer clients and
participating PPOs with quick access to claims data, allowing them to produce a
variety of analytical reports. PlanVista generally does not charge its National
Preferred Provider Network access customers any additional fee for its standard
network and data management services.
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Bill Review and Negotiation
In April 2002, PlanVista began offering optional medical bill review
and negotiation services to its payer clients. Many of PlanVista's percentage of
savings clients send PlanVista all claims that fall outside their primary PPO
network arrangements. Traditionally, PlanVista identified and repriced the
claims that were subject to the National Preferred Provider Network discount
arrangements and returned the non-National Preferred Provider Network claims to
the payer without applying any discount. PlanVista now offers payer customers
the opportunity to realize cost savings on these out-of-network claims through
PlanVista's affiliations with bill review and negotiation companies. PlanVista
can electronically transmit non-National Preferred Provider Network claims to
experienced professionals at the contracted bill review and negotiation
companies. These professionals who use proprietary medical software to analyze
each claim to detect any incorrect charges or billing irregularities. Once that
phase of the analysis is completed, the detailed charges are compared to a
proprietary database to determine the competitiveness of the charges in the
provider's geographic area. The bill negotiator then contacts the provider to
discuss PlanVista's findings, and in many cases is able to reduce the claim
amount. The reviewer obtains signed agreements from each provider to prevent the
provider from later contesting the reduction or billing the patient for the
balance. The bill review and negotiation vendor then returns the electronic file
to PlanVista, and PlanVista forwards it to the payer along with the payer's
other repriced claims. Payers pay PlanVista a percentage of the savings that are
generated by the bill review and negotiation service.
Advance Funding
In 2002, PlanVista launched a program to provide advance funding
services for payers and providers. Through an arrangement with established
advance funding companies, PlanVista offers participating providers the
opportunity to receive claim payments in advance of the due date. In exchange,
the providers agree to accept a discount of the original billed amount. This
service provides both a reduction in claim costs for payers and rapid payment
for providers.
BUSINESS PROCESS OUTSOURCING
PlanVista traditionally provided claims repricing and network
management services only with respect to claims that its National Preferred
Provider Network participating providers submitted to one of PlanVista's network
access payer customers. Through its network and data management business process
outsourcing business, PlanVista has expanded its scope to offer payers and
providers services that are independent of PlanVista's network access business.
PayerServ
Healthcare payers typically contract with more than one PPO network.
While historically most payers' claim systems and applications could handle
simple percentage discount repricing calculations for a single network,
PlanVista believes that most are not well suited for current PPO contract terms
requiring detailed, often complex, repricing calculations. Each of the networks
with which a payer contracts may have different discount methodologies and
rates, greatly adding to a payer's administrative burden and increasing the
complexities of processing and repricing claims.
Through PayerServ, PlanVista uses its existing technology and
management expertise to help payers manage all of their network relationships,
whether or not they also access the National Preferred Provider Network. A payer
can outsource its network and data management obligations to PlanVista and
PlanVista will assume the responsibility for moving, tracking, and repricing
healthcare claims among all of the PPO networks with which it has contracts. By
maintaining provider fee schedule and demographic information for all of the
providers in a payer's provider configuration, PlanVista eliminates bottlenecks
in the payer's claim work flow, expedites claims repricing, and improves
accuracy.
The PayerServ services may include acting as the payer's mailroom for
receipt of all provider claims, converting paper and fax claims to an electronic
format, identifying the correct network fee schedule applicable to
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each claim, and electronically repricing the claim accordingly. PlanVista also
can provide reporting and other network management services with respect to all
of the payer's networks. PlanVista can prepare customized reports for payers
that capture information regarding repricing turnaround time, cost management,
demographics, case management, provider services, diagnoses, and procedures.
PlanVista believes that its PayerServ customers benefit from reduced operating
expenses, streamlined network management, HIPAA-compliant procedures, and
electronic repricing with rapid turnaround times. PlanVista does not require
customers to pay upfront network loading fees and monthly maintenance fees,
which are features of many of its competitors' systems.
PayerServ customers typically pay PlanVista for claims repricing and
claims and network and data management services on a per-claim basis. For each
PayerServ customer, PlanVista analyzes the customer's service requirements,
including claims work flow, claims volume and types, and PPO network
configurations. Then, based on its proprietary pricing model, PlanVista
determines the pricing for each claim transaction.
PlanServ
PlanServ uses the same technology and management expertise that
supports PlanVista's PayerServ business to offer claims repricing and network
data management services to PPOs. PlanVista's PPO participants generally
maintain relationships with payers that are independent from the PPOs'
affiliation with PlanVista's National Preferred Provider Network. Many of these
PPOs are seeking cost-efficient ways to develop their own automated claims
handling and repricing systems and to manage the provider data necessary to
update their provider directories efficiently and otherwise support network
access. By outsourcing repricing functions to PlanServ, a PPO can achieve
advanced electronic capabilities for its payer clients without incurring the
high cost of systems development. PlanVista can serve as a mailroom for PlanServ
clients, receiving paper and fax claims and converting them to an electronic
form for repricing, so that the PPO never touches the claims. PPOs that take
advantage of the PlanServ offerings do not have to distribute their rates to
their payers, manually reprice claims, or be concerned with HIPAA requirements
related to claims repricing. The PPO's payer clients benefit from reduced
turnaround times on repriced claims and escape the burden of loading the PPO's
rates. PlanServ products also include web hosting capabilities, featuring
customized, private label web access that enables a participating PPO's
customers to reprice claims electronically through the Internet. Each PPO's
website includes the PPO's logo and other material chosen by the PPO.
PlanServ also offers PlanVista's PPO customers management reporting
products that capture important claims data, including repricing turnaround
times, claim volume, and savings amounts. PPO customers can use this information
to negotiate better physician and facility discounts. PlanVista believes that
obtaining and analyzing information is increasingly important to PPOs because
this information is necessary for them to properly establish their discount
levels. PlanVista also provides PlanServ customers with database administration,
including provider directory updates and maintenance of provider demographics
and fee schedules.
Like PayerServ, PlanServ generally charges customers a per-claim fee,
which is calculated based on the extent of the customer's service requirements,
including claims work flow and number of payers.
INTELLECTUAL PROPERTY AND TECHNOLOGY
PlanVista's proprietary technology offers customers the benefits of an
open architecture, which means that it is compatible with other operating
systems and applications. Using a combination of electronic data interchange and
Internet systems, customers can interface with PlanVista's claims repricing
system without incurring significant incremental capital expenditures for
hardware or software or having to adopt a specific claims format. The open
architecture of PlanVista's system also improves reliability and facilitates the
cross-selling of other technology-based services to PlanVista's customers, in
part because of the following characteristics:
Scalability
PlanVista's systems are designed to be highly scalable or adaptable to
levels of use. Using TCP/IP in a Unix and Windows NT environment with a
10/100/1000 Mhz backbone, PlanVista has designed its systems to
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accommodate additional servers and disk space as needed with little or no
interruption in processing. Using Oracle, PlanVista's database technology gives
it the flexibility to design web-enabled customer applications that do not
require the installation of proprietary software. PlanVista also is able to
design new internal systems using the languages of its choice, which are
currently Visual Basic and Visual FoxPro.
Modularity
PlanVista's systems have been developed with discrete or specific
functionality that PlanVista can replicate and utilize with additional hardware
so that PlanVista can reorganize the discrete functions and adapt the system to
service different situations. PlanVista believes that this modularity enables
PlanVista to optimize application and hardware performance, and take immediate
advantage of improvements in hardware and software.
Redundancy
All of PlanVista's production servers are designed with a redundant
array of inexpensive disks, which provides protection in the event a disk fails.
PlanVista's hardware is replicated to provide redundancy in the event of a total
system failure. PlanVista documents and reviews its disaster recovery plans
quarterly in order to reduce the risk of business interruption.
Industry Standards
Through the adoption and active use of standard formats for healthcare
electronic data interchange processing, PlanVista can support payer and provider
processing requirements and provide standard interfaces to other electronic data
interchange processing organizations.
Ease of Use
PlanVista's products utilize a 32 bit graphical user interface.
PlanVista's web-based products are written in Java and function in any operating
system capable of using a web browser, thereby enhancing ease of use by its
customers.
Remote Connectivity Offerings
PlanVista was an early adopter of the emerging Internet technology that
enables it to provide quick connectivity through file transfer protocol,
web-enabled applications, and virtual private networking. PlanVista believes
that these features allow it to provide improved service levels and lower
pricing. PlanVista has established relationships with multiple
telecommunications vendors to ensure reliable and redundant connectivity over T1
and frame relay circuits.
PlanVista does not have patent protection for its proprietary
technology, which includes primarily software and software applications. Until
PlanVista obtains this protection, PlanVista must rely on trade secret and
copyright protection provided under common law. PlanVista also has implemented
certain security measures to protect its systems from access by unauthorized
parties that might want to copy or otherwise use its technologies. These
security measures include firewall protection, corporate antivirus programs, and
email and facility security. PlanVista relies on technology licensed from third
parties to perform key functions, and may be required to license additional
technology in the future. PlanVista has obtained federal trademark protection
for the marks PlanVista Solutions(R) and ClaimPassXL(R).
COMPETITION
PREFERRED PROVIDER NETWORK ACCESS
The PPO industry is highly fragmented. According to the American
Association of Preferred Provider Organizations, as of March 2003 there were
more than 1,000 PPOs in the United States. A few companies, such as
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First Health Group Corporation, BCE Emergis/eHealth Solutions Group, Concentra,
Inc., Beech Street Corporation, Coalition America, Inc., and Multiplan, Inc.,
offer provider networks and claim volumes of meaningful size. The remainder of
the competitive landscape is diverse, with major insurance companies and managed
care organizations such as Blue Cross Blue Shield, Aetna US Healthcare,
WellPoint Health Networks, Inc., United Health Group, Humana Health Care Plans,
Private Healthcare Systems, and Cigna Healthcare also offering proprietary
preferred provider networks and services. In addition, the number of independent
PPOs has decreased as managed care organizations and large hospital chains have
acquired PPOs to administer their managed care business and increase enrollment.
PlanVista expects consolidation to continue as the participants in the industry
seek to acquire additional volume and access to PPO contracts in key geographic
markets. This consolidation may give customers greater bargaining power and lead
to more intense price compensation.
ELECTRONIC CLAIMS REPRICING
The claims repricing service market is also fragmented. PlanVista's
repricing competitors provide some or all of the services PlanVista currently
provides. PlanVista's competitors can be categorized as follows:
- Large managed care organizations and third party
administrators with in-house claim processing and repricing
systems, such as Blue Cross Blue Shield, UnitedHealth Group,
and Wellpoint Health Networks, Inc.;
- Healthcare information technology companies providing
enterprise-wide systems to the payer market, such as
McKesson/HBOC (NYSE: MCK), Eclipsys Corp (NASDAQ: ECLP), and
Perot Systems Corporation (NYSE: PER); and
- Healthcare information software vendors selling claim
processing products to the provider market, such as The
TriZetto Group (NASDAQ: TZIX), HealthAxis (NASDAQ: HAXS),
Avidyn/ppoOne (NASDAQ: ADYN), and several private companies.
The market for claims repricing services is competitive, rapidly
evolving, and subject to rapid technological change. PlanVista believes that
competitive conditions in the healthcare information industry in general will
lead to continued consolidation as larger, more diversified organizations are
able to reduce costs and offer an integrated package of services to payers and
providers.
PlanVista competes on the basis of the strength of its electronic
claims repricing technology, the size of its network and the level of its
network discounts, its percentage of savings pricing model, and the diversity of
services PlanVista offers through its business processing outsourcing products
and other new initiatives. Many of its current and potential competitors have
greater financial and marketing resources than PlanVista has. Furthermore,
PlanVista believes that the increasing acceptance of managed care in the
marketplace, the adoption of more sophisticated technology, legislative reform,
and the consolidation of the industry will result in increased competition.
There can be no assurance that PlanVista will continue to maintain its existing
customer base, or that PlanVista will be successful with any new products that
PlanVista has introduced or will introduce.
PLANVISTA'S HISTORY
PlanVista was incorporated in Delaware in 1994 and completed its
initial public offering in May 1995 under the name HealthPlan Services
Corporation. PlanVista changed its name to PlanVista Corporation in April 2001.
The original core business, which PlanVista purchased from Dun & Bradstreet
Corporation in 1994, provided third party administration of healthcare claims
for large and small group employers. After its 1995 initial public offering,
PlanVista initiated a series of acquisitions designed to grow its business.
PlanVista spent more than $170.0 million in cash to acquire seven businesses
between 1995 and 1998, including the purchase of a managing general underwriter
business and the May 1998 purchase of the National Preferred Provider Network
business for $31.6 million. PlanVista used funds from its senior credit facility
to help finance these acquisitions. By 1999, a number of PlanVista's businesses,
other than the National Preferred Provider Network business that is part of the
core business
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today, had become unprofitable. PlanVista was burdened with more than $100.0
million of senior debt, more than $10.0 million of subordinated debt, and
approximately $25.0 million of working capital deficit.
Divestiture
In June 2000, PlanVista initiated a strategic turnaround program
designed to (1) divest its third party administration businesses, (2) reduce its
senior debt, (3) focus its efforts on enhancing its medical cost containment
business, and (4) restructure its balance sheet. PlanVista disposed of all of
its third party administration and managing general underwriter businesses in a
series of transactions during 2000 and 2001. In the 2000 transactions, PlanVista
received a total of $35.1 million and, in one of the transactions, the purchaser
assumed $1.5 million of additional current liabilities. Of the cash proceeds,
PlanVista used $29.5 million to reduce its outstanding indebtedness to its
senior lenders.
PlanVista completed the disposition of its former business units in
June 2001 with the sale of its subsidiary, HealthPlan Services, Inc., which
contained the remaining third party administration business and the managing
general underwriter business. In connection with this non-cash transaction, the
purchaser, HealthPlan Holdings, Inc., assumed approximately $40.0 million in
working capital deficit of the acquired businesses, and acquired assets having a
fair market value of approximately $30.0 million. At the closing of this
transaction, PlanVista issued 709,757 shares of its common stock to offset $5.0
million of the assumed deficit. PlanVista offset the remaining $5.0 million of
this deficit with a long-term convertible subordinated note, which automatically
converted into 813,273 shares of its common stock on April 12, 2002 in
connection with the restructuring of the credit facility, as described below.
During 2001 and 2002, in connection with the HealthPlan Holdings transaction,
PlanVista issued a total of 343,521 additional shares of its common stock in
settlement of certain post-closing disputes and to meet certain obligations
under the terms of the subordinated note and a registration rights agreement
PlanVista entered into at closing. See "Management's Discussion and Analysis of
Operations - Liquidity and Capital Resources" for a more detailed discussion of
the HealthPlan Holdings transactions.
PlanVista's current business consists of its core medical cost
containment business, which includes the National Preferred Provider Network, as
well as the new network and data management business process outsourcing
businesses, which PlanVista introduced in 2001 and which began generating
operating revenue in the first quarter of 2002.
Series C Preferred Stock
The series C preferred stock issued to PlanVista's senior lenders in
connection with the restructured credit facility accrues dividends at 10.0% per
annum during the first twelve months from issuance. Thereafter, the dividend
rate became fixed at 12.0% per annum. Dividends are payable quarterly in
additional shares of series C preferred stock or, at PlanVista's option, in
cash. PlanVista has chosen to pay dividends in the form of additional shares,
and to date PlanVista has issued to the series C holders an aggregate of 4,536
additional shares of series C preferred stock. In addition, while at least
12,000 shares of series C preferred stock are outstanding, the series C
preferred stockholders are entitled to elect three out of seven members of
PlanVista's board of directors. Due to the occurrence of a Board Shift Event, as
defined below, resulting from PlanVista's failure to redeem all of the series C
preferred stock by October 12, 2003, the board composition changed so as to
allow the holders of series C preferred stock to elect four out of seven
directors, thereby shifting control of the board to the directors elected by the
holders of series C preferred stock. The series C preferred stockholders
designated as their representative an existing member of the board of directors.
A "Board Shift Event" is defined as (1) PlanVista's failure to achieve certain
specified net operating cash flow requirements, (2) any default in connection
with the payment of principal or interest under the restructured credit
facility, after the lapse of any applicable grace periods, or (3) PlanVista's
failure to redeem all of the series C preferred stock by October 12, 2003.
PlanVista may redeem the series C preferred stock at any time at its option at a
redemption price of $1,000 per share plus accrued dividends. Until the March
2003 closing of the PVC Funding Partners transaction, as described below, the
senior lenders under the restructured credit facility were the sole holders of
the series C preferred stock.
In addition to their voting rights with respect to directors, due to
the occurrence of the Board Shift Event, the holders of the series C preferred
stock have the right in certain circumstances to vote as a single class with the
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common stockholders on all matters other than the election of directors on an
"as-converted" basis, with each share of series C preferred stock having a
number of votes equal to the number of shares of common stock into which it
would be converted. There are 33,536 shares of series C preferred stock
outstanding. In connection with the issuance of the series C preferred stock,
the senior lenders entered into a stockholders agreement with PlanVista, which
provides, among other things, for registration rights in connection with the
sale of any shares of common stock that are issuable upon conversion of the
series C preferred stock. The registration rights include shelf and piggy-back
registration rights.
The series C preferred stock may be converted, at any time, into shares
of PlanVista's common stock at the rate of 751.88 shares of common stock for
each preferred share, or a total of 25,215,038 shares (or 59.7%) of its common
stock upon full conversion, subject to adjustment. The series C preferred stock
has weighted-average anti-dilution protection and a provision that in no event
will the series C preferred stock convert into less than 51.0% of PlanVista's
outstanding shares of common stock.
Pursuant to an action by written consent of the requisite majority of
the holders of the series C preferred stock, the series C preferred stockholders
have elected not to designate that the merger be deemed a liquidation,
dissolution or winding up of PlanVista under the certificate of designation, and
as a result of such action, the merger will not trigger PlanVista's redemption
obligations under the certificate of designation.
PVC Funding Partners Transaction
On March 17, 2003, PVC Funding Partners, LLC, an affiliate of
Commonwealth Associates, L.P. and Comvest Venture Partners, L.P., acquired
29,851, or 96.0%, of PlanVista's outstanding series C preferred stock from
PlanVista's senior lenders. These preferred shares were purchased from the
lenders on a prorata basis at a price of $33.50 per share. The selling lenders
continue to hold the remaining 4.0% of the series C preferred stock. In
connection with the transaction, PVC Funding Partners also acquired $20.5
million in principal amount of PlanVista's outstanding bank debt from
PlanVista's senior lenders. In connection with the closing of the transaction,
the three members of PlanVista's board of directors theretofore designated by
the holders of the series C preferred stockholders voluntarily relinquished
their board positions, and were replaced by three directors selected by PVC
Funding Partners.
There is an intercreditor agreement between PVC Funding Partners and
Wachovia Bank, National Association, dated March 7, 2003. The intercreditor
agreement provides that, until the occurrence of a Board Shift Event, PVC
Funding Partners has all of the rights of the original lenders under the
restructured credit agreements, except that (1) PVC Funding Partners' rights to
mandatory prepayments and other principal payments prior to the maturity date
are subordinated to the original lenders' rights to those payments, and (2) PVC
Funding Partners' notes will be voted consistently with and on the same
percentage basis as the original lenders with respect to all matters required to
be submitted to a vote or consent of the lenders, except for matters related to
certain fundamental changes in the loan terms. A Board Shift Event allowed PVC
Funding Partners to appoint an additional board member and thus obtain control
of PlanVista's board of directors, but the intercreditor agreement provided PVC
Funding Partners the option of not exercising their right to obtain such
control. If, within fifteen days of a first Board Shift Event, PVC Funding
Partners had notified the original lenders that they would not exercise their
right to control PlanVista's board, then the original lenders would have had the
option to repurchase 14,304 of the series C preferred stock, at a price of
$33.50 per share. In connection with PlanVista's failure to redeem the series C
shares by October 12, 2003, PVC Funding Partners designated as its
representative another member of the board of directors previously elected by
the common stockholders, thereby completing the four director seats to which the
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holders of the series C preferred stock were entitled following a Board Shift
Event and exercising their right to obtain control of PlanVista's board. As a
result, pursuant to the terms of the intercreditor agreement, the debt held by
PVC Funding Partners was automatically subordinated to the debt held by the
original lenders.
Restructured Centra Notes
On March 31, 2003, PlanVista renegotiated approximately $4.8 million in
convertible notes that were originally issued to Centra Benefit Services, Inc.,
sometimes referred to as Centra. Pursuant to the renegotiated terms, PlanVista
extended the maturity date of the notes from December 1, 2004 to April 1, 2006,
reduced the interest rate from 12% per annum to 6% per annum, and fixed the
conversion price at $1.00, subject to adjustment in accordance with
anti-dilution protections. The previous conversion price was based on the
trading price of PlanVista's common stock. Immediately upon completion of this
restructuring, PVC Funding Partners acquired slightly more than 50% of the face
value of the notes from Centra. The remaining interest is held by Centra.
See "Management's Discussion and Analysis of Financial Condition and
Reports of Operations - Liquidity and Capital Resources."
GOVERNMENT REGULATION
Regulation in the healthcare industry is constantly evolving. Federal,
state, and local governments continue their efforts to reduce the rate of
increases in healthcare expenditures and to regulate the adjudication of
healthcare claims for the protection of patients as well as providers. Many of
these policy initiatives have contributed to the complex and time-consuming
nature of obtaining healthcare reimbursement for medical services. The impact of
regulatory developments in the healthcare industry is complex and difficult to
predict, and PlanVista's business could be adversely affected by new healthcare
regulatory requirements or new interpretations of existing requirements.
PlanVista believes, however, that the increasing complexity of healthcare
transactions and the resulting additional information management requirements
placed on providers and payers should increase the demand for its services. At
the same time, these requirements may dramatically increase the cost of
providing services.
PRIVACY REGULATION
As participants in the healthcare industry, PlanVista and its payer and
provider customers are subject to laws and regulations relating to the
confidential treatment and secure transmission of patient medical records and
other healthcare information. The Health Insurance Portability and
Accountability Act of 1996, as amended, sometimes referred to as HIPAA, has had,
and will continue to have, a significant effect on developers and users of
healthcare information systems. On December 28, 2000, the Department of Health
and Human Services, sometimes referred to as HHS, issued final regulations, in
the form of a Privacy Rule, relating to patient information privacy and
electronic healthcare transactions. On August 14, 2002, HHS adopted
modifications to the Privacy Rule. The Privacy Rule affects certain health
plans, healthcare clearinghouses, and health care providers. These "covered
entities" must implement standards to protect and guard against the misuse of
individually identifiable health information. In many instances, PlanVista is
merely deemed to be a business associate of its health plan and provider
customers. PlanVista is deemed to be a clearinghouse when PlanVista converts
nonstandard data content, or data in a nonstandard format, into standard data
elements or a standard transaction, or vice versa. Among other things, the Rule
required PlanVista to adopt written privacy procedures and provide employee
training with respect to compliance. PlanVista was in compliance with these
regulations by the required date, April 14, 2003.
Effective October 2003, PlanVista became subject to HIPAA regulations
related to electronic transactions. These regulations require PlanVista to use
standard data content and formats for the submission of electronic claims and
other administrative and healthcare transactions. Additionally, HHS has adopted
regulations relating to security of individual health information and a national
employer identifier. PlanVista believes it is in compliance with these
regulations.
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Many healthcare payers and providers have sought assistance from
outside vendors to facilitate implementation and/or to provide clearinghouse
translation capabilities as a method to reduce those costs and meet the required
mandatory implementation dates. While HIPAA could continue to have an adverse
effect on the operations of providers and payers and consequently reduce
PlanVista's revenue, PlanVista believes it possesses technical and managerial
knowledge and skills that could benefit healthcare organizations seeking to
establish compliance with HIPAA requirements. PlanVista has analyzed the extent
to which PlanVista may need to alter its systems to comply with current and
proposed HIPAA regulations and does not believe that there will be significant
additional costs to it in complying with such regulations. Because some HIPAA
regulations have yet to be issued and because even final HIPAA regulations may
be subject to additional modification or amendment, PlanVista's products may
require modification in the future. If PlanVista fails to offer solutions that
permit compliance with applicable laws and regulations, its business could
suffer.
Many of PlanVista's customers will also be subject to state laws
implementing the federal Gramm-Leach-Bliley Act, relating to certain disclosures
of nonpublic personal health information and nonpublic personal financial
information by insurers and health plans. PlanVista also may be subject to state
privacy laws, which may be more stringent than HIPAA in some cases.
PROVIDER CONTRACTING AND CLAIMS REGULATION
Some state legislatures have enacted statutes that govern the terms of
provider network discount arrangements or restrict unauthorized disclosure of
such arrangements. Legislatures in other states are considering adoption of
similar laws. Although PlanVista believes that it operates in a manner
consistent with applicable provider contracting laws, there can be no assurance
that it will be in compliance with laws or regulations to be promulgated in the
future, or with new interpretations of existing laws.
PlanVista's customers perform services that are governed by numerous
other federal and state civil and criminal laws, and in recent years have been
subject to heightened scrutiny of claims practices, including fraudulent billing
and paying practices. Many states also have enacted regulations requiring prompt
claims payment. To the extent that PlanVista's customers' reliance on any of the
services PlanVista provides contribute to any alleged violation of these laws or
regulations, then PlanVista could be subject to indemnification claims from its
customers or be included as part of an investigation of its customers'
practices. Federal and state consumer laws and regulations may apply to
PlanVista when it provides claims services and a violation of any of these laws
could subject PlanVista to fines or penalties.
LICENSING REGULATION
While PlanVista is currently not subject to licensing requirements for
the services it provides, some states require PlanVista, as a non-risk-bearing
PPO, to formally register and file an annual or one-time accounting of networks
and providers with which PlanVista contract. Given the rapid evolution of
healthcare regulation, it is possible that PlanVista will be subject to future
licensing requirements in any of the states where PlanVista currently performs
services, or that one or more states may deem PlanVista's activities to be
analogous to those engaged in by other participants in the healthcare industry
that are now subject to licensing and other requirements, such as third party
administrator or insurance regulations. Moreover, laws governing participants in
the healthcare industry are not uniform among states. As a result, PlanVista may
have to undertake the expense and difficulty of obtaining any required licenses,
and there is a risk that PlanVista would not be able to meet the licensing
requirements imposed by a particular state. It also means that PlanVista may
have to tailor its products on a state-by-state basis in order for its customers
to be in compliance with applicable state and local laws and regulations.
INTERNET REGULATION
PlanVista offers a number of Internet-related products. The Internet
and its associated technologies are subject to increasing government regulation.
A number of legislative and regulatory proposals are under consideration by
federal, state, local, and foreign governments and agencies. PlanVista cannot be
assured that it will be able to comply with requirements that may be adopted in
the future.
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PATIENT PROTECTION INITIATIVES
State and federal legislators and regulators have proposed initiatives
to protect consumers covered by managed care plans and other health coverage.
These initiatives may result in the adoption of laws related to timely claims
payment and review of claims determinations. These laws may impact the manner in
which PlanVista performs services for its clients.
While PlanVista believes its operations are in material compliance with
applicable laws as currently interpreted, the regulatory environment in which
PlanVista operates may change significantly in the future, which could restrict
PlanVista's existing operations, expansion, financial condition, or
opportunities for success.
EMPLOYEES
On October 31, 2003, PlanVista employed 127 persons. PlanVista's
employees are not represented by a labor union or a collective bargaining
agreement. PlanVista regards its relationship with its employees as good.
AVAILABLE INFORMATION
PlanVista is headquartered in Tampa, Florida and has an operations and
technology center in Middletown, New York. The Tampa headquarters' mailing
address is 4010 Boy Scout Boulevard, Suite 200, Tampa, Florida 33607, and its
principal telephone number at that location is 813-353-2300. PlanVista's website
address is www.planvista.com. PlanVista's annual reports on Form 10-K, its
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports are available free of charge through PlanVista's website at "About
Us/Investor Information/SEC Filings." PlanVista makes this information available
via a hyperlink to a third party Securities and Exchange Commission (sometimes
referred to as SEC) filings website. PlanVista does not maintain or provide
information directly to this site. Although the third party that maintains the
website has endeavored to make PlanVista's SEC filings available as soon as
reasonably practicable after PlanVista files them electronically with the SEC,
PlanVista makes no representations or warranties with respect to the timeliness
or content of any postings on the website.
PROPERTIES
PlanVista conducts its operations from its headquarters in Tampa,
Florida and its data processing facility in Middletown, New York. PlanVista
leases both of these facilities. PlanVista believes that its facilities are
adequate for ProxyMed's present and foreseeable business requirements.
LEGAL PROCEEDINGS
In the ordinary course of business, PlanVista may be a party to a
variety of legal actions that affect many businesses, including employment and
employment discrimination-related suits, employee benefit claims, breach of
contract actions, and tort claims. In addition, PlanVista has a number of
indemnification obligations related to certain of the businesses PlanVista sold
during 2000 and 2001, and PlanVista could be subject to a variety of legal and
other actions as a result of such indemnification obligations. PlanVista
currently has insurance coverage for some of these potential liabilities. Other
potential liabilities may not be covered by insurance, insurers may dispute
coverage, or the amount of insurance may not cover the damages awarded.
PlanVista cannot fully determine the ultimate financial effect of these claims
and indemnification obligations at this time.
In November 2001, Paid Prescriptions, LLC initiated a breach of
contract action in the United States District Court for the District of New
Jersey against HealthPlan Services, a former subsidiary of PlanVista. Paid
Prescriptions LLC was seeking $1.6 million to $2.0 million in compensation
arising from HealthPlan Services' alleged failure to meet certain performance
goals under a contract requiring HealthPlan Services to enroll a certain number
of customers for Paid Prescriptions LLC's services. Because the events giving
rise to this claim allegedly occurred prior to the sale of the HealthPlan
Services business, PlanVista defended the action on behalf of HealthPlan
Services, in accordance with PlanVista's indemnification obligations to
HealthPlan Holdings, Inc. In October 2003,
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PlanVista settled this litigation by paying $850,000 to Paid Prescriptions, LLC.
This settlement had previously been accrued for, and thus will not have a
material adverse effect on PlanVista's consolidated statement of operations for
the year ended December 31, 2003.
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PLANVISTA SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth PlanVista's selected consolidated
financial data for each of the five years ended December 31, 2002 and the nine
month periods ended September 30, 2003 and 2002. Such information has been
prepared from the audited consolidated financial statements and the unaudited
condensed consolidated financial statements of PlanVista. You should read this
information together with the consolidated financial statements and other
financial information contained elsewhere in this joint proxy
statement/prospectus.
Nine Months Ended
September 30 Year Ended December 31,
---------------------- ----------------------------------------------------------
2003 2002 2002 2001(1) 2000(1) 1999(1) 1998(1)
--------- --------- --------- --------- --------- --------- ---------
(unaudited)
STATEMENT OF OPERATIONS DATA
(In thousands, except per share
amounts)
Operating revenue $ 23,954 $ 24,746 $ 33,141 $ 32,918 $ 26,964 $ 18,691 $ 10,024
--------- --------- --------- --------- --------- --------- ---------
Cost of operating revenue:
Personnel expense 6,568 6,617 8,474 9,137 8,301 8,189 4,937
Network access fees 4,575 4,014 5,122 5,343 3,896 2,521 1,894
Other 4,191 4,353 5,826 6,521 4,288 4,013 4,058
Depreciation 425 384 528 467 303 723 247
Costs related to ProxyMed agreement 846 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total cost of operating revenue 16,605 15,368 19,950 21,468 16,788 15,446 11,136
Bad debt expense 1,262 1,980 3,356 3,348 649 624 --
Offering costs -- -- 1,213 -- -- -- --
Amortization of goodwill -- -- -- 1,378 1,380 1,388 967
Loss on impairment of intangible
assets -- -- -- -- 5,513 -- --
Loss (gain) on sale of investments, net -- -- -- 2,503 (332) (4,630) (33,240)
Interest expense 2,032 4,649 5,628 12,098 10,489 7,737 5,540
Other (income) expense (650) -- -- (175) 868 (373) 11,921
Equity in loss of joint venture -- -- -- -- -- 208 --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before (benefit)
provision for income taxes,
minority interest, discontinued
operations, loss on sale of
discontinued operations,
extraordinary loss, and cumulative
effect of change in accounting
principle 4,705 2,749 2,994 (7,702) (8,391) (1,709) 13,700
Net income (loss) 3,486 3,702 4,185 (45,221) (104,477) 104 9,698
Preferred stock accretion and
preferred stock dividend (52,286) (31,080) (48,777) -- -- -- --
(Loss) income applicable to common
stockholders (48,800) (27,378) (44,592) (45,221) (104,477) 104 9,698
Basic and diluted net income
(loss) per share from continuing
operations before minority
interest, discontinued operations,
loss on sale of assets,
extraordinary item, and
cumulative effect of change
in accounting principle $ 0.21 $ 0.23 $ 0.25 $ (2.37) $ (0.37) $ (0.08) $ 0.55
Basic and diluted net (loss)
income per share applicable to
common stockholders $ (2.90) $ (1.68) $ (2.72) $ (3.11) $ (7.64) $ 0.01 $ 0.67
Dividends declared per share of
common stock -- -- -- -- -- $ 0.4125 --
Average common shares outstanding:
Basic 16,822 16,311 16,427 14,558 13,679 13,742 14,353
Diluted 16,822 16,311 16,427 14,558 13,679 13,922 14,584
BALANCE SHEET DATA: As of September 30, As of December 31,
------------------------ -----------------------------------------------------------------
Working capital (deficit) $ (33,938) $ 1,170 $ 1,178 $ (7,901) $(104,859) $ (44,329) $ (93,903)
Total assets 43,091 43,839 42,585 40,125 104,668 236,683 217,002
Total debt 44,420 45,701 45,544 76,086 66,038 95,762 97,322
Series C convertible preferred
stock (As Restated) 129,503 59,520(2) 77,217(2) -- -- -- --
Stockholders' equity (deficit)
(As Restated for 2002) (143,682) (78,393)(2) (95,606)(2) (53,290) (20,340) 86,281 91,652
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(1) We have reclassified the business units sold in 2001 and 2000 as
discontinued operations in the Consolidated Statements of Operations.
During 2000, we sold our unemployment compensation, workers'
compensation, workers' compensation managed care organization, and
self-funded businesses. In 2001, we sold our third party administration
and managing general underwriter business units.
(2) Restated for the classification of the series C preferred stock as
described in Note 18 to the audited consolidated financial statements.
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PLANVISTA MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
PlanVista provides medical cost containment and business process
outsourcing solutions for the medical insurance and managed care industries.
Specifically, PlanVista provides integrated national PPO network access,
electronic claims repricing, and network and data management business process
outsourcing services to health care payers, such as self-insured employers,
medical insurance carriers, third party administrators, health maintenance
organizations, and other entities that pay claims on behalf of health plans.
PlanVista also provides network and data management business process outsourcing
services for health care providers, including individual providers, PPOs, and
other provider groups.
PlanVista earns most of its operating revenue in the form of fees
generated from the discounts PlanVista provides for the payers that access its
National Preferred Provider Network. PlanVista generally enters into agreements
with its healthcare payer customers under which they pay to PlanVista a
percentage of the cost savings generated from PlanVista's National Preferred
Provider Network discounts with PPOs and providers. PlanVista generally
recognizes this operating revenue when claims processing and administrative
services have been performed. Operating revenue from customers with certain
contractual rights is not recognized until the corresponding cash is collected.
A portion of PlanVista's operating revenue is generated from customers that pay
PlanVista a monthly fee based on eligible employees enrolled in a benefit plan
covered by PlanVista's health benefits payers customers. PlanVista recognizes
monthly fee operating revenue at the time the services are provided. Operating
revenue related to PlanVista's business process outsourcing services is earned
on a per claim basis at the time the associated services are provided.
PlanVista's expenses generally consist of network access fees incurred
to provide access to participating PPO networks for its customers, compensation
and benefits costs for its employees, occupancy and related costs, general and
administrative expenses associated with operating PlanVista's business, taxes,
and debt service obligations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages that certain items of income and expense bear to PlanVista's
operating revenue for the periods indicated.
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NINE MONTHS ENDED
SEPTEMBER 30 FOR THE YEAR ENDED DECEMBER 31,
2003 2002 2002 2001 2000
------- ------- ------- ------- -------
(Unaudited)
Operating revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of operating revenue:
Personnel expense 27.4% 26.7% 25.6% 27.8% 30.8%
Network access fees 19.1% 16.2% 15.5% 16.2% 14.4%
Other 17.5% 17.6% 17.5% 19.9% 15.8%
Depreciation 1.8% 1.6% 1.6% 1.3% 1.3%
Costs related to ProxyMed agreement 3.5% -- -- -- --
Total cost of operating revenue 69.3% 62.1% 60.2% 65.2% 62.3%
Bad debt expense 5.3% 8.0% 10.1% 10.1% 2.4%
Offering costs -- -- 3.7% -- --
Other income (2.7%) -- -- -- --
Amortization of goodwill -- -- -- 4.2% 5.1%
Loss on impairment of intangible assets -- -- -- -- 20.4%
(Gain) loss on sale of investments, net -- -- -- 7.6% (1.2%)
Other income (expense) -- -- -- (0.1%) 3.2%
Interest expense 8.5% 18.8% 16.9% 36.3% 38.9%
Total expenses and other income 80.4% 88.9% 90.9% 123.3% 131.1%
------- ------- ------- ------- -------
(Loss) income before (benefit) provision
for income taxes, discontinued
operations, and cumulative effect of
change in accounting principal 19.6% 11.1% 9.1% (23.3%) (31.1%)
(Benefit) provision for income taxes 5.0% (3.9%) (3.6%) 81.4% (12.1%)
------- ------- ------- ------- -------
Income (loss) before minority interest,
discontinued, operations loss on sale of
assets, extraordinary item, and cumulative
effect of change in accounting principal 14.6% 15.0% 12.7% (104.7%) (19.0%)
======= ======= ======= ======= =======
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2002
Operating Revenue. Operating revenue for the nine months ended
September 30, 2003 decreased $0.8 million, or 3.2%, to $23.9 million from $24.7
million during the same period in 2002. During the first nine months of 2003,
PlanVista added 38 new payer accounts and generated operating revenue from those
customers totaling $2.6 million. The increase in operating revenue from this new
business was offset by a decrease in operating revenue due to the departure of
customers that are no longer in business, decreased utilization by some
customers, and a lower percentage of high-dollar claims. Claims volume increased
by approximately 92,000, or 3.4%, to 2,792,000 claims processed during the nine
months ended September 30, 2003 compared to 2,700,000 claims processed in the
same period in 2002.
Personnel Expenses. Personnel expenses for the nine months ended
September 30, 2003 and 2002 were $6.6 million. Personnel expenses as a
percentage of revenues increased slightly to 27.4% for the nine months ended
September 30, 2003 compared to the same period in 2002. Included in personnel
expenses for the nine months ended September 30, 2003 is $130,000 related to
various severance agreements. Bonus expense during the nine months ended
September 30, 2003 was lower than the same period in 2002 due to lower estimate
of such costs for the year ending December 31, 2003. Additionally, PlanVista
continues to benefit from efficiencies in its claim repricing operations through
increased use of its technology, which allowed PlanVista to increase the number
of
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claims processed per person during the nine months ended September 30, 2003
compared to the same period in 2002.
Network Access Fees. Network access fees for the nine months ended
September 30, 2003 increased $0.6 million, or 14.0%, to $4.6 million from $4.0
million in 2002. Network access fees as a percentage of operating revenue were
19.1% in 2003 compared to 16.2% in 2002. Network access fees relate to amounts
charged by PlanVista's network and cost containment partners for access to their
provider network. The increase in network access fees of $0.6 million was due to
a greater portion of PlanVista's operating revenue being derived from bill
negotiation services, which is contracted at a higher fee.
Other Costs of Operating Revenue. Other costs of operating revenue for
the nine months ended September 30, 2003 decreased $0.2 million, or 3.7%, to
$4.2 million from $4.4 million in 2002. Other costs of operating revenue
primarily consists of marketing costs, occupancy and related costs, professional
services, and other administrative costs. This decrease was partially the result
of settlements of outstanding balances with certain of PlanVista's vendors
during the three months ended March 31, 2003, resulting in $0.2 million in
savings, as well as from lower professional fees related to the completion of a
number of outstanding legal matters pertaining to PlanVista's divested
subsidiaries.
Depreciation. Depreciation of $0.4 million for the nine months ended
September 30, 2003 was comparable to the same period in 2002.
Costs Related to ProxyMed Agreement. In June 2003, PlanVista signed a
three-year joint marketing agreement with ProxyMed, pursuant to which ProxyMed
has agreed to work with PlanVista to market PlanVista's products to ProxyMed's
existing and prospective customers. As part of the agreement, PlanVista expensed
$0.8 million, consisting of expenses related to data services ($0.2 million),
exclusivity ($0.1 million) and the issuance of a warrant giving ProxyMed the
ability to purchase 15.0% of PlanVista's outstanding common stock on a fully
diluted basis ($0.5 million). The fair value of the warrant was determined by an
independent consultant using the Black-Scholes pricing model.
Bad Debt Expense. Bad debt expense for the nine months ended September
30, 2003 decreased $0.7 million, or 36.3%, to $1.3 million from $2.0 million
during the same period in 2002. Bad debt expense is recorded based on
PlanVista's estimate of uncollectible accounts receivable.
Other Income. On September 30, 2003, PlanVista negotiated a settlement
for an obligation to provide in-kind claims repricing services. Due to this
settlement, PlanVista recorded $650,000 of other income during the nine months
ended September 30, 2003.
Interest Expense, Net. Interest expense for the nine months ended
September 30, 2003 decreased to $2.0 million from $4.6 million during the same
period in 2002. This reduction is due primarily to the lowering of PlanVista's
outstanding bank debt by $29.0 million upon the bank restructuring on April 12,
2002, the lowering of the interest rate on such debt from prime plus 6.0% to
prime plus 1.0 %, and the repayment of $1.7 million of such debt in the three
months ended September 30, 2003.
Income Taxes. The provision for income taxes for the nine months ended
September 30, 2003 was $1.2 million. This provision was based on an effective
tax rate that was determined based upon PlanVista's estimate of its taxable
income for the year ending December 31, 2003. The benefit for income taxes for
the nine months ended September 30, 2002 was $1.0 million. This benefit was
based on an effective tax rate that was determined based upon PlanVista's
estimate of its taxable income for the year ended December 31, 2002.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
Operating Revenue. Operating revenue for the year ended December 31,
2002 increased $0.2 million, or 1.0%, to $33.1 million from $32.9 million in
2001. During 2002, PlanVista added over 45 new accounts and generated operating
revenue from those customers totaling $4.5 million. The increase in operating
revenue from
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this new business was partially offset by a decrease in operating revenue from
customers that no longer use PlanVista's services or that have significantly
reduced their utilization. Claims volume increased 0.7 million, or 24.1%, to 3.6
million claims repriced in 2002 compared to 2.9 million claims repriced in 2001.
The percentage increase in operating revenue in 2002 was less than the
percentage increase in claims volume because PlanVista repriced a higher
percentage of generally lower dollar value physician claims in 2002 compared to
2001, resulting in a decrease in average operating revenue per claim.
Personnel Expense. Personnel expense for the year ended December 31,
2002 decreased $0.6 million, or 6.6%, to $8.5 million from $9.1 million in 2001.
Personnel expense as a percentage of revenues decreased to 25.6% in 2002
compared to 27.8% in 2001. During 2002, PlanVista reduced its total employee
count from 152 at January 1, 2002 to 144 at December 21, 2002. PlanVista
continued to benefit from efficiencies in its claim repricing operations through
increased use of its technology, which allowed PlanVista to increase the number
of claims processed per person in 2002 compared to the same period in 2001.
Network Access Fees and Other Cost of Operating Revenue. Network access
fees and other cost of operating revenue for the year ended December 31, 2002
decreased $1.0 million, or 8.4%, to $10.9 million from $11.9 million in 2001.
Network access fees and other cost of operating revenue as a percentage of
operating revenue were 33.0% in 2002 compared to 36.1% in 2001. This decrease
was attributable to decreases in network access fees of $0.2 million, due to
contracts with certain of PlanVista's newer networks that are on more favorable
terms and the migration of certain networks to a flat fee contract basis.
Additionally, PlanVista's electronic imaging costs decreased by approximately
$0.2 million as more of its repricing is done through either EDI or Internet
connections.
Depreciation and Amortization of Goodwill. Depreciation for the year
ended December 31, 2002 increased an immaterial amount compared to 2001. This
small increase in depreciation was due to purchases of fixed assets in the
latter part of 2001 and during 2002. Amortization of intangibles was $1.4
million for the year ended December 31, 2001. No amortization of goodwill was
recorded in 2002 due to the adoption of Statement of Financial Accounting
Standard ("SFAS") No. 142, "Goodwill and Intangible Assets," under which
goodwill is no longer amortized but instead is subject to impairment tests at
least annually. No impairment of goodwill was determined to have occurred during
2002.
Bad Debt Expense. Bad debt expense for the year ended December 31, 2002
increased an immaterial amount from the same period in 2001. Bad debt expense is
recorded based on PlanVista's estimate of uncollectible accounts receivable.
Offering Costs. During 2002, PlanVista pursued a secondary offering of
its common stock and in connection therewith incurred legal, accounting, and
printing fees. However, due to market conditions, the Offering was indefinitely
postponed and, accordingly, in the fourth quarter, PlanVista expensed
approximately $1.2 million associated with the Offering.
Interest Expense. Interest expense for the year ended December 31, 2002
decreased to $5.6 million from $12.1 million during the same period in 2001.
During 2001, PlanVista incurred higher interest rates on its credit facility
that increased from prime plus 1.0% (10.50%) on January 1, 2001, to prime plus
6.0% (10.75%) through April 12, 2002, the date PlanVista restructured its credit
facility. As a result of this restructuring, PlanVista reduced the debt balance
owed to its Senior Lenders from $64.8 million at December 31, 2001 to $40.0
million at December 31, 2002. PlanVista's senior lenders currently charge
interest at a rate of prime plus 1.0% (5.25% at December 31, 2002). The decrease
resulting from the lower average principal balance and lower interest rates was
partially offset by the bank charges and other financing costs incurred to
restructure the credit facility, which are included in interest expense for the
year ended December 31, 2002.
Loss (gain) on Sale of Investments, Net. Loss on sale of investments
for the year ended December 31, 2002 decreased $2.5 million, to $0.0 from $2.5
million for the same period in 2001. The loss on sale of investments in 2001 was
due to PlanVista's sale of its investment in HealthAxis, Inc.
177
Income Taxes. The benefit for income taxes for the year ended December
31, 2002 was $1.2 million compared to a provision for income taxes of $26.8
million during the same period in 2001. Effective January 1, 2002, a new federal
law was enacted allowing corporations to increase the period for which they may
obtain refunds on past income taxes paid due to net operating losses. The prior
law allowed companies to use their net operating losses for the preceding three
fiscal years while the new law allows companies to use their net operating
losses for the preceding five fiscal years.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Operating Revenue. Operating revenue for the year ended December 31,
2001 increased $6.0 million, or 22.3%, to $32.9 million from $26.9 million in
2000. During 2001, PlanVista added more than 177 new accounts and generated
revenue from those customers totaling $6.2 million. Operating revenue from
existing customers was flat in 2001 compared to 2000. Claims volume increased
0.8 million, or 38.1%, to 2.9 million claims repriced in 2001 compared to 2.1
million claims repriced in 2000. The percentage increase in operating revenue in
2001 was less than the percentage increase in claims volume because PlanVista
repriced a higher percentage of generally lower value physician claims in 2001
compared to 2000, resulting in a decrease in average operating revenue per
claim.
Personnel Expense. Personnel expense for the year ended December 31,
2001 increased $0.8 million, or 9.6%, to $9.1 million from $8.3 million in 2000.
Personnel expense increased as salaries and wages increased to meet increased
volume of claims received and commissions earned from the increase in operating
revenue. Personnel expense as a percentage of operating revenue decreased to
27.8% in 2001 compared to 30.8% in 2000, primarily because PlanVista was able to
increase efficiencies in its claims repricing operations through increased use
of its technology, which allowed it to increase the number of claims processed
per person in 2001.
Network Access Fees and Other Costs of Operating Revenue. Network
access fees and other costs of operating revenue for the year ended December 31,
2001 increased $3.7 million, or 45.1%, to $11.9 million from $8.2 million in
2000. This increase was primarily attributable to increases in network access
fees, electronic imaging, postage, computer software and maintenance cost, and
printing cost supporting PlanVista's increased operating revenue. Network access
fees and other costs of operating revenue as a percentage of operating revenue
was 36.1% in 2001 compared to 30.2% in 2000. Additionally, PlanVista incurred
increased legal and other costs associated with its divestitures and credit
facility restructuring activities during 2001 totaling $0.7 million. During
2000, PlanVista received proceeds from a key-man life insurance policy totaling
$0.5 million, which reduced overall cost of operating revenue during such
period.
Depreciation and Amortization of Goodwill. Depreciation for the year
ended December 31, 2001 increased $0.2 million, or 66.7%, to $0.5 million from
$0.3 million in 2000. Amortization of intangibles was $1.4 million for each of
the years ended December 31, 2001 and 2000. The increase in depreciation was
primarily attributable to the amortization of internally developed software
costs that were capitalized in 2001 and the depreciation of new property and
equipment acquired in 2001.
Bad Debt Expense. Bad debt expense for the year ended December 31, 2001
increased $2.7 million, or 450.0%, to $3.3 million from $0.6 million in 2000 due
to the related increase in operating revenue, an overall increase in the
estimated allowance for doubtful accounts based on historical collection rates,
and a $1.2 million additional reserve against certain accounts resulting from
customer negotiations.
Loss on Sale of Investments, Net. Loss on sale of investments, net for
the year ended December 31, 2001 was $2.5 million compared to gain on sale of
investments of $0.3 million in 2000. During the second quarter of 2001,
PlanVista sold all of its shares of HealthAxis, Inc. stock and realized a net
pretax loss on the sale of approximately $2.5 million. During the second quarter
of 2000, PlanVista sold all 109,732 of its shares of Caredata.com, Inc. stock
and realized a net pretax gain on the sale of $0.3 million.
Interest Expense. Interest expense for the year ended December 31, 2001
increased $1.6 million, or 15.2%, to $12.1 million from $10.5 million in 2000.
This increase resulted from increased interest rates on PlanVista's credit
facility from prime plus 1.0%, or 10.5%, at January 1, 2001 to prime plus 6.0%,
or 10.75%, at December 31,
178
2001. In addition, PlanVista incurred significant bank charges that were
included in interest expense associated with amendments to its credit facility
during 2001.
Other Income and Expense. Other income for the year ended December 31,
2001 was immaterial. Other expense for the year ended December 31, 2000 was $0.9
million. During the second quarter of 2000, PlanVista expensed legal, financial
advisory, and other fees associated with the termination of its merger agreement
with UICI, a Texas-based financial services firm. PlanVista entered into a
contract to be acquired by them in October 1999. The transaction was mutually
terminated in April 2000.
Income Taxes. Provision for income taxes for the year ended December
31, 2001 was $26.8 million compared to a benefit for income taxes of $3.3
million in 2000. During 2001, PlanVista was required to establish a $36.5
million valuation allowance on its net deferred tax assets as a result of
cumulative losses in recent years, as required by SFAS No. 109, "Income Taxes."
Discontinued Operations. Loss from discontinued operations, net of
taxes for the year ended December 31, 2001 decreased $58.2 million, or 99.0%, to
$0.6 million from $58.8 million in 2000. Loss on sale of discontinued
operations, net of taxes for the year ended December 31, 2001 decreased $29.2
million, or 74.3%, to $10.1 million from $39.3 million in 2000. During 2000,
these operations were adversely affected by the write-off of $80.3 million of
goodwill and contract rights related to the business units sold determined by
the selling price of the unemployment compensation and workers' compensation,
Ohio workers' compensation managed care organization and self-funded business
units sold in 2000, and the definitive agreement signed in April 2001 to sell
PlanVista's third party administration and managing general underwriter business
units. The additional losses in 2001 were incurred based on actual results of
operations and the terms of the final sale, which occurred in June 2001.
Loss on Extinguishment. During the second quarter of 2000, PlanVista
recorded a loss on the extinguishment of debt of $1.0 million, net of taxes,
related to its credit facility. This loss represented $1.5 million of pretax
non-interest fees and expenses connected with the prior facility, which were
previously subject to amortization over five years. No such gains or losses were
recognized during 2001.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is PlanVista's ability to generate adequate amounts of cash
to meet its financial commitments. PlanVista's primary source of cash is fee
revenue generated from the healthcare provider discounts that it makes available
to its customers. PlanVista's uses of cash consist of payments to PPOs to
provide access to their networks for PlanVista's customers, payments for
compensation and benefits for PlanVista's employees, occupancy and related
costs, general and administrative expenses associated with operating its
business, debt service obligations, and taxes.
PlanVista had cash and cash equivalents totaling $3.0 million at
September 30, 2003 and $1.2 million at December 31, 2002. Net cash provided by
operating activities was $3.8 million and $0.7 million during the nine months
ended September 30, 2003 and 2002, respectively. This increase in cash provided
by operating activities in 2003 is due primarily to improved accounts receivable
collections partially offset by decreases in PlanVista's accounts payable and
accrued expenses.
Restructured Credit Facility
On April 12, 2002, PlanVista closed a transaction to restructure and
refinance its senior bank debt, which was $69.0 million prior to the closing.
Under the terms of the restructured agreement, PlanVista entered into a $40.0
million term loan that accrues interest at a variable rate, generally prime plus
1.0%, with interest payments due monthly. Quarterly principal payments of
$50,000 became due beginning September 30, 2002, and because the term loan is
payable in full on May 31, 2004, it is classified as a current liability on
PlanVista's balance sheet as of September 30, 2003. The term loan is
collateralized by all of PlanVista's assets.
179
In exchange for retirement of the remaining amounts due to its senior
lenders, PlanVista issued 29,000 shares of its newly authorized series C
preferred stock and an additional promissory note in the amount of $184,872,
which was fully paid as of June 30, 2003. The series C preferred stock accrued
dividends at 10.0% per annum during the first twelve months from issuance and is
currently fixed at 12.0% per annum. Dividends are payable quarterly in
additional shares of series C preferred stock or, at PlanVista's option, in
cash. As of September 30, 2003, PlanVista has chosen to pay dividends in the
form of additional shares, and has issued to the series C preferred stockholders
an aggregate of 3,659 additional shares of series C preferred stock. The
restructured credit agreement contains certain financial covenants, including
minimum monthly EBITDA levels, as defined in the agreement, maximum quarterly
and annual capital expenditures, a minimum quarterly fixed charge ratio that is
based primarily on PlanVista's operating cash flows, and maximum quarterly and
annual extraordinary expenses, as defined in the agreement. The required minimum
EBITDA level beginning August 2003 is $1.0 million per month. While PlanVista is
in compliance with the financial covenants as of September 30, 2003, there is no
assurance that it will remain in compliance in future periods. If PlanVista is
not in compliance, the senior lenders could demand repayment of PlanVista's
obligations. In such event, there can be no assurance that PlanVista will be
able to repay the indebtedness, or refinance such indebtedness on terms that are
acceptable to it.
PlanVista's indebtedness comes due in May 2004. PlanVista is currently
pursuing alternatives to refinance this indebtedness and/or raise additional
equity capital to pay off or pay down this indebtedness. There can be no
assurance that PlanVista will be able to repay the indebtedness or refinance
such indebtedness on terms that are acceptable to it. Should PlanVista be
successful in these endeavors, there could be substantial dilution to the common
stockholders.
If PlanVista is unable to generate sufficient cash flows from
operations to pay its financial obligations and meet its debt covenants, as
required by PlanVista's restructured credit facility, or if PlanVista is unable
to repay or refinance its restructured credit facility in full in May 2004,
there may be a material adverse effect on PlanVista's business, financial
condition, and results of operations.
PVC Funding Partners Transaction
On March 7, 2003, PVC Funding Partners, LLC, an affiliate of
Commonwealth Associates, LP and Comvest Venture Partners, acquired from
PlanVista's senior lenders 29,851 shares, or 96.0%, of PlanVista's outstanding
series C preferred stock. The series C preferred stock was purchased from the
senior lenders on a prorata basis at a price of $33.50 per share. The original
senior lenders continue to hold the remaining 4.0% of the series C preferred
stock. In connection with the transaction, PVC Funding Partners also acquired
$20.5 million in principal amount of PlanVista's outstanding bank debt from
PlanVista's original senior lenders. In connection with the closing of the
transaction, the three Class B members of PlanVista's board of directors
designated by the original holders of the series C preferred stock voluntarily
relinquished their board positions and were replaced by three Class B directors
selected by PVC Funding Partners, LLC.
There is an intercreditor agreement between PVC Funding Partners and
the original senior lenders which provides that, until the occurrence of a Board
Shift Event, PVC Funding Partners has all of the rights of the original senior
lenders under the restructured credit agreements, except that (1) PVC Funding
Partners' rights to mandatory prepayments and other principal payments prior to
the maturity date are subordinated to the original senior lenders' rights to
those payments, and (2) PVC Funding Partners' notes will be voted consistently
with and on the same percentage basis as the original senior lenders with
respect to all matters required to be submitted to a vote or consent of the
original senior lenders, except for matters related to certain fundamental
changes in the loan terms. On October 12, 2003, PlanVista did not redeem any of
the series C preferred stock, triggering a Board Shift Event. Consequently, PVC
Funding Partners informed the senior lenders that they were exercising their
option to control the board of directors by assuming the right to elect four of
the seven members of the Board. PVC Funding Partners designated one of the
existing directors previously elected by the common stockholders as the fourth
series C director. Upon the change in control of PlanVista's board of directors,
the debt held by PVC Funding Partners became subordinated to the debt held by
the original senior lenders.
180
Centra Convertible Notes
As of December 31, 2001, PlanVista was in default with respect to
interest payments due under notes payable to CENTRA Benefits, Inc., referred to
as Centra, originally issued in connection with PlanVista's 1998 acquisition
of a third party administration business from Centra. These notes have been
restructured twice since December 31, 2001. Most recently, effective March 31,
2003, PlanVista extended the maturity date of the notes, which are in the amount
of $4.3 million, to April 1, 2006, reduced the interest rate to 6.0% per annum,
and fixed the conversion price under which the notes can be converted to common
stock at $1.00. PlanVista also issued a new convertible note equal to the
accrued and unpaid interest owed to Centra in the amount of approximately
$500,000. This note has the same terms and conditions as the restructured notes.
Immediately upon completion of this restructuring, PVC Funding Partners acquired
slightly more than 50.0% of the face value of the notes, including the new note,
from Centra. The remaining portion is still held by Centra.
Other Obligations
In connection with a 1993 acquisition by PlanVista's former subsidiary,
HealthPlan Services, Inc., PlanVista assumed a note payable. As of September 30,
2003, the outstanding principal balance of the note was approximately $695,000,
and semi-annual payments on this note are due through November 1, 2008. This
note is collateralized by a letter of credit.
On September 30, 2003, PlanVista settled an obligation to provide
$950,000 of in-kind services with a cash payment of $300,000. The difference of
$650,000 is included in operating income in the accompanying condensed
consolidated statements of operations for the three and nine months ended
September 30, 2003.
On April 12, 2002, in connection with the restructuring of PlanVista's
credit facility, the maturity date of notes totaling $500,000 was extended to
December 1, 2004. The notes are due to a member of PlanVista's board of
directors and an individual who was a member of PlanVista's board of directors
at the time that the notes were issued and at the time of the April 2002
restructuring. These notes bear interest at prime plus 4.0% per annum, but
payment of interest is subordinated and deferred until all senior obligations
are paid.
Since the sale of HealthPlan Services in June 2001, PlanVista had been
in discussions with HealthPlan Holdings, Inc. to finalize purchase price
adjustments associated with the HealthPlan Services transaction. On October 1,
2003, PlanVista finalized its discussions with HealthPlan Holdings, Inc. with no
additional liability for purchase price adjustments. Additionally, PlanVista
agreed upon payment terms for $1.7 million of other items that are included in
accrued liabilities in the accompanying condensed consolidated balance sheets as
of September 30, 2003 and December 31, 2002.
Capital Expenditures
PlanVista spent $0.4 million on capital expenditures during the nine
months ended September 30, 2003. Obligations for future capital expenditures are
not significant and are restricted to $1.5 million annually under PlanVista's
credit facility.
Except for the maturity of its term loan, which becomes due on May 31,
2004, PlanVista believes that all consolidated operating and financing
obligations for the next twelve months will be met from cash flows from
operations and available cash. Although there can be no assurances, management
believes based on available information, PlanVista will be able to maintain
compliance with the terms of its restructured credit facility, including the
financial covenants, until it becomes due on May 31, 2004. PlanVista's ability
to fund its operations, make scheduled payments of interest and principal on its
indebtedness, and maintain compliance with the terms of its restructured credit
facility, including PlanVista's financial covenants, depends on PlanVista's
future performance, which is subject to economic, financial, competitive, and
other factors beyond PlanVista's control. If PlanVista is unable to generate
sufficient cash flows from operations to pay its financial obligations and meet
the debt covenants as required under the restructured credit facility, or is
unable to repay its restructured credit facility in full on May 31, 2004, there
may be a material adverse effect on PlanVista's business, financial condition,
and results of
181
operations. Management has explored alternatives, including the sale of equity
securities, to refinance PlanVista's debt, reduce its obligations, recapitalize
PlanVista, and provide additional liquidity. However, management believes that
if the merger transaction with ProxyMed is approved by the stockholders, there
will be sufficient liquidity to pay PlanVista's obligations to its senior
lenders and to meet its other financial obligations. There can be no assurances
that PlanVista will be successful in these endeavors. Should PlanVista be
successful in these endeavors, there could be substantial dilution to
PlanVista's common stockholders.
Inflation
PlanVista does not believe that inflation had a material effect on
PlanVista's results of operations for the three or nine months ended September
30, 2003 and 2002. There can be no assurance, however, that PlanVista's business
will not be affected by inflation in the future.
PLANVISTA RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2003, PlanVista adopted the provisions of SFAS No. 143,
"Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development or normal operations of a long-lived asset. The adoption of SFAS No.
143 did not have a significant effect on PlanVista's financial position, results
of operations or liquidity.
On January 1, 2003, PlanVista adopted the provisions of SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," which
addresses accounting for restructuring and similar costs. SFAS No. 146 requires
that the liability for costs associated with an exit or disposal activity be
recognized when the liability is incurred, rather than the date of PlanVista's
commitment to an exit plan. The adoption of SFAS No. 146 did not impact
PlanVista.
In November 2002, Financial Interpretation ("FIN") No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Guarantees of
Indebtedness of Others (an interpretation of SFAS No. 5, 57 and 107 and
rescission of SFAS Interpretation No. 34)," which modifies the accounting and
enhances the disclosure of certain types of guarantees, was issued. FIN No. 45
requires that upon issuance of certain guarantees, the guarantor must recognize
a liability for the fair value of the obligation it assumes under the guarantee.
PlanVista adopted the disclosure requirements of FIN No. 45 as of December 31,
2002. On January 1, 2003, PlanVista adopted the initial recognition and
measurement provisions, which are effective on a prospective basis for
guarantees issued or modified after December 31, 2002. The adoption of FIN No.
45 did not have an impact on PlanVista.
On January 17, 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51," which imposes a
new approach in determining if a reporting entity should consolidate certain
legal entities, including partnerships, limited liability companies, or trusts,
among others, collectively defined as variable interest entities or VIEs.
Certain transition disclosures are required for all financial statements issued
after January 31, 2003. The provisions of FIN No. 46 applicable to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003 are effective for all interim and annual
periods ending after December 15, 2003 pursuant to FASB Staff Position No. FIN
46-6. PlanVista does not believe FIN No. 46 will have an impact on it.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity,"
which establishes standards for how companies classify and measure certain
financial instruments with characteristics of both liability and equity.
Specifically, SFAS No. 150 provides guidance as to which items should be
classified as liabilities that were previously reported as equity or as a
mezzanine item reported between liabilities and equity. SFAS No. 150 is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 requires PlanVista to report the common stock
with make-whole provision as a liability on the condensed consolidated balance
sheet as of September 30, 2003.
182
PLANVISTA QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PlanVista is exposed to certain market risks inherent in its financial
instruments. These instruments arise from transactions entered into in the
normal course of business. PlanVista is subject to interest rate risk on its
existing agreements. PlanVista's fixed rate debt consists primarily of
outstanding balances on its notes issued to Cal Group, Inc., the former owner of
CENTRA HealthPlan LLC. PlanVista's variable rate debt relates to borrowings
under its Term Loan Agreement effective April 12, 2002 and notes issued to
certain members of PlanVista's board of directors. See "Liquidity and Capital
Resources."
At September 30, 2003, the following unaudited table presents the
future minimum operating lease obligations and the future principal payment
obligations, and the weighted-average interest rates associated with PlanVista's
long-term debt instruments for the periods ended December 31 (in thousands).
These amounts reflect PlanVista's restructured debt arrangements:
2003 2004 2005 2006 2007 THEREAFTER
------- ------- ------- ------- ------- ----------
Operating leases $ 177 $ 505 $ 101 $ 56 $ 53 $ 12
Long-term debt fixed
rate (interest rates ranging from
5.75% to 6.0% $ 123 $ 564 $ 132 $ 4,928 $ 150 $ 84
Long-term debt variable rate (interest
at prime plus 1.0%
and prime plus 4.0%) $ 50 $38,389 $ -- $ -- $ -- $ --
PlanVista's primary market risk exposure relates to (i) the interest
rate risk on long-term and short-term borrowings, (ii) the impact of interest
rate movements on PlanVista's ability to meet interest expense requirements and
exceed financial covenants, and (iii) the impact of interest rate movements on
PlanVista's ability to obtain adequate financing to fund future acquisitions.
A 1.0% increase in interest rates due to increased rates would result
in additional annual interest expense of approximately $0.4 million.
While PlanVista cannot predict its ability to refinance existing debt
or the impact interest rate movements will have on its existing debt,
PlanVista's management continues to evaluate PlanVista's financial position on
an ongoing basis.
183
PLANVISTA MANAGEMENT
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since March 12, 2003, PlanVista's compensation committee has been
composed of three directors: Harold S. Blue, Michael S. Falk, and James K.
Murray III. Neither Mr. Blue nor Mr. Falk has ever been an officer or employee
of PlanVista or its subsidiaries. Mr. Murray was PlanVista's Executive Vice
President and Chief Financial Officer from October 1995 until December 1997. Mr.
Falk is the Chairman and principal member of Commonwealth Associates Group
Holdings, LLC, which provides advisory services to PlanVista. Mr. Blue is a
member, director, and President of Commonwealth Associates Group Holdings, LLC.
Between April 15, 2002 and March 10, 2003, the compensation committee was
composed of John D. Race, William L. Bennett, Christopher J. Garcia, and Martin
L. Garcia, none of whom is or was an officer or employee of PlanVista or its
subsidiaries, except for Mr. Bennett, who was employed as PlanVista's Chairman
of the Board from December 1994 until December 1997. PlanVista has issued
subordinated promissory notes in favor of Mr. Bennett and Mr. Race, each in the
amount of $250,000. See "Certain Relationships and Related Transactions" for
more information about the subordinated promissory notes and the Commonwealth
Associates Group Holdings, LLC advisory agreement.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the past
three fiscal years to PlanVista's Chief Executive Officer and PlanVista's other
four most highly compensated executive officers during year 2002 with annual
compensation over $100,000 for such years, referred to as the PlanVista Named
Executive Officers. During the past three fiscal years, PlanVista did not grant
any restricted stock awards or stock appreciation rights or make any long-term
incentive plan payouts.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------- -------------------------------------------
NAME AND
PRINCIPAL SALARY BONUS SECURITIES UNDERLYING ALL OTHER COMPEN-
POSITION(1) YEAR ($) ($)(2) OPTIONS (#)(3) SATION ($)(4)
---------------------------- ---- ------- ------- --------------------- -----------------
Phillip S. Dingle 2002 300,000 -- 200,000 3,667
Chairman and Chief 2001 288,561 -- 54,947(5) 3,463
Executive Officer 2000 232,732 190,000 133,000 3,500
Jeffrey L. Markle 2002 220,000 -- 150,000 3,667
President and Chief 2001 219,231 -- 50,000(5) 3,435
Operating Officer 2000 191,633 90,000 70,000 1,278
Donald W. Schmeling (6) 2002 180,000 -- 90,000 231
Chief Financial Officer 2001 78,231 -- 60,676(5) --
2000 -- -- -- --
Bennett Marks
Chief Financial Officer
184
-----------------
(1) Indicates each PlanVista Named Executive Officer's position with
PlanVista as of December 31, 2002.
(2) Represents bonus compensation awarded for the executive's performance
in the year indicated, but paid in the subsequent year.
(3) Refers to incentive stock options granted during the stated fiscal year
under either PlanVista's 1995 Incentive Equity Plan or PlanVista's
Amended and Restated 1996 Employee Stock Option Plan. The PlanVista
Incentive Equity Plan and the Employee Stock Option Plan provide for
grants of stock options to employees of PlanVista, as determined by the
compensation committee of PlanVista's board of directors. The
compensation committee may grant these options as incentive options,
which qualify for certain favorable tax treatment, or as non-qualified
options. The compensation committee has the authority to set the
exercise price for options at the time of grant, except that the
exercise price of an incentive option may not be less than the fair
market value of PlanVista's common stock on the grant date. Except as
indicated in Footnote 5 below, each option grant reflected in the table
vests over a four (4)-year period from the date of the grant, with 20%
of the options becoming vested on the grant date and 20% becoming
vested on each successive anniversary of the grant date, until the
options become fully vested on the fourth anniversary of the grant
date. In the event of any merger or other transaction in which
PlanVista does not survive, the compensation committee at its option
may accelerate the vesting of all outstanding Incentive Equity Plan and
Employee Stock Option Plan options, subject to applicable law.
(4) Consists of PlanVista contributions to each PlanVista Named Executive
Officer's account under PlanVista's Profit Participation 401(k) Plan.
Does not include the amount of life insurance premium payments
allocable to each PlanVista Named Executive Officer. PlanVista provides
all employees with life insurance benefits that are generally equal to
two (2) years' base salary, subject to certain adjustments.
(5) Includes options for 14,947, 10,000, and 10,676 shares granted by
PlanVista to Messrs. Dingle, Markle, and Schmeling, respectively, for
these officers' contributions during 2001, which vested immediately.
These options were granted in 2002.
(6) Mr. Schmeling joined PlanVista in July 2001. Mr. Schmeling's employment
with PlanVista terminated effective July 30, 2003.
OPTION GRANTS IN 2002
The following table provides information on stock option grants during
fiscal year 2002 to each of the PlanVista Named Executive Officers. During
fiscal year 2002, PlanVista did not grant any stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS(1) TERM (TEN YEARS)(2)
------------------------------------------------------------------------------------- ------------------------------
# OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEE IN OR BASE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
---------------------- ---------- ----------- -------- ---------- ---------- -----------
Phillip S. Dingle 200,000 21% $ 4.78 2/13/2013 $ 602,000 $ 1,528,000
Phillip S. Dingle 14,947(4) 2 4.78 2/13/2013 44,990 114,195
Jeffrey L. Markle 150,000 16 4.78 2/13/2013 451,500 1,146,000
Jeffrey L. Markle 10,000(4) 1 4.78 2/13/2013 30,100 76,400
Donald W. Schmeling(3) 90,000 9 4.78 2/13/2013 270,900 687,600
Donald W. Schmeling(3) 10,676(4) 1 4.78 2/13/2013 32,135 81,565
Bennett Marks
185
-----------------
(1) Consists of option grants under the Employee Stock Option Plan or the
Incentive Equity Plan. Except as set forth in Footnote 3 below, each
option grant vests over a four-year period from the grant date, with
20% of the options becoming vested on the grant date and 20% becoming
vested on each successive anniversary of the grant date, until the
options become fully vested on the fourth anniversary of the grant
date.
(2) The dollar gains under these columns result from calculations assuming
5% and 10% growth rates, as set by the Securities and Exchange
Commission, and are not intended to forecast future price appreciation
of PlanVista's common stock. The gains reflect a future value based
upon growth at the prescribed rates. PlanVista is not aware of any
formula that will determine with reasonable accuracy a present value
based on future unknown or volatile factors. Options have value to the
PlanVista Named Executive Officers and to all option recipients only if
the price of the Plan Vista's common stock advances beyond the
applicable option exercise price during the effective option period.
(3) Mr. Schmeling's employment with PlanVista terminated effective July 30,
2003.
(4) These options were granted by Plan Vista for contributions during 2001,
and vested immediately.
AGGREGATE OPTION EXERCISES IN 2002
The following table sets forth certain information concerning
unexercised options held by each of the PlanVista Named Executive Officers as of
December 31, 2002. No PlanVista Named Executive Officer exercised any options
during 2002. PlanVista does not have any outstanding stock appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT FY-END (#) OPTIONS AT FY-END(2)($)
--------------------------------- ---------------------------------
NAME EXERCISABLE(1) UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
---------------------- -------------- ------------- -------------- -------------
Phillip S. Dingle 221,247 242,200 -0- -0-
Jeffrey L. Markle 125,000 175,000 -0- -0-
Donald W. Schmeling(3) 48,676 102,000 -0- -0-
-----------------
(1) Indicates shares that were vested and available for exercise as of
December 31, 2002.
(2) Value was computed as the difference between the exercise price and the
$1.65 per share last reported sale price of PlanVista's common stock on
December 31, 2002, as reported on the Over-the-Counter Bulletin Board.
(3) Mr. Schmeling's employment with PlanVista terminated effective July 30,
2003.
EQUITY COMPENSATION CHART
The following table sets forth the equity compensation plan information
for PlanVista as of December 31, 2002.
186
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS REFLECTED IN COLUMN (A))
----------------------------- -------------------------- -------------------------- -------------------------
(a) (b) (c)
-------------------------- -------------------------- -------------------------
Equity compensation plans
approved by security holders
(1)........................ 1,810,137(2) 6.72 558,913(3)
Equity compensation plans not
approved by security holders -- -- --
Total...................... 1,810,137(2) 6.72 558,913(3)
-----------------
(1) These plans consist of the 1995 Directors Stock Option Plan, the 1995
Incentive Equity Plan, the 1995 Consultants Stock Option Plan, the
Amended and Restated 1996 Employee Stock Option Plan, the Amended and
Restated 1997 Directors Equity Plan, and the 1996 Employee Stock
Purchase Plan.
(2) This number does not include 3.0 million shares issuable under the 2002
Employee Stock Option Plan, which was approved by PlanVista's
stockholders at PlanVista's 2002 Annual Meeting of Stockholders,
subject to completion of a proposed public offering of PlanVista's
common stock. Effective as of the fourth quarter of 2002, PlanVista
postponed the offering indefinitely and subsequently filed an
application to withdraw its registration statement with respect to the
offering. Effective March 26, 2003, PlanVista's board of directors
adopted the PlanVista Corporation 2003 Stock Option Plan, subject to
stockholder approval at PlanVista's 2003 Annual Meeting. The Plan,
which was approved by PlanVista's stockholders, provides for issuance
of options to purchase an aggregate of 3.5 million shares of common
stock, without any condition related to the conclusion of an offering.
(3) This number includes 19,781 shares available for issuance under the
Amended and Restated 1997 Directors Equity Plan and 23,569 shares
available for issuance under the 1996 Employee Stock Purchase Plan.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
Effective June 1, 2000, PlanVista entered into an employment and
noncompetition agreement with Phillip S. Dingle, PlanVista's Chief Executive
Officer. The agreement, as amended on January 30, 2001, automatically renews for
successive one-year terms unless either party terminates prior to one hundred
twenty (120) days before a renewal date. The agreement entitled Mr. Dingle to an
annual base salary of not less than $275,000 and a bonus to be calculated based
on PlanVista's financial performance and achievement of specified corporate
objectives, as well as certain severance payments and continuation of certain
benefits upon a termination of Mr. Dingle's employment for other than cause or
as a result of a constructive termination event, as defined in the agreement. As
further provided by the agreement, in June 2000 PlanVista's compensation
committee awarded Mr. Dingle an option to purchase 133,000 shares of common
stock. Mr. Dingle also is entitled to participate in PlanVista's other employee
benefits, such as PlanVista's employee stock option plans. The agreement
contains noncompete and nonsolicitation restrictions that will survive
termination of Mr. Dingle's employment with PlanVista.
Effective on May 22, 2003, PlanVista entered into an amendment to Mr.
Dingle's employment and noncompetition agreement. The amendment entitles Mr.
Dingle to an annual base salary of not less than $200,000 effective as of the
date of the amendment. As further provided by the amendment, Mr. Dingle was
granted, pursuant to PlanVista's 2003 Stock Option Plan, options to purchase
700,000 shares of PlanVista's common stock that vest 15% every twelve months
(for an aggregate of 60% vesting over a period of thirty-six months) beginning
on the date of grant, with accelerated vesting provisions for the remaining
balance of unvested options in the event that PlanVista meets certain financial
performance targets. To the extent these options are not fully vested by
December 31, 2006, options to purchase the remaining shares vest in accordance
with the terms of the amendment. In addition, Mr. Dingle was granted, pursuant
to PlanVista's 2003 Stock Option Plan, options to purchase an aggregate of
667,500 shares of PlanVista's common stock with 222,500 shares vesting upon the
date of the amendment and 222,500 shares vesting on each anniversary of the date
of the amendment over the next two years. The amendment provides for accelerated
vesting of all options held by Mr. Dingle upon the occurrence of certain events,
including a change in control of PlanVista, as defined in the amendment. The
amendment also provides for one year's base salary in the event Mr. Dingle is
terminated without cause or as a result of a constructive termination event, as
defined in the amendment. All other terms and conditions of the employment and
noncompetition agreement remain in full force and effect.
Effective on June 1, 2001, PlanVista entered into an employment and
noncompetition agreement with Jeffrey L. Markle, PlanVista's President and Chief
Operating Officer. The agreement automatically renews for
187
successive one-year terms unless either party terminates prior to one hundred
twenty (120) days before a renewal date. The agreement entitled Mr. Markle to an
annual base salary of not less than $220,000 and a bonus to be calculated based
on PlanVista's financial performance and achievement of specified corporate
objectives, as well as certain severance payments and continuation of certain
benefits upon a termination of Mr. Markle's employment for other than cause or
as a result of a constructive termination event, as defined in the agreement.
Mr. Markle also is entitled to participate in PlanVista's other employee
benefits, such as PlanVista's employee stock option plans. The agreement
contains noncompete and nonsolicitation restrictions that will survive
termination of Mr. Markle's employment with PlanVista.
Effective on May 22, 2003, PlanVista entered into an amendment to Mr.
Markle's employment and noncompetition agreement. The amendment entitles Mr.
Markle to an annual base salary of not less than $197,000 effective as of the
date of the amendment. As further provided by the amendment, Mr. Markle was
granted, pursuant to PlanVista's 2003 Stock Option Plan, options to purchase
700,000 shares of PlanVista's common stock that vest 15% every twelve months
(for an aggregate of 60% vesting over a period of thirty-six months) beginning
on the date of grant, with accelerated vesting provisions for the remaining
balance of unvested options in the event that PlanVista meets certain financial
performance targets. To the extent these options are not fully vested by
December 31, 2006, options to purchase the remaining shares vest in accordance
with the terms of the amendment. In addition, Mr. Markle was granted, pursuant
to PlanVista's 2003 Stock Option Plan, options to purchase an aggregate of
429,000 shares of PlanVista's common stock with 143,000 shares vesting upon the
date of the amendment and 143,000 shares vesting on each anniversary of the date
of the amendment over the next two years. The amendment provides for accelerated
vesting of all options held by Mr. Markle upon the occurrence of certain events,
including a change in control of PlanVista, as defined in the amendment. The
amendment also provides for one year's base salary in the event Mr. Markle is
terminated without cause or as a result of a constructive termination event, as
defined in the amendment. All other terms and conditions of the employment and
noncompetition agreement remain in full force and effect.
Effective on June 30, 2003, PlanVista entered into an employment and
noncompetition agreement with Bennett Marks, PlanVista's Chief Financial
Officer. The agreement automatically renews for successive one-year terms unless
either party terminates prior to one hundred twenty (120) days before a renewal
date. The agreement entitles Mr. Marks to an annual base salary of not less than
$185,000, a bonus to be calculated based on PlanVista's financial performance
and achievement of specified corporate objectives, participation in PlanVista's
incentive and retention program and other employee benefits, such as PlanVista's
employee stock option plans, and certain other benefits set forth in the
agreement. As further provided in the agreement, Mr. Marks was granted, pursuant
to PlanVista's 2003 Stock Option Plan, options to purchase 350,000 shares of
PlanVista's common stock that vest 15% every twelve months (for an aggregate of
60% vesting over a period of thirty-six months) beginning on the date of grant,
with accelerated vesting provisions for the remaining balance of unvested
options in the event that PlanVista meets certain financial performance targets.
To the extent these options are not fully vested by December 31, 2006, options
to purchase the remaining shares vest in accordance with the terms of the
agreement. In addition, the agreement provides for accelerated vesting of all
options held by Mr. Marks upon the occurrence of certain events, including a
change in control, as defined in the agreement, of PlanVista. The agreement also
provides for one year's base salary and continuation of certain benefits in the
event Mr. Marks is terminated without cause, as a result of a constructive
termination event or upon a change of control of PlanVista, as defined in the
agreement. The agreement contains noncompete and nonsolicitation restrictions
that will survive termination of Mr. Mark's employment with PlanVista.
On March 26, 2003, the compensation committee of the board of directors
of PlanVista adopted annual incentive bonus targets for Mr. Dingle, Mr. Markle
and Mr. Marks, as well as other officers of PlanVista, in keeping with
PlanVista's annual bonus compensation practices, pursuant to which each such
individual is entitled to receive a cash bonus based on certain financial,
business and personal goals as set forth in each individual senior officer's
2003 Annual Incentive Planning Worksheet. The PlanVista board of directors
reserved the right to pay 20% of such bonuses in registered shares of PlanVista
common stock.
In March 2003, the compensation committee of the board of directors of
PlanVista also adopted compensation arrangements under which Mr. Dingle and Mr.
Markle will receive additional payments upon a sale of substantially all of the
assets or stock of PlanVista. The committee established a payment range of
between
188
$375,000 and $750,000 for Mr. Dingle and between $250,000 and $500,000 for Mr.
Markle. In each case the payment amount will be based on the consideration
received in connection with the transaction.
On May 19, 2003, the compensation committee of the board of directors
of PlanVista adopted an incentive and retention program pursuant to which Mr.
Dingle, Mr. Markle and Mr. Marks, as well as other officers, employees and
PlanVista's contracted corporate counsel, are entitled to receive a bonus, based
upon such individual's pro rata portion of the stock options granted to such
individual on or around May 22, 2003, (i) within thirty days of completion of
the sale of all or substantially all of the assets or stock of the business of
PlanVista or a merger of PlanVista with another company pursuant to which the
consideration per share received by PlanVista's stockholders meets certain
thresholds described in the program, or (ii) within thirty days of the
completion of a secondary underwritten public offering pursuant to which the
proceeds received by PlanVista and offering price of the common stock meets
certain thresholds described in the program. The maximum bonuses payable to Mr.
Dingle, Mr. Markle and Mr. Marks under the program are $806,825, $666,110 and
$147,000, respectively. Under the program, if PlanVista's board of directors
determines in its discretion that PlanVista is unable to pay applicable bonus
awards in cash, it shall pay such awards in securities of PlanVista stock before
the transaction, or in the purchaser's stock thereafter, or substantially
similar securities.
On November 4, 2003, the compensation committee of the board of
directors of PlanVista approved a bonus payable to Mr. Dingle in the amount of
$150,000 within 10 days of the completion of the transactions contemplated by
the merger agreement.
Effective on July 30, 2003, PlanVista entered into a separation
agreement with Donald W. Schmeling, PlanVista's former Chief Financial Officer.
The agreement entitles Mr. Schmeling to his annual base salary at an annualized
rate of $180,000 remaining to be paid through January 30, 2004 in equal
bi-weekly payments and continuation of certain benefits until the earlier of
January 30, 2004 or Mr. Schmeling's commencement of full time employment with a
new employer. In addition, the agreement provides for the automatic termination
of 150,676 options to purchase PlanVista common stock held by Mr. Schmeling upon
the termination date of his employment with PlanVista. The agreement also
contains nonsolicitation, noninterference and nondisclosure provisions that
survive for a period of two years following the termination of Mr. Schmeling's
employment with PlanVista.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Michael S. Falk, who is a Class B Director of PlanVista, is currently
the Chairman and principal member of Commonwealth Associates Group Holdings,
LLC. Harold Blue, who is also a Class B Director of PlanVista, is a member, a
director, and President of Commonwealth Associates Group Holdings, LLC.
Commonwealth Associates Group Holdings, LLC is an affiliate of PVC Funding
Partners, which owns 96% of PlanVista's outstanding series C preferred stock.
Prior to the closing of PVC Funding Partners' acquisition of the series
C preferred stock, PlanVista entered into a letter agreement dated March 5,
2003, with Commonwealth Associates Group Holdings, LLC, pursuant to which
Commonwealth Associates Group Holdings, LLC agreed to act as PlanVista's
non-exclusive financial advisor to provide certain financial advisory services
and other investment banking services to PlanVista. These services include, but
are not limited to, advising and assisting PlanVista with potential capital and
debt restructuring activities, financing opportunities, and business
combinations, and other financial advisory and investment banking services as
may from time to time be agreed upon by Commonwealth Associates Group Holdings,
LLC and PlanVista. As payment for such services, PlanVista agreed to pay
Commonwealth Associates Group Holdings, LLC a monthly cash fee equal to $15,000
per month for a period of twenty-four months, provided that PlanVista may
terminate the agreement after March 5, 2004. In addition to the monthly fee,
PlanVista has agreed to reimburse Commonwealth Associates Group Holdings, LLC
for its services in restructuring PlanVista's debt a cash fee equal to (i) 3% of
the face value of any debt owned by persons other than Commonwealth Associates
Group Holdings, LLC and its affiliates which is repaid in cash plus 3% of the
liquidation value of any equity owned by persons other than Commonwealth
Associates Group Holdings, LLC and its affiliates which is redeemed in cash,
plus (ii) equity equal to 3% of any equity issued in connection with any
conversion or exchange of any outstanding debt or equity of PlanVista owned by
persons other than Commonwealth Associates Group Holdings, LLC and its
affiliates. In addition, if Commonwealth Associates Group Holdings, LLC
participates as an underwriter, placement agent, or
189
finder in a public or private offering of PlanVista's securities, Commonwealth
Associates Group Holdings, LLC will receive an additional fee to be negotiated
at the time of such an offering. PlanVista also agreed to pay Commonwealth
Associates Group Holdings, LLC a cash fee equal to 1.5% of the total
consideration paid in a transaction involving a merger, sale, or purchase of
assets or equity securities, joint venture or other business combination that
PlanVista enters into with Commonwealth Associates Group Holdings, LLC's
assistance; provided, that in the event that Commonwealth Associates Group
Holdings, LLC or PlanVista (acting with the written consent of Commonwealth
Associates Group Holdings, LLC) engages any other advisor, finder or investment
bank to assist in such transaction, any fee payable to such person or entity
shall be payable from the 1.5% fee payable to Commonwealth Associates Group
Holdings, LLC. Commonwealth Associates Group Holdings, LLC is entitled to
reimbursement of its out-of-pocket expenses incurred in connection with the
services provided by it under the letter agreement, subject to certain limits.
In the event that the amount owed by PlanVista to Commonwealth Associates Group
Holdings, LLC pursuant to the advisory agreement exceeds a fixed amount,
Commonwealth has agreed to accept payment for any excess fees in shares of
PlanVista common stock to be issued by PlanVista prior to the closing of the
merger. Such shares of PlanVista common stock will be valued at the price per
share that the holders of PlanVista common stock will be realizing as a result
of the issuance of ProxyMed common stock in the merger.
Because an affiliate of Commonwealth Associates Group Holdings, LLC had
a contract with PlanVista's senior lenders to purchase PlanVista's series C
preferred stock and part of its senior debt at the time PlanVista entered into
this letter agreement, PlanVista asked a committee of independent directors to
review and negotiate the agreement. This committee was chaired by William L.
Bennett, and the committee hired independent counsel in Delaware to advise it.
After extensive review and negotiation with Commonwealth Associates Group
Holdings, LLC, the committee recommended the final draft of the agreement to
PlanVista's board of directors. The board of directors unanimously adopted the
letter agreement, with the proper conflicts disclosure by directors who may be
considered to be interested in the transaction between PlanVista's senior
lenders and PVC Funding Partners, LLC. The agreement was recommended by the
Board and was not conditioned upon the closing of the transaction between
PlanVista's senior lenders and PVC Funding Partners, LLC.
James K. Murray III is an investor member in PVC Funding Partners, LLC.
Although Mr. Murray currently has a less than 3% ownership interest in PVC
Funding Partners, LLC, he may not be deemed to be independent for purposes of
serving on any independent special committee which may be formed for the purpose
of evaluating a transaction involving the series C preferred stockholders. As a
passive investor member in PVC Funding Partners, LLC, Mr. Murray does not have
the power to control the management of PVC Funding Partners or the voting or
disposition of the series C preferred stock controlled by that entity.
On April 12, 2002, PlanVista issued subordinated promissory notes to
William L. Bennett, a director of PlanVista, and John D. Race, who was a
director of PlanVista at that time. PlanVista issued these notes to replace
notes previously issued to those directors evidencing loans of $250,000 made by
each of them to PlanVista. The original notes would have matured on the earlier
of August 31, 2001 or the date PlanVista repaid its existing bank loans pursuant
to PlanVista's pre-restructuring credit agreement with its senior lenders. As
required by PlanVista's lenders for the restructuring of PlanVista's credit
facility, the notes to these directors were restructured to extend the maturity
date to December 1, 2004, which is beyond the maturity date of the restructured
credit facility. The replacement notes otherwise contain substantially the same
terms as the original notes. The notes, which are not secured, provide that the
loans are subordinated to both PlanVista's senior credit facility and the series
C preferred stock. The notes bear interest at prime plus 4.0% per annum, but
payment of interest is subordinated and deferred until all senior obligations
are paid.
On June 18, 2001, PlanVista completed the disposition of its third
party administration and managing general underwriter business units with the
sale of its subsidiary, HealthPlan Services, Inc. In connection with this
non-cash transaction, the purchaser, HealthPlan Holdings, Inc. assumed
approximately $40.0 million in working capital deficit of the acquired
businesses and acquired assets having a fair market value of approximately $30.0
million. At the closing of this transaction, PlanVista issued 709,757 shares of
common stock to offset $5.0 million of the assumed deficit. PlanVista offset the
remaining $5.0 million of this deficit with a long-term convertible subordinated
note, which automatically converted into 813,273 shares of PlanVista's common
stock on April 12, 2002 in connection with the restructuring of PlanVista credit
facilities. The note accrued interest prior to its conversion, which PlanVista
elected to pay through the issuance of 41,552 shares of common stock.
PlanVista's
190
agreement with HealthPlan Holdings, Inc. states that if HealthPlan Holdings,
Inc. does not receive gross proceeds of at least $5.0 million upon the sale of
the 813,273 conversion shares, then PlanVista must issue and distribute to it
additional shares of common stock, based on a ten-day trading average price, to
compensate HealthPlan Holdings for the difference, if any, between $5.0 million
and the amount of proceeds it realizes from the sale. PlanVista's agreement with
HealthPlan Holdings required that PlanVista register the conversion shares upon
demand. Because the conversion shares are freely transferable under Rule 144(k),
HealthPlan Holdings no longer has registration rights with respect to such
shares.
PlanVista entered into a registration rights agreement in favor of
HealthPlan Holdings with respect to the 709,757 shares issued to HealthPlan
Holdings at closing. This registration rights agreement required that PlanVista
file a registration statement covering the issued shares as soon as practicable
after the closing. The agreement also contained provisions requiring redemption
of such shares or the issuance of certain additional penalty shares (in the
event that PlanVista's lenders prohibited redemption), if such registration
statement did not become effective by certain specified time periods. Because
the registration statement PlanVista filed with the Securities and Exchange
Commission covering such shares was not declared effective within the required
time periods, PlanVista issued to HealthPlan Holdings the maximum number of
penalty shares specified by the registration rights agreement, which was 200,000
shares of PlanVista's common stock. As of the date of this joint proxy
statement/prospectus, PlanVista still has not registered the 709,757 purchased
shares. Following the sale of HealthPlan Services, PlanVista reimbursed
HealthPlan Services approximately $4.3 million for pre-closing liabilities that
HealthPlan Services settled on PlanVista's behalf and issued to HealthPlan
Holdings 101,969 shares of common stock as penalty shares relating to certain
post closing disputes with respect to those pre-closing liabilities.
On October 1, 2003 PlanVista and HealthPlan Services, Inc./HealthPlan
Holdings, Inc. entered into a letter agreement settling certain disputes between
them arising from PlanVista's sale of HealthPlan Services, Inc. to HealthPlan
Holdings, Inc. and relating primarily to certain purchase price adjustments for
accrued liabilities and trade accounts receivable reserves, and the
classification of investments at the transaction date. The terms of the
settlement include payment of $1.7 million by PlanVista to HealthPlan Holdings,
Inc. and the grant of certain price concessions to HealthPlan Services, Inc. in
connection with certain contractual arrangements between HealthPlan Services,
Inc. and PlanVista.
In connection with the HealthPlan Holdings transaction, PlanVista
leased office space for its Tampa headquarters from HealthPlan Holdings. This
lease expired in June 2002.
Wachovia Bank, National Association, referred to as Wachovia, one of
PlanVista's senior lenders and beneficial owner of approximately 16% of the
outstanding shares of series C preferred stock during 2002, provides transfer
agent services to PlanVista. In addition, Wachovia provides insurance services
to PlanVista through DavisBaldwin, a division of Wachovia Insurance Services,
which is a wholly owned subsidiary of Wachovia. During 2002, PlanVista paid
Wachovia approximately $90,728 for these services and as of March 31, 2003 it
had an outstanding balance of approximately $2,560.
191
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PLANVISTA
To the best knowledge of PlanVista, based on information filed with the
Securities and Exchange Commission and information provided directly to
PlanVista by the persons and entities named below, the following table sets
forth the beneficial ownership of PlanVista's common stock and series C
preferred stock as of December 5, 2003, by: (i) each beneficial owner of more
than 5% of PlanVista's common stock or series C preferred stock; (ii) each
current director of PlanVista; (iii) each officer of PlanVista who is a Named
Officer in the summary compensation table set forth below under compensation of
executive officers; and (iv) the directors and executive officers of PlanVista
as a group. Except as otherwise indicated, each stockholder named below has sole
investment and voting power with respect to shares beneficially owned by such
stockholder. The table also sets forth each such person's anticipated beneficial
ownership of ProxyMed common stock after consummation of the merger, based
solely on the conversion of such person's PlanVista shares. Beneficial ownership
is determined under the rules and regulations of the Securities and Exchange
Commission.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PLANVISTA
PLANVISTA SHARES BENEFICIALLY OWNED PROXYMED SHARES BENEFICIALLY
AS OF DECEMBER 4, 2003 OWNED AFTER THE MERGER
------------------------------------------------- ------------------------------
NAME AND ADDRESS POSITION NUMBERS PERCENT NUMBER PERCENT
OF BENEFICIAL OWNER WITH COMPANY ------------------------- ---------------------- ------------------------------
COMMON PREFERRED COMMON (1) PREFERRED COMMON COMMON
------ --------- ---------- --------- ------ ------
William L. Bennett Vice Chairman of 254,465(2) -- 1.5% -- 21,070(3) *
2 Canal Park the Board and
Cambridge, MA 02141 Director, Class A
Harold S. Blue Director, Class B 26,659,280(4) 32,195(5) 61.1% 96% 1,871,079(6) 15.1%
830 Third Avenue
New York, NY 10022
Dr. Richard Corbin Director, Class B 2,400(7) -- * -- --(8) --
204-17 35th Avenue
Bayside, NY 11361
Phillip S. Dingle Chairman of the 651,775(9) -- 3.7% -- 1,341(10) *
4010 Boy Scout Bl. Board, Class A
Suite 200 Director, and
Tampa, FL 33607 Chief Executive
Officer
Michael S. Falk Director, Class B 26,693,282(4) 32,195(5) 61.2% -- 1,874,034(11) 15.1%
830 Third Avenue
New York, NY 10022
Gary N. Mansfield Director, Class B 2,400(7) -- * -- --(8) --
3000 Island Blvd
# 1204
Aventura, FL 33160
Jeffrey L. Markle President and 442,500(12) -- 2.5% -- 565(13) *
4010 Boy Scout Bl. Chief Operating
Suite 200 Officer
Tampa, FL 33607
Bennett Marks Executive Vice 52,500(14) -- * -- 26,880(15) *
4010 Boy Scout Bl. President and
Suite 200 Chief Financial
Tampa, FL 33607 Officer
James K. Murray III Director, Class A 4,397(16) -- * -- 1,735(17) *
1410 N. Westshore Bl.,
Suite 600
Tampa, FL 33607
Donald W. Schmeling former Chief Financial -- -- -- * -- --
4010 Boy Scout Bl. Officer
Suite 200
Tampa, FL 33607
192
PLANVISTA SHARES BENEFICIALLY OWNED PROXYMED SHARES BENEFICIALLY
AS OF DECEMBER 4, 2003 OWNED AFTER THE MERGER
------------------------------------------------- ------------------------------
NAME AND ADDRESS POSITION NUMBERS PERCENT NUMBER PERCENT
OF BENEFICIAL OWNER WITH COMPANY ------------------------- ---------------------- ------------------------------
COMMON PREFERRED COMMON (1) PREFERRED COMMON COMMON
------ --------- ---------- --------- ------ ------
Automatic Data -- 1,320,000(18) -- 7.8% -- 114,708 *
Processing, Inc.
One ADP Boulevard
Roseland, NJ 07068
Centra Benefits -- 2,592,542(19) -- 13.2% -- 207,912(20) 1.9%
Services, Inc.
7803 Glenroy Road
Suite 300
Bloomington, MN 55439
Commonwealth Associates, -- 26,628,717(21) 32,195(5) 61.1% 96% 1,868,631(22) 15.1%
L.P.
830 Third Avenue
New York, NY 10022
ComVest Venture -- 26,628,358(21) 32,195(5) 61.1% 96% 1,868,600(23) 15.1%
Partners, L.P.
830 Third Avenue
New York, NY 10022
DePrince, Race & Zollo, -- 5,927,900(24) -- 34.9% -- 515,135 4.3%
Inc.
201 S. Orange Ave.
Suite 850
Orlando, FL 32801
Dimensional Fund -- 1,054,105(25) -- 6.2% -- 91,602 *
Advisors, Inc.
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90701
HealthPlan Holdings, Inc. -- 1,866,551(26) -- 11.0% -- 162,203 1.3%
5200 Town Center Circle,
Suite 470
Boca Raton, FL 33486
NCR Pension Trust -- 964,900(27) -- 5.7% -- 83,850 *
1700 South Patterson Blvd.
Dayton, OH 45479
PVC Funding -- 26,628,358(21) 32,195(5) 61.1% -- 1,868,600(23) 15.1%
Partners, LLC
830 Third Avenue
New York, NY 10022
All Directors and -- 28,127,874(28) 32,195(5) 62.9% 96% 1,899,073(29) 15.3%
Executive Officers as
a group (includes 9 persons)
193
------------------
* Less than one percent.
(1) Each ownership percentage listed below is calculated assuming that the
named person or entity holds all shares issuable upon exercise of any
option, warrant, right, or conversion privilege that is exercisable
within sixty days of December 5, 2003. Each percentage calculation
excludes any shares issuable within sixty days to any party other than
the named person or entity.
(2) Includes 12,000 shares issuable upon exercise of options that are
exercisable within 60 days of December 5, 2003. Also includes 3,609
shares held by Mr. Bennett's children, as to which Mr. Bennett
disclaims beneficial ownership.
(3) Based on the conversion of 242,465 shares of PlanVista common stock
currently owned by Mr. Bennett and assuming that no options are
exercised prior to the effective time of the merger.
(4) Includes 2,400 shares issuable upon exercise of options that are
exercisable within 60 days of December 5, 2003. Also includes 2,392,542
shares of PlanVista's common stock issuable to PVC Funding Partners
upon conversion of currently convertible Second Amended and Restated
Subordinated Convertible Promissory Notes dated March 31, 2003,
referred to as the PVC Funding Notes, calculated by dividing
$2,392,542, which is the total remaining principal balance of the
Notes, by $1.00. Also includes 24,206,767 shares of PlanVista's common
stock issuable to PVC Funding Partners upon conversion of the 32,195
shares of series C preferred stock beneficially held by PVC Funding
Partners, based on a conversion rate of $1.33, which was calculated in
accordance with the Certificate of Designation of Series and
Determination of Rights and Preferences of the series C preferred
stock. As of October 12, 2003, the series C preferred stock became
convertible at any time. In addition, as of October 12, 2003, the
holders of the series C stock are entitled to vote as a single class
with the common stockholders on the merger, and on all other matters
except for the election of directors, on an "as-converted" basis, with
each share of series C stock having a number of votes equal to the
number of shares of common stock into which it would be converted. See
"SPECIAL MEETING OF PLANVISTA STOCKHOLDERS; QUORUM AND VOTE REQUIRED"
for a discussion of votes required to approve the merger. Also includes
29,049 shares of PlanVista's common stock issued to PVC Funding
Partners as payment of interest on the PVC Funding Notes, and an
aggregate of 6,767 shares of PlanVista's common stock issued to
Commonwealth Associates, L.P., referred to as Commonwealth Associates,
and Commonwealth Associates Group Holdings, LLC, referred to as
Commonwealth Holdings, pursuant to an advisory agreement dated March 5,
2003 between PlanVista Corporation and Commonwealth Holdings. Mr. Blue
and Mr. Falk may be deemed to share voting and dispositive power with
respect to shares issuable to PVC Funding Partners upon conversion of
the series C preferred stock and conversion of the Second Amended and
Restated Convertible Promissory Note and with respect to common stock
held by PVC Funding Partners, Commonwealth Associates, and Commonwealth
Holdings. Mr. Blue is a member, a director, and the President of
Commonwealth Holdings, and Mr. Falk is the Chairman and principal
member of Commonwealth Holdings. Commonwealth Holdings is the parent of
Commonwealth Management, LLC. Commonwealth Management, LLC is the
general partner of Commonwealth Associates, which is one of two
managers of PVC Funding Partners. Mr. Blue and Mr. Falk also are
affiliates of ComVest Venture Partners, L.P., referred to as ComVest,
which is the other manager of PVC Funding Partners. Mr. Blue and Mr.
Falk disclaim beneficial ownership of any Conversion Shares, or any
common stock held by PVC Funding Partners, Commonwealth Associates,
ComVest or Commonwealth Holdings, other than that portion which
corresponds to their interest in those entities.
(5) Represents shares beneficially held by PVC Funding Partners, as to
which ComVest, Commonwealth Associates, Michael S. Falk, and Harold S.
Blue may be deemed to share voting power and dispositive power. See
Footnotes 4 and 20. Michael S. Falk and Harold S. Blue each disclaim
beneficial ownership of such shares, other than that portion which
corresponds to their interest in ComVest Venture Partners, L.P. and
Commonwealth Associates.
(6) Based on a total of 2,450,113 shares of PlanVista common stock
converting to 212,915 shares of ProxyMed common stock plus 32,195
shares of PlanVista series C preferred stock converting to 1,658,164
shares of ProxyMed common stock. Assumes that Mr. Blue will not
exercise his 2,400 vested options granted under one of PlanVista's
stock option plans.
(7) Represents shares issuable upon exercise of options that are
exercisable within 60 days of December 5, 2003.
(8) Assumes that none of the named person's options will be exercised prior
to the effective time of the merger.
(9) Includes 636,347 shares issuable upon exercise of options that are
exercisable within 60 days of December 5, 2003. Does not include shares
that are issuable under options that will vest upon closing of the
merger.
194
(10) Based on the conversion of 15,428 shares of PlanVista common stock
currently owned by Mr. Dingle and assuming that no options are
exercised prior to the effective time of the merger.
(11) Based on a total of 2,484,115 shares of PlanVista common stock
converting to 215,870 shares of ProxyMed common stock plus 32,195
shares of PlanVista series C preferred stock converting to 1,658,164
shares of ProxyMed common stock. Assumes that Mr. Blue will not
exercise his 2,400 vested options granted under one of PlanVista's
stock option plans.
(12) Includes 436,000 shares issuable upon exercise of options that are
exercisable within 60 days of December 5, 2003. Does not include shares
that are issuable under options that will vest upon closing of the
merger.
(13) Based on the conversion of 6,500 shares of PlanVista common stock
currently owned by Mr. Markle and assuming that no options are
exercised prior to the effective time of the merger.
(14) Represents 52,500 shares issuable upon exercise of options that are
exercisable within 60 days of December 5, 2003. Does not include shares
that are issuable under options that will vest upon closing of the
merger.
(15) Based on conversion of options the vesting of which is accelerated upon
consummation of the merger.
(16) Includes 2,400 shares issuable upon exercise of options that are
exercisable within 60 days of December 5, 2003.
(17) Based on conversion of 1,997 shares of PlanVista common stock currently
held by Mr. Murray and assuming no stock options are exercised.
(18) Based on information provided to PlanVista by Automatic Data
Processing, Inc.
(19) Includes 200,000 shares of PlanVista's common stock issuable to Centra
Benefits Services, Inc., referred to as Centra, upon exercise of
outstanding warrants that are currently exercisable. Also includes
2,392,542 shares of PlanVista's common stock issuable to Centra upon
conversion of the currently convertible Second Amended and Restated
Subordinated Convertible Promissory Notes dated March 31, 2003, which
are referred to as the Centra Notes. The share amount is calculated by
dividing $2,392,542, which is the total remaining principal balance of
the Centra Notes, by $1.00.
(20) Based on conversion of the 2,392,542 shares of PlanVista common stock
issuable upon conversion of the Centra Notes, and assuming that the
outstanding warrants will not be exercised prior to the merger.
(21) Includes 2,392,542 shares of PlanVista's common stock issuable to PVC
Funding Partners upon conversion of the PVC Funding Notes, calculated
by dividing $2,392,542, which is the total remaining principal balance
of the Notes, by $1.00. Also includes 24,206,767 shares of PlanVista's
common stock issuable to PVC Funding Partners upon conversion of 32,195
shares of series C preferred stock beneficially held by PVC Funding
Partners, based on a conversion rate of $1.33, which was calculated in
accordance with the Certificate of Designation of Series and
Determination of Rights and Preferences of the series C preferred
stock. As of October 12, 2003,the series C preferred stock became
convertible at any time. In addition, as of October 12, 2003, the
holders of the series C stock are entitled to vote as a single class
with the common stockholders on the merger, and on all other matters
except for the election of directors, on an "as-converted" basis, with
each share of series C stock having a number of votes equal to the
number of shares of common stock into which it would be converted. See
"SPECIAL MEETING OF PLANVISTA STOCKHOLDERS; QUORUM AND VOTE REQUIRED"
for a discussion of votes required to approve the merger. As managers
of PVC Funding Partners, Commonwealth Associates, and ComVest may be
deemed to share voting and dispositive power with respect to such
shares.
(22) Based on a total of 2,421,950 shares of PlanVista common stock
converting to 210,467 shares of ProxyMed common stock, plus 32,195
shares of PlanVista series C preferred stock converting to 1,658,164
shares of Proxymed common stock.
(23) Based on a total of 2,421,591 shares of PlanVista common stock
converting to 210,436 shares of ProxyMed common stock, plus 32,195
shares of PlanVista series C preferred stock converting to 1,658,164
shares of Proxymed common stock.
(24) Based on information provided by DePrince, Race & Zollo, Inc. on
Schedule 13D filed with the SEC on March 25, 2003. Gregory M. DePrince,
John D. Race, and Victor A. Zollo, Jr. share voting and dispositive
power with DRZ with respect to these shares.
195
(25) Based on information provided by Dimensional Fund Advisors, Inc. to
PlanVista on February 19, 2003 and provided by Dimensional Fund
Advisors, Inc. on Schedule 13G filed with the SEC on February 10, 2003.
Dimensional, which is an investment advisor registered under Section
203 of the Investment Advisors Act of 1940, furnishes investment advice
to four investment companies registered under the Investment Company
Act of 1940, and serves as investment manager to certain other
investment vehicles, including commingled group trusts. These
investment companies and investment vehicles are the "Portfolios." In
its role as investment advisor and investment manager, Dimensional Fund
Advisors, Inc. possesses both investment and voting power with respect
to PlanVista's common stock. The Portfolios own all of the referenced
shares of PlanVista"s common stock, and Dimensional Fund Advisors, Inc.
disclaims beneficial ownership of such securities.
(26) Based on information provided by HealthPlan Holdings, on Schedule 13G/A
filed with the SEC on May 1, 2002, and additional issuances PlanVista
has made since that date. Sun HealthPlan, LLC, Sun Capital partners II,
LP, Sun Capital Advisors II, LP, Sun Capital Partners, LLC, Marc J.
Leder, and Roger R. Krouse share voting and dispositive power with
HealthPlan Holdings with respect to these shares. Does not include
shares of common stock issuable in connection with 813,273 shares of
common stock previously issued to HealthPlan Holdings upon conversion
of a $5.0 million convertible note. PlanVista's agreement with
HealthPlan Holding, states that if HealthPlan Holdings does not receive
gross proceeds of at least $5.0 million upon the sale of the 813,273
conversion shares, then PlanVista must issue and distribute to it
additional shares of common stock, based on a ten-day trading average
price, to compensate HealthPlan Holdings, for the difference, if any,
between $5.0 million and the amount of proceeds it realizes from the
sale.
(27) Based on information provided by NCR Pension Trust on Schedule 13G
filed with the SEC on February 13, 2003. Represents shares that are
also included in the total amount of shares reported by DePrince, Race
& Zollo, Inc. in the table. DePrince, Race & Zollo, Inc. shares voting
and dispositive power with NCR Pension Trust with respect to these
shares.
(28) Includes 1,148,847 shares issuable upon exercise of options that are
exercisable within 60 days of December 5, 2003. Also includes shares
beneficially owned by PVC Funding Partners, Commonwealth Associates,
ComVest and Commonwealth Associates Group Holdings LLC. Mr. Blue and
Mr. Falk disclaim beneficial ownership of any shares held by PVC
Funding Partners, Commonwealth Associates, ComVest or Commonwealth
Holdings other than that portion which corresponds to their interest in
those entities. See Footnotes 4 and 21.
(29) Based on a total of 2,772,260 shares of PlanVista common stock
converting to 240,909 shares of ProxyMed common stock, plus 32,195
shares of PlanVista series C preferred stock converting to 1,658,164
shares of ProxyMed common stock. Assumes that none of the named persons
have exercised their vested options under the applicable PlanVista
stock option plans.
196
COMPARISON OF SHAREHOLDER RIGHTS
This section of this joint proxy statement/prospectus describes some
differences between the rights of holders of PlanVista capital stock and
ProxyMed capital stock. While ProxyMed believes 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
document and the other documents to which ProxyMed refers you for a more
complete understanding of the differences between being a stockholder of
PlanVista and being a shareholder of ProxyMed.
After the merger, the stockholders of PlanVista will become
shareholders of ProxyMed. Because ProxyMed is organized under the laws of
Florida, the Florida Business Corporation Act, or the FBCA, will govern the
rights of PlanVista stockholders.
The rights of PlanVista stockholders are also governed by PlanVista's
certificate of incorporation and its bylaws. Upon completion of the merger, the
rights of PlanVista stockholders who become ProxyMed shareholders will be
governed by the amended and restated articles of incorporation and amended and
restated bylaws of ProxyMed. The following paragraphs summarize differences
between the rights of ProxyMed shareholders and PlanVista stockholders under the
charter documents and bylaws of ProxyMed and PlanVista, as well as material
differences between Delaware and Florida law that may affect the interests of
PlanVista stockholders.
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
VOTING RIGHTS
- Under Florida law, each shareholder is entitled to one vote for each
share of capital stock held by the shareholder, by person or proxy, on
each matter submitted to a vote at a shareholders meeting unless the
articles of incorporation provide otherwise.
ProxyMed's amended and restated articles of incorporation do not alter the
voting rights of holders of ProxyMed common stock.
The ProxyMed amended and restated bylaws provide that a majority in interest of
all the common stock issued and outstanding, represented by shareholders of
record in person or by proxy, shall constitute a quorum for the transaction of
business.
- Under Florida law, articles of incorporation may provide that in
elections of directors, shareholders are entitled to cumulate votes.
The ProxyMed amended and restated articles of incorporation do not provide for
cumulative voting for the election of directors; therefore, under Florida law,
directors are elected by a plurality of the votes cast by the shares entitled to
vote in the election at a meeting at which a quorum is present.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
VOTING RIGHTS
- Delaware law provides that unless otherwise provided in the certificate
of incorporation, each stockholder shall be entitled to one vote for
each share of capital stock held by such stockholder.
PlanVista's restated certificate of incorporation, as amended, does not alter
the voting rights of holders of PlanVista common stock.
- Under Delaware law, the certificate of incorporation may provide that
at all elections of directors, or at elections held under specified
circumstances, stockholders are entitled to cumulate votes.
The PlanVista restated certificate of incorporation, as amended, does not
provide for cumulative voting, therefore, under Delaware law, directors are
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors at a meeting at which a quorum is present.
197
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
SHAREHOLDERS' VOTES ON CERTAIN TRANSACTIONS
- Generally, under Florida law, unless the articles of incorporation
provide for the vote of a larger portion of the stock, completion of a
merger or consolidation or sale of substantially all of a corporation's
assets or dissolution requires:
(1) the approval of the board of directors; and
(2) approvals by the vote of the holders of a majority of the
outstanding stock.
ProxyMed's amended and restated articles of incorporation do not provide for the
vote of a larger portion of the stock.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
SHAREHOLDERS' VOTES ON CERTAIN TRANSACTIONS
- Under Delaware law, holders of a majority of the outstanding shares of
PlanVista entitled to vote are required to approve a merger or
consolidation involving PlanVista. However if the following conditions
are met, no vote of the stockholders of PlanVista is necessary to
authorize the merger:
(1) PlanVista is the surviving corporation,
(2) the agreement of merger does not amend in any respect the
certificate of incorporation of PlanVista,
(3) each share of stock of PlanVista outstanding immediately prior
to the effective date of the merger is to be an identical
outstanding or treasury share of PlanVista after the effective
date of the merger, and
(4) either no shares of common stock of the PlanVista and no
shares, securities or obligations convertible into such stock
are to be issued or delivered under the plan of merger, or the
authorized unissued shares or the treasury shares of common
stock of PlanVista to be issued or delivered under the plan of
merger plus those initially issuable upon conversion of any
other shares, securities or obligations to be issued or
delivered under such plan do not exceed 20% of the shares of
common stock of PlanVista outstanding immediately prior to the
effective date of the merger; or
(5) no shares of the stock of PlanVista is issued prior to the
adoption by the board of directors of the resolution approving
the agreement of merger or consolidation.
198
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
ACTION BY WRITTEN CONSENT
- Under Florida law, unless otherwise provided in the articles of
incorporation, shareholders may take any action required or permitted
to be taken at a shareholders' meeting without a meeting if the action
is consented to in writing by shareholders entitled to cast the same
number of votes that would be required to take that action at a meeting
at which all shareholders were present and voting in person.
The amended and restated articles of incorporation of ProxyMed do not provide
otherwise. ProxyMed's bylaws provide for board and shareholder action by written
consent.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
ACTION BY WRITTEN CONSENT
- Under Delaware law, unless the certificate of incorporation provides
otherwise, actions may be taken by the stockholders by written consent,
provided that the written consent is signed by the holders of
outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take the action at a meeting at
which all shares entitled to vote on the matter were present and voted.
PlanVista's restated certificate of incorporation, as amended, does not provide
otherwise.
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
DIVIDENDS
- Under Florida law, subject to any restriction in the corporation's
articles of incorporation, the board of directors may declare and pay
dividends or other distributions to shareholders unless, after giving
effect to the distribution:
(1) the corporation would not be able to pay its debts as they
become due in the usual course of business; or
(2) the corporation's total assets would be less than the sum of
its total liabilities plus the amount required to satisfy
outstanding liquidation rights superior to the liquidation
rights of those receiving the distribution.
ProxyMed's amended and restated articles of incorporation contain no provisions
restricting dividends on ProxyMed's common stock.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
DIVIDENDS
- Under Delaware law, PlanVista may declare and pay dividends, subject to
limitations in its certificate of incorporation, either out of its
surplus or if there is no surplus, out of its net profits for the
fiscal year in which the dividend is declared and/or the preceding
year.
PlanVista's restated certificate of incorporation, as amended, and by-laws, as
amended, provide that holders of PlanVista stock will be entitled to receive
dividends at such times and in such amounts as may be determined by the
PlanVista board of directors.
199
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
PROVISIONS RELATING TO SHARE ACQUISITIONS AND
CERTAIN BUSINESS COMBINATIONS
- Florida law contains a provision which restricts many business
combination transactions with an interested shareholder for five years
after the interested shareholder has acquired 10% of the voting power
of a corporation. Under Florida law, if a business combination,
including a merger, a disposition of substantially all assets, an
issuance of securities and other similar transactions, occurs with a
person who, together with its affiliates, owns 10% or more of the
outstanding capital stock of the subject corporation, then the
combination must be approved by two-thirds of the outstanding capital
stock entitled to vote for directors. However, the combination may
occur without such a vote if, among other exceptions:
(1) a majority of disinterested directors approves the
transaction;
(2) the corporation has not had more than 300 shareholders of
record during the 3 years prior to the announcement of the
proposed transaction; or
(3) the related person is the beneficial owner of at least 90% of
the outstanding voting shares of the corporation, exclusive of
shares acquired directly from the corporation in a transaction
not approved by a majority of disinterested directors.
The ProxyMed amended and restated articles of incorporation state that ProxyMed
has elected to opt out of this provision of Florida law.
- Florida law also contains a control share provision. This provision
generally provides that shares acquired in a "control share
acquisition" will not possess any voting rights unless such voting
rights are approved by a majority of the corporation's disinterested
shareholders. A "control share acquisition" is an acquisition, directly
or indirectly, by any person of ownership of, or the power to direct
the exercise of voting power with respect to, issued and outstanding
"control shares" of a publicly held Florida corporation. "Control
shares" are shares, that except for the control share provision, would
have voting power that, when added to all other shares owned by a
person or in respect to which such person may exercise or direct the
exercise of voting power, would entitle such person, immediately after
acquisition of such shares, directly or indirectly, alone or as a part
of a group, to exercise or direct the exercise of voting power in the
election of directors within any of the following ranges: (a) at least
20 percent but less than 33 percent of all voting power, (b) at least
33 percent but less than a majority of all voting power, or (c) a
majority or more of all voting power.
The ProxyMed amended and restated articles of incorporation state that ProxyMed
has elected to opt out of this provision of Florida law.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
PROVISIONS RELATING TO SHARE ACQUISITIONS AND
CERTAIN BUSINESS COMBINATIONS
- Under Delaware law, a corporation is prohibited from engaging in any
business combination with an interested stockholder, except under
limited circumstances.
- The prohibition will not apply if:
(1) the board of directors has approved either the proposed
business combination or the transaction resulting in
interested shareholder status prior to the date that the
shareholder became an interested shareholder,
(2) upon consummation of the transaction in which the shareholder
became an interested shareholder, the interested shareholder
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, or
(3) after the date that the shareholder became an interested
shareholder, the interested shareholder obtains the approval
of the board of directors and the approval at an annual or
special meeting (and not by written consent) of two-thirds of
the shares outstanding that are not held by the interested
shareholder.
- Under Delaware law, an "interested shareholder" is a person who
beneficially owns, directly or indirectly, 15% of the outstanding
voting stock of a corporation or who is an affiliate or associate of
the corporation and beneficially owned 15% of the voting stock within
the last three years.
Although PlanVista could have elected not to be governed by this provision of
Delaware law in its certificate of incorporation, it has not opted to do so.
200
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
SPECIAL MEETINGS OF SHAREHOLDERS
- Florida law provides that special meetings of shareholders may be
called only by:
(1) the board of directors;
(2) any person or persons authorized by the corporation's articles
of incorporation or bylaws; or
(3) 10% or more of all the votes entitled to be cast on an issue
proposed to be considered at the special meeting.
- Florida law requires that a corporation give shareholders notice of
each annual and special shareholders' meeting at least 10 days and no
more than 60 days before the meeting date.
The ProxyMed amended and restated articles of incorporation do not address
special meetings of shareholders. The ProxyMed amended and restated bylaws
provide that special meetings of the shareholders may be called by the President
or the board of directors whenever he or they deem it proper and shall be called
by the President or by the board of directors upon the written request of
shareholders holding a majority of common stock outstanding. Such meetings may
be held either within or without the State.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
SPECIAL MEETINGS OF SHAREHOLDERS
- Delaware law provides that special meetings of stockholders may be
called by the board of directors or by such person or persons
authorized to do so by the certificate of incorporation or the bylaws.
- Delaware law requires that written notice of any meeting be given not
less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting.
PlanVista's bylaws provide that a special meeting of Stockholders may be called
by the chairman of the board of directors or the chief executive officer of
PlanVista, the board of directors or the holders of not less than a majority of
all the shares entitled to vote at the meeting. PlanVista's by-laws requires
that notice of a meeting be given not less than 10 and not more than 60 days
before the meeting. The PlanVista restated certificate of incorporation, as
amended, does not address special meetings of shareholders.
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
DISSENTERS' RIGHTS
- Under Florida law, shareholders of a corporation have the right to
dissent from, and obtain payment of the fair value of their shares in
connection with, certain corporate actions, including an amendment to
the articles of incorporation which materially and adversely affects
the rights or preferences of shares held by the dissenting
shareholders, a disposition of all or substantially all of the
corporation's property and assets not in the usual course of business,
a plan of merger in which the shareholders may vote, a plan of exchange
involving the acquisition of the corporation's shares if the
shareholders are entitled to vote on the plan, and certain control
share acquisitions.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
DISSENTERS' RIGHTS
- Under Delaware law, the rights of dissenting stockholders to obtain the
fair value for their shares, so-called "appraisal rights," are
available in connection with a statutory merger or consolidation.
However, a stockholder does not have appraisal rights if:
(1) the shares of the corporation are listed on a national
securities exchange or designated as a national market system
security by the National Association of Securities Dealers,
Inc., or
(2) held of by record by more than 2,000 holders.
201
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
DISSENTERS' RIGHTS
However, appraisal rights are not available to holders of
shares:
(1) listed on a national securities exchange;
(2) designated as a national market system security on an
interdealer quotation system operated by the National
Association of Securities Dealers, Inc.; or
(3) held of record by more than 2,000 shareholders.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
DISSENTERS' RIGHTS
(3) or the corporation will be the surviving corporation of a
merger and the merger does not require the vote of the
corporation's stockholders.
- Notwithstanding the foregoing, stockholders have appraisal rights if in
the merger the stockholder will receive anything other than:
(1) shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in
respect thereof;
(2) shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository receipts
at the effective date of the merger or consolidation will be
either 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. or held of record by more than 2,000 holders;
(3) cash in lieu of fractional shares or fractional depository
receipts; or
(4) any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts.
- A Delaware corporation's certificate of incorporation may also provide
that appraisal rights shall be available in the event of the sale of
all or substantially all of a corporation's assets or the adoption of
an amendment to its certificate of incorporation.
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
PREEMPTIVE RIGHTS
- Under Florida law, a shareholder is not entitled to preemptive rights
to subscribe for additional issuances of stock or any security
convertible into stock unless they are specifically granted in the
articles of incorporation.
ProxyMed's amended and restated articles of incorporation provide that no
shareholder shall have preemptive rights.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
PREEMPTIVE RIGHTS
- Under Delaware law, statutory preemptive rights will not exist unless a
corporation's certificate of incorporation specifically provides for
these rights.
PlanVista's restated certificate of incorporation, as amended, does not provide
for preemptive rights.
202
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
NUMBER AND VACANCY OF DIRECTORS
- Florida law provides that a board of directors must consist of one or
more individuals, with the number specified in or fixed in accordance
with the articles of incorporation or bylaws.
The ProxyMed amended and restated bylaws provide that the board of directors
shall consist of not less than one and no more than seven directors to be
elected annually at the meeting of the shareholders by a plurality of the shares
voted. The number may be increased or diminished from time to time, by
resolution of the board of directors, but shall never be less than three. When
for any reason the office of a director shall become vacant, the remaining
directors shall by a majority vote elect a successor who shall hold office until
his successor is elected.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
NUMBER AND VACANCY OF DIRECTORS
- Delaware law provides that the board of directors must consist of one
or more directors, with the number specified in or fixed in accordance
with the certificate of incorporation or bylaws.
- Delaware law also provides that, unless the certificate of
incorporation or bylaws provide otherwise, vacancies and newly created
directorships may be filled by the affirmative vote of a majority of
the directors then in office or a sole remaining director, even though
less than a quorum.
PlanVista's bylaws, as amended, provides that the board of directors shall
consist of seven members, to be comprised of Class A and Class B directors in
accordance with the provisions of the Certificate of Designation of Series and
Determination of Rights and Preferences of series C preferred stock of
PlanVista. The number of directors constituting the entire board may be changed
from time to time by resolution adopted by the board of directors or the
stockholders, provided no decrease made in such number shall shorten the term of
any incumbent director. Vacancies and newly created directorships resulting from
an increase in the authorized number of directors may be filled by a majority
vote of the directors in office, although less than a quorum, or by election by
the stockholders at any meeting thereof.
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
- Florida law provides that a corporation may indemnify any officer or
director who is made a party to any third party suit or proceeding on
account of being a director, officer or employee of the corporation
against expenses, including attorney's fees, judgments, fines and
amounts paid in settlement reasonably incurred by him in connection
with the action, through, among other things, a majority vote of a
quorum consisting of directors who were not parties to the suit or
proceeding, if the officer or director:
(1) acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the
corporation; and
(2) in a criminal proceeding, had no reasonable cause to believe
his conduct was unlawful.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
- Under Delaware law, a corporation may indemnify directors and officers
(1) for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best
interest of the corporation; and
(2) with respect to any criminal proceeding where they had no
reasonable cause to believe that their conduct was unlawful.
- In addition, Delaware law provides that a corporation may advance to a
director or officer expenses incurred in defending any action upon
receipt of an undertaking by the director or officer to repay the
amount advanced if it is ultimately determined that he or she is not
entitled to indemnification.
203
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
ProxyMed's amended and restated articles of incorporation and bylaws provide for
the indemnification of the officers and directors of the company for their
actions and omissions up to the maximum extent permitted by law. The board of
directors shall have the sole and exclusive discretion, on such terms and
conditions as it shall determine, to indemnify, or advance expenses to, any
person made, or threatened to be made, a party to any action, suit, or
proceeding by reason of the fact that he is or was an officer, employee or agent
of ProxyMed, or is or was serving at the request of ProxyMed as an officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
PlanVista's restated certificate of incorporation, as amended, provides that
each director and officer of PlanVista who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, shall be
indemnified and held harmless by PlanVista to the fullest extent authorized by
Delaware law, against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators, provided, however,
PlanVista shall indemnify any such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the board of directors of
PlanVista. PlanVista may, by action of its board of directors, provide
indemnification to employees or agents of PlanVista with the same scope and
effect as the foregoing indemnification of directors and officers.
PROVISIONS APPLICABLE TO PROXYMED SHAREHOLDERS
REMOVAL OF DIRECTORS
- Florida law provides that, absent a provision in the articles of
incorporation permitting removal of directors only for cause, the
directors may be removed with or without cause if the number of votes
cast to remove the director exceeds the number of votes cast not to
remove him or her.
ProxyMed's bylaws provide that any director may be removed either with or
without cause by the vote of the shareholders holding a majority of the stock of
ProxyMed entitled to vote, at any shareholder meeting called expressly for that
purpose.
PROVISIONS CURRENTLY APPLICABLE TO PLANVISTA
STOCKHOLDERS
REMOVAL OF DIRECTORS
- Delaware law provides that stockholders holding a majority of shares
entitled to vote may remove any director or the entire board of
directors; provided, however, that in the case of a Delaware
corporation with a classified board, unless otherwise provided in the
certificate of incorporation, stockholders may only remove a director
for cause.
PlanVista's bylaws, as amended, provides that any or all of the directors may be
removed, with or without cause, at any time by the vote of the PlanVista
stockholders at a special meeting of stockholders called for that purpose and
any director may be removed for cause by the action of the directors at a
special meeting of the board of directors called for that purpose.
204
PROXYMED MARKET PRICE AND DIVIDEND INFORMATION
ProxyMed's common stock trades on the National Market tier of the
Nasdaq National Market under the symbol "PILL". The following table sets forth
the high and low sale prices of the common stock for the periods indicated.
High Low
------ ------
2001:
First Quarter..................................... $23.44 $14.07
Second Quarter.................................... 17.55 10.05
Third Quarter..................................... 17.00 10.80
Fourth Quarter.................................... 22.35 11.25
2002:
First Quarter...................................... $22.35 $15.00
Second Quarter..................................... 21.99 17.21
Third Quarter...................................... 20.44 10.50
Fourth Quarter..................................... 15.95 9.48
2003:
First Quarter...................................... $11.45 $ 7.25
Second Quarter..................................... 13.25 7.08
Third Quarter...................................... 16.40 12.01
Fourth Quarter (through December 5, 2003).......... 17.64 14.55
On December 5, 2003, the last reported sale price of the common stock
was $16.01 per share. As of December 4, 2003, there were 312 registered holders
of record of the common stock. ProxyMed believes that many of ProxyMed's holders
of record are in "street name" and that the number of individual shareholders is
greater than 312.
ProxyMed has never paid any dividends on ProxyMed's common stock;
however, in prior years, ProxyMed has paid dividends on ProxyMed's series B and
series C Preferred Stock in cash and/or in shares of ProxyMed's common stock
pursuant to the terms of ProxyMed's Articles of Incorporation, as amended.
ProxyMed intends to retain any earnings for use in ProxyMed's operations and the
expansion of ProxyMed's business, and does not anticipate paying any dividends
on the common stock in the foreseeable future. The payment of dividends on
ProxyMed's common stock is within the discretion of ProxyMed's board of
directors, subject to ProxyMed's Articles of Incorporation, as amended. Any
future decision with respect to dividends on common stock will depend on future
earnings, future capital needs and ProxyMed's operating and financial condition,
among other factors.
PlanVista stockholders are urged to obtain a current market quotation
for the ProxyMed common stock.
205
PLANVISTA MARKET PRICE AND DIVIDEND INFORMATION
Since October 4, 2002, Plan Vista's common stock has traded on the
Over-The-Counter Bulletin Board under the symbol "PVST.OB" Prior to that time,
Plan Vista's stock was traded on the New York Stock Exchange. Plan Vista's New
York Stock Exchange symbol was "HPS" from May 1995 until April 2001, when
PlanVista changed its symbol to "PVC" in connection with the change of its
corporate name from HealthPlan Services Corporation to PlanVista Corporation.
The following table sets forth the high and low sales prices of PlanVista's
common stock for the periods indicated, as reported by the New York Stock
Exchange or the Over-The-Counter Bulletin Board, as applicable.
High Low
----- -----
2001:
First Quarter................................ $9.44 $6.20
Second Quarter............................... 8.35 6.60
Third Quarter................................ 7.97 4.20
Fourth Quarter............................... 5.83 4.14
2002:
First Quarter................................ $6.40 $4.25
Second Quarter............................... 6.30 3.40
Third Quarter................................ 3.50 1.06
Fourth Quarter............................... 2.50 0.73
2003:
First Quarter................................ $1.80 $0.70
Second Quarter............................... 2.03 0.97
Third Quarter................................ 3.55 2.05
Fourth Quarter (through December 5 , 2003)... 3.35 1.75
On December 5, 2003, the last reported sale price of the common stock
was $1.90 per share. As of December 4, 2003, there were 176 registered holders
of record of the common stock. PlanVista believes that many of PlanVista's
holders of record are in "street name" and that the number of individual
shareholders is greater than 176.
PlanVista has not paid dividends since October 1999, and Plan Vista's
current credit agreement prohibits the payment of dividends. PlanVista has no
present plans to pay any dividends on its common stock because PlanVista
currently intends to retain all earnings, if any, in order to expand its
operations and pay down debt. In the future, depending upon PlanVista's
financial condition, earnings, capital requirements, results of operations,
contractual limitations and any other factors deemed relevant by PlanVista's
board of directors, PlanVista's board of directors may at any time consider the
payment of dividends.
206
UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited condensed pro forma combined financial
statements are presented to show the estimated effect of the merger of ProxyMed
and PlanVista (as well as the acquisition by ProxyMed of MedUnite on December
31, 2002) and the related financing transactions and represent the combined
company's pro forma combined balance sheet as of September 30, 2003 and combined
statement of operations for the year ended December 31, 2002 and for the nine
months ended September 30, 2003.
The following unaudited condensed pro forma combined balance sheet
gives effect to the merger of ProxyMed and PlanVista and the related financing
transactions as if they occurred on September 30, 2003. The accompanying
unaudited condensed pro forma combined statements of operations give effect to
the mergers of ProxyMed, PlanVista and MedUnite and the related financing
transactions as if they occurred on January 1, 2002. The unaudited condensed pro
forma combined financial statements include adjustments directly attributable to
the merger and related financing transactions that are expected to have a
continuing impact on the combined company. The pro forma adjustments are
described in the accompanying notes. The pro forma adjustments are based upon
available information and certain assumptions that management believes are
reasonable, including the completion of the merger of ProxyMed and PlanVista.
The pro forma financial information was prepared using the purchase
method of accounting, with ProxyMed treated as the acquiror for accounting
purposes. Under purchase accounting, the total cost of the merger is allocated
to the tangible and intangible assets acquired and liabilities assumed based
upon their respective fair values at the effective date of the merger. A
preliminary allocation of the cost of the merger has been made based upon
currently available information and management's estimates. The actual
allocation and its effect on results of operations may differ significantly from
the pro forma amounts included herein.
The pro forma information is based on historical financial statements.
The pro forma information has been prepared in accordance with the rules and
regulations of the SEC and is provided for comparison and analysis purposes
only. The unaudited condensed pro forma combined financial statements do not
purport to represent the combined company's results of operations or financial
condition had the mergers of ProxyMed, PlanVista and MedUnite and related
financing transactions actually occurred as of such dates or of the results that
the combined company would have achieved after the merger. The unaudited
condensed pro forma combined financial statements should be read in conjunction
with the historical consolidated financial statements of ProxyMed, PlanVista and
MedUnite and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of ProxyMed and PlanVista,
respectively, appearing elsewhere in this proxy statement/prospectus.
207
PROXYMED, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 2003
(amounts in thousands)
Pro Forma
Adjustments
PlanVista --------------- Pro Forma
ProxyMed, Inc.(a) Corporation (b) Dr. (Cr.) Combined
---------------- -------------- ---------------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 6,933 $ 2,962 $ 9,895
Investments 5,289 -- (5,289) (FF) --
Accounts receivable, net 9,865 8,091 17,956
Notes and other receivables 333 -- (75) (FF) 258
Inventory 3,580 -- 3,580
Other current assets 1,181 449 1,630
--------- --------- ---------
Total current assets 27,181 11,502 33,319
Property and equipment, net 5,345 1,500 6,845
Goodwill, net 31,456 29,405 (29,405) (AA) 88,271
56,319 (AA)
496 (FF)
Purchased technology, capitalized software
and other intangibles, net 17,216 -- 44,580 (AA) 61,796
Other assets, including restricted cash 612 684 1,296
--------- --------- ---------
Total assets $ 81,810 $ 43,091 $ 191,527
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $ 1,724 $ 38,439 18,041 (BB) $ 1,724
20,398 (CC)
Accounts payable, accrued expenses
and other current liabilities 10,153 6,089 (7,200) (AA) 17,009
6,059 (BB)
299 (FF)
75 (FF)
Deferred revenue 590 -- 590
Income taxes payable -- 912 912
--------- --------- ---------
Total current liabilities 12,467 45,440 20,235
4% Convertible Notes 13,400 -- 13,400
Long-term debt, less current portion 2,313 5,981 4,785 (AA) 23,907
(20,398) (CC)
Common stock with make-whole provision -- 5,000 5,000
Long-term deferred revenue and other long-term liabilities 1,688 849 461 (FF) 2,076
--------- --------- ---------
Total liabilities 29,868 57,270 64,618
--------- --------- ---------
Series C convertible preferred stock -- 129,503 129,503 (AA) --
Stockholders' equity:
Preferred stock -- -- --
Common stock 7 170 170 (AA) 13
(4) (AA)
(2) (BB)
Additional paid-in capital 146,195 -- (54,896) (AA) 225,189
(24,098) (BB)
Treasury stock -- (38) (38) (AA) --
Accumulated deficit (94,074) (143,814) (143,814) (AA) (98,107)
4,033 (FF)
Note receivable from stockholder (186) -- (186)
--------- --------- ---------
Total stockholders' equity 51,942 (143,682) 126,909
--------- --------- ---------
Total liabilities and stockholders' equity $ 81,810 $ 43,091 $ 191,527
========= ========= =========
(a) This column is derived from the unaudited consolidated financial
statements of ProxyMed, Inc. as of September 30, 2003 as filed under
Form 10-Q on November 14, 2003
(b) This column is derived from the unaudited consolidated financial
statements of PlanVista Corporation as of September 30, 2003 as filed
under Form 10-Q on November 19, 2003
See accompanying Notes to Unaudited Condensed Pro Forma Combined Financial
Statements.
208
PROXYMED, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002
(amounts in thousands except for share and per share data)
Pro Forma ProxyMed/ Pro Forma
Adjustments MedUnite Adjustments
ProxyMed, MedUnite, ---------- Condensed Pro PlanVista ----------- Pro Forma
Inc. (a) Inc. (b) Dr. (Cr.) Forma Combined Corporation(c) Dr. (Cr.) Combined
------------- ----------- ---------- -------------- -------------- ----------- -----------
Net revenues $ 50,182 $ 19,534 $ 69,716 $ 33,141 $ 102,857
------------ ------------ -------- -------- ----------
Costs and expenses:
Cost of sales 23,024 7,946 30,970 -- 30,970
Selling, general and
administrative expenses 23,145 37,322 60,467 22,778 83,245
Depreciation and
amortization 2,636 12,276 (821)(D) 6,895 528 4,149(DD) 11,572
(10,016)(E)
2,820 (F)
Write-off of impaired
assets 37 11,670 (11,670)(C) 37 -- 37
Offering costs -- -- -- 1,213 1,213
Settlement of deferred
compensation liability -- (2,558) (2,558) -- (2,558)
------------ ------------ -------- -------- ----------
48,842 66,656 95,811 24,519 124,479
------------ ------------ -------- -------- ----------
Income (loss) from
continuing
operations 1,340 (47,122) (26,095) 8,622 (21,622)
Other income (expense):
Other income, net 265 -- 265 -- 265
Interest, net 345 (1,737) 536 (A) (88) (5,628) (1,612)(EE) (4,104)
------------ ------------ -------- -------- ----------
(1,840)(B)
Income (loss) 1,950 (48,859) (25,918) 2,994 (25,461)
Income tax benefit (expense) -- -- -- 1,191 1,191(GG) --
------------ ------------ -------- -------- ----------
Net income (loss) 1,950 (48,859) (25,918) 4,185 (25,461)
Deemed dividends, preferred
stock accretion
and preferred
stock dividends (612) -- (612) (48,777) (48,777)(HH) (612)
------------ ------------ -------- -------- ----------
Net income (loss)
applicable to
common
shareholders $ 1,338 $ (48,859) $(26,530) $ (44,592) $ (26,073)
============ ============ ======== ======== ===========
Basic weighted average
common shares
outstanding 6,322,086 11,613,315
============ ===========
Basic net income (loss)
per share of
common stock from
continuing operations $ 0.21 $ (2.25)
============ ===========
Diluted weighted average
common shares
outstanding 6,396,893 $11,613,315
============ ===========
Diluted net income (loss)
per share of
common stock from
continuing operations $ 0.21 $ (2.25)
------------ ------------
NOTE: All operating expenses for PlanVista Corporation are classified as
selling, general and administrative expenses.
(a) This column is derived from the audited consolidated financial
statements of ProxyMed, Inc. and subsidiaries for the year ended
December 31, 2002.
(b) This column is derived from the audited financial statements of MedUnite
Inc. for the year ended December 31, 2002.
(c) This column is derived from the audited consolidated financial
statements of PlanVista Corporation for the year ended December 31,
2002.
See accompanying Notes to Unaudited Condensed Pro Forma Combined Financial
Statements.
209
PROXYMED, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2003
(amounts in thousands except for share and per share data)
Pro Forma
Adjustments
ProxyMed, PlanVista ------------- Pro Forma
Inc.(a) Corporation (b) Total Dr. (Cr.) Combined
------------ ------------ ------------ -------------- ------------
Net revenues $ 53,194 $ 23,954 $ 77,148 $ 77,148
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 22,188 -- 22,188 86 (FF) 22,274
Selling, general and adminstrative expenses 29,755 16,596 46,351 46,351
Depreciation and amortization 4,153 425 4,578 3,112 (DD) 7,690
Loss on disposal of assets 119 -- 119 119
Costs related to ProxyMed agreement -- 846 846 (846) (FF) --
------------ ------------ ------------ ------------
56,215 17,867 74,082 76,434
------------ ------------ ------------ ------------
Income (loss) from continuing operations (3,021) 6,087 3,066 714
Other income (expense):
Other income, net 4,793 650 5,443 4,793 (FF) 650
Interest, net (572) (2,032) (2,604) (986) (EE) (1,618)
------------ ------------ ------------ ------------
Income (loss) 1,200 4,705 5,905 (254)
Income tax benefit (expense) -- (1,219) (1,219) (1,219) (GG) --
------------ ------------ ------------ ------------
Net income (loss) 1,200 3,486 4,686 (254)
Deemed dividends, preferred stock accretion
and preferred stock dividends -- (52,286) (52,286) (52,286) (HH) --
------------ ------------ ------------ ------------
Net income (loss) applicable
to common shareholders $ 1,200 $ (48,800) $ (47,600) $ (254)
============ ============ ============ ============
Basic weighted average common shares outstanding 6,782,991 12,074,220
============ ============
Basic net income per share of common stock
from continuing operations $ 0.18 $ (0.02)
============ ============
Diluted weighted average common shares outstanding 6,815,247 12,074,220
============ ============
Diluted net income per share of common stock
from continuing operations $ 0.18 $ (0.02)
============ ============
NOTE: All operating expenses for PlanVista Corporation are classified as
selling, general and administrative expenses.
(a) This column is derived from the unaudited consolidated financial
statements of ProxyMed, Inc. and subsidiaries for the nine months ended
September 30, 2003.
(b) This column is derived from the unaudited consolidated financial
statements of PlanVista Corporation for the nine months ended September
30, 2003.
See accompanying Notes to Unaudited Condensed Pro Forma Combined Financial
Statements.
210
COMBINED COMPANY NOTES TO UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL
STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
These unaudited condensed pro forma combined financial statements have been
prepared pursuant to the rules and regulations of the SEC and present the pro
forma financial position and results of operations of the combined company based
upon historical financial information after giving effect to the merger and
financing transactions and adjustments described in these footnotes. Certain
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. Under purchase accounting, the
mergers of ProxyMed, PlanVista and MedUnite are accounted for such that ProxyMed
is treated as the acquiror and PlanVista and MedUnite as the acquired companies.
These unaudited condensed pro forma combined financial statements are not
necessarily indicative of the results of operations that would have been
achieved had the transactions actually taken place at the dates indicated and do
not purport to be indicative of future financial position or operating results.
The unaudited condensed pro forma combined financial statements should be read
in conjunction with the historical financial statements described below which
are included in this proxy statement/prospectus.
The pro forma balance sheet was prepared by combining the historical
consolidated balance sheet data as of September 30, 2003 of ProxyMed and
PlanVista, assuming the merger and related financing transactions had occurred
on September 30, 2003. The pro forma statement of operations for the year ended
December 31, 2002 and the nine months ended September 30, 2003 and have been
prepared by combining the consolidated statements of operations for the year
ended December 31, 2002 and the nine months ended September 30, 2003 for
ProxyMed, PlanVista and MedUnite, and ProxyMed and PlanVista, respectively,
assuming the mergers and related financing transactions had occurred on January
1, 2002.
The unaudited condensed pro forma combined financial statements do not reflect
significant operational and administrative cost savings that management of the
combined company estimates may be achieved as a result of the mergers.
2. PRO FORMA ADJUSTMENTS (MEDUNITE ACQUISITION)
On December 31, 2002, ProxyMed acquired MedUnite, Inc. for $10.0 million in cash
and $13.4 million in 4% convertible notes. In connection with this acquisition,
ProxyMed estimated approximately $8.3 million in transaction and exit costs that
were accrued at the time of the acquisition. The pro forma adjustments noted
below were originally filed on Form 8-K on March 17, 2003 to reflect the
combined company's operations. Most of the adjustments related to forgiven and
new debt and asset values for fixed and intangible assets that were acquired.
Since MedUnite's operations are included ProxyMed's historical statement of
operations for the nine months ended September 30, 2003, the pro forma
adjustments below are reflected only in the pro forma statement of operations
for the year ended December 31, 2002 (amounts in thousands).
(A) To estimate interest expense on the convertible notes:
o The $13.4 million in convertible notes bear an interest rate of 4% per
annum resulting in additional pro forma interest expense ($536).
(B) To reflect historical interest expense saved as a result of certain debts
cancelled and/or waived from its founders at the time of acquisition:
o A total of $23.4 million in debt and accrued interest was cancelled.
o A total of $4 million in debt was also waived.
o The resulting savings of interest expense is recorded in the pro forma
statement of operations ($1,840)
(C) To reverse historical impairment charges taken by MedUnite for assets that
were re-valued by ProxyMed at the time of the acquisition:
o Certain software and intangible assets were written off by MedUnite due
to impairment. ProxyMed obtained its own independent valuations of such
assets and the impairment was recorded upon the valuation of these
assets ($11,670).
(D) To reverse estimated historical depreciation expense related to additional
fixed asset write downs taken by MedUnite:
o As a result of an independent valuation of MedUnite's fixed assets,
additional write-downs of such assets were recorded and resulted in a
pro forma savings of depreciation expense based upon an average useful
life of four years ($821).
(E) To reverse historical amortization expense taken on certain capitalized
development, software and other intangibles previously recorded by
MedUnite:
o As a result of an independent valuation of MedUnite's identifiable
intangible assets, historical savings of amortization expense was
computed based on the elimination of these assets ($10,016) and was
replaced with intangible assets as noted in Adjustment (F).
(F) To record pro forma amortization expense associated with new identifiable
intangible assets:
o As a result of an independent valuation of MedUnite's identifiable
intangible assets, pro forma estimated amortization expense was
computed based on the estimated lives of the following assets
identified (total of $2,820):
o Customer relationships ($6,600 over a 10 year life or $660).
o Legacy platforms ($1,200 over a 1 year life or $1,200).
o New software platforms ($4,800 over a 5 year life or $960).
211
3. PRO FORMA TRANSACTIONS (PLANVISTA ACQUISITION)
On December 5, 2003, ProxyMed and PlanVista entered into a merger agreement,
whereby ProxyMed would acquire all of the issued and outstanding shares of
PlanVista in exchange for the issuance of 3.6 million common shares of ProxyMed.
In connection with the merger, ProxyMed intends to raise an additional $24.1
million through the issuance of an additional 1,691,229 shares (at a price of
$14.25 per share) to retire $18.0 million in PlanVista debt and use the balance
for the payment of transaction expenses and working capital needs. As part of
the merger the company has agreements to refinance a total of $20.5 million in
remaining PlanVista debt at least for one year past the current maturity date of
May 2004. For accounting purposes the purchase price of PlanVista is based upon
the market price of ProxyMed stock exchanged plus estimated direct transaction
costs to be incurred by ProxyMed of approximately $1.6 million (comprised of
financial advisory, legal, accounting and other fees). The market price of
ProxyMed stock used in the pro forma calculation of purchase consideration on
September 30, 2003 was the closing market price of $15.25. The actual purchase
consideration may change subject to the market value of ProxyMed's common stock
on the date the transaction is consummated, subject to shareholder and regulator
approval. The following table summarizes the components of the total purchase
price (in thousands):
PROXYMED
SHARES
ISSUED IN
THE MERGER VALUE
---------- ---------
Shares of common stock 3,600 $54,900
Estimated acquisition costs to be incurred by ProxyMed 1,550
-------
Estimated total purchase price $56,450
=======
The purchase consideration was allocated to assets acquired and liabilities
assumed based on the estimated fair value of PlanVista's tangible and intangible
assets and liabilities. A preliminary allocation of the purchase cost has been
made to major categories of assets and liabilities in the accompanying unaudited
condensed pro forma combined financial statements based on estimates. Included
in other liabilities are $5.7 million in estimated merger related expenses of
PlanVista. This allocation is subject to change based on a final valuation of
the assets and liabilities assumed as of the closing date. The actual allocation
of purchase cost and its effect on results of operations may differ
significantly from the pro forma amounts included herein. The excess of the
purchase cost over the net tangible and identifiable intangible assets acquired
and liabilities assumed has been allocated to goodwill.
Current assets $ 11,502
Property and equipment 1,500
Other assets 684
Current liabilities (7,001)
Debt acquired (44,635)
Other liabilities (6,499)
Other (496)
Identifiable intangible assets (preliminary valuation):
Customer relationships 27,200
Provider networks 16,200
Software 1,180
Goodwill 56,815
--------
Estimated total purchase price $ 56,450
========
The amortization of the identifiable intangible assets (relationships, provider
networks and software) is reflected as a pro forma adjustment to the unaudited
condensed pro forma combined statement of operations. The combined company
expects to amortize the estimated fair value of the identifiable intangibles of
approximately $44.6 million on a straight-line basis over useful lives ranging
from 4.5 to 13 years. The effect of this increased amortization of $4.1 million
and $3.1 million for the year ended December 31, 2002 and the nine months ended
September 30, 2003, respectively, is reflected on the unaudited condensed pro
forma combined statements of operations.
4. PRO FORMA ADJUSTMENTS (PLANVISTA ACQUISITION)
The unaudited condensed pro forma combined financial statements give effect to
the transactions described in notes 2 and 3, as if they had occurred on
September 30, 2003 (PlanVista only) for purposes of the unaudited condensed pro
forma combined balance sheet and January 1, 2002 for purposes of the unaudited
212
condensed pro forma combined statements of operations. The unaudited condensed
pro forma combined statements of operations do not include any material
non-recurring charges that will arise as a result of the transactions described
in notes 2 and 3. Adjustments in the unaudited condensed pro forma combined
financial statements are as follows (amounts in thousands except for share
data):
(AA) ProxyMed issues 3.6 million shares of stock for PlanVista:
o The pro forma value of $54.9 million for the 3.6 million shares
issued at $15.25 per share (the closing price of ProxyMed's stock on
September 30, 2003) is allocated between common stock ($4) and
additional paid-in capital ($54,896)
o The long-term convertible note payable to Centra Benefits and PVC
Funding is converted into shares of common stock ($4,785).
o The treasury stock ($38) and accumulated deficit ($143,814) accounts
of PlanVista are eliminated.
o All preferred stock of PlanVista is liquidated based on negotiated
amounts lower than the stated liquidation value ($129,503).
o Prior unamortized goodwill of PlanVista's is also eliminated
($29,405).
o The preliminary valuation of identifiable intangible assets is
recorded ($44,580).
o Transaction and merger costs are recorded ($1,550 for ProxyMed and
$5,650 in assumed merger liabilities for PlanVista, totaling
$7,200).
o The resulting goodwill is recorded ($56,319 initial calculation -
see adjustment FF)
(BB) ProxyMed raises $24.1 million through the issuance of 1,691,229 shares of
common stock in a private placement:
o Debt of PlanVista payable to Wachovia Bank group is paid in full
($18,041).
o Excess cash is used to pay transaction costs ($6,059).
(CC) Certain debts are refinanced to extend maturity dates (and reclassified to
long-term debt):
o Debt originally due in May 2004 has been renegotiated with the
lender (PVC Funding) to extend the maturity date for one year
($20,398).
(DD) To reflect the additional amortization expense resulting from the
preliminary valuation of identifiable intangible assets of PlanVista:
o Customer relationships ($27,200) are being amortized over their
estimated life of 12 years ($2,267 for the year ended December 31,
2002 and $1,700 for the nine months ended September 30, 2003).
o Provider networks ($16,200) are being amortized over their estimated
life of 10 years ($1,620 for the year ended December 31, 2002 and
$1,215 for the nine months ended September 30, 2003).
o Software ($1,180) is being amortized over their estimated life of
4.5 years ($262 for the year ended December 31, 2002 and $197 for
the nine months ended September 30, 2003).
o The above results in total amortization expense of $4,149 for the
year ended December 31, 2002 and $3,112 for the nine months ended
September 30, 2003.
(EE) To reflect PlanVista historical interest expense saved by the pay-off of
the Wachovia Bank group debt of $18,041 and the conversion of the Centra
Benefits/PVC Funding convertible note:
o The Wachovia Bank group debt of $18,041 bears an interest rate of
prime plus 1%. For the year ended December 31, 2002, the interest
rate was 5.75% resulting in a savings of $1,037. For the nine months
ended September 30, 2003, the interest rate was 5.25% for the first
six months and then 5.00% for the last three months resulting in a
savings of $699.
o The Centra Benefits/PVC Funding convertible bore an interest rate of
12% until April 2003, when the rate was renegotiated to 6%. For the
year ended December 31, 2002, the resulting savings in interest
expense was $574. For the nine months ended September 30, 2003, the
resulting savings in interest expense was $287.
o The above results in total interest expense savings of $1,612 for
the year ended December 31, 2002 and $986 for the nine months ended
September 30, 2003.
(FF) To eliminate the historical impact of the recording of the warrant in
PlanVista issued to ProxyMed and other related costs resulting from the
joint marketing agreement signed in June 2003. There is no impact for
these items in the year ended December 31, 2002:
o For ProxyMed, the initial value of the warrant, data sale and
exclusivity fee was valued at $846. Of this amount, $86 was
amortized as a reduction in ProxyMed's historical costs of sales and
the balance of $760 was allocated between other current liabilities
($299) and other long-term liabilities ($461). A portion of the
exclusivity fee ($75) still remained unpaid at September 30, 2003.
o Over the period that that warrant was held by ProxyMed, its value
had increased significantly based primarily on the market price of
PlanVista's stock. As a result, the historical increase in value of
$4,793 and the ending value of $5,289 are eliminated.
o For PlanVista, the initial value of the warrant, data purchase and
exclusivity fee were recorded as a marketing expense in the nine
months ended September 30, 2003. The initial value of the warrant
($496) was charged against additional-paid in capital, and as a
result of this elimination, an adjustment to goodwill is required. A
portion of the exclusivity fee ($75) still remained unpaid at
September 30, 2003.
o The net effect that would have been recorded on a combined statement
of operations for the increase in historical value of the warrant
and the amortization of the initial charges by ProxyMed offset by
the marketing expense of PlanVista is reflected as an adjustment to
retained earnings of $4,033.
(GG) Elimination of income tax expense and benefits of PlanVista:
213
o The impact of the merger on the overall effective tax rate of the
combined company is uncertain. Although the combined company will
attempt to optimize its overall effective tax rate and utilize all
available net operating losses (subject to certain limitations), the
pro forma tax provision reflects a full valuation allowance relative
to net operating loss carryforwards and other net deferred tax
assets.
(HH) Elimination of historical preferred stock accretion and preferred stock
dividends of PlanVista:
o As a result of the liquidation of all preferred stock at the
consummation of the merger, any and all accretion associated with
PlanVista's preferred stock and related dividends are eliminated in
the calculation of earnings (loss) per share ($48,777 for the year
ended December 30, 2002 and $52,286 for the nine months ended
September 30, 2003)
5. UNAUDITED PRO FORMA LOSS PER SHARE
The following table sets forth the computation of unaudited pro forma basic and
diluted income per (in thousands, except for share and per share information):
YEAR ENDING NINE MONTHS ENDING
DECEMBER 31, 2002 SEPTEMBER 30, 2003
----------------- ------------------
Pro forma net loss $ (26,073) $ (254)
============ ============
Historical basic weighted average shares 6,322,086 6,782,991
Shares issued for PlanVista acquisition 3,600,000 3,600,000
Shares issued for private placement 1,691,229 1,691,229
------------ ------------
Pro forma basic weighted average shares 11,613,315 12,074,220
============ ============
Proforma basic net loss per share $ (2.25) $ (0.02)
============ ============
Historical diluted weighted average shares 6,396,893 6,815,247
Reduction for common share equivalents (74,807) (32,256)
Shares issued for PlanVista acquisition 3,600,000 3,600,000
Shares issued for private placement 1,691,229 1,691,229
------------ ------------
Pro forma diluted weighted average shares 11,613,315 12,074,220
============ ============
Proforma diluted net loss per share $ (2.25) $ (0.02)
============ ============
For the year ended December 31, 2002, common share equivalents utilized in the
historical net income situation have been eliminated due to the pro forma loss
created. As a result, other potentially dilutive securities such as stock
options, warrants, and shares issuable upon the conversion of ProxyMed's Series
B and Series C preferred stock were excluded from the calculations of net loss
per share for both periods presented because their effect was antidilutive.
214
LEGAL MATTERS
The validity of the shares of ProxyMed common stock offered in
connection with the merger will be passed upon by Holland & Knight LLP.
EXPERTS
The consolidated financial statements of ProxyMed, Inc. as of December
31, 2002 and 2001 and for each of the three years in the period ended December
31, 2002 and the financial statements of MedUnite, Inc. as of December 31, 2002
and for the year then ended included in this prospectus have been so included in
reliance on the reports of PricewaterhouseCoopers LLP, independent certified
public accountants, given on the authority of said firm as experts in auditing
and accounting.
The consolidated financial statements of PlanVista as of December 31,
2002 and 2001 and for each of the three years in the period ended December 31,
2002 included in this prospectus have been so included in reliance on the
report, which contains an explanatory paragraph relating to the restatement of
the consolidated financial statements to classify the series C preferred stock
as temporary equity as described in Note 18 to the consolidated financial
statements, of PricewaterhouseCoopers LLP, independent certified public
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
Each of ProxyMed and PlanVista files reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any of this information at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. The SEC also maintains an
Internet web site that contains reports, proxy statements and other information
regarding issuers, including ProxyMed and PlanVista, who file electronically
with the SEC. The address of that site is http://www.sec.gov. The information
contained on the SEC's website is expressly not incorporated by reference in
this joint proxy statement/prospectus. You can obtain any of the materials
ProxyMed or PlanVista files with the SEC from the SEC, through the SEC's web
site at the address described above, or from ProxyMed or PlanVista, as
applicable, by requesting them in writing or by telephone at the following
addresses:
ProxyMed, Inc. PlanVista Corporation
2555 Davie Road, Suite 110 4010 Boy Scout Boulevard, Suite 200
Fort Lauderdale, Florida 33317 Tampa, Florida 33607
Attention: Investor Relations Attention: Investor Relations
Telephone: (954) 473-1001 Telephone: (813) 353-2300
These documents are available from ProxyMed or PlanVista, as
applicable, without charge, excluding any exhibits to them unless the exhibit is
specifically listed as an exhibit to the registration statement of which this
joint proxy statement/prospectus forms a part. Copies of materials related to
ProxyMed may also be inspected at the offices of the Nasdaq National Market,
One Liberty Plaza, 50th Floor, New York, New York 10006. Shareholders may also
consult ProxyMed's and PlanVista's websites for more information concerning the
merger described in this joint proxy statement/prospectus. Information included
in ProxyMed's and PlanVista's websites is not incorporated by reference in this
joint proxy statement/prospectus.
IN ORDER FOR YOU TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS BEFORE THE
PROXYMED SPECIAL MEETING OR THE PLANVISTA SPECIAL MEETING, PROXYMED OR PLANVISTA
SHOULD RECEIVE YOUR REQUEST NO LATER THAN __________, 2004.
ProxyMed has filed a registration statement under the Securities Act of
1933 with the Securities and Exchange Commission with respect to ProxyMed's
common stock to be issued to PlanVista stockholders in the merger. This proxy
statement/prospectus constitutes the prospectus of ProxyMed filed as part of the
registration statement. You may inspect and copy the registration statement at
the address listed above.
215
You should rely only on information contained in this joint proxy
statement/prospectus or any supplement we provide to you. Neither ProxyMed nor
PlanVista has authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. ProxyMed is not making an offer to sell the ProxyMed
common stock in any jurisdiction where the offer or sale is not permitted.
You should not assume that the information appearing in this joint
proxy statement/prospectus or any supplement is accurate as of any date other
than the date on the front of the documents. ProxyMed's business, financial
condition, results of operations and other information may have changed since
that date.
OTHER MATTERS
As of the date of this joint proxy statement/prospectus, neither the
ProxyMed board of directors nor the PlanVista board of directors knows of any
matters that will be presented for consideration at either the ProxyMed special
meeting or the PlanVista special meeting other than as described in this joint
proxy statement/prospectus. If any other matters come before either of the
meetings or any adjournments or postponements of the meetings and are voted
upon, the enclosed proxies will confer discretionary authority on the
individuals named as proxies to vote the shares represented by the proxies as to
any other matters. The individuals named as proxies intend to vote in accordance
with their best judgment as to any other matters.
216
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PROXYMED, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
----
Report of Independent Certified Public Accountants FS-2
Consolidated Balance Sheets as of December 31, 2002 and 2001 FS-3
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 FS-4
Consolidated Statements of Stockholders's Equity for the years ended December 31, 2002, 2001 and 2000 FS-5
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 FS-6
Notes to Consolidated Financial Statements FS-7
Condensed Consolidated Balance Sheet as of September 30, 2003 (unaudited) FS-31
Condensed Consolidated Statements of Operations (unaudited) for the nine months ended
September 30, 2003 and 2002 FS-32
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended
September 30, 2003 and 2002 FS-33
Notes to Consolidated Financial Statements FS-34
PLANVISTA CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
----
Report of Independent Certified Public Accountants FS-41
Consolidated Balance Sheets as of December 31, 2002 and 2001 FS-42
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 FS-43
Consolidated Statements of Changes Stockholders's Equity (Deficit) and Comprehensive Income
for the years ended December 31, 2001, 2000 and 1999 FS-44
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 FS-45
Notes to Consolidated Financial Statements FS-46
Condensed Consolidated Balance Sheet (unaudited) as of September 30, 2003 FS-65
Condensed Consolidated Statements of Operations (unaudited) for the nine months ended
September 30, 2003 and 2002 FS-66
Condensed Consolidated Statements of Changes in Stockholders's Deficit (unaudited) for the
nine months ended September 30, 2003 and 2002 FS-67
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended
September 30, 2003 and 2002 FS-68
Notes to Condensed Consolidated Financial Statements FS-69
MEDUNITE INC.
Index to Financial Statements
Page
----
Report of Independent Certified Public Accountants FS-75
Balance Sheet as of December 31, 2002 FS-76
Statement of Operations for the year ended December 31, 2002 FS-77
Statement of Stockholders' Deficit for the year ended December 31, 2002 FS-78
Statement of Cash Flows for the year ended December 31, 2002 FS-79
Notes to Financial Statements FS-80
FS-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the Shareholders of ProxyMed, Inc.
In our opinion, the consolidated financial statements listed in the
index appearing on page FS-1 of this Prospectus present fairly, in all material
respects, the financial position of ProxyMed, Inc. and its subsidiaries (the
"Company") at December 31, 2002 and December 31, 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 9 to the consolidated financial statements,
pursuant to the adoption of Financial Accounting Standards Board Statement No.
142, Goodwill and Other Intangible Assets, the Company changed its method of
accounting for goodwill in 2002.
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
February 18, 2003, except
as to Note 20, which is as
of March 20, 2003
FS-2
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
Assets 2002 2001
------ -------------- --------------
Current assets:
Cash and cash equivalents $ 16,378,000 $ 12,601,000
Accounts receivable - trade, net of allowance for
doubtful accounts of $1,096,000 and $228,000 respectively 10,060,000 5,589,000
Other receivables 503,000 89,000
Inventory 2,774,000 3,351,000
Other current assets 1,022,000 331,000
-------------- --------------
Total current assets 30,737,000 21,961,000
Property and equipment, net 5,719,000 3,832,000
Goodwill, net 32,797,000 7,961,000
Purchased technology, capitalized software and
other intangible assets, net 18,220,000 2,076,000
Restricted cash 825,000 --
Other assets 406,000 52,000
-------------- --------------
Total assets $ 88,704,000 $ 35,882,000
============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Note payable $ -- $ 7,000,000
Accounts payable and accrued expenses 21,472,000 5,345,000
Deferred revenue 516,000 222,000
-------------- --------------
Total current liabilities 21,988,000 12,567,000
Convertible notes 13,400,000 --
Long-term deferred revenue and other long-term liabilities 2,581,000 442,000
-------------- --------------
Total liabilities 37,969,000 13,009,000
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Series C 7% Convertible preferred stock - $.01 par value
Authorized 300,000 shares; issued 253,265 shares;
outstanding 2,000 and 34,650 shares, respectively;
liquidation preference $13,333 and $3,465,000 respectively -- --
Common stock - $.001 par value. Authorized 13,333,333 shares;
issued and outstanding 6,782,938 and 4,894,433 shares
(after deducting 15,061 shares held in treasury in 2001), respectively 7,000 5,000
Additional paid-in capital 146,187,000 120,277,000
Accumulated deficit (95,273,000) (97,223,000)
Note receivable from stockholder (186,000) (186,000)
-------------- --------------
Total stockholders' equity 50,735,000 22,873,000
-------------- --------------
Total liabilities and stockholders' equity $ 88,704,000 $ 35,882,000
============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
FS-3
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
----------- ------------ ------------
Revenues:
Transaction fees, services and license fees $28,455,000 $ 23,366,000 $ 18,440,000
Communication devices and other tangible goods 21,727,000 19,864,000 15,001,000
----------- ------------ ------------
50,182,000 43,230,000 33,441,000
----------- ------------ ------------
Costs and expenses:
Cost of transaction fees, services and license fees 8,858,000 6,530,000 1,886,000
Cost of tangible goods 14,165,000 13,878,000 10,363,000
Selling, general and administrative expenses 23,145,000 21,267,000 27,097,000
Depreciation and amortization 2,636,000 8,176,000 13,375,000
Restructuring charges -- -- 1,330,000
Write-off of impaired and obsolete assets 38,000 91,000 2,850,000
----------- ------------ ------------
48,842,000 49,942,000 56,901,000
----------- ------------ ------------
Operating income (loss) 1,340,000 (6,712,000) (23,460,000)
Income from litigation settlement and other, net 265,000 40,000 667,000
Interest income (expense), net 345,000 (126,000) (4,133,000)
----------- ------------ ------------
Income (loss) from continuing operations 1,950,000 (6,798,000) (26,926,000)
Discontinued operations (Note 3):
Loss from discontinued operations -- -- (304,000)
Gain on disposal of discontinued operations -- -- 545,000
----------- ------------ ------------
-- -- 241,000
----------- ------------ ------------
Net income (loss) 1,950,000 (6,798,000) (26,685,000)
Deemed dividends and other charges 612,000 12,262,000 21,367,000
----------- ------------ ------------
Net income (loss) applicable to
common shareholders $ 1,338,000 $(19,060,000) $(48,052,000)
=========== ============ ============
Basic weighted average shares outstanding 6,322,086 2,162,352 1,304,342
=========== ============ ============
Basic income (loss) per share:
Income (loss) from continuing operations $ .21 $ (8.81) $ (37.03)
Gain from discontinued operations -- -- .19
----------- ------------ ------------
Net income (loss) $ .21 $ (8.81) $ (36.84)
=========== ============ ============
Diluted weighted average shares outstanding 6,396,893 2,162,352 1,304,342
=========== ============ ============
Diluted income (loss) per share:
Income (loss) from continuing operations $ .21 $ (8.81) $ (37.03)
Gain from discontinued operations -- -- .19
----------- ------------ ------------
Net income (loss) $ .21 $ (8.81) $ (36.84)
=========== ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
FS-4
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Series B Series C
Preferred stock Preferred stock Common stock
---------------- ------------------- --------------------
Number Par Number Par Number Par Additional
of shares value of shares value of shares value paid-in capital
--------- ----- --------- ------- ---------- ------ ---------------
Balances, January 1, 2000 15,000 $-- -- $ -- 1,221,827 $1,000 $ 101,495,000
Sale of Series C preferred stock -- -- 10,000 -- -- -- 1,000,000
Exercise of stock options and warrants -- -- -- -- 11,229 -- 427,000
Treasury stock received for sales
of discontinued businesses -- -- -- -- (15,061) -- (1,930,000)
Common stock issued
for acquired businesses -- -- -- -- 2,247 -- 67,000
Common stock issued for
stock compensation award -- -- -- -- 13,333 -- 285,000
Conversions of Series B
Preferred stock (1,890) -- -- -- 108,129 -- --
Redemptions of Series B
Preferred stock (13,000) -- -- -- -- -- (15,730,000)
Warrants issued to placement agent
under advisory agreement -- -- -- -- -- -- 1,300,000
Warrants issued to placement agent
pursuant to Convertible Debt offering -- -- -- -- -- -- 10,876,000
Reclassification of unaccreted
value of Put Warrants -- -- -- -- -- -- 12,085,000
Amortization of beneficial
conversion of Convertible Debt -- -- -- -- -- -- 3,203,000
Conversion of Convertible
Debt into Series C
preferred stock, net of costs -- -- 243,265 2,000 -- -- (332,000)
Compensatory stock options -- -- -- -- -- -- 492,000
Dividends on preferred stock -- -- -- -- 31,194 -- (4,000)
Reclassification of stockholder note -- -- -- -- -- -- --
Other, net -- -- -- -- -- -- 1,000
Net loss -- -- -- -- -- -- --
------- --- -------- ------- ---------- ------ -------------
Balances, December 31, 2000 110 -- 253,265 2,000 1,372,898 1,000 113,235,000
Sales of common stock, net
of expenses of $729,000 -- -- -- -- 483,414 1,000 7,247,000
Conversion of Series B
preferred stock (110) -- -- -- 8,766 -- --
Conversions of Series C
preferred stock -- -- (49,466) -- 329,773 1,000 --
Conversions of Series C
preferred stock pursuant
to Conversion Offer -- -- (169,149) (2,000) 1,296,126 1,000 (32,000)
Exchange of Series B warrants
into common stock -- -- -- -- 218,828 -- (73,000)
Exchange of Series C warrants
into common stock -- -- -- -- 1,050,691 1,000 (54,000)
Dividends on preferred stock -- -- -- -- 133,937 -- (7,000)
Repayment of note from stockholder -- -- -- -- -- -- --
Other, net -- -- -- -- -- -- (39,000)
Net loss -- -- -- -- -- -- --
------- --- -------- ------- ---------- ------ -------------
Balances, December 31, 2001 -- -- 34,650 -- 4,894,433 5,000 120,277,000
Sales of common stock, net
of expenses of $139,000 -- -- -- -- 1,569,366 2,000 24,884,000
Common stock issued for acquired
business -- -- -- -- 30,034 -- 600,000
Conversions of Series C
preferred stock pursuant
to Conversion Offer -- -- (31,650) -- 242,508 -- --
Conversions of Series C
preferred stock -- -- (1,000) -- 6,666 -- --
Exchange of Series B warrants
into common stock -- -- -- -- 34,500 -- 450,000
Exchange of Series C warrants
into common stock -- -- -- -- 1,190 -- --
Dividends on preferred stock -- -- -- -- 4,241 -- --
Other, net -- -- -- -- -- -- (24,000)
Net income -- -- -- -- -- -- --
------- --- -------- ------- ---------- ------ -------------
Balances, December 31, 2002 -- $-- 2,000 $ -- 6,782,938 $7,000 $ 146,187,000
======= === ======== ======= ========== ====== =============
Note
receivable
Accumulated from
deficit stockholder Total
------------ ----------- ------------
Balances, January 1, 2000 $(63,740,000) $ -- $ 37,756,000
Sale of Series C preferred stock -- -- 1,000,000
Exercise of stock options and warrants -- -- 427,000
Treasury stock received for sales
of discontinued businesses -- -- (1,930,000)
Common stock issued
for acquired businesses -- -- 67,000
Common stock issued for
stock compensation award -- -- 285,000
Conversions of Series B
Preferred stock -- -- --
Redemptions of Series B
Preferred stock -- -- (15,730,000)
Warrants issued to placement agent
under advisory agreement -- -- 1,300,000
Warrants issued to placement agent
pursuant to Convertible Debt offering -- -- 10,876,000
Reclassification of unaccreted
value of Put Warrants -- -- 12,085,000
Amortization of beneficial
conversion of Convertible Debt -- -- 3,203,000
Conversion of Convertible
Debt into Series C
preferred stock, net of costs -- -- (330,000)
Compensatory stock options -- -- 492,000
Dividends on preferred stock -- -- (4,000)
Reclassification of stockholder note -- (436,000) (436,000)
Other, net -- -- 1,000
Net loss (26,685,000) -- (26,685,000)
------------ --------- ------------
Balances, December 31, 2000 (90,425,000) (436,000) 22,377,000
Sales of common stock, net
of expenses of $729,000 -- -- 7,248,000
Conversion of Series B
preferred stock -- -- --
Conversions of Series C
preferred stock -- -- 1,000
Conversions of Series C
preferred stock pursuant
to Conversion Offer -- -- (33,000)
Exchange of Series B warrants
into common stock -- -- (73,000)
Exchange of Series C warrants
into common stock -- -- (53,000)
Dividends on preferred stock -- -- (7,000)
Repayment of note from stockholder -- 250,000 250,000
Other, net -- -- (39,000)
Net loss (6,798,000) -- (6,798,000)
------------ --------- ------------
Balances, December 31, 2001 (97,223,000) (186,000) 22,873,000
Sales of common stock, net
of expenses of $139,000 -- -- 24,886,000
Common stock issued for acquired
business -- -- 600,000
Conversions of Series C
preferred stock pursuant
to Conversion Offer -- -- --
Conversions of Series C
preferred stock -- -- --
Exchange of Series B warrants
into common stock -- -- 450,000
Exchange of Series C warrants
into common stock -- -- --
Dividends on preferred stock -- -- --
Other, net -- -- (24,000)
Net income 1,950,000 -- 1,950,000
------------ --------- ------------
Balances, December 31, 2002 $(95,273,000) $(186,000) $ 50,735,000
============ ========= ============
The accompanying notes are an integral part of the consolidated financial
statements.
FS-5
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 1,950,000 $ (6,798,000) $(26,685,000)
Adjustments to reconcile net income (loss) to net provided by
(used in) operating activities:
Depreciation and amortization 2,636,000 8,176,000 13,706,000
Amortization of private placement related costs -- -- 4,473,000
Restructuring charges -- -- 1,330,000
Provision for doubtful accounts 38,000 70,000 425,000
Write-off of obsolete and impaired assets 38,000 91,000 2,850,000
Recovery of obsolete inventory -- (50,000) (26,000)
Compensatory stock options and warrants
and stock compensation awards issued -- 433,000 1,643,000
Payment for non-compete agreement -- -- (200,000)
Net gain on sales of discontinued operations -- -- (545,000)
Changes in net current assets of discontinued operations -- -- (735,000)
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Accounts and other receivables (1,445,000) (614,000) (1,210,000)
Inventory 747,000 (612,000) (773,000)
Accounts payable and accrued expenses (1,150,000) 576,000 (1,016,000)
Deferred revenue 76,000 (264,000) (321,000)
Other, net (42,000) 11,000 7,000
------------ ------------ ------------
Net cash provided by (used in) operating activities 2,848,000 1,019,000 (7,077,000)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (14,453,000) (3,000,000) --
Acquisition of assets (700,000) -- --
Short term investments (15,000,000) -- --
Redemption of short term investments 15,000,000 -- --
Capital expenditures (1,561,000) (1,325,000) (967,000)
Capital expenditures of discontinued operations -- -- (230,000)
Capitalized software (445,000) (120,000) (1,611,000)
Collection of notes receivable 65,000 298,000 1,649,000
Payments for acquisition-related costs (96,000) (42,000) (18,000)
------------ ------------ ------------
Net cash used in investing activities (17,190,000) (4,189,000) (1,177,000)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock 24,886,000 7,248,000 --
Net proceeds from sale of convertible debt securities -- -- 21,383,000
Net proceeds from sale of convertible preferred stock -- -- 1,000,000
Redemption of convertible preferred stock -- -- (15,748,000)
Preferred stock conversion offer and warrant exchange costs -- (158,000) --
Dividends on preferred stock -- (7,000) (4,000)
Proceeds from exercise of stock options and warrants 450,000 -- 427,000
Payment of note payable related to acquisition of business (7,000,000) -- --
Draw on line of credit -- -- 2,000,000
Repayment of line of credit -- -- (3,000,000)
Payment of notes payable, long-term debt and capital leases (217,000) (153,000) (451,000)
------------ ------------ ------------
Net cash provided by financing activities 18,119,000 6,930,000 5,607,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 3,777,000 3,760,000 (2,647,000)
Cash and cash equivalents at beginning of year 12,601,000 8,841,000 11,488,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 16,378,000 $ 12,601,000 $ 8,841,000
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
FS-6
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Summary of Significant Accounting Policies
(a) BUSINESS OF PROXYMED - ProxyMed, Inc. ("ProxyMed" or "the
Company") is an electronic healthcare transaction processing
services company providing connectivity services and related
value-added products to physician offices, payers, medical
laboratories, pharmacies and other healthcare providers.
ProxyMed's products and services are provided from its
operating facilities located in Fort Lauderdale, Florida; New
Albany, Indiana; Santa Ana, California; Norcross, Georgia; and
Sioux Falls, South Dakota.
In March 2000, the Company sold its non-core network
integration and prescription drug dispensing businesses. These
two businesses are shown as discontinued operations in the
consolidated financial statements, and the related notes have
been reclassified to segregate the operating results of these
businesses (see Note 3).
On August 21, 2001, the Company's Board of Directors effected
a 1-for-15 reverse stock split of the Company's common stock,
par value $.001 per share. All share and per share amounts
have been restated to reflect this transaction.
In May 2002, the Company acquired all of the capital stock of
KenCom Communications & Services, Inc., a privately-owned
provider of laboratory communication solutions, for $3,237,000
in cash and 30,034 shares of unregistered ProxyMed common
stock (valued at $600,000 (see Note 2(b)).
In August 2002, the Company acquired substantially all of the
assets of MDIP, Inc., a privately-owned company providing
institutional claims processing services for $2,400,000 in
cash (see Note 2(c)).
On December 31, 2002, the Company acquired all of the capital
stock of MedUnite, Inc. , a privately-held company providing
healthcare claims processing services founded by seven of the
nation's largest health insurers, for $10,000,000 in cash and
$13,400,000 in 4% convertible debt (see Note 2(a)).
(b) PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of ProxyMed and its
wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
(c) USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in
the United States of America 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 consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(d) REVENUE RECOGNITION - Electronic transaction processing fee
revenue is recorded in the period the service is rendered.
Certain transaction fee revenue may be subject to revenue
sharing per agreements with resellers, vendors or gateway
partners and are recorded as gross revenues. Revenue from
sales of inventory and manufactured goods is recognized when
persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed or determinable and
collectibility is probable. Revenue from certain up-front fees
is amortized ratably over the expected life of the customer.
Revenue from hardware leases, software rentals and maintenance
fees is recognized ratably over the applicable period.
(e) CASH AND CASH EQUIVALENTS - ProxyMed considers all highly
liquid investments with original maturities of three months or
less to be cash equivalents. Cash balances in excess of
immediate needs are invested in bank certificates of deposit,
money market accounts and commercial paper with high-quality
credit institutions. At times, such amounts may be in excess
of FDIC insurance limits. ProxyMed has not experienced any
loss to date on these investments. Cash and cash equivalents
used to support collateral instruments, such as letters of
credit, are reclassified as either current or long-term assets
depending upon the maturity date of the obligation they
collateralize.
FS-7
(f) INVENTORY - Inventory consisting of component parts,
materials, supplies and finished goods (including direct labor
and overhead) used to manufacture laboratory communication
devices is stated at the lower of cost (first-in, first-out
method) or market. Reserves for obsolete, damaged and
slow-moving inventory are maintained and are periodically
reviewed by management.
(g) PROPERTY AND EQUIPMENT - Property and equipment is stated at
cost and includes revenue earning equipment. Depreciation of
property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets.
Leasehold improvements are amortized on the straight-line
method over the shorter of the lease term or the estimated
useful lives of the assets.
Upon sale or retirement of property and equipment, the cost
and related accumulated depreciation are eliminated from the
accounts and any resulting gains or losses are reflected in
other income for the period; upon sale or retirement of
revenue earning equipment, the gross proceeds are included in
net revenues and the undepreciated cost of the equipment sold
is included in cost of sales. Maintenance and repair of
property and equipment are charged to expense as incurred.
Renewals and betterments are capitalized and depreciated. In
accordance with Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for Impairment or Disposition of
Long-lived Assets," management periodically examines the
Company's fixed assets for obsolete, damaged and impaired
fixed assets.
(h) Intangible Assets
GOODWILL - Goodwill representing the excess of cost over the
estimated fair value of net assets acquired was amortized on
the straight-line basis over 3 to 15 years until December 31,
2001, at which time the Company adopted SFAS No. 142 (see Note
1(l) below).
OTHER INTANGIBLES - Other acquired intangible assets,
consisting primarily of customer relationships and
covenants-not-to-compete, are being amortized on a
straight-line basis over their estimated useful lives of 5 to
10 years.
ProxyMed regularly reviews the recoverability of goodwill,
other intangible assets and other long-lived assets for
indications that the carrying value may be impaired or that
the useful lives assigned may be excessive. In performing such
review, goodwill associated with acquisition of the intangible
assets is included in the analysis of the impairment of such
intangible assets. When indications exist that impairment may
have occurred, the carrying values are assessed based upon an
analysis of estimated future cash flows on an undiscounted
basis and before interest charges, or useful lives are changed
prospectively.
Purchased Technology and Capitalized Software - ProxyMed has
recorded amounts related to various software and technology
that it has purchased or capitalized for external sale to its
customers or for its own internal systems use.
Internal and external costs incurred to develop internal-use
computer software during the application stage are
capitalized. Application development stage costs generally
include software configuration, coding, installation to
hardware and testing. Costs of upgrades and major enhancements
that result in additional functionality are also capitalized.
Costs incurred for maintenance and minor upgrades are expensed
as incurred. All other costs are expensed as incurred as
research and development expenses (which are included in
selling, general and administrative expenses). Capitalized
internal-use software development costs are periodically
evaluated by ProxyMed for indications that the carrying value
may be impaired or that the useful lives assigned may be
excessive.
Purchased technology and capitalized software are being
amortized on a straight-line basis over their estimated useful
lives of 1 to 12 years. Purchased technology and capitalized
software and related accumulated amortization are removed from
the accounts when fully amortized.
(i) RESEARCH AND DEVELOPMENT - Software development costs incurred
prior to achieving technological feasibility are charged to
research and development expense when incurred. Research and
development expense of
FS-8
approximately $3,187,000 in 2002, $1,960,700 in 2001, and
$3,130,000 in 2000 was recorded in selling, general and
administrative expenses.
(j) INCOME TAXES - Deferred income taxes are determined based upon
differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse. Deferred tax assets are also established
for the future tax benefits of loss and credit carryovers.
Valuation allowances are established for deferred tax assets
when, based on the weight of available evidence, it is deemed
more likely than not that such amounts will not be realized.
(k) NET INCOME (LOSS) PER SHARE - Basic net income (loss) per
share is computed by dividing net income (loss) applicable to
common shareholders by the weighted average number of shares
of common stock outstanding during the period. Diluted net
income per share reflects the potential dilution from the
exercise or conversion of securities into common stock;
however, 1,130,596 stock options and warrants for the year
ended December 31, 2002, were excluded from the calculation of
diluted net income per share because the exercise price of
these options and warrants was greater than the average market
price of the Company's common stock during the period.
Additionally, stock options and warrants totaling 1,018,713
shares and 2,450,130 shares for the years ended December 31,
2001 and 2000, respectively, as well as common shares issuable
on conversion of series B and series C preferred stock
(231,000 shares and 1,696,500 shares if converted on December
31, 2001 and 2000, respectively) were excluded from the
calculation of diluted per share results because their effect
was antidilutive.
The following schedule sets forth the computation of basic and
diluted net income (loss) per share for the years ending
December 31 2002, 2001 and 2000:
2002 2001 2000
------------ ------------ ------------
Net income (loss) applicable to common shareholders $ 1,338,200 $(19,060,000) $(48,052,000)
============ ============ ============
Common shares outstanding:
Weighted average common shares used in computing
basic net income (loss) per share 6,322,086 2,162,352 1,304,342
Plus incremental shares from assumed conversions:
Convertible preferred stock 13,833 -- --
Stock options 11,464 -- --
Warrants 49,510 -- --
------------ ------------ ------------
74,807 -- --
------------ ------------ ------------
Weighted average common shares used in computing
diluted net income (loss) per share 6,396,893 2,162,352 1,304,342
============ ============ ============
Net income (loss) per common share:
Basic $ 0.21 $ (8.81) $ (36.84)
============ ============ ============
Diluted $ 0.21 $ (8.81) $ (36.84)
============ ============ ============
ProxyMed applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock-based compensation
plans. The Company measures compensation expense related to
the grant of stock options and stock-based awards to employees
(including independent directors) in accordance with the
provisions of APB No. 25. In accordance with APB No. 25,
compensation expense, if any, is generally based on the
difference between the exercise price of an option, or the
amount paid for an award, and the market price or fair value
of the underlying common stock at the date of the award or at
the measurement date for variable awards. Stock-based
compensation arrangements involving non-employees are
accounted for under SFAS No. 123, "Accounting for Stock-Based
Compensation," under which such arrangements are accounted for
based on the fair value of the option or award.
FS-9
Under SFAS No. 123, compensation cost for the Company's
stock-based compensation plans would be determined based on
the fair value at the grant dates for awards under those
plans. The assumptions underlying the fair value calculations
of the stock option grants are presented in Note 16. Had the
Company adopted SFAS No. 123 in accounting for its stock
option plans, the Company's consolidated net income (loss) and
net income (loss) per share for the years ended December 31,
2002, 2001 and 2000 would have been adjusted to the pro forma
amounts indicated as follows:
2002 2001 2000
------------- ------------- -------------
Net income (loss) applicable to
common shareholders, as reported $ 1,338,000 $ (19,060,000) $ (48,052,000)
Total stock-based employee pro forma compensation
expense determined under fair value based
method for all awards, net of related tax benefits $ (6,814,000) $ (5,881,000) $ (3,184,000)
Pro forma net income (loss) applicable to ------------- ------------- -------------
common shareholders $ (5,476,000) $ (24,941,000) $ (51,236,000)
============= ============= =============
Basic net income (loss) per common share:
As reported $ 0.21 $ (8.81) $ (36.84)
Pro forma $ (0.87) $ (11.54) $ (39.30)
Diluted net income (loss) per common share
As reported $ 0.21 $ (8.81) $ (36.84)
Pro forma $ (0.87) $ (11.54) $ (39.30)
(l) NEW ACCOUNTING PRONOUNCEMENTS - In May 2002, the Financial
Accounting Standards Board issued SFAS No. 145, "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections". SFAS No. 145 rescinds the
automatic treatment of gains or losses from extinguishments of
debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in APB Opinion No. 30,
"Reporting the Results of Operations, Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions".
In addition, SFAS No. 145 also requires sale-leaseback
accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions and
makes various technical corrections to existing
pronouncements. The provisions of SFAS No. 145 related to the
rescission of FASB Statement No. 4 are effective for fiscal
years beginning after May 15, 2002, with early adoption
encouraged. All other provisions of SFAS No. 145 are effective
for transactions occurring after May 15, 2002, with early
adoption encouraged. The Company does not anticipate that SFAS
No. 145 will have a material effect on its financial
statements.
In July 2002, the Financial Accounting Standards Board issued
SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities." The standard requires companies to
recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment
to an exit or disposal plan. Previous accounting guidance was
provided by EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs incurred in a
Restructuring)." SFAS No. 146 replaces Issue 94-3. The
provisions of SFAS No. 146 are to be applied prospectively to
exit or disposal activities initiated after December 31, 2002.
The Company does not anticipate that SFAS No. 146 will have a
material effect on its financial statements.
In December 2002, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS")
No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure." SFAS No. 148 amends Statement of Financial
Accounting Standards No. 123, "Stock-Based Compensation," to
provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial
statements about the
FS-10
method of accounting for stock-based employee compensation and
the effect of the method used on reported results. The Company
continues to account for stock-based compensation using
Accounting Principles Board Statement No. 25, "Accounting for
Stock Issued to Employees," and has not adopted the
recognition provisions of SFAS No. 123, as amended by SFAS No.
148.
In November 2002, the FASB issued Interpretation No. 45 ("FIN
No. 45"), "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness
of Others." FIN No. 45 clarifies and expands on the existing
disclosure requirements for guarantees. FIN No. 45 also
requires recognition of a liability at fair value of a
company's obligations under certain guarantee contracts. The
disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002.
The Company believes that the consolidated financial
statements as of and for the year ended December 31, 2002 are
in compliance with the disclosure requirements of FIN No. 45.
The initial recognition and measurement provisions of FIN No.
45 are applied only on a prospective basis to guarantees
issued after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The Company does not believe that
the implementation of FIN No. 45 will have a material effect
on the Company's consolidated financial statements and related
disclosures.
In January 2003, the FASB issued Interpretation No. 46 ("FIN
No. 46"), "Consolidation of Variable Interest Entities." FIN
No. 46 expands upon and strengthens existing accounting
guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of
another entity. A variable interest entity is a corporation,
partnership, trust, or any other legal structure used for
business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that
do not provide sufficient financial resources for the entity
to support its activities. FIN No. 46 requires a variable
interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the
variable interest entity's activities or is entitled to
receive a majority of the entity's residual returns or both.
The consolidation requirements of FIN No. 46 apply immediately
to variable interest entities created after January 31, 2003.
The consolidation requirements apply to older entities in the
first fiscal year or interim period beginning after June 15,
2003. Disclosure requirements apply to any financial
statements issued after January 31, 2003. Since currently the
Company does not have variable interest entities, the Company
does not believe that the implementation of FIN No. 46 will
have a material effect on the Company's consolidated financial
statements and related disclosures.
(m) RECLASSIFICATIONS - Certain prior year amounts have been
reclassified to conform to the current year presentation.
(2) Acquisitions of Businesses
(a) MEDUNITE - On December 31, 2002, the Company acquired all of
the capital stock of MedUnite, Inc., a privately-held company
providing healthcare claims processing services founded by
seven of the nation's largest health insurers, for $10,000,000
in cash, $13,400,000 in 4% convertible promissory notes, and
acquisition-related and exit costs of $8,321,000 (of which
$50,000 was paid as of December 31, 2002). The purchase price
was allocated as follows: current assets ($4,684,000,
including cash acquired of $879,000); property and equipment
($1,793,000); customer relationships ($6,600,000); purchased
technology ($6,000,000); other long-term assets ($1,033,000,
including restricted cash of $825,000); current liabilities
($9,515,000); and other long-term liabilities ($1,233,000).
The excess of the consideration paid over the estimated fair
value of net assets acquired in the amount of $22,359,000 was
recorded as goodwill, none of which is deductible for income
tax purposes. The weighted average useful life of the customer
relationships is approximately 10 years and the weighted
average useful life of the purchased technology is 4.2 years.
The valuation of MedUnite's real-time processing platform was
based on an independent third-party appraisal of the assets
utilizing a replacement cost methodology while the value of
the customer relationships was calculated on a discounted cash
flow model.
The 4% convertible promissory notes are uncollateralized and
mature on December 31, 2008. Interest is payable quarterly in
cash in arrears. The notes are convertible into an aggregate
of 731,322 shares of the Company's common stock (based on a
conversion price of $18.323 per share) if the former
shareholders of MedUnite achieve certain aggregate incremental
revenue based targets over a baseline revenue of $16,100,000
FS-11
with the Company over the next three and one-half year period
as follows: (i) one-third of the principal if incremental
revenues during the measurement period from January 1, 2003
through June 30, 2004 are in excess of $5,000,000; (ii)
one-third of the principal if incremental revenues during the
measurement period from July 1, 2004 through June 30, 2005 are
in excess of $12,500,000; and (iii) one-third of the principal
if incremental revenues during the measurement period from
July 1, 2005 through June 30, 2006 are in excess of
$21,000,000. Amounts in excess of any measurement period will
be credited towards the next measurement period; however, if
the revenue trigger is not met for any period, the ability to
convert that portion of the principal is lost. Of the
$13,400,000 in principal amount, $4,000,000 is being held in
escrow until December 31, 2003 as a source for limited
indemnification conditions of the acquisition. If and when
these notes become convertible, the Company will record a
beneficial conversion charge in operations to the extent that
the fair market value of the common stock is in excess of the
conversion price.
MedUnite had incurred significant losses since its inception
and was utilizing cash significantly in excess of amounts it
was generating. As a result, at the time it was acquired by
ProxyMed, there were substantial liabilities and obligations
(both recorded and unrecorded at December 31, 2002) associated
with the business. Subsequent to the acquisition by ProxyMed,
MedUnite's senior management team was terminated along with
approximately 20% of the general workforce in an effort to
eliminate duplicative positions and control these costs.
Certain operating facilities are being consolidated and or
eliminated. Other contractual obligations are being canceled
or renegotiated with the respective vendors. Additionally, the
Company has attempted to enter into financing agreements with
certain major vendors as a means to settle existing
liabilities (see Note 20). The Company is also in the process
of terminating its San Diego facility lease effective July 1,
2003 in consideration for the $750,000 letter of credit held
by the landlord (included in other assets at December 31,
2002) and furniture at that facility valued at approximately
$153,000. In replacement of this facility, the Company will
relocate approximately 20 technical employees to a smaller
office in the same general area.
As a result of the acquisition, all notes payable, convertible
notes and related accrued interest to MedUnite's founders with
a carrying value of $23,370,000 (except for a $2,300,000 note
payable issued to NDCHealth Corporation in August 2001, plus
$198,000 of accrued interest on this note, and a $2,569,000
note payable issued to NDCHealth Corporation on December 31,
2002, together known as the NDC Debt) were canceled.
Additionally, as part of the acquisition, NDCHealth
Corporation released MedUnite from $4,000,000 of the NDC Debt
and agreed to amend certain existing MedUnite agreements in
favor of future relationships with ProxyMed to be entered into
in good faith. The remaining $1,067,000 is included in accrued
expenses at December 31, 2002.
(b) KENCOM COMMUNICATIONS & SERVICES - In May 2002, the Company
acquired all of the capital stock of KenCom Communications &
Services, Inc. ("KenCom"), a privately-owned provider of
laboratory communication solutions, for $3,237,000 in cash
($3,275,000 original cash portion of the purchase price less
purchase price adjustments of $38,000 upon settlement of cash
holdback), 30,034 shares of unregistered ProxyMed common stock
(valued at $600,000), and acquisition related costs of $52,000
(of which $37,000 was paid as of December 31, 2002). The
number of shares of common stock issued was based on the
average of the closing prices of the Company's common stock
for the five days immediately preceding the closing. The
shares of common stock are being held in escrow by the Company
for unknown liabilities and will be released after one year,
if unused.
The purchase price was allocated as follows: current assets
($999,000, including cash acquired of $305,000); property and
equipment ($338,000); customer relationships ($1,690,000);
purchased technology ($95,000); other long-term assets
($14,000); current liabilities ($797,000); and other long-term
liabilities ($22,000). The excess of the consideration paid
over the estimated fair value of net assets acquired in the
amount of $1,572,000 was recorded as goodwill, none of which
is deductible for income tax purposes. The weighted average
useful life of the customer relationships is approximately 9.5
years and the weighted average useful life of the purchased
technology is 3 years. Additionally, the Company entered into
20-month employment agreements with the former owners of
KenCom and one technical employee. In October 2002, one former
owner separated from the Company and in January 2003 the other
former owner terminated her employment agreement and was
retained as a consultant through December 2003. The results of
KenCom's operations have been included in the consolidated
financial statements since May 1, 2002 in our laboratory
communications solutions segment.
FS-12
(c) MDIP - In August 2002, the Company acquired substantially all
of the assets of MDIP, Inc. ("MDIP" and d/b/a Medical Data
Insurance Processing), a privately-owned company providing
institutional claims processing services for $2,400,000 in
cash and acquisition related costs of $9,000 (all of which was
paid as of December 31, 2002).
The purchase price was allocated as follows: current assets
($19,000); property and equipment ($34,000); customer
relationships ($1,150,000); and purchased technology
($300,000). The excess of the consideration paid over the
estimated fair value of net assets acquired in the amount of
$906,000 was recorded as goodwill, all of which is deductible
for income tax purposes. The weighted average useful life of
the customer relationships is 7 years and the weighted average
useful life of the purchased technology is 3 years.
Additionally, the Company entered into 17-month employment
agreements with the former owners of MDIP and one technical
employee. The results of MDIP have been included in the
consolidated financial statements since August 1, 2002 in our
electronic healthcare transaction processing segment.
(d) MDP CORPORATION - In May 2001, the Company acquired
substantially all of the assets and the business of MDP
Corporation, a privately-owned electronic claims clearinghouse
and patient statement processor based in Atlanta, Georgia, for
$10,000,000 cash. ProxyMed paid $3,000,000 at the closing and
executed a $7,000,000 promissory note, payable in May 2002.
Interest on this note was payable monthly at 7% simple
interest. The assets of MDP collateralized the note. The
purchase price was allocated as follows: working capital
($273,000); property and equipment ($165,000); and other
assets ($4,000). The excess of the consideration paid over the
estimated fair value of net assets acquired in the amount of
$9,558,000 was recorded as goodwill, all of which is
deductible for income tax purposes. In January 2002, the
Company paid the $7,000,000 promissory note in full. The
results of MDP have been included in the consolidated
financial statements since May 1, 2001 in our electronic
healthcare transaction processing segment.
The following unaudited pro forma summary presents the
consolidated results of operations of ProxyMed, MedUnite, MDIP
and KenCom as if the acquisitions of these businesses had
occurred at the beginning of each year presented. These pro
forma results do not necessarily represent results that would
have occurred if the acquisition had taken place at those
dates, or of results that may occur in the future.
2002 2001
------------- -------------
Revenues $ 72,015,000 $ 55,406,000
Net loss from continuing operations $(25,892,000) $(51,978,000)
Net loss applicable to
common shareholders $(26,504,000) $(64,240,000)
Basic and diluted net loss
per share of common stock $ (4.19) $ (29.30)
(3) Discontinued Operations
In March 2000, ProxyMed sold its network integration and
prescription drug dispensing businesses in separate
transactions. Proceeds from the sale of the network
integration business were $3,398,000 and were paid with 13,928
shares of ProxyMed common stock (valued at $1,776,000, based
on the closing market price of the common stock on the date of
closing, and recorded as treasury stock) and a note receivable
of $1,622,000 due on July 31, 2000. The sale resulted in a
gain of $608,400. As of December 31, 2000, all amounts due
under this note receivable had been collected.
Proceeds from the sale of the prescription drug dispensing
business were $255,000 and were paid with 1,133 shares of
ProxyMed common stock (valued at $154,000, based on the
closing market price of the common stock on the date of
closing, and recorded as treasury stock) and a note receivable
of $101,000 payable in monthly installments over two years and
bearing interest at 9% per annum. The sale resulted in a loss
of $63,100. As of December 31, 2002, all amounts due under
this note receivable have been collected.
FS-13
The following table represents the results of discontinued operations
for the year ended December 31, 2000:
2000
-----------
Net revenues:
Network integration $ 2,372,000
Prescription drug dispensing 574,000
-----------
$ 2,946,000
===========
Net income (loss):
Network integration $ (328,000)
Prescription drug dispensing 24,000
-----------
$ 304,000
===========
(4) Restructuring Charge
In May 2000, the Company announced a reorganization plan aimed
at reducing costs and reallocating resources. As a result, the
Company reduced its workforce by approximately 70 employees,
including the resignation of its chief executive officer,
president/chief operating officer, chief financial officer,
chief marketing officer and other management positions. The
Company recorded a charge of $1,330,000 in the year ended
December 31, 2000 primarily for separation payments and
marketing contracts that were canceled in connection with the
implementation of the reorganization plan. As of December 31,
2001, all restructuring charges had been paid. In conjunction
with this restructuring, the Company also paid $200,000 to its
former president/chief operating officer under the non-compete
clause of his employment contract. This payment had been
recorded as a prepaid expense and was being amortized over a
one-year period through May 2001. The following table sets
forth the detail and activity in the restructuring expense
accrual:
Accrual Accrual
Balance at Balance at
December 31, 2000 2000 2001 2001 December 31,
1999 Additions Expenditures Expenditures Adjustments 2001
------------ ---------- ------------ ------------ ----------- ------------
Severance and $ -- $1,203,000 $ 981,000 $200,000 $(22,000) $ --
other employee costs
Contract termination costs -- 85,000 60,000 -- (25,000) --
Other -- 42,000 32,000 -- (10,000) --
---- ---------- ---------- -------- -------- ----
Total restructuring accrual $ -- $1,330,000 $1,073,000 $200,000 $(57,000) $ --
==== ========== ========== ======== ======== ====
(5) Equity Transactions
(a) SALES OF COMMON STOCK - On December 21, 2001, the Company sold
483,414 shares of common stock at $16.50 per share in a
private placement to nine U.S. and Canadian institutional and
accredited investors, resulting in net proceeds of $7,247,000
after total costs of $729,000 (including a 7% cash fee and
reimbursement of out-of-pocket expenses totaling $602,000 to
Commonwealth Associates, L.P. who acted as placement agent in
the transaction). Certain executive officers, directors and
controlling persons of the Company had agreed to a lock-up on
all shares owned or beneficially owned by them until a
registration statement covering the shares sold in the private
placement was declared effective. On February 14, 2002, a
registration statement filed by the Company under Form S-3
covering the above shares was declared effective.
On April 5, 2002, the Company sold 1,569,366 shares of
unregistered common stock at $15.93 per share (the "Primary
Shares") in a private placement to General Atlantic Partners
74, L.P., GAP Coinvestment
FS-14
Partners II, L.P., Gapstar, LLC, GAPCO GmbH & Co. KG. (the
"General Atlantic Purchasers"), four companies affiliated with
General Atlantic Partners, LLC ("GAP"), a private equity
investment fund and received net proceeds of $24,886,000. In
addition, the Company also issued two-year warrants for the
purchase of 549,279 shares of common stock exercisable at
$15.93 per share (the "GAP Warrants"). No placement agent was
used in this transaction. The Company granted the General
Atlantic Purchasers and certain of their transferees and
affiliates certain demand and "piggy back" registration rights
starting one year from closing. Additionally, in connection
with the transaction, a managing member of GAP was appointed
as a director to fill a vacancy on the Company's board of
directors.
As a result of the purchase of the Primary Shares, the General
Atlantic Purchasers owned approximately 23.4% of the then
outstanding shares of the Company's common stock. At the
Company's Annual Meeting of Shareholders held on May 22, 2002,
the shareholders of the Company approved that the GAP Warrants
may be exercised at any time after April 5, 2003, and prior to
April 5, 2004, pursuant to the original terms of the warrant.
(b) SERIES B PREFERRED STOCK - In December 1999, ProxyMed sold
15,000 shares of 6% Series B non-voting, non-redeemable
convertible preferred stock (the "Series B Preferred") in a
private placement to institutional investors resulting in net
proceeds of $14,160,000 after costs of $840,000. ProxyMed, in
whole or in part during the first year, could call for
conversion at 93% of the then current market price of its
common stock, or redemption at 107% of the face value plus
accrued dividends, with full conversion or redemption (at
ProxyMed's election) of all of the preferred stock within two
years. ProxyMed was required to convert 30% of the preferred
shares by June 23, 2000, and another 30% of the preferred
shares by September 23, 2000. After the first year, the
preferred shares are convertible at the option of the
investors. Dividends are cumulative and are payable quarterly
in cash or common stock. As part of this sale, warrants to
purchase 53,333 shares of common stock (the "Old Warrants")
were issued at an exercise price of $180.75 per share. As a
result of a Redemption and Exchange Agreement executed in May
2000, 46,222 of these warrants were repriced (see Note 5(c)
below). Additionally, in 2000, we recorded a cumulative
beneficial conversion charge of $4,978,000 included as a
dividend charge in the loss applicable to common shareholders
pursuant to accounting literature allowing for a cumulative
adjustment relating to convertible securities.
Through December 31, 2001, 2,000 shares of the Series B
Preferred had been converted into an aggregate of 116,895
shares of common stock. As described below, the balance of
13,000 shares were redeemed pursuant to a redemption agreement
in May 2000.
During 2000, dividends valued at $224,000 were paid by issuing
2,123 shares of common stock plus cash payments of $3,000. In
2001, cash dividends of $5,000 were paid on the Series B
Preferred.
(c) SERIES B REDEMPTION AND EXCHANGE AGREEMENT - Due to the
decline in the price of the Company's common stock below
$63.15 for a period of ten consecutive trading days in April
and May 2000, certain contractual provisions were triggered
which would have permitted the holders of the Series B
Preferred shares to immediately convert the preferred shares
and exercise the Old Warrants into a potentially large number
of shares of common stock. As a result, on May 4, 2000, the
Company entered into a Redemption and Exchange Agreement (the
"Redemption Agreement") with the holders of 13,000 shares of
the Series B Preferred (the "Redemption Agreement Holders").
Under the terms of the Redemption Agreement, the Company
immediately redeemed 4,000 shares of the Series B Preferred
for $4,687,000 (a 16.5% premium) and was required to redeem an
additional 2,500 shares of the Series B Preferred on each of
June 19, 2000, August 1, 2000, and August 31, 2000, and an
additional 1,500 shares of the Series B Preferred on September
29, 2000. So long as the Company remained in compliance with
the terms of the Redemption Agreement, the Redemption
Agreement Holders were prohibited from converting their shares
of Series B Preferred into shares of common stock. As a result
of the completion of a private placement financing of
convertible securities (see Note 5(e) below), the Company was
able to redeem the remaining 9,000 shares of the Series B
Preferred in June 2000 for $10,636,000. The total premium of
$2,323,000 paid on the redemption of the 13,000 shares of
Series B Preferred, in addition to $728,000 of unamortized
original issuance costs of the Series B Preferred, was
recorded as dividend charges included in the net loss
applicable to common stockholders in the year ended December
31, 2000.
FS-15
Also pursuant to the Redemption Agreement, 46,222 of the Old
Warrants (with an exercise price of $180.75 per share) issued
to the Redemption Agreement Holders were exchanged for an
equal number of warrants (the "Exchanged Warrants") with an
exercise price of $22.50 per share. Such holders also
received, in the aggregate, 43,333 additional warrants to
purchase common stock (the "New Warrants") at an exercise
price of $22.50 per share. The total value of the Exchanged
Warrants and New Warrants of approximately $1,325,000 was
included as dividend charges in the net loss applicable to
common stockholders in the year ended December 31, 2000. The
Exchanged Warrants expired on December 23, 2002 and the New
Warrants expire on May 5, 2003. The exercise price and number
of shares of common stock which may be purchased upon exercise
of the Exchanged Warrants and the New Warrants are subject to
adjustment upon the occurrence of certain dilution events
including, without limitation, certain issuances of common
stock, stock options or convertible securities issued after
November 2000, or certain corporate transactions such as stock
splits, mergers or asset sales. As a result, in February 2001,
the Exchanged Warrants were converted into 228,366 warrants
with an exercise price of $18.89 per share and the Company
recorded a deemed dividend charge of $1,968,000 in the quarter
ended March 31, 2001. Subject to certain restrictions, the
holders of the Exchanged Warrants and the New Warrants agreed
not to exercise such warrants for a period of 180 days
following the date of the Redemption Agreement. The Company
incurred approximately $476,000 in costs for professional fees
and other charges related to the negotiation of the Redemption
Agreement which were recorded as dividend charges included in
the net loss applicable to common stockholders in the year
ended December 31, 2000.
Additionally, under the terms of the Redemption Agreement, the
Company had agreed to pay the Redemption Agreement Holders the
aggregate amount of $4,333,000 if there was a change of
control of the Company on or before December 23, 2002.
The Company had not entered into an agreement to redeem the
shares of Series B Preferred held by the holder of 2,000
shares of the Series B Preferred (the "Remaining Holder").
Through December 31, 2000, the Remaining Holder had converted
1,890 shares of the Series B Preferred into an aggregate of
108,129 shares of common stock, and the balance of 110 shares
of Series B Preferred was converted into 8,766 shares of
common stock in October 2001.
In addition, as a result of certain anti-dilution provisions
triggered in June 2000, 7,111 Old Warrants issued to the
Remaining Holder at an exercise price of $180.75 were
converted into 85,689 warrants with an exercise price of
$15.00 per share. In December 2001, these warrants were reset
into 98,493 warrants at an exercise price of $13.05 per share
as a result of a conversion offer to convert the Company's
Series C 7% Convertible Preferred Stock (see Note 5(g) below).
In December 2002, the Remaining holder converted 34,500 of
these warrants into an equivalent number of common shares for
$450,000 in cash. The balance of 63,993 warrants subsequently
expired without conversion.
(d) SERIES B WARRANT EXCHANGE - In April 2001, the Company entered
into an exchange agreement (the "Series B Exchange
Agreements") with the Redemption Agreement Holders. Under the
Series B Exchange Agreements, the Company canceled and
exchanged all outstanding Exchanged Warrants and New Warrants
for an aggregate of 218,828 shares of common stock. In
accordance with the terms of the Series B Exchange Agreements,
the Company registered these shares under Form S-3 effective
on June 25, 2001. For this transaction, the Company recorded a
deemed dividend charge of $1,855,000 in the quarter ended June
30, 2001. In connection with the cancellation and exchange of
these warrants, the holders of the Series B Preferred and the
holders of Series C 7% Convertible Preferred Stock agreed to
waive certain anti-dilution rights afforded by certain
outstanding warrants, the Series B Preferred and the Series C
7% Convertible Preferred Stock.
(e) CONVERTIBLE DEBT AND SERIES C PREFERRED STOCK - In June 2000,
the Company sold, in a private placement to institutional and
individual investors (the "Financing"), a total of $24,310,000
of 7% Convertible Senior Secured Notes (the "Notes") due
January 1, 2001. Together with the Notes, the Company issued
five-year warrants for the purchase of an aggregate of 810,333
shares of the Company's common stock at an exercise price of
$15.00 per share. The total net proceeds received by the
Company from the Financing was approximately $21,383,000.
Under different circumstances the Notes were convertible into
either common stock at a conversion price of $15.00 per share,
or into shares of the Company's Series C 7% Convertible
FS-16
Preferred Stock (the "Series C Preferred") at the rate of one
Series C Preferred share for each $100 of principal and
accrued interest under the Notes. As described below, all of
the Notes have been converted into shares of Series C
Preferred. The conversion price of the Series C Preferred, the
warrant exercise price, and number of shares of common stock
issuable upon exercise of the warrants were subject to
adjustment upon the occurrence of certain dilution events
including, without limitation, certain issuances of common
stock, stock options or convertible securities issued after
June 2001, or certain corporate transactions such as stock
splits, mergers or asset sales. As the conversion price of the
Notes was less than the market price of the Company's common
stock on the dates of issuance, the Company recorded a
beneficial conversion charge in interest expense of
approximately $3,203,000 in the year ended December 31, 2000.
The total proceeds were allocated between the debt and the
warrants resulting in an accretion charge through interest
expense of approximately $260,000 recorded in the year ended
December 31, 2000.
The warrants issued to the investors in the Financing provided
that they were not exercisable until such time as the Company
had obtained shareholder approval of an increase in the number
of shares of its authorized common stock which was ultimately
approved by the Company's shareholders at its July 7, 2000
annual meeting. However, since the investors agreed to accept
a $30.00 per warrant redemption price as protection in case
shareholder approval did not occur before January 1, 2001, the
value of these "put" warrants was accreted up to their
redemption value through July 7, 2000, the date shareholder
approval was obtained, at which time the recorded value of
$12,085,000 was reclassified from debt to equity. Charges of
approximately $740,000 associated with accreting the put
warrants up to their redemption value was recorded as interest
expense in the year ending December 31, 2000.
As a result of completion of the redemption of the Series B
Preferred pursuant to the Redemption Agreement, the Notes,
plus accrued interest thereon of $20,000, automatically
converted into 243,265 shares of Series C Preferred on June
30, 2000. Shares of Series C Preferred were immediately
convertible into common stock at any time by the holder at an
initial conversion price of $15.00 per share, subject to
adjustment upon the occurrence of certain dilution events
including, without limitation, certain issuances of common
stock, stock options or convertible securities issued after
June 15, 2001, or certain corporate transactions such as stock
splits, mergers or asset sales. Shares of Series C Preferred
are mandatorily convertible if the Company raised more than
$30 million in gross proceeds from the issuance of securities
in a private or public placement or if the closing stock price
of the Company is trading at $45.00 for 20 consecutive trading
days. The Series C Preferred is entitled to receive a 7%
annual non-cumulative dividend, payable quarterly in cash or
shares of common stock at the Company's option. If paid in
stock, the stock is valued at $15.00 per share, subject to
adjustment. Additionally, upon the conversion of the Notes to
Series C Preferred, the unamortized balance of the beneficial
conversion feature of $9,763,000 was taken as a charge
included in the net loss applicable to common stockholders in
the year ended December 31, 2000.
Commonwealth represented the Company as private placement
agent in the Financing for which it received cash fees of
$2,431,000 and five-year warrants to purchase 486,200 shares
of the Company's common stock at an exercise price of $15.00
per share (valued at $10,876,000). Other costs of the
transaction aggregated approximately $547,000.
Costs of $13,854,000 incurred in the Financing were
capitalized and were amortized through the original maturity
date of the Notes. Of this amount, $268,000 was charged to
interest expense. However, due to the conversion of the Notes
to Series C Preferred on June 30, 2000, the unamortized
financing costs of $13,585,000, and the recorded value of the
debt of $12,705,000, were reclassified to equity.
As required, the Company registered under Form S-3 the
underlying common shares with the Securities and Exchange
Commission on December 14, 2000. The investors in this
transaction agreed to a one-year lock-up on the transfer or
sale of any shares of common stock received upon conversion of
the Series C Preferred shares and exercise of the warrants
issued. Additionally, Commonwealth agreed to a 15-month lockup
on the sale or transfer of the shares of common stock
underlying the warrants issued in connection with this
financing and certain officers of the Company had also agreed
to a similar lockup on all common stock owned or acquired
during the 15-month period. At the discretion of Commonwealth,
lockup periods
FS-17
for all parties could have been extended for a period of up to
an additional 12 months or may have been terminated early.
Furthermore, as part of the financing, the size of ProxyMed's
Board of Directors was required to be increased including the
appointment of four new members, two of which were appointed
by the investors and the other two by Commonwealth. On July
20, 2000, one existing director resigned and five new
directors were appointed to serve with the remaining three
directors.
In August 2000, the Company sold 10,000 shares of Series C
Preferred for $1 million in a private placement and issued
five-year warrants for the purchase of 33,333 shares of the
Company's common stock at an exercise price of $15.00 per
share to Mr. Hoover, its new chairman/chief executive officer,
under terms substantially identical to the Financing. Mr.
Hoover's shares were locked-up similarly to those of other
officers of the Company, as noted above. As the conversion
price of these preferred shares was less than the market price
of the Company's common stock on the date of issuance, the
Company recorded a beneficial conversion charge of $500,000 in
the year ended December 31, 2000.
Through December 12, 2001, 49,466 shares of Series C Preferred
had been converted into 329,773 shares of common stock under
terms in the Series C Preferred. On December 13, 2001, the
Company offered to convert any of the 203,799 outstanding
shares of Series C Preferred at a reduced conversion rate (see
Note 5(g) below).
Dividends on the Series C Preferred for 2001 and 2000 valued
at $1,658,000 and $1,047,000, respectively, were paid with
108,434 shares of common stock (of which 104,254 shares were
distributed by December 31, 2001) and 58,754 shares of common
stock (of which 29,071 shares were distributed by December 31,
2000), plus cash for fractional shares of $2,000 and $200,
respectively. Dividends were paid through the date of
conversion for all conversions of Series C Preferred.
(f) SERIES C WARRANT EXCHANGE - In June 2001, the Company offered
to exchange into shares of common stock (the "Series C
Exchange Offer") (i) 843,667 warrants (the "Investor
Warrants") that were issued to holders of the Series C
Preferred; (ii) 552,867 warrants (the "Agent's Warrants") that
were issued to Commonwealth in connection with the private
placement of the Series C Preferred; and (iii) 66,667 warrants
(the "Advisory Warrants") that were issued to Commonwealth for
certain advisory services that Commonwealth provided to the
Company. Under the terms of the Series C Exchange Offer, the
Company would issue 0.75 shares of its common stock for each
Investor Warrant, 0.75 shares of its common stock for each
Agent's Warrant, and 0.625 shares of its common stock for each
Advisory Warrant. The Investor Warrants, the Agent's Warrants
and the Advisory Warrants are collectively known as the
"Series C Warrants".
On August 15, 2001, the Company canceled and exchanged
1,412,033, or 96.5%, of the 1,463,201 Series C Warrants for
1,050,691 shares of common stock. As required in accordance
with terms of the original Subscription Agreement dated June
15, 2000, these shares were registered under a Form S-3 on
February 14, 2002. In connection with the cancellation and
exchange of the Series C Warrants, the exchanged shares were
subject to an additional lock-up period through February 15,
2002. Additionally, for this transaction, the Company recorded
a deemed dividend charge of $3,201,000 in 2001. In 2002, 8,333
Series C Warrants were converted into 1,190 shares of common
stock. As of December 31, 2002, 42,833 of the Series C
Warrants remain outstanding.
(g) SERIES C PREFERRED CONVERSION OFFER - On December 13, 2001,
the Company offered to convert its then outstanding Series C
Preferred into shares of common stock at a reduced conversion
price (the "Conversion Offer"). For a period of sixty days
ending February 11, 2002, the holders of the Series C
Preferred shares were able to convert such shares at a reduced
conversion price of $13.05 per share instead of the original
conversion price of $15.00. As of December 31, 2001, holders
of 83.0% of the outstanding Series C Preferred had converted
their shares into 1,296,126 shares of common stock and, as a
result, the Company recorded a deemed dividend charge of
$3,365,000 included in the net loss applicable to common
shareholders in the fourth quarter of 2001. At the conclusion
of the Conversion Offer on February 11, 2002, holders of 98.5%
of the outstanding Series C Preferred had converted their
shares into a total of 1,538,636 common shares. A deemed
dividend charge of $612,000 was recorded in the first quarter
of 2002 for conversions consummated after the 2001 year-end.
Subsequent to February 22, 2002, 1,000 shares of Series C
Preferred were converted into 6,667 shares of common stock. As
of December 31, 2002,
FS-18
there were 2,000 unconverted shares of Series C Preferred,
which are convertible into 13,333 shares of common stock.
In addition, holders of more than two-thirds of the
outstanding Series C Preferred had voted to amend the Articles
of Designation governing the Series C Preferred and the
Subscription Agreement dated as of June 15, 2000. These
amendments eliminated certain rights of the Series C Preferred
shareholders, including anti-dilution provisions, voting
rights and certain restrictive covenants agreed to by the
Company, and apply to those Series C Preferred shareholders
who decided not to participate in the Conversion Offer.
As noted above, a registration statement filed by the Company
under Form S-3 was declared effective on February 14, 2002
covering the resale of the December 2001 private placement
shares of the investors, the additional shares that would have
been required to be issued to the investors under that private
placement if a registration statement was not declared
effective by March 20, 2002, and the resale of the additional
shares issuable to the holders of the Series C Preferred
shares electing to convert at the reduced conversion price
pursuant to the Conversion Offer.
As a result of the reduced conversion price in the Conversion
Offer, 85,689 warrants with an exercise price of $15.00 per
share issued to the Remaining Holder in connection with our
Series B Preferred were reset into 98,493 warrants with a new
exercise price of $13.05 per share as a result of
anti-dilution provisions relating to the Series B Preferred.
As a result of this reset, the Company recorded a deemed
dividend charge of approximately $208,000 in the fourth
quarter of 2001.
(h) OTHER WARRANTS - At December 31, 2002, there are 27,282
warrants exercisable at prices ranging from $113.40 to $181.50
at various times through June 2007 issued in connection with
prior equity and other business transactions consummated by
ProxyMed.
(i) REVERSE STOCK SPLIT - On August 21, 2001, the Company's board
of directors effected a 1-for-15 reverse stock split of its
common stock whereby each 15 shares of common stock was
exchanged for one new share of common stock. As a result of
this reverse stock split, the par value of the common stock
remained unchanged at $.001 per share and no cash was issued
for fractional interests.
(j) TREASURY SHARES - In October 2002, the Company's board of
directors voted to cancel and retire 15,061 shares held by the
Company in its treasury related to the sale of its
discontinued operations (see Note 3).
(k) OTHER - ProxyMed has remaining 1,731,735 authorized but
unissued shares of preferred stock, par value $.01 per share,
which are entitled to rights and preferences to be determined
at the discretion of the board of directors.
The value of any stock options and warrants issued in
connection with the sales of common stock and convertible
preferred stock are netted against the proceeds within
stockholders' equity, and have no impact on earnings.
(6) Segment Information
ProxyMed operates in two reportable segments that are
separately managed: electronic healthcare transaction
processing and laboratory communication solutions. Electronic
healthcare transaction processing includes transaction and
value-added services principally between physicians and
insurance companies (Payer Services) and physicians and
pharmacies (Prescription Services); and laboratory
communication solutions includes the sale, lease and service
of communication devices principally to laboratories and the
contract manufacturing of printed circuit boards (Laboratory
Services). Inter-segment sales are not material and there were
no foreign sales for any periods presented.
FS-19
Year Ending December 31,
----------------------------------------------
2002 2001 2000
------------ ------------ ------------
Net revenues:
Electronic healthcare transaction processing $ 22,439,000 $ 16,938,000 $ 10,103,000
Laboratory communication solutions 27,743,000 26,292,000 23,338,000
------------ ------------ ------------
$ 50,182,000 $ 43,230,000 $ 33,441,000
============ ============ ============
Operating income (loss):
Electronic healthcare transaction processing $ 597,000 $ (6,859,000) $(18,949,000)
Laboratory communication solutions 3,535,000 3,686,000 3,724,000
Corporate and consolidating (2,792,000) (3,539,000) (6,905,000)
Restructuring charges -- -- (1,330,000)
------------ ------------ ------------
$ 1,340,000 $ (6,712,000) $(23,460,000)
============ ============ ============
Depreciation and amortization:
Electronic healthcare transaction processing $ 1,581,000 $ 7,285,000 $ 12,147,000
Laboratory communication solutions 857,000 561,000 722,000
Corporate and consolidating 198,000 330,000 506,000
------------ ------------ ------------
$ 2,636,000 $ 8,176,000 $ 13,375,000
============ ============ ============
Capital expenditures and capitalized software:
Electronic healthcare transaction processing $ 1,291,000 $ 771,000 $ 2,126,000
Laboratory communication solutions 693,000 628,000 358,000
Corporate and consolidating 22,000 46,000 94,000
------------ ------------ ------------
$ 2,006,000 $ 1,445,000 $ 2,578,000
============ ============ ============
December 31,
----------------------------
Total assets: 2002 2001
------------ ------------
Electronic healthcare transaction processing $ 58,957,000 $ 14,076,000
Laboratory communication solutions 12,904,000 8,525,000
Corporate and consolidating 16,843,000 13,281,000
------------ ------------
$ 88,704,000 $ 35,882,000
============ ============
(7) Inventory
Inventory consists of the following at December 31, 2002 and 2001:
2002 2001
---------- ----------
Materials, supplies and component parts $2,015,000 $2,433,000
Work in process 261,000 159,000
Finished goods 498,000 759,000
---------- ----------
$2,774,000 $3,351,000
========== ==========
(8) Property and Equipment
Property and equipment consists of the following at December 31, 2002
and 2001:
FS-20
Estimated
2002 2001 useful lives
---------- ---------- --------------
Furniture, fixtures and equipment $2,553,000 $2,052,000 4 to 7 years
Computer hardware and software 5,109,000 3,548,000 2 to 5 years
Service vehicles 230,000 251,000 5 years
Leasehold improvements 887,000 759,000 Life of lease
Revenue earning equipment 1,357,000 772,000 5 years
---------- ----------
10,136,000 7,382,000
Less accumulated depreciation 4,417,000 3,550,000
---------- ----------
Property and equipment, net $5,719,000 $3,832,000
========== ==========
Depreciation expense was $1,839,000 in 2002, $1,470,000 in 2001 and
$1,515,000 in 2000. Accumulated depreciation for revenue earning
equipment at December 31, 2002 and 2001 was $607,000 and $447,000
respectively. In addition, as a result of management's periodic review
for impairment, the Company wrote off $91,000 of remaining book value
in 2001 related to damaged and obsolete computer hardware and
software.
(9) Goodwill and Other Intangible Assets
(a) GOODWILL - The Company adopted the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets" effective January 1, 2002.
Under SFAS No. 142, goodwill is reviewed at least annually for
impairment. This adoption resulted in the reduction of approximately
$808,000 of amortization relating to its existing goodwill each
quarter, which would have otherwise been recorded through the first
quarter of 2004. SFAS No. 142 requires that goodwill be tested for
impairment at the reporting unit level at adoption and at least
annually thereafter, utilizing a "fair value" methodology versus an
undiscounted cash flow method required under previous accounting
rules. In accordance with the adoption of FAS No. 142, the Company
completed its initial impairment test of goodwill during the first
quarter of 2002 and its annual test at December 31, 2002 utilizing
various valuation techniques including a market value analysis. No
impairment charges were recorded as a result of these tests..
The changes in the carrying amounts of goodwill, net, for 2002 by
operating segment are as follows:
Electronic
healthcare Laboratory
transaction communication
processing solutions Total
--------------- --------------- ---------------
Balance as of December 31, 2001 $ 7,431,000 $ 530,000 $ 7,961,000
Goodwill acquired during the period 23,264,000 1,572,000 24,836,000
--------------- --------------- ---------------
Balance as of December 31, 2002 $ 30,695,000 $ 2,102,000 $ 32,797,000
=============== =============== ===============
In accordance with SFAS No. 142, a reconciliation of the previously
reported net income (loss) applicable to common shareholders and net
income (loss) per share to the amounts adjusted for the exclusion of
goodwill amortization, net of any related income tax effect, is as
follows:
FS-21
2001 2000
--------------- ---------------
Reported net loss applicable to common shareholders $ (19,060,000) $ (48,052,000)
Goodwill amortization 4,637,000 6,299,000
--------------- ---------------
Adjusted net loss applicable to common shareholders $ (14,423,000) $ (41,753,000)
=============== ===============
Basic weighted average common shares outstanding 2,162,352 1,304,342
=============== ===============
Basic net loss per share of common stock:
Reported net loss applicable to common shareholders $ (8.81) $ (36.84)
Goodwill amortization 2.14 4.83
--------------- ---------------
Adjusted net loss applicable to common shareholders $ (6.67) $ (32.01)
=============== ===============
Diluted weighted average common shares outstanding 2,162,352 1,304,342
=============== ===============
Diluted net loss per share of common stock:
Reported net loss applicable to common shareholders $ (8.81) $ (36.84)
Goodwill amortization 2.14 4.83
--------------- ---------------
Adjusted net loss applicable to common shareholders $ (6.67) $ (32.01)
=============== ===============
(b) OTHER INTANGIBLE ASSETS - The carrying amounts of other intangible
assets as of December 31, 2002 and 2001 by category, are as follows:
December 31, 2002 December 31, 2001
---------------------------------------------- ----------------------------------------------
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
------------ ------------ ------------ ------------ ------------ ------------
Capitalized software $ 527,000 $ (58,000) $ 469,000 $ 637,000 $ (445,000) $ 192,000
Purchased technology 9,127,000 (1,315,000) $ 7,812,000 2,732,000 (1,025,000) $ 1,707,000
Customer relationships 10,251,000 (312,000) $ 9,939,000 853,000 (676,000) $ 177,000
------------ ------------ ------------ ------------ ------------ ------------
$ 19,905,000 $ (1,685,000) $ 18,220,000 $ 4,222,000 $ (2,146,000) $ 2,076,000
============ ============ ============ ============ ============ ============
In mid-September 2002, the Company acquired the customer relationships
and related Internet-based revenue stream from Claimsnet.com, a
provider of claims processing services, for $700,000 cash. As part of
its acquisition of MedUnite (see Note 2(a)), the Company recorded
$6,600,000 in customer relationships, and $1,200,000 and $4,800,000
for the legacy and real-time technology platforms, respectively. In
addition, as a result of management's periodic review for impairment,
the Company wrote off $38,000 of previously capitalized real-time
software development costs as the Company acquired the same
functionality through the software platform acquired from MedUnite.
During 2002, the Company wrote off $517,000 and $741,000 in fully
amortized capitalized software and purchased technology, respectively.
During 2001, the Company wrote off $124,000 and $11,000,000 in fully
amortized capitalized software and purchased technology, respectively.
Estimates of useful lives of other intangible assets are based on
historical experience, the historical experience of the entity from
which the intangible assets were acquired, the industry in which the
Company operates, or on contractual terms. If indications arise that
would materially affect these lives, an impairment charge may be
required. Intangible assets are being amortized over their estimated
useful lives as follows:
FS-22
Estimated
useful lives
--------------
Capitalized software 3 years
Purchased technology 1 - 12 years
Customer relationships 4.6 - 10 years
Amortization expense of other intangible assets was $797,000,
$1,987,000 and $5,194,000 for the years ended December 31, 2002, 2001
and 2000, respectively.
As of December 31, 2002, estimated future amortization expense of
other intangible assets is as follows: $3,349,000 in 2003, $2,607,000
in 2004, $2,486,000 in 2005, $2,297,00 in 2006, and $2,265,000 in
2007.
(10) RESTRICTED CASH - Restricted cash of $825,000 at December 31, 2002 includes
a certificate of deposit of $750,000 that has been pledged as security for
an outstanding letter of credit (see Note 18(a)). Restricted cash is
included in other assets in the accompanying balance sheet.
(11) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consists of the following at
December 31, 2002 and 2001:
2002 2001
--------------- ---------------
Accounts payable $ 9,949,000 $ 2,501,000
Accrued payroll and related costs 3,091,000 1,579,000
Acquisition related costs 7,149,000 --
Other accrued expenses 1,283,000 1,265,000
--------------- ---------------
Total accounts payable and accrued expenses $ 21,472,000 $ 5,345,000
=============== ===============
As part of its acquisition of MedUnite, the Company recorded a total
of $8,321,000 in transaction related and exit costs including
investment banking fees and expenses ($1,020,000); professional fees
($315,000); required liability insurance ($400,000); severance and
other pay for executives and employees ($2,417,000); terminated
facility obligations ($1,682,000); contract cancellation fees and
penalties ($2,430,000) and other ($57,000). Of these amounts
$1,122,000 has been reclassified as long term obligations based on the
contracted or expected payment timeframes and $50,000 in professional
fees had been paid by December 31, 2002.
Other accrued expenses include the current portion of capital leases
payable, customer deposits, estimated property and other taxes.
(12) Debt Obligations
(a) On December 31, 2002, the Company issued $13,400,000 in
uncollateralized convertible promissory notes to the former
shareholders of MedUnite as part of the consideration paid in its
acquisition of MedUnite. Interest is payable quarterly in cash in
arrears. The convertible promissory notes are payable in full on
December 31, 2008 unless converted earlier upon the meeting of certain
aggregate revenue triggers by the former shareholders (see Note 2(a)).
(b) In January 2002, the Company paid in full its $7,000,000 promissory
note related to its May 2001 acquisition of MDP.
FS-23
(13) Income Taxes
The company did not recognize an income tax provision or benefit for
any of the years in the three year period ended December 31, 2002.
This differed from the amount computed by applying the statutory
federal income tax rate to the net loss reflected on the Consolidated
Statements of Operations in the three years ended December 31, 2002
due to the following:
2002 2001 2000
----------------------- ----------------------- -----------------------
Amount % Amount % Amount %
---------- ---------- ---------- ---------- ---------- ----------
Federal income tax benefit at statutory rate 663,000 34.0% (2,311,000) (34.0)% (9,073,000) (34.0)%
State income tax benefit 80,000 4.1 (245,000) (3.6) (427,000) (1.6)
Non-deductible items 21,000 1.1 238,000 3.5 1,388,000 5.2
Increase (decrease) in valuation allowance (764,000) (39.2) 2,318,000 34.1 8,112,000 30.4
---------- ---------- ---------- ---------- ---------- ----------
Total provision -- --% -- --% -- --%
========== ========== ========== ========== ========== ==========
The significant components of the deferred tax asset account is as
follows at December 31, 2002 and 2001:
2002 2001
------------ ------------
Net operating losses - Federal $ 42,456,000 $ 22,440,000
Net operating losses - State 7,172,000 2,387,000
Depreciation and amortization 4,770,000 9,387,000
Capitalized start up costs 9,789,000 --
Acquisition costs 2,716,000 --
Other - net (833,000) 1,341,000
------------ ------------
Total deferred tax assets 66,070,000 35,555,000
Less valuation allowance (66,070,000) (35,555,000)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
Based on the weight of available evidence, a valuation allowance has
been provided to offset the entire deferred tax asset amount. The net
increase in the valuation allowance for the year ended December 31,
2002 includes an increase of $31,279,000 related to the acquisition of
MedUnite, Inc.
Total net operating loss carryforwards at December 31, 2002 are
$118,468,000, of which $57,694,000 is attributed to the acquisition of
MedUnite and may only be used to reduce the future taxable income of
MedUnite due to the Separate Return Limitation Year ("SRLY") income
tax regulations. These net operating losses begin to expire in 2008.
Due to the changes in ownership control of the Company at various
dates, as defined under Internal Revenue Code Section 382, net
operating losses of $109,224,000 ($51,530,000 for ProxyMed and
$57,694,000 for MedUnite) are limited in their availability to offset
current and future taxable income.
(14) Stock Options
ProxyMed has various stock option plans for employees, directors and
outside consultants, under which both incentive stock options and
non-qualified options may be issued. Under such plans, options to
purchase up to 1,281,017 shares of common stock may be granted.
Options may be granted at prices equal to the fair market value at the
date of grant, except that incentive stock options granted to persons
owning more than 10% of the outstanding voting power must be granted
at 110% of the fair market value at the date of grant. In addition, as
of December 31, 2002, options for the purchase of 418,142 shares to
newly-hired employees remained outstanding. Stock options issued by
ProxyMed generally vest within three years, and expire up to ten years
from the date granted. Stock option activity was as follows for the
three years ended December 31, 2002:
FS-24
Options Weighted average
available Options exercise price
for grant outstanding of options
---------- ----------- ---------------
Balance, December 31, 1999 10,983 173,714 $ 130.20
Options authorized 646,979 -- --
Options granted (667,183) 667,183 $ 22.20
Options exercised -- (5,208) $ 81.90
Options expired/forfeited 39,473 (87,360) $ 127.95
---------- ----------
Balance, December 31, 2000 30,252 748,329 $ 34.50
Options authorized 292,131 -- --
Options granted (101,236) 101,236 $ 15.97
Options expired/forfeited 11,320 (19,794) $ 74.58
---------- ----------
Balance, December 31, 2001 232,467 829,771 $ 31.22
Options authorized 608,000 -- --
Options granted (330,847) 330,847 $ 16.89
Options expired/forfeited 65,422 (76,063) $ 82.29
---------- ----------
Balance, December 31, 2002 575,042 1,084,555 $ 23.27
========== ==========
The following table summarizes information regarding outstanding and
exercisable options as of December 31, 2002:
Options outstanding Options exercisable
--------------------------------------------------------------------- ---------------------------------
Range of exercise Number Weighted average remaining Weighted average Number Weighted average
prices outstanding contractual life (years) exercise price exercisable exercise price
----------------- ----------- -------------------------- ---------------- ----------- -----------------
$11.00 - $18.00 376,977 9.1 $ 15.60 133,253 $ 15.85
$18.01 - $22.00 184,623 7.6 $ 19.29 124,337 $ 19.13
$22.01 - $23.00 476,020 7.0 $ 22.63 320,795 $ 22.64
$23.01 - $203.40 46,935 1.4 $106.94 45,690 $106.69
---------- ---------
1,084,555 624,075
========== =========
The following table summarizes information regarding options
exercisable as of December 31:
2002 2001 2000
-------- --------- ---------
Number exercisable 624,075 355,757 125,102
Weighted average exercise price $ 26.64 $ 41.06 $ 74.55
The weighted average grant date fair value of options granted ($13.37
in 2002, $12.65 in 2001, and $16.65 in 2000) was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
2002 2001 2000
--------- --------- -----------
Risk-free interest rate 4.46% 4.75% 6.00%
Expected life 9.9 years 9.9 years 10.0 years
Expected volatility 81.0% 82.8% 80.9%
Expected dividend yield 0.0% 0.0% 0.0%
In September 2000, the Company's board of directors approved the
issuance of options for the six independent directors to purchase
93,333 shares of the Company's common stock at an exercise price as of
FS-25
the approval date of $18.30 per share. Of these options granted,
31,111 were issued under existing stock option plans previously
approved by the Company's shareholders and vested after one year. The
remaining 62,222 options were originally granted outside of any
approved plan, vested equally on the second and third anniversary
dates of the date of grant at an exercise price of $18.30 per share,
and were subject to approval at the Company's next annual meeting of
shareholders. At its annual meeting of shareholders held on July 25,
2001, the Company's shareholders approved the 2001 Stock Option Plan
including these options. Since the closing market price on the date of
the approval was lower than the $18.30 exercise price of these
remaining options, no compensatory charge was recorded for these
options in 2000 or 2001.
In April 2001, the Company's board of directors authorized the
issuance of 65,000 options to purchase the Company's common stock to
ProxyMed's executive and senior management as part of their
compensation plan for the 2001 year. Of these options granted, 19,333
options were issued with an exercise price of $15.15 under available
stock option plans, and the balance of 45,667 options were granted
under the Company's proposed 2001 Stock Option Plan, subject to
approval by the Company's shareholders at its annual meeting on July
25, 2001. In July 2001, the shareholders of the Company approved the
2001 Stock Option Plan pursuant to which options to purchase 333,333
shares of common stock may be issued to employees, officers and
directors and, as a result, the 45,667 options were issued with an
exercise price of $13.80 per share. These options are for a ten-year
term and vest after five years. In addition, these options contained a
clause which enabled the accelerated vesting of a portion or all of
the options if specific, pre-determined individual performance goals
were met during the 2001 year and, as a result of these performance
goals being met, 4,978 options with an exercise price of $15.15 and
11,757 options with an exercise price of $13.80 were accelerated to
vest on December 31, 2001.
Additionally, certain stock options for executive management and
directors were amended in 2000 to allow for extensions of exercise
periods (typically one to three years) after termination of
employment. In January 2002, 40,000 vested stock options for three
resigning directors were amended to allow for an extension of the
exercise period through December 31, 2003 (see Note 19(d) below). In
all cases, the market price of ProxyMed's common stock was below the
exercise price of these options at the time of amendment.
In January 2002, the Company's board of directors agreed to cancel up
to 37,767 stock options with exercise prices ranging from $57.45 to
$202.50 issued to current officers and employees of the Company with
the intent of reissuing the same number of options in the future at
the then current market price. In September 2002, the Company issued
36,867 stock options, including 25,366 to the Company's chief
financial officer and three senior executives, at an exercise price of
$15.55 per share pursuant to this cancellation and reissuance program.
At the Company's Annual Meeting of Shareholders held on May 22, 2002,
the shareholders approved a new 2002 Stock Option Plan pursuant to
which options to purchase 600,000 shares of common stock may be issued
to employees, officers and directors.
Additionally, in May 2002, the Company's outside directors were
granted a total of 55,000 options at an exercise price of $20.20 to
compensate the directors upon initial appointment to the board,
re-election to the board, and participation in sub-committees. Option
grants for initial appointment and subsequent re-election to the board
vest equally over a three-year period. Options for participation in
sub-committees vest in full after three years but may be accelerated
to vest after each sub-committee meeting attended. In October 2002,
15,000 and 1,875 options with an exercise price of $12.54 were granted
to a newly appointed outside director for initial appointment and
sub-committee membership, respectively. Of the total sub-committee
grants, 8,125 options were accelerated to vest on December 31, 2002
and the remaining 8,750 sub-committee grants are expected to vest in
2003.
In June 2002, the Company's board of directors authorized the issuance
of stock options to employees and officers of the Company as part of a
structured retention and reward plan. Initially in June 2002, 47,267
options were granted at an exercise price of $17.36 per share.
Included in these grants were a total of 25,000 options granted to the
Company's chairman/chief executive officer and president/chief
operating officer. In September 2002, an additional 38,050 options
were granted to other employees and officers at
FS-26
an exercise price of $15.55 per share, including 14,100 stock options
to the Company's chief financial officer and one other senior
executive. In general, these options are for a ten-year term and vest
equally over a three-year period.
Also in June 2002, the Company's board of directors authorized the
issuance of stock options to ProxyMed's executive and senior
management as part of their compensation plan for the 2002 year. As a
result, 56,440 options were granted to the Company's chairman/chief
executive officer and president/chief operating officer at an exercise
price of $17.36. In September 2002, 63,106 options were granted to the
remaining executive and senior management at an exercise price of
$15.55 per share. All of these options are for a ten-year term, vest
in full after five years and contain a clause that enables the
accelerated vesting of a portion or all of the options if specific,
pre-determined individual and company goals are met during the 2002
year. Of the 119,546 total options granted under the 2002 compensation
plan discussed above, 80,194 options were accelerated to vest on
December 31, 2002 and the remaining 39,352 options will vest in 2007.
(15) Supplemental Disclosure of Cash Flow Information
Year Ending December 31,
----------------------------------------------------
2002 2001 2000
-------------- -------------- --------------
Cash paid for interest $ 63,000 $ 368,000 $ 184,000
============== ============== ==============
Common stock issued for payment of preferred stock dividends $ -- $ 1,658,000 $ 1,271,000
============== ============== ==============
Common stock issued for payment of long-term debt $ -- $ -- $ 375,000
============== ============== ==============
Acquisition of businesses:
Common stock issued for businesses acquired $ 600,000 $ -- $ --
Debt issued for businesses acquired 13,400,000 7,000,000 --
Other acquisition costs accrued 8,382,000 30,000 --
Details of acquisitions:
Working capital components, including cash acquired 4,609,000 (303,000) --
Property and equipment (2,165,000) (165,000) --
Goodwill (24,836,000) (9,558,000) --
Intangible assets acquired: --
Customer Relationships (9,440,000) -- --
Purchased Technology (6,395,000)
Other long term liabilities, net 208,000 (4,000) --
-------------- -------------- --------------
(15,637,000) (3,000,000) --
Cash acquired in acquisitions 1,184,000 -- --
-------------- -------------- --------------
Net cash used in acquisitions $ (14,453,000) $ (3,000,000) $ --
============== ============== ==============
Disposition of businesses:
Common stock received $ -- $ -- $ (1,930,000)
Notes and other receivables received -- -- (1,723,000)
Net gain recognized -- -- 545,000
Details of dispositions:
Working capital components, other than cash -- -- 1,906,000
Property and equipment -- -- 1,071,000
Goodwill -- -- 110,000
Other assets -- -- 21,000
-------------- -------------- --------------
Net cash provided by dispositions $ -- $ -- $ --
============== ============== ==============
FS-27
(16) Concentration of Credit Risk
Substantially all of ProxyMed's accounts receivable are due from
physicians and various healthcare institutional suppliers (payers,
laboratories and pharmacies). Collateral is not required.
Approximately 10% of the 2002 and 2001 revenues were from a single,
but different, customer for the sale, lease and service of
communication devices. There were no sales to any one customer in
excess of 10% of consolidated revenues in 2000.
(17) Employee Benefit Plans
Through November 30, 2000, ProxyMed had two 401(k) retirement plans,
including one plan that was acquired in its merger with Key
Communications, for substantially all employees who met certain
minimum lengths of employment and minimum age requirements. As of
December 1, 2000, these two plans were combined. Contributions may be
by employees up to 15% of their annual compensation. Discretionary
matching contributions under the combined plan were made in January
2001 and covered eligible wages paid to Key Communications
participants from May 1, 2000 through December 31, 2000 and annual
eligible wages paid to ProxyMed employees for the full 2000 year.
Discretionary matching contributions paid to all eligible employees
for 2001 were made in February 2002. Discretionary matching
contributions under the combined plans were based on 1% of eligible
wages up to $1,000 and limited by the employee's actual contribution
into the plan. No prior matching contributions had been made under the
original ProxyMed plan. Matching contributions totaling $51,000 and
$105,000 for the years ended December 31, 2001 and 2000, respectively,
have been expensed. There were no matching contributions for 2002.
Funding of matching contributions each year is offset by forfeitures
from terminated employees.
The 401(k) retirement plan acquired with the purchase of MedUnite,
Inc. was maintained for substantially all employees who met certain
minimum lengths of employment and minimum age requirements.
Contributions are made by employees based on the lesser of 60% of
eligible compensation or the deferral limit set by the government.
Previously non-discretionary employer matching contributions have been
eliminated under this plan. The MedUnite 401(k) plan will be combined
with the ProxyMed 401(k) plan in the future.
(18) Commitments, Contingencies and Other
(a) LEASES - ProxyMed leases certain equipment used in its contract
manufacturing business that have been classified as capital leases and
also leases premises, operating and office equipment, and vehicles
under operating leases which expire on various dates through 2006. The
leases for the premises contain renewal options, and require ProxyMed
to pay such costs as property taxes, maintenance and insurance. At
December 31, 2002, the present value of the capital leases and the
future minimum lease payments under non-cancelable operating leases
with initial or remaining lease terms in excess of one year (net of
payments to be received under subleases) are as follows:
Capital Operating
Leases Leases
----------- -----------
2003 $ 480,000 $ 2,443,000
2004 298,000 1,268,000
2005 112,000 391,000
2006 12,000 9,000
----------- -----------
Total minimum lease payments 902,000 $ 4,111,000
===========
Less amount representing interest 78,000
-----------
Present value of
minimum lease payments $ 824,000
===========
In connection with MedUnite's facility lease in San Diego, California,
the Company acquired an irrevocable letter of credit in the amount of
$750,000 (collateralized by restricted cash of the same amount). The
letter of credit expires September 30, 2004. The Company is in the
process of terminating this facility
FS-28
lease effective July 1, 2003 in consideration for the $750,000 letter
of credit and furniture at the facility with a value of approximately
$153,000. As of December 31, 2002, gross rents of $700,000 are
included in the table above for rents through June 2003.
The Company recognizes rent expense on a straight-line basis over the
related lease term. Total rent expense for all operating leases
amounted to $1,461,000 in 2002, $1,405,000 in 2001 and $1,157,000 in
2000. The current portion of capital leases is included in accounts
payable and other accrued expenses and the long-term portion of
capital leases is included in other long-term liabilities in the
balance sheet at December 31, 2001 and 2002.
(b) SOFTWARE MAINTENANCE SERVICES - The Company has decided to migrate off
of a software license used to operate MedUnite's web portal, however,
it may still be liable to purchase software maintenance services from
the supplier of that license. The total amount of the future
commitments below is included in the acquisition-related accrual for
the MedUnite acquisition. Such commitments would be due as follows for
the years ending December 31:
2003 $ 700,000
2004 700,000
2005 408,000
-----------
$ 1,808,000
===========
(c) SERVICES AGREEMENT - In April 2002, MedUnite had entered into a
three-year information technology services agreement to outsource
certain hosting, system maintenance and operation services. Actual
service fees are based on the number of transactions processed by the
software being supported; however, MedUnite is committed to pay a
minimum annual service fee of $1,212,000. At December 31, 2002,
$790,000 is accrued towards this minimum annual amount and is included
in accrued expenses. The Company has the option to cancel the
agreement by providing 90 days notice and paying an early termination
fee which will be equal to between one and three months' average
transaction fees, depending upon when the agreement is terminated.
(d) RESIGNATION OF DIRECTORS - In January 2002, three directors of the
Company resigned in an effort to reconstitute the size of the board of
directors from nine members to seven. Additionally, the remaining
Board members agreed to extend the exercise period of certain vested
options held by the three resigning directors through December 31,
2003.
(e) SETTLEMENT OF LITIGATION - In September 2002, the Company favorably
settled a contract dispute in the amount of $325,000. The settlement
resulted in the issuance of a promissory note, which was recorded at
its present value of $299,000. The present value of the promissory
note, less legal expenses of $34,000, was reported as other income.
Under the terms of the promissory note, payments of $25,000 will be
made each quarter over the next three years starting October 2002.
(f) EMPLOYMENT AGREEMENTS - The Company entered into employment agreements
with certain executives and other members of management that provide
for cash severance payments if these employees are terminated without
cause. The Company's aggregate commitment under these agreements is
$800,000 at December 31, 2002.
(19) Related Party Transactions
In April 1997, the Company made loans totaling $350,000 to Mr. Blue,
its former chairman of the board and chief executive officer. The
funds were advanced pursuant to two demand promissory notes in the
principal amounts of $290,000 and $60,000, respectively, each bearing
interest at a rate of 7 3/4% per annum. On June 30, 2000, the Company
amended the terms of these notes whereby interest on the notes ceased
to accrue subsequent to July 1, 2000 and the loan plus accrued
interest, totaling $436,000 at June 30, 2000, would be payable in a
balloon payment in December 2001. The loans were collateralized with
options to purchase 36,667 shares of common stock granted to Mr. Blue
under the Company's stock option plans.
FS-29
Prior to 2000, these loans were included in other assets; as of
December 31, 2001 and 2000, all amounts owed under these loans have
been reclassified to stockholders' equity.
In December 2001, a payment of $250,000 was received from Mr. Blue and
applied against the outstanding balance of the loans. The Company
agreed to refinance the remaining $186,000 balance and a new
promissory note was executed by Mr. Blue. This new note requires
monthly interest payments at prime rate plus 1%, established at the
beginning of each calendar quarter, and is payable in a balloon
payment on or before December 31, 2003. The note is collateralized
with options to purchase 36,667 shares of common stock granted to Mr.
Blue under the Company's stock option plans along with additional
warrants granted to Mr. Blue from various other public companies. In
January 2002, Mr. Blue resigned from the Company's board of directors
and the remaining board members agreed to extend the exercise period
of the stock options of the Company held as collateral for the note in
an effort to maximize the potential for repayment.
In March 2001, a senior executive of the Company entered into an
uncollateralized promissory note for $45,400 for amounts previously
borrowed from us. The promissory note calls for minimum bi-weekly
payments of $350 deducted directly from the executive's payroll until
the note is paid in full on or before February 2006. The note is
non-interest bearing but interest is imputed annually based on the
Internal Revenue Service Applicable Federal Rate at the time the note
was originated (4.98%). Under terms of the promissory note, if the
executive is terminated without cause, the note is due in full after
nine months from the date of termination as long as the scheduled
bi-weekly payments continue to be made. As of December 31, 2002, the
unpaid principal balance of the note is $23,000 and is included in
other receivables.
(20) Subsequent Events
In February 2003, a director of the Company resigned for personal
reasons, and as a result, one vacancy currently remains unfilled on
the Company's board of directors.
In March 2003, the Company restructured $3,368,000 in accounts payable
and accrued expenses acquired from MedUnite and outstanding at
December 31, 2002 to one vendor into an uncollateralized note payable
over 36 months at 8% commencing March 2003 and has financed $382,000
for an insurance policy required in the MedUnite acquisition over 24
months at 5.25% commencing February 2003.
In March 2003, the Company granted a total of 46,000 stock options,
including 36,000 stock options at an exercise price of $9.24 per share
to certain employees of MedUnite.
FS-30
PROXYMED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
September 30,
Assets 2003
--------------
Current assets:
Cash and cash equivalents $ 6,933
Investment in warrant 5,289
Accounts receivable - trade, net 9,865
Notes and other receivables 333
Inventory 3,580
Other current assets 1,181
------------
Total current assets 27,181
Property and equipment, net 5,345
Goodwill, net 31,456
Purchased technology, capitalized software and
other intangible assets, net 17,216
Restricted cash 403
Other assets 209
------------
Total assets $ 81,810
============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion of long-term debt $ 1,724
Accounts payable, accrued expenses and other current liabilities 10,153
Deferred revenue 590
------------
Total current liabilities 12,467
Convertible notes 13,400
Other long-term debt 2,313
Long-term deferred revenue and other long-term liabilities 1,688
------------
Total liabilities 29,868
------------
Stockholders' equity:
Series C 7% Convertible preferred stock - $.01 par value --
Authorized 300,000 shares; issued 253,265 shares;
outstanding 2,000 shares; liquidation preference $13,333
Common stock - $.001 par value. Authorized 13,333,333 shares; 7
issued and outstanding 6,783,493 and 6,782,938 shares, respectively
Additional paid-in capital 146,195
Accumulated deficit (94,074)
Note receivable from stockholder (186)
------------
Total stockholders' equity 51,942
------------
Total liabilities and stockholders' equity $ 81,810
============
The accompanying notes are an integral part of the consolidated
financial statements.
FS-31
PROXYMED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
Nine Months Ended September 30,
-------------------------------
2003 2002
------------ ------------
Revenues:
Transaction fees, services and license fees $ 39,002 $ 20,864
Communication devices and other tangible goods 14,192 16,124
------------ ------------
53,194 36,988
------------ ------------
Costs and expenses:
Cost of transaction fees, services and license fees 12,342 6,466
Cost of tangible goods 9,846 10,595
Selling, general and administrative expenses 29,755 17,327
Depreciation and amortization 4,153 1,897
Loss on disposal of assets 119 --
------------ ------------
56,215 36,285
------------ ------------
Operating income (loss) (3,021) 703
Interest income (expense), net (572) 251
Other income 4,793 265
------------ ------------
Net income 1,200 1,219
Deemed dividends -- 612
------------ ------------
Net income applicable to common shareholders $ 1,200 $ 607
============ ============
Basic earnings per share $ 0.18 $ 0.10
============ ============
Basic weighted average shares outstanding 6,782,991 6,178,441
============ ============
Diluted earnings per share $ 0.18 $ 0.10
============ ============
Diluted weighted average shares outstanding 6,815,247 6,282,258
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
FS-32
PROXYMED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
Nine Months Ended September 30,
-------------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net income $ 1,200 $ 1,219
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 4,153 1,897
Provision for doubtful accounts 155 7
Provision for obsolete inventory 29 112
Change in value of investment (4,793) --
Loss on disposal of fixed assets 119 --
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Accounts and other receivables 23 (1,880)
Inventory (836) 413
Other current assets 304 (168)
Accounts payable and accrued expenses (389) (236)
Deferred revenue 94 84
Other, net 420 (48)
------------ ------------
Net cash provided by operating activities 479 1,400
------------ ------------
Cash flows from investing activities:
Acquisition, net of cash acquired -- (5,271)
Acquisition of assets -- (700)
Purchase of short term investments -- (15,000)
Redemption of short term investments -- 15,000
Capital expenditures (2,115) (1,395)
Capitalized software (1,173) (277)
Collection of notes receivable 304 18
Proceeds from sale of fixed assets 107 --
Decrease in restricted cash 422 --
Payments for acquisition-related costs (5,653) (23)
------------ ------------
Net cash used in investing activities (8,108) (7,648)
------------ ------------
Cash flows from financing activities:
Proceeds from stock offering, net -- 24,886
Proceeds from the exercise of stock options and warrants 8 --
Payment of note payable related to acquisition of business -- (7,000)
Payment of notes payable, capital leases and long-term debt (1,824) (187)
------------ ------------
Net cash provided by (used in) financing activities (1,816) 17,699
------------ ------------
Net increase (decrease) in cash and cash equivalents (9,445) 11,451
Cash and cash equivalents at beginning of period 16,378 12,601
------------ ------------
Cash and cash equivalents at end of period $ 6,933 $ 24,052
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
FS-33
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) BASIS OF PRESENTATION - The accompanying unaudited
consolidated financial statements of ProxyMed, Inc.
("ProxyMed") and subsidiaries (collectively with ProxyMed,
the "Company") and the notes thereto have been prepared in
accordance with the instructions of Form 10 Q and Rule 10 01
of Regulation S X of the Securities and Exchange Commission
(the "SEC") and do not include all of the information and
disclosures required by accounting principles generally
accepted in the United States of America. However, such
information reflects all adjustments (consisting of normal
recurring adjustments), which are, in the opinion of
management, necessary for a fair statement of results for the
interim periods.
On December 31, 2002, ProxyMed acquired all of the capital
stock of MedUnite, Inc. ("MedUnite"), a privately-held
company providing healthcare claims processing services
founded by seven of the nation's largest health insurers, for
$10 million in cash and $13.4 million in 4% convertible debt.
The operations of MedUnite are reflected with those of the
Company for the three and nine months ended September 30,
2003.
The results of operations for the nine months ended September
30, 2003 are not necessarily indicative of the results to be
expected for the full year. The unaudited consolidated
financial statements included herein should be read in
conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's
Annual Report on Form 10 K for the year ended December 31,
2002 as filed with the SEC on April 15, 2003.
(b) REVENUE RECOGNITION - Electronic transaction processing fee
revenue is recorded in the period the service is rendered.
Certain transaction fee revenue is subject to revenue sharing
pursuant to agreements with resellers, vendors or gateway
partners and are recorded as gross revenues. Revenue from
sales of inventory and manufactured goods is recognized when
persuasive evidence of an arrangement exists, delivery has
occurred, the price is fixed or determinable and
collectibility is probable. Revenue from certain up front
fees is amortized ratably over the expected life of the
customer. Revenue from hardware leases and maintenance fees
is recognized ratably over the applicable period.
(c) NET INCOME PER SHARE - Basic net income per share of common
stock is computed by dividing net income applicable to common
shareholders by the weighted average shares of common stock
outstanding during the period. Diluted income per share
reflects the potential dilution from the exercise or
conversion of securities into common stock; however,
2,426,184 and 956,786 stock options and warrants outstanding
for the three months ended September 30, 2003 and 2002,
respectively, and 1,958,557 and 709,206 stock options and
warrants outstanding for the nine months ended September 30,
2003 and 2002, respectively, were excluded from the
calculation of diluted net income per share because the
exercise price of these options and warrants was greater than
the average market price of the Company's common stock during
the periods.
The following sets forth the computation of basic and diluted
net income per share for the three and nine months ended
September 30, 2003 and 2002:
FS-34
(in thousands except for share and per share data) Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2003 2002 2003 2002
------------ ------------ ----------- ------------
Net income applicable to common shareholders $ 4,008 $ 724 $ 1,200 $ 607
========== ========== ========== ==========
Common shares outstanding:
Weighted average common shares used in computing
basic net income per share 6,783,095 6,741,772 6,782,991 6,178,441
Plus incremental shares from assumed conversions:
Convertible preferred stock 13,333 20,000 13,333 20,000
Stock options 71,297 6,857 18,923 19,297
Warrants -- 16,467 -- 64,520
---------- ---------- ---------- ----------
84,630 43,324 32,256 103,817
---------- ---------- ---------- ----------
Weighted average common shares used in computing
diluted net income per share 6,867,725 6,785,096 6,815,247 6,282,258
========== ========== ========== ==========
Net income per common share:
Basic $ 0.59 $ 0.11 $ 0.18 $ 0.10
========== ========== ========== ==========
Diluted $ 0.58 $ 0.11 $ 0.18 $ 0.10
========== ========== ========== ==========
(d) STOCK-BASED COMPENSATION - In December 2002, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 148, "Accounting for Stock
Based Compensation - Transition and Disclosure". SFAS No. 148
amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of
accounting for stock-based employee compensation and the
effect of the method used on reported results. The disclosure
provisions of SFAS No. 148 are effective for fiscal years
ending after December 15, 2002.
ProxyMed continues to apply Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its
stock option plans and has not adopted the recognition
provisions of SFAS No. 123, as amended by SFAS No. 148. The
Company measures compensation expense related to the grant of
stock options and stock-based awards to employees (including
independent directors) whereby compensation expense, if any,
is generally based on the difference between the exercise
price of an option, or the amount paid for an award, and the
market price or fair value of the underlying common stock at
the date of the award or at the measurement date for variable
awards. Stock-based compensation arrangements involving
non-employees are accounted for based on the fair value of
the option or award pursuant to SFAS No. 123.
Under SFAS No. 123, compensation cost for the Company's
stock-based compensation plans would be determined based on
the fair value at the grant dates for awards under those
plans. Had the Company adopted SFAS No. 123 in accounting for
its stock option plans, the Company's consolidated net income
and net income per share for the three and nine months ended
September 30, 2003 and 2002 would have been adjusted to the
pro forma amounts indicated as follows:
FS-35
(in thousands except for per share data) Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2003 2002 2003 2002
------------ ------------ ----------- ------------
Net income applicable to
common shareholders, as reported $ 4,008 $ 724 $ 1,200 $ 607
Total stock-based employee pro forma
compensation expense determined under
fair value based method for all awards,
net of related tax effect (3,334) (3,445) (4,041) (4,711)
---------- ---------- ---------- ----------
Pro forma net income (loss) applicable
to common shareholders $ 674 $ (2,721) $ (2,841) $ (4,104)
========== ========== ========== ==========
Basic net income (loss) per common share:
As reported $ 0.59 $ 0.11 $ 0.18 $ 0.10
Pro forma $ 0.10 $ (0.40) $ (0.42) $ (0.66)
Diluted net income (loss) per common share:
As reported $ 0.58 $ 0.11 $ 0.18 $ 0.10
Pro forma $ 0.10 $ (0.40) $ (0.42) $ (0.65)
(e) NEW ACCOUNTING PRONOUNCEMENTS - In April 2003, the FASB
issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149
amends and clarifies accounting for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 149 is effective for contracts entered
into or modified after June 30, 2003, except for certain
provisions that relate to SFAS No. 133 implementation issues
that have been effective for fiscal quarters that began prior
to June 15, 2003 and for hedging relationships designated
after June 30, 2003. The Company does not believe that the
implementation SFAS No. 149 will have a material effect on
the Company's consolidated financial statements and related
disclosures.
In May 2003, the Financial Accounting Standards Board issued
SFAS No. 150, "Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity". SFAS
No. 150 specifies that instruments within its scope embody
obligations of the issuer and that, therefore, the issuer
must classify them as liabilities. SFAS No. 150 requires
issuers to classify as liabilities the following three types
of freestanding financial instruments: (1) mandatory
redeemable financial instruments; (2) obligations to
repurchase the issuer's equity shares by transferring assets;
and (3) certain obligations to issue a variable number of
shares. SFAS No. 150 defines a freestanding financial
instrument as a financial instrument that (1) is entered into
separately and apart from any of the entity's other financial
instruments or equity transactions; or (2) is entered into in
conjunction with some other transaction and can be legally
detached and exercised on a separate basis. For all financial
instruments entered into or modified after May 31, 2003, SFAS
No. 150 is effective immediately. For all other instruments
of public companies, SFAS No. 150 goes into effect at the
beginning of the first interim period beginning after June
15, 2003. For contracts that were created or modified before
May 31, 2003 and still exist at the beginning of the first
interim period beginning after June 15, 2003, entities should
record the transition to SFAS No. 150 by reporting the
cumulative effect of a change in an accounting principle.
SFAS No. 150 prohibits entities from restating financial
statements for earlier years presented. The Company does not
expect the adoption of SFAS No. 150 to have a material impact
on its financial statements.
(2) Investment in Warrant
In June 2003, the Company entered into a joint marketing and
distribution agreement with PlanVista Corporation
("PlanVista"), a provider of medical cost containment and
business process outsourcing
FS-36
solutions to the medical insurance and managed care
industries, to provide the Company's electronic healthcare
transaction processing services and PlanVista's network
access and repricing service product as an integrated package
to existing and prospective payer customers. As part of the
agreement, PlanVista granted the Company a warrant to
purchase 15% of the number of outstanding shares of PlanVista
common stock on a fully-diluted basis as of the time of
exercise for $1.95 per share. Any shares acquired upon
exercise are not registered. The warrant is exercisable
immediately and expires in December 2003 (the "Initial
Warrant Term"); however, the exercise period for the warrant
may be extended for up to two additional ninety-day periods
(respectively, the "First Renewal Term" and the "Second
Renewal Term" and collectively with the "Initial Warrant
Term", the "Warrant Term"), if certain revenue based
thresholds are met.
The initial value of the warrant of $0.5 million (calculated using a
Black Scholes model) along with additional amounts already paid to and amounts
still to be received by the Company under the agreement are being amortized as a
reduction of cost of sales over 36 months. As long as the warrant is still
outstanding, the value of the warrant is evaluated at the end of each calendar
quarter (each a "Measurement Date"). On September 30, 2003, the value of the
warrant increased to approximately $5.3 million primarily as a result of an
increase in the market value of PlanVista stock. The warrant value increases of
$4.0 million and $4.8 million for the three and nine months ended September 30,
2003, respectively, are reflected as other income in the statement of
operations. The warrant is stated at its fair value and any shares of common
stock that may be acquired by exercising this warrant will be accounted for as
"available for sale" securities.
At any future Measurement Date, there may be additional
income or expense depending on the value of the warrant at
that time. Should the Initial Warrant Term renew in
accordance with its terms, the Company will have to amortize,
at the time the threshold is met, any additional value of the
warrant as a reduction of cost of sales over the remaining
original amortization period. However, if during the Warrant
Term the warrant is never exercised, then the Company will
have to record an impairment charge equal to the warrant's
remaining value, if any, carried on the books during the
Warrant Term. At the present time, management has no
intention of exercising this warrant.
(3) Inventory
Inventory consists of the following at September 30, 2003 (in
thousands):
Materials, supplies and component parts $2,394
Work in process 330
Finished goods 856
------
$3,580
======
(4) Goodwill and Other Intangible Assets
(a) GOODWILL - The changes in the carrying amounts of goodwill
for the nine months ended September 30, 2003 by operating
segment are as follows:
Laboratory
Transaction communication
(in thousands) services solutions Total
----------- ------------- --------
Balance as of December 31, 2002 $ 30,695 $2,102 $ 32,797
Purchase price adjustments (1,341) -- (1,341)
-------- ------ --------
Balance as of September 30, 2003 $ 29,354 $2,102 $ 31,456
======== ====== ========
(b) OTHER INTANGIBLE ASSETS - The carrying amounts of other
intangible assets as of September 30, 2003, by category, are
as follows:
FS-37
(in thousands) September 30, 2003
-----------------------------------------
Carrying Accumulated
Amount Amortization Net
-------- ------------ -------
Capitalized software $ 1,700 $ (135) $ 1,565
Purchased technology 9,127 (2,564) 6,563
Customer relationships 10,251 (1,163) 9,088
-------- -------- -------
$ 21,078 $ (3,862) $17,216
======== ======== =======
Amortization expense of other intangible assets was $2.2
million and $0.5 million for the nine months ended September
30, 2003 and 2002, respectively.
As of September 30, 2003, estimated future amortization
expense of other intangible assets is as follows: $1.0
million for the remaining quarter of 2003, $2.9 million in
2004, $2.8 million in 2005, $2.6 million in 2006, $2.3
million in 2007, and $2.0 million in 2008.
(5) Debt Obligations
In February 2003, the Company financed $0.4 million and $0.3
million for certain liability insurance policies over 7
months at 4.76% and 24 months at 5.25% to third-parties,
respectively. The note for $0.4 million is unsecured while
the note for $0.3 million is collateralized by a letter of
credit in the amount of $0.3 million (supported with
restricted cash) at September 30, 2003.
In March 2003, the Company restructured $3.4 million in
accounts payable and accrued expenses acquired from MedUnite
and outstanding at December 31, 2002 to one vendor by paying
$0.8 million in cash and financing the balance of $2.6
million with an unsecured note payable over 36 months at 8%
commencing March 2003.
In April 2003, the Company financed a net total of $2.0
million ($2.8 million in accounts payable and accrued
expenses offset by $0.8 million in accounts receivable)
existing at December 31, 2002 from MedUnite to a former owner
of MedUnite by issuing an unsecured note payable over 24
months at 6%.
In June 2003, the Company financed $0.1 million of liability
insurance policy premium with another unsecured note, payable
over 9 months at 5.4% to a third-party.
(6) Equity Transactions
(a) SERIES C PREFERRED CONVERSION OFFER - On December 13, 2001,
the Company offered to convert its then outstanding Series C
Preferred into shares of common stock at a reduced conversion
price (the "Conversion Offer"). For a period of sixty days
ending February 11, 2002, the holders of the Series C
Preferred shares were able convert such shares at a reduced
conversion price of $13.05 per share instead of the original
conversion price of $15.00. At the conclusion of the
Conversion Offer on February 11, 2002, holders of 98.5% of
the outstanding Series C Preferred had converted their shares
into a total of 1,538,636 common shares. A deemed dividend
charge of $612,000 was recorded in the first quarter of 2002
for conversions consummated after the 2001 year end.
(b) STOCK OPTIONS - During the nine months ended September 30,
2003, the Company granted a total of 59,250 stock options at
exercise prices between $7.50 and $12.65 per share to
employees. Such options were granted pursuant to the
Company's approved stock option plans and are for a ten-year
term and vest equally over three years from the date of
grant.
In April 2003, the six outside directors of ProxyMed were
each granted 10,000 stock options at an exercise price of
$7.28 per share. Such options were granted pursuant to the
Company's approved stock option plans and are for a ten-year
term and vest equally over three years from the date of
grant. Additionally, in
FS-38
May 2003, the Company's outside directors were granted a
total of 30,000 and 15,000 options at an exercise price of
$10.63 to compensate the directors upon re-election to the
board and participation in sub committees, respectively,
pursuant to guidelines adopted by the Company's Board of
Directors in May 2002. Option grants for the re-election to
the board are for a ten-year term and vest equally over a
three year period. Options for participation in
sub-committees are for a ten year term and vest in full after
five years but a portion may be accelerated to vest after
each sub committee meeting attended.
In October 2003, the Compensation Committee approved grants
of 125,000 and 50,000 stock options at an exercise price of
$15.90 per share to the Company's chairman/chief executive
officer and president/chief operating officer, respectively.
Such options are for a ten-year term and vest equally over
three years from the date of grant.
(c) WARRANTS - In conjunction with a joint marketing agreement
entered into between the Company and a subsidiary of First
Data Corporation ("FDC"), an electronic commerce and payment
services company, in July 2003, the Company issued to FDC a
warrant agreement under which FDC may be entitled to purchase
up to 600,000 of the Company's common stock at $16.50 per
share. The ability of FDC to exercise under the warrant
agreement is dependent upon the Company achieving certain
revenue based thresholds under such joint marketing agreement
over a three and one half year period. Additionally, in
connection with this agreement, four entities affiliated with
General Atlantic Partners ("GAP"), current investors in the
Company, received an aggregate of 243,882 warrants, as a
result of pre emptive rights relating to their investment in
the Company in April 2002. The GAP warrant agreements are
subject to the same terms and conditions as those issued to
FDC and are exercisable only if FDC's right to exercise under
its warrant agreement is perfected. At the time any of the
revenue thresholds is met, the Company may have to record a
charge in its statement of operations for the value of those
warrants.
(7) Segment Information
ProxyMed operates in two reportable segments that are
separately managed: Transaction Services (formerly known as
Electronic healthcare transaction processing) and Laboratory
Communication Solutions. Transaction Services includes
transaction and value-added services principally between
physicians and insurance companies (Payer Services) and
physicians and pharmacies (Prescription Services); and
Laboratory Communication Solutions includes the sale, lease
and service of communication devices principally to
laboratories and the contract manufacturing of printed
circuit boards (Laboratory Services). Inter-segment sales are
not material, and there were no foreign sales for any periods
presented.
(in thousands) Nine Months Ended September 30,
-------------------------------
2003 2002
----------- ------------
Net revenues:
Transaction Services $ 35,102 $ 16,345
Laboratory Communication Solutions 18,092 20,643
---------- ----------
$ 53,194 $ 36,988
========== ==========
Operating income (loss):
Transaction Services $ (1,382) $ 254
Laboratory Communication Solutions 1,168 2,515
Corporate and consolidating (2,807) (2,066)
---------- ----------
$ (3,021) $ 703
========== ==========
September 30,
----------------------------
Total assets: 2003 2002
---------- ----------
Transaction Services $ 56,005 $ 17,783
Laboratory Communication Solutions 12,404 13,646
Corporate and consolidating 13,401 24,708
---------- ----------
$ 81,810 $ 56,137
========== ==========
FS-39
(8) Income Taxes
As of September 30, 2003, the Company had a net deferred tax
asset of approximately $66.1 million, which was fully offset
by a valuation allowance. Realization of the net deferred tax
asset is dependent upon the Company generating sufficient
taxable income prior to the expiration of the federal net
operating loss carryforwards. The Company will adjust this
valuation reserve if, during future periods, management
believes the Company will generate sufficient taxable income
to realize the net deferred tax asset.
(9) Leases
In June 2003, the Company paid $0.8 million to the leasing
company as a result of terminating MedUnite's facility lease
in San Diego, California effective June 30, 2003. As part of
the consideration, the landlord was given the furniture at
the facility with a value of approximately $0.2 million. The
Company incurred other costs in connection with the
termination of the lease. As a replacement for this facility,
the Company subleased office space in the same geographic
area at a lower monthly rent per month through September 2004.
(10) Related Party Transactions
In June 2003, the Company amended the promissory note
executed in June 2000 by Mr. Blue, the Company's former
chairman of the board and chief executive officer. The
amendment extended the maturity date of the promissory for an
additional twelve months to December 31, 2004 and also
allowed Mr. Blue to offset any principal owed with certain
amounts payable to Mr. Blue by the Company as a result of a
finder's fee arrangement with the Company.
As discussed in Note 2, the Company entered into a joint
distribution and marketing agreement with PlanVista in June
2003. PlanVista is a publicly-held company and is controlled
by an affiliate of Commonwealth Associates, whose principal,
Michael Falk, is a director of both the Company and
PlanVista. Additionally, one senior executive of the Company
has an immaterial ownership interest in PlanVista.
FS-40
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of PlanVista Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and comprehensive income and of cash flows present fairly, in all
material respects, the financial position of PlanVista Corporation and its
subsidiaries (PlanVista or the Company) at December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of PlanVista's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 8, the Company changed its method of accounting for
amortization of goodwill in accordance with Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets", effective January 1,
2002.
As discussed in Note 18, the Company restated the consolidated financial
statements as of December 31, 2002 and for the year then ended, to classify the
Company's Series C Preferred Stock as temporary equity rather than as a
component of stockholders' equity.
/s/ PricewaterhouseCoopers LLP
March 20, 2003, except for Note 18, for which the date is November 19, 2003
Tampa, Florida
FS-41
PLANVISTA CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
DECEMBER 31,
--------------------------------
2002 2001
-------------------- ---------
(RESTATED - NOTE 18)
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 1,198 $ 395
Accounts receivable, net of allowance for doubtful
accounts of $1,985 and $6,236 at December 31,
2002 and 2001, respectively ........................................... 7,989 7,319
Prepaid expenses and other current assets ............................... 174 327
Refundable income taxes ................................................. 1,600 608
--------- ---------
Total current assets ............................................ 10,961 8,649
Property and equipment, net ............................................... 1,541 1,804
Other assets, net ......................................................... 678 267
Goodwill, net ............................................................. 29,405 29,405
--------- ---------
Total assets .................................................... $ 42,585 $ 40,125
========= =========
LIABILITIES, TEMPORARY EQUITY AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ........................................................ $ 2,903 $ 3,308
Accrued liabilities ..................................................... 5,574 12,934
Deferred revenue ........................................................ 950 --
Current portion of long-term debt ....................................... 356 308
--------- ---------
Total current liabilities ....................................... 9,783 16,550
Long-term debt and notes payable .......................................... 45,188 75,778
Other long-term liabilities ............................................... 1,003 1,087
--------- ---------
Total liabilities ............................................... 55,974 93,415
--------- ---------
Commitments and contingencies
Common stock with make-whole provision (813,273 shares) ................... 5,000 --
Series C convertible preferred stock, $0.01 par value, 40,000 shares
authorized, 31,092 shares issued
and outstanding at December 31, 2002 .................................... 77,217 --
Stockholders' equity (deficit):
Common stock, $0.01 par value, 100,000,000 authorized, 15,956,021 shares
issued at December 31, 2002 and,
15,445,880 at December 31, 2001 ...................................... 159 154
Additional paid-in capital ............................................. 45,602 92,335
Treasury stock at cost, 1,944 shares at December 31, 2002
and 13,597 at December 31, 2001 ....................................... (38) (265)
Deficit ................................................................ (141,329) (145,514)
--------- ---------
Total stockholders' equity (deficit) ............................ (95,606) (53,290)
--------- ---------
Total liabilities, temporary equity and stockholders' equity .... $ 42,585 $ 40,125
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
FS-42
PLANVISTA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-------------------------------------------
2002 2001 2000
-------- -------- ---------
Operating revenue ............................................................. $ 33,141 $ 32,918 $ 26,964
-------- -------- ---------
Cost of operating revenue:
Marketing allowances ........................................................ 559 308 295
Personnel expense ........................................................... 8,474 9,137 8,301
Network access fees ......................................................... 5,122 5,343 3,896
Other ....................................................................... 5,267 6,213 3,993
Depreciation ................................................................ 528 467 303
-------- -------- ---------
Total cost of operating revenue .................................... 19,950 21,468 16,788
-------- -------- ---------
Bad debt expense ............................................................ 3,356 3,348 649
Offering costs .............................................................. 1,213 -- --
Amortization of goodwill .................................................... -- 1,378 1,380
Loss on impairment of intangible assets ..................................... -- -- 5,513
Loss (gain) on sale of investments, net ..................................... -- 2,503 (332)
Interest expense ............................................................ 5,628 12,098 10,489
Other (income) expense ...................................................... -- (175) 868
-------- -------- ---------
Total expenses ..................................................... 30,147 40,620 35,355
-------- -------- ---------
Income (loss) before (benefit) provision for income taxes, discontinued
operations, loss on sale of discontinued operations, extraordinary loss, and
cumulative effect of change in accounting principle ........................ 2,994 (7,702) (8,391)
(Benefit) provision for income taxes .......................................... (1,191) 26,811 (3,263)
-------- -------- ---------
Income (loss) before discontinued operations, loss on sale of discontinued
operations, extraordinary loss and cumulative
effect of change in accounting principle ................................... 4,185 (34,513) (5,128)
Loss from discontinued operations, net of taxes ............................... -- (555) (58,804)
Loss on sale of discontinued operations, net of taxes ......................... -- (10,077) (39,333)
Extraordinary loss, net of taxes .............................................. -- -- (954)
Cumulative effect of change in accounting principle, net of taxes ............. -- (76) (258)
-------- -------- ---------
Net income (loss) ............................................................. 4,185 (45,221) (104,477)
Preferred stock accretion and preferred stock dividends ....................... (48,777) -- --
-------- -------- ---------
Loss attributable to common stockholders ...................................... $(44,592) $(45,221) $(104,477)
======== ======== =========
Basic loss per share applicable to Common Stockholders:
Income (loss) from continuing operations ................................... $ 0.25 $ (2.37) $ (0.37)
Loss from discontinued operations .......................................... -- (0.04) (4.30)
Loss from sale of discontinued operations .................................. -- (0.70) (2.88)
Extraordinary loss ......................................................... -- -- (0.07)
Cumulative effect of change in accounting principle ........................ -- -- (0.02)
Preferred stock accretion and preferred stock dividends .................... (2.97) -- --
-------- -------- ---------
Loss applicable to common stockholders ..................................... $ (2.72) $ (3.11) $ (7.64)
======== ======== =========
Basic weighted average number of shares outstanding ........................... 16,427 14,558 13,679
======== ======== =========
Diluted loss per share applicable to Common Stockholders:
Income (loss) from continuing operations ................................... $ 0.25 $ (2.37) $ (0.37)
Income (loss) from discontinued operations ................................. -- (0.04) (4.30)
Loss from sale of discontinued operations .................................. -- (0.70) (2.88)
Extraordinary loss ......................................................... -- -- (0.07)
Cumulative effect of change in accounting principle ........................ -- -- (0.02)
Preferred stock accretion and preferred stock dividends .................... (2.97) -- --
-------- -------- ---------
Loss applicable to common stockholders ..................................... $ (2.72) $ (3.11) $ (7.64)
======== ======== =========
Diluted weighted average number of shares outstanding ......................... 16,427 14,558 13,679
======== ======== =========
The accompanying notes are an integral part of these
consolidated financial statements.
FS-43
PLANVISTA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT) AND COMPREHENSIVE INCOME
(RESTATED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
Additional Retained
Comprehensive Common Paid-in Treasury Earnings
Income Stock Capital Stock (Deficit)
------------- -------- ---------- -------- ---------
Balance at December 31, 1999 ........... $ 152 $ 110,357 $(30,006) $ 4,184
Issuance of 1,718 shares in
connection with the directors'
compensation plan ................... -- 20 -- --
Issuance of 12,708 shares in
connection with the employee
stock purchase plan ................. -- 37 -- --
Issuance of 1,100 shares in connection
with stock option plans ............. -- 3 -- --
Net loss ............................... $(104,477) -- -- -- (104,477)
Unrealized depreciation on investment
available for sale .................. (2,204) -- -- -- --
---------
Comprehensive loss ..................... $(106,681)
========= -------- --------- -------- ---------
Balance at December 31, 2000 ........... 152 110,417 (30,006) (100,293)
Issuance of 8,725 shares in
connection with the directors'
compensation plan ................... -- 57 -- --
Issuance of 2,051 shares in
connection with the employee
stock purchase plan ................. -- 22 -- --
Issuance of 189,301 shares in
connection with stock option plans .. 2 480 -- --
Issuance of 1,011,071 shares in
HealthPlan Holdings, Inc. ........... -- (11,905) 19,205 --
Issuance of 553,500 shares in connection
with lending activities ............. -- (6,736) 10,536 --
Net loss ............................... $(45,221) -- -- -- (45,221)
Unrealized depreciation on investment
available for sale .................. 610 -- -- -- --
---------
Comprehensive loss ..................... $ (44,611)
========= -------- --------- -------- ---------
Balance at December 31, 2001 ........... 154 92,335 (265) (145,514)
Issuance of 18,701 shares in
connection with the directors'
compensation plan ................... -- 26 -- --
Issuance of 298,195 shares in settlement
of subordinated notes ............... 4 1,610 -- --
Issuance of 156,490 shares to
HealthPlan Holdings, Inc. ........... 1 408 227 --
Issuance of 29,000 shares in connection
with settlement of senior notes ..... -- -- -- --
Net income ............................. $ 4,185 -- -- -- 4,185
Preferred stock accretion and
preferred stock dividend .............. -- (48,777) -- --
---------
Comprehensive income ................... $ 4,185
======== -------- --------- -------- ---------
Balance at December 31, 2002
(As restated) ........................ $ 159 $ 45,602 $ (38) $(141,329)
======== ========= ======== =========
Unrealized
Appreciation on
Investments
Available for Sale Total
------------------- ---------
Balance at December 31, 1999 ........... $ 1,594 $ 86,281
Issuance of 1,718 shares in
connection with the directors'
compensation plan ................... -- 20
Issuance of 12,708 shares in
connection with the employee
stock purchase plan ................. -- 37
Issuance of 1,100 shares in connection
with stock option plans ............. -- 3
Net loss ............................... -- (104,477)
Unrealized depreciation on investment
available for sale .................. (2,204) (2,204)
---------
Comprehensive loss .....................
--------
Balance at December 31, 2000 ........... (610) (20,340)
Issuance of 8,725 shares in
connection with the directors'
compensation plan ................... -- 57
Issuance of 2,051 shares in
connection with the employee
stock purchase plan ................. -- 22
Issuance of 189,301 shares in
connection with stock option plans .. -- 482
Issuance of 1,011,071 shares in
HealthPlan Holdings, Inc. ........... -- 7,300
Issuance of 553,500 shares in connection
with lending activities ............. -- 3,800
Net loss ............................... -- (45,221)
Unrealized depreciation on investment
available for sale .................. 610 610
---------
Comprehensive loss .....................
--------
Balance at December 31, 2001 ........... -- (53,290)
Issuance of 18,701 shares in
connection with the directors'
compensation plan ................... -- 26
Issuance of 298,195 shares in settlement
of subordinated notes ............... -- 1,614
Issuance of 156,490 shares to
HealthPlan Holdings, Inc. ........... -- 636
Issuance of 29,000 shares in connection
with settlement of senior notes ..... -- --
Net income ............................. -- 4,185
Preferred stock accretion and
preferred stock dividend .............. -- (48,777)
---------
Comprehensive income ...................
--------
Balance at December 31, 2002
(As restated) ........................ $ -- $ (95,606)
======== =========
The accompanying notes are an integral part of these
consolidated financial statements.
FS-44
PLANVISTA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
2002 2001 2000
-------- -------- ---------
Cash flows from operating activities:
Net income (loss) ......................................................... $ 4,185 $(45,221) $(104,477)
Losses from discontinued operations ....................................... 10,632 98,137
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation .............................................................. 528 467 303
Amortization .............................................................. -- 1,378 1,380
Loss on impairment of goodwill ............................................ -- -- 5,513
Loss (gain) on sale of investments ........................................ -- 2,503 (332)
Deferred taxes ............................................................ -- 29,418 (24,886)
Changes in assets and liabilities::
Net liabilities of discontinued operations ................................ -- -- 41,877
Restricted cash ........................................................... -- -- 3
Accounts receivable ....................................................... (670) (465) (3,003)
Refundable income taxes ................................................... (992) 1,643 --
Prepaid expenses and other current assets ................................. 153 644 (241)
Other assets .............................................................. (411) 1,603 (1,182)
Accounts payable .......................................................... (405) 2,252 (2,379)
Accrued liabilities ....................................................... (902) (14,312) (4,504)
Other long-term liabilities ............................................... (84) (76) (2,960)
-------- -------- ---------
Net cash provided by (used in) operating activities ..................... 1,402 (9,534) 3,249
-------- -------- ---------
Cash flows from investing activities:
Purchases of property and equipment ....................................... (265) (480) (4,789)
Cash paid for acquisitions, net of cash acquired .......................... -- -- (3,054)
Proceeds from sale of business units ...................................... -- -- 33,656
Proceeds from sale of investments ......................................... -- 518 936
-------- -------- ---------
Net cash (used in) provided by investing activities ................. (265) 38 26,749
-------- -------- ---------
Cash flows from financing activities:
Net borrowings (payments) under line of credit ............................ (263) 6,143 (29,101)
Net payments on other debt ................................................ (97) (1,095) (455)
Proceeds from common stock issued ......................................... 26 4,361 40
-------- -------- ---------
Net cash (used in) provided by financing activities ................. (334) 9,409 (29,516)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents .......................... 803 (87) 482
Cash and cash equivalents at beginning of year ................................ 395 482 --
-------- -------- ---------
Cash and cash equivalents at end of year ...................................... $ 1,198 $ 395 $ 482
======== ======== =========
Supplemental disclosure of cash flow information:
Cash paid for interest .................................................... $ 4,794 $ 4,550 $ 9,544
======== ======== =========
Net (refunds received) cash paid for income taxes ......................... $ -- $ (2,607) $ (1,728)
======== ======== =========
Supplemental noncash investing and financing activities:
Common stock issued in connection with:
Settlement of $1.0 million of subordinated notes
and $0.5 million of accrued interest ..................................... $ 1,521 $ -- $ --
======== ======== =========
Sale of business units .................................................... $ -- $ 5,000 $ --
======== ======== =========
Registration rights agreement ............................................. $ 636 $ -- $ --
======== ======== =========
Conversion of $5.0 million note ........................................... $ 5,000 $ -- $ --
======== ======== =========
Preferred stock issued in connection with debt
restructure, net ......................................................... $ 28,440 $ -- $ --
======== ======== =========
Preferred stock dividends ..................................................... $ 2,100 $ -- $ --
======== ======== =========
Notes issued .................................................................. $ -- $ 5,000 $ --
======== ======== =========
Common stock issued ........................................................... $ -- $ 7,300 $ --
======== ======== =========
FS-45
PLANVISTA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
1. DESCRIPTION OF BUSINESS
PlanVista Corporation (together with its wholly owned subsidiaries,
"PlanVista," "we," "our," or "us"), provides medical cost containment and
business process outsourcing solutions for the medical insurance and managed
care industries. We provide integrated national preferred provider organization
(sometimes called PPO) network access, electronic claims repricing, and claims
and data management business process outsourcing services to health care payers,
such as self-insured employers, medical insurance carriers, third party
administrators (sometimes called TPAs), health maintenance organizations
(sometimes called HMOs), and other entities that pay claims on behalf of health
plans. We also provide network and data management business process outsourcing
services for health care providers, including individual providers, PPOs, and
other provider groups.
2. BANK RESTRUCTURING AND REORGANIZATION
In June 2000, we initiated a plan of reorganization designed to divest
certain of our underperforming and non-growth businesses and to reduce and
refinance our credit facility. Effective June 18, 2001, we sold the last of
these non-strategic businesses (as further described below) and, through the
first quarter of 2002, pursued the restructuring of our remaining debt. On April
12, 2002, we completed the restructuring of our debt, whereby we restructured
approximately $69.0 million of outstanding indebtedness to our lenders,
including outstanding principal and accrued and unpaid interest and bank fees.
This indebtedness was restructured with our current lenders whereby we entered
into a $40.0 million term loan with an annual interest rate of prime plus 1.0%
that matures May 31, 2004 and issued $29.0 million of series C convertible
preferred stock and an additional promissory note in the amount of $184,872.
The term loan agreement contains certain financial covenants including
minimum monthly EBITDA levels (defined as earnings before interest, taxes,
depreciation and amortization, and adjusted for non-cash items deducted in
calculating net income and severance, if any, paid to certain officers of
PlanVista), maximum quarterly and annual capital expenditures, a minimum
quarterly fixed charge ratio that is based primarily on our operating cash
flows, and maximum quarterly and annual extraordinary expenses (excluding
certain pending and threatened litigation, indemnification agreements, and
certain other matters as defined in the term loan agreement). From April 12,
2002 through November 30, 2002, we were in compliance with these financial
covenants. During December 2002, we were not in compliance with our EBITDA
covenant and we subsequently obtained a waiver for this non-compliance from our
senior lenders. Beginning in 2003, the revised minimum EBITDA levels are $1.0
million in January 2003, $700,000 in February 2003, $800,000 per month beginning
in March 2003 through July 2003, and $1.0 million per month thereafter.
The series C convertible preferred stock accrues dividends at 10.0% per
annum during the first 12 months from issuance and at a rate of 12.0% per annum
thereafter. Dividends are payable quarterly in additional shares of series C
convertible preferred stock or, at our option, in cash. We have chosen to pay
dividends in the form of additional shares, and to date we have issued an
aggregate of 2,092 additional shares of series C convertible preferred stock as
dividends. At any time after October 12, 2003, the series C convertible
preferred stock may be converted into shares of our common stock at the rate of
703.37 shares of common stock for each preferred share, or a total of 20,996,398
shares (or 55.6%) of our common stock upon full conversion, subject to
adjustment. The series C convertible preferred stock has weighted-average
anti-dilution protection and a provision that in no event will the series C
convertible preferred stock convert into less than 51.0% of our outstanding
shares of common stock.
The holders of the series C convertible preferred stock are entitled to
receive a Liquidation Preference, as defined, upon certain circumstances
including but not limited to a change in our control or our involuntary
liquidation. As a result of these circumstances being outside our control, the
series C convertible preferred stock is classified at December 31, 2002 (see
Note 18) in the temporary equity section of the accompanying consolidated
balance sheet.
In addition, the series C convertible preferred stockholders are
entitled to elect three members to our board of directors. The certificate of
designation for the series C convertible preferred stock also contains
provisions that permit the series C convertible preferred stockholders to
immediately elect one additional member to our board of directors to replace
FS-46
one of the board members elected by our common shareholders if we fail to
achieve certain minimum cash levels as defined under the certificate of
designation or if we fail to make our required principal and interest payments
in accordance with the terms of the Agreement, or fail to redeem the series C
convertible preferred stock by October 12, 2003. The issuance of the series C
convertible preferred stock was not put to stockholder approval in reliance on
an applicable exception to the shareholder approval policy of the New York Stock
Exchange (sometimes referred to as the NYSE). Stockholders were notified prior
to the closing of the transaction of our reliance on such exception. In
connection with the issuance of the series C convertible preferred stock, the
senior lenders entered into a Stockholders' Agreement with us that provides,
among other things, for registration rights in connection with the sale of any
shares of common stock that are issued upon conversion of the Series C
convertible preferred stock. The registration rights include demand and
incidental registration rights. In addition, as described below, $5.0 million of
subordinated debt was converted to common stock, we extended the maturity date
of $4.3 million of subordinated debt by over two years, and approximately $2.5
million of obligations was converted to $1.5 million of common stock and a
$950,000 credit for in-kind services (see Note 4).
In connection with our new credit facility and debt restructuring, we
were required to adopt the accounting principles prescribed by Emerging Issues
Task Force No. 00-27, Application of Issue No. 98-5 to Certain Convertible
Instruments ("EITF 00-27"). In accordance with the accounting requirements of
EITF 00-27, we have reflected approximately $46.7 million as an increase to the
carrying value of our series C convertible preferred stock with a comparable
reduction to additional paid-in capital. The amount accreted to the series C
convertible preferred stock is calculated based on (a) the difference between
the closing price of our common stock on April 12, 2002 and the conversion price
per share available to the holders of our Series C convertible preferred stock
multiplied by (b) our estimate of the number of shares of common stock that will
be issued if the shares of our series C convertible preferred stock are ever
converted. Such shares are not convertible until October 12, 2003. This amount
is accreted over the contractual life of the Series C convertible preferred
stock. This non-cash entry does not affect our net income or our cash flow but
does impact the net income deemed available to our common stockholders for the
year ended December 31, 2002. Net income per share available to the holders of
our common stock during the year ended December 31, 2002 was further reduced by
a preferred stock dividend totaling $2.1 million, paid in shares of our Series C
convertible preferred stock to the holders of our series C convertible preferred
stock.
Prior to June 18, 2001, we maintained two operating units, one of which
was our PlanVista Solutions segment that included our managing general
underwriter business. The other unit was our third party administration segment,
which was operated primarily through our HealthPlan Services, Inc. ("HPS"),
American Benefit Plan Administrators, Inc. ("ABPA"), and Southern Nevada
Administrators, Inc. ("SNA") subsidiaries, and which provided marketing,
distribution, administration, and technology platform services for health care
plans and other benefit programs. PlanVista functions solely as a service
provider generating fee-based income and does not assume any underwriting risk.
On June 18, 2001, we completed the sale of our third party
administration and managing general underwriter (sometimes called MGU) business
units to HealthPlan Holdings, Inc. The third party administration business
included the Small Group Business operations and its associated data processing
facilities based in Tampa, Florida, as well as the Taft-Hartley businesses that
operated under the names ABPA and SNA, based in El Monte, California and Las
Vegas, Nevada, respectively. The managing general underwriter business was the
Philadelphia- based Montgomery Management Corporation. The accompanying
unaudited condensed consolidated financial statements have been restated to
reflect the operations of these business units described above as discontinued.
In connection with this non-cash transaction, the buyer, HealthPlan
Holdings, Inc., assumed approximately $40.0 million in working capital deficit
of the acquired businesses and acquired assets having a fair market value of
approximately $30.0 million. At the closing of this transaction, we issued
709,757 shares of our common stock to offset $5.0 million of the assumed
deficit. We offset the remaining $5.0 million of this deficit with a long-term
convertible subordinated note, which automatically converted into 813,273 shares
of common stock on April 12, 2002 in connection with the restructuring of our
credit facilities. Our agreement with HealthPlan Holdings states that, if
HealthPlan Holdings does not receive gross proceeds of at least $5.0 million
upon the sale of the conversion shares, then we must issue and distribute to
them additional shares of our common stock, based on a ten-day trading average
price, to compensate HealthPlan Holdings for the difference, if any, between
$5.0 million and the amount of proceeds they realize from the sale of the
conversion shares. Our agreement with HealthPlan Holdings also requires that we
register the conversion shares upon demand. To date, HealthPlan Holdings has
made no demand for registration of these conversion shares.
We entered into a registration rights agreement in favor of HealthPlan
Holdings with respect to the 709,757 shares we issued to them at closing. This
Registration Rights Agreement required that we file a registration statement
covering the issued shares as soon as practicable after the closing of their
purchase of such shares. The Agreement also contained provisions requiring
redemption of such shares or the issuance of certain additional penalty shares
(in the event that our
FS-47
lenders prohibited redemption), if such registration statement did not become
effective by certain specified time periods. Because the registration statement
we filed with the Securities and Exchange Commission covering such shares was
not declared effective within the required time periods, we issued to HealthPlan
Holdings the maximum number of penalty shares specified by the registration
rights agreement, which was 200,000 shares of our common stock. As a result of
the issuance of such 200,000 additional shares, we recorded an expense of
$730,000 in 2001 and $350,000 in 2002. As of this date, we still have not
registered the 709,757 purchased shares.
Following the sale of HealthPlan Services, we reimbursed HealthPlan
Services approximately $4.3 million for pre-closing liabilities that HealthPlan
Services settled on our behalf and issued to HealthPlan Holdings 101,969 shares
of our common stock as penalty shares relating to certain post closing disputes
with respect to those pre-closing liabilities. The primary source of the funds
for the reimbursement to HealthPlan Services was the proceeds of July 2001
private placements of our common stock to certain investment accounts managed by
DePrince, Race & Zollo, an investment firm. John Race, who was our director at
the time, was one of the principals of DePrince, Race & Zollo. In connection
with the private placements, which were ratified by our stockholders at our
annual meeting in July 2002, we issued an aggregate of 553,500 shares of our
common stock in exchange for $3.8 million, which represented a 15.0% discount
from the ten-day trading average of our common stock prior to the dates of
issuance.
We are currently in discussions with HealthPlan Holdings to finalize
any purchase price adjustments associated with the HealthPlan Services sale.
These adjustments relate primarily to the amount of accrued liabilities and
trade accounts receivable reserves, and the classification of investments at the
transaction date. HealthPlan Holdings believes it is due approximately $1.7
million from us related to this transaction, while we believe we have claims
against HealthPlan Holdings amounting to approximately $4.5 million (which would
be partially offset against other post-closing payments we have agreed to pay,
subject to certain limitations). In the event we are unable to resolve these
matters directly with HealthPlan Holdings, we will seek to resolve them through
binding arbitration as provided for in the purchase agreement. We believe the
resolution of this matter will not have a material adverse effect on our
financial condition, results of operations, or cash flows.
Also, as part of the transaction noted above, we leased office space
for our Tampa headquarters from HealthPlan Holdings. During 2002, we incurred
approximately $25,000 in rent expense related to this lease. This lease expired
in June 2002.
We believe that all consolidated operating and financing obligations
for the next twelve months will be met from internally generated cash flow from
operations and available cash. Although there can be no assurances, management
believes, based on available information, that we will be able to maintain
compliance with the terms of our restructured credit facility, including the
financial covenants, for the foreseeable future. Our ability to fund our
operations, make scheduled payments of interest and principal on our
indebtedness, and maintain compliance with the terms of our restructured credit
facility, including our financial covenants, depends on our future performance,
which is subject to economic, financial, competitive, and other factors beyond
our control. If we are unable to generate sufficient cash flows from operations
to meet our financial obligations and achieve the restrictive debt covenants as
required under the restructured credit facility, there may be a material adverse
effect on our business, financial condition, and results of operations.
Management is continuing to explore alternatives to reduce our obligations,
recapitalize our company, and provide additional liquidity. There can be no
assurances that we will be successful in these endeavors.
On March 7, 2003, PVC Funding Partners LLC, an affiliate of
Commonwealth Associates, LP and Comvest Venture Partners, acquired directly from
our senior lenders 96.0% of our outstanding Series C convertible preferred stock
previously held by our senior lenders and $20.5 million of our outstanding bank
debt. The transaction reduces our senior lenders' collective interest in
PlanVista from over $71.0 million to $20.6 million. See Note 16.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
We prepare our consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America. These
principles require 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 consolidated financial statements and the
reported amounts of operating revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FS-48
PRINCIPLES OF PRESENTATION
The consolidated financial statements include our accounts and those of
our subsidiaries. All intercompany transactions and balances have been
eliminated in consolidation.
REVENUE RECOGNITION
We generally earn our operating revenue in the form of fees generated
from the discounts we provide for the payers that access our network. We enter
into agreements with our healthcare payer customers that require them to pay a
percentage of the cost savings generated from our network discounts with
participating providers. These agreements are generally terminable upon 90 days
notice. During 2002, three clients and their affiliates accounted for an
aggregate of 19.6% of our net operating revenue. The loss of any of these client
groups could have a material adverse effect on our financial results. In 2002,
approximately 87.0% of our operating revenues were generated from percentage of
savings contracts with our customers. Operating revenue from a percentage of
savings contract is generally recognized when claims processing and
administrative services have been performed. Operating revenue from customers
with certain contingent contractual rights is not recognized until the
corresponding cash is collected. The remainder of our operating revenue is
generated from customers that pay us a monthly fee based on eligible employees
enrolled in a benefit plan covered by our health benefits payers clients.
Operating revenues under such agreements are recognized based on when the
services are provided.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are defined as highly liquid investments that
have original maturities of three months or less.
ACCOUNTS RECEIVABLE
We generate our operating revenue and related accounts receivable from
services provided to healthcare payers, such as self-insured employers, medical
insurance carriers, health maintenance organizations (sometimes called HMOs),
third party administrators (sometimes called TPAs) and other entities that pay
claims on behalf of health plans, and participating health care services
providers, including providers and provider networks.
We evaluate the collectibility of our accounts receivable based on a
combination of factors. In circumstances where we are aware of a specific
customer's inability to meet its financial obligations to us, we record a
specific reserve for bad debts against amounts due to reduce the net recognized
receivable to the amount we reasonably believe will be collected. For all other
customers, we recognize reserves for bad debts based on past write-off history,
average percentage of receivables written off historically, and the length of
time the receivables are past due. To the extent historical credit experience is
not indicative of future performance or other assumptions used by management do
not prevail, loss experience could differ significantly, resulting in either
higher or lower future provision for losses.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist primarily of prepaid
insurance, postage, and repair and maintenance contracts.
IMPAIRMENT OF LONG-LIVED ASSETS
The excess of cost over the fair value of net assets acquired is
recorded as goodwill and through the year ended December 31, 2001 was amortized
on a straight-line basis over 25 years. We adopted the accounting requirements
of SFAS No. 142 effective January 1, 2002. See Note 8. Under SFAS No. 142,
goodwill is no longer amortized.
SFAS No. 142 requires the use of a nonamortization approach to account
for purchased goodwill and certain intangibles. Under a nonamortization
approach, goodwill and certain intangibles are not amortized into results of
operations, but instead are reviewed for impairment and written down and charged
to results of operations only in the periods in which the recorded value of
goodwill and certain intangibles is more than its fair value. The provisions of
each statement apply to goodwill and intangible assets acquired prior to June
30, 2001. These new requirements will impact future period net income by an
amount equal to the discontinued goodwill amortization offset by goodwill
impairment charges, if any, and adjusted for any differences between the old and
new rules for defining intangible assets on future business combinations. We
conducted our impairment test in 2002 and determined that our goodwill was not
impaired.
FS-49
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Costs of the assets acquired
have been recorded at their respective fair values at the date of acquisition.
Expenditures for maintenance and repairs and research and development costs are
expensed as incurred. Major improvements that increase the estimated useful life
of an asset are capitalized. Depreciation is computed using the straight-line
method over the following estimated useful lives the related assets:
Years
----
Furniture and fixtures 3-10
Computers and equipment 2-5
Computer software 3 or expected life
Leasehold improvements Lease term
STOCK-BASED COMPENSATION
We apply the intrinsic value method currently prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25") and discloses the pro forma effects
of the fair value based method, as prescribed by Statement of Financial
Accounting Standards ("SFAS") No. 123.
MEASUREMENT OF FAIR VALUE
We apply APB 25 and related interpretations in accounting for its stock
option plans and employee stock purchase plan. Accordingly, no compensation cost
has been recognized related to these plans. Had compensation cost for our stock
option and employee stock purchase plans been determined based on the fair value
at the grant dates, as prescribed in SFAS 123, our net income (loss) and net
income (loss) per share would have been as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
2002 2001 2000
--------- --------- ----------
Net income (loss) attributable
to common stock (in thousands):
As reported $ (44,592) $ (45,221) $ (104,477)
Pro forma (44,598) (46,269) (105,352)
Net income (loss) per share:
Basic as reported $ (2.72) $ (3.11) $ (7.64)
Basic pro forma (2.72) (3.18) (7.70)
Diluted as reported (2.72) (3.11) (7.64)
Diluted pro forma (2.72) (3.18) (7.70)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants during the applicable year: dividend yield of 0.00% for the years
ended December 31, 2002, 2001 and 2000; expected volatility of 30% for each of
the years ended December 31, 2002, 2001 and 2000; risk-free interest rates of
5.25% for options granted during the year ended December 31, 2002, 4.64% to
4.93% for options granted during the year ended December 31, 2001, and 6.38% to
6.47% for options granted during the year ended December 31, 2000, and a
weighted average expected option term of four years for all three years.
INCOME TAXES
We recognize deferred assets and liabilities for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax bases of assets and liabilities. A valuation allowance is provided when it
is more likely than not that some portion of the deferred tax asset will not be
realized.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the income or loss
available to common stockholders by the weighted average number of shares
outstanding for the period, without consideration for common stock equivalents.
The calculation of diluted earnings per share reflects the effect of outstanding
options and warrants using the treasury stock method, unless antidilutive.
FS-50
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires the disclosure of the fair value of financial instruments, including
assets and liabilities recognized and not recognized in the consolidated balance
sheet.
Management estimates that the aggregate net fair value of other
financial instruments recognized on the consolidated balance sheet (including
cash and cash equivalents, receivables and payables and short-term borrowings)
approximates their carrying value, as such financial instruments are short-term
in nature, bear interest at current market rates or are subject to repricing.
DERIVATIVE FINANCIAL INSTRUMENTS
We had no derivative financial instrument transactions during 2002.
During 2001, we used derivative financial instruments including interest rate
swaps principally in the management of its interest rate exposures. Amounts to
be paid or received under interest rate swap agreements were accrued as interest
rates change and were recognized over the life of the swap agreements as an
adjustment to interest expense.
We managed interest rate risk on our variable rate debt by using
interest rate swap agreements. The agreements, which expired in September 2001
and December 2001, effectively converted $40.0 million of variable rate debt
under the Credit Agreement to fixed rate debt at a weighted average rate of
6.18%.
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." We adopted SFAS 133 in the first
quarter of 2001. SFAS 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. During the twelve
months ended December 31, 2001, we recorded a $76,000 pretax change in the
market value of the interest rate swaps from December 31, 2000. We also recorded
a $76,000 expense, net of taxes, as a cumulative effect of change in accounting
principle representing the fair value of the interest rate swaps at January 1,
2001.
NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB finalized SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses accounting and
reporting for the impairment or disposal of long-lived assets, including the
disposal of a segment of business. SFAS 144 is effective for fiscal years
beginning after December 15, 2001, with earlier application encouraged. We
adopted SFAS 144 as of January 1, 2002.
On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 eliminates the requirement that gains and losses from
the extinguishment of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect and eliminates an
inconsistency between the accounting for sale-leaseback transactions and certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. Generally, SFAS No. 145 is effective for
transactions occurring after May 15, 2002. Therefore, had this Statement been
effective for the year ended December 31, 2000, the extraordinary loss of
$954,000, net of taxes, would have been reclassified to operations and would
have increased the loss before discontinued operations, loss on sale of
discontinued operations, and cumulative effect of change in accounting
principle.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"), which addresses
accounting for restructuring and similar costs. SFAS No. 146 supersedes previous
accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. We
will adopt the provisions of SFAS No. 146 for restructuring activities initiated
after December 31, 2002. SFAS No. 146 requires that the liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost was recognized at the
date of our commitment to an exit plan. SFAS No. 146 also establishes that the
liability should initially be measured and recorded at fair value. Accordingly,
SFAS No. 146 may affect the timing of recognizing future restructuring costs as
well as the amounts recognized. The adoption of SFAS No. 146 will not have an
impact on us.
In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of
Others (an interpretation of SFAS No. 5, 57 and 107 and rescission of SFAS
Interpretation No. 34)," which modifies the accounting and enhances the
disclosure of certain types of guarantees.
FS-51
FIN 45 requires that upon issuance of certain guarantees, the guarantor must
recognize a liability for the fair value of the obligation it assumes under the
guarantee. FIN 45's provisions for the initial recognition and measurement are
to be applied to guarantees issued or modified after December 31, 2002. The
disclosure requirements are effective for financial statements of annual periods
that end after December 15, 2002. We do not believe FIN 45 will have an impact
on us.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123," and is effective for fiscal years ending after December 15,
2002. SFAS No. 148 provides for alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. Additionally, SFAS No. 148 requires prominent disclosures
in both annual and interim financial statements about the method of accounting
for stock-based employee compensation. The adoption of SFAS No. 148 did not have
a material impact on us.
On January 17, 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51," which imposes a
new approach in determining if a reporting entity should consolidate certain
legal entities, including partnerships, limited liability companies, or trusts,
among others, collectively defined as variable interest entities or VIEs. A
legal entity is considered a VIE if it does not have sufficient equity at risk
to finance its own activities without relying on financial support from other
parties. Additional criteria must be applied to determine if this condition is
met or if the equity holders, as a group, lack any one of three stipulated
characteristics of a controlling financial interest. If the legal entity is a
VIE, then the reporting entity determined to be the primary beneficiary must
consolidate it. Even if a reporting entity is not obligated to consolidate a
VIE, then certain disclosures must be made about the VIE if the reporting entity
has a significant variable interest. Certain transition disclosures are required
for all financial statements issued after January 31, 203. The ongoing
disclosure and consolidation requirements are effective for all interim
financial periods beginning after June 15, 2003. We do not believe that FIN 46
will currently have a material impact on us.
RECLASSIFICATIONS
Certain amounts in the 2001 and 2000 consolidated financial statements
are reclassified to conform to the 2002 presentation.
4. SALE OF ASSETS AND DISCONTINUED OPERATIONS
On June 18, 2001, we completed the sale of our TPA and MGU business
units to HealthPlan Holdings, Inc. The TPA business included the small group
business operations and its associated data processing facilities located in
Tampa, FL, as well as the Taft-Hartley businesses that operate under the name
ABPA and SNA, based in EL Monte, CA and Las Vegas, NV, respectively. The MGU
business was the Philadelphia-based Montgomery Management Corporation. As a
result of the transaction, we recognized a pretax loss of $9.3 million. The
accompanying consolidated financial statements reflect the business units sold
as discontinued operations.
In 2000, we recorded an $80.3 million impairment of goodwill and
contract rights related to our TPA segment and MGU business.
On October 26, 2000, we sold our self-funded business unit for
approximately $13.6 million, consisting of $12.1 million cash and the assumption
of additional current liabilities in the amount of $1.5 million. The unit was
headquartered in Columbus, Ohio and operated primarily under the names
Harrington Benefit Services and CENTRA HealthPlan. We used the net cash proceeds
from the sale to reduce our bank debt by $8.7 million. As a result of the
transaction, we recognized a pretax loss of $52.5 million. We settled
contingencies during the fourth quarter of 2000 and recorded an additional loss
of $4.8 million. We do not believe that there are any additional material
contingencies.
On September 15, 2000, we sold our Ohio workers' compensation managed
care organization unit for approximately $3.5 million cash. The unit was part of
our acquisition of Columbus, Ohio-based Harrington Services Corporation in 1996.
We used the net cash proceeds from the sale to reduce our bank debt by $2.8
million. As a result of the transaction, we recognized a pretax gain of $3.2
million.
On July 5, 2000, we sold our unemployment compensation and workers'
compensation units for approximately $19.1 million cash. Our unemployment
compensation business operated under the name R.E. Harrington, and our workers'
compensation unit conducted business as Harrington Benefit Services Workers'
Compensation Division. Both units were part of our acquisition of Columbus,
Ohio-based Harrington Services Corporation in 1996. We used the net cash
proceeds from the sale to reduce our bank debt by $18.0 million. As a result of
the transaction, we recognized a pretax gain of $7.3 million.
FS-52
On April 14, 2000, we agreed to terminate our merger agreement with
UICI. As a result, we expensed $1.1 million of costs including legal, financial
advisory, and other fees associated with this transaction in the second quarter
of 2000.
Summarized financial position and operating results of the discontinued
business units for the years ended December 31, 2001 and 2000 are as follows:
YEAR ENDED DECEMBER 31,
2001 2000
--------- ---------
Net revenues ................................ $ 36,427 $ 157,867
========= =========
Loss from discontinued operations
before income tax benefit (expense)........ $ (509) $ (82,586)
Income tax (expense) benefit ................ (46) 23,782
--------- ---------
Loss from discontinued operations ........... $ (555) $ (58,804)
========= =========
Loss on sale of discontinued operations
before income tax (expense) benefit ....... $ (9,288) $ (42,741)
Income tax (expense) benefit ................ (789) 3,408
--------- ---------
Loss on sale of discontinued operations ..... $ (10,077) $ (39,333)
========= =========
As of December 31, 2002 and 2001, there were no assets or liabilities
remaining included on our consolidated financial statements associated with
discontinued operations.
5. CONCENTRATION OF CUSTOMERS
We are a party to a variety of contracts to provide medical cost
containment and business process outsourcing services. For the years ended
December 31, 2002, 2001 and 2000, our three largest customers accounted for
approximately 19.6%, 24.6%, and 33.0%, respectively, of total operating For the
years ended December 31, 2002 and 2001, no single customer accounted for more
than 10% of total operating revenues. For the year ended December 31, 2000, two
of our largest customers accounted for more than 10% of total operating revenue.
Customer A represented 13.7% and Customer B represented 12.2% of our operating
revenue for the year ended December 31, 2000.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
December 31,
-------------------
2002 2001
-------- -------
Furniture and fixtures $ 603 $ 603
Computers and equipment 1,233 1,039
Computer software 1,694 1,635
-------- -------
3,530 3,277
Less accumulated depreciation (1,989) (1,473)
-------- -------
$ 1,541 $ 1,804
======== =======
We capitalize purchased software which is ready for service and
software development costs incurred from the time technological feasibility of
the software is established until the software is ready for use. Costs not
associated with other software modifications, and other computer software
maintenance costs related to software development were expensed as incurred.
Software development costs and costs of purchased software are amortized using
the straight-line method over a maximum of three years or the expected life of
the product.
We regularly review the carrying value of capitalized software assets,
and a loss is recognized when the net realizable value falls below the
unamortized cost. In the fourth quarter of 2000, we wrote off $7.7 million of
internally
FS-53
developed software connected with our TPA segment that was previously
capitalized. The charge related to client server technology and other
functionality that was programmed for former customers. We decided to abandon
the client server technology and no longer provide the administrative services
that formed the basis of other programming.
7. INVESTMENTS
On January 29, 2001, HealthAxis, Inc. and HealthAxis.com, Inc.
announced a merger of the two companies effective January 26, 2001. We owned
1,367,787 shares of the combined companies. In April 2001, we sold all of our
shares of HealthAxis Inc. stock and realized a net pretax loss on the sale of
approximately $2.5 million.
During 2000, we sold our remaining shares of Caredata.com and recorded
a pre-tax gain on sale of approximately $0.3 million.
8. INTANGIBLE ASSETS
On April 1, 2001, we entered into a definitive agreement to sell our
TPA and MGU business units. Based upon the consideration we expected to receive
at closing, our goodwill and contract rights related to the business units sold
became impaired and we recorded an $80.3 million charge for the impairment of
intangible assets for the year ended December 31, 2000. This charge included
$4.1 million of goodwill related to the 1998 acquisition of Montgomery
Management Corporation, $49.0 million of goodwill related to the 1996
acquisition of Consolidated Group, Inc., $21.1 million of goodwill related to
the 1996 acquisition of American Benefit Plan Administrators, Inc. which was a
part of our acquisition of Harrington Services Corporation, $5.5 million of
goodwill related to the 1994 acquisition of HealthPlan Services, Inc. from the
Dun and Bradstreet Corporation, and $0.6 million of contract rights related to
the purchase of contract rights related to blocks of business purchased for the
small group business unit.
Intangible assets resulting from the excess of cost over the fair value
of the respective net assets acquired was as follows (in thousands):
DECEMBER 31,
---------------------
2002 2001
--------- ---------
Goodwill $ 34,021 $ 34,021
Less accumulated amortization (4,616) (4,616)
--------- --------
$ 29,405 $ 29,405
========= ========
We adopted SFAS No. 142 beginning January 1, 2002. Goodwill is deemed
to have an indefinite useful life. Thus, we ceased amortizing goodwill on
January 1, 2002. Amortization expense was $1.4 million in each of the years
ended December 31, 2001 and 2000. The effect on our net income and basic and
diluted earnings per share for all periods presented was as follows (in
thousands, except per share amounts):
FS-54
YEAR ENDED DECEMBER 31,
2002 2001 2000
---------- ---------- ----------
Loss attributable to common shareholders as reported ... $ (44,592) $ (45,221) $ (104,477)
Add back: amortization of goodwill ..................... -- 1,378 1,380
---------- ---------- ----------
Adjusted loss attributable to common shareholders ...... $ (44,592) $ (43,843) $ (103,097)
========== ========== ==========
Basic earnings per share:
Loss attributable to common shareholders as reported ... $ (2.72) $ (3.11) $ (7.64)
Add back: amortization of goodwill ..................... -- 0.09 0.10
---------- ---------- ----------
Adjusted loss attributable to common shareholders ...... $ (2.72) $ (3.02) $ (7.54)
========== ========== ==========
Diluted earnings per share:
Loss attributable to common shareholders as reported ... $ (2.72) $ (3.11) $ (7.64)
Add back: amortization of goodwill ..................... -- 0.09 0.10
---------- ---------- ----------
Adjusted loss attributable to common shareholders ...... $ (2.72) $ (3.02) $ (7.54)
========== ========== ==========
Basic weighted average number of shares outstanding .... $ 16,427 $ 14,558 $ 13,679
========== ========== ==========
Diluted weighted average number of shares outstanding .. $ 16,427 $ 14,558 $ 13,679
========== ========== ==========
9. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
December 31,
------------------------------------
2002 2001
--------------- ---------------
Accrued interest and fees $ 691 $ 6,115
Accrued compensation and benefits 479 1,138
Accrued divestiture reserves 2,017 1,918
Accrued legal and related reserves 1,314 2,037
Accrued restructuring costs 191 467
Other 882 1,259
--------------- ---------------
$ 5,574 $ 12,934
=============== ===============
Accrued restructuring charges consist primarily of accrued severance
and related costs and accrued office closures costs. We established
restructuring charges of $0.5 million and $2.2 million in 2001 and 2000,
respectively. We incurred amounts relating to such restructuring charges
totaling $0.3 million, $1.1 million, and $0.6 million in 2002, 2001, and 2000,
respectively.
10. NOTES PAYABLE AND CREDIT FACILITIES
As part of our business strategy, we pursued the restructure of our
credit facility during the second half of 2001 and the first quarter of 2002. As
of March 31, 2002, we had debt outstanding to our senior lenders totaling
approximately $69.0 million, including accrued and unpaid interest and fees. On
April 12, 2002 (the "Effective Date"), we closed a transaction for the
restructure and refinancing of our existing bank debt. Under the terms of the
restructuring, in exchange for the outstanding principal, accrued and unpaid
interest and fees due to our lenders, we entered into a $40.0 million term loan
that accrues interest at prime plus 1.0%, with interest payments due monthly.
Quarterly principal payments of $50,000 became due beginning June 30, 2002, and
the term loan is due in full on May 31, 2004. The term loan is collateralized by
all of our assets. The restructured credit facility does not include a line of
credit or the ability to borrow additional funds. The $29.0 million due to our
senior lenders was exchanged for 29,000 shares of our newly authorized Series C
convertible preferred stock and an additional promissory note in the amount of
$184,872. The terms of the Series C convertible preferred stock are disclosed in
Note 2. As described in Note 2, the restructured credit facility contains
certain financial covenants, including minimum monthly EBITDA levels, maximum
quarterly and annual capital expenditures, a minimum quarterly fixed charge
ratio, and maximum quarterly and annual extraordinary expenses (as defined in
the Agreement). From April 12, 2002 through November 30, 2002, we were in
compliance with these financial covenants. During December 2002, we were not in
compliance with our EBITDA covenant and we subsequently obtained a waiver for
this non-compliance from our senior lenders. Beginning in 2003, the required
monthly minimum EBITDA levels are $1.0 million in January 2003, $700,000 in
February 2003, $800,000 in March 2003 through July 2003, and $1.0 million
FS-55
thereafter. As a result of the restructuring, the amounts due to our senior
lenders as of December 31, 2002 and 2001 are classified as long-term debt in the
accompanying consolidated financial statements.
The accounting treatment for the restructured credit facility followed
the requirements of SFAS No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings" ("SFAS 15"), which requires that a comparison be
made between the future cash outflows associated with the restructured facility
(including principal, interest, and related costs), and the carrying value
related to the previous credit facility. The carrying value of the restructured
credit facility would be the same as the carrying value of the previous
obligations, less the fair value of the preferred stock or common stock warrants
issued. During 2002, we obtained an appraisal to determine the fair value of the
stock and warrants issued, which indicated the fair value to be approximately
$29.0 million. No gain or loss was recognized for accounting purposes in
connection with the debt restructuring. We recorded a charge of $0.4 million
upon closing of the debt restructuring for various investment advisory and legal
fees incurred in connection with the arrangement of the credit facility.
In connection with the closing of the transactions contemplated by the
Agreements, we entered into a letter agreement, as amended, with the lenders and
Wachovia Bank, National Association, as administrative agent for the lenders,
and for the holders of the Series C convertible preferred stock, pursuant to
which the lenders, in their capacity as such and as holders of the Series C
convertible preferred stock, granted to us an option, to consider the entire
indebtedness under the Agreements paid in full and to redeem the Series C
convertible preferred stock in exchange for the following consideration: (1)
payment of $40.0 million plus accrued and unpaid interest under the credit
facility; (2) payment of the outstanding principal balance plus accrued interest
under an additional note in the principal amount of $184,872; (3) payment of
outstanding fees and expenses of lenders' counsel and consultants incurred in
connection with the restructured credit agreement and prior credit agreements;
(4) the issuance of an additional 1,650,000 shares of our common stock; and (5)
replacement, substitution, or cash collateralization of an existing letter of
credit in the approximate amount of $0.8 million provided for under the credit
facility. We were unable to obtain the funds necessary to exercise the option
granted by our senior lenders. This option expired on September 9, 2002.
On March 13, 2003, PVC Funding Partners LLC, an affiliate of
Commonwealth Associates, LP and Comvest Venture Partners, filed a form 13D with
the Securities and Exchange Commission in which it indicated that on March 7,
2003, it acquired 29,851, or 96.0%, of our outstanding Series C convertible
preferred stock from our senior lenders. These share of Series C convertible
preferred stock were purchased from the senior lenders on a prorata basis at a
price of $33.50 per share. The selling lenders continue to hold the remaining
4.0% of the Series C convertible preferred stock. In connection with the
transaction, PVC Funding Partners also acquired $20.5 million in principal
amount of our outstanding bank debt from our senior lenders. See Note 16.
Prior to us entering into the restructured credit agreement, we
operated under a Forbearance Agreement, as amended (the "Forbearance
Agreement"), with our lending group. The Forbearance Agreement extended the
terms and conditions of the June 8, 2000, second Amended and Restated Credit
Agreement (the "Prior Credit Agreement"), which matured on August 31, 2001.
Under the terms of the Forbearance Agreement, as amended, which became effective
on September 1, 2001, we had until March 29, 2002 to repay the amounts under the
Prior Credit Agreement or to restructure the credit facility. During the term of
the Forbearance Agreement, interest accrued at an annual interest rate equal to
prime plus 6.0%. Interest was payable monthly at prime plus 1.0% per annum. The
difference between the accrual rate of interest and the rate paid was due at the
termination of the Forbearance Agreement and was rolled into the amount
restructured. In addition, we were required to repay accrued and unpaid interest
as of August 31, 2001 (totaling approximately $1.0 million) and were required to
achieve minimum cash collection levels and maximum cash disbursements as defined
in the Forbearance Agreement. We were in compliance with the terms of the
Forbearance Agreement, as amended.
The Prior Credit Agreement originally provided for a $73.8 million term
loan facility, a $25.0 million revolving credit facility, and a letter of credit
facility of up to $16.0 million available for current letters of credit. Under
the term loan facility, a payment of $250,000 was required at closing and
monthly for a two-month period commencing May 31, 2000. Repayments of $500,000
were required each month thereafter with additional repayments of $15.0 million
on January 31 and July 31, 2001, and a final payment on August 31, 2001.
Interest rates varied from the higher of (a) the Prime Rate or (b) the Federal
Funds rate plus 1/2 of 1%, plus a margin of 1.5% to 3%. The Prior Credit
Agreement required an initial payment of 1.0% of the maximum amount of the
facility, plus certain administrative fees and an annual commitment fee of .25%
for letters of credit and unused commitments. We capitalized approximately $1.4
million of bank fees related to the Prior Credit Agreement. Under the loan
terms, we were required to maintain certain financial covenants for operating
revenue and EBITDA as defined in the Prior Credit Agreement. We were also
restricted in capital expenditures and were subject to repayment with proceeds
of certain future activities such as sale of certain assets and public
offerings. As of December 31, 2001, the balance outstanding under the Prior
Credit Agreement was $64.7 million plus accrued and unpaid interest and fees of
$4.5 million. During 2001, we paid interest of $3.7 million and principal of
$2.0 million on the Prior
F-56
Credit Agreement. On June 29, 2000, September 12, 2000, September 29, 2000,
October 19, 2000, and December 8, 2000, we signed Limited Waivers and Consents
related to the disposition of assets and certain payment and other covenant
requirements.
As of March 29, 2001, we signed a First Amendment and Limited Waiver
and Consent ("the First Amendment") to the Prior Credit Agreement. The First
Amendment became effective upon the satisfaction of certain conditions,
including the written confirmation from one of our small group customers in
support of the sale of our third party administration and managing general
underwriter business. We obtained this written confirmation prior to the closing
of such sale. Under the terms of the First Amendment, the commitment of banks
which were signers to the Prior Credit Agreement (the "Bank Group") on the
revolving credit facility was frozen at the $14.9 million outstanding balance
upon the signing of the First Amendment. The repayments of $500,000 due on March
31, 2001 and April 30, 2001 were waived and certain other repayments which had
been previously deferred were waived. In addition, a repayment of $1.5 million
was due and paid in April 2001, the monthly repayment was increased from
$500,000 to $750,000 beginning on May 31, 2001, and the unpaid additional
payment of $4.5 million due on July 31, 2001 was waived to the maturity date.
The First Amendment required certain prepayments upon the receipt of
tax refunds, debt refinancing proceeds or the proceeds of new equity issuances,
and also revised various other provisions relating to covenants and defined
defaults. Additionally, the First Amendment required us to retain the services
of an investment banker by April 30, 2001 to assist us with refinancing, and the
First Amendment also required that in the event the third party administration
business was not sold or otherwise disposed of before May 30, 2001, we were to
prepare and submit by June 6, 2001 for approval of the Lenders a detailed plan
for the alternate disposition of such business. The businesses were sold
effective June 18, 2001.
As of April 13, 2001, we signed a Second Amendment and Limited Waiver
and Consent ("the Second Amendment"), which removed from the Prior Credit
Agreement certain requirements that could have affected our ability to draw on
the revolving credit facility at the level to which it was frozen in the First
Amendment. The Second Amendment became effective concurrently with the First
Amendment.
In June 2001, Ronald Davi, former principal of National Preferred
Provider Network prior to its acquisition by us, drew in full on a letter of
credit in his favor in the amount of $2.0 million. Such amount is included in
the obligations owed to our lending group at December 31, 2002 and December 31,
2001.
On July 2, 2001, we executed the Third Amendment and Limited Waiver to
the Prior Credit Agreement (the "Third Amendment") with our Bank Group and
certain other parties. The Third Amendment provided for, among other things, (a)
permission for us to issue common stock to DePrince, Race & Zollo, Inc. for $3.8
million, (b) permission for us to use those funds to satisfy certain
post-closing obligations to HealthPlan Holdings in connection with the sale of
the third party administration and managing general underwriter businesses, (c)
the postponement of certain scheduled payments of principal until August 31,
2001, (d) a 100 basis point increase in the interest rate, and (e) the delivery
of 74,998 shares of common stock to the Bank Group in consideration for its
consent to the Third Amendment.
In connection with the sale of the third party administration and
managing general underwriter business units and the assumption by HealthPlan
Holdings of certain liabilities associated therewith (the "Transaction"), the
New England Life Insurance Co. drew in full on a letter of credit in its favor
in the amount of $6.0 million. Under the terms of the Prior Credit Agreement,
any payment under the letter of credit which is not promptly reimbursed to the
lenders by us upon notice of such draw constitutes a payment default. The
lenders indefinitely waived this payment default pursuant to the terms of a
Limited Waiver and Extension dated as of June 15, 2001, which also waived
certain additional terms of the Prior Credit Agreement in order to permit
certain terms of the Transaction which were not part of the original Stock
Purchase Agreement of April 1, 2001 but were added through the First Amendment
to the Stock Purchase Agreement (the "First Amendment"), dated June 18, 2001.
As of December 31, 2002 and December 31, 2001, respectively, PlanVista
had additional notes and other obligations totaling approximately $10.6 million
and $11.0 million, respectively, related to a 1993 acquisition, a 1998
acquisition, and equipment purchases, and related to the HealthPlan Holdings
transaction. As described in Note 2, included in these totals was a $5.0 million
note related to the HealthPlan Holdings transaction that converted to 813,273
shares of our common stock upon the Effective Date, subject to guarantee that
provides HealthPlan Holdings with $5.0 million in gross proceeds from the sale
of the stock. The number of shares of common stock issued in satisfaction of
this note was based on the average closing price of our common stock for the 10
days immediately prior to the conversion. Also included in the total was $4.0
million of notes payable to CENTRA Benefits, Inc. ("CENTRA") originally
delivered in connection with the 1998 acquisition, which was restructured so
that amended and restated notes totaling $4.3 million (representing the
principal under the original notes plus accrued unpaid interest) were issued to
CENTRA under terms including interest at
FS-57
12.0% (payable in additional shares of our common stock, except under specified
circumstances) and a maturity date of December 1, 2004. In connection with the
restructuring of the CENTRA notes, we also issued to CENTRA warrants to purchase
an aggregate of 200,000 shares of our common stock at an exercise price of $0.25
over the market price of the stock on the date of the issuance of the
restructured notes (based on the average trading price during the ten trading
days preceding such note restructure), subject to reduction to a price equal to
the conversion price of the Series C convertible preferred stock upon the
happening of certain events. In March 2003, we refinanced the Centra notes. See
Note 16.
As a part of the sale of HealthPlan Holdings, we settled certain
obligations with one of its large carriers by issuing a promissory note. As of
the restructuring of our credit facility, the amount owed on this note was
approximately $1.0 million plus $1.5 million of other obligations. On March 27,
2002, we retired this note by issuing 274,369 shares of our common stock, based
on the closing price of our common stock one day immediately prior to the
retirement date of this note, and by issuing a credit for $950,000 payable with
in-kind claims repricing services.
On April 12, 2002, we extended the maturity date of notes totaling
$500,000 due to two members of our board of directors to December 1, 2004. These
notes bear interest, which accrues at prime plus 4.0% per annum, but payment of
interest is subordinated and deferred until all senior obligations are paid.
The balances outstanding on the above debt instruments are as follows
(in thousands):
DECEMBER 31,
-------------------------------------
2002 2001
--------------- ---------------
Line of Credit/Term Loan $ 40,005 $ 64,681
CAL/GROUP Note 751 848
Sun Capital Note -- 5,000
PlanVista Equipment Notes -- 57
CENTRA Note 4,288 4,000
NEF Note -- 1,000
Board of Directors Notes 500 500
--------------- ---------------
45,544 76,086
Less current portion (356) (308)
--------------- ---------------
Long-term debt $ 45,188 $ 75,778
=============== ===============
Future minimum principal payments for all notes as of December 31, 2002
are as follows (in thousands). These amounts have been adjusted to reflect our
restructured debt arrangement (exclusive of the revised Centra note, which were
executed in March 2003) as discussed above.
2003 $ 356
2004 45,188
2005 --
2006 --
2007 --
Thereafter --
-----------
$ 45,544
===========
11. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLAN
We have a defined contribution employee benefit plan established
pursuant to Section 401(k) of the Internal Revenue Code covering substantially
all employees. PlanVista matches one-third of employee contributions limited to
6.0% of the employee's salary. Under the provisions of the plan, participants'
rights to employer contributions vest 40.0% after completion of three years of
qualified service and increase by 20.0% for each additional year of qualified
service completed thereafter. Expense in connection with this plan for the years
ended December 31, 2002, 2001, and 2000 was approximately $0.1 million, $0.2
million, and $0.7 million, respectively.
FS-58
POST-RETIREMENT BENEFIT PLAN
We provide medical and term life insurance benefits to certain retired
employees. We fund the benefit costs on a current basis because there are no
plan assets. At December 31, 2002 and 2001, accrued post-retirement liability of
$0.2 million was included in the balance in accrued liabilities.
DEFERRED COMPENSATION PLAN
We have a deferred compensation plan with two former officers. The
deferred compensation, which together with accumulated interest is accrued but
unfunded, is distributable in cash after retirement or termination of
employment, and amounted to approximately $1.0 million at December 31, 2002 and
2001. Both participants began receiving such deferred amounts, together with
interest at 12% annually, at age 65.
12. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
We rent office space and equipment under non-cancelable operating
leases. Rental expense under the leases approximated $0.6 million for each of
the years ended December 31, 2002, 2001, and 2000. Future minimum rental
payments under these leases are as follows (in thousands):
2003 $ 698
2004 665
2005 631
2006 624
2007 622
Thereafter 582
-------
$ 3,822
=======
LITIGATION
In the ordinary course of business, we may be a party to a variety of
legal actions that affect any business, including employment and employment
discrimination-related suits, employee benefit claims, breach of contract
actions, and tort claims. In addition, we entered into indemnification
obligations related to certain of the businesses we sold during 2001 and 2000
and we could be subject to a variety of legal and other actions related to such
indemnification obligations. We currently have insurance coverage for some of
these potential liabilities. Other potential liabilities may not be covered by
insurance, insurers may dispute coverage, or the amount of insurance may not
cover the damages awarded. While the ultimate financial effect of these claims
and indemnification agreements cannot be fully determined at this time, in the
opinion of management, they will not have a material adverse effect on our
financial condition, results of operations, or cash flows.
In July 1999, TMG Life Insurance Company (now known as Clarica Life
Insurance Company) asserted a demand against HealthPlan Services (the former
subsidiary that we sold to HealthPlan Holdings) for claims in excess of $7.0
million for breach of contract and related claims. HealthPlan Services asserted
breach of contract and various other claims against Clarica. Following
arbitration, we settled the dispute with Clarica in October 2000, in
consideration for payment to them of $400,000. On April 17, 2000, Admiral
Insurance Company, our errors and omissions carrier, filed a complaint for
declaratory judgment in the United States District Court for the Middle District
of Florida, naming HealthPlan Services, Clarica, and Connecticut General Life
Insurance Company as defendants. In December 2001, we reached a settlement
agreement related to these claims. The settlement agreement obligated us to pay
Connecticut General Life Insurance Company approximately $150,000, which we paid
on January 2, 2003.
In November 2001, Paid Prescriptions, LLC initiated a breach of
contract action in the United States District Court for the District of New
Jersey against HealthPlan Services, our former subsidiary. Paid Prescriptions
seeks $1.6 million to $2.0 million in compensation arising from HealthPlan
Services' alleged failure to meet certain performance goals under a contract
requiring HealthPlan Services to enroll a certain number of customers for Paid
Prescriptions' services. Because the events giving rise to this claim allegedly
occurred prior to our sale of the HealthPlan Services business to HealthPlan
FS-59
Holdings, we are vigorously defending the action on behalf of HealthPlan
Services, in accordance with our indemnification obligations to HealthPlan
Holdings.
In November 2001, we filed a complaint for breach of contract and
unjust enrichment in the Circuit Court of the Thirteenth Judicial Circuit,
Hillsborough County, Florida, against Trewit, Inc. and Harrington Benefit
Services, Inc., our former subsidiary. The complaint, which we amended in
February 2002, sought in excess of $3.5 million in damages arising primarily out
of a settlement entered into in connection with a dispute that arose after
Trewit's acquisition of Harrington Benefit Services from us in 2000. In April
2002, we again amended the complaint to include claims of fraudulent
misrepresentation, negligent misrepresentation, and promissory estoppel, seeking
additional damages for these causes of action in excess of $1.4 million. On June
28, 2002, Trewit filed a complaint against us in the Circuit Court of the
Thirteenth Judicial Circuit, Hillsborough County, Florida, alleging breach of
contract and fraud in connection with its acquisition of Harrington Benefit
Services. The complaint sought damages in excess of $2.0 million. In February
2003, we resolved our litigation with Trewit, Inc. and Harrington Benefit
Services, Inc. without payment by us, and the parties signed mutual releases.
We are currently negotiating certain disputes regarding the closing
balance sheet of the HealthPlan Services business that we sold to HealthPlan
Holdings in June 2001. See Note 2.
13. INCOME TAXES
The provision (benefit) for income taxes is as follows (in thousands):
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
2002 2001 2000
-------- -------- -------
Current:
Federal $ -- $ -- $ --
State -- -- --
-------- -------- -------
Deferred:
Federal (1,191) 23,989 (2,844)
State -- 2,822 (419)
-------- -------- -------
(1,191) 26,811 (3,263)
-------- -------- -------
(Benefit) provision for
income taxes $ (1,191) $ 26,811 $(3,263)
======== ======== =======
The components of deferred taxes recognized in the accompanying
consolidated financial statements are as follows (in thousands):
DECEMBER 31,
---------------------------------------------
2002 2001
------------------- --------------------
Accrued expenses and reserves not currently deductible $ 1,613 $ 1,026
Net operating loss 34,786 36,538
Depreciation (354) (224)
Goodwill (2,089) (875)
------------------- --------------------
33,956 36,465
Valuation allowance (33,956) (36,465)
------------------- --------------------
$ -- $ --
=================== ====================
We recognize deferred assets and liabilities for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax bases of assets and liabilities. A valuation allowance is provided when it
is more likely than not that some portion of the deferred tax asset will not be
realized. Due to cumulative losses in recent years, we recorded a valuation
allowance of $34.0 and $36.5 million on net deferred tax assets as of December
31, 2002 and 2001,
FS-60
respectively. We have net operating loss carryforwards of approximately $84.1
million that expire in 2021. Due to a change in ownership under Section 382 of
the Internal Revenue Code, utilization of the net operating loss carryforward
will be limited to approximately $3.0 million per year.
The (benefit) provision for income taxes varies from the federal
statutory income tax rates due to the following:
2002 2001 2000
---------- ---------- ----------
Federal statutory rate applied to pretax income 35.0% (34.0)% 34.0%
State income taxes net of federal tax benefit 3.9% (6.0)% 5.0%
Other non-deductible items 0.2% 2.0% (0.1)%
Valuation allowance (78.9)% 386.0% --
---------- ---------- ----------
Effective tax rate (39.8)% 348.0% 38.9%
========== ========== ==========
14. EARNINGS PER COMMON SHARE
Basic earnings per share, which is based on the weighted-average number
of common shares outstanding, and diluted earnings per share, which includes all
dilutive potential common shares outstanding is as follows.
NET LOSS
ATTRIBUTABLE TO
COMMON STOCK SHARES PER SHARE
(IN THOUSANDS) (IN THOUSANDS) AMOUNT
--------------- --------------- ---------------
2002
Loss per share applicable to common stock-basic $ (44,592) 16,427 $ (2.72)
Effect of dilutive securities: -- -- --
--------------- --------------- ---------------
Loss per share applicable to common stock -
assuming dilution $ (44,592) 16,427 $ (2.72)
=============== =============== ===============
2001
Loss per share applicable to common stock-basic $ (45,221) 14,558 $ (3.11)
Effect of dilutive securities: -- -- --
--------------- --------------- ---------------
Loss per share applicable to common stock -
assuming dilution $ (45,221) 14,558 $ (3.11)
=============== =============== ===============
2000
Loss per share applicable to common stock-basic $ (104,477) 13,679 $ (7.64)
Effect of dilutive securities: -- -- --
--------------- --------------- ---------------
Loss per share applicable to common stock -
assuming dilution $ (104,477) 13,679 $ (7.64)
=============== =============== ===============
During the years ending December 31, 2002, 2001 and 2000, approximately
0.7 million, 1.0 million and 1.7 million options are not included in the
calculation of earnings (loss) per shares because they are antidilutive.
15. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLANS
STOCK OPTION PLANS
Our stock option plans authorize the granting of both incentive and
non-incentive stock options for a total of 2,710,000 shares of common stock to
key executives, management, consultants, and, with respect to 360,000 shares, to
directors. Under the plans, all options have been granted at prices not less
than market value on the date of grant. Certain non-qualified incentive stock
options may be granted at less than market value.
FS-61
Options granted to employees and directors generally vest over a
four-year period from the date of grant, with 20% of the options becoming
exercisable on the date of the grant and 20% becoming exercisable on each of the
next four anniversaries of the date of the grant.
A summary of option transactions during each of the three years ended
December 31, 2002 is shown below:
NUMBER WEIGHTED
OF AVERAGE
SHARES OPTION PRICE
--------------- ---------------
Under option, December 31, 1999 1,965,450
(1,247,000 exercisable)
Granted 836,000 $ 2.62
Exercised (1,100) 2.50
Canceled (1,084,050) 15.23
---------------
Under option, December 31, 2000 1,716,300
(915,906 exercisable)
Granted 645,000 8.82
Exercised (199,300) 2.54
Canceled (1,184,600) 11.73
---------------
Under option, December 31, 2001
(600,466 exercisable) 977,400
Granted 958,500 4.89
Exercised (12,200) 2.50
Canceled (113,563) 12.07
---------------
Under option, December 31, 2002
(807,403 exercisable) 1,810,137
===============
There were 533,344 and 1,732,600 shares available for the granting of
options at December 31, 2002 and 2001, respectively.
The following table summarizes the stock options outstanding at
December 31, 2002:
RANGE NUMBER WEIGHTED AVERAGE WEIGHTED
OF OUTSTANDING AT REMAINING AVERAGE
EXERCISE PRICES DECEMBER 31, 2002 CONTRACTUAL LIFE EXERCISE PRICE
-------------------------- ------------------------ ----------------------- ---------------------
$ 2.50 - $ 9.19 1,577,137 4 years $5.34
11.00 - 25.50 233,000 4 years $16.97
EMPLOYEE STOCK PURCHASE PLAN
Under the 1996 Employee Stock Purchase Plan ("Employee Plan"), we are
authorized to issue up to 250,000 shares of common stock to our employees who
have completed one year of service. The Employee Plan is intended to provide a
method whereby employees have an opportunity to acquire shares of our common
stock.
Under the terms of the Employee Plan, an employee may authorize a
payroll deduction of a specified dollar amount per pay period. The proceeds of
that deduction are used to acquire shares of our common stock on the offering
date. The number of shares acquired is determined based on 85% of the closing
price of our common stock on the offering date.
PlanVista sold 387 shares in 2002, 2,051 shares in 2001 and 12,708
shares in 2000 to employees under the Employee Plan.
FS-62
16. SUBSEQUENT EVENTS
On March 13, 2003, PVC Funding Partners LLC, an affiliate of
Commonwealth Associates, LP and Comvest Venture Partners, filed a form 13D with
the Securities and Exchange Commission in which it indicated that on March 7,
2003, it acquired 29,851, or 96.0%, of our outstanding Series C convertible
preferred stock from our senior lenders. This Series C convertible preferred
stock was purchased from the lenders on a prorata basis at a price of $33.50 per
share. The original lenders continue to hold the remaining 4.0% of the Series C
convertible preferred stock. In connection with the transaction, PVC Funding
Partners, LLC also acquired $20.5 million in principal amount of our outstanding
bank debt from our senior lenders. See Note 2 for additional information on the
Series C convertible preferred stock.
There is an intercreditor agreement between PVC Funding Partners, LLC
and Wachovia Bank, National Association, dated March 7, 2003. The intercreditor
agreement provides that, until the occurrence of a Board Shift Event, PVC
Funding Partners, LLC has all of the rights of the original lenders under the
restructured credit agreements, except that (1) PVC Funding Partner, LLC's
rights to mandatory prepayments and other principal payments prior to the
maturity date are subordinated to the original lenders' rights to those
payments, and (2) PVC Funding Partner, LLC's notes will be voted consistently
with and on the same percentage basis as the original lenders with respect to
all matters required to be submitted to a vote or consent of the lenders, except
for matters related to certain fundamental changes in the loan terms. Upon the
first occurrence of a Board Shift Event, which would allow PVC Funding Partners,
LLC to appoint an additional board member and thus obtain control of our board
of directors, PVC Funding Partners, LLC has the option of not exercising their
right to obtain such control. If, within fifteen days of a first Board Shift
Event, PVC Funding Partners, LLC notifies the original lenders that they will
not exercise their right to control our board, then the original lenders will
have the option to repurchase 14,304 of the Series C convertible preferred
stock, at a price of $33.50 per share. If PVC Funding Partners, LLC exercises
their right to obtain control of our board, or fails to timely notify the
original lenders that they will not exercise this right, then the debt held by
PVC Funding Partners, LLC will automatically be subordinated to the debt held by
the original lenders.
On March 31, 2003, we renegotiated approximately $4.3 million in
convertible notes that were originally issued to Centra Benefit Services, Inc.
(sometimes referred to as Centra). Pursuant to the renegotiated terms, we have
extended the maturity date of the notes from December 1, 2004 to April 1, 2006,
reduced the interest rate from 12.0% per annum to 6.0% per annum, and fixed the
conversion price at $1.00, subject to adjustment in accordance with
anti-dilution protections. The previous conversion price was based on the
trading price of our common stock. Immediately upon completion of this
restructuring, PVC Funding Partners, LLC acquired slightly more than 50.0% of
the face value of the notes from Centra.
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED; IN THOUSANDS EXCEPT PER
SHARE DATA)
The following quarterly statements have been revised to give effect of
the discontinued operations in 2001.
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
Year ended December 31, 2002:
Operating revenues $ 8,394 $ 8,324 $ 8,474 $ 7,949
---------- ---------- ---------- ----------
Income from continuing operations
before minority interest, discontinued
operations, loss on sale of assets,
extraordinary item, and cumulative effect
of change in accounting principle 484 1,879 1,153 669
Net income 484 1,879 1,153 669
Basic and diluted earnings from continuing
operations per common share $ 0.03 $ 0.11 $ 0.07 $ 0.04
Basic and diluted net earnings per common
share $ 0.03 $ 0.11 $ 0.07 $ 0.04
FS-63
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
Year ended December 31, 2001:
Operating revenues $ 8,125 $ 7,886 $ 8,924 $ 7,983
---------- ---------- ---------- ----------
Income from continuing operations
before minority interest, discontinued
operations, loss on sale of assets,
extraordinary item, and cumulative effect
of change in accounting principle 179 (33,086) (1,338) (268)
Net loss (5,693) (34,912) (3,957) (659)
Basic and diluted earnings (loss) from
continuing operations per common share $ 0.01 $ (2.27) $ (0.09) $ (0.02)
Basic and diluted net loss per common share $ (0.39) $ (2.40) $ (0.27) $ (0.05)
18. RESTATEMENT
The accompanying financial statements include our restated consolidated
balance sheet at December 31, 2002, after determination that our Series C
convertible preferred stock, as further described in paragraph 4 of Note 2,
should be classified as temporary equity. This restatement is limited solely to
classifying the aggregate of our Series C convertible preferred stock in the
amount of $77.2 million at December 31, 2002 from permanent stockholders'
deficit to the temporary equity section of the consolidated balance sheet.
The restatement had no effect on our statements of operations or cash
flows.
The following table summarizes the impact of the correction as of
December 31, 2002:
Liabilities, Temporary Equity and Stockholders' Deficit (in part) at
December 31, 2002:
AS REPORTED AS RESTATED
------------ ------------
Series C convertible preferred stock
(including accrued dividends) ............ $ -- $ 77,217
Stockholders' deficit:
Series C convertible preferred stock ..... 77,217 --
Total stockholders' deficit ................ $ (18,389) $ (95,606)
FS-64
PLANVISTA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
SEPTEMBER 30,
2003
-------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,962
Accounts receivable, net of allowance for doubtful
accounts of $1,353 8,091
Prepaid expenses and other current assets 449
Refundable income taxes --
------------
Total current assets 11,502
Property and equipment, net 1,500
Other assets 684
Goodwill 29,405
------------
Total assets $ 43,091
============
LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,618
Accrued liabilities 4,471
Income tax payable 912
Deferred revenue --
Current portion of long-term debt 38,439
------------
Total current liabilities 45,440
Long-term debt, less current portion 5,981
Common stock with make-whole provision 5,000
Other long-term liabilities 849
------------
Total liabilities 57,270
------------
Commitments and contingencies
Common stock with make-whole provision --
Series C convertible preferred stock, $0.01 par value;
40,000 shares authorized; 32,659 shares
issued and outstanding 129,503
Stockholders' deficit:
Common stock, $0.01 par value; 100,000,000 shares
authorized, 16,967,352 shares
issued and outstanding 170
Additional paid-in capital --
Treasury stock at cost, 7,940 shares issued and outstanding (38)
Accumulated deficit (143,814)
------------
Total stockholders' deficit (143,682)
------------
Total liabilities and stockholders' deficit $ 43,091
============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
FS-65
PLANVISTA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
SEPTEMBER 30,
2003 2002
------------ ------------
Operating revenue $ 23,954 $ 24,746
------------ ------------
Cost of operating revenue:
Personnel expenses 6,568 6,617
Network access fees 4,575 4,014
Other 4,191 4,353
Depreciation 425 384
Costs related to ProxyMed agreement 846 --
------------ ------------
Total cost of operating revenue 16,605 15,368
Bad debt expense 1,262 1,980
Other income (650) --
Interest expense, net 2,032 4,649
------------ ------------
Total expenses and other income 19,249 21,997
------------ ------------
Income before provision (benefit)
for income taxes 4,705 2,749
Provision (benefit) for income taxes 1,219 (953)
------------ ------------
Net income 3,486 3,702
Preferred stock accretion and preferred stock dividend (52,286) (31,080)
------------ ------------
Loss applicable to common stockholders $ (48,800) $ (27,378)
============ ============
Basic and diluted loss per share applicable to common stockholders:
Net income $ 0.21 $ 0.23
Preferred stock accretion and preferred stock dividend (3.11) (1.91)
------------ ------------
Loss applicable to common stockholders $ (2.90) $ (1.68)
============ ============
Basic and diluted weighted average number
of common shares outstanding 16,822 16,311
============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
FS-66
PLANVISTA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(UNAUDITED)
(IN THOUSANDS)
Additional
Common Paid-in Treasury Accumulated
Stock Capital Stock Deficit Total
--------------- --------------- --------------- --------------- ---------------
Balance, December 31, 2002 $ 168 $ 45,593 $ (38) $ (141,329) $ (95,606)
Accretion of Series C convertible
preferred stock -- (43,850) -- (5,971) (49,821)
Preferred stock dividends -- (2,465) -- -- (2,465)
Warrants issued to ProxyMed, Inc. -- 496 -- -- 496
Warrants issued to consultants -- 15 -- -- 15
Common stock issued for investment
banking services 1 142 -- -- 143
Common stock issued in lieu
of cash interest payment 1 69 -- -- 70
Net income -- -- -- 3,486 3,486
--------------- --------------- --------------- --------------- ---------------
Balance, September 30, 2003 $ 170 $ -- $ (38) $ (143,814) $ (143,682)
=============== =============== =============== =============== ===============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
FS-67
PLANVISTA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net income .......................................................... $ 3,486 $ 3,702
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................................... 425 384
Bad debt expense ................................................... 1,262 1,980
Deferred revenue settlement ........................................ (650) --
Non-cash interest expense .......................................... 93 739
Restructuring costs ................................................ -- (127)
Warrants issued in connection with ProxyMed agreement .............. 496 --
Warrants issued to consultants ..................................... 15 --
Changes in assets and liabilities:
Accounts receivable ................................................ (1,364) (3,140)
Income taxes ....................................................... 2,512 (543)
Prepaid expenses and other current assets .......................... (275) (1,782)
Other assets ....................................................... (6) (86)
Accounts payable ................................................... (1,285) 190
Accrued liabilities ................................................ (485) (597)
Deferred revenue ................................................... (300) --
Other long-term liabilities ........................................ (154) (15)
------------ ------------
Net cash provided by operating activities .................. 3,770 705
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment ............................... (384) (373)
------------ ------------
Net cash used in investing activities ...................... (384) (373)
------------ ------------
Cash flows from financing activities:
Capital lease and debt payments ................................... (1,622) (201)
Proceeds from common stock issued ................................. -- 23
------------ ------------
Net cash used in financing activities ...................... (1,622) (178)
------------ ------------
Net increase in cash and cash equivalents ............................ 1,764 154
Cash and cash equivalents at beginning of period ..................... 1,198 395
------------ ------------
Cash and cash equivalents at end of period ........................... $ 2,962 $ 549
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................ $ 1,661 $ 1,396
============ ============
Supplemental non-cash investing and financing information:
Common stock issued in connection with settlement
of subordinated notes and accrued interest .................... $ -- $ 1,521
============ ============
Registration rights agreement .................................... $ -- $ 636
============ ============
Preferred stock accretion and preferred stock dividends .......... $ 52,286 $ 31,080
============ ============
Conversion of $50 million note to common stock
with make-whole provision ...................................... $ -- $ 5,000
============ ============
Conversion of accrued interest to long-term debt ................. $ 498 $ --
============ ============
Preferred stock issued in connection with debt restructuring ..... $ -- $ 28,440
============ ============
Issuance of common stock in lieu of cash interest payment ........ $ 70 $ --
============ ============
Common stock issued for investment banking services .............. $ 143 $ --
============ ============
Warrants issued to consultants ................................... $ 15 $ --
============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
FS-68
PLANVISTA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
1. DESCRIPTION OF BUSINESS
PlanVista Corporation (together with its wholly owned subsidiaries)
provides medical cost containment and business process outsourcing solutions for
the medical insurance and managed care industries. Specifically, we provide
integrated national preferred provider organization (sometimes called PPO)
network access, electronic claims repricing, and network and data management
business process outsourcing services to health care payers, such as
self-insured employers, medical insurance carriers, third party administrators
(sometimes called TPAs), health maintenance organizations (sometimes called
HMOs), and other entities that pay claims on behalf of health plans. We also
provide network and data management business process outsourcing services for
health care providers, including individual providers, PPOs, and other provider
groups.
2. REORGANIZATION, DEBT RESTRUCTURING, AND LIQUIDITY
Since June 2000, when we initiated a plan of reorganization, we have
divested certain of our underperforming and non-growth businesses and
restructured and refinanced our credit facility. Currently, our term loan of
$38.4 million is due in quarterly installments of $50,000 with the remaining
balance due in full on May 31, 2004 (see Note 4). Such term loan is subject to
certain financial covenants, which must be met on a monthly and/or quarterly
basis. Although there can be no assurances, management believes, based on
available information, that we will be able to maintain compliance with the
terms of our restructured credit facility, including the financial covenants,
until our restructured credit facility becomes due in May 2004.
Except for the indebtedness due in May 2004, we believe that all of our
consolidated operating and financing obligations due in the next twelve months
will be met from internally generated cash flow from operations and our
available cash. Our ability to fund our operations, make the scheduled payments
of interest and principal on our indebtedness, and maintain compliance with the
terms of our restructured credit facility, including our financial covenants,
depends on our future performance, which is subject to economic, financial,
competitive, and other factors beyond our control.
Our indebtedness comes due in May 2004. We are currently pursuing
alternatives to refinance this indebtedness and/or raise additional equity
capital to pay off or pay down this indebtedness. There can be no assurance that
we will be able to repay the indebtedness or refinance such indebtedness on
terms that are acceptable to us.
If we are unable to generate sufficient cash flows from operations to
pay our financial obligations and meet our debt covenants, as required by our
restructured credit facility, or if we are unable to repay or refinance our
restructured credit facility in full in May 2004, there may be a material
adverse effect on our business, financial condition, and results of operations.
Management is continuing to explore alternatives, including the
possible sale of equity securities, to reduce our obligations, recapitalize the
Company and provide additional liquidity. There can be no assurances that we
will be successful in these endeavors. Should we be successful in these
endeavors, there could be substantial dilution to the common stockholders.
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
PlanVista Corporation and its subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
In our opinion, the interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for fair presentation of the
condensed consolidated financial position and the condensed consolidated
FS-69
results of operations for the interim periods presented. Interim results are not
necessarily indicative of results for a full year.
These condensed consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all disclosures normally required by generally accepted accounting principles or
those normally made in an annual report on Form 10-K. The interim condensed
consolidated financial statements are unaudited and should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2002.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the income or loss
available to common stockholders by the weighted average number of common shares
outstanding for the period, without consideration for common stock equivalents.
The calculation of diluted earnings per share reflects the effect of outstanding
options and warrants using the treasury stock method, unless antidilutive.
Approximately 5.5 million and 1.8 million options and warrants for the nine
months ended September 30, 2003 and 2002, respectively, are excluded from the
calculation of diluted loss per share applicable to common stockholders because
they are antidilutive. In addition, the common shares associated with the Series
C convertible preferred stock are not included in the calculation of diluted
loss per share applicable to our common stockholders for the nine months ended
September 30, 2003 and 2002 because they are also antidilutive.
INCOME TAXES
We recognize deferred assets and liabilities for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax bases of assets and liabilities. A valuation allowance is provided when it
is more likely than not that some portion of the deferred tax asset will not be
realized. Due to cumulative losses in recent years, we have recorded a valuation
allowance on our deferred tax assets at September 30, 2003 and December 31,
2002.
The effective rate used by us to record income tax expense differs from
the federal statutory rate primarily related to net operating loss
carryforwards.
We have net operating loss carryforwards of approximately $82.5 million
that will expire in 2021. Due to a change in ownership under Section 382 of the
Internal Revenue Code, utilization of the net operating loss carryforwards is
limited to approximately $3.0 million per year.
Our New York state income tax returns are being audited for the years
1999 through 2001. In the opinion of management, the ultimate resolution of this
matter will not have a material adverse affect on our financial position,
results of operations, or cash flows.
ACCOUNTING FOR STOCK-BASED COMPENSATION
We have adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock Based Compensation, but we apply Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for our
stock-based compensation plans. Therefore, since stock options are granted with
an option price greater than or equal to the fair value on the date of grant, we
do not recognize compensation expense for any of our stock option plans. If we
elected to recognize compensation expense for our stock option plans based on
fair value at the date of grant, consistent with the method prescribed by SFAS
No. 123, net income and earnings per share would have been reduced to the pro
forma amounts as follows using the Black-Scholes pricing model and the
assumptions detailed below:
FS-70
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2003 2002
------------ ------------
Loss applicable to common stockholders, as reported ........ $ (48,800) $ (27,378)
Stock-based employee compensation expense
for all awards, net of related tax ....................... (978) (4)
------------ ------------
Pro forma loss applicable to common stockholders ........... $ (49,778) $ (27,382)
============ ============
Loss applicable to common stockholders:
Basic and diluted - as reported ......................... $ (2.90) $ (1.68)
============ ============
Basic and diluted - pro forma ........................... $ (2.96) $ (1.68)
============ ============
Assumptions:
Dividend yield ........................................... 0.0% 0.0%
Expected volatility ...................................... 85.5% 30.0%
Risk-free interest rate .................................. 0.95% 1.5%
Expected life ............................................ 5 yrs. 5 yrs.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year's presentation. These amounts do not have a material impact on the
condensed consolidated financial statements taken as a whole.
4. LONG-TERM DEBT
On April 12, 2002, we closed a transaction for the restructuring and
refinancing of our existing senior bank debt. As part of the restructuring, we
entered into a $40.0 million term loan that accrues interest at prime plus 1.0%
with interest payments due monthly. Principal payments of $50,000 are due
quarterly, with the remaining balance due in full on May 31, 2004. The
outstanding balance of the term loan has been classified as a current liability
on our balance sheet as of September 30, 2003. The term loan is collateralized
by all of our assets.
The term loan agreement contains certain financial covenants, including
minimum monthly EBITDA levels as defined in the agreement, maximum quarterly and
annual capital expenditures, a minimum quarterly fixed charge ratio that is
based primarily on our operating cash flows, and maximum quarterly and annual
extraordinary expenses, as defined in the agreement. Beginning in 2003, the
minimum EBITDA levels are $1.0 million in January 2003, $700,000 in February
2003, $800,000 per month beginning in March 2003 through July 2003, and $1.0
million per month thereafter. We are in compliance with these financial
covenants as of September 30, 2003.
On March 7, 2003, PVC Funding Partners LLC, an affiliate of
Commonwealth Associates, LP and Comvest Venture Partners, acquired from our
senior lenders 29,851 shares, or 96.0%, of our outstanding Series C convertible
preferred stock. This Series C convertible preferred stock was purchased from
the original senior lenders on a prorata basis at a price of $33.50 per share.
The original senior lenders continue to hold the remaining 4.0% of the Series C
convertible preferred stock. In connection with the transaction, PVC Funding
Partners also acquired $20.5 million in principal amount of our outstanding bank
debt from the original senior lenders. Because of a Board Shift Event which
occurred in October 2003 (see Note 5), the debt held by PVC Funding Partners
($20.4 million as of September 30, 2003) is subordinated to the debt held by the
original senior lenders ($18.0 million as of September 30, 2003).
As of September 30, 2003 and December 31, 2002, we had additional notes
and other obligations totaling approximately $5.6 million and $6.0 million,
respectively (excluding the "make-whole" obligation described in Note 5),
related to a 1993 acquisition, a 1998 acquisition, and equipment purchases.
Included in the total outstanding balance as of December 31, 2002 was $4.3
million of notes payable to CENTRA Benefits, Inc. ("Centra") in connection with
the 1998 acquisition, bearing interest at 12.0% per annum (payable in additional
shares of our common stock, except under specified circumstances), with a
maturity date of December 1, 2004 pursuant to a restructuring in April 2002. In
connection with the April 2002 restructuring, we issued to Centra warrants to
purchase 200,000 shares of our common stock at an exercise price of $6.40, which
was $0.25 over the market price of the stock on the date of the issuance of the
restructured notes. Effective March 31, 2003, we again renegotiated the Centra
note terms. In particular, we extended the maturity date of the notes to April
1, 2006, reduced the interest rate to 6.0% per annum, and fixed the conversion
price on the notes at one share of common stock for each dollar of principal
outstanding. In addition, we issued a new convertible note equal to the amount
of accrued and unpaid
FS-71
interest payable to Centra related to the restructured notes in the amount of
approximately $500,000. This note has the same terms and conditions as the
restructured notes. Immediately upon completion of this restructuring, PVC
Funding Partners acquired slightly more than 50.0% of the face value of the
notes, including the new note, from Centra. The remaining portion is still held
by Centra.
On April 12, 2002, we extended the maturity date of notes totaling
$500,000 due to one current and one former member of our board of directors to
December 1, 2004. These notes bear interest, which accrues at prime plus 4.0%
per annum, but payment of interest is subordinated and deferred until all senior
obligations are paid.
5. PREFERRED STOCK, COMMON STOCK, AND RELATED EVENTS
On April 12, 2002, in connection with the restructuring of our senior
bank debt discussed in Note 2, we issued $29.0 million of Series C convertible
preferred stock (the "Series C stock"). The Series C stock accrued dividends at
10.0% per annum during the first 12 months from issuance and is currently fixed
at a rate of 12.0% per annum. Dividends are payable quarterly in additional
shares of Series C stock or, at our option, in cash. As of September 30, 2003,
we have chosen to pay dividends in the form of additional shares, and we have
issued an aggregate of 3,659 additional shares of Series C stock as dividends.
We may redeem the Series C stock at any time at our option at a redemption price
of $1,000 per share plus accrued and unpaid dividends. The Series C stock has
weighted-average anti-dilution protection and a provision that, subject to
certain adjustments, the Series C stock will not convert into less than 51% of
our common stock on a fully diluted basis. After adjusting for the issuance of
certain anti-dilutive securities, at any time after October 12, 2003, the Series
C stock may be converted into shares of our common stock at $1.33 per share, or
a total of 24,555,639 common shares as of September 30, 2003.
The holders of the Series C stock are entitled to receive a Liquidation
Preference, as defined, upon certain circumstances, including but not limited
to, a change in control of us, or our involuntary liquidation. As a result of
these circumstances being outside of our control, the Series C stock is
classified at September 30, 2003 in the temporary equity section of the
accompanying condensed consolidated balance sheet.
In addition, while at least 12,000 shares of the Series C stock are
outstanding, the Series C stockholders are entitled to elect three members to
our board of directors. However, upon the occurrence of the Board Shift Event,
which was triggered by the Company's failure to redeem the Series C stock by
October 12, 2003, the Board composition changed so as to allow the Series C
stockholders to elect four out of seven directors, thereby shifting control of
the Board to the holders of Series C stock. On October 27, 2003, PVC Funding
Partners informed the senior lenders that they were exercising their option to
control our board of directors due to our failure to redeem the Series C stock.
PVC Funding Partners, LLC designated one of the existing directors previously
elected by the common stockholders as the fourth Series C director.
In connection with the April 12, 2002 bank restructuring, we were
required to adopt the accounting principles prescribed by Emerging Issues Task
Force No. 00-27, "Application of Issue No. 98-5 to Certain Convertible
Instruments" ("EITF 00-27"). In accordance with the accounting requirements of
EITF 00-27, we accreted an increase to the carrying value of our Series C stock
with a comparable reduction to additional paid-in capital over the contractual
life of the Series C stock. During the three months ended September 30, 2003,
our additional paid-in capital was reduced to zero as a result of the accretion
of the Series C stock. Therefore, such additional accretion increases our
accumulated deficit. To date, we accreted approximately $98.0 million. The
amount accreted to the Series C stock is calculated based on (a) the difference
between the closing price of our common stock on April 12, 2002 and the
conversion price per share available to the holders of our Series C stock,
multiplied by (b) the number of shares of common stock that will be issued if
the shares of our Series C stock are ever converted. The accretion of the Series
C stock will cease on October 12, 2003. This non-cash entry does not affect our
net income or our cash flow, but does impact the net income deemed available to
our common stockholders.
In June 2001, we completed the disposition of one of our subsidiaries,
HealthPlan Services, Inc., in a non-cash transaction. As part of the
transaction, we issued a long-term convertible subordinated note, which
automatically converted into 813,273 shares of common stock on April 12, 2002 in
connection with the restructuring of our credit facilities. The 813,273 shares
are included in the number of outstanding shares at September 30, 2003 and
December 31, 2002. Our agreement with the buyer states that, if the buyer does
not receive gross proceeds of at
FS-72
least $5.0 million upon the sale of the conversion shares, then we must issue
and distribute to them additional shares of our common stock, based on a ten-day
trading average price, to compensate the buyer for the difference, if any,
between $5.0 million and the amount of proceeds they realize from the sale of
the conversion shares. The entire $5.0 million obligation is recorded as common
stock with a make-whole provision on our balance sheet at September 30, 2003 and
December 31, 2002. In accordance with SFAS No. 150, "Accounting for Certain
Financial Investments with Characteristics of Both Liabilities and Equity," we
classified this obligation as a liability as of September 30, 2003. Our
agreement with the buyer also requires that we register the conversion shares
upon demand. Assuming a sale of the conversion shares and based on the fair
market value of our common stock on September 30, 2003, we would have been
required to issue an additional 679,264 shares under the provisions of this
agreement.
We entered into a registration rights agreement in favor of the buyer
of HealthPlan Services with respect to 709,757 shares we issued to them at
closing in June 2001. The agreement contained provisions requiring redemption of
such shares or the issuance of 200,000 shares of our common stock as a penalty
if the original 709,757 shares were not registered by certain specified time
periods. Because the 709,757 shares were not registered within the required time
periods, we issued to the buyer an aggregate of 200,000 penalty shares in 2001
and 2002.
Since the sale of HealthPlan Services in June 2001, we had been in
discussions with the buyer to finalize purchase price adjustments associated
with the HealthPlan Services transaction. On October 1, 2003, we finalized
discussions with no additional liability for purchase price adjustments.
Additionally, we agreed upon payment terms for $1.7 million of other items that
are included in accrued liabilities in the accompanying condensed consolidated
balance sheet as of September 30, 2003.
6. PROXYMED AGREEMENT
On June 10, 2003, we entered into a three-year joint marketing
agreement with ProxyMed, Inc. Pursuant to the agreement, our network repricing
services and network management services will be offered to ProxyMed's existing
and prospective payer customers. Upon execution of this agreement, we paid
ProxyMed $200,000 for access to certain data. In addition, we are paying
ProxyMed $150,000 to be ProxyMed's exclusive partner during the first 12 months
of this arrangement. We also issued to ProxyMed a warrant to acquire 15.0% of
our outstanding common stock, calculated on a fully-diluted basis as of the time
of exercise, at an exercise price of $1.95 per share. The warrant has an initial
term of six months with two three-month renewal options based on achieving
certain revenue-based milestones, as defined in the agreement. The fair value of
the warrant of $496,000 on the date the warrant was granted was determined by an
independent consultant using the Black-Scholes pricing model and using the same
assumptions as for stock options as described in Note 3. Because revenue from
this agreement is not assured, total consideration of $846,000 was recorded as
an expense during the nine months ended September 30, 2003.
7. LITIGATION
In the ordinary course of business, we are a party to a variety of
legal actions. In addition, we entered into indemnification obligations related
to certain of the businesses we sold during 2001 and 2000, and we could be
subject to a variety of legal and other actions related to such indemnification
obligations. We currently have insurance coverage for some of these potential
liabilities. Other potential liabilities may not be covered by insurance,
insurers may dispute coverage, or the amount of insurance may not cover the
damages awarded. While the ultimate financial effect of these claims and
indemnification agreements cannot be fully determined at this time, in the
opinion of management, they will not have a material adverse effect on our
financial condition, results of operations, or cash flows.
In November 2001, Paid Prescriptions, LLC initiated a breach of
contract action in the United States District Court for the District of New
Jersey against HealthPlan Services, our former subsidiary. Paid Prescriptions
LLC was seeking $1.6 million to $2.0 million in compensation arising from
HealthPlan Services' alleged failure to meet certain performance goals under a
contract requiring HealthPlan Services to enroll a certain number of customers
for Paid Prescriptions LLC's services. Because the events giving rise to this
claim allegedly occurred prior to our sale of the HealthPlan Services business,
we defended the action on behalf of HealthPlan Services, in
FS-73
accordance with our indemnification obligations to its buyer. In October 2003,
we settled this litigation by paying $850,000 to Paid Prescriptions, LLC. This
settlement had previously been accrued for, and thus will not have a material
adverse effect on our consolidated statement of operations.
8. OTHER INCOME
As of March 27, 2002, we retired a $2.5 million subordinated note
payable, which had arisen in connection with the operations of a former
subsidiary, by issuing 274,369 shares of our common stock based on the closing
price of our common stock one day immediately prior to the retirement date of
the note and by issuing a credit for $950,000 payable with in-kind claims
repricing services. We have agreed to register these shares upon demand. On
September 30, 2003, we settled the obligation to provide $950,000 of in-kind
services with a cash payment of $300,000. The difference of $650,000 is included
in other income on the accompanying condensed consolidated statements of
operations for the nine months ended September 30, 2003.
9. RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2003, we adopted the provisions of SFAS No. 143,
"Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development or normal operations of a long-lived asset. The adoption of SFAS No.
143 did not have a significant effect on our financial position, results of
operations or liquidity.
On January 1, 2003, we adopted the provisions of SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," which
addresses accounting for restructuring and similar costs. SFAS No. 146 requires
that the liability for costs associated with an exit or disposal activity be
recognized when the liability is incurred, rather than the date of our
commitment to an exit plan. The adoption of SFAS No. 146 did not impact us.
In November 2002, Financial Interpretation ("FIN") No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Guarantees of
Indebtedness of Others (an interpretation of SFAS No. 5, 57 and 107 and
rescission of SFAS Interpretation No. 34)," which modifies the accounting and
enhances the disclosure of certain types of guarantees, was issued. FIN No. 45
requires that upon issuance of certain guarantees, the guarantor must recognize
a liability for the fair value of the obligation it assumes under the guarantee.
We adopted the disclosure requirements of FIN No. 45 as of December 31, 2002. On
January 1, 2003, we adopted the initial recognition and measurement provisions,
which are effective on a prospective basis for guarantees issued or modified
after December 31, 2002. The adoption of FIN No. 45 did not have an impact on
us.
On January 17, 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51," which imposes a
new approach in determining if a reporting entity should consolidate certain
legal entities, including partnerships, limited liability companies, or trusts,
among others, collectively defined as variable interest entities or VIEs.
Certain transition disclosures are required for all financial statements issued
after January 31, 2003. The provisions of FIN No. 46 applicable to variable
interest entities in which an enterprise holds available interest that it
acquired before February 1, 2003 are effective for all interim and annual
periods ending after December 15, 2003 pursuant to FASB Staff Position No. FIN
46-6. We do not believe FIN No. 46 will have an impact on us.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Investments with Characteristics of Both Liabilities and Equity,"
which establishes standards for how companies classify and measure certain
financial instruments with characteristics of both liability and equity.
Specifically, SFAS No. 150 provides guidance as to which items should be
classified as liabilities that were previously reported as equity or as a
mezzanine item reported between liabilities and equity. SFAS No. 150 is
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 requires us to report the common stock with
make-whole provision as a liability on the condensed consolidated balance sheet
as of September 30, 2003.
FS-74
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of MedUnite Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' deficit and cash flows present fairly, in all material
respects, the financial position of MedUnite Inc. at December 31, 2002, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As more fully discussed in Note 16, the Company was acquired on December 31,
2002.
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
March 6, 2003
FS-75
MEDUNITE INC.
BALANCE SHEET
DECEMBER 31, 2002
ASSETS
Current assets: $ 879,000
Cash and cash equivalents
Accounts receivable, net of allowance
of $662,000 3,141,000
Prepaid expenses and other current assets 664,000
-------------
Total current assets 4,684,000
Property and equipment, net 9,977,000
Intangible assets, net 8,138,000
Other assets 1,033,000
-------------
Total assets $ 23,832,000
=============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of notes payable $ 25,443,000
Accounts payable 4,034,000
Accrued expenses 5,483,000
Deferred compensation 1,000,000
Deferred revenue 74,000
Current portion of capital lease obligations 314,000
-------------
Total current liabilities 36,348,000
Notes payable, less current portion 2,139,000
Capital lease obligations, less current portion 194,000
Other long-term liabilities 1,237,000
-------------
Total liabilities 39,918,000
-------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, $0.001 par value, 137,000,000 shares authorized:
Series A preferred stock, 87,000,000 authorized, 85,270,402
shares issued and outstanding; liquidation value
of $85,270,000 85,000
Common stock, $0.001 par value, 297,000 shares authorized:
Class A common stock 210,000,000 authorized, zero shares
issued and outstanding --
Class B common stock, 87,000,000 authorized, zero shares
issued and outstanding --
Additional paid-in capital 86,295,000
Accumulated deficit (102,466,000)
-------------
Total stockholders' deficit (16,086,000)
-------------
Total liabilities and stockholders' deficit $ 23,832,000
=============
The accompanying notes are an integral part of these financial statements.
FS-76
MEDUNITE INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
Revenue $ 19,534,000
------------
Operating expenses:
Cost of revenue 7,946,000
Selling, general and administrative 37,322,000
Depreciation and amortization 12,276,000
Impairment of intangibles and other assets 11,670,000
Settlement of deferred compensation (2,558,000)
------------
Total operating expenses 66,656,000
------------
Loss from operations (47,119,000)
Interest income 169,000
Interest expense (1,906,000)
------------
Net loss $(48,859,000)
============
The accompanying notes are an integral part of these financial statements.
FS-77
MEDUNITE INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 2002
SERIES A
COMMON STOCK PREFERRED STOCK ADDITIONAL
------------------ ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ----------- --------- ------------ ------------- ------------
Balance at December 31, 2001 -- $ -- $85,270,402 $ 85,000 $ 85,314,000 $ (53,607,000) $ 31,792,000
Recognition of discount on notes payable -- -- -- -- 981,000 -- 981,000
Net loss -- -- -- -- -- (48,859,000) (48,859,000)
---- ----- ----------- --------- ------------ ------------- ------------
Balance at December 31, 2002 -- $ -- $85,270,402 $ 85,000 $ 86,295,000 $(102,466,000) $(16,086,000)
==== ===== =========== ========= ============ ============= ============
The accompanying notes are an integral part of these financial statements.
FS-78
MEDUNITE INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(48,859,000)
Adjustments to reconcile net loss to net cash
used in operating activities
Impairment of intangibles and other assets 11,670,000
Amortization of debt discount 1,083,000
Depreciation and amortization 12,276,000
Provision for doubtful accounts 329,000
Changes in operating assets and liabilities:
Accounts receivable (637,000)
Prepaid expenses and other current assets 48,000
Other assets (22,000)
Accounts payable 569,000
Accrued expenses (731,000)
Deferred revenue 74,000
Deferred compensation (2,558,000)
Other long-term liabilities 103,000
------------
Net cash used in operating activities (26,655,000)
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (4,912,000)
------------
Net cash used in investing activities (4,912,000)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debt and notes payable 23,975,000
Payments on capital lease obligations (143,000)
------------
Net cash provided by financing activities 23,832,000
------------
Net decrease in cash and cash equivalents (7,735,000)
Cash and cash equivalents at beginning of period 8,614,000
------------
Cash and cash equivalents at end of period $ 879,000
============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 65,000
============
The accompanying notes are an integral part of these financial statements.
FS-79
MEDUNITE INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
THE COMPANY
MedUnite Inc. (the "Company") was incorporated in Delaware in June
2000. The Company was formed to develop and maintain an exchange
that provides connectivity applications in the healthcare market
that facilitates various business transactions, including claims
submission, real-time claim status inquiry, eligibility and
referral and authorization.
The Company is subject to risks common to rapidly growing
technology-based companies, including rapid technological change,
dependence on principal products, new product development, new
product introductions, other activities of competitors, and a
limited operating history in Internet related e-commerce
activities.
During 2002, the Company incurred a net loss of $48,859,000 and
generated negative cash flows from operations of $26,655,000. The
Company has an accumulated deficit of $102,466,000 as of December
31, 2002.
As a result of these losses and negative cash flow, management
engaged in efforts to sell the Company. On December 31, 2002, the
Company was sold to ProxyMed, Inc. ("ProxyMed'), a publicly held
provider of healthcare transaction processing services based in
Fort Lauderdale, Florida for $10.0 million in cash and $13.4
million in 4% Convertible Notes issued to the Company's founders
(see Note 16). Without the sale of the Company to ProxyMed there
would have been substantial doubt about the Company's ability to
continue as a going concern. These financial statements reflect
the financial position of the Company before the consummation of
the acquisition by ProxyMed and do not reflect any adjustments
that might have resulted from such transaction or if the Company
was unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of MedUnite Inc. and
represent the financial position of the Company immediately prior
to its acquisition by ProxyMed on December 31, 2002 (see Note 16).
USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
REVENUE RECOGNITION
The Company derives revenue from processing electronically
submitted medical claims for insurance companies and health care
providers. Revenue is recognized as services are provided
according to the terms of the underlying contracts. Certain
transaction fee revenue may be subject to revenue sharing or
rebates per agreements with resellers, vendors, other
clearinghouses, one of the founders and other business partners.
Revenue from maintenance fees is recognized ratably over the
applicable period.
COST OF REVENUE
Cost of revenue includes third party hosting and support services
of network connectivity, certain telecommunications costs, and
revenue sharing and rebate arrangements with resellers, vendors,
other clearinghouses, one of the founders and other business
partners.
FS-80
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities from the date of purchase of three months or less to be
cash equivalents. Cash and cash equivalents include cash on hand
and certificates of deposit with a financial institution. Cash and
cash equivalents used to support collateral instruments, such as
letters of credit, are reclassified as either current or long-term
assets depending upon the maturity date of the obligation they
collateralize.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. Leasehold
improvements are amortized using the straight-line method over the
shorter of their estimated useful lives or the term of the lease.
Upon retirement or sale, the cost of assets disposed of and the
related accumulated depreciation are removed from the accounts and
any resulting gain or loss is credited or charged to income.
Expenditures for repairs, maintenance and minor renewals and
betterments are expensed as incurred. Examination for obsolete,
damaged and impaired fixed assets is periodically reviewed by
management.
INTERNAL-USE SOFTWARE
Internal and external costs incurred to develop internal-use
computer software during the application development stage are
capitalized. Amortization is computed on a straight-line basis
over the estimated useful lives of the assets. Application
development stage costs generally include software configuration,
coding, installation to hardware and testing. Costs of upgrades
and major enhancements that result in additional functionality are
also capitalized. Costs incurred for maintenance and minor
upgrades and enhancements are expensed as incurred.
INTANGIBLE AND OTHER LONG-LIVED ASSETS
The Company assesses potential impairments of its intangible and
other long-lived assets when there is evidence that events or
changes in circumstances have made recovery of an asset's carrying
value unlikely. Goodwill is not amortized, but is reviewed
annually (or more frequently if impairment indicators arise) for
impairment. Intangible assets that are not deemed to have
indefinite lives are reviewed for impairment in accordance with
the Company's policy for long-lived assets. An impairment loss is
recognized when the sum of the expected undiscounted future net
cash flows expected to be generated by an asset (or group of
assets) is less than its carrying value or when third-party
evidence exists as to the value of the long-lived assets. Any
required impairment loss would be measured as the amount by which
the asset's carrying value exceeds its fair value and would be
recorded as a reduction in the carrying value of the related asset
and a charge to operations.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense
was $112,000 for the year ended December 31, 2002.
INCOME TAXES
Current income tax expense or benefit represents the amount of
income taxes expected to be payable or refundable for the current
year. A deferred income tax asset or liability is computed for the
expected future impact of differences between the financial
reporting and income tax bases of assets and liabilities and for
the expected future tax benefit to be derived from tax credits and
loss carryforwards. Deferred income tax expense or benefit
represents the net change during the year in the deferred income
tax asset or liability. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax
assets will not be realized.
FS-81
CONCENTRATION OF CREDIT RISK
The Company's financial instruments subject to concentrations of
credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company's policy is to place its cash and
cash equivalents with high quality financial institutions in order
to limit its credit exposure. To date, the Company has not
experienced any credit losses associated with these financial
institutions. Accounts receivable are generally uncollateralized.
The Company performs on-going credit evaluations of its customers
and maintains an allowance for potential credit losses as
considered necessary.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments which are
presented herein have been determined by management using
available market information and appropriate valuation
methodologies. However, considerable judgment is required in
interpreting market data to develop estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of amounts the Company could realize in a current
market exchange.
Cash and cash equivalents, accounts and notes receivable, net, and
accounts payable are reflected in the accompanying Balance Sheets
at amounts considered by management to reasonably approximate fair
value due to their short-term nature.
The Company estimates the fair value of its long-term debt
generally using discounted cash flow analysis based on our current
borrowing rates for similar types of debt. As of December 31,
2002, the carrying value of the long-term debt approximated the
fair value of such instruments.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined as the change in the equity
of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. The Company
presents other comprehensive income (loss) in its statement of
stockholders' equity. For the year ended December 31, 2002 the
only component of comprehensive loss is net loss.
3. ACQUISITION
In August 2001, the Company acquired NDC Health's physician
network services business (the "Acquisition"). The physician
network services business connects physicians to payors to provide
electronic processing for claims, eligibility, referrals and other
health transactions. The Company acquired the physician network
services business in exchange for 15,263,402 shares of Series A
preferred stock, having an estimated fair value, as determined by
management, of $15,263,000, and a promissory note with a principal
amount of $2,300,000, having an estimated fair value of $1,966,000
(see Note 9). In addition, the Company incurred acquisition costs
of $1,043,000 related to the acquisition.
The acquisition was accounted for using the purchase method of
accounting, and accordingly, the results of the acquired business
have been included in the Company's financial statements from the
date of acquisition. The aggregate purchase price was allocated as
follows:
Accounts receivable $ 2,214,000
Property and Equipment 572,000
Identifiable intangibles 10,665,000
Goodwill 5,555,000
Other assets 52,000
Accrued liabilities (786,000)
------------
Total purchase price $ 18,272,000
============
As a result of an impairment review by management at December 31,
2002 prompted by the sale of the Company to ProxyMed (see Note
16), the Company incurred an impairment charge of $3,194,000 in
relation to certain of the identifiable intangible assets from the
Acquisition (see Note 6). The resulting fair values recorded were
based on an independent third-party appraisal of the assets
utilizing a replacement cost methodology.
FS-82
4. INVESTMENT IN WARRANT OF QUOVADX, INC.
In October 2000, the Company entered into a Software License and
Services Agreement (the "Agreement") with Quovadx, Inc., formerly
XCare.net, Inc. ("Quovadx") under which Quovadx provided software
development and hosting services related to the Company's internet
portal. The development services were invoiced to the Company on a
time and materials basis and the hosting service fees were
invoiced based on the number of servers hosted. In June 2001, the
Company accepted and paid approximately $6,700,000 for a perpetual
software license, which is included in property and equipment.
However, as a result of an impairment review by management at
December 31, 2002, the Company wrote down the remaining net book
value of the license to its fair market value (see Note 5).
While the Company has taken an impairment charge for the perpetual
software license, it is evaluating whether it still may be liable
to purchase software maintenance services from Quovadx through
December 31, 2005. Such commitments, if paid, would be due as
follows:
YEAR ENDING DECEMBER 31,
------------------------
2003 $ 700,000
2004 700,000
2005 408,000
-----------
$ 1,808,000
===========
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,
2002:
ESTIMATED
USEFUL LIVES
------------
Computer equipment $ 3,169,000 3 years
Internal-use software 4,800,000 2 - 5 years
Software 2,259,000 2 - 5 years
Furniture and fixtures 1,357,000 5 years
Office equipment 670,000 5 years
Leasehold improvements 518,000 Life of lease
-------------
12,773,000
Less accumulated depreciation and amortization (2,796,000)
-------------
$ 9,977,000
=============
During the year ended December 31, 2002, the Company capitalized
$2,006,000 of internal-use software development costs.
Depreciation and amortization expense related to property and
equipment, including amortization of internal-use software
development costs, was $8,829,000 for the year ended December 31,
2002.
As a result of an impairment review by management at December 31,
2002 prompted by the sale of the Company to ProxyMed (see Note
16), the Company wrote-down certain software and license fees
associated with its processing platforms and previously
capitalized internal-use software resulting in impairment charges
totaling $8,476,000. The resulting fair values recorded were based
on an independent third-party appraisal of the assets utilizing a
replacement cost methodology.
FS-83
6. INTANGIBLE ASSETS
Intangible assets consists of the following at December 31, 2002:
Intangible Assets Subject to Amortization:
Software platform $ 1,200,000
Non-compete agreement 1,700,000
Customer related agreements 422,000
Other identifiable intangible assets 218,000
-----------
3,540,000
Less accumulated amortization (957,000)
-----------
Intangible assets subject to amortization, net 2,583,000
Goodwill 5,555,000
-----------
$ 8,138,000
===========
Through December 31, 2002, intangible assets were being amortized
using the straight-line method over their estimated useful lives
as follows:
Software platform 3 years
Non-compete agreement 5 years
Customer related agreements 2 to 5 years
Other identifiable intangible assets 0.5 to 5 years
Amortization expense was $3,447,000 for the year ended December
31, 2002. The software platform will now be amortized over one
year through December 31, 2003. The estimated future aggregate
amortization expense for intangible assets subject to amortization
is as follows:
YEAR ENDING DECEMBER 31,
------------------------
2003 $ 1,678,000
2004 356,000
2005 347,000
2006 202,000
-----------
$ 2,582,000
===========
7. RESTRICTED CASH
Restricted cash of $825,000 at December 31, 2002 includes a
certificate of deposit of $750,000, which has been pledged as
security for an outstanding letter of credit (see Note 15).
Restricted cash is included in other assets in the accompanying
balance sheet.
8. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 2002:
Compensation related costs $1,445,000
Severance 800,000
Interest 658,000
Other 2,580,000
----------
$5,483,000
===========
FS-84
9. DEBT
During 2001 and 2000, the Company received proceeds of $24,340,000
and $20,000,000, respectively, from its founders in connection
with the issuance of convertible notes payable (the "Notes"), as
amended. The Notes have annual interest rates ranging from 6.10%
to 6.53%. The principal balance of the Notes automatically
converted into 44,340,331 shares of Series A preferred stock at
$1.00 per share upon the closing the Acquisition in August 2001.
The outstanding accrued interest of $1,565,000 was converted into
notes payable at 6% stated interest per year. The Company imputed
an interest rate of 12% on these notes, which more accurately
reflects the rate that the Company would pay to a third party
lender. The resulting debt discount of $129,000 was recorded as
additional paid-in capital because the notes were issued to the
founders. The notes are repayable in four quarterly installments
during 2003. Accrued interest related to these notes of $133,000
is included in accrued liabilities at December 31, 2002.
During 2001, the Company issued a promissory note in connection
with the Acquisition. The note has a principal amount of
$2,300,000 payable in full in August 2004, and was initially
recorded at its estimated fair value of $1,996,000, representing
an effective annual interest rate of 12%. Accrued interest related
to this note of $198,000 is included in other long-term
liabilities at December 31, 2002.
In February 2002, the Company issued convertible promissory notes
bearing interest at 2.74% per annum, pursuant to a note purchase
agreement with its founders, under which the Company borrowed an
aggregate amount of $18,160,000. Under the terms of the promissory
notes, in the event that the Company issues and sells shares of
Series B Preferred Stock to new investors with total proceeds of
not less than $30,000,000, including the $18,160,000 advanced,
prior to February 2003, then the outstanding principal of the
convertible promissory notes will automatically convert into
shares of Series B Preferred Stock at the same price per share
that the shares of Series B Preferred Stock are sold to the new
investors. If a financing does not occur before February 2003,
then the outstanding principal balance (except for $2,569,000 owed
to NDCHealth representing NDCHealth's contribution in this
financing in excess of its prorata ownership in the Company) will
automatically convert into shares of Series B Preferred Stock at
the price per share equal to the then fair market value. The
Series B Preferred Stock will have such rights, preferences and
privileges as are approved by the required vote of the founders
(as defined in the Company's amended and restated certificate of
incorporation); provided that the rights of the Series B Preferred
stockholders shall be pari passu to the rights of the Series A
Preferred stockholders upon a liquidation of the Company. The
Company imputed an interest rate of 8% on these notes, which more
accurately reflects the rate that the Company would pay to a third
party lender. The resulting debt discount of $885,000 was recorded
as additional paid-in capital because the notes were issued to the
founders. Accrued interest related to these notes of $444,000 is
included in accrued liabilities at December 31, 2002.
In August 2002, the Company issued promissory notes bearing
interest at 6% per annum, pursuant to a note purchase agreement
with its founders, under which the Company subsequently borrowed
the maximum amount available of $5,815,000. The outstanding
principal amount of the loan is due and payable on the earliest of
the following events: (a) December 31, 2002, (b) the date that the
Company completes an equity financing for the minimum amount of
$20,000,000 or (c) the effective date of a change of control of
the Company. The Company imputed an interest rate of 12% on these
notes, which more accurately reflects the rate that the Company
would pay to a third party lender. The resulting debt discount of
$96,000 was recorded as additional paid-in capital because the
notes were issued to the founders. Accrued interest related to
these notes of $81,000 is included in accrued liabilities at
December 31, 2002.
Maturities of long-term debt and notes payable are as follows (see
Note 16):
YEAR ENDING DECEMBER 31,
------------------------
2003 $ 25,540,000
2004 2,300,000
------------
27,840,000
Less discount (258,000)
------------
$ 27,582,000
============
FS-85
Accretion of the discount as interest expense recorded on the
above debt was $1,083,000 for the year ended December 31, 2002.
10. COMMON STOCK AND PREFERRED STOCK
COMMON STOCK
The rights and privileges of the common stock under the Company's
Amended and Restated Certificate of Incorporation are as follows:
Each holder of Class A common stock and Class B common stock is
entitled to one vote per share. Holders of Class B common stock,
voting as a separate class, are entitled to elect or remove from
office the founders' members of the Company's Board of Directors.
The holders of all outstanding shares of Company stock, voting
together on an if-converted basis as a single class, are entitled
to elect all remaining members of the Board of Directors.
Each share of Class B common stock is convertible at any time into
an equal number of shares of Class A common stock transferred to a
non-founder. Class B common stock transferred to a non-founder
will automatically convert into Class A common stock. In addition,
Class B common stock owned by the founders will automatically
convert into Class A common stock upon the earlier of (a) the
fifth anniversary of an initial public offering of the Company, or
(b) when the founders own, in aggregate, less than 50% of Class B
common stock that would be issued upon conversion of the Series A
preferred stock.
PREFERRED STOCK
The rights, preferences and privileges of the Series A preferred
stock under the Company's Amended and Restated Certificate of
Incorporation are as follows:
DIVIDENDS - The holders of shares of the Series A preferred stock
are entitled to receive dividends at the rate of 8% of the
original issue price, which is $1.00 per share, per annum (subject
to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization
affecting such shares), payable when and as declared by the Board
of Directors of the Company. The right to receive dividends shall
be noncumulative; however the Company shall not declare or pay any
distributions on shares of common stock until the preferred
stockholders have received a cumulative distribution at the rate
specified above.
LIQUIDATION PREFERENCE - In certain events, including liquidation,
dissolution or winding up of the Company, including a
consolidation or merger and conveyance of substantially all of the
assets of the Company, the holders of Series A preferred stock
have a preference in liquidation over the common stockholders
equal to the original issue price of $1.00 per share (subject to
appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting
such shares), plus any dividends declared but unpaid thereon. If
the assets of the Company are not sufficient to fulfill the
liquidation amount, the stockholders will share in the liquidation
amount on a pro rata basis.
SALE OF THE COMPANY - In the event the Board of Directors decides
to pursue the sale of the Company, the founders shall be given the
first right of refusal to acquire the Company. If none of the
founders exercise this right, NDCHealth has the option to purchase
the Company (see Note 16).
VOTING RIGHTS - Each holder of preferred stock shall be entitled
to the number of votes equal to the number of whole shares of
common stock into which they are then convertible. Holders of
Series A preferred stock, voting as a separate class, are entitled
to elect or remove from office the founders' members of the
Company's Board of Directors.
CONVERSION - Each share of preferred stock is automatically
convertible into one share of Class B common stock (subject to
customary adjustments to protect against dilution) upon the
closing of a public offering of the Company's common stock that
results in gross proceeds of at least $50,000,000.
FS-86
11. INCOME TAXES
At December 31, 2002, deferred tax assets consist of the
following:
Net operating loss carryforwards $ 29,865,000
Capitalized start-up costs 9,789,000
Deferred compensation 293,000
Developed internal-use software (1,994,000)
Intangible assets (609,000)
Other (2,283,000)
------------
Net deferred tax assets 35,061,000
Deferred tax asset valuation allowance (35,061,000)
------------
$ --
============
Due to the uncertainty of the Company generating future taxable
income, the Company has recorded a valuation allowance against its
deferred tax assets.
A reconciliation of income taxes to the amounts computed by
applying the statutory federal income tax rate to the net loss is
summarized as follows:
Amounts computed at statutory federal rate $(16,611,000)
State taxes (2,430,000)
Permanent differences 31,000
Other 1,859,000
Intangibles (83,000)
Change in valuation allowance 17,234,000
------------
$ --
============
At December 31, 2002, the Company had $71,876,000 and $71,876,000
of federal and state net operating loss carryforwards,
respectively, which will be limited under Internal Revenues
Section 382 due to the change in ownership that occurred on
December 31, 2002. The federal and state net operating loss
carryforwards begin to expire in 2020 and 2010, respectively.
12. STOCK OPTIONS
The Company has adopted the 2001 Equity Incentive Plan (the
"Plan") providing for the granting of up to 10,280,374 shares of
the Company's common stock. The Plan provides for the granting of
stock options and restricted stock awards. Incentive stock options
granted under the Plan must be granted with strike prices not less
than the fair market value. Non-qualified stock options granted
under the Plan must be granted with strike prices not less than
85% of fair market value. Options generally expire ten years from
the date of grant. Option vesting is determined by the Board of
Directors upon each grant and is generally a five-year period.
In June 2000, the Company entered into a five-year employment
agreement with an executive under which the Company issued stock
options to purchase 2,803,738 shares of common stock and is
obligated to issue 847,458 shares of restricted common stock to
the executive. If the executive's employment terminates, other
than for cause, prior to the fifth anniversary of the executive's
hire date, the Company is obligated to repurchase all of the
restricted common stock for an aggregate price equal to the
greater of the then fair market value or $1,000,000. Commencing on
the fifth anniversary of the executive's hire date, the executive
has a right to sell all or some of his shares of restricted common
stock and stock option shares to the Company for a guaranteed
FS-87
fixed pre-tax gain of $7,000,000 in the aggregate assuming all
shares were repurchased. This amount was being recognized as
compensation expense on a straight-line basis over the five-year
service period. Through December 31, 2002, $3,558,000 had been
recorded as deferred compensation; however, this amount was
adjusted to $1,000,000 pursuant to a separation agreement entered
into with the executive on December 31, 2002 (see Note 16). As a
result, the Company has recorded a gain of $2,558,000 pursuant to
this event.
During 2002, no options were granted or exercised and options for
3,738,318 shares (including those of the executive noted above)
were forfeited/cancelled (with an average exercise price of
$1.32).
At December 31, 2002, 5,566,233 shares were available for future
grants under the Plans.
The following table summarizes information regarding options
outstanding as of December 31, 2002 (see Note 16):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------- --------------- -------------- ------------ -------------- ------------
$1.18 2,453,271 8.5 $1.18 981,308 $1.18
$2.30 2,260,870 8.7 $2.30 452,174 $2.30
------------- -----------
4,714,141 1,433,482 $1.53
============= ===========
PRO FORMA EMPLOYEE COMPENSATION EXPENSE
Had compensation cost for the Company's stock-based compensation
been determined based on fair value of the options at the date of
the grant, the Company's net loss would not have been materially
different from the net loss reported for 2002.
The fair value of these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions for grants during 2001: dividend
yield of 0%, expected life of five years, expected volatility of
0%, and risk-free interest rate of 6%. No options were granted
during 2002.
13. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) retirement plan for substantially
all employees who meet certain minimum lengths of employment and
minimum age requirements. Contributions are made by employees
based on the lesser of 60% of eligible compensation or the
deferral limit set by the government ($11,000 in 2002).
Non-discretionary employer matching contributions are made up to
100% of the employee's pretax contribution up to a maximum of 6%
of eligible compensation. Matching contributions vest under a
five-year schedule, based on completed full years of service, as
follows: 20% after one year; 40% after two years; 60% after three
years; 80% after four years; and 100% after five years. Matching
contributions totaling $668,000 for the year ended December 31,
2002 have been expensed.
14. RELATED PARTY TRANSACTIONS
The Company was founded by seven leading insurance companies who
are expected to be among the Company's primary customers (the
"Founders"). In August 2001, the Company entered into service
agreements with each of the Founders under which the Company will
facilitate specified business transactions for fees. These
agreements have a term of two years and automatically renew for
successive annual periods, if not cancelled by either party.
At December 31, 2002 the Company has accounts receivable from its
Founders in the aggregate amount of $419,000. During 2002, the
Company recognized revenue of $1,983,000 from its Founders.
At December 31, 2002, the Company has accounts receivable from
NDCHealth of $1,315,000 and accounts payable and accrued
liabilities due to NDCHealth of $2,053,000. During 2002, the
Company transacted the following with NDCHealth (i) recognized
revenue of $4,897,000; (ii) recognized the reimbursement of
expenses of certain operating costs of $569,000; and (iii)
incurred amounts payable to under revenue sharing, rebate and
expense reimbursement agreements totaling $3,509,000.
FS-88
15. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases facilities and equipment under non-cancelable
operating and capital leases which expire on varying dates through
2006. The Company's future minimum payments under non-cancelable
operating and capital leases are as follows:
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ----------- ------------
2003 $ 338,000 $ 1,987,000
2004 190,000 1,671,000
2005 28,000 230,000
2006 15,000 9,000
----------- -----------
571,000 $ 3,897,000
===========
Less amounts representing interest (63,000)
------------
Future minimum lease obligation 508,000
Less current portion (314,000)
------------
$ 194,000
============
During 2002, the Company acquired assets under capital leases
totaling $84,000. Assets under capital leases included in property
and equipment at December 31, 2002 had a net book value of
$374,000, which includes accumulated amortization of $215,900.
Rent expense was $2,155,000 for the year ended December 31, 2002.
Certain facility operating leases contain escalation clauses. The
Company recognizes rent expense on a straight-line basis over the
related lease term.
In connection with its facilities lease in San Diego, California,
the Company entered into an irrevocable letter of credit in the
amount of $750,000. The letter of credit expires September 30,
2004. In an effort to control its operating costs, the Company has
engaged a commercial real estate broker to assist the Company in
subleasing or terminating its facilities lease in San Diego. As of
December 31, 2002, gross rents of $2,509,000 remain on this
property through September 2004 and are included in the table
above.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with certain
executives that provide for cash severance payments if the
executives are terminated without cause. The Company's aggregate
commitment under these agreements is $1,535,000 at December 31,
2002.
The Company has entered into retention agreements with several key
management employees. The bonuses due under these retention
agreements are payable in two parts: 50% upon a change of control
of the Company and 50% upon the earlier to occur of (i) 90 days
following the change in control event or (ii) involuntary
termination of the employee. As of December 31, 2002, the
Company's total potential commitment under these retention
agreements was $257,000.
SERVICES AGREEMENT
In April 2002, the Company entered into a three-year information
technology services agreement to outsource certain hosting, system
maintenance and operation services. Actual service fees are based
on the number of transactions processed by the software being
supported; however, the Company is committed to pay a minimum
annual service fee of $1,212,000. At December 31, 2002, $790,000
is accrued towards this minimum annual amount. The Company has the
option to cancel the agreement by providing 90 days notice and
paying an early termination fee which will be equal to between one
and three months' average transaction fees, depending upon when
the agreement is terminated.
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16. ACQUISITION BY PROXYMED
On December 31, 2002, the Company was sold to a wholly-owned
subsidiary of ProxyMed for $10.0 million in cash and $13.4 million
in 4% Convertible Notes paid to the founders due December 31,
2008.
As a result of this transaction, the following events took place
(i) all capital stock held by the Founders, including any
restricted stock held by other parties as part of
compensation-related plans, were cancelled; (ii) all notes
payable, convertible notes and related accrued interest to the
Founders (except for the $2,300,000 issued to NDC Health in the
Acquisition, plus $198,000 of accrued interest on this note, and a
$2,569,000 note payable issued to NDCHealth on December 31, 2002)
were cancelled; (iii) all stock options outstanding under the
Company's 2001 Equity Incentive Plan were cancelled; and (iv) NDC
Health waived its right of first refusal to purchase the Company.
Subsequent to the acquisition by ProxyMed, the Company's senior
management team was terminated along with approximately 20% of the
general workforce in an effort to control costs. Additionally, the
Company has attempted to enter into financing agreements with
certain major vendors and, as noted in Note 15, has attempted to
sublease or terminate is facilities lease in San Diego as a means
to curtail cash flow.
FS-90
ANNEX A
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of
December 5, 2003, is entered into by and among ProxyMed, Inc., a Florida
corporation ("Parent"), PlanVista Corporation, a Delaware corporation (the
"Company"), and Planet Acquisition Corp., a Delaware corporation ("Sub") and a
wholly owned subsidiary of Parent.
WHEREAS the respective Boards of Directors of Parent, Sub and the
Company have approved the merger (the "Merger") of Sub with and into the Company
on the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Board of Directors of the Company has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of the Company and in the best interests of the Company, the holders of the
Series C Preferred Stock, par value $0.01 per share of the Company (the "Series
C Stock") and the holders of the common stock, par value $0.01 per share, of the
Company (the "Company Common Stock"), and has approved this Agreement, declared
its advisability, and recommended that the stockholders of the Company adopt
this Agreement;
WHEREAS, 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 in the best interests of Parent and its shareholders and has
approved and adopted this Agreement, the Merger and the other transactions
contemplated by this Agreement and (ii) has recommended that the stockholders of
Parent approve the issuance of shares of common stock, par value $0.001 per
share, in Parent ("Parent Common Stock") in connection with the Merger and the
other transactions contemplated hereby;
WHEREAS, the Board of Directors of Sub has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of Sub
and in the best interests of Sub and its stockholder and has approved this
Agreement, declared its advisability, and recommended that Parent adopt this
Agreement;
WHEREAS, Parent, in its capacity as sole stockholder of Sub, will adopt
this Agreement in accordance with the requirements of the General Corporation
Law of the State of Delaware (the "DGCL") immediately after the execution and
delivery of this Agreement; and
WHEREAS, for federal income tax purposes, it is intended by Parent, Sub
and the Company that the Merger shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and that this Agreement shall constitute a plan of "reorganization;"
WHEREAS, simultaneously with the execution and delivery of this
Agreement and as a condition and inducement to the willingness of the Company to
enter into this Agreement, the Company and certain shareholders of Parent (the
"Parent Voting Shareholders") are entering into an agreement, dated as of the
date hereof (the "Parent Voting Agreement") pursuant to which the Parent Voting
Shareholders will agree to vote all of their shares of Parent Common Stock in
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favor of the issuance of shares of Parent Common Stock in connection with the
Merger and to take certain other actions in furtherance of the transactions
contemplated by this Agreement upon the terms and subject to the conditions set
forth in the Parent Voting Agreement, substantially in the form attached hereto
as Exhibit A;
WHEREAS, simultaneously with the execution and delivery of this
Agreement and as a condition and inducement to the willingness of Parent and Sub
to enter into this Agreement, Parent and Sub and certain stockholders of the
Company (the "Company Voting Stockholders") are entering into an agreement,
dated as of the date hereof (the "Company Voting Agreement") pursuant to which
the Company Voting Stockholders will agree to vote all of their shares of
Company Common Stock or Series C Stock, as the case may be, in favor of the
adoption of this Agreement and to take certain other actions in furtherance of
the transactions contemplated by this Agreement upon the terms and subject to
the conditions set forth in the Company Voting Agreement, substantially in the
form attached hereto as Exhibit B; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I. THE MERGER
1.01. The Merger. On the terms and subject to the satisfaction or waiver of the
conditions set forth in this Agreement, and in accordance with the DGCL, Sub
shall be merged with and into the Company at the Effective Time (as defined in
Section 1.02). At the Effective Time, the separate corporate existence of Sub
shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation"). The Surviving Corporation shall possess all the
rights, privileges, immunities, powers and franchises of the Company and Sub,
and the Surviving Corporation shall by operation of law become liable for all of
the debts, liabilities and duties of the Company and Sub.
1.02. Effective Time; Closing. As promptly as practicable (and in any event
within two business days) after the satisfaction or waiver of the conditions set
forth in Article VII hereof (other than those conditions that by their nature
are to be satisfied at the Closing), the parties hereto shall cause the Merger
to be consummated by filing a certificate of merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware and by making all
other filings required under the DGCL in connection with the Merger, in such
form as is required by, and executed in accordance with the relevant provisions
of, the DGCL. The Merger shall become effective at such time as the Certificate
of Merger is duly filed with the Secretary of State of the State of Delaware, or
at such later time as the parties hereto agree and as shall be specified in the
Certificate of Merger (the date and time the Merger becomes effective, the
"Effective Time"). On the date of such filing, a closing (the "Closing") shall
be held at 10:00 a.m., Eastern Standard Time, at the offices of Holland & Knight
LLP, One East Broward Boulevard, Suite 1300, Fort Lauderdale, Florida 33301, or
at such other time and location as the parties hereto shall otherwise agree. The
date on which the Closing occurs is referred to in this Agreement as the
"Closing Date."
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1.03. Effects. At the Effective Time, the Merger shall have the effects set
forth in this Agreement, the Certificate of Merger and the applicable provisions
of the DGCL.
1.04. Certificate of Incorporation and By-laws.
(a) The Certificate of Incorporation of the Company shall be amended in
the Merger to read in its entirety in the form of Exhibit C attached hereto,
and, as so amended, such Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable Law (as defined in Section 3.05).
(b) Subject to Section 6.06, at the Effective Time, Parent shall cause
the By-laws of Sub, as in effect immediately prior to the Effective Time, a copy
of which has been provided to the Company prior to or on the date of this
Agreement, to be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided by applicable Law.
1.05. Directors. At the Closing, Parent shall take all requisite action to cause
the directors of Sub to be the directors of the Surviving Corporation and such
directors shall hold office until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
1.06. Officers. At the Closing, Parent shall designate the officers of the
Surviving Corporation and such officers shall hold office until the earlier of
their resignation or removal or until their respective successors are duly
elected or appointed and qualified, as the case may be.
ARTICLE II. EFFECT ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.01. Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of Parent, Sub, the Company or the holders of
any of the following securities:
(a) Capital Stock of Sub. Each issued and outstanding share of capital
stock of Sub shall be converted into and become one validly issued, fully paid
and non-assessable share of common stock, par value $0.01 per share, of the
Surviving Corporation ("Surviving Corporation Common Stock"), and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation. Following the Effective Time, each certificate evidencing ownership
of shares of Sub common stock shall evidence ownership of such shares of
Surviving Corporation Common Stock.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share
of Company Common Stock or warrant for the purchase of shares of Company Common
Stock that is owned directly by the Company, Parent or Sub or any direct or
indirect wholly owned subsidiary of Company or of Parent shall no longer be
outstanding and shall automatically be canceled and shall cease to exist, and no
other consideration shall be delivered or deliverable in exchange therefor.
Parent agrees that its warrant to purchase Company Common Stock will be canceled
at the Effective Time with no consideration being deliverable in respect
thereof.
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(c) Stock Options.
(i) All stock options ("Company Options") outstanding, whether
or not exercisable and whether or not vested, at the Effective Time under those
stock options plans described in Schedule 2.01(c) (collectively, the "Company
Stock Option Plans"), and all stock appreciation rights linked to the price of
Company Common Stock and granted under any Company Stock Option Plan (a "Company
SAR") shall be canceled at or prior to the Effective Time. As soon as
practicable following the date of this Agreement, the Company Board of Directors
(or, if appropriate, any committee administering the Company Stock Option Plans)
shall adopt such resolutions or take such other actions as are required to
effect such cancellation. The Company Stock Option Plans shall terminate as of
the Effective Time, and the provisions in any other benefit plan providing for
the issuance, transfer or grant of any capital stock of the Company or any
interest in respect of any capital stock of the Company shall be deleted as of
the Effective Time, and the Company shall ensure that following the Effective
Time no holder of Company Option or Company SARs or any participant in any
Company Stock Option Plan or other Company benefit plan shall have any right
thereunder to acquire any capital stock of the Company or the Surviving
Corporation. For purposes of the foregoing, those certain warrants dated April
12, 2002 between the Company and Centra Benefits Services, Inc. for the purchase
of an aggregate of 200,00 shares of Company Common Stock at a price of $6.398
per Company share may not be canceled by the Company prior to the Closing. The
Company represents that if such warrants are not canceled such warrants will be
adjusted such that they are exercisable for the purchase of up to 17,379 shares
of Parent Common Stock at an exercise price of $73.63 per share. The Company
agrees to use commercially reasonable efforts to cause such warrants to be
canceled prior to the Closing.
(ii) At the Effective Time, the Compensation Committee of the
Board of Directors of Parent (the "Parent Compensation Committee") shall grant
to those officers and employees of the Company identified by the Compensation
Committee of the Board of Directors of the Company (the "Company Compensation
Committee") who continue as officers and employees of the Surviving Corporation
after the Closing, options under Parent's stock option plans to purchase an
aggregate of 200,000 shares of Parent Common Stock in amounts as determined by
the Company Compensation Committee. The persons named to receive such options
and the amounts thereof must be approved by the Parent Compensation Committee
provided that the Parent Compensation Committee shall not unreasonably withhold,
delay or condition such approval. The options so granted shall have an exercise
price equal to the lower of the last reported sale price of the Parent's Common
Stock on the Nasdaq Stock Market on the Closing Date or $17.74 per share. All
such options shall vest over a three year period commencing on the grant date,
such that two-thirds of each such option shall vest on the first anniversary of
the grant date, and the remaining one-third of each such option shall vest on
the third anniversary of the grant date.
(iii) Schedule 2.01(c) sets forth a list of all Company
Options and Company SARs as of the date hereof, including the name of the holder
of each such Company Option or Company SAR, the number of shares of Company
Common Stock subject thereto, the exercise price thereof and whether vesting of
such Company Option or Company SAR would (but for the operation of paragraph
2.01(c)(i)) be accelerated immediately prior to the consummation of the Merger
(either alone or in conjunction with any other event).
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(iv) The Company has heretofore taken or shall take all
actions with respect to the Company Stock Option Plans and the Company Options
and Company SARs that are necessary to implement the provisions of this and the
other matters noted in Schedule 2.01(c). Parent has heretofore taken or shall
take all actions that are necessary to implement the provisions of this Section
2.01(c), including all corporate action necessary to reserve for issuance
200,000 shares of Parent Common Stock for delivery upon exercise of new Parent
options pursuant to the terms set forth in this Section 2.01(c).
(d) Conversion of Company Common Stock.
(i) Subject to Sections 2.01(b) and 2.02(e), each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (other than Dissenting Shares) will be canceled and extinguished and
automatically converted (subject to Section 2.02(e)) into the right to receive a
fraction of one fully paid and nonassessable share of Parent Common Stock, the
numerator of which is (A) 1,826,829 (the "Common Pool") and the denominator of
which is (B) the total number of issued and outstanding shares of Company Common
Stock immediately prior to the Effective Time (such fraction being referred to
in this Agreement as the "Common Stock Exchange Ratio") upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 2.02. Notwithstanding the foregoing, in the event any shares
of Series C Stock shall convert into Company Common Stock after the execution
and delivery hereof, (I) the Common Pool shall be increased by a number equal to
the following: the number of shares of Company Common Stock issued upon such
conversion of Series C Stock, multiplied by a fraction, the numerator of which
is (A) the Common Pool immediately prior to such conversion and the denominator
of which is (B) the total number of issued and outstanding shares of Company
Common Stock immediately prior to such conversion; and (II) the Preferred Pool
shall be decreased by the same amount that the Common Pool is increased.
(ii) Subject to Sections 2.01(b) and 2.02(e), each share of
Series C Stock issued and outstanding immediately prior to the Effective Time
(other than Dissenting Shares) will be canceled and extinguished and
automatically converted (subject to Section 2.02(e)) into the right to receive a
fraction of one fully paid and nonassessable share of Parent Common Stock, the
numerator of which is (A) 1,773,171 (the "Preferred Pool") and the denominator
of which is (B) the total number of issued and outstanding shares of Series C
Stock immediately prior to the Effective Time (such fraction being referred to
in this Agreement as the "Series C Exchange Ratio") upon surrender of the
certificate representing such share of Series C Stock in the manner provided in
Section 2.02.
(iii) The shares of Parent Common Stock issuable upon the
conversion of shares of Company Common Stock and Series C Stock pursuant to this
Section 2.01 are referred to collectively as the "Merger Consideration." As of
the Effective Time, all shares of Company Common Stock and Series C Stock shall
no longer be outstanding and shall automatically be canceled and shall cease to
exist, and each holder of a certificate representing any such shares of Company
Common Stock or Series C Stock shall cease to have any rights with respect
thereto, except the right to receive Merger Consideration upon surrender of such
certificate in accordance with Section 2.02, without interest.
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(iv) The Common Stock Exchange Ratio and the Series C Exchange
Ratio shall be adjusted to reflect appropriately the effect of any stock split,
reverse stock split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock, Company Common Stock or Series
C Stock), reorganization, recapitalization, reclassification or other like
change with respect to Parent Common Stock, Company Common Stock or Series C
Stock occurring on or after the date hereof and prior to the Effective Time.
(v) In the event that the actual amount of Capped Expenses (as
such term is defined in Section 3.18(b)) exceed the amount of such Capped
Expenses set forth on Schedule 3.18(b), then the total number of shares of
Parent Common Stock issuable as Merger Consideration shall be reduced by an
amount equal to (A) the difference between the actual amount of the Capped
Expenses and the amount of such Capped Expenses set forth on Schedule 3.18(b)
divided by (B) $14.25 (such number of shares of Parent Common Stock being
referred to as the "Adjustment Shares"). The Common Pool will be reduced by an
amount equal to the number of Adjustment Shares multiplied by a fraction the
numerator of which is the then Common Pool and the denominator of which is the
sum of the then Common Pool and the Preferred Pool, and the Preferred Pool will
be reduced by an amount equal to the number of Adjustment Shares multiplied by a
fraction the numerator of which is the then Preferred Pool and the denominator
of which is the sum of the then Common Pool and the Preferred Pool.
(e) 401(k) Plans. To the extent requested in writing by Parent no later
than ten business days prior to the Closing Date, the Company shall take (or
cause to be taken) all actions necessary or appropriate to terminate, effective
as of the Closing Date, any Company Plan (as defined in Section 3.11(a)) that
contains a cash or deferred arrangement intended to qualify under Section 401(k)
of the Code (the "401(k) Plans") in accordance with the provisions of the 401(k)
Plans and applicable Law.
(f) Severance Agreements. Upon the request of Parent, the Company and
its subsidiaries agree that they shall terminate any and all group severance,
separation, retention and salary continuation plans, programs, agreements or
arrangements prior to the Closing Date other than agreements that by their terms
cannot be unilaterally terminated by the Company and are set forth on Schedule
2.01(f).
2.02. Exchange of Certificates.
(a) Exchange Agent. Parent shall select an institution reasonably
acceptable to the Company to act as the exchange agent (the "Exchange Agent") in
the Merger and shall enter into an agreement with the Exchange Agent, reasonably
satisfactory to the Company.
(b) Exchange Fund. At the Effective Time, Parent shall deliver to the
Exchange Agent for exchange in accordance with this Article II, the shares of
Parent Common Stock (such shares of Parent Common Stock, together with cash in
lieu of fractional shares and any dividends or distributions with respect
thereto, are hereinafter referred to as the "Exchange Fund") issuable pursuant
to Section 2.01(d) and Section 2.02(e) in exchange for outstanding shares of
Company Common Stock.
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(c) Exchange Procedures. Immediately after the Effective Time, Parent
shall instruct the Exchange Agent to mail to each holder of record of a
certificate or certificates ("Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock or Series
C Stock whose shares were converted into the right to receive shares of Parent
Common Stock pursuant to Section 2.01(d), cash in lieu of any fractional shares
pursuant to Section 2.02(e) and any dividends or other distributions pursuant to
Section 2.02(d), (i) a letter of transmittal in customary form (that 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 contain such other provisions as Parent may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Parent Common
Stock. Upon surrender of Certificates for cancellation to the Exchange Agent
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may
reasonably be required by the Exchange Agent, the holders of such Certificates
shall be entitled to receive in exchange therefor the number of whole shares of
Parent Common Stock (after aggregating all Certificates surrendered by such
holder) to which such holder is entitled pursuant to Section 2.01(d) (which
shall be in uncertificated book entry form unless a physical certificate is
requested or required by applicable law or regulation), payment in lieu of
fractional shares that such holders have the right to receive pursuant to
Section 2.02(e) and any dividends or distributions payable pursuant to Section
2.02(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, to evidence only the right to
receive the number of full shares of Parent Common Stock which such shares of
Company Common Stock or Series C Stock shall be entitled pursuant to the terms
hereof and the right to receive an amount in cash in lieu of the issuance of any
fractional shares in accordance with Section 2.02(e) and any dividends or
distributions payable pursuant to Section 2.02(d). No interest will be paid or
accrued on any cash payable in lieu of fractional shares of Parent Common Stock
or on any unpaid dividends or distributions payable to holders of Certificates.
In the event of a transfer of ownership of shares of Company Common Stock or
Series C Stock that is not registered in the transfer records of Company, a
certificate representing the proper number of shares of Parent Common Stock and
cash may be issued to a transferee if the Certificate representing such shares
of Company Common Stock or Series C Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holders of any unsurrendered Certificates until the holders of
record of such Certificates shall surrender such Certificates. Subject to
applicable Law, following surrender of any such Certificates, the Exchange Agent
shall deliver to the record holders thereof, without interest, (i) immediately
after such surrender, the amount of any cash payable with respect to a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 2.02(e) and 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 to which such holder is entitled
pursuant to Section 2.01(d), and (ii) at the appropriate payment date, the
amount of dividends or other distributions
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with a record date after the Effective Time but prior to surrender and a payment
date occurring after surrender, payable with respect to such whole shares of
Parent Common Stock.
(e) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock or Series C Stock who would otherwise be entitled
to a fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock that otherwise would be received by
such holder) shall, upon surrender of such holder's Certificate(s), receive from
Parent an amount of cash (rounded to the nearest whole cent), without interest,
less the amount of any withholding taxes as contemplated by Section 2.02(f),
which is required to be withheld with respect thereto, equal to the product of:
(i) such fraction, multiplied by (ii) the average closing sale price of one
share of Parent Common Stock for the ten most recent trading days that Parent
Common Stock has traded ending on the trading day one day prior to the Closing
Date, as reported on The Nasdaq Stock Market.
(f) 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 or Series C 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
Law (as defined in Section 3.05(a)). 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.
(g) Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue and pay in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock or Series C Stock formerly represented by such Certificates were
converted into the right to receive pursuant to Section 2.01(d), cash in lieu of
fractional shares, if any, as may be required pursuant to Section 2.02(e) and
any dividends or distributions payable pursuant to Section 2.02(d); provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance of such certificates representing shares of Parent Common Stock, cash
and other distributions, 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 any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
(h) No Liability. Notwithstanding anything to the contrary in this
Section 2.02, neither the Exchange Agent, Parent, the Surviving Corporation nor
any party hereto shall be liable to a holder of shares of Parent Common Stock,
Company Common Stock or Series C Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(i) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Company Common Stock or Series C
Stock for six months after the Effective Time shall be delivered to Parent, upon
demand, and any holders of
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Company Common Stock or Series C Stock who have not theretofore complied with
the provisions of this Section 2.02 shall thereafter look only to Parent for the
shares of Parent Common Stock, any cash in lieu of fractional shares of Parent
Common Stock to which they are entitled pursuant to Section 2.02(e) and any
dividends or other distributions with respect to Parent Common Stock to which
they are entitled pursuant to Section 2.02(d), in each case, without any
interest thereon.
(j) Dissenting Shares. Any Dissenting Shares will not be converted into
the right to receive shares of Parent Common Stock as provided in Section
2.01(d) and cash in lieu of fractional shares of Parent Common Stock to which
they are entitled pursuant to Section 2.02(e), but will be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to the DGCL. The Company will give Parent
prompt notice (and in any case, within one business day) of any demand received
by the Company for appraisal of shares of Company Common Stock or Series C
Stock, and Parent and the Company will jointly control all negotiations and
proceedings with respect to such demand. The Company agrees that, except with
Parent's prior written consent which shall not be unreasonably withheld, delayed
or conditioned, it will not voluntarily make any payment with respect to, or
settle or offer to settle, any such demand for appraisal. If any Company
stockholder fails to make an effective demand for payment or otherwise loses its
status as a holder of Dissenting Shares, Parent will, as of the later of the
Effective Time or ten business days from the occurrence of such event, issue and
deliver, upon surrender by such Company stockholder of its Certificate(s), the
shares of Parent Common Stock, any cash payment in lieu of fractional shares,
and any dividends or other distributions with respect to Parent Common Stock to
which they are entitled pursuant to Section 2.02(d), in each case without
interest thereon, to which such Company stockholder would have been entitled to
under Section 2.01(d) and Section 2.02(e), subject to the other provisions of
this Agreement. "Dissenting Shares" means any shares of Company Common Stock or
Series C Stock that are outstanding immediately prior to the Effective Time held
by a person who has properly demanded appraisal for such shares in accordance
with the DGCL in connection with the Merger.
2.03. No Further Ownership Rights in Company Common Stock. All shares of Parent
Common Stock issued in accordance with the terms hereof (including any cash paid
in respect thereof pursuant to Section 2.02(e) or Section 2.02(d)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock or Series C Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Company Common Stock or Series C Stock that 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 canceled
and exchanged as provided in this Article II.
2.04. Restricted Stock. If any shares of Company Common Stock or Series C Stock
that are outstanding immediately prior to the Effective Time are unvested or are
subject to a repurchase option, risk of forfeiture or other condition providing
that such shares may be forfeited or repurchased by Company upon any termination
of the stockholder's employment, directorship or other relationship with Company
(and/or any Affiliate (as defined herein) of Company) under the terms of any
restricted stock purchase agreement or other agreement with Company, then the
shares of Parent Common Stock issued upon the conversion of such shares of
Company
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Common Stock or Series C Stock in connection with the Merger will continue to be
unvested and subject to the same repurchase options, risks of forfeiture or
other conditions following the Effective Time, and the certificates representing
such shares of Parent Common Stock may accordingly be marked with appropriate
legends noting such repurchase options, risks of forfeiture or other conditions.
The Company shall take all actions 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.
2.05. Tax 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.
2.06. Further Action. At and after the Effective Time, the officers and
directors of Parent and the Surviving Corporation will be authorized to execute
and deliver, in the name and on behalf of Company, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on behalf of
Company, any other actions to vest, perfect or confirm of record or otherwise in
the Surviving Corporation any and all right, title and interest in, to and under
any of the rights, properties or assets acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger. Parent
shall cause Sub to perform all of its obligations relating to this Agreement and
the transactions contemplated hereby.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the Company
to the Sub and the Parent in connection with the execution of the Agreement (the
"Company Disclosure Schedule"), the Company represents and warrants to Parent
and Sub all of the statements contained in this Article III. The Company
Disclosure Schedule shall be arranged in sections corresponding to the numbered
and lettered sections contained in Article III and shall qualify only the
corresponding sections in this Article and any other section hereof where it is
reasonably clear upon a reading of such disclosure that the disclosure should
apply to such other section.
3.01. Organization, Standing and Power.
(a) The Company and each of its subsidiaries (the "Company
Subsidiaries") is duly organized, validly existing and in good standing under
the Laws of the jurisdiction in which it is organized and has full corporate
power and authority and possesses all governmental franchises, licenses,
permits, authorizations and approvals, and has made all filings, registrations
and declarations, in each case whether domestic or foreign, necessary to enable
it to own, lease or otherwise hold its properties and assets and to conduct its
businesses as presently conducted in each case other than such franchises,
licenses, permits, authorizations, approvals, filings, registrations and
declarations the lack of which, individually and in the aggregate, has not had
and would not reasonably be likely to have a material adverse effect on (i) the
business, assets, liabilities, capitalization, operations, financial condition,
or results of operation of the Company
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and the Company Subsidiaries, taken as a whole, including a termination of the
Company's relationship with a material customer or a substantial diminution in
such relationship, (ii) the ability of the Company to consummate the Merger and
the transactions contemplated thereby or perform its obligations under this
Agreement, or (iii) the ability of Parent to operate the business of the Company
and each of the Company Subsidiaries immediately after the Closing
(collectively, a "Company Material Adverse Effect"); provided, however, that, in
no event shall any of the following, alone or in combination, be deemed to
constitute, nor taken into account in determining whether a Company Material
Adverse Effect has occurred: (i) general economic or financial market conditions
or conditions generally affecting the industry in which the Company is engaged,
(ii) the announcement or pendency of the Merger or any other transactions
expressly contemplated hereby, (iii) compliance with the terms and conditions of
this Agreement, (iv) a change in the stock price or trading volume of the
Company (or any failure of the Company to meet published revenue or earnings
projections), provided that clause (iv) shall not exclude any underlying effect
which is attributable to any of the foregoing and may have caused a failure of
the Company to meet published revenue or earnings projections, (v) any election
of stockholders of the Company to seek appraisal of their shares in accordance
with the DGCL, (vi) any change in accounting requirements or principles or any
change in applicable Laws, rules, or regulations or the interpretation thereof,
or (vii) any litigation or other similar proceeding arising out of or in
connection with this Agreement or the transactions contemplated hereby.
(b) The Company and each Company Subsidiary is duly qualified or
licensed to do business in, and is in good standing in, each jurisdiction where
the nature of its business or the ownership or leasing of its properties make
such qualification necessary, except where the failure to do so would cause a
Company Material Adverse Effect. The Company has made available to Parent true
and complete copies of the certificate of incorporation of the Company, as
amended to the date of this Agreement (as so amended, the "Company Charter"),
and the by-laws of the Company, as amended to the date of this Agreement (as so
amended, the "Company By-laws"), and the comparable charter and organizational
documents of each Company Subsidiary, in each case as amended through the date
of this Agreement.
3.02. Company Subsidiaries; Equity Interests.
(a) Schedule 3.02 lists each Company Subsidiary and its jurisdiction of
organization. All the outstanding shares of capital stock of each Company
Subsidiary have been validly issued and are fully paid and nonassessable and are
owned by the Company, a wholly-owned subsidiary of Company, or Company and
another wholly-owned subsidiary of Company, free and clear of all pledges,
liens, charges, mortgages, encumbrances and security interests of any kind or
nature whatsoever (collectively, "Liens").
(b) Except for its interests in the Company Subsidiaries and except for
the ownership interests set forth in Schedule 3.02, the Company does not own,
directly or indirectly, any capital stock, membership interest, partnership
interest, joint venture interest or other equity interest in any person.
3.03. Capital Structure. The authorized capital stock of the Company consists of
100,000,000 shares of the Company Common Stock and 20,000,000 shares of
preferred stock, 40,000 of which are designated as Series C Stock and the
remainder of which are undesignated.
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At the close of business on December 4, 2003, (i) 16,995,481 shares of Company
Common Stock were issued and outstanding, (ii) 33,536 shares of the Company's
Series C Stock were issued and outstanding, (iii) 7,940 shares of Company Common
Stock were held by the Company in its treasury, (iv) 5,426,869 shares of Company
Common Stock were subject to outstanding Company Options granted under Company
Stock Option Plans and 299,031 additional shares of Company Common Stock were
reserved for issuance pursuant to the Company Stock Option Plans, (v) 25,215,038
shares of Company Common Stock were reserved for issuance upon the conversion of
issued and outstanding Series C Stock, (vi) 35,492 shares of Company Common
Stock have yet to be issued under Company Director Equity Plans and 3,016
additional shares of Company Common Stock were reserved for issuance pursuant to
the Company Director Equity Plans, (vii) 61,192 shares of Company Common Stock
have been issued under Company Options granted under Company Stock Purchase
Plans and 188,808 additional shares of Company Common Stock were reserved for
issuance pursuant to the Company Stock Purchase Plans, (viii) 96,000 shares of
Company Common Stock were subject to outstanding Company Options granted under
Company Consultant Stock Option Plans and 3,800 additional shares of Company
Common Stock were reserved for issuance pursuant to the Company Consultant Stock
Option Plans, (ix) 200,000 shares of Company Common Stock were reserved for
issuance upon the conversion of issued and outstanding Company warrants,
excluding the Company warrant held by Parent and (x) 4,785,085 shares of Company
Common Stock reserved for issuance upon the conversion of the Centra Benefit
Services, Inc. and PVC Funding Partners LLC notes. Except as set forth above, at
the close of business on December 4, 2003, no shares of capital stock or other
voting securities of the Company were issued, reserved for issuance or
outstanding other than shares reserved for issuance for the Company's make-whole
obligation set forth in the Registration Rights Agreement between the Company
and HealthPlan Holdings, Inc. dated June 18, 2001 and shares reserved for
issuance upon the exercise of the Company Warrant held by Parent. All
outstanding shares of Company Common Stock are, and all such shares that may be
issued prior to the Effective Time will be when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to or issued in violation
of any purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the DGCL, the
Company Charter, the Company By-laws or any Contract (as defined in Section
3.05) to which the Company is a party or otherwise bound. There are not any
bonds, debentures, notes or other indebtedness of the Company having the right
to vote (or convertible into, or exchangeable for, securities having the right
to vote) on any matters on which holders of Company Common Stock or Series C
Stock may vote ("Voting Company Debt"). Except as set forth on Schedule 3.03, as
of the date of this Agreement, there are not any options, warrants, rights,
convertible or exchangeable securities, "phantom" stock rights, stock
appreciation rights, stock-based performance units, commitments, Contracts,
arrangements or undertakings of any kind to which the Company or any Company
Subsidiary is a party or by which any of them is bound (i) obligating the
Company or any Company Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other equity
interests in, or any security convertible or exercisable for or exchangeable
into any capital stock of or other equity interest in, the Company or of any
Company Subsidiary or any Voting Company Debt, (ii) obligating the Company or
any Company Subsidiary to issue, grant, extend or enter into any such option,
warrant, call, right, security, commitment, Contract, arrangement or undertaking
or (iii) that give any person the right to receive any economic benefit or right
similar to or derived from the economic benefits
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and rights occurring to holders of Company Common Stock. No anti-dilution rights
or pre-emptive rights of any capital stock or other securities issued by the
Company shall be triggered as a result of the transactions contemplated hereby.
As of the date of this Agreement, there are not any outstanding contractual
obligations of the Company or any Company Subsidiary to repurchase, redeem or
otherwise acquire any shares of capital stock of the Company or any Company
Subsidiary. Neither the Company nor any of its affiliates, as such term is
defined in Rule 405 promulgated under the Securities Act of 1933, as amended
(the "Securities Act") (each, an "Affiliate"), is a party to or is bound by any
agreements or understandings with respect to the voting (including voting trusts
and proxies) or sale or transfer (including agreements imposing transfer
restrictions) of any shares of capital stock or other equity interests of the
Company or any of the Company Subsidiaries. There are no registration rights of
any nature granted by the Company or any of the Company Subsidiaries.
3.04. Authority; Execution and Delivery; Enforceability.
(a) The Company has all requisite corporate power and authority to
execute and deliver this Agreement and the Ancillary Agreements to which it is a
party, and, subject to obtaining adoption of this Agreement by the affirmative
vote of the holders of a majority in voting power of the outstanding shares of
the Company's Common Stock and the Series C Stock, voting together as a single
class (the "Company Stockholder Approval"), to consummate the transactions
contemplated hereby and thereby. The execution, delivery, and performance by the
Company of this Agreement and the Ancillary Agreements to which the Company is a
party, and the consummation by the Company of the transactions contemplated
hereby and thereby, have been duly and validly authorized by all necessary
corporate action on the part of the Company and, except for obtaining the
Company Stockholder Approval, no other corporate action on the part of the
Company is necessary to authorize the execution and delivery by the Company of
this Agreement and the Ancillary Agreements to which it is a party and the
consummation of the transactions contemplated hereby and thereby. The Company
has duly executed and delivered this Agreement and the Ancillary Agreements, and
this Agreement and the Ancillary Agreements constitute a legal, valid and
binding obligation (subject to the Company Stockholder Approval with respect to
the Merger if required by Law) of the Company, enforceable against it in
accordance with their terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar Laws of general applicability relating to or affecting
the enforcement of creditors' rights and by the effect of the principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law).
(b) The Board of Directors of the Company has unanimously (except for
Michael Falk, who abstained from voting) by resolutions duly adopted at a
meeting duly called and held and not subsequently rescinded or modified (i)
determined that the Merger is fair to, and in the best interests of the Company
and its stockholders, (ii) approved this Agreement and the transactions
contemplated hereby, including the Merger, (iii) declared the advisability of
the Agreement and recommended that the stockholders of the Company adopt this
Agreement, and (iv) directed that such matter be submitted to Company
stockholders at the Company Stockholders' Meeting (as defined below). No state
anti-takeover, control share acquisition, fair price, moratorium or other
similar statute or regulation (each a "Takeover Statute") (including Section 203
of the DGCL, which is inapplicable to the Company) is applicable to the
execution,
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delivery or performance of this Agreement or to the consummation of the Merger
without any further action on the part of the Company or its Board of Directors
or any committee thereof. The restrictions on business combinations (as defined
in Section 203(c)(3) of the DGCL) contained in Section 203 of the DGCL do not
apply to this Agreement, the Merger or the transactions contemplated thereby or
hereby pursuant to Section 203(b)(4) of the DGCL.
3.05. No Conflicts; Consents.
(a) The execution and delivery by the Company of this Agreement does
not, and the consummation of the Merger and compliance with the terms hereof
will not, result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or to
increased, additional, accelerated or guaranteed rights or entitlements of any
person under, or result in the creation of any Lien upon any of the properties
or assets of the Company or any Company Subsidiary under, any provision of (i)
the Company Charter, the Company By-laws or the comparable charter or
organizational documents of any Company Subsidiary, (ii) any contract, lease,
license, indenture, note, bond, agreement, permit, concession, franchise or
other instrument (a "Contract") to which the Company or any Company Subsidiary
is a party or by which any of their respective properties or assets is bound or
(iii) subject to the filings and other matters referred to in Section 3.05(b),
any judgment, order, injunction or decree, domestic or foreign ("Judgment"), or
statute, law (including common law), legislation, interpretation, ordinance,
rule or regulation, domestic or foreign ("Law"), applicable to the Company or
any Company Subsidiary or their respective properties or assets, other than, in
the case of clauses (ii) and (iii) above, any such items that, individually and
in the aggregate, have not had and would not reasonably be expected to have a
Company Material Adverse Effect.
(b) No consent, approval, license, permit, order or authorization
("Consent") of, or registration, declaration or filing with, any Federal, state,
local or foreign government or any court of competent jurisdiction,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity") is required to be
obtained or made by or with respect to the Company or any Company Subsidiary in
connection with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, other than (i) if
required, compliance with and filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing with the
Securities and Exchange Commission ("SEC") of (A) a proxy or information
statement relating to the adoption of this Agreement by the Company's
stockholders, and (B) such reports under Section 13 of the Exchange Act as may
be required in connection with this Agreement and the Merger, (iii) the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware and appropriate documents with the relevant authorities of the other
jurisdictions in which the Company is qualified to do business, (iv) such
filings as may be required in connection with the Taxes described in Section
6.10, (v) compliance with and filings under any foreign jurisdictions, in each
case if and to the extent required, and (vi) such other items that, individually
and in the aggregate, have not had and would not reasonably be expected to have
a Company Material Adverse Effect.
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3.06. SEC Documents; Undisclosed Liabilities; Closing Date Liabilities.
(a) The Company has filed with the SEC, and has heretofore made
available to Parent, true and complete copies of all forms, reports, schedules,
statements and other documents required to be filed by the Company and the
Company Subsidiaries since December 31, 2000 under the Exchange Act and the
Securities Act (as such documents have been amended since the time of their
filing, collectively, the "Filed Company SEC Documents"). As of their respective
dates, each Filed Company SEC Document, including any financial statements or
schedules included therein (a) did not 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 and (b) complied in all material
respects with the applicable requirements of the Exchange Act or the Securities
Act, as the case may be, the Sarbanes-Oxley Act of 2002 since the applicable
effective date thereunder and the applicable rules and regulations of the SEC
thereunder. As of the date of this Agreement, the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2002 (filed on March 31, 2003)
as amended by the amendment filed on November 25, 2003. (the "2002 Form 10-K"),
its definitive Proxy Statement with respect to its 2002 Annual Meeting (filed on
April 18, 2003), and its Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003 (filed on November 14, 2003) (collectively, the "2003 SEC
Documents") taken together do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The consolidated financial
statements of the Company included in the Filed Company SEC Documents complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto as of the
dates of their respective filing, were prepared in accordance with generally
accepted accounting principles applicable in the United States of America
("GAAP") (except, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC) applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly presented the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).
(b) Except as set forth in the Filed Company SEC Documents, neither the
Company nor any Company Subsidiary has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) required by GAAP to
be set forth on a consolidated balance sheet of the Company and its consolidated
subsidiaries or in the notes thereto, other than liabilities or obligations
incurred in the ordinary course of business consistent with past practice since
the date of the most recent financial statements included in the Filed Company
SEC Documents.
(c) Excluding the Series C Stock for purposes hereof, debt that would
be required by GAAP to be set forth on a consolidated balance sheet of the
Company and its consolidated subsidiaries or in the notes thereto, if such a
balance sheet were prepared at and as of the date immediately preceding the
Closing Date (but after giving effect to the transactions contemplated to be
consummated at the Closing), will not exceed an aggregate of $26,700,000 and
will consist only of the debt set forth on Schedule 3.06(c).
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3.07. Information Supplied. The information supplied by the Company for
inclusion in the Form S-4 Registration Statement (or any similar successor form
thereto) to be filed by Parent with the SEC in connection with the issuance of
Parent Common Stock in connection with the Merger (the "Registration Statement")
shall not at the time the Registration Statement is filed with the SEC and at
the time it 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. The information
supplied by the Company for inclusion or incorporation by reference in the proxy
statement/prospectus to be filed with the SEC as part of the Registration
Statement (the "Proxy Statement/Prospectus") shall not, on the date the Proxy
Statement/Prospectus is mailed to the Company's stockholders or Parent's
stockholders, at the time of the meeting of the Company's stockholders (the
"Company Stockholders' Meeting") to consider the Company Stockholder Approval,
at the time of the meeting of Parent's stockholders (the "Parent Stockholders'
Meeting") to consider the Parent Stockholder Approval (as defined in Section
4.05) or 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 false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Company Stockholders'
Meeting or the Parent Stockholders' Meeting which has become false or
misleading. The proxy statement included in the Proxy Statement/Prospectus will
comply as to form in all material respects with the provisions of the Exchange
Act and the Securities Act and the rules and regulations thereunder. If at any
time prior to the Effective Time any event relating to the Company or any of its
Affiliates, officers or directors should be discovered by the Company which is
required to be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/Prospectus, the Company shall promptly inform
Parent.
3.08. Absence of Certain Changes or Events. From the date of the most recent
audited financial statements included in the Filed Company SEC Documents, the
Company has conducted its business only in the ordinary course, and during such
period there has not been:
(i) any event, change, effect or development that,
individually or in the aggregate, has had or would reasonably be expected to
have a Company Material Adverse Effect;
(ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to any
Company Common Stock or Series C Stock or any repurchase for value by the
Company of any Company Common Stock or Series C Stock (other than dividends in
Series C Stock to Series C Stockholders in accordance with the terms thereof and
payments of interest in common stock under the Centra Benefit Services, Inc. and
PVC Funding Partners LLC notes totaling in the aggregate approximately
$4,788,085);
(iii) any split, combination or reclassification of any
Company Common Stock or Series C Stock or any issuance or the authorization of
any issuance of any other securities in respect of, in lieu of or in
substitution for shares of Company Common Stock or Series C Stock;
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(iv) (A) any granting by the Company or any Company Subsidiary
to any current or former director, officer or employee of the Company or any
Company Subsidiary of any increase in compensation, except to the extent
required under employment agreements in effect as of the date of the most recent
audited financial statements included in the Filed Company SEC Documents or,
with respect to employees (other than directors, officers or key employees) in
the ordinary course of business consistent with past practice and except for
Company Stock Options that are reflected as outstanding in clause (iii) of
Section 3.03, (B) any granting by the Company or any Company Subsidiary to any
such director, officer or employee of any material increase in severance or
termination pay, except as was required under any employment, severance or
termination policy, practice or agreements in effect as of the date of the most
recent audited financial statements included in the Filed Company SEC Documents
or (C) any entry by the Company or any Company Subsidiary into, or any amendment
of, any employment, severance or termination agreement with any such director,
officer or employee, except for such agreements or amendments with employees
(other than directors, officers or key employees) that are entered into in the
ordinary course of business consistent with past practice;
(v) any termination of employment or departure of any key
employee of the Company or any Company Subsidiary;
(vi) any change in accounting methods, principles or practices
by the Company or any Company Subsidiary materially affecting the consolidated
assets, liabilities or results of operations of the Company, except insofar as
may have been required by a change in GAAP;
(vii) any material elections with respect to Taxes (as defined
in Section 3.09) by the Company or any Company Subsidiary or settlement or
compromise by the Company or any Company Subsidiary of any material Tax
liability or refund; or
(viii) any notification or, to the knowledge of the Company,
threat, whether oral or in writing, that and there have not been, one or more
material distributors, licensors, networks, customers or suppliers that have
terminated or intend to terminate their respective business relationships or
have modified or intend to modify such relationships with the Company and the
Company Subsidiaries in a manner which would have a Company Material Adverse
Effect.
3.09. Taxes.
(a) Each of the Company and each Company Subsidiary has timely filed,
or has caused to be timely filed on its behalf, all Tax Returns required to be
filed by it, and all such Tax Returns are true, complete and accurate, except to
the extent any failure to file or any inaccuracies in any filed Tax Returns,
individually and in the aggregate, has not had and would not reasonably be
expected to have a Company Material Adverse Effect. All Taxes of the Company and
each of the Company Subsidiaries have been timely paid, except to the extent
that any failure to pay, individually and in the aggregate, has not had and
would not reasonably be expected to have a Company Material Adverse Effect.
Neither the Company nor any of its Company Subsidiaries currently is the
beneficiary of any extension of time within which to file any Tax Return.
A-17
(b) The most recent financial statements contained in the Filed Company
SEC Documents reflect an adequate reserve (in accordance with GAAP) for all
Taxes payable by the Company and the Company Subsidiaries for all taxable
periods and portions thereof through the date of such financial statements (in
addition to any reserve for deferred Taxes established to reflect timing
differences between book and tax income). No deficiency with respect to any
Taxes has been proposed, asserted or assessed against the Company or any Company
Subsidiary, and no waivers of the time to assess any such Taxes are pending,
except to the extent any such deficiency or waiver, individually and in the
aggregate, has not had and would not reasonably be expected to have a Company
Material Adverse Effect.
(c) No foreign, federal, state, or local tax audits or administrative
or judicial Tax proceedings are pending or being conducted with respect to the
Company or any of the Company Subsidiaries. All material assessments for Taxes
due with respect to completed and settled audits or proceedings or any concluded
litigation have been fully paid, and the Company has delivered to Parent correct
and complete copies of all examination reports and statements of deficiency with
respect to such audits, proceedings, and litigations.
(d) There are no Liens for Taxes (other than for current Taxes not yet
due and payable and for which adequate reserves have been established in
accordance with GAAP) on the property or assets of the Company or any Company
Subsidiary. Neither the Company nor any Company Subsidiary is bound by any
agreement with respect to Taxes.
(e) No claim has been made by any authority in a jurisdiction within
which the Company or any Company Subsidiary does not file Tax Returns that it
is, or may be, subject to taxation by that jurisdiction.
(f) Neither the Company nor any Company Subsidiary has constituted
either a "distributing corporation" or a "controlled corporation" (within the
meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying or intended to qualify for tax-free treatment under Section 355 of
the Code (A) in the two years prior to the date of this Agreement or (B) in a
distribution that could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
(g) The Company has delivered to Parent correct and complete copies of
all federal, state and local income Tax Returns, of the Company and the Company
Subsidiaries for the last four taxable years.
(h) Neither the Company nor any of the Company Subsidiaries is a party
to any agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of (i) any "excess
parachute payment" within the meaning of Code ss.280G (or any corresponding
provision of state, local or foreign Tax law) and (ii) any amount that will not
be fully deductible as a result of Code 162(m) (or any corresponding provision
of state, local or foreign Tax law).
(i) Neither the Company nor any of the Company Subsidiaries (A) is or
has been a member of any "affiliated group" within the meaning of Code
ss.1504(a) (or any similar provision
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of state, local or foreign law) (an "Affiliated Group") filing a consolidated
federal income Tax Return (other than a group the common parent of which was the
Company) or (B) has any liability for the Taxes of any person (other than any of
the Company and the Company Subsidiaries) under Reg. ss.1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(j) Neither Company nor any of its Company Subsidiaries has been a
United States real property holding corporation within the meaning of Code
ss.897(c)(2) during the applicable period specified in Code ss.897(c)(1)(A)(ii).
Each of Company and its Company Subsidiaries has disclosed on its federal income
Tax Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of the Code ss.6662.
Neither Company nor any of its Company Subsidiaries is a party to or bound by
any Tax allocation or sharing agreement.
(k) Schedule 3.09 sets forth the following information with respect to
each Company and its Company Subsidiaries (or, in the case of clause (B) below,
with respect to each of the Company Subsidiaries) as of the most recent
practicable date: (A) the basis of Company or Company Subsidiary in its assets;
(B) the basis of the stockholder(s) of the Company Subsidiary in its stock (or
the amount of any excess loss account); (C) the amount of any net operating
loss, net capital loss, unused investment or other credit, unused foreign tax,
or excess charitable contribution allocable to the Company or Company
Subsidiaries; and (D) the amount of any deferred gain or loss allocable to
Company or Company Subsidiary arising out of any intercompany transaction. The
information required to be included on Schedule 3.09 pursuant to clause (B) may
be provided after the date hereof and prior to the Closing.
(l) None of Company and Company Subsidiaries will be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Effective
Time as a result of any: (A) change in method of accounting for a taxable period
ending on or prior to the Closing Date; (B) "closing agreement" as described in
Code ss.7121 (or any corresponding or similar provision of state, local or
foreign income Tax law) executed on or prior to the Closing Date; (C)
intercompany transactions or any excess loss account described in Treasury
Regulations under Code ss.1502 (or any corresponding or similar provision of
state, local or foreign income Tax law); (D) installment sale or open
transaction disposition made on or prior to the Closing Date; or (E) prepaid
amount received on or prior to the Closing Date.
(m) Neither Company nor any Company Subsidiary has experienced an
ownership change within the meaning of Code ss.382(g) that affects its net
operating loss.
(n) For purposes of this Agreement:
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including
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any interest, penalty, or addition thereto, whether disputed or not and
including any obligations to indemnify or otherwise assume or succeed to the Tax
liability of any other person.
"Tax Return" means any Federal, state, local, provincial or foreign
Tax return, declaration, statement, report, schedule, form attachment or
information return relating to Taxes and any amendment thereof.
3.10. Employees.
(a) (i) The Company and the Company Subsidiaries are in compliance with
all applicable Laws respecting employment and employment practices, terms and
conditions of employment, health and safety, and wages and hours; (ii) neither
the Company nor any of the Company Subsidiaries has received written notice of
any charge or complaint against the Company or any of the Company Subsidiaries
pending before the Equal Employment Opportunity Commission, the National Labor
Relations Board, or any other government agency or court or other tribunal
regarding an unlawful employment practice; (iii) neither the Company nor any of
the Company Subsidiaries is a party to any collective bargaining agreement and
there is no labor strike, slowdown or stoppage actually pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
the Company Subsidiaries; (iv) neither the Company nor any of the Company
Subsidiaries has received notice that any representation petition respecting the
employees of the Company or any of the Company Subsidiaries has been filed with
the National Labor Relations Board, and, to the knowledge of the Company, there
has been no labor union prior to the date hereof organizing any employees of the
Company or any of its Subsidiaries into one or more collective bargaining units;
(v) there are no complaints, lawsuits, arbitrations or other proceedings
pending, or to the knowledge of the Company, threatened by or on behalf of any
present or former employee of the Company or any of the Company Subsidiaries
alleging breach of any express or implied contract of employment; (vi) the
Company has not received any written notice that a federal, state, or local
agency responsible for the enforcement of labor or employment Laws intends to
conduct an investigation with respect to or relating to the Company or any of
the Company Subsidiaries and no such investigation is in progress; (vii) there
are no personnel arrangements, understandings, policies, rules or procedures
(whether written or oral) applicable to employees of the Company or any of the
Company Subsidiaries other than those set forth in Schedule 3.10(a), true,
correct and complete copies of which have heretofore been delivered to Parent;
and (viii) there are no employment contracts, severance agreements,
confidentiality agreements (other than standard employee non-disclosure
agreements as contemplated by Section 3.10(vii)) or any other agreements
(whether written or oral) with any employees of the Company or any Company
Subsidiary thereto.
(b) The Company and the Company Subsidiaries are and have been in
substantial compliance with all notice and other requirements under the Worker
Adjustment and Retaining Notification Act ("WARN") or similar state statute.
None of the employees of the Company or any of the Company Subsidiaries have
suffered an "employment loss" (as defined in WARN) during the ninety (90)-day
period prior to the execution of this Agreement.
(c) Neither the Company nor any of the Company Subsidiaries is bound by
any contract, arrangement, understanding, policy, rule or procedure (whether
written or oral) that
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restricts its ability to terminate the employment of any of its employees at any
time without payment or other liability.
(d) To the Company's knowledge, no executive officer or key employee
has any plans to terminate employment with the Company or the Company
Subsidiaries.
(e) The Company and each of the Company Subsidiaries are compliant in
all material respects with all legal requirements relating to the collection and
use of personally identifiable health information as required by HIPAA ("PHI")
gathered in the course of its respective operations, and the Company and each of
the Company Subsidiaries are compliant in all material respects with the rules,
policies and procedures established by the Company from time to time with
respect to the foregoing. No claims have been asserted or, to the knowledge of
the Company, threatened against the Company or any of the Company Subsidiaries
(and to the knowledge of Company, no such claims are likely to be asserted or
threatened against Company or any of its subsidiaries) by any person or entity
alleging a violation of such person's or entity's privacy, personal or
confidentiality rights under any such rules, policies or procedures. The
execution of this Agreement and the consummation of the transactions
contemplated herein will not materially breach or otherwise cause any material
violation of any terms and conditions of any Contract or applicable privacy
policy of Company expressly governing the collection and use of PHI. To the
knowledge of the Company, since April 14, 2003 there has been no unauthorized
access to or other material misuse of PHI.
3.11. Employee Benefits.
(a) Schedule 3.11 contains a true and complete list of each Employee
Benefit Plan that any of the Company and the Company Subsidiaries maintains or
to which any of the Company and the Company Subsidiaries contributes or has an
obligation to contribute relating to current or former employees, officers or
directors (or their beneficiaries) of the Company and the Company Subsidiaries
(each a "Company Plan"). "Employee Benefit Plan" means any (a) deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) Employee Welfare Benefit Plan or fringe benefit plan or
program or (c) profit sharing, savings, stock option, restricted stock, stock
purchase, equity, stock appreciation, bonus, incentive deferred compensation,
termination, insurance, severance plan, supplemental benefit, medical, education
reimbursement or other benefit plan, program, agreement or arrangement which is
not an Employee Pension Benefit Plan or an Employee Welfare Benefit Plan
maintained or contributed to or required to be contributed to by the Company or
by any trade or business whether or not incorporated that together with the
Company or by any trade or business, whether incorporated, that together with
the Company would be deemed a "single employer" within the meaning of section
4021 of ERISA (a "Company ERISA Affiliate") or with respect to which the Company
or any Company ERISA Affiliate could incur liabilities under Section 4069 of
ERISA. "Employee Pension Benefit Plan" has the meaning set forth in ERISA ss.
3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA 3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
(i) Each Company Plan (and each related trust, custodial
account insurance contract, or fund) complies in form and in operation with its
terms, the applicable requirements of ERISA, the Code, and other applicable
Laws.
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(ii) All required returns, reports and descriptions (including
Form 5500 Annual Returns/Reports, "top-hat" plan notices, Summary Annual
Reports, PBGC-l's, and Summary Plan Descriptions) have been filed or distributed
appropriately and in a timely fashion in accordance with applicable law with
respect to each Company Plan. The requirements of Part 6 of Subtitle B of Title
I of ERISA and of Code ss. 4980B, collectively the "COBRA Requirements", have
been met with respect to each Company Plan which is an Employee Welfare Benefit
Plan subject to the COBRA Requirements.
(iii) All contributions (including all employer contributions
and employee salary reduction contributions) which are (or previously have been)
due have been paid in a timely fashion in accordance with applicable law to each
Company Plan which is an Employee Pension Benefit Plan and all contributions for
any period ending on or before the Closing Date which are not yet due have been
paid to each such Employee Pension Benefit Plan or accrued in accordance with
the past custom and practice of the Company. All premiums or other payments for
all periods ending on or before the Closing Date have been paid in a timely
fashion with respect to each Company Plan, which is an Employee Welfare Benefit
Plan.
(iv) Each Company Plan which is an Employee Pension Benefit
Plan intended to be qualified under Code ss. 401(a) timely received a favorable
determination letter from the IRS to the effect that the Plan is so qualified
under ss. 401 of the Code and that the trust maintained pursuant thereto is
exempt from federal income taxation under ss. 501 of the Code and nothing has
occurred since the date or dates of such determination letter or letters from
the IRS which is reasonably likely to adversely affect the qualified status of
such Plan or the exempt status of any such trust.
(v) With respect to each Company Plan, to the extent
applicable or to the extent the Company has been required to prepare or maintain
such documents by applicable law, the Company has delivered to Parent and Sub
correct and complete copies of the plan documents, related trust agreement and
insurance contracts, including any amendments and descriptions of vacation and
severance policies, and summary plan descriptions, summary of material
modifications, and all material communications to participants, the most recent
determination letter received from the Internal Revenue Service with respect to
such Plan that is intended to be qualified under ss. 401(a) of the Code, the
most recent Form 5500 Annual Return/Report, any communication with the Internal
Revenue Service or the Department of Labor regarding the compliance or
non-compliance of any Company Plan with applicable law, and all related trust
agreements, insurance contracts, and other funding agreements which implement
such Employee Benefit Plan.
(b) With respect to each Employee Benefit Plan that any of the Company,
the Company Subsidiaries and the Controlled Group of Corporations (as defined in
Code ss. 1563) which includes the Company and the Company Subsidiaries maintains
or ever has maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute:
(i) Neither the Company nor any Company ERISA Affiliate has
any actual or contingent liability under Title IV of ERISA or Code ss. 412
(other than payments to the PBGC) including without limitation any liability in
connection with the termination or reorganization of any employee benefit plan
subject to Title IV of ERISA or a withdrawal of any Employee
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Benefit Plan subject to Title IV of ERISA or a withdrawal from a "multiemployer"
plan as discussed under ss. 4063 of ERISA and, no fact or event exists which is
reasonably likely to give rise to such liability.
(ii) There have been no Prohibited Transactions with respect
to any such Employee Benefit Plan. To the knowledge of the Company, no Fiduciary
has any Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets of any
such Employee Benefit Plan. "Prohibited Transaction" has the meaning set forth
in ERISA ss. 406 or Code ss. 4975. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims for benefits) is
pending or to the knowledge of the Company threatened. The Company is not aware
of any basis for any such action, suit, proceeding, hearing, or investigation.
(c) None of the Company and the Company Subsidiaries maintains or ever
has maintained or contributes, ever has contributed, or ever has been required
to contribute to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents (other than in
accordance with Code ss. 4980B).
(d) No promise or commitment to amend or improve any Employee Benefit
Plan for the benefit of current or former directors, officers, or employees of
the Company or the Company Subsidiaries which is not reflected in the
documentation provided to Parent and Sub has been made.
(e) The transactions contemplated by this Agreement shall not alone or
upon the occurrence of any additional or subsequent event, result in (i) any
payment, of severance or otherwise, or acceleration, vesting or increase in
benefits under any Employee Benefit Plan for the benefit of any current or
former director, officer, or employee of the Company or any of the Company
Subsidiaries, or (ii) any payment or benefit under any Company Plan failing to
be deductible by reason of Code ss. 280G.
(f) Without limitation of the foregoing, to the extent a Company Plan
which is or has been subject to non-discrimination testing requirements under
the Code, ERISA or other applicable law, fails or has failed to satisfy such
requirements as of or before the Effective Time, the Company has taken in a
timely fashion (as determined by applicable law) the necessary corrective action
(which may include qualified nonelective contributions or corrective
distributions) so that the Company Plan successfully passed and passes the
applicable non-discrimination tests in accordance with applicable Law.
(g) The Company has made available to Parent and Sub: (i) copies of all
employment agreements with the top five most highly compensated executive
officers of the Company and the Company Subsidiaries; and (ii) copies of all
material plans, programs, agreements, and other arrangements of the Company or
the Company Subsidiaries with or relating to its or its subsidiaries' employees
which contain change in control provisions. Neither the execution or delivery of
this Agreement nor the consummation of the transactions completed hereby will
(I) result in any payment becoming due to any director, officer, or employee of
the Company or any
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of the Company Subsidiaries under any Company Plan or otherwise, which is
material in relation to the compensation previously provided to such individual,
(II) materially increase any benefits otherwise payable under any Company Plan,
which increase is material in relation to the benefits previously provided, or
(III) result in any acceleration of the time of payment or vesting of any
material benefits.
3.12. Absence of Changes in Benefit Plans. From the date of the most recent
audited financial statements included in the Filed Company SEC Documents, there
has not been any adoption or amendment in any material respect by the Company or
any Company Subsidiary of any collective bargaining agreement or any Employee
Benefit Plan of the Company and the Company Subsidiaries. As of the date of this
Agreement there are not any employment, consulting, indemnification, severance
or termination agreements or arrangements between the Company or any Company
Subsidiary and any current or former employee, officer or director of the
Company or any Company Subsidiary, nor does the Company or any Company
Subsidiary have any general severance plan or policy.
3.13. Litigation. Other than any litigation arising out of or in connection with
this Agreement or the transactions contemplated hereby, there are no claims,
suits, actions, investigations, indictments, or administrative, arbitration or
other similar proceedings ("Proceedings") pending or, to the knowledge of the
Company, threatened against or affecting the Company or any Company Subsidiary
(and, to the knowledge of the Company, there is not any basis for any such
Proceeding) that, individually or in the aggregate, has had or would reasonably
be expected to have a Company Material Adverse Effect, nor is there any Judgment
outstanding against the Company or any Company Subsidiary. Schedule 3.13 lists
all pending Proceedings which the Company has notice of and all threatened
Proceedings of which the Company has knowledge.
3.14. Compliance With Applicable Laws. The Company and the Company Subsidiaries
have complied in a timely manner and in all material respects, with all Laws,
statutes, regulations, rules, ordinances, and judgments, decrees, orders, writs
and injunctions, of any court or Governmental Entity relating to any of the
property owned, leased or used by them, or applicable to their business,
including Laws relating to equal employment opportunity, discrimination,
occupational safety and health, environmental, interstate commerce and
antitrust. Neither the Company nor any Company Subsidiary has received any
written communication during the past three years from a Governmental Entity
that alleges that the Company or a Company Subsidiary is not in compliance in
any material respect with any applicable Law.
3.15. No Illegal Payments, Etc. None of the Company or the Company Subsidiaries,
nor any of their directors, officers, employees or agents, has (a) directly or
indirectly given or agreed to give any illegal gift, contribution, payment or
similar benefit to any supplier, customer, governmental official or employee or
other person who was, is or may be in a position to help or hinder the Company
or any of the Company Subsidiaries (or assist in connection with any actual or
proposed transaction) or made or agreed to make any illegal contribution, or
reimbursed any illegal political gift or contribution made by any other person,
to any candidate for federal, state, local or foreign public office (i) which
might subject any of the Company and the Company Subsidiaries to any damage or
penalty in any civil, criminal or governmental litigation or proceeding or (ii)
the non-continuation of which, in the case of (i) and (ii), has had or might
have, individually or in the aggregate, a Company Material Adverse Effect or (b)
established or
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maintained any unrecorded fund or asset or made any false entries on any books
or records for any purpose.
3.16. Contracts. Schedule 3.16 lists the following contracts and other
agreements to which any of the Company and the Company Subsidiaries is a party,
excluding customer contracts and network contracts:
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any person providing for lease payments in excess
of $25,000 in any one year;
(b) any agreement (or group of related agreements) for the purchase or
sale of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of which
will extend over a period of more than one year;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness or under which it has
imposed a Lien on any of its assets, tangible or intangible;
(e) any agreement concerning confidentiality or noncompetition;
(f) any agreement relating to the Company and the Company Subsidiaries,
their assets, liabilities and business, or relating to shares of the Company
Common Stock between or among the Company, any of the Company Subsidiaries and
any or their Affiliates;
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or arrangement for
the benefit of its current or former directors, officers, and employees;
(h) any collective bargaining agreement;
(i) any agreement providing for the employment or consultancy with any
individual on a full-time, part-time, consulting or other basis or providing
severance or retirement benefits;
(j) any agreement under which it has advanced or loaned any amount to
any of its stockholders, Affiliates, directors, officers, or employees other
than in the ordinary course of business;
(k) any agreement under which the consequences of a default or
termination would reasonably be expected to have a Company Material Adverse
Effect; or
(l) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $50,000.
The Company has delivered to Parent and Sub a correct and complete copy of each
written agreement listed in Schedule 3.16 and a written summary setting forth
the terms and conditions of each oral agreement referred to in Schedule 3.16.
Except as disclosed in Schedule 3.15, with
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respect to each such agreement, neither the Company nor any of the Company
Subsidiaries is in material breach or default under, and neither the Company nor
any of the Company Subsidiaries has received written notice that it has
materially breached or defaulted, any of the terms or conditions of any Company
Material Contract.
3.17. Intellectual Property.
(a) The Company or the Company Subsidiaries have a valid right to use
all trademarks, service marks, trade names, Internet domain names, designs,
slogans, trade dress and general intangibles of like nature (collectively,
"Trademarks"); Software (as defined below); technology; trade secrets and other
confidential information, know-how, proprietary processes, formulae, algorithms,
models, and methodologies (collectively, "Trade Secrets") used in Company's and
each Subsidiary's business as currently conducted. The Company or the Company
Subsidiaries either (i) own or have the right to use all patents, Trademarks,
and copyrights necessary for the conduct of the Company's and each of the
Company Subsidiary's businesses as currently conducted, and/or (ii) are validly
licensed under third party patents, Trademarks and copyrights necessary for the
same. As used in this Agreement, the term "Intellectual Property" means patents,
copyrights, Trademarks, applications for any of the foregoing, and Trade
Secrets; the term "Company License Agreements" means any license agreements
granting any right to use or practice any rights under any Intellectual Property
(except for such agreements for software already installed by the manufacturer
before purchase on computers purchased by the Company, shrink-wrap or click wrap
software or other off-the-shelf products that are generally available for less
than $10,000), and any written settlements relating to any Intellectual
Property, to which the Company or any of the Company Subsidiaries is a party or
otherwise bound; and the term "Software" means any and all computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code.
(b) Schedule 3.17(b)(1) sets forth, for the Intellectual Property owned
by the Company or the Company Subsidiaries, a complete and accurate list of all
U.S. and foreign (1) patents and patent applications; (2) issued and pending
Trademark registrations (including Internet domain name registrations) and
applications and material unregistered Trademarks; and (3) copyright
registrations and applications, indicating for each, the applicable
jurisdiction, registration number (or application number), date issued (or date
filed) and current status. Schedule 3.17(b)(2) sets forth a complete and
accurate list of all third party Software that is incorporated in any Software
sold, licensed, leased or otherwise distributed by or used in the course of
rendering services offered by the Company or any of the Company Subsidiaries,
indicating for each the title, owner/licensor of the Software.
(c) The Intellectual Property owned by the Company or any Company
Subsidiary is free and clear of all Liens.
(d) The patents, Trademarks and Trade Secrets owned by the Company or
any of the Company Subsidiaries are valid and enforceable, in full force and
effect, and have not been canceled, expired, or abandoned. The Intellectual
Property (other than patents) owned by the Company or any of the Company
Subsidiaries is valid and enforceable, in full force and effect, and to the
extent such Intellectual Property is the subject of a registration or
application (as
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described in Section 3.17(b)), such Intellectual Property is subsisting and has
not been canceled, expired, or abandoned. There is no pending or, to the
knowledge of the Company, threatened opposition, interference or cancellation
proceeding before any court or registration authority in any jurisdiction
against any of the items listed in Schedule 3.17(b)(1), or, to the knowledge of
the Company, against any Intellectual Property licensed to the Company or the
Company Subsidiaries.
(e) The conduct of the Company's and the Company Subsidiaries' business
as currently conducted does not infringe upon any Intellectual Property rights
owned or controlled by any third party (either directly or indirectly such as
through contributory infringement or inducement to infringe). Schedule 3.17(e)
lists all U.S. and foreign patents concerning which: (i) the Company has
obtained or requested written opinion of counsel; or (ii) the Company has
received written allegation or notice of infringement or license offer outside
the ordinary course of business. There are no claims or suits pending or, to the
knowledge of the Company, threatened against the Company or any of the Company
Subsidiaries, and neither the Company nor any of the Company Subsidiaries has
received any notice of a third party claim or suit against the Company or any of
the Company Subsidiaries (1) alleging that its past or present activities,
products, services or the conduct of its businesses infringes or has infringed
upon, violates, or constitutes the unauthorized use of the Intellectual Property
rights of any third party or (2) challenging the ownership, use, validity or
enforceability of any Intellectual Property.
(f) There are no settlements, forbearances to sue, consents, judgments,
or orders or similar obligations to which the Company or any of the Company
Subsidiaries are bound which (1) restrict the Company's or the Company
Subsidiaries' rights to use any Intellectual Property, (2) restrict the
Company's or the Company Subsidiaries' business in order to accommodate a third
party's Intellectual Property or (3) permit third parties to use any
Intellectual Property owned by the Company or any of the Company Subsidiaries.
The Company or the Company Subsidiaries have not licensed or sublicensed its
rights in any material Intellectual Property other than pursuant to the Company
License Agreements, and no royalties, honoraria or other fees are payable by the
Company or the Company Subsidiaries for the use of or right to use any
Intellectual Property licensed to the Company or the Company Subsidiaries,
except pursuant to the Company License Agreements. The Company License
Agreements are valid and binding obligations of all parties thereto, enforceable
in accordance with their terms. There exists no event or condition which will
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default by the Company or, to the knowledge of the
Company, any other party under any such Company License Agreement.
(g) No Trade Secret of the Company or the Company Subsidiaries have
been disclosed or authorized to be disclosed to any third party other than
pursuant to a non-disclosure agreement that protects the Company and the
applicable Subsidiary's proprietary interests in and to such Trade Secrets.
Neither the Company nor, to the knowledge of the Company, any other party to any
non-disclosure agreement relating to the Company's Trade Secrets is in breach or
default thereof.
(h) To the knowledge of the Company, no third party is
misappropriating, infringing, diluting, or violating any Intellectual Property
owned by the Company or any of the Company
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Subsidiaries and no such claims have been brought or threatened against any
third party by the Company or any of the Company Subsidiaries.
(i) The consummation of the transactions contemplated hereby will not
result in the loss or impairment of the Company or any of the Company
Subsidiaries' right to own or use any of the Intellectual Property, nor will
require the consent of any governmental authority or third party in respect of
any such Intellectual Property.
(j) Schedule 3.17(j) lists all Software sold, licensed, leased or
otherwise distributed by or used in the course of rendering services offered by
the Company or any of the Company Subsidiaries to any third party, and
identifies which Software is sold, licensed, leased, or otherwise distributed,
or used, as the case may be. With respect to the Software set forth in Schedule
3.17(j) which the Company or any of the Company Subsidiaries purports to own,
such Software was either developed (1) by employees of the Company or any of the
Company Subsidiaries within the scope of their employment; or (2) by independent
contractors who have unconditionally assigned all of their rights in such
Software and all copyrights in the Software to the Company or any of the Company
Subsidiaries pursuant to written agreements.
(k) The Company and each of the Company Subsidiaries has all requisite
licenses to use any shrink-wrap or click wrap software, other off-the-shelf
products, or any other Software used by any of them in connection with their
business, and neither the Company nor any Company Subsidiary is using any such
products or Software where all requisite consideration has not been paid for the
use thereof. Neither the Company nor any of the Company Subsidiaries is in
violation of any applicable Law or any contract or other agreement, arrangement
or understanding regarding or in connection with such products or Software, and
neither the Company nor any of the Company Subsidiaries has any payment
obligations or other actual or potential liabilities related to or in connection
with such products or Software.
3.18. Brokers; Schedule of Fees and Expenses.
(a) No broker, investment banker, financial advisor or other person,
other than Peter J. Solomon Company, Jefferies & Company, Inc. and Commonwealth
Group Holdings, LLC, the fees and expenses of which will be paid by the Company,
is entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the Merger and the transactions contemplated
thereby based upon arrangements made by or on behalf of the Company or any
Company Subsidiary.
(b) All fees and expenses that the Company is obligated to pay any
broker, investment banker, or financial advisor (including the fees of Peter J.
Solomon Company, Jefferies & Company, Inc. and Commonwealth Group Holdings,
LLC), or other similar fee or commission are set forth in Part I of Schedule
3.18(b). Part II of Schedule 3.18(b) sets forth (i) all payments or amounts that
are or become due (including the acceleration of the date on which a payment is
due) to any director, officer, employee or consultant of the Company or any
Company Subsidiary or other person as a result of or in connection with the
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby based upon arrangements made by or on behalf of the Company
or any Company Subsidiary, and (ii) all estimated fees and expenses incurred and
to be incurred by the Company in connection with
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the Merger and the transactions contemplated thereby, other than any
unanticipated legal or accounting fees or expenses incurred by the Company in
connection with the SEC review of the Proxy Statement/Prospectus, or any legal,
accounting, expert witness or similar fees or expenses incurred by the Company
in connection with litigation arising out of this Agreement or the transactions
contemplated hereby. The amounts required to be set forth on Parts I and II of
Schedule 3.18(b) are referred to as the "Capped Expenses"; provided that the
Capped Expenses shall not include amounts that are paid in shares of Company
Common Stock prior to the Closing.
3.19. Opinion of Financial Advisor. The Board of Directors of the Company has
received the opinion of Peter J. Solomon Company, dated the date of this
Agreement, to the effect that, as of such date, the consideration to be received
in the Merger by the holders of Company Common Stock (other than Commonwealth
Group Holdings, LLC, or any affiliates or associates thereof) is fair to such
holders from a financial point of view and a copy of the signed opinion has been
provided to Parent.
3.20. Title and Operation of Properties.
(a) Schedule 3.20 lists all real property owned by the Company or any
of the Company Subsidiaries and all real property leases to which the Company or
any of the Company Subsidiaries is a party and each amendment thereto that is in
effect as of the date of this Agreement. All such current leases are in full
force and effect, are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing default or event
of default by the Company or any of the Company Subsidiaries, or to the
knowledge of the Company, by any third party thereto (or event which with notice
or lapse of time, or both, could constitute a default).
(b) The Company and the Company Subsidiaries have good and valid title
to, or in the case of leased properties and assets, valid leasehold interests
in, all of their tangible properties and assets, real, personal and mixed, used
or held for use in its business, in each case, free and clear of any Liens.
3.21. Insurance. Schedule 3.21 sets forth a list of all insurance policies and
fidelity bonds carried by the Company and any of the Company Subsidiaries
involving annual premiums in excess of $25,000 and the amounts of coverage
provided, and premiums payable, thereunder. There is no claim pending under any
of such policies or bonds as to which coverage has been denied or disputed by
the underwriters of such policies or bonds. All premiums due and payable under
all such policies have been paid and the Company and the Company Subsidiaries
are otherwise in compliance in all material respects with the terms of such
policies and bonds. To the knowledge of the Company, there has been no
threatened termination of, or material premium increase with respect to, any of
such policies.
3.22. Affiliates. Schedule 3.22 is a complete list of those persons who may be
deemed to be, in Company's good faith judgment, Affiliates of Company within the
meaning of Rule 145 promulgated under the Securities Act. Since the date of the
Company's last proxy statement filed with the SEC, no event has occurred as of
the date of this Agreement that would be required to be reported by the Company
pursuant to Item 404 of Regulation S-K promulgated by the SEC
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(except for amounts due as normal salaries and bonuses and reimbursements of
ordinary expenses).
3.23. Key Employee Compensation. Schedule 3.23 lists the total compensation or
benefit due or subsequently due pursuant to any agreement or understanding
(written or otherwise), including as of the date hereof for the Company
executive officers and the key employees of the Company listed on Schedule 3.23,
including the following: (1) salary (on an annual basis), (2) bonus or any other
incentive compensation arrangement (including performance objectives and payout
schedule), (3) options (including type (i.e. NSO or ISO), quantity, exercise
price, vesting schedule and acceleration), (4) advances or loans; and (5) any
other form of compensation or payment paid or payable to such executive officer
or key employee.
3.24. Customers. Schedule 3.24 lists the Company's top 20 customers
(collectively, the "Customers") and the Company's top 20 networks (collectively,
the "Networks"), by the unaudited revenues received by Company from each such
Customer or made to each Network during 2002 and 2003. The Company does not have
any knowledge of any oral or written notice from any of the Customers or
Networks to the Company stating that such Customer or Network intends to
terminate its business relationship with the Company or materially reduce the
volume of business it does with Company.
3.25. Accounts Receivable. The accounts receivable shown in the balance sheet of
the Company included in the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003, as filed with the SEC prior to the date of
this Agreement (the "Company Balance Sheet"), arose in the ordinary course of
business; were not, as of the date of the Company Balance Sheet, subject to any
material discount, contingency, claim of offset or recoupment or counterclaim
except for normal reserves consistent with past practice.; and represented, as
of the date of the Company Balance Sheet, bona fide claims against debtors for
sales, leases, licenses and other charges. All accounts receivable of the
Company and the Company Subsidiaries arising after the date of the Company
Balance Sheet through the date of this Agreement arose in the ordinary course of
business and, as of the date of this Agreement, are not subject to any material
discount, contingency, claim of offset or recoupment or counterclaim, except for
normal reserves consistent with past practice. The amount carried for doubtful
accounts and allowances disclosed in the Company Balance Sheet is believed by
the Company as of the date of this Agreement to be sufficient to provide for any
losses which may be sustained in respect of the realization of the accounts
receivable shown in the Company Balance Sheet.
3.26. Environmental Matters. (a) The Company and the Company Subsidiaries are in
compliance in all material respects with federal, state, local and foreign Laws
and regulations relating to pollution, protection or preservation of human
health or the environment, including laws and regulations relating to emissions,
discharges, releases or threatened releases of toxic or hazardous substances,
materials or wastes, petroleum and petroleum products, asbestos or
asbestos-containing materials, polychlorinated biphenyls, radon, or lead or
lead-based paints or materials ("Materials of Environmental Concern"), or
otherwise relating to the generation, storage, containment (whether above ground
or underground), disposal, transport or handling of Materials of Environmental
Concern, or the preservation of the environment or mitigation of adverse effects
thereon (collectively, "Environmental Laws"), and including compliance with any
permits or other governmental authorizations or the terms and conditions
thereof; (b) neither
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the Company nor any of the Company Subsidiaries has received any communication
or notice, whether from a governmental authority or otherwise, alleging any
violation of or noncompliance with any Environmental Laws by any of the Company
or the Company Subsidiaries or for which the any of them is responsible, and
there is no pending or, to the knowledge of the Company, threatened claim,
action, investigation or notice by any person or entity alleging potential
liability for investigatory, cleanup or governmental response costs, or natural
resources or property damages, or personal injuries, attorney's fees or
penalties relating to (i) the presence, or release into the environment, of any
Materials of Environmental Concern at any location owned or operated by the
Company or the Company Subsidiaries, now or in the past, or (ii) any violation,
or alleged violation, of any Environmental Law (collectively, "Environmental
Claims"), except where such Environmental Claims would not have a Company
Material Adverse Effect; and (c) there are no past or present facts or
circumstances that could form the basis of any Environmental Claim against the
Company or the Company Subsidiaries or against any person or entity whose
liability for any Environmental Claim the Company or the Company Subsidiaries
have retained or assumed either contractually or by operation of law, except
where such Environmental Claim, if made, would not have a Company Material
Adverse Effect. All permits and other governmental authorizations currently held
or required to be held by the Company and the Company Subsidiaries pursuant to
any Environmental Laws are identified in Schedule 3.26. The Company has provided
to Parent all assessments, reports, data, results of investigations or audits,
and other information that is in the possession of or reasonably available to
the Company regarding environmental matters pertaining to the environmental
condition of the business of the Company and the Company Subsidiaries, or the
compliance (or noncompliance) by the Company or the Company Subsidiaries with
any Environmental Laws.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Except as set forth in the disclosure schedule delivered by Parent or
Sub to the Company in connection with the execution of the Agreement (the
"Parent Disclosure Schedule"), Parent and Sub, jointly and severally, represent
and warrant to the Company all of the statements contained in this Article IV.
The Parent Disclosure Schedule shall be arranged in sections corresponding to
the numbered and lettered sections contained in Article IV and shall qualify
only the corresponding sections in this Article and any other section hereof
where it is reasonably clear upon a reading of such disclosure that the
disclosure should apply to such other section.
4.01. Organization, Standing and Power.
(a) Parent and each of its subsidiaries (the "Parent Subsidiaries") is
duly organized, validly existing and in good standing under the Laws of the
jurisdiction in which it is organized and has full corporate power and authority
and possesses all governmental franchises, licenses, permits, authorizations and
approvals, and has made all filings, registrations and declarations, in each
case whether domestic or foreign, necessary to enable it to own, lease or
otherwise hold its properties and assets and to conduct its businesses as
presently conducted in each case other than such franchises, licenses, permits,
authorizations, approvals, filings, registrations and declarations the lack of
which, individually and in the aggregate, has not had and would not reasonably
be likely to have a material adverse effect on (i) the business, assets,
liabilities,
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capitalization, operations, financial condition, or results of operation of
Parent and the Parent Subsidiaries, taken as a whole including a termination of
the Parent's relationship with a material customer or a substantial diminution
in such relationship, (ii) the ability of the Parent or the Parent Subsidiaries
to consummate the Merger and the transactions contemplated thereby or perform
its obligations under this Agreement (collectively, a "Parent Material Adverse
Effect"); provided, however, that, in no event shall any of the following, alone
or in combination, be deemed to constitute, nor taken into account in
determining whether a Parent Material Adverse Effect has occurred: (i) general
economic or financial market conditions or conditions generally affecting the
industry in which the Parent is engaged, (ii) the announcement or pendency of
the Merger or any other transactions expressly contemplated hereby, (iii)
compliance with the terms and conditions of this Agreement, (iv) a change in the
stock price or trading volume of the Parent (or any failure of the Parent to
meet published revenue or earnings projections), provided that clause (iv) shall
not exclude any underlying effect which is attributable to any of the foregoing
and may have caused a failure of the Parent to meet published revenue or
earnings projections, (v) any election of stockholders of the Company to seek
appraisal of their shares in accordance with the DGCL, (vi) any change in
accounting requirements or principles or any change in applicable Laws, rules,
or regulations or the interpretation thereof, or (vii) any litigation or other
similar proceeding arising out of or in connection with this Agreement or the
transactions contemplated hereby.
(b) Parent and each of the Parent Subsidiaries is duly qualified or
licensed to do business in, and is in good standing in, each jurisdiction where
the nature of its business or the ownership or leasing of its properties make
such qualification necessary, except where the failure to do so would cause a
Parent Material Adverse Effect. Parent has made available to the Company true
and complete copies of the articles of incorporation of Parent, as amended to
the date of this Agreement (as so amended, the "Parent Charter"), and the
by-laws of Parent, as amended to the date of this Agreement (as so amended, the
"Parent By-laws"), and the comparable charter and organizational documents of
each Parent Subsidiary, in each case as amended through the date of this
Agreement.
4.02. Sub.
(a) Since the date of its incorporation, Sub has not carried on any
business or conducted any operations other than the execution of this Agreement,
the performance of its obligations hereunder and matters ancillary thereto. Sub
was incorporated solely for the purpose of consummating the Merger and the
transactions contemplated thereby.
(b) The authorized capital stock of Sub consists of 100 shares of
common stock, par value $0.01 per share, all of which have been validly issued,
are fully paid and nonassessable and are owned by Parent free and clear of any
Lien.
4.03. Parent Subsidiaries; Equity Interests.
(a) Schedule 4.03 lists each Parent Subsidiary and its jurisdiction of
organization. All the outstanding shares of capital stock of each Parent
Subsidiary have been validly issued and are fully paid and nonassessable and are
owned by Parent, a wholly-owned subsidiary of Parent, or Parent and another
wholly-owned subsidiary of Parent, free and clear of all Liens.
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(b) Except for its interests in the Parent Subsidiaries and except for
the ownership interests set forth in Schedule 4.03, Parent does not own,
directly or indirectly, any capital stock, membership interest, partnership
interest, joint venture interest or other equity interest in any person.
4.04. Capital Structure. The authorized capital stock of Parent consists of
13,333,333 shares of the Parent Common Stock and 2,000,000 shares of preferred,
130,000 of which are designated as Series A Preferred Stock, 15,000 of which are
designated as Series B Preferred Stock, 300,000 of which are designated as
Series C 7% Convertible Preferred Stock (the "Parent Series C Stock"), and the
remainder of which are undesignated. At the close of business on December 4,
2003, (i) 6,783,493 shares of Parent Common Stock were issued and outstanding,
(ii) 731,321 shares of Parent Common Stock are contingently issuable upon
conversion of those 4% convertible promissory notes set forth on Schedule 4.04,
(iii) no shares of Parent Common Stock were held by Parent in its treasury, (iv)
1,648,482 shares of Parent Common Stock were reserved for issuance pursuant to
Parent Stock Option Plans, of which 1,370,080 were issued and outstanding, (v)
2,000 shares of Parent Series C Preferred Stock are issued and outstanding,
convertible into 13,333 shares of Parent Common Stock, and (vi) 1,460,994 shares
of Parent Common Stock were reserved for issuance upon the conversion of issued
and outstanding Parent warrants. Except as set forth above, at the close of
business on December 4, 2003, no shares of capital stock or other voting
securities of Parent were issued, reserved for issuance or outstanding. All
outstanding shares of Parent Common Stock are, and all such shares that may be
issued prior to the Effective Time will be when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to or issued in violation
of any purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the Florida
Business Corporation Act (the "FBCA"), the Parent Charter, the Parent By-laws or
any Contract to which Parent is a party or otherwise bound. There are not any
bonds, debentures, notes or other indebtedness of Parent having the right to
vote (or convertible into, or exchangeable for, securities having the right to
vote) on any matters on which holders of Parent Common Stock or Parent Series C
Stock may vote. Except as set forth above, as of the date of this Agreement,
there are not any options, warrants, rights, convertible or exchangeable
securities, "phantom" stock rights, stock appreciation rights, stock-based
performance units, commitments, Contracts, arrangements or undertakings of any
kind to which Parent or any Parent Subsidiary is a party or by which any of them
is bound (i) obligating the Parent or any Parent Subsidiary to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of capital
stock or other equity interests in, or any security convertible or exercisable
for or exchangeable into any capital stock of or other equity interest in,
Parent or of any Parent Subsidiary, (ii) obligating Parent or any Parent
Subsidiary to issue, grant, extend or enter into any such option, warrant, call,
right, security, commitment, Contract, arrangement or undertaking or (iii) that
give any person the right to receive any economic benefit or right similar to or
derived from the economic benefits and rights occurring to holders of Parent
Common Stock. No anti-dilution rights or pre-emptive rights of any capital stock
or other securities issued by Parent shall be triggered as a result of the
transactions contemplated hereby including the Parent Financing. As of the date
of this Agreement, there are not any outstanding contractual obligations of
Parent or any Parent Subsidiary to repurchase, redeem or otherwise acquire any
shares of capital stock of Parent or any Parent Subsidiary. Neither Parent nor
any of its affiliates, as such term is defined in Rule 405 promulgated under the
Securities Act, is a party to or is bound by any agreements or understandings
with respect to the voting (including voting trusts
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and proxies) or sale or transfer (including agreements imposing transfer
restrictions) of any shares of capital stock or other equity interests of Parent
or any of the Parent Subsidiaries. There are no registration rights of any
nature granted by Parent or any of the Parent Subsidiaries.
4.05. Authority; Execution and Delivery; Enforceability. Each of Parent and Sub
has all requisite corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements to which it is a party, and, subject to
obtaining (i) approval of the issuance of Parent Common Stock in connection with
the Merger and the approval of the issuance of the Parent Common Stock in
connection with the Parent Financing (as defined in Section 6.19) by the
affirmative vote of the holders of a majority in voting power of the shares of
the Parent's Common Stock (including shares of Parent Series C Stock entitled to
vote as a class with the Parent Common Stock) present in person or proxy at a
properly convened meeting of Parent's shareholders and (ii) approval of the
amendment to the Articles of Incorporation of Parent to increase the number of
authorized shares of Parent Common Stock to 30 million shares by the holders of
a majority of the shares of Parent capital stock entitled to vote at such
meeting (the "Parent Stockholder Approval"), to consummate the transactions
contemplated hereby and thereby. The execution and delivery by each of Parent
and Sub of this Agreement and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Sub and, except for obtaining the Parent Stockholder
Approval, no other corporate action on the part of the Parent is necessary to
authorize the execution and delivery by the Parent of this Agreement and the
Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby. Parent, as sole stockholder of
Sub, will adopt this Agreement immediately after execution and delivery hereof.
Each of Parent and Sub has duly executed and delivered this Agreement, and this
Agreement constitutes its legal, valid and binding obligation (subject to the
Parent Stockholder Approval with respect to the issuance of Parent Common Stock
in connection with the Merger if required by the NASDAQ National Market),
enforceable against it in accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar Laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the effect
of the principles of equity (regardless of whether enforceability is considered
in a proceeding in equity or at law).
4.06. No Conflicts; Consents.
(a) The execution and delivery by each of Parent and Sub of this
Agreement, do not, and the consummation of the Merger and compliance with the
terms hereof will not, result in any violation of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, or to increased, additional, accelerated or guaranteed rights or
entitlements of any person under, or result in the creation of any Lien upon any
of the properties or assets of Parent or any Parent Subsidiary under, any
provision of (i) the charter, by-laws or other organizational documents of
Parent or any of its subsidiaries, (ii) any Contract to which Parent or any
Parent Subsidiary is a party or by which any of their respective properties or
assets is bound or (iii) subject to the filings and other matters referred to in
Section 4.06(b), any Judgment or Law applicable to Parent or any Parent
Subsidiary or their respective properties or assets, other than,
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in the case of clauses (ii) and (iii) above, any such items that, individually
and in the aggregate, have not had and would not reasonably be expected to have
a Parent Material Adverse Effect.
(b) No Consent of, or registration, declaration or filing with, any
Governmental Entity is required to be obtained or made by or with respect to
Parent or any of the Parent Subsidiary in connection with the execution,
delivery and performance of this Agreement or the consummation of the Merger,
other than (i) if required, compliance with and filings under the HSR Act, (ii)
the filing with the SEC of such reports under the Exchange Act as may be
required in connection with this Agreement and the Merger, (iii) the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware,
(iv) such filings as may be required in connection with the Taxes described in
Section 6.10, and (v) such other items that, individually and in the aggregate,
have not had and would not reasonably be expected to have a Parent Material
Adverse Effect.
4.07. Information Supplied. The Registration Statement (or any amendment thereof
or supplement thereto) will not, on the date the Proxy Statement/Prospectus is
mailed to the Company's stockholders or Parent's stockholders, at the Company
Stockholders' Meeting, at the Parent Stockholders' Meeting, or 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, except that no representation is made by Parent or Sub with
respect to statements made therein based on information supplied by the Company
for inclusion in the Registration Statement. None of the information supplied by
Parent or Sub for inclusion or incorporation by reference in the Proxy
Statement/Prospectus, at the date mailed to stockholders and at the times of the
Company Stockholders' Meeting and the Parent Stockholders' Meeting, will 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 Registration Statement, as to information supplied by Parent or
Sub, will comply in all material respects with the provisions of the Securities
Act and the rules and regulations thereunder. If at any time prior to the
Effective Time any event relating to the Parent or any of its Affiliates,
officers or directors should be discovered by the Parent which is required to be
set forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement/Prospectus, the Parent shall promptly inform the Company.
4.08. SEC Filings; Parent Financial Statements. Parent has filed with the SEC,
and has heretofore made available to the Company, true and complete copies of
all forms, reports, schedules, statements and other documents required to be
filed by Parent since December 31, 2000 under the Exchange Act and the
Securities Act (as such documents have been amended since the time of their
filing, collectively, the "Parent SEC Documents"). As of their respective dates,
each Parent SEC Document, including any financial statements or schedules
included therein (a) did not 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 and (b) complied in all material respects with
the applicable requirements of the Exchange Act or the Securities Act, as the
case may be, the Sarbanes-Oxley Act of 2002 and the applicable rules and
regulations of the SEC thereunder. As of the date of this Agreement, Parent's
Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (filed on
April 15, 2003) (the "2002 Form 10-K"), its
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definitive Proxy Statement with respect to its 2002 Annual Meeting (filed on
April 28, 2003), and its Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003 (filed on November 14, 2003) (collectively, the "2003 Parent
SEC Documents") taken together do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The consolidated financial
statements of Parent included in the 2003 Parent SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto as of the dates
of their respective filing, were prepared in accordance with GAAP (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly presented the consolidated financial position of
Parent and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the Filed Parent SEC Documents, neither
Parent nor any Parent Subsidiary has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) required by GAAP to
be set forth on a consolidated balance sheet of Parent and its consolidated
subsidiaries or in the notes thereto, other than liabilities or obligations
incurred in the ordinary course of business consistent with past practice since
the date of the most recent financial statements included in the Filed Parent
SEC Documents.
4.09. Absence of Certain Changes or Events. From the date of the most recent
audited financial statements included in the Filed Parent SEC Documents to the
date of this Agreement, Parent has conducted its business only in the ordinary
course, and during such period there has not been:
(i) any event, change, effect or development that,
individually or in the aggregate, has had or would reasonably be expected to
have a Parent Material Adverse Effect;
(ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to any
Parent Common Stock or any repurchase for value by Parent of any Parent Common
Stock;
(iii) any split, combination or reclassification of any Parent
Common Stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of Parent
Common Stock;
(iv) (A) any granting by Parent or any Parent Subsidiary to
any current or former director, officer or employee of Parent or any Parent
Subsidiary of any increase in compensation, except to the extent required under
employment agreements in effect as of the date of the most recent audited
financial statements included in the Filed Parent SEC Documents or, with respect
to employees (other than directors, officers or key employees) in the ordinary
course of business consistent with past practice and except for Parent stock
options, (B) any granting by Parent or any Parent Subsidiary to any such
director, officer or employee of any material increase in severance or
termination pay, except as was required under any employment, severance or
termination policy, practice or agreements in effect as of the date of the most
recent audited financial statements included in the Filed Parent SEC Documents
or (C) any entry by
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Parent or any Parent Subsidiary into, or any amendment of, any employment,
severance or termination agreement with any such director, officer or employee,
except for such agreements or amendments with employees (other than directors,
officers or key employees) that are entered into in the ordinary course of
business consistent with past practice;
(v) any termination of employment or departure of any key
employee of Parent or any Parent Subsidiary;
(vi) any change in accounting methods, principles or practices
by Parent or any Parent Subsidiary materially affecting the consolidated assets,
liabilities or results of operations of Parent, except insofar as may have been
required by a change in GAAP;
(vii) any material elections with respect to Taxes by Parent
or any Parent Subsidiary or settlement or compromise by Parent or any Parent
Subsidiary of any material Tax liability or refund; or
(viii) any notification or, to the knowledge of the Parent,
threat, whether oral or in writing, that and there have not been, one or more
material distributors, licensors, payers, customers or suppliers that have
terminated or intend to terminate their respective business relationships or
have modified or intend to modify such relationships with the Parent and the
Parent Subsidiaries in a manner which would have a Parent Material Adverse
Effect.
4.10. Parent Contracts. Neither Parent nor any Parent Subsidiary is in material
breach or default under, and neither Parent nor any Parent Subsidiary has
received written notice that it has materially breached or defaulted, any of the
terms or conditions of any Parent Material Contract in such a manner as would
have a Parent Material Adverse Effect. As used in this paragraph, "Parent
Material Contract" means any "material contracts" (as that term is defined in
Item 601(b)(10) of Regulation S-K of the SEC) with respect to Parent and any
contract to which Parent is a party, the termination of which would have a
Parent Material Adverse Effect.
4.11. Board Approval. The Board of Directors of Parent has, by resolutions duly
adopted at a meeting duly called and held and not subsequently rescinded or
modified (i) unanimously (x) (except for Michael Falk, who abstained from
voting) approved and declared advisable this Agreement and the transactions
contemplated hereby, (y) (except for Michael Falk and Braden Kelly, who
abstained from voting) approved the Parent Financing, and (z) (except for
Michael Falk, who abstained from voting) recommended the amendment to the Parent
Articles of Incorporation to increase the number of authorized shares of Parent
Common Stock to 30 million shares, (ii) subject to the receipt of the Parent
Stockholder Approval, authorized and reserved for issuance sufficient shares of
Parent Common Stock to consummate the transactions contemplated hereby and for
the Parent Financing, and (iii) recommended that the stockholders of Parent
approve the issuance of the Parent Common Stock in connection with the Merger,
the issuance of the Parent Common Stock in connection with the Parent Financing,
and the amendment to the Articles of Incorporation of Parent to increase the
number of authorized shares of Parent to 30 million shares. Except for the
Parent Stockholder Approval, there exists no impediment, contractual or
otherwise, which would prohibit Parent from or require the consent of any person
in order for Parent to carry out the Parent Financing.
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4.12. Brokers. Other than William Blair & Company, L.L.C., no broker, investment
banker, financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
Merger based upon arrangements made by or on behalf of Parent.
4.13. Taxes.
(a) Each of Parent and each Parent Subsidiary has timely filed, or has
caused to be timely filed on its behalf, all Tax Returns required to be filed by
it, and all such Tax Returns are true, complete and accurate, except to the
extent any failure to file or any inaccuracies in any filed Tax Returns,
individually and in the aggregate, has not had and would not reasonably be
expected to have a Parent Material Adverse Effect. All Taxes of Parent and each
of the Parent Subsidiaries have been timely paid, except to the extent that any
failure to pay, individually and in the aggregate, has not had and would not
reasonably be expected to have a Parent Material Adverse Effect. Neither Parent
nor any of the Parent Subsidiaries currently is the beneficiary of any extension
of time within which to file any Tax Return.
(b) The most recent financial statements contained in the Filed Parent
SEC Documents reflect an adequate reserve (in accordance with GAAP) for all
Taxes payable by Parent and the Parent Subsidiaries for all taxable periods and
portions thereof through the date of such financial statements (in addition to
any reserve for deferred Taxes established to reflect timing differences between
book and tax income). No deficiency with respect to any Taxes has been proposed,
asserted or assessed against Parent or any Parent Subsidiary, and no waivers of
the time to assess any such Taxes are pending, except to the extent any such
deficiency or waiver, individually and in the aggregate, has not had and would
not reasonably be expected to have a Parent Material Adverse Effect.
(c) No foreign, federal, state, or local tax audits or administrative
or judicial Tax proceedings are pending or being conducted with respect to
Parent or any Parent Subsidiary. All material assessments for Taxes due with
respect to completed and settled audits or proceedings or any concluded
litigation have been fully paid and the Parent has delivered to the Company
correct and complete copies of all examination reports and statements of
deficiency with respect to such audits, proceedings, and litigations.
(d) There are no Liens for Taxes (other than for current Taxes not yet
due and payable and for which adequate reserves have been established in
accordance with GAAP) on the property or assets of the Parent or any Parent
Subsidiary. Neither Parent nor any Parent Subsidiary is bound by any agreement
with respect to Taxes.
(e) No claim has been made by any authority in a jurisdiction within
which Parent or any Parent Subsidiary does not file Tax Returns that it is, or
may be, subject to taxation by that jurisdiction.
(f) Neither Parent nor any Parent Subsidiary has constituted either a
"distributing corporation" or a "controlled corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying or
intended to qualify for tax-free treatment under Section 355 of the Code (A) in
the two years prior to the date of this Agreement or (B) in a
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distribution that could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Merger.
(g) The Parent has delivered to Company correct and complete copies of
all federal, state and local income Tax Returns, of the Parent and the Parent
Subsidiaries for the last four taxable years.
(h) Neither Parent nor any Parent Subsidiary is party to any agreement,
contract, arrangement or plan that has resulted or would result, separately or
in the aggregate, in the payment of (i) any "excess parachute payment" within
the meaning of Code ss.280G (or any corresponding provision of state, local or
foreign Tax law) and (ii) any amount that will not be fully deductible as a
result of Code 162(m) (or any corresponding provision of state, local or foreign
Tax law).
(i) Neither Parent nor any Parent Subsidiary (A) is or has been a
member of any "affiliated group" within the meaning of Code ss.1504(a) (or any
similar provision of state, local or foreign law) (an "Affiliated Group") filing
a consolidated federal income Tax Return (other than a group the common parent
of which was the Parent) or (B) has any liability for the Taxes of any person
(other than Parent and the Parent Subsidiaries) under Reg. ss.1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(j) Neither Parent nor any Parent Subsidiary has been a United States
real property holding corporation within the meaning of Code ss.897(c)(2) during
the applicable period specified in Code ss.897(c)(1)(A)(ii). Each of Parent and
the Parent Subsidiaries has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of the Code ss.6662. Neither Parent nor
any Parent Subsidiary is a party to or bound by any Tax allocation or sharing
agreement.
(k) None of Parent and Parent Subsidiaries will be required to include
any item of income in, or exclude any item of deduction from, taxable income for
any taxable period (or portion thereof) ending after the Effective Time as a
result of any: (A) change in method of accounting for a taxable period ending on
or prior to the Closing Date; (B) "closing agreement" as described in Code
ss.7121 (or any corresponding or similar provision of state, local or foreign
income Tax law) executed on or prior to the Closing Date; (C) intercompany
transactions or any excess loss account described in Treasury Regulations under
Code ss.1502 (or any corresponding or similar provision of state, local or
foreign income Tax law); (D) installment sale or open transaction disposition
made on or prior to the Closing Date; or (E) prepaid amount received on or prior
to the Closing Date.
(l) Neither Parent nor any Parent Subsidiary has experienced an
ownership change within the meaning of Code ss.382(g) that affects its net
operating loss.
4.14. Employees.
(a) (i) Parent and the Parent Subsidiaries are in compliance with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment, health and safety, and wages and hours; (ii) neither
Parent nor any of the Parent Subsidiaries has
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received written notice of any charge or complaint against Parent or any of the
Parent Subsidiaries pending before the Equal Employment Opportunity Commission,
the National Labor Relations Board, or any other government agency or court or
other tribunal regarding an unlawful employment practice; (iii) neither Parent
nor any of the Parent Subsidiaries is a party to any collective bargaining
agreement and there is no labor strike, slowdown or stoppage actually pending
or, to the knowledge of Parent, threatened against or affecting Parent or any of
the Parent Subsidiaries; (iv) neither Parent nor any of the Parent Subsidiaries
has received notice that any representation petition respecting the employees of
Parent or any of the Parent Subsidiaries has been filed with the National Labor
Relations Board, and, to the knowledge of Parent, there has been no labor union
prior to the date hereof organizing any employees of Parent into one or more
collective bargaining units; (v) there are no complaints, lawsuits, arbitrations
or other proceedings pending, or to the knowledge of Parent, threatened by or on
behalf of any present or former employee of Parent or any of the Parent
Subsidiaries alleging breach of any express or implied contract of employment;
(vi) neither Parent nor any of the Parent Subsidiaries has received any written
notice that a federal, state, or local agency responsible for the enforcement of
labor or employment Laws intends to conduct an investigation with respect to or
relating to Parent or any of the Parent Subsidiaries and no such investigation
is in progress; (vii) there are no personnel arrangements, understandings,
policies, rules or procedures (whether written or oral) applicable to employees
of Parent or any of the Parent Subsidiaries other than those set forth in
Schedule 4.14(a), true, correct and complete copies of which have heretofore
been delivered to the Company; and (viii) there are no employment contracts,
severance agreements, confidentiality agreements (other than standard employee
non-disclosure agreements as contemplated by Section 4.14(vii)) or any other
agreements (whether written or oral) with any employees of Parent or any of the
Parent Subsidiaries thereto.
(b) Parent and the Parent Subsidiaries are and has been in substantial
compliance with all notice and other requirements under the Worker Adjustment
and Retaining Notification Act ("WARN") or similar state statute. None of the
employees of Parent or any of the Parent Subsidiaries has suffered an
"employment loss" (as defined in WARN) during the ninety (90)-day period prior
to the execution of this Agreement.
(c) Neither Parent nor any of the Parent Subsidiaries is bound by any
contract, arrangement, understanding, policy, rule or procedure (whether written
or oral) that restricts its ability to terminate the employment of any of its
employees at any time without payment or other liability.
(d) To Parent's knowledge, no executive, officer or key employee, has
any plans to terminate employment with Parent or any of the Parent Subsidiaries.
(e) Parent and each of the Parent Subsidiaries has taken reasonable
steps to protect Parent's and the Parent Subsidiaries' rights in Parent's
confidential information that it wishes to protect, or any trade secrets or
confidential information of third parties provided to Parent or any of the
Parent Subsidiaries. Without limiting the foregoing, Parent and the Parent
Subsidiaries has and enforces a policy requiring each employee to execute a
proprietary information/confidentiality agreement substantially in the form
provided to the Company, and all employees of Parent or any of the Parent
Subsidiaries have executed such an agreement.
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(f) Parent and the Parent Subsidiaries are compliant in all
material respects with all legal requirements relating to the collection and use
of PHI gathered in the course of its respective operations, and Parent and each
of the Parent Subsidiaries are compliant in all material respects with the
rules, policies and procedures established by Parent from time to time with
respect to the foregoing. No claims have been asserted or, to the knowledge of
Parent, threatened against Parent (and to the knowledge of Parent, no such
claims are likely to be asserted or threatened against Parent or any of the
Parent Subsidiaries) by any person or entity alleging a violation of such
person's or entity's privacy, personal or confidentiality rights under any such
rules, policies or procedures. The execution of this Agreement and the
consummation of the transactions contemplated herein will not materially breach
or otherwise cause any material violation of any terms and conditions of any
Contract or applicable privacy policy of Parent expressly governing the
collection and use of PHI. To the knowledge of Parent, since April 14, 2003,
there has been no unauthorized "use" or "disclosure" of PHI, as such terms are
defined under HIPAA.
4.15. Employee Benefits.
(a) Schedule 4.15 contains a true and complete list of each
Employee Benefit Plan that Parent and the Parent Subsidiaries maintains or to
which Parent and the Parent Subsidiaries contributes or has an obligation to
contribute relating to current or former employees, officers or directors (or
their beneficiaries) of Parent (each a "Parent Plan"). "Employee Benefit Plan"
means any (a) deferred compensation or retirement plan or arrangement which is
an Employee Pension Benefit Plan, (b) Employee Welfare Benefit Plan or fringe
benefit plan or program or (c) profit sharing, savings, stock option, restricted
stock, stock purchase, equity, stock appreciation, bonus, incentive deferred
compensation, termination, insurance, severance plan, supplemental benefit,
medical, education reimbursement or other benefit plan, program, agreement or
arrangement which is not an Employee Pension benefit Plan or an Employee Welfare
Benefit Plan maintained or contributed to or required to be contributed to by
Parent or by any trade or business whether or not incorporated that together
with Parent or by any trade or business, whether incorporated, that together
with Parent would be deemed a "single employer" within the meaning of section
4021 of ERISA (a "Parent ERISA Affiliate") or with respect to which Parent or
any Parent ERISA Affiliate could incur liabilities under Section 4069 of ERISA.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA ss. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA 3(1). "ERISA"
means the Employee Retirement Income Security Act of 1974, as amended.
(i) Each Parent Plan (and each related trust, custodial
account insurance contract, or fund) complies in form and in operation with its
terms, the applicable requirements of ERISA, the Code, and other applicable
Laws.
(ii) All required returns, reports and descriptions
(including Form 5500 Annual Returns/Reports, "top-hat" plan notices, Summary
Annual Reports, PBGC-l's, and Summary Plan Descriptions) have been filed or
distributed appropriately and in a timely fashion in accordance with applicable
law with respect to each Parent Plan. The requirements of Part 6 of Subtitle B
of Title I of ERISA and of Code ss. 4980B, collectively the "COBRA
Requirements", have been met with respect to each Parent Plan which is an
Employee Welfare Benefit Plan subject to the COBRA Requirements.
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(iii) All contributions (including all employer
contributions and employee salary reduction contributions) which are (or
previously have been) due have been paid in a timely fashion in accordance with
applicable law to each Parent Plan which is an Employee Pension Benefit Plan and
all contributions for any period ending on or before the Closing Date which are
not yet due have been paid to each such Employee Pension Benefit Plan or accrued
in accordance with the past custom and practice of Parent. All premiums or other
payments for all periods ending on or before the Closing Date have been paid in
a timely fashion with respect to each Parent Plan, which is an Employee Welfare
Benefit Plan.
(iv) Each Parent Plan which is an Employee Pension Benefit
Plan intended to be qualified under Code ss. 401(a) timely received a favorable
determination letter from the IRS to the effect that the Plan is so qualified
under ss. 401 of the Code and that the trust maintained pursuant thereto is
exempt from federal income taxation under ss. 501 of the Code and nothing has
occurred since the date or dates of such determination letter or letters from
the IRS which is reasonably likely to adversely affect the qualified status of
such Plan or the exempt status of any such trust.
(v) With respect to each Parent Plan, to the extent
applicable or to the extent Parent has been required to prepare or maintain such
documents by applicable law, Parent has delivered to the Company correct and
complete copies of the plan documents, related trust agreement and insurance
contracts, including any amendments and descriptions of vacation and severance
policies, and summary plan descriptions, summary of material modifications, and
all material communications to participants, the most recent determination
letter received from the Internal Revenue Service with respect to such Plan that
is intended to be qualified under ss. 401(a) of the Code, the most recent Form
5500 Annual Return/Report, any communication with the Internal Revenue Service
or the Department of Labor regarding the compliance or non-compliance of any
Parent Plan with applicable law, and all related trust agreements, insurance
contracts, and other funding agreements which implement such Employee Benefit
Plan.
(b) With respect to each Employee Benefit Plan that Parent, Parent
Subsidiaries and the Controlled Group of Corporations (as defined in Code ss.
1563) which includes Parent and Parent Subsidiaries maintains or ever has
maintained or to which any of them contributes, ever has contributed, or ever
has been required to contribute:
(i) Neither Parent nor any Parent ERISA Affiliate has any
actual or contingent liability under Title IV of ERISA or Code ss. 412 (other
than payments to the PBGC) including without limitation any liability in
connection with the termination or reorganization of any employee benefit plan
subject to Title IV of ERISA or a withdrawal of any Employee Benefit Plan
subject to Title IV of ERISA or a withdrawal from a "multiemployer" plan as
discussed under ss. 4063 of ERISA and no fact or event exists which is
reasonably likely to give rise to such liability.
(ii) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan. To the knowledge of Parent, no
Fiduciary has any Liability for breach of fiduciary duty or any other failure to
act or comply in connection with the administration or investment of the assets
of any such Employee Benefit Plan. "Prohibited Transaction" has the meaning set
forth in ERISA ss. 406 or Code ss. 4975. No action, suit, proceeding, hearing,
or
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investigation with respect to the administration or the investment of the assets
of any such Employee Benefit Plan (other than routine claims for benefits) is
pending or to the knowledge of Parent threatened. Parent is not aware of any
basis for any such action, suit, proceeding, hearing, or investigation.
(c) None of Parent and the Parent Subsidiaries maintains or ever
has maintained or contributes, ever has contributed, or ever has been required
to contribute to any Employee Welfare Benefit Plan providing medical, health, or
life insurance or other welfare-type benefits for current or future retired or
terminated employees, their spouses, or their dependents (other than in
accordance with Code ss. 4980B).
(d) No promise or commitment to amend or improve any Employee
Benefit Plan for the benefit of current or former directors, officers, or
employees of Parent which is not reflected in the documentation provided to the
Company has been made.
(e) The transactions contemplated by this Agreement shall not
alone or upon the occurrence of any additional or subsequent event, result in
(i) any payment, of severance or otherwise, or acceleration, vesting or increase
in benefits under any Employee Benefit Plan for the benefit of any current or
former director, officer, or employee of Parent, or (ii) any payment or benefit
under any Parent Plan failing to be deductible by reason of Code ss. 280G.
(f) Without limitation of the foregoing, to the extent a Parent
Plan which is or has been subject to non-discrimination testing requirements
under the Code, ERISA or other applicable law, fails or has failed to satisfy
such requirements as of or before the Effective Time, Parent has taken in a
timely fashion (as determined by applicable law) the necessary corrective action
(which may include qualified nonelective contributions or corrective
distributions) so that the Parent Plan successfully passed and passes the
applicable non-discrimination tests in accordance with applicable Law.
(g) Parent has made available to the Company: (i) copies of all
employment agreements with the top five most highly compensated executive
officers of Parent and the Parent Subsidiaries; and (ii) copies (or summaries)
of all material plans, programs, agreements, and other arrangements of Parent or
the Parent Subsidiaries with or relating to its or its subsidiaries' employees
which contain change in control provisions. Neither the execution or delivery of
this Agreement nor the consummation of the transactions completed hereby will
(I) result in any payment becoming due to any director, officer, or employee of
Parent or any of the Parent Subsidiaries under any Parent Plan or otherwise,
which is material in relation to the compensation previously provided to such
individual, (II) materially increase any benefits otherwise payable under any
Parent Plan, which increase is material in relation to the benefits previously
provided, or (III) result in any acceleration of the time of payment or vesting
of any material benefits.
4.16. Absence of Changes in Benefit Plans. From the date of the most recent
audited financial statements included in the Filed Parent SEC Documents to the
date of this Agreement, there has not been any adoption or amendment in any
material respect by Parent or any the Parent Subsidiary of any collective
bargaining agreement or any Employee Benefit Plan of Parent and the Parent
Subsidiaries.
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4.17. Compliance With Applicable Laws. Parent and the Parent Subsidiaries
have complied in a timely manner and in all material respects, with all Laws,
statutes, regulations, rules, ordinances, and judgments, decrees, orders, writs
and injunctions, of any court or Governmental Entity relating to any of the
property owned, leased or used by them, or applicable to their business,
including Laws relating to equal employment opportunity, discrimination,
occupational safety and health, environmental, interstate commerce and
antitrust. Neither Parent nor any Parent subsidiary has received any written
communication during the past three years from a Governmental Entity that
alleges that Parent or a Parent Subsidiary is not in compliance in any material
respect with any applicable Law.
4.18. Litigation. There are no Proceedings pending or, to the knowledge of
Parent, threatened against or affecting Parent or any Parent Subsidiary (and, to
the knowledge of Parent, there is not any basis for any such Proceeding) that,
individually or in the aggregate, has had or would reasonably be expected to
have a Parent Material Adverse Effect, nor is there any Judgment outstanding
against Parent or any Parent Subsidiary. Schedule 4.18 lists all pending
Proceedings which Parent has notice of and all threatened Proceedings of which
Parent has knowledge.
4.19. No Illegal Payments, Etc. None of Parent or the Parent Subsidiaries,
nor any of their directors, officers, employees or agents, has (a) directly or
indirectly given or agreed to give any illegal gift, contribution, payment or
similar benefit to any supplier, customer, governmental official or employee or
other person who was, is or may be in a position to help or hinder Parent (or
assist in connection with any actual or proposed transaction) or made or agreed
to make any illegal contribution, or reimbursed any illegal political gift or
contribution made by any other person, to any candidate for federal, state,
local or foreign public office (i) which might subject Parent to any damage or
penalty in any civil, criminal or governmental litigation or proceeding or (ii)
the non-continuation of which, in the case of (i) and (ii), has had or might
have, individually or in the aggregate, a Parent Material Adverse Effect or (b)
established or maintained any unrecorded fund or asset or made any false entries
on any books or records for any purpose.
4.20. Intellectual Property.
(a) Parent or the Parent Subsidiaries have a valid right to use
all Trademarks, Software and Trade Secrets used in Parent's and each
Subsidiary's business as currently conducted. Parent or the Parent Subsidiaries
either (i) own or have the right to use all patents and copyrights necessary for
the conduct of Parent and each of the Parent Subsidiary's businesses as
currently conducted, and/or (ii) are validly licensed under third party patents
and copyrights necessary for the same. The term "Parent License Agreements"
means any license agreements granting any right to use or practice any rights
under any Intellectual Property (except for such agreements for software already
installed by the manufacturer before purchase on computers purchased by Parent,
shrink-wrap or click wrap software or other off-the-shelf products that are
generally available for less than $10,000), and any written settlements relating
to any Intellectual Property, to which Parent or any of the Parent Subsidiaries
is a party or otherwise bound.
(b) Schedule 4.20(b)(1) sets forth, for the Intellectual Property
owned by the Parent or the Parent Subsidiaries, a complete and accurate list of
all U.S. and foreign (1) patents and
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patent applications; (2) issued and pending Trademark registrations (including
Internet domain registrations) and applications and material unregistered
Trademarks; and (3) copyright registrations and applications, indicating for
each, the applicable jurisdiction, registration number (or application number),
and date issued (or date filed) and current status. Schedule 4.20(b)(2) sets
forth a complete and accurate list of all third party Software that is
incorporated in any Software sold, licensed, leased or otherwise distributed by
or used in the course of rendering services offered by Parent or any of the
Parent Subsidiaries, indicating for each the title, owner/licensor of the
Software.
(c) The Intellectual Property owned by Parent or any Parent
Subsidiary is free and clear of all Liens.
(d) The patents, Trademarks and Trade Secrets owned by Parent or
any of the Parent Subsidiaries are valid and enforceable, in full force and
effect, and have not been canceled, expired, or abandoned. The Intellectual
Property (other than patents) owned by Parent or any of the Parent Subsidiaries
is valid and enforceable, in full force and effect, and to the extent such
Intellectual Property is the subject of a registration or application (as
described in Section 4.20(b)), such Intellectual Property is subsisting and has
not been canceled, expired, or abandoned. There is no pending or, to the
knowledge of Parent, threatened opposition, interference or cancellation
proceeding before any court or registration authority in any jurisdiction
against any of the items listed in Schedule 4.20(b)(1), or, to the knowledge of
Parent, against any Intellectual Property licensed to Parent or the Parent
Subsidiaries.
(e) The conduct of Parent's and the Parent Subsidiaries' business
as currently conducted does not infringe upon any Intellectual Property rights
owned or controlled by any third party (either directly or indirectly such as
through contributory infringement or inducement to infringe). Schedule 4.20(e)
lists all U.S. and foreign patents concerning which: (i) Parent has obtained or
requested written opinion of counsel; or (ii) Parent has received written
allegation or notice of infringement or license offer outside the ordinary
course of business. There are no claims or suits pending or, to the knowledge of
Parent, threatened against Parent or any of the Parent Subsidiaries, and neither
Parent nor any of its subsidiaries has received any notice of a third party
claim or suit against Parent or any of the Parent Subsidiaries (1) alleging that
its past or present activities, products, services or the conduct of its
businesses infringes or has infringed upon, violates, or constitutes the
unauthorized use of the Intellectual Property rights of any third party or (2)
challenging the ownership, use, validity or enforceability of any Intellectual
Property.
(f) There are no settlements, forbearances to sue, consents,
judgments, or orders or similar obligations to which Parent or any of the Parent
Subsidiaries are bound which (1) restrict the Parent's or the Parent
Subsidiaries' rights to use any Intellectual Property, (2) restrict Parent's or
the Parent Subsidiaries' business in order to accommodate a third party's
Intellectual Property or (3) permit third parties to use any Intellectual
Property owned by Parent or any of the Parent Subsidiaries. Parent or the Parent
Subsidiaries have not licensed or sublicensed its rights in any material
Intellectual Property other than pursuant to the Parent License Agreements, and
no royalties, honoraria or other fees are payable by Parent or the Parent
Subsidiaries for the use of or right to use any Intellectual Property licensed
to Parent or the Parent Subsidiaries, except pursuant to the Parent License
Agreements. The Parent License Agreements are valid and
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binding obligations of all parties thereto, enforceable in accordance with
their terms. There exists no event or condition which will result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default by Parent or, to the knowledge of Parent, any other party under
any such Parent License Agreement.
(g) No Trade Secret of Parent or the Parent Subsidiaries have been
disclosed or authorized to be disclosed to any third party other than pursuant
to a non-disclosure agreement that protects Parent and the applicable
Subsidiary's proprietary interests in and to such Trade Secrets. Neither Parent
nor, to the knowledge of Parent, any other party to any non-disclosure agreement
relating to Parent's Trade Secrets is in breach or default thereof.
(h) To the knowledge of Parent, no third party is
misappropriating, infringing, diluting, or violating any Intellectual Property
owned by Parent or any of the Parent Subsidiaries and no such claims have been
brought or threatened against any third party by Parent or any of the Parent
Subsidiaries.
(i) The consummation of the transactions contemplated hereby will
not result in the loss or impairment of Parent or any of the Parent
Subsidiaries' right to own or use any of the Intellectual Property, nor will
require the consent of any governmental authority or third party in respect of
any such Intellectual Property.
(j) Schedule 4.20(j) lists all Software sold, licensed, leased or
otherwise distributed by or used in the course of rendering services offered by
Parent or any of the Parent Subsidiaries to any third party, and identifies
which Software is sold, licensed, leased, or otherwise distributed, or used, as
the case may be. With respect to the Software set forth in Schedule 4.20(j)
which Parent or any of the Parent Subsidiaries purports to own, such Software
was either developed (1) by employees of Parent or any of the Parent
Subsidiaries within the scope of their employment; or (2) by independent
contractors who have unconditionally assigned all of their rights in such
Software and all copyrights in the Software to Parent or any of the Parent
Subsidiaries pursuant to written agreements.
(k) Parent and each of the Parent Subsidiaries have all requisite
licenses to use any shrink-wrap or click wrap software, other off-the-shelf
products, or any other Software used by any of them in connection with their
business, and neither Parent nor any Parent Subsidiary is using any such
products or Software where all requisite consideration has not been paid for the
use thereof. Neither Parent nor any of the Parent Subsidiaries is in violation
of any applicable Law or any contract or other agreement, arrangement or
understanding regarding or in connection with such products or Software, and
neither Parent nor any of the Parent Subsidiaries has any payment obligations or
other actual or potential liabilities related to or in connection with such
products or Software.
4.21. Environmental Matters. (a) Parent and the Parent Subsidiaries are in
compliance in all material respects with federal, state, local and foreign Laws
and regulations relating to pollution, protection or preservation of human
health or the environment, including Environmental Laws, and including
compliance with any permits or other governmental authorizations or the terms
and conditions thereof; (b) neither Parent nor any of the Parent Subsidiaries
has received any communication or notice, whether from a governmental authority
or otherwise, alleging any
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violation of or noncompliance with any Environmental Laws by any of Parent or
the Parent Subsidiaries or for which it is responsible, and there is no pending
or, to the knowledge of Parent, threatened claim, action, investigation or
notice by any person or entity alleging potential liability for investigatory,
cleanup or governmental response costs, or natural resources or property
damages, or personal injuries, attorney's fees or penalties relating to (i) the
presence, or release into the environment, of any Materials of Environmental
Concern at any location owned or operated by Parent or the Parent Subsidiaries,
now or in the past, or (ii) any Environmental Claims, except where such
Environmental Claims would not have a Parent Material Adverse Effect or
otherwise require disclosure in the Filed Parent SEC Documents; and (c) there
are no past or present facts or circumstances that could form the basis of any
Environmental Claim against Parent or the Parent Subsidiaries or against any
person or entity whose liability for any Environmental Claim Parent has retained
or assumed either contractually or by operation of law, except where such
Environmental Claim, if made, would not have a Parent Material Adverse Effect or
otherwise require disclosure in the Filed Parent SEC Documents. All permits and
other governmental authorizations currently held or required to be held by
Parent and the Parent Subsidiaries pursuant to any Environmental Laws are
identified in Schedule 4.21. Parent has provided to the Company all assessments,
reports, data, results of investigations or audits, and other information that
is in the possession of or reasonably available to Parent regarding
environmental matters pertaining to the environmental condition of the business
of the Parent and the Parent Subsidiaries, or the compliance (or noncompliance)
by Parent with any Environmental Laws.
4.22. Affiliates. Schedule 4.22 is a complete list of those persons who may
be deemed to be, in Parent's good faith judgment, Affiliates of Parent within
the meaning of Rule 145 promulgated under the Securities Act. Since the date of
Parent's last proxy statement filed with the SEC, no event has occurred as of
the date of this Agreement that would be required to be reported by Parent
pursuant to Item 404 of Regulation S-K promulgated by the SEC (except for
amounts due as normal salaries and bonuses and reimbursements of ordinary
expenses).
4.23. Customers. Schedule 4.23 lists Parent's top 20 customers (collectively,
the "Customers") and top 20 Payers ("Payers"), by the unaudited revenues
received by Parent from each such Customer or Payer during 2002 and 2003. Parent
does not have any knowledge of any oral or written notice from any of the
Customers or Payers stating that such Customer or Payer intends to terminate its
business relationship with Parent or materially reduce the volume of business it
does with Parent.
4.24. Accounts Receivable. The accounts receivable shown in the balance sheet
of Parent included in Parent's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003, as filed with the SEC prior to the date of this Agreement
(the "Parent Balance Sheet"), arose in the ordinary course of business; were
not, as of the date of the Parent Balance Sheet, subject to any material
discount, contingency, claim of offset or recoupment or counterclaim; and
represented, as of the date of the Parent Balance Sheet, bona fide claims
against debtors for sales, leases, licenses and other charges. All accounts
receivable of Parent and the Parent Subsidiaries arising after the date of the
Parent Balance Sheet through the date of this Agreement arose in the ordinary
course of business and, as of the date of this Agreement, are not subject to any
material discount, contingency, claim of offset or recoupment or counterclaim,
except for normal reserves consistent with past practice. The amount carried for
doubtful accounts and allowances disclosed
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in the Parent Balance Sheet is believed by Parent as of the date of this
Agreement to be sufficient to provide for any losses which may be sustained in
respect of the realization of the accounts receivable shown in the Parent
Balance Sheet.
ARTICLE V.
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.01. Conduct of Business.
(a) Conduct of Business by the Company. Except as expressly
consented to in writing by Parent, which consent shall not be unreasonably
withheld, delayed or conditioned, as set forth on Schedule 5.01 or otherwise
expressly permitted by this Agreement, from the date of this Agreement to the
earliest to occur of (i) the date of the termination of this Agreement, or (ii)
the Effective Time, the Company shall, and shall cause each Company Subsidiary
to, conduct the business of the Company and each of the Company Subsidiaries in
the usual, regular and ordinary course in substantially the same manner as
previously conducted and use all commercially reasonable efforts to preserve
intact its current business organization, keep available the services of its
current officers and employees and keep its relationships with customers,
suppliers, licensors, licensees, distributors and others having business
dealings with them to the end that its goodwill and ongoing business shall be
unimpaired in all material respects at the Effective Time. In addition, and
without limiting the generality of the foregoing, except for matters set forth
in Schedule 5.01, matters expressly consented to in writing by Parent (which
consent shall not be unreasonably withheld, delayed or conditioned), or
otherwise expressly permitted by this Agreement, from the date of this Agreement
to the earliest to occur of the date of the termination of this Agreement or the
Effective Time, the Company shall not, and shall not permit any Company
Subsidiary to, do any of the following without the prior written consent of
Parent:
(i) (A) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock, other than
dividends and distributions by a direct or indirect wholly owned subsidiary of
the Company to its parent, or PIK dividends and interest on the obligations set
forth on Schedule 5.01, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, or (C) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or any
Company Subsidiary or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) issue, deliver, sell or grant (A) any shares of its
capital stock, (B) any Voting Company Debt or other voting securities, (C) any
securities convertible into or exchangeable for, or any options, warrants or
rights to acquire, any such shares, Voting Company Debt, voting securities or
convertible or exchangeable securities or (D) any "phantom" stock, "phantom"
stock rights, stock appreciation rights or stock-based performance units, other
than the issuance of Company Common Stock upon the exercise of Company Stock
Options outstanding on the date of this Agreement and in accordance with their
present terms;
(iii) amend its certificate of incorporation, by-laws or
other comparable charter or organizational documents other than in connection
with the Merger;
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(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing an equity interest in or portion of the
assets of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division thereof or
(B) any assets in excess of $50,000, except for purchases of equipment or
software in the ordinary course of business consistent with past practice;
(v) (A) grant to any current or former director, officer
or employee of the Company or any Company Subsidiary any increase in
compensation, except to the extent required under employment agreements listed
on Schedule 3.10 or, with respect to employees (other than directors, officers
or key employees) in the ordinary course of business consistent with past
practice, (B) grant to any current or former employee, officer or director of
the Company or any Company Subsidiary any increase in severance or termination
pay, except to the extent required under any agreement listed on Schedule 3.10,
(C) enter into any employment, consulting, indemnification, severance or
termination agreement with any such employee, officer or director, (D)
establish, adopt, enter into or amend in any material respect any collective
bargaining agreement or Company Plan or (E) take any action to accelerate any
rights or benefits, or make any material determinations not in the ordinary
course of business consistent with past practice, under any collective
bargaining agreement or Company Plan;
(vi) except as shown on Schedule 5.01, make any change in
accounting methods, principles or practices materially affecting the reported
consolidated assets, liabilities or results of operations of the Company, except
insofar as may be required by a change in GAAP;
(vii) sell, lease (as lessor), license or otherwise dispose
of or subject to any Lien any material properties or assets, except (A) sales of
obsolete assets in the ordinary course of business consistent with past
practice, and (B) sales of inventory in the ordinary course of business
consistent with past practice;
(viii) except as set forth on Schedule 5.01(a)(viii) with
respect to settling the Company's obligations with HealthPlan Holdings, Inc.,
(A) incur any indebtedness for borrowed money or guarantee any such indebtedness
of another person, issue or sell any debt securities or warrants or other rights
to acquire any debt securities of the Company or any Company Subsidiary,
guarantee any debt securities of another person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing, except for short-term borrowings from persons that are not directors,
officers or employees of the Company or any Company Subsidiary incurred in the
ordinary course of business consistent with past practice, or (B) make any
loans, advances or capital contributions to, or investments in, any other
person, other than to or in the Company or any direct or indirect wholly owned
subsidiary of the Company or loans, investments and advances in connection with
the sale of the products of the Company and the Company Subsidiaries in the
ordinary course of business consistent with past practice to persons that are
not directors, stockholders, officers or employees of the Company or any Company
Subsidiary, not to exceed $10,000 individually or $100,000 in the aggregate;
(ix) make or agree to make any new capital expenditure or
expenditures that are in excess of an average of $25,000 per calendar month in
the aggregate between the date of
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this Agreement and February 28, 2004, provided that the Company shall be allowed
to spend additional funds up to $250,000 in the aggregate for software
licensing, if necessary to bring all its Software use in compliance with
licensing requirements as required under Section 6.20; and provided further that
the Company shall not make any capital expenditure for the purpose of acquiring
an accounting or financial system without the prior consent of Parent;
(x) make or change any material Tax election or settle or
compromise any material Tax liability or refund, except for liabilities not in
excess of $10,000 individually or $100,000 in the aggregate;
(xi) (A) except for the items set forth on Schedule
5.01(xi), pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) in excess
of $10,000 individually or $100,000 in the aggregate, other than the payment,
discharge or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of the Company included in the Filed Company
SEC Documents or incurred in the ordinary course of business consistent with
past practice, (B) cancel any indebtedness owed to the Company or the Company
Subsidiaries in excess of $5,000 individually or $50,000 in the aggregate, (C)
cancel any indebtedness owed to the Company or the Company Subsidiaries in
excess of $20,000 individually or $400,000 per month in the aggregate as
adjustments to client accounts in the normal course of business (with the
Company providing to Parent a report showing all such cancellations or
adjustments during each calendar month ending after the date of this Agreement
within 10 days following the end of such calendar month), or (D) waive the
benefits of, or agree to modify in any manner, any confidentiality or similar
agreement to which the Company or any Company Subsidiary is a party;
(xii) enter into, renew, extend, amend, modify, waive any
material provision of, or terminate any lease or similar commitment, in each
case providing for payments in excess of $25,000 over the term of such lease or
commitment (or until the date on which such lease or commitment may be
terminated by the Company without penalty);
(xiii) (a) permit any material insurance policy naming it as
a beneficiary or a loss payable payee to be canceled or terminated without the
consent of Parent, or (b) permit the Company's directors and officers liability
insurance policy, and any excess liability policy related thereto, to be
canceled, terminated or otherwise not be renewed or replaced with at least an
equivalent amount of coverage and on other terms no less favorable to the
Company and its officers and directors;
(xiv) license or otherwise transfer, dispose of, permit to
lapse or otherwise fail to preserve any of the Company's or any of the Company
Subsidiaries' Intellectual Property rights, or dispose of or disclose to any
person any trade secret, formula, process or know-how not theretofore a matter
of public knowledge, except in the ordinary course of business and consistent
with past practice;
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(xv) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of the Company's Subsidiaries;
(xvi) take, or agree to commit to take, any action that
would make any representation or warranty of the Company contained herein
inaccurate as of Closing, such that the condition set forth in 7.03(a) would not
be satisfied at the Closing; and
(xvii) enter into an agreement, contract, commitment or
arrangement to do any of the foregoing, or to authorize, recommend, propose or
announce an intention to do any of the foregoing.
(b) Interim Operations of Parent. Parent covenants and agrees
that, except (i) as expressly provided in this Agreement, or (ii) with the prior
written consent of the Company, which consent shall not be unreasonably
withheld, delayed or conditioned, after the date hereof and prior to the
Effective Time:
(i) the business of Parent will be conducted in the
ordinary and customary course consistent with past practice and Parent shall use
its best efforts to preserve its business organization intact and maintain its
existing relations with customers, suppliers, employees, creditors and business
partners;
(ii) except for (y) Parent Common Stock issued in
connection with the Parent Financing (as defined in Section 6.19) and (z) up to
an additional $3,000,000 of Parent Common Stock to be sold by Parent at a price
per share of not less than $13.50, Parent shall not issue, deliver, sell or
grant (A) any shares of its capital stock (except pursuant to the exercise or
conversion of warrants or other rights outstanding on the date hereof), (B) any
Voting Parent Debt or other voting securities, (C) any securities convertible
into or exchangeable for, or any options (except pursuant to the Parent Stock
Option Plans), warrants or rights to acquire, any such shares, Voting Parent
Debt, voting securities or convertible or exchangeable securities or (D) any
"phantom" stock, "phantom" stock rights, stock appreciation rights or
stock-based performance units, other than the issuance of Parent Common Stock
upon the exercise of Parent Stock Options outstanding on the date of this
Agreement and in accordance with their present terms;
(iii) Parent will not, directly or indirectly, split,
combine or reclassify the outstanding Parent Common Stock;
(iv) Parent shall not acquire or agree to acquire (A) by
merging or consolidating with, or by purchasing an equity interest in or portion
of the assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof or (B) any assets in excess of $50,000, and, except for
purchases of equipment or software in the ordinary course of business consistent
with past practice;
(v) Parent shall not: (i) amend its articles of
incorporation or by-laws; or (ii) declare, set aside or pay any dividend or
other distribution payable in cash, stock or property with respect to its
capital stock other than those consistent with past practice;
A-51
(vi) Parent shall not (i) change any of the accounting
principles used by it unless required by a change in GAAP; or (ii) take or allow
to be taken any action which would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code;
(vii) Except as set forth on Schedule 5.01(b), Parent shall
not sell, lease (as lessor), license or otherwise dispose of or subject to any
Lien any material properties or assets, except (A) sales of obsolete assets in
the ordinary course of business consistent with past practice, and (B) sales of
inventory in the ordinary course of business consistent with past practice;
(viii) Except as set forth on Schedule 5.01(b), Parent shall
not (A) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Parent or any Parent
Subsidiary, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings from persons that are not
directors, officers or employees of the Parent or any Parent Subsidiary incurred
in the ordinary course of business consistent with past practice, or (B) make
any loans, advances or capital contributions to, or investments in, any other
person, other than to or in the Parent or any direct or indirect wholly owned
subsidiary of the Parent or loans, investments and advances in connection with
the sale of the products of the Parent and the Parent Subsidiaries in the
ordinary course of business consistent with past practice to persons that are
not directors, stockholders, officers or employees of the Parent or any Parent
Subsidiary, not to exceed $10,000 individually or $100,000 in the aggregate;
(ix) Parent will not take, or agree to commit to take, any
action that would make any representation or warranty of Parent and Sub
contained herein inaccurate as of Closing, such that the condition set forth in
7.02(a) would not be satisfied at the Closing; and
(x) Parent shall not adopt a plan of complete or partial
liquidation, dissolution, consolidation, restructuring, recapitalization or
other reorganization of the Parent or any of the Parent's Subsidiaries; and
(xi) Parent will not enter into an agreement, contract,
commitment or arrangement to do any of the foregoing, or to authorize,
recommend, propose or announce an intention to do any of the foregoing.
(c) Other Actions. Unless otherwise required by Law, the Company
and Parent shall not, and shall not permit any of their respective subsidiaries
to, take any action that would, or that would reasonably be expected to, result
in (i) any of the representations and warranties of such party set forth in this
Agreement that is qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that is not so qualified becoming untrue in any
material respect, or (iii) any condition to the Merger set forth in Article VII,
not being satisfied.
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(d) Advice of Changes. Each party shall promptly advise the other
orally and in writing of any change or event that has had or would reasonably be
expected to have a Company Material Adverse Effect or a Parent Material Adverse
Effect, as the case may be, as to it.
5.02. No Solicitation.
(a) From and after the date of this Agreement until the Effective
Time or termination of this Agreement pursuant to Article VIII, the Company and
the Company subsidiaries 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 person (any such officer, director,
affiliate, employee, investment banker, attorney, advisor, or person, a
"Representative") retained by any of them to, directly or indirectly, (i)
solicit, initiate, seek, entertain, encourage, intentionally facilitate, support
or induce the making, submission or announcement of any Acquisition Proposal (as
hereinafter defined), (ii) participate in any discussions or negotiations
regarding, or deliver or make available to any person any non-public information
with respect to, or take any other action to knowingly 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, except to note the existence of this
Section 5.02(a), (iv) approve, endorse or recommend any Acquisition Proposal or
(v) enter into any letter of intent or any other Contract contemplating or
otherwise relating to any Acquisition Proposal; provided, however, that prior to
the adoption of this Agreement by the stockholders of the Company, this Section
5.02(a) shall not prohibit the Company from delivering or making available
nonpublic information regarding the Company and the Company Subsidiaries to, or
entering into discussions with, any person or group who has submitted (and not
withdrawn) to the Company an unsolicited, written, bona fide Acquisition
Proposal that the Board of Directors of the Company concludes in good faith
(after consultation with its outside legal counsel and a financial advisor of
national standing) is reasonably likely to result in a Superior Offer (as
defined in Section 6.02(c)) if (1) neither the Company nor any Representative
shall have violated any of the restrictions set forth in this Section 5.02(a) or
5.02(b), (2) the Company gives Parent written notice no later than twenty-four
hours after receiving such Acquisition Proposal of the identity of such person
or group and all of the material terms and conditions of such Acquisition
Proposal and of the Company's intention to deliver or make available nonpublic
information to, or enter into discussions with, such person or group, (3) prior
to delivering or making available any such non-public information to, or
entering into any such discussions with, such person or group, the Company
receives from such person or group an executed confidentiality agreement
containing terms at least as restrictive with regard to the Company's
confidential information as the Confidentiality Agreement (as defined in Section
6.01(b) and (4) contemporaneously with delivering or making available any such
nonpublic information to such person or group, the Company delivers such
non-public information to Parent (to the extent such nonpublic information has
not been previously delivered by the Company to Parent). The Company and the
Company Subsidiaries will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted prior to the date of this
Agreement with respect to any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding two sentences by any Representative shall be deemed to be a
material breach of this Section 5.02(a) by the Company.
A-53
For purposes of this Agreement, "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by Parent) relating to, or involving:
(A) any acquisition or purchase from the Company or any Company Subsidiary 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 15% interest in the total
outstanding voting securities of such party 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 15% or more of the total outstanding
voting securities of the Company or any of the Company Subsidiaries; (B) any
merger, consolidation, or similar transaction involving the Company or any
Company Subsidiary; (C) any sale, lease, exchange, transfer, license,
acquisition, or disposition of 15% or more of the assets of the Company or any
Company Subsidiary; or (D) any liquidation or dissolution of the Company or any
Company Subsidiary.
(b) In addition to the obligations of the Company set forth in
paragraph (a) of this Section 5.02, the Company shall as promptly as practicable
and in any event within twenty-four hours advise Parent orally and in writing of
any request for non-public information which the Company reasonably believes may
lead to an Acquisition Proposal or of any Acquisition Proposal, or any inquiry
with respect to or which the Company reasonably believes may 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. The Company will (i) keep
Parent informed as promptly as practicable in all material respects of the
status and details (including any amendments, modifications or proposed
amendments or modifications) of any such request, Acquisition Proposal or
inquiry and (ii) provide to Parent as promptly as practicable a copy of all
written and other materials and information provided to the Company in
connection with any such request, Acquisition Proposal or inquiry.
(c) Notwithstanding the foregoing or anything in this Agreement or
the Confidentiality Agreement to the contrary, Parent and the Company and each
representative of Parent and the Company may disclose to any and all persons,
without limitation of any kind, the Tax treatment and any facts that may be
relevant to the Tax structure of an Acquisition Proposal with respect to the
Company beginning on the earliest of (i) the date of the public announcement of
discussions relating to such Acquisition Proposal, (ii) the date of public
announcement of such Acquisition Proposal, or (iii) the date of the execution of
an agreement (with or without conditions) to enter into such Acquisition
Proposal, provided, however, that neither Parent nor any representative of
Parent may disclose any other information that is not relevant to understanding
the Tax treatment and Tax structure of such Acquisition Proposal (including the
identity of any party and any information that could lead another to determine
the identity of any party), or any other information to the extent that such
disclosure could reasonably result in a violation of any federal or state
securities laws.
5.03. Certain Company Liabilities. The Company agrees that prior to the
Closing Date, (i) the Company shall cause the persons identified in Part I of
Schedule 5.03 to either settle completely or enter into binding written
agreements with the Company, the terms of which are acceptable to Parent in its
sole discretion, with respect to the final resolution and release of all claims
in the matters referenced in Part I of such schedule; and (ii) the Company shall
have used its reasonable commercial efforts from and after the date of this
Agreement to the Closing Date to cause the
A-54
Persons identified in Part II of Schedule 5.03 to settle completely or enter
into binding written agreements with the Company, the terms of which are
acceptable to Parent in its sole discretion, with respect to the final
resolution and release of all claims in the matters referenced in Part II of
such schedule. The Company shall not incur any obligation to pay any amount in
excess of $1,150,000 in the aggregate with respect to the resolution and release
of the matters identified in clause (i) of the preceding sentence.
5.04. Employee Confidentiality. The Company and each of the Company
Subsidiaries shall use commercially reasonable efforts to obtain from each of
its employees prior to the Closing a confidentiality agreement in substantially
the form of Exhibit 5.04 attached hereto.
5.05. Company Audit. The Company shall use commercially reasonable efforts to
have its financial statements for the fiscal year ended December 31, 2003,
audited by its current independent accounting firm prior to the Closing or such
earlier date as such audited financial statements are required to be filed with
the SEC.
5.06. Parent Audit. Parent shall use commercially reasonable efforts to have
its financial statements for the fiscal year ended December 31, 2003, audited by
its current independent accounting firm prior to the Closing or such earlier
date as such audited financial statements are required to be filed with the SEC.
ARTICLE VI. ADDITIONAL AGREEMENTS
6.01. Preparation of Proxy Statement/Prospectus; Registration Statement;
Antitrust and Other Filings.
(a) As promptly as practicable after the execution of this
Agreement, Parent and the Company will prepare and file with the SEC, the Proxy
Statement/Prospectus and Parent will prepare and file with the SEC the
Registration Statement in which the Proxy Statement/Prospectus will be included
as a prospectus. Each of the Company and Parent will provide each other with any
information which may be required in connection with the preparation and filing
of the Proxy Statement/Prospectus and the Registration Statement. Each of the
Company and Parent will respond to any comments of the SEC, will use its
respective commercially reasonable efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing and Parent and the Company will cause the Proxy Statement/Prospectus
to be mailed to their respective stockholders at the earliest practicable time
after the Registration Statement is declared effective by the SEC. Promptly
after the date of this Agreement, each of the Company and Parent will prepare
and file (i) with the United States Federal Trade Commission and the Antitrust
Division of the United States Department of Justice Notification and Report
Forms relating to the transactions contemplated herein as required by the HSR
Act, as well as comparable pre-merger notification forms required by the merger
notification or control Laws and regulations of any applicable jurisdiction, as
agreed to by the parties (the "Antitrust Filings") and (ii) any other filings
required to be filed by it under the Exchange Act, the Securities Act or any
other federal, state or foreign Laws relating to the Merger and the transactions
contemplated by this Agreement (the "Other Filings"). The Company and Parent
each shall promptly supply the other with any information which may be required
in order to effectuate any filings pursuant to this Section 6.01.
A-55
(b) Each of the Company and Parent will notify the other promptly
(i) upon the occurrence of any event which is required to be set forth in an
amendment or supplement to the Proxy Statement/Prospectus, the Registration
Statement or any Antitrust Filing or Other Filing or (ii) upon the receipt of
any comments from the SEC or its staff or any other government officials in
connection with any filing made pursuant hereto and of any request by the SEC or
its staff or any other government officials for amendments or supplements to the
Registration Statement, the Proxy Statement/Prospectus or any Antitrust Filings
or Other Filings or for additional information and will supply the other with
copies of all correspondence between such party or any of its Representatives,
on the one hand, and the SEC, or its staff or any other government officials, on
the other hand, with respect to the Registration Statement, the Proxy
Statement/Prospectus, the Merger or any Antitrust Filing or Other Filing. Except
where prohibited by applicable legal requirements, and subject to the mutual
confidentiality agreement between the Company and the Parent (the
"Confidentiality Agreement"), each of the Company and Parent shall consult with
the other prior to taking a position with respect to any such filing, shall
permit the other to review and discuss in advance, and consider in good faith
the views of the other in connection with any analyses, appearances,
presentations, memoranda, briefs, white papers, arguments, opinions and
proposals before making or submitting any of the foregoing to any Governmental
Entity by or on behalf of any party hereto in connection with any investigations
or proceedings in connection with this Agreement or the transactions
contemplated hereby (including under any antitrust or fair trade legal
requirement), coordinate with the other in preparing and exchanging such
information and promptly provide the other (and its counsel) with copies of all
filings, presentations or submissions (and a summary of any oral presentations)
made by such party with any Governmental Entity in connection with this
Agreement or the transactions contemplated hereby; provided that with respect to
any such filing, presentation or submission, each of Parent and the Company need
not supply the other (or its counsel) with copies (or in case of oral
presentations, a summary) to the extent that any law, treaty, rule or regulation
of any Governmental Entity applicable to such party requires such party or its
subsidiaries to restrict or prohibit access to any such properties or
information or where such properties or information is subject to the
attorney-client privilege (it being understood that the participation and
cooperation contemplated herein is not intended to constitute, nor shall be
deemed to constitute, any form of direct or indirect waiver of the
attorney-client privilege maintained by any party hereto). Each of the Company
and Parent will cause all documents that it is responsible for filing with the
SEC or other regulatory authorities under this Section 6.01 to comply in all
material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder.
6.02. Meeting of Company Stockholders; Board Recommendation.
(a) Promptly after the date hereof, the Company will take all
action necessary in accordance with the DGCL and its Certificate of
Incorporation and By-laws to convene and hold the Company Stockholders' Meeting
to be held as promptly as practicable, and in any event (to the extent
permissible under applicable law) within 45 days after the declaration of
effectiveness of the Registration Statement, for the purpose of voting upon
adoption of this Agreement. Parent and the Company shall use all reasonable
efforts to hold their respective stockholder meetings on the same date. Unless
the Board of Directors of the Company has made a Company Change of
Recommendation (as defined in Section 6.02(c)), the Company will use its
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the adoption of this
A-56
Agreement, and the Company will take all other action necessary or advisable to
obtain such approvals and to secure the vote or consent of its stockholders
required by the DGCL, its Certificate of Incorporation and By-laws or any other
applicable requirement. Notwithstanding anything to the contrary contained in
this Agreement, but subject to applicable Law, the Company may adjourn or
postpone the Company Stockholders' Meeting to the extent necessary to ensure
that any necessary supplement or amendment to the Proxy Statement/Prospectus is
provided to the Company's stockholders in advance of a vote on the Merger and
this Agreement or, if as of the time for which the Company Stockholders' Meeting
is originally scheduled (as set forth in the Proxy Statement/Prospectus) there
are insufficient shares of Company Common Stock represented (either in person or
by proxy) to constitute a quorum necessary to conduct the business of the
Company Stockholders' Meeting. The Company shall ensure that the Company
Stockholders' Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited by the Company in connection with the Company
Stockholders' Meeting are solicited, in compliance with the DGCL, its
Certificate of Incorporation and By-laws, and all other applicable legal
requirements. The Company's obligation to call, give notice of, convene and hold
the Company Stockholders' Meeting in accordance with this Section 6.02(a) shall
not be limited to or otherwise affected by the commencement, disclosure,
announcement or submission to the Company of any Acquisition Proposal or
Superior Offer (as defined below), or by any Company Change of Recommendation.
(b) Subject to Section 6.02(c): (i) the Board of Directors of the
Company shall unanimously (except for Michael Falk, who may abstain from voting)
recommend that the Company's stockholders adopt this Agreement at the Company
Stockholders' Meeting; (ii) the Proxy Statement/Prospectus shall include a
statement to the effect that the Board of Directors of the Company has
recommended that the Company's stockholders vote in favor of the adoption of
this Agreement at the Company Stockholders' Meeting; and (iii) neither the Board
of Directors of the Company nor any committee thereof shall withhold, withdraw,
amend or modify, or propose or resolve to withhold, withdraw, amend or modify in
a manner adverse to Parent, its recommendation that the Company's stockholders
vote in favor of adoption of this Agreement.
(c) Nothing in this Agreement shall prevent the Board of Directors
of the Company from withholding, withdrawing, amending or modifying its
recommendation in favor of adoption of this Agreement (any of the foregoing
actions, a "Company Change of Recommendation") if the Board of Directors of the
Company concludes in good faith, after consultation with its outside counsel,
that such Company Change of Recommendation is required for the Board of
Directors of the Company to comply with its fiduciary obligations to the
Company's stockholders under applicable Law. The Board of Directors of the
Company may, in the case of a Superior Offer, terminate this Agreement in
accordance with Section 8.01(j) hereof, or make a Company Change of
Recommendation, if, prior to the Company Stockholders' Meeting, (i) a Superior
Offer is made to the Company and is not withdrawn, (ii) the Company shall have
provided written notice to Parent no later than three business days after
receiving such Superior Offer (a "Notice of Superior Offer") advising Parent
that the Company has received a Superior Offer and that it intends (or may
intend) to terminate this Agreement and/or change its recommendation and the
manner and timing in which it intends (or may intend) to do so, specifying all
of the material terms and conditions of such Superior Offer and identifying the
person or entity making such Superior Offer, (iii) Parent shall not have, within
three business days of Parent's receipt of the Notice of Superior Offer, made an
offer that the Board of Directors
A-57
of the Company determines in its good faith judgment (after consultation with a
financial advisor of national standing) to be at least as favorable to the
Company's stockholders as such Superior Offer (it being agreed that the Board of
Directors of the Company shall convene a meeting to consider any such offer by
Parent promptly following the receipt thereof), and (iv) the Company shall not
have breached any of the restrictions set forth in Section 5.02(a), 5.02(b) or
this Section 6.02. The Company shall provide Parent with the same amount of
prior notice provided to the members of the Company's Board of Directors or any
committee thereof (but in no event less than twenty-four (24) hours) of any
meeting of the Company's Board of Directors or any committee thereof at which
the Company's Board of Directors or any committee thereof is reasonably expected
to consider any Acquisition Proposal to determine whether such Acquisition
Proposal is a Superior Offer. Nothing contained in this Section 6.02(c) shall
limit the Company's obligation to hold and convene the Company Stockholders'
Meeting (regardless of whether there shall have been a Company Change of
Recommendation).
For purposes of this Agreement, "Superior Offer" shall mean an unsolicited, bona
fide written offer made by a third party to acquire, directly or indirectly,
pursuant to a tender offer, exchange offer, merger, consolidation or other
business combination, all or substantially all of the assets of the Company or
the Company Subsidiaries or a majority of the total outstanding voting
securities of the Company or any of the Company Subsidiaries, with respect to
which the Board of Directors of the Company has in good faith concluded
(following consultation with its outside legal counsel and its financial
advisor), taking into account, among other things, all legal, financial,
regulatory and other aspects of the offer and the person making the offer, that
the offer is more favorable to the Company's stockholders (in their capacities
as stockholders) than the terms of the Merger, that the person making the offer
has secured or is reasonably likely to secure all financing necessary to
consummate the transactions contemplated by the offer and that the transactions
contemplated by the offer are otherwise reasonably capable of being consummated.
(d) Nothing contained in this Agreement shall prohibit the Company
or its Board of Directors, or any committee thereof, from taking and disclosing
to its stockholders a position contemplated by Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act; provided, however, that the Board of
Directors of the Company shall comply with Sections 5.02(a) and 5.02(b) prior to
taking and disclosing such position. Nothing in this Agreement shall prohibit
the members of the Board of Directors of the Company from exercising their
duties of disclosure and candor under applicable Law. The Company's obligation
to call, give notice of, convene and hold the Company Stockholders' Meeting in
accordance with Section 6.02(a) shall not be limited to or otherwise affected by
the commencement, disclosure, announcement or submission to the Company of any
Acquisition Proposal or Superior Offer (as defined below), or by any Company
Change of Recommendation.
6.03. Meeting of Parent Stockholders; Board Recommendation.
(a) Promptly after the date hereof, Parent will take all action
necessary in accordance with the FBCA and its Articles of Incorporation and
By-laws to convene and hold the Parent Stockholders' Meeting to be held as
promptly as practicable, and in any event (to the extent permissible under
applicable law) within 45 days after the declaration of effectiveness of the
Registration Statement, for the purpose of voting upon the approval of the
issuance of Parent
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Common Stock in connection with the Merger and in connection with the Parent
Financing. Unless the Board of Directors of Parent has made a Parent Change of
Recommendation (as defined in Section 6.03(c)), Parent will use its commercially
reasonable efforts to solicit from its stockholders proxies in favor of the
approval of the issuance of Parent Common Stock in connection with the Merger
and in connection with the Parent Financing and the approval of the amendment to
the Articles of Incorporation of Parent to increase the number of authorized
shares of Parent Common Stock to 30 million shares, and Parent will take all
other action necessary or advisable to obtain such approvals and to secure the
vote or consent of its stockholders required by the rules of the Nasdaq Stock
Market, the FBCA and its Articles of Incorporation and By-laws. Notwithstanding
anything to the contrary contained in this Agreement, Parent may adjourn or
postpone the Parent Stockholders' Meeting to the extent necessary to ensure that
any necessary supplement or amendment to the Proxy Statement/Prospectus is
provided to Parent's stockholders in advance of a vote on the approval of the
issuance of Parent Common Stock in connection with the Merger, in connection
with the Parent Financing and in connection with the amendment of the Articles
of Incorporation of Parent, or, if as of the time for which the Parent
Stockholders' Meeting is originally scheduled (as set forth in the Proxy
Statement/Prospectus) there are insufficient shares of Parent Common Stock
represented (either in person or by proxy) to constitute a quorum necessary to
conduct the business of the Parent Stockholders' Meeting. Parent shall ensure
that the Parent Stockholders' Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited by Parent in connection with the
Parent Stockholders' Meeting are solicited, in compliance with the FBCA, its
Articles of Incorporation and By-laws, the rules of the Nasdaq Stock Market and
all other applicable legal requirements. Parent's obligation to call, give
notice of, convene and hold the Parent Stockholders' Meeting in accordance with
this Section 6.03(a) shall not be limited to or otherwise affected by any
withholding, withdrawal, amendment or modification of the recommendation of the
Board of Directors of Parent with respect to the Parent Stockholder Approval.
(b) Subject to Section 6.03(c): (i) the Board of Directors of
Parent shall unanimously (expect for Michael Falk, who may abstain from voting
with respect to clauses (x), (y) and (z) below and Braden Kelly, who may abstain
from voting with respect to clause (y) below) recommend that Parent's
stockholders vote in favor of (x) the approval of the issuance of Parent Common
Stock in connection with the Merger at the Parent Stockholders' Meeting, (y) the
approval of the issuance of Parent Common Stock in connection with the Parent
Financing at the Parent Stockholders' Meeting and (z) the approval of the
amendment to the Articles of Incorporation of Parent to increase the number of
authorized shares of Parent Common Stock to 30 million shares; (ii) the Proxy
Statement/Prospectus shall include a statement to the effect that the Board of
Directors of Parent has recommended that Parent's stockholders vote in favor of
the approval of the issuance of Parent Common Stock in connection with the
Merger at the Parent Stockholders' Meeting and in favor of the approval of the
amendment to the Articles of Incorporation of Parent to increase the number of
authorized shares of Parent Common Stock to 30 million shares; and (iii) neither
the Board of Directors of Parent nor any committee thereof shall withhold,
withdraw, amend or modify, or propose or resolve to withhold, withdraw, amend or
modify in a manner adverse to the Company, the recommendation of the Board of
Directors of Parent that Parent's stockholders vote in favor of and approve the
issuance of Parent Common Stock in connection with the Merger and in connection
with the Parent Financing and in favor of the approval of the amendment to the
Articles of Incorporation of Parent to increase the number of authorized shares
of Parent Common Stock to 30 million shares.
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(c) Nothing contained in this Agreement shall prohibit Parent or
its Board of Directors from taking and disclosing to its stockholders a position
contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act.
Nothing in this Agreement shall prohibit the members of the Board of Directors
of Parent from exercising their duties of disclosure and candor under applicable
Law. Parent's obligation to call, give notice of, convene and hold Parent's
stockholders meeting in accordance with Section 6.03(a) shall not be limited to
or otherwise affected by any Parent Change of Recommendation. Nothing in this
Agreement shall prevent the Board of Directors of Parent from withholding,
withdrawing, amending or modifying its recommendation in favor of adoption of
this Agreement and the other proposals included in the Parent Stockholder
Approval (any of the foregoing actions, a "Parent Change of Recommendation") if
the Board of Directors of Parent concludes in good faith, after consultation
with its outside counsel, that such Parent Change of Recommendation is required
for Parent to comply with its fiduciary obligations to Parent's shareholders
under applicable Law.
6.04. Access to Information; Confidentiality. The Company and the Parent
shall, and shall cause each of their respective subsidiaries to, afford to the
other, and the other's officers, employees, accountants, counsel, financial
advisors and other representatives, upon reasonable notice, reasonable access
during normal business hours during the period prior to the Effective Time to
all their respective properties, books, contracts, commitments, personnel and
records and, during such period, the Company and the Parent shall, and shall
cause each of its subsidiaries to, furnish promptly to the other (a) a copy of
each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of Federal or state securities
Laws and (b) all other information concerning its business, properties and
personnel as the other may reasonably request; provided, however, that Parent or
the Company, as the case may be, may withhold the documents and information
described in the Company Disclosure Schedule or the Parent Disclosure Schedule,
as the case may be, to the extent required to comply with the terms of a
confidentiality agreement with a third party in effect on the date of this
Agreement; provided further, that the Company or the Parent, as the case may be,
shall use all reasonable efforts to obtain, as promptly as practicable, any
consent from such third party required to permit it to furnish such documents
and information to the other party.
6.05. Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties shall use all reasonable efforts to take, or
cause to be taken, all reasonable actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things reasonably
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger, including (i) the obtaining of all
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, if any) and the taking of all
reasonable steps as may be necessary to obtain an approval or waiver from, or to
avoid an action or proceeding by, any Governmental Entity, (ii) the obtaining of
all necessary consents, approvals or waivers from third parties, (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the Merger, including, when
reasonable, seeking to have any stay or temporary restraining order entered by
any court or other Governmental Entity vacated or reversed and (iv) the
execution and delivery
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of any additional instruments necessary to consummate the transactions
contemplated hereby and to fully carry out the purposes of this Agreement;
provided, however, that the obligations set forth in this sentence shall not be
deemed to have been breached as a result of actions by the Company expressly
permitted under Section 5.02(b). In connection with and without limiting the
foregoing, the Company and the Company Board shall (i) take all action necessary
to ensure that no state takeover statute or similar statute or regulation is or
becomes applicable to any Transaction or this Agreement and (ii) if any state
takeover statute or similar statute or regulation becomes applicable to this
Agreement, take all action necessary to ensure that the Merger 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. Nothing in this Agreement shall be deemed to require any party to
waive any substantial rights or agree to any substantial limitation on its
operations, to dispose of any significant asset or collection of assets or
breach any material agreement to which it is a party.
(b) The Company shall give prompt notice to Parent, and Parent or
Sub shall give prompt notice to the Company, of (i) any representation or
warranty made by it contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure by it 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; 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.
6.06. Takeover Statutes. No party hereto shall take any action that would
cause the transactions contemplated by this Agreement to be subject to any
Takeover Statute. If any Takeover Statute is or may become applicable to the
Merger or the other transactions contemplated by this Agreement, each of Parent
and the Company and their respective Boards of Directors shall grant such
approvals and take such lawful actions as are necessary and possible to ensure
that such transactions may be consummated as promptly as practicable on the
terms contemplated by this Agreement and otherwise act to eliminate or minimize
the effects of such statute and any regulations promulgated thereunder on such
transactions.
6.07. Benefits and Benefit Plans.
(a) From and after the Effective Time and except as otherwise
provided herein, Parent shall cause the Company or the Surviving Corporation, as
applicable, to honor in accordance with their respective terms (as in effect on
the date of this Agreement), all the Company's employment, severance and
termination agreements, plans and policies disclosed in the Company Disclosure
Schedule, including any change in control provisions contained therein.
(b) With respect to any "employee benefit plan", as defined in
Section 3(3) of ERISA, maintained by Parent or any of its subsidiaries
(including any severance plan), for all purposes, including determining
eligibility to participate and vesting, service with the Company or any Company
Subsidiary shall be treated as service with Parent or any of its subsidiaries;
provided, however, that such service need not be recognized to the extent that
such recognition would result in any duplication of benefits.
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(c) All Company employees who remain as employees after Closing
shall either be afforded the same benefits which the other employees of Parent
and its Subsidiaries have without any requirement as to vesting or lapse of time
or they shall continue to have the same benefits which were afforded to them by
the Company prior to Closing.
6.08. Indemnification by Parent.
(a) From and after the Effective Time, Parent will cause the
Surviving Corporation to fulfill and honor in all respects the obligations of
the Company pursuant to any indemnification Contracts between the Company and
its directors and officers as of the Effective Time (the "Indemnified Parties")
and any advancement of expenses or indemnification provisions under the
Company's Certificate of Incorporation or By-laws as in effect on the date
hereof, in each case, subject to applicable law. The Certificate of
Incorporation and By-laws of the Surviving Corporation will contain provisions
with respect to exculpation, advancement of expenses, and indemnification that
are at least as favorable to the Indemnified Parties as those contained in the
Certificate of Incorporation and By-laws of the Company as in effect on the date
hereof, which provisions will not be amended, repealed or otherwise modified for
a period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who, immediately prior to the
Effective Time, were directors, officers, employees or agents of the Company,
unless such modification is required by law.
(b) For a period of six years after the Effective Time, Parent
shall maintain in effect a "tail policy" based on the current policies of
directors' and officers' liability insurance maintained by the Company (provided
that Parent may substitute therefor policies with reputable and financially
sound carriers) with respect to claims arising from or related to facts or
events which occurred at or before the Effective Time; provided, however, that
the amount of the premium payments for a tail policy for the six years following
the Effective Time shall be allocated between the Company and Parent as follows:
the Company shall pay the amount that would be required to be paid in order to
obtain from Parent's current insurer a two year tail policy, and Parent shall
pay the difference between the cost of such a two year tail policy and the cost
of the six year tail policy. All such premium payments for the two year tail
policy shall be paid by the Company on or prior to the Closing Date, and on the
Closing Date Parent shall be obligated to make premium payments for the
remaining four years of the "tail policy." If the tail policy is canceled,
Parent shall use commercially reasonable efforts to obtain a replacement tail
policy at no greater expense to Parent than Parent would otherwise be required
to incur under this paragraph.
(c) The Company will maintain, through the Effective Time, the
Company's existing directors' and officers' insurance in full force and effect
without reduction of coverage.
(d) In the event that Parent or the Surviving Corporation or any
of its successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers or conveys all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision shall be made so that the successors or assigns of Parent or
the Surviving Corporation, as the case may be, shall succeed to the obligations
set forth in this Section 6.08.
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6.09. Public Announcements. Parent and Sub, on the one hand, and the Company,
on the other hand, shall consult with each other before issuing, and provide
each other the opportunity to review and comment upon, any press release or
other public statements with respect to the Merger or this Agreement and shall
not issue any such press release or make any such public statement prior to such
consultation, except to the extent that counsel may advise the Company, Parent
or Sub that such disclosure is required by applicable Law (including foreign
regulations relating to competition), court process or by obligations pursuant
to any listing agreement with any national securities exchange.
6.10. Transfer Taxes. All stock transfer, real estate transfer, documentary,
stamp, recording and other similar Taxes (including interest, penalties and
additions to any such Taxes) ("Transfer Taxes") incurred in connection with this
Agreement and the Merger shall be paid by the party upon whom the primary burden
for payment is placed by the applicable law. Each party shall cooperate with the
other in preparing, executing and filing any Tax Returns with respect to such
Transfer Taxes and shall use reasonable efforts to avail itself of any available
exemptions from such Transfer Taxes, and shall cooperate in providing any
information and documentation that may be necessary to obtain such exemptions.
6.11. Directors. At the Effective Time, the Board of Directors of Parent
shall (i) appoint one independent director of the Company selected by the
Company to serve as a member of the Board of Directors of Parent, and (ii)
appoint one additional independent director, who shall not be affiliated with
Parent or the Company, identified by the Board of Directors of the Company, and
who shall be reasonably acceptable to the Parent, to serve as a member of the
Board of Directors of Parent. The Board of Directors of Parent shall not be
required to effect any appointment or nomination to the extent any such action
would be inconsistent with the fiduciary duties of the members of the Board of
Directors.
6.12. Stockholder Litigation. The Company shall give Parent the opportunity
to participate in the defense or settlement of any stockholder litigation
against the Company and its directors relating to any litigation to which the
Company is a party, and the Company shall not settle any such litigation without
the prior consent of Parent, which shall not be unreasonably withheld, delayed
or conditioned.
6.13. Section 16 Matters. The Company shall and, provided that the Company
delivers to Parent the Section 16 Information (as defined below) in advance of
the meeting of Parent's Board of Directors where such matters are scheduled to
be discussed, Parent shall use all reasonable efforts (to the extent permitted
under applicable law) to cause any disposition of Company Common Stock
(including derivative securities with respect to Company Common Stock) or
acquisitions of Parent Common Stock (including derivative securities with
respect to Parent Common Stock) resulting from the transactions contemplated by
this Agreement by each Company Insider to be exempt under Rule 16b-3 promulgated
under the Exchange Act. "Section 16 Information" shall mean information
regarding the Company Insiders, the number of shares of Company capital stock
held by each such Company Insider and expected to be exchanged for Parent Common
Stock in connection with the Merger, and the number and description of the
Company Options held by each such Company Insider and expected to be converted
into options for Parent Common Stock in connection with the Merger. "Company
Insiders" shall mean those
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individuals who are or will be subject to the reporting requirement of Section
16(b) of the Exchange Act with respect to Parent or the Company.
6.14. Tax Treatment as Reorganization. Neither Parent, Sub nor the Company
shall, and they shall not permit any of their respective subsidiaries to, take
any action or cause any action to be taken prior to or following the Merger that
would reasonably be expected to cause the Merger to fail to qualify as a
reorganization with the meaning of Section 368(a) of the Code and shall use all
reasonable efforts to cause the Merger to so qualify. Parent, Sub and the
Company shall, and shall cause their respective subsidiaries to, take the
position for all purposes that the Merger qualifies as a reorganization under
that Section of the Code.
6.15. Company Affiliates; Restrictive Legend. The Company will use all
reasonable efforts to deliver or cause to be delivered to Parent, as promptly as
practicable on or following the date hereof, from each person listed on Schedule
3.23, an executed affiliate agreement pursuant to which such Affiliate shall
agree to be bound by the provisions of Rule 145 in a form provided by Parent and
reasonably acceptable to the Company. Parent will give stop transfer
instructions to its transfer agent with respect to any Parent Common Stock
received pursuant to the Merger by any such Company Affiliate, and there will be
placed on the certificates representing such Parent Common Stock, or any
substitutions therefor, an appropriate restrictive legend stating in substance
that such shares were issued in a transaction to which Rule 145 promulgated
under the Securities Act applies and that the transferability of such shares is
therefore restricted but that such legend shall be removed by Parent upon
receipt of an opinion of counsel that such legend may be removed.
6.16. Consents of Accountants. Parent and the Company will each use
reasonable best efforts to cause to be delivered to each other consents from
their respective independent auditors, dated the date on which the Registration
Statement shall become effective, in form reasonably satisfactory to the
recipient and customary in scope and substance for consents delivered by
independent public accountants in connection with registration statements on
Form S-4 under the Securities Act.
6.17. Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all commercially reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable, whether under applicable Laws
and regulations or otherwise, or to remove any injunctions or other impediments
or delays, legal or otherwise, to consummate and make effective the Merger and
the other transactions contemplated by this Agreement and the Ancillary
Agreements. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement or the
Ancillary Agreements, the proper officers and directors of the Company and
Parent shall use all reasonable efforts to take, or cause to be taken, all such
necessary actions.
6.18. Cooperation. Parent and the Company shall together, or pursuant to an
allocation of responsibility to be agreed upon between them, use commercially
reasonable efforts to coordinate and cooperate (i) with respect to the timing of
the Company Stockholders' Meeting and the Parent Stockholders' Meeting and shall
use commercially reasonable efforts to hold such meetings on the same day, (ii)
in determining whether any action by or in respect of, or filing
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with, any Governmental Entity is required, or any actions, consents approvals or
waivers are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements, and (iii) in seeking any such actions,
consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith and timely seeking to obtain any
such actions, consents approvals or waivers. Subject to the terms and conditions
of this Agreement, Parent and the Company will each use its reasonable best
efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after the Registration Statement is
filed, and Parent and the Company shall, subject to applicable law, use
commercially reasonable efforts to confer on a regular and frequent basis with
one or more representatives of one another to report operational matters of
significance to the Merger and the general status of ongoing operations insofar
as relevant to the Merger, provided that the parties will not confer on any
matter to the extent inconsistent with law.
6.19. Parent Financing. Prior to the Closing, Parent agrees to sell a
sufficient number of shares of its authorized common stock at a price per share
of not less than $13.50 in order to generate gross proceeds to Parent at or
prior to Closing of $21,100,000 (the "Parent Financing"). In connection with and
subject to the Closing, Parent agrees to contribute proceeds of the Parent
Financing to the Company as an additional capital contribution in order to
enable the Company to pay off in full the Company's debt to its lenders for whom
Wachovia Bank acts as agent in an aggregate amount of not more than $18,000,000.
In addition, in connection with and subject to the Closing, Parent agrees to
cause the letter of credit currently issued by Wachovia for the benefit of CG
Insurance Services, Inc. to be (a) replaced with a letter of credit on another
bank, (b) replaced with other satisfactory collateral or (c) paid in full.
6.20. Company Software Licensing. Prior to the Closing, the Company agrees to
obtain valid, continuing licenses for all of the Software that the Company or
any of the Company Subsidiaries uses in the operation of its business as
currently conducted as of the date of the Closing. Each such license shall be
fully transferable to Parent in connection with the Merger. Such transfer shall
be effective immediately as of the date of the Closing without payment of any
further license fee, transfer fee, royalty or other remuneration not expressly
agreed to in advance and in writing by Parent. Compliance with any terms or
conditions precedent to the full effectiveness of such transfer shall be the
sole and exclusive responsibility of the Company at its own sole expense and
shall be completed prior to Closing. Without limiting the generality of the
foregoing, the Company or one of the Company Subsidiaries, shall timely notify
the licensor of the transfer in such form and manner as may be required pursuant
to the terms of any license agreement applicable to such Software.
ARTICLE VII. CONDITIONS PRECEDENT
7.01. Conditions to Each Party's Obligation To Effect The Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approvals. The Company Stockholder Approval shall
have been obtained by the requisite vote of the stockholders of Company under
applicable Law and the Company's Certificate of Incorporation and By-laws. The
Parent Stockholder Approval shall
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have been obtained by the requisite vote of the stockholders of Parent under
applicable law, the Parent's Articles of Incorporation and By-laws, and the
applicable rules of the NASDAQ Stock Market.
(b) Registration Statement Effective; Proxy Statement. The SEC
shall have declared the Registration Statement effective. No stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement/Prospectus, shall have been
initiated or threatened in writing by the SEC.
(c) No Order; HSR Act; Governmental Consents. No Governmental
Entity shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and which has the effect
of making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods, if any, under the HSR Act relating to the
transactions contemplated hereby will have expired or been terminated. All
material required approvals or consents of any Governmental Entity (including
foreign antitrust approvals or consents) in connection with the Merger and the
consummation of the other transactions contemplated hereby shall have been
obtained.
(d) Nasdaq Listing. The shares of Parent Common Stock to be issued
in connection with the Merger shall have been approved for listing on the Nasdaq
Stock Market, subject to official notice of issuance.
(e) No Restraints. There shall not be pending or overtly
threatened any action or proceeding by any Governmental Entity seeking to
restrain or prohibit the Merger.
7.02. Additional Conditions to Obligations of Company. The obligation 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 Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub contained in this Agreement, disregarding all
qualifications and exceptions contained therein relating to materiality or
material adverse effect or any similar standard or qualification, shall be true
and correct as of the date of this Agreement and as of the Closing Date with the
same force and effect as if made on the Closing Date (except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct only as of such date), except where the
failure of such representations or warranties to be true or correct would not
have, individually or in the aggregate, a Parent Material Adverse Effect. The
Company shall have received a certificate with respect to the foregoing signed
on behalf of Parent by the Chief Executive Officer or Chief Financial Officer of
Parent.
(b) Agreements and Covenants. Parent and Sub shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Closing Date, and Company shall have
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received a certificate to such effect signed on behalf of Parent by the Chief
Executive Officer or Chief Financial Officer of Parent.
(c) Majority of the Minority. This Agreement shall have been
adopted by the affirmative vote of the holders of at least a majority of the
outstanding shares of the Company Common Stock voting at the Company Stockholder
Meeting and not taking into account any votes cast by holders of the Series C
Stock, by Commonwealth Associates, L.P. or any affiliates or officers or
directors thereof, or any director or executive officer of the Company (the
"Minority Stockholder Approval").
(d) Closing Certificate. Parent shall have furnished the Company
with a certificate dated the Closing Date signed on behalf of it by the
President of Parent to the effect that, to the actual knowledge of the
President, the conditions set forth in Sections 7.02(a) and 7.02(b) have been
satisfied.
(e) Material Adverse Effect. There shall not have occurred any
event, change or effect having, individually or in the aggregate, a Parent
Material Adverse Effect.
7.03. Additional Conditions to the Obligations of Parent and Sub. The
obligations of Parent and Sub 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. The representations and
warranties of Company contained in this Agreement, disregarding all
qualifications and exceptions contained therein relating to materiality or
material adverse effect or any similar standard or qualification, shall be true
and correct as of the date of this Agreement and as of the Closing Date with the
same force and effect as if made on the Closing Date (except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct only as of such date), except where the
failure of such representations or warranties to be true or correct would not
have, individually or in the aggregate, a Company Material Adverse Effect (other
than the representations and warranties set forth in Section 3.06(c) and
3.18(b), which shall be true and correct in all respects). It being understood
that, for purposes of determining the accuracy of such representations and
warranties, any update of or modification to the Company Disclosure Schedule
made or purported to have been made after the execution of this Agreement shall
be disregarded.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date.
(c) Material Adverse Effect. There shall not have occurred any
event, change or effect having, individually or in the aggregate, a Company
Material Adverse Effect.
(d) Intentionally Omitted.
(e) Consents. All consents or approvals necessary to the
consummation of the Merger including consents from parties to loans, contracts,
leases or other agreements, shall have
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been obtained, other than consents the failure of which to obtain could not
reasonably be expected to have a Company Material Adverse Effect.
(f) Dissenting Stockholders. Holders of no more than ten percent
(10%) of Company Common Stock shall have demanded appraisal of their shares
pursuant to the DGCL.
(g) Closing Certificate. The Company shall have furnished Parent
with a certificate dated the Closing Date signed on behalf of it by the Chief
Executive Officer of the Company to the effect that, to the actual knowledge of
the Chief Executive Officer, the conditions set forth in Sections 7.03(a), (b),
(c), and (e) have been satisfied.
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER
8.01. Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the Parent Stockholder Approval or the
Company Stockholder Approval:
(a) by mutual written consent duly authorized by the Board of
Directors of Parent and the Company;
(b) by either the Company or Parent if the Merger shall not have
been consummated by April 30, 2004 (the "Outside Date") for any reason;
provided, however, that the right to terminate this Agreement under this Section
8.01(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 material
breach of this Agreement;
(c) by either the Company or Parent if a Governmental Entity 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; provided, however, that the party seeking to terminate this
Agreement pursuant to this Section 8.01(c) shall have used commercially
reasonable efforts to prevent the entry of and to remove such restraint;
(d) by either the Company or Parent, if the Company Stockholder
Approval shall not have been obtained by reason of the failure to obtain the
required vote at the Company Stockholders' Meeting duly convened therefor or at
any adjournment thereof; provided, however, that the right to terminate this
Agreement under this Section 8.01(d) shall not be available to the Company where
the failure to obtain such stockholder approval shall have been caused by the
action or failure to act of such party and such action or failure to act
constitutes a breach by such party of this Agreement;
(e) by either the Company or Parent, if the Parent Stockholder
Approval shall not have been obtained by reason of the failure to obtain the
required vote at the Parent Stockholders' Meeting duly convened therefor or at
any adjournment thereof; provided, however, that the right to terminate this
Agreement under this Section 8.01(e) shall not be available to Parent where the
failure to obtain such stockholder approval shall have been caused by the action
or failure to act of such party and such action or failure to act constitutes a
breach by such party of this Agreement;
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(f) by Parent (at any time prior to obtaining the Company
Stockholder Approval by the required vote of the Company stockholders) if a
Parent Triggering Event (as defined below) shall have occurred;
(g) by the Company (at any time prior to obtaining the Parent
Stockholder Approval by the required vote of Parent stockholders) if a Company
Triggering Event (as defined below) shall have occurred;
(h) by the Company, either (i) 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
7.02(a) or Section 7.02(b) would not be satisfied as of the time of such breach
or as of the time such representation or warranty shall have become untrue, or
(ii) if a Parent Material Adverse Effect shall have occurred; provided that if
such inaccuracy in Parent's representations and warranties or breach by Parent,
or a Parent Material Adverse Effect, is curable prior to the Outside Date by
Parent, then the Company may not terminate this Agreement under this Section
8.01(h) for 30 days, with respect to an inaccuracy or breach, or 45 days, with
respect to a Parent Material Adverse Effect, after delivery of written notice
from the Company to Parent of such breach, inaccuracy or Parent Material Adverse
Effect, if Parent continues to exercise all reasonable efforts to cure such
breach, inaccuracy or Parent Material Adverse Effect (it being understood that
the Company may not terminate this Agreement pursuant to this paragraph (h) if
such breach by Parent or Parent Material Adverse Effect is cured during such 30
or 45-day period, or if the Company shall have materially breached this
Agreement);
(i) by Parent, either (i) upon a breach of any representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have become
untrue, in either case such that the conditions set forth in Section 7.03(a) or
Section 7.03(b) would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become untrue, or (ii) if a
Company Material Adverse Effect shall have occurred; provided that if such
inaccuracy in the Company's representations and warranties or breach by the
Company, or Company Material Adverse Effect, is curable prior to the Outside
Date by the Company, then Parent may not terminate this Agreement under this
Section 8.01(i) for 30 days, with respect to an inaccuracy or breach, or 45
days, with respect to a Company Material Adverse Effect, after delivery of
written notice from Parent to the Company of such breach, inaccuracy or Company
Material Adverse Effect, if the Company continues to exercise all commercially
reasonable efforts to cure such inaccuracy, breach or Company Material Adverse
Effect (it being understood that Parent may not terminate this Agreement
pursuant to this paragraph (i) if such inaccuracy or breach by the Company or
Company Material Adverse Effect is cured during such 30 or 45-day period, or if
Parent shall have materially breached this Agreement).
(j) by the Company, in respect of a Superior Offer in accordance
with Section 6.02(c);
(k) by the Company, if the Parent does not mail the Proxy
Statement/Prospectus to the Parent's stockholders by February 12, 2004;
provided, that the Company has used all commercially reasonable efforts to mail
the Proxy by such date;
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(l) by Parent, if the Company does not mail the Proxy
Statement/Prospectus to the Company's stockholders by February 12, 2004;
provided, that Parent has used all commercially reasonable efforts to mail the
Proxy by such date;
For the purposes of this Agreement, a "Company Triggering Event" shall be deemed
to have occurred if: (i) Parent's Board of Directors or any committee thereof
shall for any reason have withheld, withdrawn, amended or modified in a manner
adverse to the Company its recommendation in favor of the issuance of Parent
Common Stock in connection with the Merger; (ii) Parent shall have failed to
include in the Proxy Statement/Prospectus the recommendation of Parent's Board
of Directors in favor of the issuance of Parent Common Stock in connection with
the Merger; or (iii) Parent's Board of Directors fails to reaffirm (publicly, if
so requested) its recommendation in favor of the issuance of Parent Common Stock
in connection with the Merger within 10 business days after the Company requests
in writing that such recommendation be reaffirmed.
For the purposes of this Agreement, a "Parent Triggering Event" shall be deemed
to have occurred if: (i) the Company's Board of Directors or any committee
thereof shall for any reason have withheld, withdrawn, amended or modified in a
manner adverse to Parent its recommendation in favor of adoption of this
Agreement; (ii) the Company shall have failed to include in Proxy
Statement/Prospectus the recommendation of the Company's Board of Directors or
any committee thereof in favor of adoption of this Agreement; (iii) the
Company's Board of Directors or any committee thereof fails to reaffirm its
recommendation in favor of adoption of this Agreement within 10 business days
after Parent requests in writing that such recommendation be reaffirmed; (iv)
the Company's Board of Directors or any committee thereof shall have approved or
publicly recommended any Acquisition Proposal; (v) the Company shall have
entered into any letter of intent or other contract accepting any Acquisition
Proposal; (vi) the Company shall have breached any of the provisions of Sections
5.02 or 6.02; or (vii) a tender or exchange offer relating to securities of the
Company shall have been commenced by a person unaffiliated with Parent, and the
Company shall not have sent to its security holders pursuant to Rule 14e-2
promulgated under the Exchange Act, within 10 business days after such tender or
exchange offer is first published sent or given, a statement disclosing that the
Company recommends rejection of such tender or exchange offer.
8.02. Notice of Termination; Effect of Termination. Any proper termination of
this Agreement under Section 8.01 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 8.01,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 8.02, Section 8.03 and Article IX, each of which shall survive
the termination of this Agreement, and (ii) nothing herein shall relieve any
party from liability for any willful breach of this Agreement. No termination of
this Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination of
this Agreement in accordance with their terms.
8.03. Fees and Expenses.
(a) General. Except as set forth in this Section 8.03, all fees
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby ("Transaction
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Expenses") shall be paid by the party incurring such expenses whether or not the
Merger is consummated; provided, however, that Parent and the Company shall
share equally (i) all fees and expenses, other than attorneys' and accountants'
fees and expenses, incurred in relation to the printing and filing with the SEC
of the Proxy Statement/Prospectus (including any preliminary materials related
thereto) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto and (ii) the filing fee(s)
for the Antitrust Filings, in each case pursuant to Section 6.01.
(b) Company Payments. In the event that this Agreement is
terminated (i) pursuant to Section 8.01(f) or Section 8.01(j), or (ii) as a
result of the failure of the Company to obtain the Company Stockholder Approval
if (A) prior to such termination, an Acquisition Proposal with respect to the
Company was publicly disclosed and (B) within 12 months following the
termination of this Agreement, either an Acquisition (as defined in Section
8.03(c)) with respect to the Company is consummated, or the Company enters into
a Contract providing for an Acquisition which is later consummated (whether
during or after such 12-month period), then the Company shall pay to Parent a
fee equal to $2,000,000, in immediately available funds promptly but in no event
later than two business days after the date of such termination, if terminated
pursuant to clause (i) above, or two business days after the consummation of
such Acquisition, if terminated pursuant to clause (ii) above. In the event that
(I) the Company obtains the Company Stockholder Approval but does not obtain the
Minority Stockholder Approval, and (II) the Company does not waive the condition
to Closing set forth in Section 7.02(c) in such a manner as to allow the Closing
to occur, then the Company shall immediately reimburse Parent for all
Transaction Expenses incurred by Parent, including without limitation Parent's
portion of the shared Transaction Expenses under Section 8.03(a), up to a
maximum amount of $500,000 upon Parent's submission of reasonable documentation
of such expenses to the Company.
(c) Acknowledgements. The Company and Parent acknowledge that (i)
the agreements contained in Section 8.03(b) are an integral part of the
transactions contemplated by this Agreement, (ii) the amount of, and the basis
for payment of, the termination fee described therein is reasonable and
appropriate in all respects, and (iii) without this agreement, Parent would not
enter into this Agreement. Accordingly, if the Company fails to pay in a timely
manner the termination fee due pursuant to Section 8.03(b), and, in order to
obtain such payment, Parent makes a claim that results in a judgment for the
amount set forth in Section 8.03(b), the Company shall pay Parent's costs and
expenses (including reasonable attorneys' fees and expenses) in connection with
such suit, together with interest on the amount set forth in Section 8.03(b) at
the prime rate of Bank of America, N.A. in effect on the date such payment was
required to be made. Payment of the fee described in Section 8.03(b) shall not
be in lieu of damages incurred in the event of breach of this Agreement.
For the purposes of this Agreement, an "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 or Parent,
as applicable, pursuant to which the stockholders of the Company or Parent, as
applicable, immediately preceding such transaction hold less than 85% of the
aggregate equity interests in the surviving or resulting entity of such
transaction, (ii) a sale or other disposition by the Company or Parent or its
subsidiaries of assets (in a transaction or series of transactions) representing
in excess of 50% of the aggregate fair market value of the
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Company's or Parent'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 or Parent), 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 capital stock of the Company or Parent.
8.04. Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of Parent and the Company;
provided, however, that after any such approval, no amendment shall be made
which by law or in accordance with the rules of any relevant stock exchange or
the Nasdaq Stock Market requires further approval by such stockholders without
such further stockholder approval. This Agreement may not be amended except by
execution of an instrument in writing signed on behalf of each of Parent, Sub
and the Company.
8.05. Extension; Waiver. 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,
except that Parent may not extend for the benefit of Sub and vice versa, (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. The agreement of Parent to any extension or
waiver shall be deemed to be the agreement of Sub to such extension or waiver.
Delay in exercising any right under this Agreement shall not constitute a waiver
of such right.
ARTICLE IX. GENERAL PROVISIONS
9.01. Nonsurvival of Representations and Warranties and Liability for Breach
Prior to Closing. Except as provided in the last sentence of this Section 9.01,
none of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. Except as set forth in Section 8.03(b) above, in the event of termination
of this Agreement as provided in Section 8.01, there shall be no liability or
obligation on the part of Parent, Sub or the Company, or their respective
officers, directors, stockholders or affiliates; provided, however, that nothing
herein shall relieve any party from liability from the intentional or willful
breach by a party of any of its representations, warranties, covenants or
agreements set forth in this Agreement or fraud; and provided that the
provisions of this Section 9.01, Section 8.03 and Section 6.04 of this Agreement
and the confidentiality provisions set forth herein and in the Confidentiality
Agreement shall remain in full force and effect and survive any termination of
this Agreement. This Section 9.01 shall not limit any covenant or agreement of
the parties which by its terms contemplates performance after the Effective
Time.
9.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given (i) seven days after mailing by certified mail, (ii) when delivered by
hand, (iii) upon confirmation of receipt by telecopy or (iv) one
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business day after sending by overnight delivery service, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Sub, to
ProxyMed, Inc.
2555 Davie Road, Suite 110
Fort Lauderdale, Florida 33317
Attention: President
Facsimile: (954) 473-2341
with a copy to:
Holland & Knight LLP
701 Brickell Avenue, Suite 3000
Miami, Florida 33131
Attention: Rodney H. Bell, Esq.
Facsimile: 305-789-7799
(b) if to the Company, to
PlanVista Corporation
4010 Boy Scout Boulevard, Suite 200
Tampa, Florida 33607
Attention:
Facsimile:
with a copy to:
Fowler White Boggs Banker P.A.
501 E. Kennedy Blvd., Suite 1700
Tampa, FL 33602
Attention: David C. Shobe, Esq.
Facsimile: 813-228-9401
9.03. Definitions. For purposes of this Agreement:
"Ancillary Agreements" means any and all other agreements, documents,
and certificates required under Sections 7.01(e) and 7.03 of this Agreement.
A "key employee" means an employee of the Company or any Company
Subsidiary or Parent or Parent Subsidiary, as the case may be, listed on
Schedule 9.03.
A "person" means any individual, firm, corporation, partnership,
company, limited liability company, trust, joint venture, association,
Governmental Entity or other entity.
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A "subsidiary" means in reference to any particular party, a
corporation with respect to which the party either (i) is required to
consolidate the reporting of its financial information in accordance with GAAP,
or (ii) is a beneficial owner of either at least a majority of any class of the
corporation's securities or securities of the corporation representing at least
a majority of the voting power of all the corporation's outstanding securities
that are entitled to vote in the election of its directors.
"knowledge" of any specified corporation means the actual knowledge of
any director or executive officer of such corporation, and unless otherwise
specified also includes any knowledge that should have been obtained by any
director or executive officer of such corporation after reasonable inquiry.
9.04. Interpretation; Disclosure Schedules. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." Any matter disclosed in any section
of the Company Disclosure Schedule shall be deemed disclosed only for the
purposes of the specific Sections of this Agreement to which such section
relates.
9.05. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule or law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
9.06. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
9.07. Entire Agreement, No Third-Party Beneficiaries. This Agreement, taken
together with the Company Disclosure Schedule, Parent Disclosure Schedule, the
Confidentiality Agreement and the Ancillary Agreements (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the transactions contemplated
hereby, and (b) except for the provisions of Section 6.08, are not intended to
confer upon any person other than the parties any rights or remedies.
9.08. Governing 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 Laws thereof.
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9.09. Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Any purported assignment without such consent
shall be void. Subject to the preceding sentences, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
9.10. Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in the Delaware Court of Chancery or
any Federal court located in the State of Delaware, this being in addition to
any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto (a) consents to submit itself to the personal
jurisdiction of the Delaware Court of Chancery or any Federal court located in
the State of Delaware in the event any dispute arises out of this Agreement or
the Merger, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (c)
agrees that it will not bring any action arising out of or relating to this
Agreement or the Merger in any court other than the Delaware Court of Chancery
or any Federal court sitting in the State of Delaware. To the extent that a
party to this Agreement is not otherwise subject to service of process in the
State of Delaware, such party hereby appoints The Corporation Trust Company,
1209 Orange Street, Wilmington, DE 19801, as such party's agent in the State of
Delaware for acceptance of legal process and agrees that service made on such
agent shall have the same legal effect as if served upon such party personally
within the State of Delaware.
9.11. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
9.12. Consents. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in
Sections 8.04 and 8.05. Sub hereby agrees that any consent or waiver of
compliance given by Parent hereunder shall be conclusively binding upon it,
whether given expressly on its behalf or not.
9.13. Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other
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remedy conferred hereby, or by law or equity upon such party, and the exercise
by a party of any one remedy will not preclude the exercise of any other remedy.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Parent, Sub and the Company have duly executed this
Agreement, all as of the date first written above.
ProxyMed, Inc.
By: /s/ Michael K. Hoover
-------------------------------------
Name: Michael K. Hoover
Title: Chairman/CEO
Planet Acquisition Corp.
By: /s/ Judson E. Schmid
-------------------------------------
Name: Judson E. Schmid
Title: Vice President/Treasurer
PlanVista Corporation
By: /s/ Phillip S. Dingle
-------------------------------------
Name: Phillip S. Dingle
Title: Chairman/CEO
ANNEX B
[WILLIAM BLAIR & COMPANY LETTERHEAD]
December 5, 2003
Board of Directors
ProxyMed, Inc.
2555 Davie Blvd., Suite 110B
Fort Lauderdale, Florida 33317
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to ProxyMed, Inc. (the "Company") of the Merger Consideration (as defined
below) to be paid by the Company pursuant to the terms and subject to the
conditions set forth in the Agreement and Plan of Merger dated as of December 5,
2003 (the "Merger Agreement") by and among the Company, Planet Acquisition
Corp., a wholly-owned subsidiary of the Company ("Merger Sub"), and PlanVista
Corporation ("PlanVista"). Pursuant to the terms of and subject to the
conditions set forth in the Merger Agreement, upon the consummation of the
Merger, (i) Merger Sub will be merged into PlanVista (the "Merger") and all
outstanding shares of common stock and Series C Preferred Stock, each $0.01 par
value per share, of the Company will be converted into the right to receive an
aggregate of 3,600,000 shares of common stock of Company, $0.001 par value per
share, and (ii) the Company will satisfy directly, or will be providing
additional capital to PlanVista in order to enable it to satisfy certain
liabilities of PlanVista outstanding as of such time and identified in the
Merger Agreement (collectively, the "Merger Consideration").
In connection with our review of the proposed Merger and the preparation of our
opinion herein, we have examined: (a) the Merger Agreement; (b) certain audited
historical financial statements of the Company and of PlanVista for the three
years ended December 31, 2002; (c) certain unaudited financial statements of the
Company and PlanVista for the nine months ended September 30, 2003; (d) certain
internal business, operating and financial information provided by the Company
and PlanVista and forecasts of the Company and PlanVista (the "Forecasts")
prepared by the senior management of the Company and PlanVista, respectively;
(e) information regarding the strategic, financial and operational benefits
anticipated from the Merger and the prospects of the Company (with and without
the Merger) prepared by senior management of the Company and PlanVista; (f) the
pro forma impact of the Merger on the financial results and condition of the
Company, based on certain pro forma financial information prepared by the senior
management of the Company; (g) information regarding publicly available
financial terms of certain other business combinations we deemed relevant; (h)
the financial position and operating results of the Company compared with those
of certain other publicly traded companies we deemed relevant; (i) current and
historical market prices and trading volumes of
B-1
the common stock of the Company and PlanVista; and (j) certain other publicly
available information on the Company and PlanVista. We have also held
discussions with members of the senior management of the Company and PlanVista
regarding the foregoing, have considered other matters which we have deemed
relevant to our inquiry and have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all the information examined
by or otherwise reviewed or discussed with us for purposes of this opinion,
including without limitation the Forecasts provided by senior management of the
Company. We have not made or obtained an independent valuation or appraisal of
the assets, liabilities or solvency of the Company or PlanVista. We have been
advised by the senior management of the Company that the Forecasts examined by
us have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the senior management of the Company and
PlanVista. In that regard, we have assumed, with your consent, that (i) the
Forecasts will be achieved in the amounts and at the times contemplated thereby
and (ii) all material assets and liabilities (contingent or otherwise) of the
Company and PlanVista are as set forth in the financial statements of the
Company and PlanVista, respectively, or other information made available to us.
We express no opinion with respect to the Forecasts or the estimates and
judgments on which they are based. We were not requested to, and did not
consider, and our opinion does not address, the relative merits of the Merger as
compared to any alternative business strategies that might exist for the Company
or the effect of any other transaction in which the Company might engage. Our
opinion herein is based upon economic, market, financial and other conditions
existing on, and other information disclosed to us as of, the date of this
letter. It should be understood that, although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or reaffirm
this opinion. We have assumed that the Merger will be consummated on the terms
described in the Merger Agreement, without any waiver of any material terms or
conditions by the Company. We have not provided any legal advice to the Company
and the Company acknowledges that it has relied on its own counsel for all legal
determinations. We were not requested to, nor did we, seek alternative
participants for the proposed Merger.
William Blair & Company ("Blair") has been engaged in the investment banking
business since 1935. We continually undertake the valuation of investment
securities in connection with public offerings, private placements, business
combinations, estate and gift tax valuations and similar transactions. In the
ordinary course of our business, we may from time to time trade the securities
of the Company or PlanVista for our own account and for the accounts of
customers, and accordingly may at any time hold a long or short position in such
securities. PlanVista engaged Blair to act as its financial advisor in
connection with a potential private placement of securities and debt
restructuring in 2001. This engagement terminated in 2002 and no outstanding
fees are due under this prior engagement. We have acted as the investment banker
to the Company in connection with the Merger and will receive a fee from the
Company for our services, a significant portion of which is contingent upon
consummation of the Merger. In
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addition, the Company has agreed to indemnify us against certain liabilities
arising out of our engagement.
We are expressing no opinion herein as to the price at which the common stock of
the Company will trade at any future time or as to the effect of the Merger on
the trading price of the common stock of the Company. Such trading price may be
affected by a number of factors, including but not limited to (i) dispositions
of the common stock of the Company by stockholders within a short period of time
after the effective date of the Merger, (ii) changes in prevailing interest
rates and other factors which generally influence the price of securities, (iii)
adverse changes in the current capital markets, (iv) the occurrence of adverse
changes in the financial condition, business, assets, results of operations or
prospects of the Company or of PlanVista, or in the healthcare market in
general, (v) any necessary actions by or restrictions of federal, state or other
governmental agencies or regulatory authorities, and (vi) timely completion of
the Merger on terms and conditions that are acceptable to all parties at
interest.
Our investment banking services and our opinion were provided for the use and
benefit of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Merger Agreement. Our
opinion is limited to the fairness, from a financial point of view, to the
Company of the Merger Consideration to be paid by the Company in connection with
the Merger, and we do not address the merits of the underlying decision by the
Company to engage in the Merger and this opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to the proposed Merger. It is understood that this letter may not be
disclosed or otherwise referred to without prior written consent, except that
the opinion may be included in its entirety in a proxy statement mailed to the
stockholders by the Company with respect to the Merger.
Based upon and subject to the foregoing, it is our opinion as investment bankers
that, as of the date hereof, the Merger Consideration to be paid by the Company
is fair, from a financial point of view, to the Company.
Very truly yours,
/s/ William Blair & Company, L.L.C.
-----------------------------------
WILLIAM BLAIR & COMPANY, L.L.C.
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ANNEX C
[Peter J. Solomon Company, L.P. Letterhead]
December 5, 2003
Board of Directors
PlanVista Corporation
4010 Boy Scout Blvd.
Tampa, FL 33607
Ladies and Gentlemen:
You have asked us to advise you with respect to the fairness from a
financial point of view to the holders of Common Stock, par value $0.01 per
share ("Company Common Stock") of PlanVista Corporation (the "Company") (other
than Commonwealth Associates Group Holdings, LLC and its affiliates and
associates) of the consideration proposed to be received by the holders of
Company Common Stock pursuant to the terms of the Agreement and Plan of Merger,
of which we have reviewed a draft dated as of December 3, 2003 (the
"Agreement"), among the Company, ProxyMed, Inc. ("Parent") and Planet
Acquisition Corp. ("Sub"), a wholly owned subsidiary of Parent. Unless otherwise
defined herein or the context otherwise requires, capitalized terms used herein
and defined in the Agreement shall be used herein as therein defined.
Upon the terms and subject to the conditions set forth in the
Agreement, at the Effective Time (i) Sub will be merged with and into the
Company and the Company will continue as the surviving corporation, (ii) each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than Dissenting Shares) will be canceled and extinguished
and automatically converted into the right to receive a fraction of one fully
paid and nonassessable share of common stock, par value $0.001 per share
("Parent Common Stock"), the numerator of which is (A) 1,826,829 and the
denominator of which is (B) the total number of issued and outstanding shares of
Company Common Stock immediately prior to the Effective Time and (iii) each
share of the Company's Class C Preferred Stock, par value $0.01 per share
("Series C Stock"), issued and outstanding immediately prior to the Effective
Time (other than Dissenting Shares) will be canceled and extinguished and
automatically converted into the right to receive a fraction of one fully paid
and nonassessable share of Parent Common Stock the numerator of which is (A)
1,773,171 and the denominator of which is (B) the total number of issued and
outstanding shares of Series C Stock immediately prior to the Effective Time.
The foregoing fractions will be adjusted to reflect conversions of Series C
Stock into Company Common Stock prior to the Effective Time. The Merger
Consideration is subject to further adjustment if the Company's transaction
expenses exceed $5,650,000.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements
and other information of the Company and Parent, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company and Parent prepared
by the management of the Company and Parent, respectively;
(iii) reviewed certain financial projections for the Company
and Parent prepared by the management of the Company and Parent,
respectively;
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(iv) discussed the past and current operations, financial
condition and prospects of the Company and Parent with management of
the Company and Parent, respectively;
(v) visited certain facilities of the Company and Parent;
(vi) reviewed the reported prices and trading activity of
Company Common Stock and Parent Common Stock;
(vii) compared the financial performance and condition of the
Company and Parent and the reported prices and trading activity of
Company Common Stock and Parent Common Stock with that of certain other
comparable publicly traded companies;
(viii) reviewed publicly available information regarding the
financial terms of certain transactions comparable, in whole or in
part, to the Merger;
(ix) reviewed a draft of the Agreement, dated as of December
3, 2003;
(x) reviewed a draft of the Stock Purchase Agreement, dated as
of November 20, 2003 (the "Parent Stock Purchase Agreement"), by and
among Parent, General Atlantic Partners 77, L.P. GAP Coinvestment
Partners II, L.P., GapStar LLC, GAPCO GmbH & Co. KG, PVC Funding
Partners LLC, ComVest Venture Partners, L.P., Shea Ventures, L.P.,
Robert Priddy and General Atlantic Partners 74, L.P.; and
(xi) performed such other analyses as we have deemed
appropriate.
We have assumed and relied upon the accuracy and completeness of the
information reviewed by us for the purposes of this opinion and we have not
assumed any responsibility for independent verification of such information. We
have assumed that the final form of the Agreement and the Parent Stock Purchase
Agreement will be substantially the same as the last draft reviewed by us, that
all of the representations and warranties contained in the Agreement and the
Parent Stock Purchase Agreement were and will be true and correct as of the date
or dates when made or deemed made and that all of the covenants and agreements
in the Agreement and the Parent Stock Purchase Agreement will be timely
performed. We have also assumed that all material governmental, regulatory and
other consents and approvals will be obtained and that no action required in
connection with obtaining any consent or approval will have a material adverse
effect upon the Company, Parent or the Merger. With respect to the financial
projections, we have further assumed that the financial projections were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the future financial performance of the Company and Parent,
respectively. We have not assumed any responsibility for any independent
valuation or appraisal of the assets or liabilities of the Company or Parent,
nor have we been furnished with any such valuation or appraisal. Our opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to us as of, December 4, 2003.
In arriving at our opinion, we considered the absence of any structural
or legal barriers precluding a competing, higher offer, as well as the right of
the Company, pursuant to Sections 6.02(c) and 8.01(j) of the Agreement, to
terminate the Agreement under certain circumstances in the event of a Superior
Offer, subject to the payment of the fee set forth in Section 8.03(b). In
addition, we were not authorized to solicit, and did not solicit, interest from
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any party with respect to a merger or other business combination transaction
involving the Company or any of its assets. We are not passing upon the
fairness, from a financial point of view or otherwise, of the consideration to
be received in the Merger or in any other transaction by any person or entity
other than the consideration to be received by the holders of Company Common
Stock in connection with the Merger. Specifically, we are not passing upon the
fairness, from a financial point of view or otherwise, of the consideration to
be received in connection with the Merger by the holders of Series C Stock or to
be received by Parent or the purchasers pursuant to the Parent Stock Purchase
Agreement. As consideration for our services to the Company in connection with
the transaction we will receive a fee, a portion of which is payable upon the
delivery of this opinion.
This letter is solely for the information of the Board of Directors of
the Company and is not delivered on behalf of, and is not intended to confer any
rights or remedies upon, any other entity or persons, and may not be used for
any other purpose without our prior written consent. This letter does not
constitute a recommendation to any holder of Company Common Stock as to how any
such holder should vote on the Merger.
Based on, and subject to, the foregoing, we are of the opinion that on
the date hereof, the consideration to be received by the holders of Company
Common Stock (other than Commonwealth Associates Group Holdings, LLC and its
affiliates and associates) in connection with the Merger is fair from a
financial point of view to such holders of Company Common Stock.
Very truly yours,
PETER J. SOLOMON COMPANY, L.P.
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ANNEX D
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
ss.262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares,
who continuously holds such shares through the effective date
of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted
in favor of the merger or consolidation nor consented thereto
in writing pursuant to ss.228 of this title shall be entitled
to an appraisal by the Court of Chancery of the fair value of
the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member
of a nonstock corporation; and the words "depository receipt"
mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to ss. 251
(other than a merger effected pursuant to ss. 251(g) of this
title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264
of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any
class or series of stock, which stock, or depository
receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders
to act upon the agreement of merger or consolidation,
were either (i) 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. or
(ii) held of record by more than 2,000 holders; and
further provided that no appraisal rights shall be
available for any shares of stock of the constituent
corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders
of the surviving corporation as provided in
subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be
available for the shares of any class or series of
stock of a constituent corporation if the holders
thereof are required by the terms of an agreement of
merger or consolidation pursuant to ss.ss. 251, 252,
254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving
or resulting from such merger or
consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof,
which shares of stock (or depository
receipts in respect thereof) or
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depository receipts at the effective date of
the merger or consolidation will be either
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. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in
the foregoing subparagraphs a. and b. of
this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of
fractional shares or fractional depository
receipts described in the foregoing
subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under
ss. 253 of this title is not owned by the parent
corporation immediately prior to the merger,
appraisal rights shall be available for the shares of
the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall
be available for the shares of any class or series of its
stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the
certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly
as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is
to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its
stockholders who was such on the record date for such
meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or
(c) hereof that appraisal rights are available for
any or all of the shares of the constituent
corporations, and shall include in such notice a copy
of this section. Each stockholder electing to demand
the appraisal of such stockholder's shares shall
deliver to the corporation, before the taking of the
vote on the merger or consolidation, a written demand
for appraisal of such stockholder's shares. Such
demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand
the appraisal of such stockholder's shares. A proxy
or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to
take such action must do so by a separate written
demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has
complied with this subsection and has not voted in
favor of or consented to the merger or consolidation
of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant
to ss.228 or ss.253 of this title, then either a
constituent corporation before the effective date of
the merger
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or consolidation or the surviving or resulting
corporation within 10 days thereafter shall notify
each of the holders of any class or series of stock
of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available
for any or all shares of such class or series of
stock of such constituent corporation, and shall
include in such notice a copy of this section. Such
notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the
merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify
stockholders of the effective date of the merger or
consolidation, either (i) each such constituent
corporation shall send a second notice before the
effective date of the merger or consolidation
notifying each of the holders of any class or series
of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of
the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice
to all such holders on or within 10 days after such
effective date; provided, however, that if such
second notice is sent more than 20 days following the
sending of the first notice, such second notice need
only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of
such holder's shares in accordance with this
subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the
corporation that is required to give either notice
that such notice has been given shall, in the absence
of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that
shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is
given on or after the effective date of the merger or
consolidation, the record date shall be such
effective date. If no record date is fixed and the
notice is given prior to the effective date, the
record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d)
hereof and who is otherwise entitled to appraisal rights, may
file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time
within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept
the terms offered upon the merger or consolidation. Within 120
days after the effective date of the merger or consolidation,
any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth
the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of
holders of
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such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written
request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after such
service file in the office of the Register in Chancery in
which the petition was filed a duly verified list containing
the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the
value of their shares have not been reached by the surviving
or resulting corporation. If the petition shall be filed by
the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the
time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting
corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1
or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in
the City of Wilmington, Delaware or such publication as the
Court deems advisable. The forms of the notices by mail and by
publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have
become entitled to appraisal rights. The Court may require the
stockholders who have demanded an appraisal for their shares
and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if
any stockholder fails to comply with such direction, the Court
may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair
value exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation,
together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all
relevant factors. In determining the fair rate of interest,
the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting
corporation or by any stockholder entitled to participate in
the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed
to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or
resulting corporation pursuant to subsection (f) of this
section and who has submitted such stockholder's certificates
of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal
rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each
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such stockholder, in the case of holders of uncertificated
stock forthwith, and the case of holders of shares represented
by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be
enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the
circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata
against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal
rights as provided in subsection (d) of this section shall be
entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock
(except dividends or other distributions payable to
stockholders of record at a date which is prior to the
effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or
if such stockholder shall deliver to the surviving or
resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such
terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation
shall have the status of authorized and unissued shares of the
surviving or resulting corporation.
D-5
ANNEX E
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement"), dated as of December 5,
2003 (this "Agreement"), is made and entered into by and among PlanVista
Corporation, a Delaware corporation (the "Company"), ProxyMed, Inc., a Florida
corporation ("Parent"), General Atlantic Partners 74, L.P., a Delaware limited
partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited
partnership ("GAPCO II"), GapStar, LLC, a Delaware limited liability company
("GapStar") and GAPCO GMBH & CO. KG, a German limited partnership ("GmbH
Coinvestment" and, together with GAP LP, GAPCO II and GapStar, the
"Shareholders").
RECITALS:
A. Company, Parent and Planet Acquisition Corp., a Delaware corporation
("Sub") and a wholly owned subsidiary of Parent, propose to enter into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), pursuant to which Sub shall be merged with and into the Company and
the Company shall continue as the surviving corporation (the "Merger") on the
terms and subject to the conditions set forth in the Merger Agreement.
B. As of the date hereof, each Shareholder is the record owner of the
number of Existing Shares (as defined hereinafter) of the common stock, par
value $0.001 per share, of Parent (the "Parent Common Stock") set forth opposite
such Shareholder's name on Schedule A hereto.
C. As a condition and inducement to the Company's willingness to enter
into the Merger Agreement, the Company has requested that the Shareholders
agree, and the Shareholders have agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and covenants contained in this Agreement and the
Merger Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I.
CERTAIN DEFINITIONS
In addition to the terms defined elsewhere herein, capitalized terms
used and not defined herein shall have the respective meanings ascribed to them
in the Merger Agreement. For the purposes of this Agreement:
(a) "Existing Shares" means shares of the Parent Common Stock
owned of record by such Shareholder as of the date hereof.
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(b) "Securities" means the Existing Shares together with any
shares of the Parent Common Stock or other securities of Parent acquired by
Shareholder in any capacity after the date hereof and prior to the termination
of this Agreement whether upon the exercise of options, warrants or rights, the
conversion or exchange of convertible or exchangeable securities, or by means of
purchase, dividend, distribution, split-up, recapitalization, combination,
exchange of shares or the like, gift, bequest, inheritance or as a successor in
interest in any capacity or otherwise.
ARTICLE II.
VOTING AGREEMENT
Section 2.1. Agreement to Vote Shares. Each Shareholder hereby agrees
that, during the period commencing on the date hereof and continuing until the
first to occur of (a) the Effective Time or (b) the termination of this
Agreement in accordance with its terms, at any meeting of the shareholders of
Parent called to consider and vote upon the Merger Agreement (whether annual or
special and at any and all postponements and adjournments thereof), or in
connection with any action to be taken in respect of the Merger Agreement by
written consent of shareholders of Parent, each Shareholder shall appear at the
meeting or otherwise cause the Securities held by such Shareholder to be counted
as present thereat for purposes of establishing a quorum and vote or consent (or
cause to be voted or consented) the Securities held by such Shareholder: (v) in
favor of the adoption of the Merger Agreement and the approval of other actions
contemplated by the Merger Agreement and any actions required in furtherance
thereof, (w) in favor of the approval of the issuance of shares of Parent Common
Stock in connection with the Merger pursuant to the terms of the Merger
Agreement and pursuant to the Stock Purchase Agreement by and among Parent,
General Atlantic Partners 77, L.P., GAPCO II, GapStar, GmbH Coinvestment and the
other parties named therein (the "Stock Purchase Agreement"), (x) in favor of
the amendment to Parent's Articles of Incorporation to increase the authorized
number of shares of Parent Common Stock to 30 million, (y) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of Parent or Sub
under the Merger Agreement or this Agreement, and (z) against any action or
agreement that would reasonably be expected to impede, interfere with, delay or
attempt to discourage the Merger. No Shareholder may enter into any agreement or
understanding with any person the effect of which would be inconsistent with or
violative of any provision contained in this Section 2.1.
Section 2.2. Irrevocable Proxy.
(a) Each Shareholder hereby irrevocably constitutes and
appoints the Company and Phillip S. Dingle, Chief Executive Officer and Jeffrey
L. Markle, or any of them in their respective capacities as officers of the
Company and any individual who shall hereafter succeed to any such office of the
Company and each of them individually, such Shareholder's proxy and
attorney-in-fact (with full power of substitution and resubstitution), for and
in the name, place and stead of Shareholder, to vote the Securities, or grant a
consent or approval in respect of the Securities, in connection with any meeting
of the shareholders of Parent, as specified in Section 2.1 hereof.
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(b) Each Shareholder represents that any other proxies
heretofore given in respect of the Existing Shares are not irrevocable, and that
such proxies are hereby revoked.
(c) Each Shareholder understands and acknowledges that the
Company and Parent are entering into the Merger Agreement in reliance upon such
Shareholder's execution and delivery of this Agreement. Each Shareholder hereby
affirms that the irrevocable proxy set forth in this Section 2.2 is given in
connection with the execution of the Merger Agreement, and that such irrevocable
proxy is given to secure the performance of the duties of such Shareholder under
this Agreement. Each Shareholder hereby further affirms that the irrevocable
proxy is coupled with an interest and may not be revoked under any
circumstances. Such irrevocable proxy is executed and intended to be irrevocable
in accordance with the provisions of Section 607.0722 of the Florida Business
Corporation Act.
Section 2.3. Change of Recommendation. Notwithstanding the provisions
of Sections 2.1 and 2.2, each Shareholder may elect not to vote its Securities
in favor of adoption of the Merger Agreement in the event that there has been a
Parent Change of Recommendation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Section 3.1. Certain Representations and Warranties of Shareholder. The
Shareholders represent and warrant severally, and not jointly, to the Company as
follows:
(a) Ownership. Such Shareholder is the sole record owner of
(i) its Existing Shares and (ii) options to purchase the number of shares of
Parent Common Stock set forth opposite such Shareholder's name on Schedule A
hereto. On the date hereof, the Existing Shares constitute all of the shares of
the Parent Common Stock owned of record by such Shareholder. Except as set forth
on Schedule A, there are no outstanding options or other rights to acquire from
such Shareholder or obligations of such Shareholder to sell or to acquire, any
shares of the Parent Common Stock. Such Shareholder has sole voting power and
sole power to issue instructions with respect to the matters set forth in
Article II and Sections 4.1 and 4.3 hereof, sole power of disposition, sole
power of conversion, sole power to demand appraisal rights and sole power to
agree to all of the matters set forth in this Agreement, in each case with
respect to all of its Existing Shares with no limitations, qualifications or
restrictions on such rights, subject to applicable securities laws and the terms
of this Agreement.
(b) Power and Authority; Execution and Delivery. Such
Shareholder has all requisite power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by such Shareholder and the consummation by such
Shareholder of the transactions contemplated hereby have been duly authorized by
all necessary action, if any, on the part of such Shareholder. This Agreement
has been duly executed and delivered by Such Shareholder and, assuming that this
Agreement constitutes the valid and binding obligation of the other parties
hereto, constitutes a valid and binding obligation of such Shareholder,
enforceable against such Shareholder in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
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moratorium and similar laws affecting creditors' rights and remedies generally
and to general principles of equity.
(c) No Conflicts. Except as contemplated by the Merger
Agreement, no filing with, and no permit, authorization, consent or approval of,
any state or federal public body or authority ("Governmental Entity") is
necessary for the execution of this Agreement by such Shareholder and the
consummation by such Shareholder of the transactions contemplated hereby, none
of the execution and delivery of this Agreement by such Shareholder, the
consummation by such Shareholder of the transactions contemplated hereby or
compliance by such Shareholder with any of the provisions hereof shall (i)
conflict with or result in any breach of any organizational documents applicable
to such Shareholder, (ii) result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise to any
third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note, loan
agreement, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of any
kind to which such Shareholder is a party or by which such Shareholder or any of
its properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable to
such Shareholder or any of such Shareholder's properties or assets, except in
the case of clauses (ii) and (iii) where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings, or where such
violations, breaches or defaults would not, individually or in the aggregate,
impair the ability of such Shareholder or Parent to consummate the transactions
contemplated by the Merger Agreement or this Agreement or prevent or delay the
consummation of any of the transactions contemplated hereby or thereby.
Section 3.2. Representations and Warranties of the Company. Company
hereby represents and warrants to the Shareholders that:
(a) Power and Authority; Execution and Delivery. Company has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company. This Agreement has been duly
executed and delivered by the Company and, assuming that this Agreement
constitutes the valid and binding obligation of each Shareholder, constitutes a
valid and binding obligation of Company, enforceable against Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to general principles of equity.
(b) No Conflicts. Except as contemplated by the Merger
Agreement, no filing with, and no permit, authorization, consent or approval of,
any Governmental Entity is necessary for the execution of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby, and none of the execution and delivery of this Agreement by the Company,
the consummation by the Company of the transactions contemplated hereby or
compliance by the Company with any of the provisions hereof shall (i) conflict
with or result in any breach of any provision of the certificate of
incorporation or by-laws or similar organizational documents of the Company or
of any of its Subsidiaries, (ii) require any filing
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with, or permit, authorization, consent or approval of, any Governmental Entity,
(iii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation, acceleration or result in the creation of
any lien) under, any of the terms, conditions or provisions of any material
note, bond, mortgage, indenture, license, lease, contract, agreement or other
instrument or obligation to which Company or any of its Subsidiaries is a party
or by which any of them or any of their properties or assets may be bound, or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any of its Subsidiaries or any of their properties or
assets, except in the case of clause (ii), (iii) or (iv) where the failure to
obtain such permits, authorizations, consents or approvals or to make such
filings, or where such violations, breaches or defaults would not, individually
or in the aggregate, have a material adverse effect on the Company and its
Subsidiaries, taken as a whole, and will not impair the ability of the Company
to consummate the transactions contemplated by the Merger Agreement or this
Agreement or prevent or delay the consummation of any of the transactions
contemplated hereby or thereby.
ARTICLE IV.
CERTAIN COVENANTS OF THE SHAREHOLDERS
Section 4.1. Restriction on Transfer of Subject Shares, Proxies and
Noninterference. Prior to the termination of this Agreement, each Shareholder
agrees not to, directly or indirectly (whether by operation of law or
otherwise): (i) except pursuant to the terms of the Merger Agreement, offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of
(including by conversion thereof into Common Stock), or enter into any contract,
option or other arrangement or understanding with respect to or consent to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Securities held by such Shareholder or any
interest therein, except as provided in Section 2.1 hereof; (ii) except pursuant
to the terms of this Agreement, grant any proxies or powers of attorney, deposit
any of the Securities held by such Shareholder into a voting trust or enter into
a voting agreement or arrangement with respect to any of the Securities held by
such Shareholder; or (iii) take any action that would make any representation or
warranty contained herein untrue or incorrect or have the effect of impairing
the ability of each Shareholder to perform such Shareholder's obligations under
this Agreement or preventing or delaying the consummation of any of the
transactions hereby. Each Shareholder agrees that this Agreement and each
Shareholder's obligations hereunder shall attach to Shareholder's Securities and
shall be binding upon any person or entity to which legal or beneficial
ownership of such Securities shall pass, whether by operation of law or
otherwise, including, without limitation, such Shareholder's heirs, guardians,
administrators or successors.
Section 4.2. Disclosure. Each Shareholder hereby agrees to permit the
Company to publish and disclose in the Registration Statement and the Proxy
Statement/Prospectus (including all documents and schedules filed with the
Securities and Exchange Commission), and any press release or other disclosure
document necessary or desirable in connection with the Merger and any
transactions related thereto, Shareholder's identity and ownership of the Parent
Common Stock and the nature of Shareholder's commitments, arrangements and
understandings under this Agreement; provided, however, that the preparation and
filing of the Registration
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Statement and the Proxy Statement/Prospectus and any amendment thereto shall be
conducted in accordance with Section 8.2 of the Stock Purchase Agreement.
Section 4.3. Stop Transfer; Legend.
(a) Each Shareholder agrees with, and covenants to, the
Company that such Shareholder will not request that Parent register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Securities, unless such transfer is made in compliance
with this Agreement.
(b) In the event of a stock dividend or distribution, or any
change in the Parent Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of share or the like other than pursuant
to the Merger, the term "Existing Shares" will be deemed to refer to and include
the shares of the Parent Common Stock as well as all such stock dividends and
distributions and any shares into which or for which any or all of the
Securities may be changed or exchanged and appropriate adjustments shall be made
to the terms and provisions of this Agreement.
(c) Each Shareholder will promptly after the date hereof
surrender to Parent all certificates representing the Securities and Parent will
place the following legend on such certificates in addition to any other legend
required thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER PURSUANT TO AND OTHER PROVISIONS OF A VOTING
AGREEMENT, DATED AS OF DECEMBER 5, 2003, BY AND AMONG PLANVISTA
CORPORATION, PROXYMED, INC., GENERAL ATLANTIC PARTNERS 74, L.P., GAP
COINVESTMENT PARTNERS II, L.P., GAPSTAR, LLC AND GAPCO GMBH & CO. KG."
ARTICLE V.
MISCELLANEOUS
Section 5.1. Fees and Expenses. Subject to Section 10.12 of the Stock
Purchase Agreement, each party hereto shall pay its own expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
Section 5.2. Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. Each party shall promptly consult with the other
and provide any necessary information and material with respect to all filings
made by such party with any Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.
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Section 5.3. Termination; Amendment. This Agreement shall terminate
immediately upon the earliest of (a) the termination of the Merger Agreement or
(b) the consummation of the Merger. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.
Section 5.4. Extension; Waiver. Any agreement on the part of a party to
waive any provision of this Agreement, or to extend the time for any performance
hereunder, shall be valid only if set forth in an instrument in writing signed
on behalf of such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise shall not constitute a
waiver of such rights.
Section 5.5. Entire Agreement; No Third-Party Beneficiaries. This
Agreement constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement, and is not intended to confer upon any person
other than the parties any rights or remedies.
Section 5.6. Governing 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 conflict of
laws thereof.
Section 5.7. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, or sent by overnight courier (providing proof of
delivery), in the case of the Shareholders, to the address set forth on Schedule
A hereto or, in the case of Company, to the address set forth below (or, in each
case, at such other address as shall be specified by like notice).
if to the Company, to
Planvista Corporation
4010 Boy Scout Boulevard
Suite 200
Tampa, Florida 33607
Attention:
Facsimile:
with a copy (which shall not constitute notice) to:
Fowler White Boggs Banker PA
501 E. Kennedy Blvd., Suite 1700
Tampa, FL 33602
Attention: David C. Shobe, Esq.
Facsimile: 813-228-9401
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if to Parent or Sub, to
ProxyMed, Inc.
2555 Davie Rd., Suite 110
Fort Lauderdale, FL 33317
Telecopy: (954) 473-2341
Attention: Michael K. Hoover, Chief Executive Officer
Rafael G. Rodriguez, In-House Counsel
with a copy (which shall not constitute notice) to:
Holland & Knight LLP
701 Brickell Avenue, Suite 3000
Miami, Florida 33131
Attention: Rodney H. Bell, Esq.
Facsimile: 305-789-7799
If to GAP LP, GAPCO II or GapStar:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, CT 06830
Telecopy: (203) 622-8818
Attention: Matthew Nimetz
Thomas J. Murphy
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Telecopy: (212) 757-3990
Attention: Douglas A. Cifu, Esq.
if to GmbH Coinvestment:
c/o General Atlantic Partners GmbH
Koenigsalle 88
40212 Duesseldorf
Germany
Telecopy: 011-49-211-602-888-89
Attention: Matthew Nimetz
Thomas J. Murphy
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with a copy to:
General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, CT 06830
Telecopy: (203) 622-8818
Attention: Matthew Nimetz
Thomas J. Murphy
and
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Telecopy: (212) 757-3990
Attention: Douglas A. Cifu, Esq.
Section 5.8. Assignment. Neither this Agreement nor any of the rights,
interests, or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise, by the Shareholders without
the prior written consent of the Company and Parent, or by the Company or
Parent, without the prior written consent of the Shareholders, and any such
assignment or delegation that is not consented to shall be null and void.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
Section 5.9. Further Assurances. The Shareholders and Company shall
execute and deliver all other documents and instruments and take all other
action that may be reasonably necessary in order to consummate the transactions
provided for herein.
Section 5.10. Enforcement. Irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in the Delaware Court of Chancery or any federal court located in the State of
Delaware, this being in addition to any other remedy to which they are entitled
at law or in equity. Each of the parties hereto (i) shall submit itself to the
personal jurisdiction of the Delaware Court of Chancery or any federal court in
the State of Delaware in the event any dispute arises out of this Agreement or
any of the transactions contemplated hereby, (ii) shall not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court, and (iii) shall not bring any action relating to this Agreement or
any of the transactions contemplated hereby in any court other than the Delaware
Court of Chancery or any federal court in the State of Delaware.
Section 5.11. Severability. Whenever possible, each provision or
portion of any provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
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jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement shall be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
Section 5.12. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same instrument
and shall become effective when one or more counterparts have been signed by
each party and delivered to the other parties.
Section 5.13. Service of Process. To the extent that a party to this
Agreement is not otherwise subject to service of process in the State of
Delaware, such party hereby appoints The Corporation Trust Company, 1209 Orange
Street, Wilmington, DE 19801, as such party's agent in the State of Delaware
for acceptance of legal process, and agrees that service made on such agent
shall have the same legal effect as if served upon such party personally within
the State of Delaware.
[signature page follows]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the day and year first written above.
PLANVISTA CORPORATION
By: /s/ Phillip S. Dingle
---------------------------------
Name: Phillip S. Dingle
Title: Chairman/CEO
PROXYMED, INC.
By: /s/ Michael K. Hoover
---------------------------------
Name: Michael K. Hoover
Title: Chairman/CEO
GENERAL ATLANTIC PARTNERS 74, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ Braden R. Kelly
-----------------------------------
Name: Braden R. Kelly
Title: A Managing Member
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ Braden R. Kelly
-----------------------------------
Name: Braden R. Kelly
Title: A General Partner
GAPSTAR, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Managing Member
By: /s/ Braden R. Kelly
-----------------------------------
Name: Braden R. Kelly
Title: A Managing Member
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GAPCO GMBH & CO. KG
By: GAPCO Management GMBH,
its General Partner
By: /s/ Thomas J. Murphy
-----------------------------------
Name: Thomas J. Murphy
Title: Procuration Officer
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ANNEX F
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement"), dated as of December 5, 2003
(this "Agreement"), is made and entered into by and among ProxyMed, Inc., a
Florida corporation ("Parent"), Planet Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("Sub"), PlanVista Corporation, a
Delaware corporation (the "Company"), and PVC Funding Partners LLC
("Stockholder").
RECITALS:
A. The Company, Parent, and Sub, propose to enter into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement"), pursuant
to which Sub shall be merged with and into the Company and the Company shall
continue as the surviving corporation (the "Merger") on the terms and subject to
the conditions set forth in the Merger Agreement.
B. As of the date hereof, Stockholder is the record owner of the number
of Existing Shares (as defined hereinafter) of the Series C Stock and Company
Common Stock (the "Securities") set forth opposite such Stockholder's name on
Schedule A hereto.
C. As a condition and inducement to Parent's and Sub's willingness to
enter into the Merger Agreement, each of Parent and Sub has requested that
Stockholder agrees, and Stockholder has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and covenants contained in this Agreement and the
Merger Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I.
CERTAIN DEFINITIONS
In addition to the terms defined elsewhere herein, capitalized terms
used and not defined herein shall have the respective meanings ascribed to them
in the Merger Agreement. For the purposes of this Agreement:
(a) "Existing Shares" means shares of the Series C Stock and
Company Common Stock owned of record by such Stockholder as of the date hereof.
(b) "Securities" means the Existing Shares together with any
shares of the Series C Stock or Company Common Stock or other securities of the
Company acquired by Stockholder in any capacity after the date hereof and prior
to the termination of this Agreement whether upon the exercise of options,
warrants or rights, the conversion or exchange of
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convertible or exchangeable securities, or by means of purchase, dividend,
distribution, split-up, recapitalization, combination, exchange of shares or the
like, gift, bequest, inheritance or as a successor in interest in any capacity
or otherwise.
ARTICLE II.
VOTING AGREEMENT
Section 2.1. Agreement to Vote Shares. Stockholder hereby agrees that,
during the period commencing on the date hereof and continuing until the first
to occur of (a) the Effective Time or (b) the termination of this Agreement in
accordance with its terms, at any meeting of the stockholders of the Company
called to consider and vote upon the Merger Agreement (whether annual or special
and at any and all postponements and adjournments thereof), or in connection
with any action to be taken in respect of the Merger Agreement by written
consent of stockholders of the Company, Stockholder shall appear at the meeting
or otherwise cause the Securities held by such Stockholder to be counted as
present thereat for purposes of establishing a quorum and vote or consent (or
cause to be voted or consented) the Securities held by such Stockholder: (w) in
favor of the adoption of the Merger Agreement and the approval of other actions
contemplated by the Merger Agreement and any actions required in furtherance
thereof, and (x) against any action or agreement that would result in a breach
in any respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement or this
Agreement, and (y) against any action or agreement that would reasonably be
expected to impede, interfere with, delay or attempt to discourage the Merger.
No Stockholder may enter into any agreement or understanding with any person the
effect of which would be inconsistent with or violative of any provision
contained in this Section 2.1.
Section 2.2. Irrevocable Proxy.
(a) Stockholder hereby irrevocably constitutes and appoints
Parent and Michael K. Hoover and Nancy J. Ham, or any of them in their
respective capacities as officers of Parent and any individual who shall
hereafter succeed to any such office of Parent and each of them individually,
such Stockholder's proxy and attorney-in-fact (with full power of substitution
and resubstitution), for and in the name, place and stead of Stockholder, to
vote the Securities, or grant a consent or approval in respect of the
Securities, in connection with any meeting of the stockholders of the Company,
as specified in Section 2.1 hereof.
(b) Stockholder represents that any other proxies heretofore
given in respect of the Existing Shares are not irrevocable, and that such
proxies are hereby revoked.
(c) Stockholder understands and acknowledges that Parent and
the Company are entering into the Merger Agreement in reliance upon such
Stockholder's execution and delivery of this Agreement. Stockholder hereby
affirms that the irrevocable proxy set forth in this Section 2.2 is given in
connection with the execution of the Merger Agreement, and that such irrevocable
proxy is given to secure the performance of the duties of Stockholder under this
Agreement. Stockholder hereby further affirms that the irrevocable proxy is
coupled with an interest and may not be revoked under any circumstances. Such
irrevocable proxy is executed
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and intended to be irrevocable in accordance with the provisions of Section
212(e) of the Delaware General Corporation Law.
Section 2.3 Change of Recommendation. Notwithstanding the provisions of
Section 2.1 and 2.2, Stockholder may elect not to vote its Securities in favor
of adoption of the Merger Agreement in the event that all of the following have
occurred: (a) there has been a Company Change of Recommendation; (b) the
provisions of clauses of (i) through (iv) of Section 6.02(c) of the Merger
Agreement have been satisfied; (c) there has been no breach of Section 5.02 of
the Merger Agreement; and (d) Stockholder and its Representatives (as
hereinafter defined) have complied with the provisions of Section 5.6 hereof.
ARTICLE III.
CERTAIN COVENANTS
Section 3.1. Conversion. Stockholder hereby agrees that such
Stockholder shall take all steps necessary to cause there not to be designation
that the Merger shall be deemed a liquidation, dissolution or winding up of the
Company for purposes of Section 4 of the Certificate of Designation of Series
and Determination of Rights and Preferences of Series C Convertible Preferred
Stock of the Company (the "Series C Designations") or otherwise with respect to
the Series C Convertible Preferred Stock of the Company. Stockholder shall cause
there to be no conversion of any Securities that are shares of Series C
Preferred Stock prior to the consummation of the Merger or in connection with
the Merger.
Section 3.2. Waiver of Appraisal Rights. Stockholder on its own behalf
and on behalf of all of its affiliates hereby irrevocably waives any and all
appraisal rights such Stockholder or affiliates may have in connection with the
Merger.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Certain Representations and Warranties of Stockholder.
Stockholder represents and warrants, to Parent and Sub as follows:
(a) Ownership. Stockholder is the sole record owner of (i) its
Existing Shares and (ii) options to purchase the number of shares of Series C
Stock and Company Common Stock set forth opposite such Stockholder's name on
Schedule A hereto. On the date hereof, the Existing Shares constitute all of the
shares of the Company Common Stock or Series C Stock owned of record by such
Stockholder. Except as set forth on Schedule A, there are no outstanding options
or other rights to acquire from such Stockholder or obligations of such
Stockholder to sell or to acquire, any shares of the Company Common Stock or
Series C Stock. Such Stockholder has sole voting power and sole power to issue
instructions with respect to the matters set forth in Article II and Sections
5.1 and 5.3 hereof, sole power of disposition, sole power of conversion, sole
power to demand appraisal rights and sole power to agree to all of the matters
set forth in this Agreement, in each case with respect to all of its Existing
Shares with no
F-3
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) Power and Authority; Execution and Delivery. Stockholder
has all requisite power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Stockholder and the consummation by Stockholder of the
transactions contemplated hereby have been duly authorized by all necessary
action, if any, on the part of Stockholder. This Agreement has been duly
executed and delivered by Stockholder and, assuming that this Agreement
constitutes the valid and binding obligation of the other parties hereto,
constitutes a valid and binding obligation of Stockholder, enforceable against
Stockholder in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general principles of
equity.
(c) No Conflicts. Except as contemplated by the Merger
Agreement, no filing with, and no permit, authorization, consent or approval of,
any state or federal public body or authority ("Governmental Entity") is
necessary for the execution of this Agreement by Stockholder and the
consummation by Stockholder of the transactions contemplated hereby, none of the
execution and delivery of this Agreement by Stockholder, the consummation by
Stockholder of the transactions contemplated hereby or compliance by Stockholder
with any of the provisions hereof shall (i) conflict with or result in any
breach of any organizational documents applicable to Stockholder, (ii) result in
a violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Stockholder is a party or by which
Stockholder or any of its properties or assets may be bound, or (iii) violate
any order, writ, injunction, decree, judgment, order, statute, rule or
regulation applicable to Stockholder or any of Stockholder's properties or
assets, except in the case of clauses (ii) and (iii) where the failure to obtain
such permits, authorizations, consents or approvals or to make such filings, or
where such violations, breaches or defaults would not, individually or in the
aggregate, impair the ability of Stockholder, the Company, Parent or Sub to
consummate the transactions contemplated by the Merger Agreement or this
Agreement or prevent or delay the consummation of any of the transactions
contemplated hereby or thereby.
Section 4.2. Representations and Warranties of Parent. Parent hereby
represents and warrants to Stockholder that:
(a) Power and Authority; Execution and Delivery. Parent and
Sub each has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each of Parent and Sub and the consummation by
each of Parent and Sub of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent or Sub, as
the case may be. This Agreement has been duly executed and delivered by each of
Parent and Sub and, assuming that this Agreement constitutes the valid and
binding obligation of the other parties hereto, constitutes a valid and binding
obligation of Parent and
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Sub, enforceable against Parent and Sub in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and to general principles of equity.
(b) No Conflicts. Except as contemplated by the Merger
Agreement, no filing with, and no permit, authorization, consent or approval of,
any Governmental Entity is necessary for the execution of this Agreement by
Parent and Sub and the consummation by Parent and Sub of the transactions
contemplated hereby, and none of the execution and delivery of this Agreement by
each of Parent and Sub, the consummation by each of Parent and Sub of the
transactions contemplated hereby or compliance by each of Parent and Sub with
any of the provisions hereof shall (i) conflict with or result in any breach of
any provision of the certificate of incorporation or by-laws or similar
organizational documents of Parent and Sub, (ii) require any filing with, or
permit, authorization, consent or approval of, any Governmental Entity, (iii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation, acceleration or result in the creation of any lien)
under, any of the terms, conditions or provisions of any material note, bond,
mortgage, indenture, license, lease, contract, agreement or other instrument or
obligation to which Parent or Sub is a party or by which any of their properties
or assets may be bound, or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Parent or Sub or any of their
properties or assets, except in the case of clause (ii), (iii) or (iv) where the
failure to obtain such permits, authorizations, consents or approvals or to make
such filings, or where such violations, breaches or defaults would not,
individually or in the aggregate, materially impair the ability of Parent or Sub
to consummate the transactions contemplated by the Merger Agreement or this
Agreement or prevent or delay the consummation of any of the transactions
contemplated hereby or thereby.
ARTICLE V.
CERTAIN COVENANTS OF STOCKHOLDER
Section 5.1. Restriction on Transfer of Subject Shares, Proxies and
Noninterference. Prior to the termination of this Agreement, Stockholder agrees
not to, directly or indirectly (whether by operation of law or otherwise): (i)
except pursuant to the terms of the Merger Agreement, offer for sale, sell,
transfer, tender, pledge, encumber, assign or otherwise dispose of (including by
conversion thereof into Company Common Stock), or enter into any contract,
option or other arrangement or understanding with respect to or consent to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Securities held by Stockholder or any interest
therein, except as provided in Section 2.1 hereof; (ii) except pursuant to the
terms of this Agreement, grant any proxies or powers of attorney, deposit any of
the Securities held by Stockholder into a voting trust or enter into a voting
agreement or arrangement with respect to any of the Securities held by
Stockholder; or (iii) take any action that would make any representation or
warranty contained herein untrue or incorrect or have the effect of impairing
the ability of Stockholder to perform Stockholder's obligations under this
Agreement or preventing or delaying the consummation of any of the transactions
hereby. Stockholder agrees that this Agreement and Stockholder's obligations
hereunder shall attach to Stockholder's Securities and shall be binding upon any
person or entity to which legal
F-5
or beneficial ownership of such Securities shall pass, whether by operation of
law or otherwise, including, without limitation, Stockholder's heirs, guardians,
administrators or successors.
Section 5.2. Disclosure. Stockholder hereby agrees to permit Parent to
publish and disclose in the Registration Statement and the Proxy
Statement/Prospectus (including all documents and schedules filed with the
Securities and Exchange Commission), and any press release or other disclosure
document necessary or desirable in connection with the Merger and any
transactions related thereto, Stockholder's identity and ownership of the
Company Common Stock and Series C Stock and the nature of Stockholder's
commitments, arrangements and understandings under this Agreement; provided,
however, that the preparation and filing of the Registration Statement and the
Proxy Statement/Prospectus and any amendment thereto shall be conducted in
accordance with Section 8.2 of the Stock Purchase Agreement.
Section 5.3. Stop Transfer; Legend.
(a) Stockholder agrees with, and covenants to, Parent that
Stockholder will not request that the Company register the transfer (book-entry
or otherwise) of any certificate or uncertificated interest representing any of
the Securities, unless such transfer is made in compliance with this Agreement.
(b) In the event of a stock dividend or distribution, or any
change in the Company Common Stock or Series C Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of share or the like
other than pursuant to the Merger, the term "Existing Shares" will be deemed to
refer to and include the shares of the Company Common Stock and Series C Stock
as well as all such stock dividends and distributions and any shares into which
or for which any or all of the Securities may be changed or exchanged and
appropriate adjustments shall be made to the terms and provisions of this
Agreement.
(c) Stockholder will promptly after the date hereof surrender
to the Company all certificates representing the Securities and the Company will
place the following legend on such certificates in addition to any other legend
required thereof:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER PURSUANT TO AND OTHER PROVISIONS OF A VOTING
AGREEMENT, DATED AS OF DECEMBER 5, 2003, BY AND BETWEEN PROXYMED, INC.,
PLANET ACQUISITION CORP., PLANVISTA CORPORATION AND CERTAIN
STOCKHOLDERS OF PLANVISTA CORPORATION."
Section 5.4. Acknowledgments and Waivers. Stockholder hereby (i)
acknowledges that Stockholder is familiar with (A) the provisions of the
articles of incorporation of the Company fixing the powers, preferences and
rights appurtenant to Stockholder's Securities, and (B) the provisions of the
Merger Agreement and this Agreement, (ii) consents to the provisions of the
Merger Agreement and this Agreement, (iii) irrevocably waives all dissenter's
rights or appraisal rights pursuant to applicable law (and any and all claims
and causes of action that might otherwise exist with respect thereto) arising
out of or in connection with the Merger and the consummation of the transactions
contemplated under the Merger Agreement.
F-6
Section 5.5. Releases. Stockholder hereby fully, unconditionally and
irrevocably releases, effective as of the Effective Time, any and all claims and
causes of action that Stockholder has or may have against the Company or any of
its Subsidiaries or any present or former director, officer, employee or agent
of Company or any of its Subsidiaries (collectively, the "Released Parties")
arising or resulting from or relating to any act, omission, event or occurrence
prior to the Effective Time.
Section 5.6. No Solicitation. Neither Stockholder nor any agent,
representative, affiliate, employee, officer or director (each of such persons,
a "Representative") of Stockholder will, directly or indirectly, solicit,
initiate or knowingly encourage (including by way of furnishing nonpublic
information), or take any other action knowingly to facilitate, any inquiries or
the making of any proposal or offer (including, without limitation, any proposal
or offer to the shareholders of the Company) that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal, or enter into or maintain or
continue discussion or negotiate with any person or entity in furtherance of
such inquires or to obtain an Acquisition Proposal, or agree to or endorse any
Acquisition Proposal, and Stockholder shall notify Parent and Sub immediately
after receipt by Stockholder of any Acquisition Proposal, or inquiry respecting,
an Acquisition Proposal or any request for nonpublic information in connection
with such a proposal or inquiry, or for access to the properties, books or
records of the Company by any person or entity that informs or has informed
Stockholder that it is considering making or has made such a proposal or
inquiry. Such notice to Parent and Sub shall indicate in reasonable detail the
identity of the person making the Acquisition Proposal or inquiry and the terms
and conditions of such proposal or inquiry. Stockholder immediately shall cease
and cause to be terminated all existing discussions or negotiations with any
parties conducted heretofore with respect to an Acquisition Proposal.
Notwithstanding the foregoing, prior to the adoption of Merger Agreement by the
stockholders of the Company, this section shall not prohibit Stockholder from
delivering or making available nonpublic information regarding the Company and
the Company Subsidiaries to, or entering into discussions with, any person or
group who has submitted (and not withdrawn) to the Company an unsolicited,
written, bona fide Acquisition Proposal (as such term is defined in the Merger
Agreement) that the Board of Directors of the Company concludes in good faith
(after consultation with its outside legal counsel and a financial advisor of
national standing) is reasonably likely to result in a Superior Offer (as such
term is defined in the Merger Agreement); provided that the Company and its
Representatives (as such term is defined in the Merger Agreement) have complied
with their obligations under Section 5.02(a) and 5.02(b) of the Merger
Agreement.
ARTICLE VI.
MISCELLANEOUS
Section 6.1. Fees and Expenses. Subject to Section 10.12 of the Stock
Purchase Agreement, each party hereto shall pay its own expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
Section 6.2. Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable
F-7
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. Each party shall promptly consult
with the other and provide any necessary information and material with respect
to all filings made by such party with any Governmental Entity in connection
with this Agreement and the transactions contemplated hereby.
Section 6.3. Termination; Amendment. This Agreement shall terminate
immediately upon the earliest of (a) the termination of the Merger Agreement or
(b) the consummation of the Merger. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.
Section 6.4. Extension; Waiver. Any agreement on the part of a party to
waive any provision of this Agreement, or to extend the time for any performance
hereunder, shall be valid only if set forth in an instrument in writing signed
on behalf of such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise shall not constitute a
waiver of such rights.
Section 6.5. Entire Agreement; No Third-Party Beneficiaries. This
Agreement constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement, and is not intended to confer upon any person
other than the parties any rights or remedies; provided, however, that the
provisions of Sections 5.5 are intended to inure the benefit of, and to be
enforceable by, the Released Parties.
Section 6.6. Governing 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 conflict of
laws thereof.
Section 6.7. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, or sent by overnight courier (providing proof of
delivery), in the case of Stockholder, to the address set forth on Schedule A
hereto or, in the case of Parent, Sub or the Company, to the address set forth
below (or, in each case, at such other address as shall be specified by like
notice).
if to Parent or Sub, to
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ProxyMed, Inc.
2555 Davie Rd., Suite 110
Fort Lauderdale, FL 33317
Telecopy: (954) 473-2341
Attention: Michael K. Hoover, Chief Executive Officer
Rafael G. Rodriguez, In-House Counsel
with a copy (which shall not constitute notice) to:
Holland & Knight LLP
701 Brickell Avenue, Suite 3000
Miami, Florida 33131
Attention: Rodney H. Bell, Esq.
Facsimile: 305-789-7799
if to the Company, to
PlanVista Corporation
4010 Boy Scout Boulevard, Suite 200
Tampa, Florida 33607
Attention:
Facsimile:
with a copy (which shall not constitute notice) to:
Fowler White Boggs Banker PA.
501 E. Kennedy Blvd., Suite 1700
Tampa, FL 33602
Attention: David C. Shobe, Esq.
Facsimile: 813-228-9401
Section 6.8. Assignment. Neither this Agreement nor any of the rights,
interests, or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise, by Stockholder without the
prior written consent of Parent, Sub and the Company, or by Parent, Sub or the
Company, without the prior written consent of Stockholder, and any such
assignment or delegation that is not consented to shall be null and void.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.
Section 6.9. Further Assurances. Stockholder, the Company and Parent
shall execute and deliver all other documents and instruments and take all other
action that may be reasonably necessary in order to consummate the transactions
provided for herein.
Section 6.10. Enforcement. Irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this
F-9
Agreement in the Delaware Court of Chancery or any federal court located in the
State of Delaware, this being in addition to any other remedy to which they are
entitled at law or in equity. Each of the parties hereto (i) shall submit itself
to the personal jurisdiction of the Delaware Court of Chancery or any federal
court in the State of Delaware in the event any dispute arises out of this
Agreement or any of the transactions contemplated hereby, (ii) shall not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, and (iii) shall not bring any action relating to this
Agreement or any of the transactions contemplated hereby in any court other than
the Delaware Court of Chancery or any federal court in the State of Delaware.
Section 6.11. Severability. Whenever possible, each provision or
portion of any provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement shall be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
Section 6.12. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same instrument
and shall become effective when one or more counterparts have been signed by
each party and delivered to the other parties.
Section 6.13. Service of Process. To the extent that a party to this
Agreement is not otherwise subject to service of process in the State of
Delaware, such party hereby appoints The Corporation Trust Company, 1209 Orange
Street, Wilmington, DE 19801, as such party's agent in the State of Delaware
for acceptance of legal process, and agrees that service made on such agent
shall have the same legal effect as if served upon such party personally within
the State of Delaware.
[signature page follows]
F-10
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed as of the day and year first written above.
PROXYMED, INC.
By: /s/ Michael K. Hoover
----------------------------------------
Michael K. Hoover, Chairman/CEO
PLANET ACQUISITION CORP.
By: /s/ Judson E. Schmid
----------------------------------------
Judson E. Schmid, Vice President/Treasurer
PLANVISTA CORPORATION
By: /s/ Phillip S. Dingle
----------------------------------------
Phillip S. Dingle, Chairman/CEO
PVC FUNDING PARTNERS, LLC
By: /s/ Michael Falk
----------------------------------------
Michael Falk, Manager
ANNEX G
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
PROXYMED, INC.
Pursuant to the provisions of Section 607.1006, Florida Statutes,
ProxyMed, Inc., a Florida corporation (the "Corporation") adopts the following
Articles of Amendment to its Restated Articles of Incorporation:
FIRST: Article III of the Corporation's Restated Articles of Incorporation, as
amended, is further amended by striking out the first paragraph thereof and by
substituting in lieu of said paragraph the following new first paragraph to
Article III:
"The Corporation is authorized to issue 30,000,000 shares of Common
Stock, par value $.001 per share, and 2,000,000 shares of preferred
stock, par value $.01 per share."
SECOND: This Amendment was adopted by the shareholders at the Corporation's
Special Meeting of Shareholders held on March o, 2004. The number of votes cast
were sufficient for approval.
Except as amended hereby, the rest and remainder of the Corporation's
Restated Articles of Incorporation shall be and remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Restated Articles
of Incorporation to be signed by its duly authorized officer this day of
, 2004.
PROXYMED, INC.
By:
----------------------------------
Name:
Title:
G-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS; UNDERTAKINGS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following summary is qualified in its entirety by reference to the
complete copy of the Florida Business Corporation Act, PlanVista's, or the
Registrant's, Articles of Incorporation, as amended, and the Registrant's
Amended and Restated Bylaws and agreements referred to below.
Section 607.0850 of the Florida Business Corporation Act empowers a
Florida corporation to indemnify any person who was or is a party to any
proceeding (other than an action by or in the right of such corporation) by
reason of the fact that such person is or was a director, officer, employee, or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against liability
incurred in connection with such proceeding, including any appeal thereof, if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, such person had no reasonable
cause to believe his conduct was unlawful. A Florida corporation may indemnify
such person against expenses including amounts paid in settlement (not
exceeding, in the judgment of the board of directors, the estimated expense of
litigating the proceeding to conclusion) actually and reasonably incurred by
such person in connection with actions brought by or in the right of the
corporation to procure a judgment its favor under the same conditions set forth
above, if such person acted in good faith and in a manner such person believed
to be in, or not opposed to, the best interests of the corporation, except that
no indemnification is permitted in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and to the extent the court in which such action or suit was brought or
other court of competent jurisdiction shall determine upon application that, in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem proper.
To the extent such person has been successful on the merits or
otherwise in defense of any action referred to above, or in defense of any
claim, issue or matter therein, the corporation must indemnify such person
against expenses, including counsel (including those for appeal) fees, actually
and reasonably incurred by such person in connection therewith. The
indemnification and advancement of expenses provided for in, or granted pursuant
to, Section 607.0850 is not exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the articles of
incorporation of the Registrant or any by-law, agreement, vote of shareholders
or disinterested directors, or otherwise. Section 607.0850 also provides that a
corporation may maintain insurance against liabilities for which indemnification
is not expressly provided by the statute.
Article VII of the Registrant's Restated Articles of Incorporation and
Article VII of the Registrant's Bylaws provide for indemnification of the
Registrant's directors, officers, employees and agents (including the
advancement of expenses) to the fullest extent permitted by Florida law. In
addition, the Registrant has contractually agreed to indemnify its directors and
officers to the fullest extent permitted under Florida law.
The Registrant's employment agreements with its principal executive
officers limit their personal liability for monetary damages for breach of their
fiduciary duties as officers and directors, except for liability that cannot be
eliminated under the Florida Business Corporation Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are filed as part of, or are incorporated by
reference in, this Registration Statement:
EXHIBIT NO. DESCRIPTION
2.1** Agreement and Plan of Merger, dated as of December 5, 2003, by
and among the Registrant, Planet Acquisition Corp. and
PlanVista Corporation, attached hereto as "Annex A" and hereby
incorporated by reference herein.
II-1
2.2* Stock Purchase Agreement, dated as of December 5, 2003 among
the Registrant, General Atlantic Partners 77, L.P., GAP
CoInvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co.
KG, PVC Funding Partners, LLC, Comvest Venture Partners, L.P.,
Shea Ventures, LLC, and Robert Priddy.
2.3** Asset Purchase Agreement dated July 30, 2002 between ProxyMed,
Inc. and MDIP, Inc. (incorporated by reference to Exhibit 2.1
of Form 8-K File No. 000-22052, reporting an event dated July
31, 2002).
2.4** Stock Purchase Agreement dated May 6, 2002 between ProxyMed,
Inc. and KenCom Communications & Services, Inc. (incorporated
by reference to Exhibit 2.1 of Form 8-K File No. 000-22052,
reporting an event dated May 6, 2002).
2.5** Agreement and Plan of Merger and Reorganization dated December
31, 2002 between ProxyMed, Inc., Davie Acquisition Corp., and
MedUnite Inc. (incorporated by reference to Exhibit 2.1 of
Form 8-K File No. 000-22052, reporting an event dated December
31, 2002).
3.1** Articles of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 of the Registration Statement on Form
SB-2, File No. 333-2678).
3.2** Bylaws, as amended (incorporated by reference to Exhibit 3.1
of the Registration Statement on Form SB-2, File No.
333-2678).
3.3** Articles of Amendment to Articles of Incorporation dated July
25, 2001 (incorporated by reference to Exhibit 2.1 of Form
8-K, File No. 000-22052, reporting an event dated August 17,
2001).
3.4** Articles of Amendment to Articles of Incorporation dated
August 21, 2001 (incorporated by reference to Exhibit 2.2 of
Form 8-K, File No. 000-22052, reporting an event dated August
17, 2001).
3.5** Articles of Amendment to Articles of Incorporation of the
Registrant dated December 21, 2001 (incorporated by reference
to Exhibit 3.1 of Form 8-K File No. 000-22052, reporting an
event dated December 13, 2001).
3.6** Articles of Amendment to Articles of Incorporation of the
Registrant dated June 15, 2000 (incorporated by reference to
Exhibit 3.4 of Form 10-Q/A, File No. 000-22052, reporting an
event dated June 15, 2000).
3.7* Form of Articles of Amendment to Restated Articles of
Incorporation of the Registrant, attached hereto as Annex "G"
and hereby incorporated by reference.
4.1** Form of Warrant to Purchase Common Stock of the Registrant
dated December 23, 1999, issued to certain investors
(incorporated by reference to Exhibit 4.1 of Form 8-K, File
No. 000-22052, reporting an event dated December 23, 1999).
4.2** Registration Rights Agreement by and among the Registrant and
the investors named therein dated as of December 23, 1999
(incorporated by reference to Exhibit 4.2 of Form 8-K, File
No. 000-22052, reporting an event dated December 23, 1999).
4.3** Form of Exchanged Warrant to Purchase Common Stock of the
Registrant dated May 4, 2000, issued to certain investors
(incorporated by reference to Exhibit 4.1 of Form 8-K, File
No. 000-22052, reporting an event dated May 4, 2000).
4.4** Form of New Warrant to Purchase Common Stock of the Registrant
dated May 4, 2000, issued to certain investors (incorporated
by reference to Exhibit 4.2 of Form 8-K, File No. 000-22052,
reporting an event dated May 4, 2000).
4.5** Registration Rights Agreement by and among the Registrant and
the investors named therein dated as of May 4, 2000
(incorporated by reference to Exhibit 4.3 of Form 8-K, File
No. 000-22052, reporting an event dated May 4, 2000).
4.6** Registration Rights Agreement between the Registrant and
Fisher Capital Ltd. and Wingate Capital Ltd. dated as of April
24, 2001 (incorporated by reference to Exhibit 4.1 of Form
8-K, File No. 000-22052, reporting an event dated April 24,
2001).
II-2
4.7** Registration Rights Agreement between the Registrant and Royal
Bank of Canada and Leonardo, L.P. dated as of April 24, 2001
(incorporated by reference to Exhibit 4.2 of Form 8-K, File
No. 000-22052, reporting an event dated April 24, 2001).
4.8** Registration Rights Agreement among the Registrant General
Atlantic Partners 74, L.P., GAP Coinvestment Partners II,
L.P., GapStar, LLC and GAPCO GmbH & Co. KG dated April 5, 2002
(incorporated by reference to Exhibit 10.3 of Form 8-K, File
No. 000-22052, reporting an event dated March 29, 2003).
5.1*** Opinion of Holland & Knight LLP as to the validity of the
securities being registered.
10.1** Voting Agreement, dated as of December 5, 2003, among the
Registrant, Planet Acquisition Corp., PlanVista Corporation
and PVC Funding Partners, LLC, in its capacity as a
stockholder of PlanVista Corporation, attached hereto as
"Annex F" and hereby incorporated by reference.
10.2** Voting Agreement, dated as of December 5, 2003, among the
Registrant, PlanVista Corporation, General Atlantic Partners
74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC,
and GAPCO GmbH & Co. KG, attached hereto as "Annex E" and
hereby incorporated by reference.
10.3** Employment Agreement between ProxyMed and John Paul Guinan
(incorporated by reference to Exhibit 3.1 of the Registration
Statement on Form SB-2, File No. 333-2678).
10.4** Amended 1993 Stock Option Plan (incorporated by reference to
Exhibit A of ProxyMed's Proxy Statement for its 1994 Annual
Meeting of Shareholders).
10.5** 1995 Stock Option Plan (incorporated by reference to Exhibit
3.1 of the Registration Statement on Form SB-2, File No.
333-2678).
10.6** 1997 Stock Option Plan (incorporated by reference to Exhibit A
of ProxyMed's Proxy Statement for its 1997 Annual Meeting of
Shareholders).
10.7** Employment Agreement between ProxyMed and Michael K. Hoover
dated July 28, 2000 (incorporated by reference to Exhibit 99.1
of Form 10-Q for the period ending September 30, 2000).
10.8** Employment Agreement between ProxyMed and Judson E. Schmid
dated September 29, 2000 (incorporated by reference to Exhibit
99.2 of Form 10-Q for the period ending September 30, 2000).
10.9** Employment Agreement between ProxyMed and Nancy J. Ham dated
October 2, 2000 (incorporated by reference to Exhibit 99.3 of
Form 10-Q for the period ending September 30, 2000).
10.10** Employment Agreement between ProxyMed and Timothy J. Tolan
dated January 23, 2001 (incorporated by reference to Exhibit
10.30 of Form 10-K for the period ending December 31, 2000).
10.11** 2000 Stock Option Plan (incorporated by reference to Exhibit B
of the Proxy Statement filed on July 7, 2000).
10.12** 2000-1/2 Stock Option Plan (incorporated by reference to
Exhibit C of the Proxy Statement filed on July 7, 2000).
10.13** Employment Agreement between ProxyMed and Lonnie W. Hardin
dated March 29, 2001 (incorporated by reference to Exhibit
10.1 of Form 10-Q for the period ending March 31, 2001).
10.14** Exchange Agreement between ProxyMed and Fisher Capital Ltd.
and Wingate Capital Ltd. dated as of April 24, 2001
(incorporated by reference to Exhibit 10.27 of Form 8-K, File
No. 000-22052 reporting an event dated April 24, 2001).
10.15** Exchange Agreement between ProxyMed and Royal Bank of Canada
dated as of April 24, 2001 (incorporated by reference to
Exhibit 10.28 of Form 8-K, File No. 000-22052 reporting an
event dated April 24, 2001).
II-3
10.16** Exchange Agreement between ProxyMed and Leonardo, L.P. dated
as of April 24, 2001 (incorporated by reference to Exhibit
10.29 of Form 8-K, File No. 000-22052 reporting an event dated
April 24, 2001).
10.17** Asset Purchase Agreement between ProxyMed and MDP Corporation
dated April 23, 2001 (incorporated by reference to Exhibit 2.1
of Form 8-K, File No. 000-22052, reporting an event dated May
1, 2001).
10.18** 2001 Stock Option Plan (incorporated by reference to Exhibit B
of the Proxy Statement filed on June 22, 2001).
10.19** Employment Agreement between ProxyMed and A. Thomas Hardy
dated December 31, 2001 (incorporated by reference to Exhibit
10.40 of Form 10-K for the period ending December 31, 2001).
10.20** Stock and Warrant Purchase Agreement between ProxyMed and
General Atlantic Partners 74, L.P., GAP Coinvestment Partners
II, L.P., GAPCO GmbH & Co., KG and GapStar, LLC (incorporated
by reference to Exhibit 10.1 of Form 8-K, File No. 000-22052,
reporting an event dated March 26, 2002).
10.21** Registration Rights Agreement between ProxyMed and General
Atlantic Partners 74, L.P., GAP Coinvestment Partners II,
L.P., GapStar, LLC, and GAPCO GmbH & Co. KG (incorporated by
reference to Exhibit 10.3 of Form 8-K, File No. 000-22052,
reporting an event dated March 26, 2002).
10.22** Form of Common Stock Purchase Warrants issued to General
Atlantic Partners 74, L.P., GAP Coinvestment Partners II,
L.P., GAPCO GmbH & Co., KG and GapStar, LLC (incorporated by
reference to Exhibit 10.2 of Form 8-K, File No. 000-22052,
reporting an event dated March 26, 2002).
10.23** Common Stock Purchase Warrants issued to First Data
Corporation (incorporated by reference to Exhibit 10.1 of Form
8-K, File No. 000-22052, reporting an event dated July 8,
2003).
10.24** Subscription Agreement dated December 21, 2001 for the private
placement issuance of up to $8,000,000 of ProxyMed, Inc.
common stock (incorporated by reference to Exhibit 10.1 of
Form 8-K File No. 000-22052, reporting an event dated December
13, 2001).
10.25** Placement Agency Agreement dated December 18, 2001 between
ProxyMed, Inc. and Commonwealth Associates, L.P. for the
private placement issuance of up to $8,000,000 of ProxyMed,
Inc. common stock (incorporated by reference to Exhibit 10.2
of Form 8-K File No. 000-22052, reporting an event dated
December 13, 2001).
10.26** Conversion Agreement for Series C 7% Convertible Preferred
shareholder pursuant to conversion offer dated December 13,
2001 (incorporated by reference to Exhibit 10.3 of Form 8-K
File No. 000-22052, reporting an event dated December 13,
2001).
10.27** Designation and Subscription Amendment Agreement for Series C
7% Convertible Preferred shareholder pursuant to conversion
offer dated December 13, 2001 (incorporated by reference to
Exhibit 10.4 of Form 8-K File No. 000-22052, reporting an
event dated December 13, 2001).
10.28** Registration Rights Agreement dated May 6, 2002 ProxyMed, Inc.
and Deborah M. Kennedy and Colleen Phillips-Norton
(incorporated by reference to Exhibit 10.1 of Form 8-K File
No. 000-22052, reporting an event dated May 6, 2002).
10.29** Form of 4% Convertible Promissory Notes dated December 31,
2002 issued in connection with the Agreement and Plan of
Merger and Reorganization dated December 31, 2002 between
ProxyMed, Inc., Davie Acquisition Corp., and MedUnite, Inc.
(incorporated by reference to Exhibit 10.1 of Form 8-K File
No. 000-22052, reporting an event dated December 31, 2002).
10.30** Registration Rights Agreement dated December 31, 2002 among
ProxyMed, Inc. and the holders of the 4% Convertible
Promissory Notes (incorporated by reference to Exhibit 10.2 of
Form 8-K File No. 000-22052, reporting an event dated December
31, 2002).
10.31** Indenture dated December 31, 2002 between ProxyMed, Inc. and
LaSalle Bank National Association, a national banking
association (incorporated by reference to Exhibit 10.3 of Form
8-K File No. 000-22052, reporting an event dated December 31,
2002).
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10.32** 2002 Stock Option Plan (incorporated by reference to Exhibit A
of the Proxy Statement filed on April 22, 2002).
10.33** Employment Agreement between ProxyMed and Rafael G. Rodriguez
dated January 2, 2003.
10.34** Form of bonus letter offered to executive and senior
management on February 26, 2002.
10.35** Form of Indemnification Agreement for all Officers and
Directors adopted May 22, 2002.
21* Subsidiaries of the Registrant
23.1*** Consent of Holland & Knight LLP (included in Exhibit 5.1
hereto).
23.2* Consent of PricewaterhouseCoopers LLP.
23.3* Consent of PricewaterhouseCoopers LLP.
24.1* Powers of Attorney (included on signature page of this
Registration Statement).
99.1* Consent of William Blair & Company, L.L.C.
99.2* Consent Peter J. Solomon Company, L.P.
99.3* Report of Independent Certified Public Accountants on
Financial Statement Schedule for ProxyMed.
99.4* Report of Independent Certified Public Accountants on
Financial Statement Schedule for PlanVista.
------------
* Filed herewith
** Incorporated by reference herein
*** To be filed by amendment
(b) Financial Statement Schedules. The schedules required under this Item
are included as Exhibits 99.3 and 99.4 to the Form S-4.
(c) Reports, Opinions and Appraisals of Outside Parties. The opinions of
William Blair & Company, L.L.C. and Peter J. Solomon Company, L.P. are
included as Annexes B and C to the joint proxy statement/prospectus.
ITEM 22. UNDERTAKINGS
(A) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(B) (1) The undersigned Registrant hereby undertakes as follows: That
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this
registration statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the issuer
undertakes 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.
(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (h)(1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the
Securities Act of 1933 and is used in connection with an offering
of securities subject to Rule 415, will be filed as 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 of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(C) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding)
is
II-5
asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(D) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference in 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.
(E) The undersigned Registrant hereby undertakes 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.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fort
Lauderdale, State of Florida, on December 5, 2003.
Dated: December 5, 2003 PROXYMED, INC
By: /s/ Michael K. Hoover
----------------------------------
Michael K. Hoover
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael K. Hoover and Judson E. Schmid
and each of them, his true and lawful attorney-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
registration statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each of
said attorneys-in-fact or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof. This power of attorney may be executed in
counterparts.
Pursuant to the requirements of Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ---
/s/ Michael K. Hoover Chairman of the Board and December 5, 2003
---------------------------------------- Chief Executive Officer
Michael K. Hoover (principal executive officer)
/s/ Judson E. Schmid Executive Vice President and December 5, 2003
---------------------------------------- Chief Financial Officer
Judson E. Schmid (principal financial and
accounting officer)
/s/ Edwin M. Cooperman Director December 5, 2003
----------------------------------------
Edwin M. Cooperman
/s/ Michael S. Falk Director December 5, 2003
----------------------------------------
Michael S. Falk
/s/ Thomas E. Hodapp Director December 5, 2003
----------------------------------------
Thomas E. Hodapp
/s/ Braden R. Kelly Director December 5, 2003
----------------------------------------
Braden R. Kelly
/s/ Kevin M. McNamara Director December 5, 2003
----------------------------------------
Kevin M. McNamara
/s/ Eugene R. Terry Director December 5, 2003
----------------------------------------
Eugene R. Terry
II-7