<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1933)
MEDICUS SYSTEMS CORPORATION
(Name of the issuer)
QUADRAMED CORPORATION
(Name of person filing statement)
-----------------
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class of securities)
KEITH M. ROBERTS, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
QUADRAMED CORPORATION
80 E. SIR FRANCIS DRAKE BLVD., SUITE 2A
LARKSPUR, CALIFORNIA 94939
(415) 461-7725
(Name, address, and telephone number of persons authorized
to receive notices and communications on behalf
of persons filing statement)
COPIES TO:
<TABLE>
<S> <C>
SCOTT D. LESTER, ESQ. J. CRAIG WALKER, ESQ.
BROBECK, PHLEGER & HARRISON LLP BELL, BOYD & LLOYD
ONE MARKET THREE FIRST NATIONAL PLAZA
SPEAR STREET TOWER 70 WEST MADISON STREET, SUITE 3300
SAN FRANCISCO, CALIFORNIA 94105 CHICAGO, ILLINOIS 60602
(415) 442-0900 (312) 373-1121
</TABLE>
-----------------
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [X] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [X]
CALCULATION OF FILING FEE
TRANSACTION VALUATION* AMOUNT OF FILING FEE
$ N/A $ N/A
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: Not applicable
Form or Registration No.: S-4
Filing Party: QuadraMed Corporation
Date Filed: January 23, 1998
<PAGE> 2
INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 is being filed
by QuadraMed Corporation, a Delaware corporation ("QuadraMed"), concurrently
with a registration statement on Form S-4 filed with the Securities and Exchange
Commission, which includes a proxy statement/prospectus to be delivered to the
stockholders of Medicus Systems Corporation, a Delaware corporation ("Medicus"),
in connection with a Special Meeting of Stockholders of Medicus (the "Proxy
Statement/Prospectus"). A copy of the Proxy Statement/Prospectus is attached
hereto as Exhibit (d)(1). The information contained in the Proxy
Statement/Prospectus, including all of the annexes thereto, is expressly
incorporated herein by reference and the responses to each item are qualified in
their entirety by reference to the information contained in the Proxy
Statement/Prospectus and the annexes thereto. Capitalized terms used herein and
not otherwise defined herein shall have the meanings ascribed to such terms in
the Proxy Statement/Prospectus.
The following cross-reference sheet is being supplied pursuant to
General Instruction F to Schedule 13E-3 and shows the location in the Proxy
Statement/Prospectus of the information required to be included in this Schedule
13E-3.
1.
<PAGE> 3
ITEM NUMBER AND CAPTION IN SCHEDULE 13E-3 AND
LOCATION IN THE PROXY STATEMENT/PROSPECTUS
1. ISSUER AND CLASS OF SECURITY
SUBJECT TO THE TRANSACTION
(a) "Summary -- Parties to the Merger" and "Certain Information
Concerning Medicus"
(b) "Summary -- The Special Meeting -- Vote Required; Record Date"
and "The Special Meeting -- Required Vote"
(c) "Summary -- Comparative Per Share Prices"
(d) "Summary -- Comparative Per Share Prices"
(e) Not Applicable
(f) "The Stock Purchase Agreements and Warrants"
2. IDENTITY AND BACKGROUND
"Summary of Proxy Statement/Prospectus,"
"Certain Information Concerning QuadraMed" and
"Certain Information Concerning Medicus"
3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
(a)(1) Not Applicable
(a)(2) "Special Factors -- Background of the Merger" and "The
Stock Purchase Agreements and Warrants"
(b) "Special Factors" and "The Stock Purchase Agreements and
Warrants"
4. TERMS OF THE TRANSACTION
(a) "Summary," "Special Factors," "The Merger" and "The Merger
Agreement"
(b) "Summary," "Special Factors," "The Merger" and "The Merger
Agreement"
5. PLANS OR PROPOSALS OF THE
ISSUER OR AFFILIATE
(a) - (g) "Special Factors -- Purpose and Structure of the
Merger" and "Special Factors -- Certain Effects of the
Merger; Plans for the Company After the Merger"
6. SOURCE AND AMOUNTS OF FUNDS
OR OTHER CONSIDERATION
(a) - (b) "Special Factors -- Source and Amount of Funds" and "The
Merger Agreement -- Termination; Expenses; Amendment;
Waiver"
(c) - (d) Not Applicable
2.
<PAGE> 4
7. PURPOSE(S), ALTERNATIVES,
REASONS AND EFFECTS
(a) - (c) "Special Factors -- Background of the Merger," "Special
Factors -- Purpose and Structure of the Merger," "Special
Factors -- Recommendation of the Board of Directors of
Medicus; Reasons for the Merger," "Special Factors --
Opinion of Medicus' Financial Advisor," "Special Factors --
Certain Effects of the Merger; Plans for the Company After
the Merger" and "Special Factors -- Approval of the Board of
Directors of QuadraMed; Reasons for the Merger"
(d) "Special Factors -- Purpose and Structure of the Merger,"
"Special Factors -- Certain Effects of the Merger; Plans for
the Company After the Merger," "Special Factors -- Interests
of Certain Persons in the Merger," "Special Factors --
Federal Income Tax Consequences," "Special Factors --
Accounting Treatment," "Special Factors -- Appraisal
Rights," "The Merger Agreement -- Terms of the Merger," "The
Merger Agreement -- Limitation on Shares Issuable," "The
Merger Agreement -- Election for Shares or Cash" and "The
Merger Agreement -- Surrender and Payment"
8. FAIRNESS OF THE TRANSACTION
(a) - (e) "Special Factors -- Background of the Merger," "Special
Factors -- Purpose and Structure of the Merger," "Special
Factors -- Recommendation of the Board of Directors of
Medicus; Reasons for the Merger," "Special Factors --
Opinion of Medicus' Financial Advisor" and "Special Factors
-- Approval of the Board of Directors of QuadraMed; Reasons
for the Merger"
(f) Not Applicable
9. REPORTS, OPINIONS, APPRAISALS
AND CERTAIN NEGOTIATIONS
(a) - (c) "Special Factors -- Background of the Merger," "Special
Factors -- Recommendation of the Board of Directors of
Medicus; Reasons for the Merger," and "Special Factors --
Opinion of Medicus' Financial Advisor"
10. INTEREST IN SECURITIES OF THE
ISSUER
(a) "Special Factors -- Background of the Merger," "Special
Factors -- Interests of Certain Persons in the Merger" and "
The Stock Purchase Agreements and Warrants"
(b) Not Applicable
3.
<PAGE> 5
11. CONTRACTS, ARRANGEMENTS OR
UNDERSTANDINGS WITH RESPECT
TO THE ISSUER'S SECURITIES
"Summary," "Special Factors -- Background of the Merger,"
"Special Factors -- Interests of Certain Persons in the Merger,"
"The Stock Purchase Agreements and Warrants," "The Special
Meeting -- Required Vote," "The Merger -- General," "The Merger
-- Treatment of Stock Options and Outstanding Warrants," "The
Merger Agreement -- Terms of the Merger," "The Merger Agreement
-- Limitation on Shares Issuable," "The Merger Agreement --
Conditions to the Consummation of the Merger" and "The Merger
Agreement -- Covenants"
12. PRESENT INTENTION AND
RECOMMENDATION OF CERTAIN
PERSONS WITH REGARD TO THE
TRANSACTION
(a) - (b) "Summary -- Recommendation of the Medicus Board of
Directors," "Special Factors -- Background of the Merger,"
"Special Factors -- Recommendation of the Board of Directors
of Medicus; Reasons for the Merger," "Special Factors --
Interests of Certain Persons in the Merger," "The Stock
Purchase Agreements and Warrants" and "The Special Meeting
-- Required Vote"
13. OTHER PROVISIONS OF THE
TRANSACTION
(a) "Summary -- Special Factors" and "Special Factors -- Appraisal
Rights"
(b) Not Applicable
(c) Not Applicable
14. FINANCIAL INFORMATION
(a)(1) "Incorporation of Certain Documents by Reference" and
"Available Information"
(a)(2) "Incorporation of Certain Documents by Reference" and
"Available Information"
(a)(3) Not Applicable
(a)(4) "Summary--Comparative Historical and Combined Per Share
Data"
(b)(1) "Summary--Unaudited Pro Forma Combined Selected Financial
Data for QuadraMed and Medicus" and "Pro Forma Financial
Data"
(b)(2) "Summary--Unaudited Pro Forma Combined Selected Financial
Data for QuadraMed and Medicus" and "Pro Forma Financial
Data"
(b)(3) "Summary--Comparative Historical and Combined Per Share
Data" and "Pro Forma Financial Data"
15. PERSONS AND ASSETS EMPLOYED,
RETAINED OR UTILIZED
(a) "Special Factors -- Interests of Certain Persons in the Merger"
(b) "The Special Meeting -- Solicitation of Proxies"
4.
<PAGE> 6
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a) The information set forth in "Summary of -- Parties to the Merger"
and "Certain Information Concerning Medicus" in the Proxy Statement/Prospectus
is hereby incorporated herein by reference.
(b) The information set forth in "Summary -- The Special Meeting --
VOte Required; Record Date" and "The Special Meeting -- Required Vote" in the
Proxy Statement/Prospectus is hereby incorporated herein by reference.
(c) The information set forth in "Summary -- Comparative Per Share
Prices" in the Proxy Statement/Prospectus is hereby incorporated herein by
reference.
(d) The information set forth in "Summary -- Comparative Per Share
Prices" in the Proxy Statement/Prospectus is hereby incorporated herein by
reference.
(e) On October 10, 1996, QuadraMed offered for sale 2,500,000 shares of
common stock, $0.01 par value, at an offering price per share of $12.00
resulting in aggregate proceeds received by QuadraMed of $27,900,000. On October
21, 1997, QuadraMed offered for sale 3,795,000 shares of common stock, $0.01 par
value, at an offering price per share of $17.625 resulting in aggregate proceeds
received by QuadraMed of $57,919,543.
(f) The information set forth in "The Stock Purchase Agreements and
Warrants" in the Proxy Statement/Prospectus is hereby incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND
(a) - (d) and (g) This Statement is being filed by Medicus and
QuadraMed as an affiliate of Medicus. Medicus is the issuer of the common stock
which is the subject of the Rule 13e-3 transaction. The information set forth in
"Certain Information Concerning QuadraMed" and "Certain Information Concerning
Medicus" in the Proxy Statement/Prospectus is hereby incorporated herein by
reference.
The following is certain information regarding the Company's
affiliates:
QuadraMed's executive offices are located at 80 East Sir Francis Drake
Blvd., Suite 2A, Larkspur, California 94939 and its telephone number is (415)
461-7725.
(e) - (f) During the last five years, no person listed above has been
convicted in a criminal proceeding or has been party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order enjoining
further violations of, or prohibiting activities, subject to, federal or state
securities laws or finding any violations of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
(a)(1) Not Applicable.
(a)(2) The information set forth in "Special Factors -- Background of
the Merger" and "The Stock Purchase Agreements and Warrants" in the Proxy
Statement/Prospectus is hereby incorporated herein by reference.
5.
<PAGE> 7
(b) The information set forth in "Special Factors -- Background of the
Merger" and "The Stock Purchase Agreements and Warrants" in the Proxy
Statement/Prospectus is hereby incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION
(a) The information set forth in "Summary," "Special Factors," "The
Merger" and "The Merger Agreement" in the Proxy Statement/Prospectus is hereby
incorporated herein by reference.
(b) The information set forth in "Summary," "Special Factors," "The
Merger" and "The Merger Agreement" in the Proxy Statement/Prospectus is hereby
incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
(a) - (g) The information set forth in "Special Factors -- Purpose and
Structure of the Merger" and "Special Factors -- Certain Effects of the Merger;
Plans for the Company After the Merger" in the Proxy Statement/Prospectus is
hereby incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION
(a) - (b) The information set forth in "Special Factors -- Source and
Amount of Funds" and "The Merger Agreement -- Termination; Expenses; Amendment;
Waiver" in the Proxy Statement/Prospectus is hereby incorporated herein by
reference.
(c) - (d) Not Applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS
(a) - (c) The information set forth in "Special Factors -- Background
of the Merger," "Special Factors -- Purpose and Structure of the Merger,"
"Special Factors -- Recommendation of the Board of Directors of Medicus; Reasons
for the Merger," "Special Factors -- Opinion of Medicus' Financial Advisor,"
"Special Factors -- Certain Effects of the Merger; Plans for the Company After
the Merger" and "Special Factors -- Approval of the Board of Directors of
QuadraMed; Reasons for the Merger" in the Proxy Statement/Prospectus is hereby
incorporated herein by reference.
(d) The information set forth in "Special Factors -- Purpose and
Structure of the Merger," "Special Factors -- Certain Effects of the Merger;
Plans for the Company After the Merger," "Special Factors -- Interests of
Certain Persons in the Merger," "Special Factors -- Federal Income Tax
Consequences," "Special Factors -- Accounting Treatment," "Special Factors --
Appraisal Rights," "The Merger Agreement -- Terms of the Merger," "The Merger
Agreement -- Limitation on Shares Issuable," "The Merger Agreement -- Election
for Shares or Cash" and "The Merger Agreement -- Surrender and Payment" in the
Proxy Statement/Prospectus is hereby incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION
6.
<PAGE> 8
(a) - (e) The information set forth in "Special Factors -- Background
of the Merger," "Special Factors -- Purpose and Structure of the Merger,"
"Special Factors -- Recommendation of the Board of Directors of Medicus; Reasons
for the Merger," "Special Factors -- Opinion of Medicus' Financial Advisor" and
"Special Factors -- Approval of the Board of Directors of QuadraMed; Reasons for
the Merger" in the Proxy Statement/Prospectus is hereby incorporated by
reference.
(f) Not Applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
(a) - (c) The information set forth in "Special Factors -- Background
of the Merger," "Special Factors -- Recommendation of the Board of Directors of
Medicus; Reasons for the Merger," and "Special Factors -- Opinion of Medicus'
Financial Advisor" in the Proxy Statement/Prospectus is hereby incorporated
herein by reference.
A copy of the opinion prepared for the Medicus Board of Directors by
Volpe Brown Whelan & Company, LLC is attached as Annex B to the Proxy
Statement/Prospectus.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER
(a) The information set forth in "Special Factors -- Background of the
Merger," "Special Factors -- Interests of Certain Persons in the Merger" and "
The Stock Purchase Agreements and Warrants" in the Proxy Statement/Prospectus is
hereby incorporated herein by reference.
(b) Not Applicable.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH
RESPECT TO THE ISSUER'S SECURITIES
The information set forth in "Summary," "Special Factors -- Background
of the Merger," "Special Factors -- Interests of Certain Persons in the Merger,"
"The Stock Purchase Agreements and Warrants," "The Special Meeting -- Required
Vote," "The Merger -- General," "The Merger -- Treatment of Stock Options and
Outstanding Warrants," "The Merger Agreement -- Terms of the Merger," "The
Merger Agreement --Limitation on Shares Issuable," The Merger Agreement --
Conditions to the Consummation of the Merger" and "The Merger Agreement --
Covenants" in the Proxy Statement/Prospectus is hereby incorporated herein by
reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN
PERSONS WITH REGARD TO THE TRANSACTION
(a) - (b) The information set forth in "Summary -- Recommendation of
the Medicus Board of Directors," "Special Factors -- Background of the Merger,"
"Special Factors -- Recommendation of the Board of Directors of Medicus; Reasons
for the Merger," "Special Factors -- Interests of Certain Persons in the
Merger," "The Stock Purchase Agreements and Warrants" and "The Special Meeting
- -- Required Vote" in the Proxy Statement/Prospectus is hereby incorporated
herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION
7.
<PAGE> 9
(a) The information set forth in "Summary -- Special Factors" and
"Special Factors -- Appraisal Rights" in the Proxy Statement/Prospectus is
hereby incorporated by reference.
(b) Not Applicable.
(c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION
(a)(1) The information set forth in "Incorporation of Certain Documents
by Reference" and "Available Information" is hereby incorporated herein by
reference.
(a)(2) The information set forth in "Incorporation of Certain Documents
by Reference" and "Available Information" is hereby incorporated by reference.
(a)(3) Not Applicable
(a)(4) The information set forth in "Summary--Comparative Historical
and Combined Per Share Data" is hereby incorporated by reference.
(b)(1) The information set forth in "Summary--Unaudited Pro Forma
Combined Selected Financial Data for QuadraMed and Medicus" and "Pro Forma
Financial Data" is hereby incorporated by reference.
(b)(2) The information set forth in "Summary--Unaudited Pro Forma
Combined Selected Financial Data for QuadraMed and Medicus" and "Pro Forma
Financial Data" is hereby incorporated by reference.
(b)(3) The information set forth in "Summary--Comparative Historical
and Combined Per Share Data" and "Pro Forma Financial Data" is hereby
incorporated herein by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) The information set forth in "Special Factors -- Interests of
Certain Persons in the Merger" in the Proxy Statement/Prospectus is hereby
incorporated herein by reference.
(b) The information set forth in "The Special Meeting -- Solicitation
of Proxies" in the Proxy Statement/Prospectus is hereby incorporated herein by
reference.
ITEM 16. ADDITIONAL INFORMATION
The information set forth in the Proxy Statement/Prospectus and the
Annexes thereto is incorporated herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS
(a) Not Applicable.
(b)(1) Opinion of Volpe Brown Whelan & Company, LLC financial advisor
to the Board of Directors of Medicus Systems Corporation included as Annex B to
the Proxy Statement/Prospectus is hereby incorporated by reference.
8.
<PAGE> 10
(b)(2) Discussion materials prepared by Jefferies & Co. for the Board
of Directors of QuadraMed Corporation.
(c)(1) Agreement and Plan of Reorganization, dated as of November 9,
1997, between QuadraMed Corporation and Medicus Systems Corporation included as
Annex A to the Proxy Statement/Prospectus is hereby incorporated by reference.
(c)(2) Form of Stock Purchase Agreement between QuadraMed Corporation
and certain stockholders of Medicus Systems Corporation, as executed by the
parties on November 9, 1997 included as Exhibit 10.40 to Amendment No. 1 to
QuadraMed's Form 10-Q for the quarterly period ended September 30, 1997, as
filed December 8, 1997 is hereby incorporated by reference.
(c)(3) Form of Stock Purchase Warrant between QuadraMed Corporation and
certain stockholders of Medicus Systems Corporation, dated November 9, 1997,
included as Exhibit 10.41 to Amendment No. 1 to QuadraMed's Form 10-Q for the
quarterly period ended September 30, 1997, as filed December 8, 1997 and
included as Appendix A to the Stock Purchase Agreement referenced in
Item 17(c)(2) is hereby incorporated by reference.
(c)(4) Form of Irrevocable Proxy, dated November 9, 1997, included as
Appendix B to Stock Purchase Agreement referenced in Item 17(c)(2) hereof is
hereby incorporated by reference.
(d) The Proxy Statement/Prospectus relating to the proposed Merger is
hereby incorporated by reference.
(e) The information set forth in "The Merger -- Appraisal Rights" and
Section 262 from the Delaware General Corporation Law regarding appraisal rights
included as Annex C to the Proxy Statement/Prospectus is hereby incorporated by
reference.
(f) Not Applicable.
9.
<PAGE> 11
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
January 22, 1998
-------------------------------
(Date)
/s/ Keith M. Roberts
-------------------------------
(Signature)
Keith M. Roberts
-------------------------------
(Name)
QuadraMed Corporation
10.
<PAGE> 12
[QUADRAMED LOGO]
PRESENTATION TO BOARD OF DIRECTORS
NOVEMBER 9, 1997
HIGHLY CONFIDENTIAL
[JEFFERIES & CO. LOGO]
<PAGE> 13
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION TAB
------- ---
<S> <C>
Summary Description of Target.......................... 1
Overview............................................... 2
Transaction Analysis................................... 3
Appendices............................................. 4
</TABLE>
A. Proxy on Schedule 14A (5/31/97)
B. Form 10-Q for Fiscal First Quarter Ended 8/31/97
C. Form 10-K (5/31/97)
D. Form 10-Q for Fiscal Third Quarter Ended 2/29/97
E. Form 10-Q for Fiscal Second Quarter Ended 11/30/96
F. Form 10-Q for Fiscal First Quarter Ended 8/31/96
G. Merger and Acquisition Comparables
Summary of News Stories on Target for Past 12 Months
- i -
<PAGE> 14
SUMMARY DESCRIPTION
OF TARGET
-1-
<PAGE> 15
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDRESS
One Rotary Center
Suite 1111
Evanston, IL 60201
Phone: (847) 570-7500
Fax: (847) 570-7518
Web Site: http://www.medicus.com
Year Incorporated: 1969
State of Incorporation: Delaware
Number of Employees: 161
- --------------------------------------------------------------------------------
GENERAL MARKET DATA
<TABLE>
<S> <C>
Ticker............................................... MECS
Exchange............................................. Nasdaq NMS
Current Price (11/6/97).............................. $5.50
52 Week High (1/09/97)............................... $7.50
52 Week Low (08/7/97)................................ $4.00
Discount to 52 Week High............................. 26.7%
Premium to 52 Week Low............................... 37.5%
Percentage YTD Change in Stock Price................. (12.8%)
Average Daily Volume Traded:
-- 1 month................ 6,233
-- 3 months............... 7,041
-- 6 months............... 6,482
Public Float......................................... 3,740,000
Total Shares Outstanding............................. 5,483,207
Market Capitalization................................ $30,157,639
Institutional Ownership.............................. 8.98%
</TABLE>
- --------------------------------------------------------------------------------
TARGET OVERVIEW
The Target develops specialized software for the health care
industry. The Target's products include clinical data, resource
management, decision support, information management and case
management systems. The software is marketed to academic
medical centers, managed care organizations, community care
networks, integrated health systems and primary care and
specialty physician groups. The Target has products in over
1,200 customer sites. While over 37% of integrated delivery
systems are currently using one or more of the Target's
products, only seven customers are using all three. This lack
of cross selling is primarily due to the fact that divisions
within the company are very separate both geographically and
functionally.
- --------------------------------------------------------------------------------
PRODUCT OVERVIEW
CLINICAL DATA SYSTEMS (CDS), HEADQUARTERS: ALAMEDA, CA
CDS is an integrated encoding system and data repository that
enables providers to classify, capture, validate and analyze
clinical data. The system implements a uniform clinical
database to
-2-
<PAGE> 16
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
measure and monitor patient clinical and financial outcomes.
The encoder aids in optimizing prospective payment
reimbursement for inpatient and ambulatory care services. It
captures and validates clinical indicators, severity and risk
factors as well as patient demographics data, diagnoses and
procedures. As of May 31, 1997 the Target had licensed CDS
software for use by 600 hospitals (down from 756 hospitals in
fiscal year 1996) and other users, including the Health Care
Financing Administration, the American Hospital Association and
several professional peer review organizations. CDS products
are licensed under non-exclusive perpetual licenses; leasing
options are also offered. Fees range from $15,000 to $250,000
which comprise license fees, implementation, hardware and
technical fees. At the time a license is granted, Medicus
generally enters into a one-year maintenance and support
agreement. Maintenance agreements are generally one year in
duration and range from 7% to 21% of the license fee.
CDS includes two recently introduced, Windows based integrated
modules:
WinCoder+ is a Windows-based encoding tool. The tool supports
integrated data encoding, editing, and diagnosis-related
grouping for all patient types, including inpatient admissions,
emergency room admissions, referrals, and ambulatory admissions
and procedures.
WinCOLLECT organizes and structures a uniform clinical data set
to describe a patient population, including its clinical and
financial characteristics, and to evaluate the quality and
appropriateness of care
The cost of the new Windows based system is $75,000 for
existing customers who are upgrading to the Windows based
systems and $150,000 for new customers.
PATIENT FOCUSED SYSTEMS (PFS), HEADQUARTERS: EVANSTON, IL
PFS's main product is InterAct 2000, a modular system of
software tools and methodologies designed to manage patient
care resources utilization through workload measurement,
staffing against budget, cost and productivity reporting, and
employee scheduling. PFS products were licensed to 450
hospitals as of May 31, 1997 (down from 480 in 1996). The PFS
products are licensed under non-exclusive perpetual licenses
and range in price from $20,000 to $100,000 for implementation,
hardware, and the license. A one year maintenance agreement is
usually entered into for from 5% to 20% of the license fee.
InterAct 2000 is comprised of two modules:
Workload/Productivity incorporates a proprietary workload
measurement methodology with applications available for
Medical/Surgical, Emergency, Perinatal and Mental Health.
Module uses the organization's financial and quality objectives
to generate assessment of workload and staffing needs against
an organization's budget. It also provides the ability to
benchmark resource utilization relative to similar institutions
or departments.
Personnel/Scheduler creates balanced staff schedules based on
specific scheduling algorithm and user defined rules. The
module also maintains ongoing personnel records with available
interfaces to payroll and time and attendance systems.
The cost of the PFS is $150,000 for existing customers who are
migrating to the Windows based systems and $300,000 for new
customers.
DECISION SUPPORT SYSTEMS (DSS), HEADQUARTERS: ST. LOUIS, MO
DSS captures and integrates clinical, financial, cost
accounting, market, physician and other information from
internal and external sources. The data is structured to
measure, monitor and manage operational processes. The DSS
software had been licensed to 150 hospitals (down from 160 in
fiscal year 1996) as of May 31, 1997. All 150 are currently
using the DOS version and will be encouraged to upgrade to the
Windows based version (CD ROM) in the near future. DSS
-3-
<PAGE> 17
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
products are licensed under non-exclusive perpetual licenses,
and is priced at between $25,000 and $300,000 depending upon
the size of the customer organization. The target usually
enters into a one year maintenance agreement for an annual fee
which is typically 15% of the license fee. The division offers
two lines of products, Enterprise Analyst and Resource Case
Management.
Enterprise Analyst is a support system application designed to
allow customers to maximize all components of value: quality,
outcomes and cost containment. With the Enterprise Analyst,
healthcare organizations capture, manage and analyze clinical
and operational costs, case mix data, payer contracts,
physician profiles, resource utilization, and patient care
outcomes data. The Enterprise Analyst is comprised of three
integrated modules:
Enterprise Costing allows healthcare managers to obtain
the information needed to make optimal decisions regarding
resource allocation and cost containment. The system
supports flexible cost determination based on a range of
methodologies including micro-costing, engineered
standards, relative value units, activity based costing,
and ratio of cost to charges.
Enterprise Case Mix and Contract Management (CM2) is
designed to analyze clinical outcomes against key
variables such as revenue, cost, severity, and physician
to discover the techniques that result in desirable
outcomes and lower costs.
Enterprise Performance Measurement and Modeling (PMM)
supports enterprise wide detailed wage and salary
planning, financial forecasting, cost allocation,
contractual allowance determination, and forecasting, cost
allocation, contractual allowance determination and
procedural rate setting.
Resource Case Management is comprised of three integrated
modules:
Pathway Generator module analyzes historical case data and
generates resource pathways.
Pathway Monitor module tracks actual resource consumption
and related variation, reports performance, and assigns
pathways to cases
Reimbursement module calculates expected reimbursement.
- --------------------------------------------------------------------------------
TECHNOLOGY
The Target's software products, which operate on PCs either as
stand alone or as part of a network, are available for use with
either Windows, MS-DOS and UNIX operating systems and use C,
C++ and SmallTalk programming languages. Relational database
management systems for software products are SQL-compatible,
with Oracle the database system of choice. The Target's
existing products are being migrated to a graphical environment
and new product development uses windowed graphical user
interfaces.
- --------------------------------------------------------------------------------
CO-MARKETING AGREEMENTS
MC Strategies - The Target announced a joint marketing
arrangement with MC Strategies, which specializes in consulting
services to the healthcare industry, in April 1997 under which
the Target will co-market EduCode products to its clients. The
Target was granted a non-exclusive license to allow it to
provide EduCode as supportive software for the Target's
WinCODER+ and WinCCS encoder software. Also, WinCODER will be
provided to MC Strategies consultants as a tool to assist in
coding quality, compliance analysis and case mix improvement.
-4-
<PAGE> 18
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
Superior Consultant Company - The Target announced a strategic
alliance with Superior in April 1997, allowing clients of
Superior Consultant to take advantage of the Target's tools as
part of their overall information solution.
- --------------------------------------------------------------------------------
THE DISTRIBUTION
Prior to March 1, 1996, the Predecessor Company operated a
software and related services business and a small managed care
business. In February 1995, the Predecessor Corporation adopted
a formal plan to separate its managed care business from its
software and related services business. In order to effect this
separation, the Predecessor Corporation formed a new Delaware
subsidiary, Medicus Systems Software, Inc., to which it
transferred all of its assets and liabilities excluding only
the defined assets and liabilities of its managed care
business. In turn, the stock of this company was distributed on
March 1, 1996 on a share-for-share basis to the stockholders of
the Predecessor Corporation (the "Distribution"), and the name
of the new company was changed to Medicus Systems Corporation.
Immediately after the Distribution, the Predecessor
Corporation, which then consisted only of the managed care
business, effected a one-for three reverse stock split. Also on
March 1, 1996, immediately after the reverse stock split, the
Predecessor Corporation acquired three Arizona corporations
engaged in the managed care business through merger
transactions pursuant to which each of the three Arizona
corporations became a wholly owned subsidiary of the
Predecessor Corporation, and the Predecessor Corporation's name
was changed to Managed Care Solutions, Inc. ("MCS"). MCS
currently has a market capitalization of $14.8 million and
revenues for fiscal year ending 1997 were $63.8 million.
As part of the agreement in the distribution described above,
the Target entered into Distribution and Services Agreements
with MCS.
Distribution Agreement - Following the distribution of Target
stock to predecessor stockholders, the Target and MCS agreed to
make records and personnel available to each other in
connection with audits, claims, litigation and preparation of
tax returns. The agreement also covers the separation of costs
between the Target and MCS, and the allocation of benefits
under certain insurance policies.
Services Agreement - The Target and MCS entered into a services
agreement under which the Target was to make available to MCS
certain services, including tax, accounting, data processing,
cash management, employee benefits, monitoring, operational,
supervisory, insurance purchasing and claims administration
consulting services. In addition, the Target was to provide
certain analysis and advice regarding potential financial
transactions, assistance in budget and forecast preparation,
relations with financial analysts, financial press, and
investors, and crisis management and control. MCS paid the
Target $700,000 for such services, the term was for one year
from the date of distribution and MCS was obligated to pay
whether or not it made use of such services.
-5-
<PAGE> 19
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JELINEK SHARE REPURCHASE
Throughout 1996, the founder and former Chairman of the Target,
Richard Jelinek, was in discussions with various parties to
sell all or part of the Target, while the remainder of the
Target's Board of Directors formed the opinion that management
should focus exclusively on the Target's operations. As a
result of these differing views as to the future strategic
direction of the Target, an agreement was entered into under
which the Target agreed to purchase a large percentage of
Jelinek's holding.
A stock buyback had been previously been authorized by the
Board in 1994 but had not been successfully executed. To effect
this buyback and to eliminate the majority voting control held
by Mr. Jelinek, it was agreed in January 1997 that Richard
Jelinek (and Boston Safe Deposit and Trust Company of
California acting as trustee for a Jelinek trust) sell to the
Target an aggregate amount of 1,000,000 shares of the Target's
common stock and 500 shares of Voting Preferred Stock of the
Target.
Immediately prior to the sale Mr. Jelinek exercised an option
to purchase the 500 shares of Preferred for an exercise price
of $500,000. In consideration for the sale of these securities
to the Target, Mr. Jelinek and the Trust received $4,500,000 in
cash, $2,000,000 in 8% promissory notes maturing in two equal
installments one year and two years after the date of issuance,
and warrants to purchase 400,000 shares of the Target's common
stock at an exercise price of $8.00 per share, payment to be at
the Target's discretion in either cash or shares of the Target.
In addition to the repurchase it was agreed that Mr. Jelinek
step down as Chairman of the Board. The share repurchase from
Mr. Jelinek prevents the Target from acquiring or being
acquired in a "pooling of interests" transaction until March
21, 1999.
- --------------------------------------------------------------------------------
SUMMARY OPERATING DATA (IN MILLIONS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
Fiscal Year 4Q Adjusted (a)
Ending May 31, CY 1997E CY 1988E CY 1988E
--------------------------------------- -------- -------- ------------
OPERATIONAL DATA 1995 1996 1997
------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Revenues(b) $ 22.5 $ 19.8 $ 18.3 $ 6.0 $ 29.3 $ 21.0
Gross profit 14.0 10.3 10.2 3.3 17.5 11.8
Operating expenses 10.5 17.8 17.6 3.3 15.4 6.2
EBITDA 4.7 (0.9) (1.4) 0.4(c) 4.3 7.8
EBIT 3.5 (7.4) (7.4) 0.0 2.1 5.6
NET INCOME
As reported 3.0 (3.7) (4.2) (0.1) 1.4 3.5
As adjusted 4.5 (1.9) (2.3) (0.1) 1.2 3.3
EARNINGS PER SHARE
As reported $ 0.45 ($ 0.57) ($ 0.70) ($ 0.02) $ 0.22 $ 0.57
As adjusted $ 0.68 ($ 0.29) ($ 0.38) ($ 0.02) $ 0.19 $ 0.53
Average Shares O/S (000's) 6,704 6,540 6,007 5,600 6,160 6,160
</TABLE>
- -----------------
(a) As estimated by Acquiror management.
(b) Represents historical financial statements reclassified to present contract
services as a discontinued operation.
(c) Depreciation for fourth quarter 1997 assumed to be one quarter of prior
twelve month amount.
-6-
<PAGE> 20
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE FISCAL YEAR ENDED MAY 1996 REORGANIZATION
- --------------------------------------------------------------------------------
Third Quarter Ended February 1996 - The Target commenced a
reevaluation of its strategic position. For the quarter the
Target recorded $1,569,240 in charges to exit the Executive
Information Systems product lines recording charges to write
down customer accounts and accrue future costs to provide
maintenance associated with existing contractual obligations.
Product development efforts for the Optimizer project and
portions of the MACH1 project were abandoned and their
associated development costs which had been capitalized were
expensed.
Fourth Quarter Ended May 1996 - The Target completed a
restructuring of its businesses to focus on its core products
and services. The restructuring followed the retirement of
Richard C. Jelinek as CEO and the hiring of Patrick C. Sommers
as CEO, and included the abandonment of certain product lines,
customer exit costs and employee and officer severance. The
Target exited the Clinical Case Management System and certain
development efforts in the Clinical Data Systems division were
discontinued and their capitalized costs expensed.
THE FISCAL YEAR ENDED MAY 1997 REORGANIZATION
Third Quarter Ended February 1997 - The Target continued its
reorganization during fiscal 1997 and incurred obligations
associated with its implementation. Following the stock
repurchase from Richard Jelinek, the Target recorded $2,800,391
in charges to complete its plan, including accruing future
costs to reorganize the Target's business units, to abandon
development efforts and to increase the allowance for doubtful
accounts. The Target decided to relocate operations for its
Clinical Data Systems division, and the costs related to the
relocation, which is expected to be completed within twelve
months, include canceling lease agreements, termination of
employees, and write down of abandoned assets. The Target
increased its reserves for product line exit costs and
severance costs relating to remaining customers of the
discontinued Clinical Case Management Systems product line,
also development efforts for the Target's Patient Focused
Systems products were abandoned.
The expenses associated with the reorganizations discussed
above are set forth below:
<TABLE>
<CAPTION>
FY 1996 FY 1997
--------------------------- ----------
3Q 4Q 3Q
(2/29/96) (5/31/96) (2/28/97)
---------- ---------- ----------
<S> <C> <C> <C>
Capitalized Software $736,612 $1,164,666 $276,826
Product Line Exit Costs 360,793 495,840 798,000
Accounts Receivable 471,835 315,371 450,000
Severance 0 1,117,086 569,868
Business Reorganization 0 0 705,697
---------- ---------- ----------
$1,569,240 $3,092,963 $2,800,391
========== ========== ==========
</TABLE>
-7-
<PAGE> 21
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
DISTRIBUTION OF OWNERSHIP
<TABLE>
<CAPTION>
NUMBER OF TOTAL PERCENT
SHARES OPTIONS (2) SHARES OWNED
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Share Ownership:
Current Senior Mangement (1)
Angus J. Carroll -- 90,000 90,000 1.4%
Susan K. Doctors -- 25,000 25,000 0.4%
Lynda D. Hernandez -- 40,000 40,000 0.6%
Timothy K. Rutledge 55,000 15,000 70,000 1.1%
Patrick C. Sommers 6,000 418,000 424,000 6.4%
--------- ------- --------- ----
61,000 588,000 649,000 9.7%
Current Directors (1)
William G. Brown 216,010 3,750 219,760 3.3%
Dorsey R. Gardner - Nominee 670,003 -- 670,003(3) 10.1%
Jon E.M. Jacoby 45,000 41,250 86,250 1.3%
Richard C. Jelinek 812,900 526,250 1,339,150(4) 20.1%
John P. Kunz -- -- -- 0.0%
Risa Lavizzo-Mourey 9,375 16,875 26,250 0.4%
Gail L. Warden 105,750 3,750 109,500 1.6%
--------- ------- --------- ----
1,859,038 591,875 2,450,913 36.8%
</TABLE>
<TABLE>
<CAPTION>
LATEST
FILING DATE CHANGE
----------- ------
<S> <C> <C> <C> <C>
Institutional Holders
PAW Capital Partners 06/30/97 -- 310,500 4.7%
Dimensional Fund Advisors 03/30/97 600 144,700 2.2%
Weiss, Peck & Greer 03/31/97 (158,000) 16,000 0.2%
Morgan Stanley & Co. 06/30/97 2,000 11,000 0.2%
BZW Barclays 03/31/97 -- 5,200 0.1%
ANB Investment Management 03/31/97 (118,000) 5,100 0.1%
Bankers Trust 06/30/97 -- 300 0.0%
Smith Barney 03/31/97 100 100 0.0%
Dean Witter 03/31/97 (2,300) 20 0.0%
--------- -----
492,920 7.4%
--------- -----
Total Shares Outstanding 6,664,907(5) 100.0%
Distribution of Ownership
Employees and Directors 3,099,913 46.5%
Former Employees 288,000(6) 4.3%
Institutional Holders 492,920 7.4%
Unidentified Shareholders 2,784,074 41.8%
--------- -----
6,664,907 100.0%
</TABLE>
- ------------------------
Sources: Proxy (5/31/97), 10-Q (8/31/97), CDA/Spectrum
(1) Options for management represent total options, options for current
directors represent exercisable options.
(2) Options outstanding as of May 31, 1997.
(3) Includes 550,778 shares owned by Hollybank Investments, LP of which Dorsey
R. Gardner is a partner.
(4) Includes 26,250 shares covered by options held by Richard C. Jelinek, who
disclaims all beneficial ownership. Includes 100,000 shares owned by Mr.
Jelinek's wife and warrants to purchased 400,000 shares of Common Stock,
and 435,000 shares of a Mellon Bank Trust which he disclaims beneficial
ownership.
(5) Shares outstanding as of October 10, 1997 plus warrants and options.
(6) Includes 88,000 shares and 100,000 shares covered by options held by Susan
P. Dowell, and 10,000 shares and 90,000 shares covered by options held by
Raymond J. Hanson.
-8-
<PAGE> 22
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
PRICE VOLUME GRAPH - (3/1/96 TO 11/5/97)
[GRAPH]
TRADING/MARKET MAKERS
The table below sets forth the monthly trading volume for the
ten trading institutions recording the largest trading volume
for the first three quarters of 1997.
<TABLE>
<CAPTION>
JAN - SEPT. JAN FEB MAR APR MAY JUNE JULY AUG. SEP.
------- ------ ------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stephens, Inc. 478,845 47,050 241,668 52,690 39,037 12,600 23,429 14,750 30,000 17,621
Brean Murray, Foster Sec 400,669 13,930 262,939 12,800 4,200 91,000 3,000 6,600 1,500 4,700
Herzog, Heine, Geduld, Inc. 278,918 79,712 21,190 42,959 8,082 34,400 29,450 6,800 28,000 28,325
Mayer & Schweitzer, Inc. 260,966 72,170 19,620 17,517 17,839 21,665 21,305 14,691 21,874 54,285
Punk Ziegel & Knoell Inc. 239,402 70,606 13,365 38,200 12,700 21,750 9,081 11,400 16,300 46,000
Dean Witter Reynolds, Inc. 88,630 27,450 5,000 8,800 8,980 14,880 920 8,600 2,000 12,000
Furman Selz, Inc. 68,901 16,600 47,301 5,000 -- -- -- -- -- --
Troster Singer Corp. 56,900 20,200 4,800 3,900 21,700 2,000 300 2,000 1,000 1,000
Abel Noser Corp. 30,400 10,800 19,600 -- -- -- -- -- -- --
Nash Weiss & Co. 7,660 -- -- -- -- -- -- 4900 -- 2,760
</TABLE>
ANALYST COVERAGE
No analysts actively follow the Company.
-9-
<PAGE> 23
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
MANAGEMENT
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Patrick C. Sommers 50 Chairman of the Board of Directors, President and Chief
Executive Officer
Angus J. Carroll 38 Senior Vice President
Marlon T. Gruen 43 Senior Vice President
Robert C. Steffel 44 Senior Vice President
Daniel P. DiCaro 40 Vice President, Chief Financial Officer and Asst. Secretary
Susan K. Doctors 56 Vice President
Lynda D. Hernandez 41 Vice President
Timothy K. Rutledge 39 Vice President
</TABLE>
PATRICK C. SOMMERS, President, Chief Executive Officer, and
Chairman of the Board of Directors joined the Company in
February 1996. From 1992 to 1996, Mr. Sommers served as
President of Ceridian Employer Services, a $400 million
division of Ceridian Corporation (formerly Control Data
Corporation). From 1990 to 1992, Mr. Sommers was President of
GTE Information Services, a division of GTE Corporation, and
from 1969 to 1990, he served in successive management positions
with Dun & Bradstreet Corporation, culminating with his
position as President of Dun & Bradstreet Information
Resources, Inc.
ANGUS J. CARROLL, Senior Vice President, joined the Company in
July 1996 and is responsible for strategic planning and
business development. From 1993 to 1996, Mr. Carroll served as
Vice President of Business Development at Ceridian Employer
Services. From 1990 to 1993, he was Director of Business
Planning at GTE Corporation. From 1979 to 1990, Mr. Carroll
held successive management positions with Dun & Bradstreet
Corporation, culminating with the position of Assistant Vice
President of Computer Development. Mr. Carroll received his
M.B.A. from Fairleigh-Dickinson University.
MARLON T. GRUEN, joined the company in February 1997 and is
responsible for marketing. From 1992 to 1997, Mr. Gruen served
as Vice President of Marketing for Merck-Medco Managed Care,
LLC, a division of Merck & Company. From 1991 to 1992, he was
Director of Product Planning at GTE Health Systems, a division
of GTE Corporation. From 1990 to 1991, Mr. Gruen served as
Director of Product Planning at Consumer Health Services, Inc.
Prior to that, from 1977 to 1990, he held successive management
positions with Dun & Bradstreet Corporation, culminating with
the position of Assistant Vice President of Product Planning &
Development.
ROBERT C. STEFFEL, Senior Vice President, is responsible for
the contract management and information services businesses.
Prior to joining the Company in December 1991, he was Vice
President, Information Systems of Specialty Home Health Care
from 1989 to 1991. He also served as Director of Information
Systems and Management Engineering at Curaflex Home Health Care
from 1988 to 1989.
DANIEL P. DICARO, Vice President, Chief Financial Officer and
Assistant Secretary, joined the Company in January 1997. Mr.
DiCaro was one of the founders of Imagination Pilots
Entertainment (IPE), a joint venture with Time Warner in
consumer multimedia software. Mr. DiCaro served as the Chief
-10-
<PAGE> 24
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
Financial Officer and Chief Operating Officer of IPE from 1994
to 1997. He is currently a director of IPE. From 1990 to 1994,
Mr. DiCaro served as the Chief Financial Officer of a group of
privately held, venture capital backed, software and
information service companies. Previously, he was the Vice
President of Finance for CCC Information Services Inc. (1987 to
1990) and a member of the international accounting firm of
Arthur Young and Company (1984 to 1987). Mr. DiCaro received
his M.B.A. from DePaul University and is a certified public
accountant.
SUSAN K. DOCTORS, Vice President, joined the Company in January
1995 and is responsible for Human Resources and Administration.
From 1993 to 1995, she worked as an independent consultant.
Prior to 1993, Ms. Doctors worked 19 years at Official Airline
Guides, Inc. holding successive management positions
culminating with her position as Vice President of Human
Resources. Ms. Doctors received her Masters in Management from
the Kellogg Graduate School at Northwestern University.
LYNDA D. HERNANDEZ, Vice President, is responsible for the
operations of the Clinical Data Systems division. Most
recently, Ms. Hernandez served as Senior Director for
operations. From 1990 to 1992, she was manager of Technical
Support, Interfaces and Client Services in the Clinical Data
Systems division. Prior to 1990, Ms. Hernandez served in
successive technical and management positions with the Company.
TIMOTHY K. RUTLEDGE, Vice President, is responsible for the
operations of the Decision Support Systems division. He joined
the Company in June 1992 following the acquisition of Innovate
Software Solutions, Inc. which he co-founded in 1989. He held
successive management positions with that firm until its
acquisition by Medicus. Previously, he served as a manager for
Price Waterhouse.
-11-
<PAGE> 25
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
Insiders
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE COMMITTEES
- ---- -------------- ----------
<S> <C> <C>
Patrick C. Sommers 1996 None
</TABLE>
Outsiders
<TABLE>
<CAPTION>
NAME DIRECTOR SINCE COMMITTEES
- ---- -------------- ----------
<S> <C> <C>
Richard C. Jelinek 1984 Compensation Committee
William G. Brown 1984 Audit Committee / Compensation Committee
Jon E.M. Jacoby 1991 Audit Committee
Risa Lavizzo-Mourey 1994 Stock Option Committee
Gail L. Warden 1988 Stock Option Committee
John P. Kuntz 1997 Compensation Committee / Stock Option Committee
Dorsey R. Gardner 1997 None
</TABLE>
RICHARD C. JELINEK, PH.D., Former Chairman of the Board of
Directors, was co-founder of the predecessor of the Target in
1969 and served as Chairman of the Board of the Predecessor
Corporation from its incorporation in December 1984 until the
Distribution. From December 1984 through February 1996, he also
served as the Predecessor Corporation's Chief Executive
Officer. From 1983 to 1985, he was also Chairman of the Board
and Chief Executive Officer of Mediflex Systems Corporation.
Since July 1996, he has also been Chairman of Managed Care
Solutions, Inc. Prior to founding the Target, Dr. Jelinek was
Associate Professor of Industrial Engineering and Hospital
Administration and Director, Systems Engineering Group, Bureau
of Hospital Administration at the University of Michigan. He
has a Ph.D. in Industrial Engineering from the University of
Michigan. Dr. Jelinek also serves as a director of Spectra
Medical Systems, Inc. He was a director of the Predecessor
Corporation from its incorporation in 1984, and has been a
director of the Company and Managed Care Solutions, Inc. since
the Distribution.
WILLIAM G. BROWN, is a partner of Bell, Boyd & Lloyd, Chicago,
IL, counsel to the Company, and has been Secretary and a
director of the Predecessor Corporation from its incorporation
in December 1984 until the Distribution, and of the Company and
Managed Care Solutions, Inc. since the Distribution. Mr. Brown
is also a director of MYR Group, Inc., Dovenmuehle Mortgage,
Inc. and CFC International, Inc.
JON E.M. JACOBY is Executive Vice President, Chief Financial
Officer and member of the Board of Directors of Stephens Group,
Inc., an affiliate of Stephens Inc. Mr. Jacoby is also a
director of St. Vincent Infirmary Medical Center, Delta & Pine
Land Co., and Beverly Enterprises, Inc. He was first elected a
director of the Predecessor Corporation in 1991 and has been a
director of the Target since the Distribution.
-12-
<PAGE> 26
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
RISA LAVIZZO-MOUREY is the Sylvan Eisman Professor of Medicine
and Health Care Systems at the University of Pennsylvania and a
board certified Internist and Geriatrician. Dr. Lavizzo-Mourey
earned her medical degree at Harvard Medical School followed by
a Masters of Business Administration at the University of
Pennsylvania's Wharton School. After completing a residency in
internal medicine at Brigham and Women's Hospital in Boston,
MA, she was a Robert Wood Johnson Clinical Scholar at the
University of Pennsylvania. She also held faculty appointments
at the Harvard Medical School and Temple University Medical
School. Dr. Lavizzo-Mourey has served on numerous Federal
advisory committees, including the White House Task Force on
Health Care Reform where she co-chaired the Working Group on
Quality of Care. She continues to be a consultant to the White
House on Health Care Policy. Dr. Lavizzo-Mourey is a director
of Nellcor Puritan Bennett, the Kapson Group, the American
Board of Internal Medicine and a Regent of the American College
of Physicians. Dr. Lavizzo-Mourey joined the Predecessor
Corporation Board in April, 1994, and has served as a director
of the Target and Managed Care Solutions, Inc. since the
Distribution.
GAIL L. WARDEN is President and Chief Executive Officer of
Henry Ford Health System, Detroit, MI. Mr. Warden is Past
Chairman and Board Member of the American Hospital Association
Board of Trustees and a member of the Governing Council of the
Institute of Medicine of the National Academy of Sciences. Mr.
Warden is also a director of the Robert Wood Johnson
Foundation, Comerica Bank Midwest of Detroit, Mental Health
Management and American Healthcare Systems. In addition, Mr.
Warden is Chairman of the Michigan Medicaid Funding Task Force,
Vice Chairman of the Matthew Thorton Health Plan, and a member
of the Association for Health Services Research and the Pew
Health Professions Commission. He is past Chairman of the Board
of Trustees of the National Committee for Quality Assurance. He
was first elected a director of the Predecessor Corporation in
1988 and has served as a director of the Company since the
Distribution.
JOHN P. KUNZ, is founder and President, since 1989, of J.P.K.
Associates, an international consulting firm in the information
industry. From 1978 to 1989, Mr. Kunz served in successive
management positions with Dun & Bradstreet Corporation,
culminating with his position as President of Dun & Bradstreet
Business Marketing Services in 1984 and President of Dun &
Bradstreet Business Information Services in 1989. From 1975 to
1978, Mr. Kunz served as Chairman of R.H. Donnelley, Europe.
Mr. Kunz was formerly a director of Advance Peterholm Group,
Ltd., American Credit Indemnity Company, Dun & Bradstreet
International, and Intervest.
DORSEY R. GARDNER, has been President of Kelso Management Co.,
Inc., and investment advisor, from 1980 to the present, and
General Partner of Hollybank Investments, LP, a Delaware
Limited Partnership, since 1994. From 1966 to 1980, Mr. Gardner
served in successive management positions with Fidelity
Management Research. Mr. Gardner is a director of Crane
Company, Medusa Corporation, and Filene's Basement.
-13-
<PAGE> 27
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
OUTSTANDING OPTIONS
SHARES OUTSTANDING FROM THE EXCERCISE OF OPTIONS
Closing Price (11/06/97): $5.50
<TABLE>
<CAPTION>
Strike # of
Options Price Options
------- --------- ---------
<S> <C> <C>
Carroll I $ 6.25 80,000
Carroll II 5.25 10,000
Doctors I 5.25 5,000
Doctors II 5.63 10,000
Doctors III NA 10,000(1)
Dowell I NA 40,000(1)
Dowell II NA 10,000(1)
Dowell III 5.25 50,000
Hanson I 5.25 20,000
Hanson II 5.63 20,000
Hanson III NA 50,000(1)
Hernandez I 5.25 15,000
Hernandez II 5.63 2,900
Hernandez III NA 22,100(1)
Jelinek I 8.00 400,000
Jelinek II 7.61 10,000
Jelinek III NA 16,250(1)
Sommers I 6.50 350,000
Sommers II 2.00 18,000
Sommers III 5.25 50,000
Rutledge I 5.25 15,000
---------
1,204,250
</TABLE>
(1) Strike price not available.
-14-
<PAGE> 28
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
HOLDINGS CONTROLLED BY DORSEY GARDNER
<TABLE>
<CAPTION>
Investment
Date in shares Price Total % Ownership(1)
- ----------------- ------- ----- ------- --------------
<S> <C> <C> <C> <C>
Prior to 11/27/95 301,675 N/A 301,675 4.5%
11/27/95 10,000 $8.50 311,675 4.7%
11/29/95 5,000 8.75 316,675 4.8%
11/11/96 5,000 4.93 321,675 4.8%
11/14/96 5,000 5.30 326,675 4.9%
11/20/96 3,500 5.08 330,175 5.0%
11/21/96 7,500 5.36 337,675 5.1%
12/03/96 8,000 5.43 345,675 5.2%
12/04/96 6,000 5.36 351,675 5.3%
12/04/96 5,000 5.36 356,675 5.4%
12/06/96 8,000 5.24 364,675 5.5%
12/10/96 23,000 5.30 387,675 5.8%
12/30/96 17,000 4.68 404,675 6.1%
01/02/97 10,000 5.05 414,675 6.2%
02/07/97 9,000 6.06 423,675 6.4%
02/24/97 2,725 6.28 426,400 6.4%
02/27/97 73,378 5.93 499,778 7.5%
02/27/97 10,000 5.94 509,778 7.6%
After 02/27/97 160,225 N/A 670,003 10.1%
</TABLE>
(1) Shares outstanding as of October 10, 1997 plus warrants and options.
-15-
<PAGE> 29
OVERVIEW
-16-
<PAGE> 30
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
Purchase Assumptions
Target Closing Stock Price (11/6/97) $5.50
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PURCHASE PRICE PER SHARE $6.50 $7.00 $7.50 $8.00 $8.50 $9.00
Premium to Target Current Stock Price 18% 27% 36% 45% 55% 64%
Target Shares Outstanding at October 10, 1997 5,485 5,485 5,485 5,485 5,485 5,485
</TABLE>
SHARES OUTSTANDING FROM THE EXERCISE OF OPTIONS(a)
<TABLE>
<CAPTION>
Strike Price # of
Range Options
- --------------------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.19 to $ 2.00 19,650 20 20 20 20 20 20
5.00 to 5.82 529,000 529 529 529 529 529 529
6.25 to 6.82 644,200 644 644 644 644 644 644
7.02 to 7.60 182,000 -- -- 182 182 182 182
8.97 to 9.62 273,500 -- -- -- -- -- 274
11.89 to 16.50 34,000 -- -- -- -- -- --
TOTAL OPTIONS EXERCISED 1,193 1,193 1,375 1,375 1,375 1,648
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
FULLY DILUTED TARGET SHARES OUTSTANDING (000's) 6,678 6,678 6,860 6,860 6,860 7,133
Total Consideration for Equity $ 43.4 $ 46.7 $ 51.4 $ 54.9 $ 58.3 $ 64.2
Less: Cash from Excercise of Options(b) 6.7 6.7 8.0 8.0 8.0 10.4
Acquisition Fees & Expenses(c) 2.2 2.3 2.3 2.4 2.4 2.5
TOTAL EQUITY PURCHASE PRICE (IN MILLIONS) $ 38.9 $ 42.3 $ 45.8 $ 49.3 $ 52.8 $ 56.3
Plus: Debt of Target $ 2.0 $ 2.0 $ 2.0 $ 2.0 $ 2.0 $ 2.0
Less: Cash of Target 0.4 0.4 0.4 0.4 0.4 0.4
ADJUSTED PURCHASE PRICE (IN MILLIONS) $ 40.6 $ 43.9 $ 47.4 $ 50.9 $ 54.4 $ 57.9
</TABLE>
(a) Option information set forth in Target 10-K for fiscal year end May 31,
1997.
(b) Assumes all options in a group are priced at lower end of range.
(c) Fees include Acquiror financial advisory fees per terms of engagement and
$150,000 for legal and accounting expenses. Also included are Target fees
and expenses assuming $150,000 for legal expenses, $150,000 for a financial
advisory fees and $850,000 to honour a sale agreement provision for the
Target CEO.
-17-
<PAGE> 31
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
VALUATION MULTIPLES OF ADJUSTED OPERATING RESULTS
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PURCHASE PRICE PER SHARE $ 6.50 $ 7.00 $ 7.50 $ 8.00 $ 8.50 $ 9.00
ADJUSTED PURCHASE PRICE (IN MILLIONS) $ 40.6 $ 43.9 $ 47.4 $ 50.9 $ 54.4 $ 57.9
</TABLE>
AS A MULTIPLE OF ADJUSTED PURCHASE PRICE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LTM REVENUE $18.7 MILLION $ 18.7 2.2x 2.4x 2.5x 2.7x 2.9x 3.1x
ADJ. 1998E REVENUE $21.0 MILLION $ 21.0 1.9x 2.1x 2.3x 2.4x 2.6x 2.8x
ADJ. 1998E NET INCOME(b) $3.3 MILLION $ 3.3 12.1x 13.1x 14.2x 15.2x 16.3x 17.3x
</TABLE>
(a) Adjusted Net Income is fully taxed net income excluding non-recurring
charges and cost savings estimated by Acquiror management.
-18-
<PAGE> 32
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
ACCRETION/DILUTION ANALYSIS
EARNINGS PER SHARE - ANALYST VIEW(a)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
PURCHASE PRICE PER SHARE $ 6.50 $ 7.00 $ 7.50 $ 8.00 $ 8.50 $ 9.00
ADJUSTED PURCHASE PRICE (IN MILLIONS) $ 40.6 $ 43.9 $ 47.4 $ 50.9 $ 54.4 $ 57.9
</TABLE>
<TABLE>
<CAPTION>
STAND ALONE PRO FORMA
----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
4Q 1997E $ 0.15(b) $ 0.15 $ 0.14 $ 0.14 $ 0.13 $ 0.13 $ 0.12
ADJ. 1998E $ 0.69(b) $ 0.80 $ 0.78 $ 0.76 $ 0.74 $ 0.72 $ 0.70
ACCRETION (DILUTION)
--------------------
4Q 1997E -2.9% -6.5% -10.3% -14.0% -17.7% -21.5%
Adj. 1998E 16.6% 13.6% 10.6% 7.6% 4.5% 1.5%
</TABLE>
(a) Analyst view represents earnings excluding non-recurring charges taxed at a
rate of 40%.
(b) Represents Jefferies & Company earnings estimates for Acquiror.
-19-
<PAGE> 33
TRANSACTION ANALYSIS
-20-
<PAGE> 34
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
ASSUMPTIONS FOR MODEL
<TABLE>
<CAPTION>
Transaction Type Purchase
- ---------------- --------
<S> <C>
Purchase Price Per Share $ 7.50
Premium to Target Current Stock Price 36.4%
Fully Diluted Target Shares Outstanding 6,860
Total Consideration $ 51.4
Less: Cash from Exercise of Options 8.0
Acquisition Fees & Expenses 2.3
----------
TOTAL EQUITY PURCHASE PRICE $ 45.8
Plus: Debt of Target 2.0
Less: Cash of Target 0.4
----------
ADJUSTED PURCHASE PRICE $ 47.4
GOODWILL CALCULATION
Equity Purchase Price $ 53.8
Less: Net Assets of Target 17.0
Less: 65.0% Write-off of In-Process R&D 23.9
----------
ADJUSTED GOODWILL $ 12.9
Life of Goodwill(in years) 5.0
SOURCES
Cash from Acquiror $ 47.4
Cash on Target Balance Sheet 0.4
Cash from Exercise of Options 8.0
Value of Stock Issued --
----------
TOTAL SOURCES $ 55.8
USES
Total Consideration for Equity $ 51.4
Repayment of Debt 2.0
Acquisition Fees & Expenses 2.3
----------
TOTAL USES $ 55.8
ACQUIROR SHARES ISSUED
Value of Stock Issued --
Acquiror Closing Stock Price as at 11/6/97 $ 23.88
Acquiror Shares Issued (in thousands) --
Fixed Exchange Ratio 0.314
</TABLE>
-21-
<PAGE> 35
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
ACQUIROR STANDALONE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Nine Months
FY Ending Dec. 31, Ending Sept 30,
------------------------------------ ----------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(In thousands, except for earnings per share)
<S> <C> <C> <C> <C> <C>
Revenues
Licenses $ 1,437 $ 4,420 $ 16,223 $ 11,021 $ 14,848
Services 4,665 3,183 2,865 2,147 7,300
-------- -------- -------- -------- --------
Total Revenues 6,102 7,603 19,088 13,168 22,148
Cost of Sales 6,033 6,333 9,977 6,644 9,838
-------- -------- -------- -------- --------
Gross Profit 69 1,270 9,111 6,523 12,310
Research & Development 767 653 2,499 1,641 2,227
Sales & Marketing 1,874 1,225 2,434 1,676 2,887
General & Administrative 2,039 2,439 3,221 2,368 2,947
Amortization of Goodwill 169 50 460 338 659
Write-offs/Non-recurring Items -- 6,240 -- -- 1,040
-------- -------- -------- -------- --------
4,849 10,607 8,614 6,023 9,760
Operating Income (4,780) (9,337) 497 500 2,550
Interest Expense (85) (176) (543) (329) (6)
Interest & Other Income -- 79 199 (23) 500
-------- -------- -------- -------- --------
Income Before Income Tax (4,865) (9,434) 153 148 3,044
Income Tax -- -- -- -- 265
-------- -------- -------- -------- --------
Net Income - Reported $ (4,865) $ (9,434) $ 153 $ 148 $ 2,779
======== ======== ======== ======== ========
Net Income - Analyst View(b) $ (3,194) $ 92 $ 89 $ 2,450
======== ======== ======== ========
EPS - REPORTED $ (2.13) $ 0.03 $ 0.03 $ 0.38
EPS - ANALYST VIEW(b) $ (0.72) $ 0.02 $ 0.02 $ 0.34
Shares Outstanding 4,435 5,089 4,747 7,250
</TABLE>
<TABLE>
<CAPTION>
Latest Projected(a)
Twelve -----------------------------------
Months Q4-97E 1997E 1998E
-------- -------- -------- --------
(In thousands, except for earnings per share)
<S> <C> <C> <C> <C>
Licenses $ 20,050 $ 6,107 $ 20,955 $ 27,558
Services 8,018 4,490 11,790 19,458
-------- -------- -------- --------
Total Revenues 28,068 10,597 32,745 47,016
Cost of Sales 13,171 4,842 14,680 20,654
-------- -------- -------- --------
Gross Profit 14,898 5,755 18,065 26,362
Research & Development 3,085 858 3,085 3,761
Sales & Marketing 3,645 1,367 4,254 6,223
General & Administrative 3,800 1,325 4,272 5,810
Amortization of Goodwill 781 310 969 1,320
Write-offs/Non-recurring Items 1,040 100 1,140 --
-------- -------- -------- --------
12,351 3,960 13,720 17,114
Operating Income 2,547 1,795 4,345 9,248
Interest Expense (220) -- (6) --
Interest & Other Income 722 560 1,060 2,800
-------- -------- -------- --------
Income Before Income Tax 3,049 2,355 5,399 12,048
Income Tax 265 118 383 4,819
-------- -------- -------- --------
Net Income - Reported $ 2,784 $ 2,237 $ 5,016 $ 7,229
======== ======== ======== ========
Net Income - Analyst View(b) $ 2,453 $ 1,473 $ 3,923 $ 7,229
======== ======== ======== ========
EPS - REPORTED $ 0.50 $ 0.23 $ 0.63 $ 0.69
EPS - ANALYST VIEW(b) $ 0.44 $ 0.15 $ 0.49 $ 0.69
Shares Outstanding 5,523 9,600 8,018 10,550
</TABLE>
(a) Jefferies & Company analyst estimates, pro forma for the company's
follow-on equity offering.
(b) Analyst view represents earnings excluding non-recurring charges taxed at
40%.
-22-
<PAGE> 36
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
TARGET STANDALONE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Quarter Ended
Fiscal Year Ending May 31, --------------------
------------------------------- Aug. 31, Nov. 31, Adjusted
1995 1996 1997 1997 1997E CY 1998E(c) CY 1998E(h)
-------- -------- -------- -------- -------- -------- --------
(In thousands, except earnings per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Software, Products & Services $ 13,495 $ 10,375 $ 8,149 $ 2,244 $ 3,721 $ 19,280 $ 11,001(i)
Maintenance & Support Services 9,012 9,419 10,121 2,376 2,321 9,981 9,981(j)
-------- -------- -------- -------- -------- -------- --------
Total Revenues 22,507 19,794 18,270 4,620 6,042 29,261 20,982
Software Products & Services 4,118 3,889 2,936 718 997(b) 4,292(d) 3,372(k)
Maintenance & Support Services 4,374 5,564 5,099 1,127 1,731(b) 7,455(d) 5,856(k)
-------- -------- -------- -------- -------- -------- --------
Gross Profit 14,015 10,341 10,235 2,774 3,314 17,514 11,755
Research & Development 2,149 1,836 3,066 981 481 2,351(e) 1,373(l)
Sales, General & Administrative:
Sales & Marketing -- -- -- -- 1,480 6,931 2,768(m)
General & Administrative -- -- -- -- 1,344 5,341 2,100(n)
-------- -------- -------- -------- -------- -------- --------
Sales, General & Administrative 8,326 11,288 10,034 2,724 2,825 12,272 4,868
Stock Repurchase -- -- 1,690 -- -- -- --
Other Special Charges -- 4,662 2,800 -- -- (87)(f) (87)(f)
-------- -------- -------- -------- -------- -------- --------
10,475 17,786 17,590 3,705 3,306 14,537 6,154
Operating Income 3,540 (7,445) (7,355) (930) 8 2,977 5,600
Interest Expense -- -- -- (40) -- (36) (36)
Interest & Other Income 680 556 367 43 (208) -- --
-------- -------- -------- -------- -------- -------- --------
Income Before Income Tax 4,220 (6,889) (6,988) (927) (200) 2,942 5,565
Income Tax 1,519 (2,816) (2,569) (357) (77) 1,133(g) 2,142
-------- -------- -------- -------- -------- -------- --------
Net Income 2,701 (4,073) (4,419) (570) (123) 1,809 3,422
Discontinued Ops 324 347 199 64 -- 62 62
-------- -------- -------- -------- -------- -------- --------
Net Income - Reported $ 3,024 ($ 3,726) ($ 4,220) ($ 507) ($ 123) $ 1,871 $ 3,484
======== ======== ======== ======== ======== ======== ========
Net Income - Analyst View (a) $ 4,544 ($ 1,880) ($ 2,299) ($ 864) ($ 120) $ 1,774 $ 3,348
======== ======== ======== ======== ======== ======== ========
EPS - REPORTED $ 0.45 ($ 0.57) ($ 0.70) ($ 0.09) ($ 0.02) $ 0.30 $ 0.57
EPS - ANALYST VIEW(a) $ 0.68 ($ 0.29) ($ 0.38) ($ 0.16) ($ 0.02) $ 0.29 $ 0.54
Shares Outstanding 6,704 6,540 6,007 5,489 5,600 6,160 6,160
</TABLE>
-23-
<PAGE> 37
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
FOOTNOTES TO TARGET INCOME STATEMENT
(a) Analyst view represents earnings excluding non-recurring charges taxed at
40%.
(b) Ratio between products and services for 4Q 1997E cost of sales assumed to
be in same ratio as FY1997.
(c) Projections for the year ending November 30, 1998, as provided by Target.
(d) Ratio between products and services 1998E cost of sales assumed to be in
same ratio as FY1997.
(e) Research & Development excludes $879,321 of capitalized software.
(f) Represents net cost savings associated with the closing of the Alameda
facility.
(g) Effective tax rate of 38.5% assumed for reported information.
(h) Acquiror management estimates for CY1998E.
(i) Represents a 35% increase over the Target's FY1997 revenue from Software,
Products & Services.
(j) Maintenance revenue estimates provided by Target management.
(k) Gross margins assumed to be the same as reported by the Target for FY1997.
(l) Research & Development assumed to be 50% of Target's pre-capitalized R&D
expenditure, capitalized at Acquirors rate of 15%.
(m) Sales & Marketing expense as a cost of revenue assumed to be consistent
with historical rate for Acquiror.
(n) General & Administrative Expense represents the Target's projected CY1998E
is less officers' salaries, mergers and acquisitions office, accounting
office and human resources office expense.
-24-
<PAGE> 38
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
PRO FORMA COMBINED INCOME STATEMENTS FOR FOURTH QUARTER
<TABLE>
<CAPTION>
Fourth Quarter 1997 Operating Acquisition
-------------------
Acquiror Target Adjust. Adjust. 1997PF
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Subscription & License $ 6,107 $3,721 $ 9,828
Services 4,490 2,321 6,811
-------- -------- --------
Total Revenues 10,597 6,042 16,639
Cost of Revenue 4,842 2,728 7,570
-------- -------- --------
Gross Profit 5,755 3,314 9,069
Research & Development 858 481 (120)(c) 1,219
Selling General & Administrative 2,692 2,825 (706)(c) 4,811
Amortization 310 -- 310
New Goodwill Amortization -- -- 644(d) 644
Write-Off of In-process R&D -- -- 23,915(e) 23,915
Stock Repurchase -- -- --
Non-Recurring Items 100 -- 100
-------- -------- --------
3,960 3,306 30,998
Operating Income 1,795 8 (21,929)
Interest Expense -- (6)
Interest & Other Income 560 (437)(f) 123
-------- --------
Income Before Income Tax 2,355 (21,812)
Income Tax 118 --
-------- --------
Net Income - Reported $ 2,237 ($21,812)
======== ========
Net Income - Analyst View $ 1,473 $ 1,322
======== ========
EPS - Reported $ 0.23 $( 2.27)
EPS - Analyst View (a) $ 0.15 $ 0.14
Shares Outstanding (b) 9,600 9,600
</TABLE>
- ----------------
(a) Analyst view represents earnings excluding non-recurring charges taxed at
40%.
(b) Shares outstanding for Q4 1997 include pro forma impact of equity offering.
(c) Potential pro forma cost savings estimated by Acquiror.
(d) Represents three months of acquisition created goodwill of $12.9 million
amortized over 5 years.
(e) Represents write-off of in-process research & development costs amounting
to 65% of purchase price in excess of Target net asset cost.
(f) Represents on quarter of interest at 3.5% earned on cash balances
post-offering giving effect to acquisitions.
-25-
<PAGE> 39
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
PRO FORMA COMBINED INCOME STATEMENTS FOR 1998
<TABLE>
<CAPTION>
1998E Acquis.
-------------------
Acquiror Target(c) Adjust. 1998PF
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues
Subscription & License $ 27,558 $ 11,001 $ 38,559
Services 19,458 9,981 29,439
Total Revenues 47,016 20,982 67,998
Cost of Revenue 20,654 9,228 29,882
Gross Profit 26,362 11,755 38,117
Research & Development 3,761 1,373 5,134
Marketing General & Administrative 12,033 4,868 16,901
Amortization 1,320 -- 1,320
New Goodwill Amortization -- -- 2,575 (d) 2,575
Write-Off of In-process R&D -- -- --
Stock Repurchase -- -- --
Non-Recurring Items -- (87) (87)
-------- ------ --------
17,114 6,154 25,844
Operating Income 9,248 5,600 12,273
Interest Expense -- --
Interest & Other Income 2,800 (1,748)(e) 1,052
Income Before Income Tax 12,048 13,325
Income Tax 4,819 5,330
-------- --------
Net Income - Reported $ 7,229 $ 7,995
======== ========
Net Income - Analyst View $ 7,229 $ 7,943
======== ========
EPS - Reported $ 0.69 $ 0.75
EPS - Analyst View (a) $ 0.69 $ 0.76
Shares Outstanding (b) 10,550 -- 10,550
</TABLE>
- ------------------------
(a) Analyst view represents earnings excluding non-recurring charges taxed at
40%.
(b) Shares outstanding for 1998E include pro forma impact of equity offering.
(c) Reflects Acquiror management estimates for CY1998E.
(d) Represents acquisition created goodwill of $12.9 million amortized over 5
years.
(e) Represents interest of 3.5% earned on cash balances post-offering giving
effect to acquisitions.
-26-
<PAGE> 40
QUADRAMED CORP. HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
Acquiror(a) Target Target Acquisition Pro Forma
ASSETS Sep-97 Aug-97 Adjust. Adjust. Jun-97
------- ------ ----- ------- -------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents 66,265 372 7,953 (55,771)(c) 18,819
Accounts receivable, net 7,556 8,615 16,171
Other current assets 575 2,633 3,208
------ ------ ------
Total current assets 74,396 11,620 38,198
Non-Marketable Investment 2,500 -- 2,500
Property and equipment, net 3,234 2,142 5,376
Intangible assets, net 1,455 2,938 4,393
Goodwill 6,655 -- 6,655
New Goodwill -- -- 12,877 12,877
Capitalized software costs, net 1,121 -- 1,121
Other assets 210 3,300 3,510
------ ------ ------
Total assets 89,571 20,000 74,630
LIABILITIES
Current maturities of capital lease obligations 58 -- 58
Accounts payable and accrued expenses 2,313 4,116 6,429
Deferred revenue 1,226 4,857 6,083
Notes payable -- 1,000 (1,000) --
------ ------ ------
Total current liabilities 3,597 9,974 12,571
Capital lease obligations, less current portion 366 -- 366
Long-term debt -- 1,000 (1,000) --
------ ------ ------
Total liabilities 3,963 10,974 12,937
STOCKHOLDERS' EQUITY
Common stock 99,627 17,417 7,953 (25,370)(d) 99,627
Retained earnings (deficit) (13,728) (8,390) (15,524)(d,e) (37,643)
Deferred compensation (291) -- (291)
------ ------ ------
Total stockholders' equity 85,608 9,027 61,693
Total Liabilities and Stockholders' Equity 89,571 20,000 74,630
</TABLE>
- ----------------------
(a) Acquiror balance sheet is pro forma for net proceeds of $49.4 million from
its recent equity offering.
(b) Represents proceeds from exercise of Target options.
(c) Represents cash purchase price net of $8.0 from the exercise of outstanding
options and including $2.3 of fees and expenses.
(d) Elimination of Target equity of $9.0 million.
(e) Includes write-off of 65.0% of in-process research & development, amounting
to $23.9 million.
-27-
<PAGE> 41
APPENDICES
