<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
QUADRAMED CORPORATION
- --------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
LOGO
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 1997
To Our Stockholders:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of QuadraMed Corporation (the "Company"), which will be held at 80 East Sir
Francis Drake Boulevard, Larkspur, California 94939 at 9:00 a.m. on May 21, 1997
for the following purposes:
1. To elect three directors to the Board of Directors; and
2. To act upon such other business as may properly come before the meeting
or any adjournment or postponement thereof.
These matters are more fully described in the Proxy Statement accompanying
this Notice.
The Board of Directors has fixed the close of business on April 7, 1997 as
the record date for determining those stockholders who will be entitled to vote
at the 1997 Annual Meeting. The stock transfer books will remain open between
the record date and the date of the 1997 Annual Meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of QuadraMed Corporation either in person or by proxy is required to
constitute a quorum. Accordingly, it is important that your shares be
represented at the meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE. Your proxy may be revoked at any time prior to the time it is
voted at the 1997 Annual Meeting.
Please read the accompanying proxy statement carefully. Your vote is
important and the Company appreciates your cooperation in considering and acting
on the matters presented.
Sincerely yours,
/s/ James D. Durham
-------------------
Chairman of the Board, President and
Chief Executive Officer
April 28, 1997
Larkspur, California
<PAGE> 3
STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES
PROXY STATEMENT
FOR
1997 ANNUAL MEETING OF STOCKHOLDERS
OF
QUADRAMED CORPORATION
TO BE HELD ON MAY 21, 1997
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of QUADRAMED CORPORATION ("QuadraMed Corporation" or the
"Company") of proxies to be voted at the 1997 Annual Meeting of Stockholders,
which will be held at 9:00 a.m. on May 21, 1997, at 80 East Sir Francis Drake
Boulevard, Larkspur, California 94939, or at any adjournments or postponements
thereof, for the purposes set forth in the accompanying Notice of 1997 Annual
Meeting of Stockholders. This Proxy Statement and the proxy card were first
mailed to stockholders on or about April 28, 1997. The Company's 1996 Annual
Report is being mailed to stockholders concurrently with this Proxy Statement.
The 1996 Annual Report is not to be regarded as proxy soliciting material or as
a communication by means of which any solicitation of proxies is to be made.
VOTING RIGHTS AND SOLICITATION
The close of business on April 7, 1997 was the record date for stockholders
entitled to notice of and to vote at the 1997 Annual Meeting of Stockholders. As
of that date, QuadraMed Corporation had 6,017,767 shares of Common Stock, $.01
par value per share (the "Common Stock") issued and outstanding. All of the
shares of the Company's Common Stock outstanding on the record date are entitled
to vote at the 1997 Annual Meeting of Stockholders, and stockholders of record
entitled to vote at the meeting will have one vote for each share of Common
Stock so held with regard to each matter to be voted upon.
Shares of the Company's Common Stock represented by proxies in the
accompanying form which are properly executed and returned to QuadraMed
Corporation will be voted at the 1997 Annual Meeting of Stockholders in
accordance with the stockholders' instructions contained therein. In the absence
of contrary instructions, shares represented by such proxies will be voted FOR
the election of each of the directors as described herein under "Proposal
1 -- Election of Directors." Management does not know of any matters to be
presented at this 1997 Annual Meeting other than those set forth in this Proxy
Statement and in the Notice accompanying this Proxy Statement. If other matters
should properly come before the meeting, the proxy holders will vote on such
matters in accordance with their best judgment. Any stockholder has the right to
revoke his or her proxy at any time before it is voted at the meeting. Election
of directors by stockholders shall be determined by a plurality of the votes
cast by the stockholders entitled to vote at the election present in person or
represented by proxy. Abstentions and broker non-votes are each included in the
determination of the number of shares present for quorum purposes. Abstentions
and broker non-votes are not counted for purposes of determining whether an
individual has been elected as director and, accordingly, will have no effect on
the outcome of the vote.
The entire cost of soliciting proxies will be borne by the Company. Proxies
will be solicited principally through the use of the mails, but, if deemed
desirable, may be solicited personally or by telephone, telegraph or special
letter by officers and regular Company employees for no additional compensation.
Arrangements may be made with brokerage houses and other custodians, nominees
and fiduciaries to send proxies and proxy material to the beneficial owners of
the Company's Common Stock, and such persons may be reimbursed for their
expenses.
1
<PAGE> 4
PROPOSAL 1
ELECTION OF DIRECTORS
COMPOSITION OF BOARD OF DIRECTORS
The Company's By-laws set the number of directors at seven. The Company's
Board of Directors is divided into three classes, designated Class I, Class II
and Class III. The initial directors in each class hold office for terms of one
year, two years and three years, respectively. Thereafter each class will serve
a three-year term. The term of Class I, currently consisting of John M. Austin,
M.D. and Laurie Thomsen, will expire at the 1997 Annual Meeting; the term of
Class II, currently consisting of Joan P. Neuscheler and Cornelius T. Ryan, will
expire at the annual meeting of stockholders to be held in 1998; and the term of
Class III, currently consisting of James D. Durham and Thomas F. McNulty, will
expire at the annual meeting of stockholders to be held in 1999. The Company is
seeking to add a seventh director to the Board of Directors at the 1997 Annual
Meeting. The Company's directors are elected by the stockholders at the annual
meeting of stockholders and will serve until their successors are elected and
qualified, or until their earlier resignation or removal. There are no family
relationships among any of the directors, the nominees for directors and
executive officers of the Company.
The proxy holders named on the proxy card intend to vote all proxies
received by them in the accompanying form for the election of the three Class I
nominees listed below, unless instructions to the contrary are marked on the
proxy. These nominees have been selected by the Board of Directors and one of
the nominees, John H. Austin, M.D., is currently a member of the Board. Laurie
Thomsen, currently a Class I member of the Board of Directors, has resigned from
the Board effective at the 1997 Annual Meeting, and has declined to stand for
reelection to the Board. If you do not wish your shares to be voted for
particular nominees, please identify the exceptions on the proxy card.
In the event that a nominee is unable or declines to serve as a director at
the time of the 1997 Annual Meeting, the proxies will be voted for any nominee
who shall be designated by the present Board of Directors to fill the vacancy.
In the event that additional persons are nominated for election as directors,
the proxy holders intend to vote all proxies received by them for the nominees
listed below, unless instructions are given to the contrary. As of the date of
this Proxy Statement, the Board of Directors is not aware of any nominee who is
unable or will decline to serve as a director.
CLASS I -- NOMINEES FOR ELECTION
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION SINCE AGE
- ---------------------- -------------------------------------------------- -------- ---
<S> <C> <C> <C>
John H. Austin, M.D. Independent Consultant. Formerly President, 1995 52
Professional Services Division of UniHealth
Albert L. Greene President and Chief Executive Officer of Alta Nominee 47
Bates Medical Center; President and Chief
Executive Officer of Alta Bates Health Systems;
Senior Vice President-East Bay Market Service Area
of Sutter Health
Kenneth E. Jones Chairman of the Board and Chief Executive Officer Nominee 50
of Globe Wireless
</TABLE>
CLASS II -- DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING OF
STOCKHOLDERS
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION SINCE AGE
- ---------------------- -------------------------------------------------- -------- ---
<S> <C> <C> <C>
Joan P. Neuscheler General Partner of Tullis-Dickerson Partners and 1994 37
Chief Financial Officer of Tullis-Dickerson & Co.,
Inc.
Cornelius T. Ryan General Partner of Oxford Partners, OBP Management 1995 65
L.P. and OBP Management (Bermuda) L. P.
</TABLE>
2
<PAGE> 5
CLASS III -- DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING OF
STOCKHOLDERS
<TABLE>
<CAPTION>
DIRECTOR
NAME PRINCIPAL OCCUPATION SINCE AGE
- ---------------------- -------------------------------------------------- -------- ---
<S> <C> <C> <C>
James D. Durham Chairman of the Board, President and Chief 1993 50
Executive Officer of the Company
Thomas F. McNulty Senior Vice President, Chief Financial Officer and 1994 57
Treasurer of Henry Ford Health Systems
</TABLE>
The following is certain biographical information, as of March 10, 1997,
regarding the current members of the Company's Board of Directors and two
nominees to the Board who are not currently members of the Board of Directors:
James D. Durham founded the Company in September 1993 when he became its
President and Chief Executive Officer and a director. In May 1996, Mr. Durham
became Chairman of the Board. From November 1992 to December 1993, Mr. Durham
served as the Chief Executive Officer of Trim Healthcare Systems, Inc., a
reimbursement consulting services company. From April 1992 to April 1993, Mr.
Durham served as Chief Executive Officer of Care Partners, Inc., an accounts
receivable processing and funding company co-founded by Mr. Durham. From
February 1986 until its acquisition by Ameritech in February 1992, Mr. Durham
served as President and Chief Executive Officer of Knowledge Data Systems, Inc.,
a healthcare information systems company. Mr. Durham holds a B.S. with honors in
Industrial Engineering from the University of Florida and an M.B.A. with an
emphasis in Finance from the University of California, Los Angeles and is a
Certified Public Accountant.
Thomas F. McNulty has been a director of the Company since October 1994.
Mr. McNulty has served as Senior Vice President, Chief Financial Officer and
Treasurer of Henry Ford Health Systems, an integrated delivery system, since
1983. Mr. McNulty is also a director of several privately held companies and
charitable organizations.
John H. Austin, M.D., has been a director of the Company since April 1995.
Dr. Austin is an independent consultant in the healthcare industry. From October
1994 to April 1997, Dr. Austin served as President, Professional Services
Division for UniHealth, a multi-hospital and medical group health care
organization. Prior to joining UniHealth, Dr. Austin was a consultant in the
healthcare industry from June 1992 to October 1994 and served as Executive Vice
President, Health Plan of America HMO for St. Joseph Health System from January
1987 to June 1992. Mr. Austin is also a director of Coventry Corp., a nursing
home company.
Joan P. Neuscheler has been a director of the Company since March 1994. Ms.
Neuscheler has been a general partner of Tullis-Dickerson Partners, a venture
capital firm, since September 1992, and the Chief Financial Officer of
Tullis-Dickerson & Co., Inc. since April 1989. Tullis-Dickerson Partners is the
general partner of Tullis-Dickerson Capital Focus, L.P., a stockholder of the
Company. Ms. Neuscheler is also a director of American Consolidated
Laboratories, Inc., a manufacturer of contact lenses, and several privately held
companies.
Cornelius T. Ryan has been a director of the Company since March 1995. Mr.
Ryan has been a general partner of Oxford Partners since 1981 and of OBP
Management L.P., and OBP Management (Bermuda) Limited Partnership since 1992.
OBP Management L.P. and OBP Management (Bermuda) Limited Partnership are the
general partners of Oxford Bioscience Partners L.P. and Oxford Bioscience
Partners (Bermuda) Limited Partnership, respectively, each a stockholder of the
Company. Mr. Ryan is also a director of several privately held companies.
Laurie J. Thomsen has been a director of the Company since March 1995. Ms.
Thomsen has been a general partner of Prism Venture Partners, a venture capital
firm, since November 1995. Prior to joining Prism Venture Partners, from
December 1988 to November 1995, Ms. Thomsen was a general partner of Hancock
Venture Partners, Inc., a venture capital firm and a general partner of Hancock
Venture Partners IV-Direct Fund L.P. and Falcon Ventures II L.P., stockholders
of the Company. Ms. Thomsen is also a director of several privately held
companies.
3
<PAGE> 6
Albert L. Greene has been the President and Chief Executive Officer of Alta
Bates Medical Center, a 527-bed acute care hospital located in Berkeley,
California, since 1990. Mr. Greene also has been the President and Chief
Executive Officer of Alta Bates Health System, the parent company of Alta Bates
Medical Center, since January 1996, and a Senior Vice President of the East Bay
Market Service Area of Sutter Health, a health care delivery system and the
parent company of Alta Bates Health System, since June 1996. Mr. Greene has
served as an executive in hospital administration since 1979, most recently as
the President of Sinai Samaritan Medical Center in Milwaukee, Wisconsin from
1988 to 1990. Mr. Greene received a masters of hospital administration at the
University of Michigan, and is presently a diplomate of the American College of
Healthcare Executives and a member of the American Hospital Association. Mr.
Greene is also chair-elect of the California Healthcare Association, a member of
the board of directors of Acuson Corporation, a manufacturer and provider of
medical diagnostic ultrasound systems, and a member of the board of directors of
several other privately held hospitals and hospital associations.
Kenneth E. Jones has been the Chairman of the Board and Chief Executive
Officer of Globe Wireless, a provider of marine communications services, since
1990. Mr. Jones has also held various senior management positions with other
companies, including President and Chief Executive Officer of Ditech
Corporation, a telecommunications company, President and Chief Executive Officer
of Automated Call Processing Corporation, a telecommunications company,
President and Chief Executive Officer of ClausenKoch Company, a producer of
canned meat products and Vice President and Chief Financial Officer of Hills
Bros. Coffee, Inc., a producer of coffee. Mr. Jones holds a B.S. in Chemical
Engineering from the University of Nebraska and an M.B.A. from Harvard
University.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of 10 meetings during
the fiscal year ended December 31, 1996 (the "1996 fiscal year"). Each director
attended at least 75% of the aggregate of (i) the total number of meetings of
the Board and (ii) the total number of meetings held by all committees of the
Board on which he or she served.
The Company has an Audit Committee, Compensation Committee and Nominating
Committee of the Board of Directors.
The Audit Committee's duties include reviewing internal financial
information, monitoring cash flow, budget variances and credit arrangements,
reviewing the audit program of the Company, reviewing with the Company's
independent accountants the results of all audits upon their completion,
annually selecting and recommending independent accountants, overseeing the
quarterly unaudited reporting process and taking such other action as may be
necessary to assure the adequacy and integrity of all financial information
distributed by the Company. The Committee, which currently consists of Ms.
Neuscheler and Mr. McNulty, held one meeting during the 1996 fiscal year.
The Compensation Committee recommends compensation levels of senior
management and works with senior management on benefit and compensation programs
for Company employees. In addition, the Compensation Committee administers the
Company's 1996 Stock Incentive Plan (the "1996 Plan"). This Committee, which
currently consists of Ms. Neuscheler (Chairperson), Dr. Austin and Mr. Ryan,
held five meetings during the 1996 fiscal year. No member of this Committee was
at any time during the 1996 fiscal year or at any other time an officer or
employee of the Company. No executive officer of the Company served on the
compensation committee of another entity or on any other committee of the board
of directors of another entity performing similar functions during the Company's
last fiscal year. For a description of transactions between the Company and
members of the Compensation Committee or their affiliates, see "Certain
Relationships and Related Transactions."
The Nominating Committee's duties include presenting to the Board of
Directors suggestions for nominees to the Board. Stockholders may nominate
director candidates for election at an annual meeting of stockholders by
providing written notice of such nomination to the Secretary of the Company and
by complying with the related procedures specified in the Company's By-laws. The
Company's By-laws require
4
<PAGE> 7
the notice to be submitted to the Company 60 to 90 days before the anniversary
date of the previous year's annual meeting. The By-laws also require the notice
to include specified information about the stockholder making the nomination and
specified information about the director candidate, including all information
that would be required to be disclosed in a proxy statement. No nominations for
director pursuant to this process were received for the 1997 Annual Meeting, and
no other candidates are eligible for election as directors at the 1997 Annual
Meeting. A copy of the By-laws may be obtained from the Secretary of the
Company. The Nominating Committee, which currently consists of Mr. Durham and
Dr. Austin, did not hold any meetings during the 1996 fiscal year.
DIRECTOR REMUNERATION
Non-employee directors will be reimbursed for their reasonable expenses
incurred in connection with attending board meetings. Non-employee directors are
eligible to receive periodic option grants under the Discretionary Option Grant
and Automatic Option Grant Programs in effect under the Company's 1996 Plan.
Under the Automatic Option Grant Program, each individual who was serving
as a non-employee Board member at the time of the initial public offering of the
Company's Common Stock and who had not previously been in the Company's employ
nor had received any prior option grant from the Company received an option
grant for 10,000 shares of Common Stock with an exercise price of $12.00 per
share (the price per share at which the Common Stock was sold in the initial
public offering on that date). Each individual who first becomes a non-employee
Board member at any time after the initial public offering will receive a
similar 10,000 share option grant on the date such individual joins the Board,
provided such individual has not been in the prior employ of the Company. In
addition, on the date of each annual stockholders meeting, beginning with the
1997 Annual Meeting, each individual who is to continue to serve as a
non-employee Board member, whether or not that individual has been in the prior
employ of the Company, will receive an option grant to purchase 4,000 shares of
Common Stock, provided such individual has served as a non-employee Board member
for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of Common Stock on the grant date and will have a
maximum term of 10 years, subject to earlier termination following the
optionee's cessation of Board service. Each automatic option will be immediately
exercisable for any or all of the option shares; however, any shares purchased
under the option will be subject to repurchase by the Company, at the option
exercise price paid per share, should the optionee cease service as a Board
member prior to vesting in those shares. The shares subject to each initial
10,000 share grant will vest as to one third (1/3) of the option shares upon the
optionee's completion of one (1) year of Board service measured from the grant
date, and the balance of the shares will vest in a series of 24 successive equal
monthly installments over the optionee's period of Board service measured from
the first anniversary of the grant date. The shares subject to each 4,000 share
grant will vest, and the Company's repurchase right will lapse, in a series of
12 successive equal monthly installments over the optionee's period of Board
service measured from the grant date. However, the shares subject to each
outstanding option will immediately vest upon (i) certain changes in the
ownership or control of the Company or (ii) the death or disability of the
optionee while serving as a Board member.
Under the Discretionary Option Grant Program, eligible individuals in the
Company's employ or service (including non-employee Board members, officers and
consultants) may, at the discretion of the Compensation Committee of the Board,
as Plan Administrator, be granted options to purchase shares of Common Stock at
an exercise price not less than 100% of their fair market value on the grant
date. The Compensation Committee will have complete discretion to determine the
vesting schedule, maximum term and the status under Federal tax laws of any such
option grant. No non-employee Board members received any option grants under the
Discretionary Option Grant Program during the 1996 fiscal year.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ELECTION OF
ALL OF THE CLASS I NOMINEES IDENTIFIED ABOVE FOR ELECTION AS DIRECTORS.
5
<PAGE> 8
MANAGEMENT
The following sets forth the names, ages and positions of the Company's
executive officers and certain information, as of March 10, 1997, regarding the
Company's executive officers who are not members of the Board of Directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- -----------------------------------------
<S> <C> <C>
James D. Durham............. 50 Chairman of the Board, President and
Chief Executive Officer
John V. Cracchiolo.......... 40 Executive Vice President, Chief Financial
Officer and Secretary
Kevin H. Arner.............. 29 Executive Vice President and President,
EDI Division
Frederick Stodolak.......... 40 Executive Vice President and President,
Value-Added Systems Division
Suzanne J. Blumenthal....... 43 Senior Vice President, Business
Development
Keith M. Roberts............ 32 Vice President and General Counsel
</TABLE>
John V. Cracchiolo joined the Company in May 1995 as its Executive Vice
President, Chief Financial Officer and Secretary. Prior to joining the Company,
Mr. Cracchiolo worked for PSICOR, Inc., a healthcare services company, serving
as its Chief Financial Officer from February 1993 to May 1995, and its corporate
Controller from May 1989 to February 1993. Previously, Mr. Cracchiolo worked in
various management positions for software, hardware, defense contractor and
personnel and professional services organizations within the healthcare and
other industries. Mr. Cracchiolo holds a B.S. in Business Administration from
California State University, Long Beach and is a Certified Public Accountant.
Kevin H. Arner joined the Company as Executive Vice President and
President, EDI Division in December 1996 following the Company's acquisition of
InterMed Healthcare Systems Inc., a healthcare electronic data interchange
technology company. Prior to joining the Company, Mr. Arner served as President
and Chief Operating Officer for InterMed Healthcare Systems Inc. from August
1989 to December 1996. Previously, Mr. Arner served in various operations
management positions in the healthcare information management business of The
SSI Group, a health care electronic data interchange company.
Frederick Stodolak rejoined the Company in November 1996 as Executive Vice
President and President, Value-Added Systems Division. From August 1996 to
November 1996, Mr. Stodolak was a consultant to the Company. From January 1996
to August 1996, Mr. Stodolak served as the Company's Chief Operating Officer.
From November 1989 until December 1995, Mr. Stodolak was the Chief Executive
Officer of Healthcare Design Systems, a division of Kaden Arnone, a privately
held health care consulting company, until that division was acquired by the
Company in December 1996. Previously, Mr. Stodolak was the director of budgets
and reimbursement for a 500-bed teaching hospital in New Jersey for six years.
Mr. Stodolak holds a B.S. degree in accounting from Stockton State College and
is a Fellow with the Healthcare Financial Management Association (FHFMA Status),
of which he has been a member since 1978.
Suzanne J. Blumenthal joined the Company in January 1994 as Vice President,
Sales. From January 1995 to December 1995, Ms. Blumenthal served as Vice
President, Business Development and in January 1996 she became Senior Vice
President, Business Development. From October 1992 to December 1993, Ms.
Blumenthal served as Vice President, Sales for StallarNert, a company
specializing in EDI software. From March 1988 to October 1992, Ms. Blumenthal
served as Western Regional Director for CSC Healthcare Systems, Inc., a division
of Computer Sciences Corporation, which specializes in managed care software.
Ms. Blumenthal holds a B.A. in Urban Planning from Washington University and a
Master's in Healthcare Administration from George Washington University.
Keith M. Roberts joined the Company in March 1997 as Vice President and
General Counsel. From May 1995 to March 1997, Mr. Roberts was an associate of
Brobeck, Phleger & Harrison LLP, a private law firm. From September 1992 to May
1995, Mr. Roberts was an associate of Hale & Dorr, a private law firm. Mr.
Roberts holds a J.D. from Stanford Law School and a B.A. in economics and
philosophy from the University of Rochester.
6
<PAGE> 9
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 10, 1997 by (i) each person
known by the Company to be the beneficial owner of more than five percent of the
outstanding shares of the Company's Common Stock, (ii) each director and nominee
for director of the Company, (iii) each Named Executive Officer listed in the
Summary Compensation Table and (iv) all executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME OWNED(1) PERCENT
- -------------------------------------------------------------------- ------------------- -------
<S> <C> <C>
Entities managed by Hancock Venture Partners, Inc.(2)............... 1,058,172 16.7%
One Financial Center, 44th Floor
Boston, MA 02111
Entities Affiliated with The CW Group(3)............................ 820,332 13.1
1041 Third Avenue, 2nd Floor
New York, NY 10021
Tullis-Dickerson Capital Focus L.P.(4).............................. 819,098 13.1
One Greenwich Plaza
Greenwich, CT 06830
Wells Fargo Bank, N.A.(5)........................................... 612,500 10.2
420 Montgomery Street
San Francisco, CA 94163
Entities Affiliated with New Enterprise Associates(6)............... 447,729 7.4
1119 St. Paul Street
Baltimore, MD 21202
Entities Affiliated with Oxford BioScience Partners(7).............. 391,915 6.4
315 Post Road West
Westport, CT 06880
James D. Durham(8).................................................. 671,368 10.6
Robert Burrows(9)................................................... 1,000 *
John V. Cracchiolo(10).............................................. 170,195 2.8
Kevin H. Arner(11).................................................. 62,585 1.0
Suzanne J. Blumenthal(12)........................................... 61,783 1.0
Frederick Stodolak(13).............................................. 84,786 1.4
John H. Austin, M.D.(14)............................................ 18,666 *
Thomas F. McNulty(15)............................................... 32,666 *
Joan P. Neuscheler(16).............................................. 829,598 13.2
Cornelius T. Ryan(17)............................................... 401,915 6.5
Laurie J. Thomsen(18)............................................... 10,000 *
Albert L. Greene.................................................... -- *
Kenneth E. Jones.................................................... -- *
All executive officers and directors as a group (11 persons)(19).... 2,429,562 33.8
</TABLE>
- ---------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options, warrants and convertible notes currently exercisable or
convertible, or exercisable or convertible within 60 days, are deemed
outstanding for computing the percentage of the person holding such
options, but are not deemed outstanding for computing the percentage of any
other person. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
7
<PAGE> 10
(2) Based on a Schedule 13G filed on or about February 4, 1997. Includes
686,024 shares of Common Stock owned by Hancock Venture Partners IV-Direct
Fund L.P.; 54,880 shares of Common Stock owned by Falcon Ventures II L.P.;
295,059 shares of Common Stock issuable upon exercise of a warrant issued
to Hancock Venture Partners IV-Direct Fund L.P.; and 22,209 shares of
Common Stock issuable upon exercise of a warrant issued to Falcon Ventures
II L.P. Hancock Venture Partners, Inc. ("Venture") is a managing general
partner of the respective general partners of Hancock Venture Partners
IV-Direct Fund L.P. and Falcon Ventures II L.P. and may be deemed to share
voting and investment power with respect to such shares. Voting and
investment decisions with respect to Hancock Venture Partners IV-Direct
Fund L.P. and Falcon Ventures II L.P. are made by Hancock Venture Partners,
Inc., a managing general partner of the respective general partners of such
funds. The Managing Directors of Hancock Venture Partners, Inc. disclaim
beneficial ownership of the shares held by Hancock Venture Partners
IV-Direct Fund L.P. and Falcon Ventures II L.P., except to the extent of
each of their pecuniary interest in such funds.
(3) Based upon a Schedule 13G filed on or about February 13, 1997. Includes
45,134 shares of Common Stock owned by CW Ventures; 10,590 shares of Common
Stock owned by Overseas Medical Ventures, IL; 24,627 shares of Common Stock
owned by CW R&D II (Financial) L.P.; 489,382 shares of Common Stock owned
by CW Ventures II, L.P.; and 250,599 shares of Common Stock issuable upon
exercise of certain warrants issued to CW Ventures II, L.P. CW Partners, CW
Partners II, L.P. and CW Partners III, L.P. are the general partners of CW
Ventures, CW R&D II (Financial) L.P. and CW Ventures II, L.P.,
respectively, and as such may be deemed to have voting and investment power
with respect to the shares held by such funds. Voting and investment
decisions with respect to Overseas Medical Ventures, IL are made by CW
Group, Inc. The general partners of CW Partners, CW Partners II, L.P. and
CW Partners III, L.P., and the stockholders of CW Group, Inc., are Walter
Channing, Charles M. Hartman and Barry Weinberg. Each of such general
partners disclaims beneficial ownership of the shares held by such funds
except to the extent of each of their pecuniary interest in such funds.
(4) Based upon a Schedule 13G filed on or about February 13, 1997. Includes
249,270 shares of Common Stock issuable upon exercise of certain warrants
issued to Tullis-Dickerson Capital Focus L.P. Tullis-Dickerson Partners is
the general partner of Tullis-Dickerson Capital Focus L.P., and as such may
be deemed to have voting and investment power with respect to the shares
held by Tullis-Dickerson Capital Focus L.P. The general partners of
Tullis-Dickerson Partners are Joan P. Neuscheler, a director of the
Company, James L.L. Tullis and Thomas P. Dickerson. Each of such general
partners disclaims beneficial ownership of the shares held by
Tullis-Dickerson Capital Focus L.P. except to the extent of each of their
pecuniary interest in Tullis-Dickerson Partners.
(5) Based upon a Schedule 13G filed on or about February 14, 1997. Wells Fargo
Bank, N.A. has sole voting power with respect to 612,500 shares of Common
Stock and shared investment power with respect to 598,500 of such shares.
All such shares are held in trust accounts for the economic benefit of the
beneficiaries of those accounts.
(6) Based upon a Schedule 13G filed on or about February 10, 1997. Includes
444,914 shares of Common Stock owned by New Enterprise Associates V,
Limited Partnership and 2,815 shares of Common Stock owned by The Silverado
Fund I, Limited Partnership. NEA Partners V, Limited Partnership and NEA
Silverado Partners I, Limited Partnership are the general partners of New
Enterprise Associates V, Limited Partnership and The Silverado Fund I,
Limited Partnership, respectively, and as such may be deemed to have voting
and investment power with respect to the shares held by such funds. The
general partners of NEA Partners V, Limited Partnership are Frank A.
Bonsal, Jr., Nancy L. Dorman, C. Richard Kramlich, Arthur J. Marks, Thomas
C. McConnell, and Charles W. Newhall, III. The general partners of NEA
Silverado Partners I, Limited Partnership are Frank A. Bonsal, Jr. C.
Richard Kramlich, Arthur J. Marks and Charles W. Newhall, III. Each of such
general partners disclaims beneficial ownership of the shares in which they
have no pecuniary interest.
(7) Based upon a Schedule 13G filed on or about February 12, 1997. Includes
214,578 shares of Common Stock owned by Oxford Bioscience Partners L.P.;
59,831 shares of Common Stock owned by Oxford
8
<PAGE> 11
Bioscience Partners (Bermuda) Limited Partnership; 91,655 shares of Common
Stock issuable upon exercise of a warrant issued to Oxford Bioscience
Partners L.P.; and 25,851 shares of Common Stock issuable upon exercise of
a warrant issued to Oxford Bioscience Partners (Bermuda) Limited
Partnership. OBP Management L.P. and OBP Management (Bermuda) Limited
Partnership are the general partners of Oxford Bioscience Partners L.P. and
Oxford Bioscience Partners (Bermuda) Limited Partnership, respectively, and
as such may be deemed to have voting and investment power with respect to
the shares held by such funds. The general partners of OBP Management L.P.
are Cornelius T. Ryan, a director of the Company, Alan G. Walton, Ph.D. and
Edmund M. Olivier. The general partners of OBP Management (Bermuda) Limited
Partnership are OBP Management Bermuda Ltd. and Messrs. Ryan, Walton &
Olivier. Each of such general partners disclaim beneficial ownership of the
shares held by Oxford Bioscience Partners L.P. and Oxford Bioscience
Partners (Bermuda) Limited Partnership except to the extent of each of
their pecuniary interest in OBP Management L.P. and OBP Management
(Bermuda) Limited Partnership, respectively.
(8) Includes 327,254 shares of Common Stock owned by Trigon Resources
Corporation ("Trigon"), a corporation owned by Mr. Durham and his two
children, 3,867 shares held in Mr. Durham's individual retirement account,
134,574 shares of Common Stock issuable upon exercise of a warrant held by
Trigon and 5,313 shares of Common Stock issuable upon exercise of a warrant
held by Wentorf International Corporation, a corporation owned by Mr.
Durham. Also includes 200,000 shares issuable upon exercise of options,
none of which shares will be vested as of 60 days from March 10, 1997. Does
not include 355,600 shares issuable upon exercise of a warrant held by Mr.
Durham. See "Certain Relationships and Related Transactions." Mr. Durham's
address is 80 East Sir Francis Drake Boulevard, Suite 2A, Larkspur, CA
94939.
(9) Mr. Burrows resigned from the Company effective January 1997. Upon his
resignation, his options to purchase 130,000 shares of Common Stock
terminated. None of the options had vested prior to the termination of the
options.
(10) Includes 170,000 shares issuable upon exercise of options, 30,000 of which
shares will be vested as of 60 days from March 10, 1997.
(11) Includes 12,100 shares issuable upon exercise of options, all of which
shares will be vested as of 60 days from March 10, 1997.
(12) Includes 61,400 shares issuable upon exercise of options, 18,800 of which
shares will be vested as of 60 days from March 10, 1997.
(13) Includes 49,000 shares issuable upon exercise of options, 8,000 of which
shares will be vested as of 60 days from March 10, 1997.
(14) Includes 18,666 shares issuable upon exercise of options, 5,519 of which
shares will be vested as of 60 days from March 10, 1997.
(15) Includes 32,666 shares issuable upon exercise of options, all of which
shares will be vested as of 60 days from March 10, 1997.
(16) Includes 569,828 shares of Common Stock owned by, and 249,270 shares of
Common Stock issuable upon exercise of certain warrants issued to,
Tullis-Dickerson Capital Focus, L.P. Also includes 10,000 shares issuable
upon exercise of options held by Ms. Neuscheler, none of which shares will
be vested as of 60 days from March 10, 1997. Ms. Neuscheler, a director of
the Company, is a General Partner of Tullis-Dickerson Partners, which is
the general partner of Tullis-Dickerson Capital Focus, L.P. Ms. Neuscheler
disclaims beneficial ownership in the shares held by Tullis-Dickerson
Capital Focus, L.P., except to the extent of her pecuniary interest arising
from her general partnership interest in Tullis-Dickerson Partners. Ms.
Neuscheler's address is One Greenwich Plaza, Greenwich, CT 06830.
(17) Includes 214,578 shares of Common Stock owned by Oxford Bioscience Partners
L.P.; 59,831 shares of Common Stock owned by Oxford Bioscience Partners
(Bermuda) Limited Partnership; 91,655 shares of Common Stock issuable upon
exercise of a warrant issued to Oxford Bioscience Partners L.P.; and 25,851
shares of Common Stock issuable upon exercise of a warrant issued to Oxford
Bioscience Partners (Bermuda) Limited Partnership. Also includes 10,000
shares issuable upon exercise of options
9
<PAGE> 12
held by Mr. Ryan, none of which shares will be vested as of 60 days from
March 10, 1997. Mr. Ryan, a director of the Company, is a general partner
of OBP Management L.P. and OBP Management (Bermuda) Limited Partnership,
which are the general partners of Oxford Bioscience Partners L.P. and
Oxford Bioscience Partners (Bermuda) Limited Partnership, respectively. Mr.
Ryan disclaims beneficial ownership in the shares held by Oxford Bioscience
Partners L.P. and Oxford Bioscience Partners (Bermuda) Limited Partnership,
except to the extent of his pecuniary interest arising from his general
partnership interests in OBP Management L.P. and OBP Management (Bermuda)
L.P., respectively. Mr. Ryan's address is 315 Post Road West, Westport, CT
06880.
(18) Includes 10,000 shares issuable upon exercise of options, all of which
shares will be vested as of 60 days from March 10, 1997.
(19) Includes 506,663 shares issuable upon exercise of certain warrants. Also
includes 658,832 shares issuable upon exercise of options, 117,085 of which
shares will be vested as of 60 days from March 10, 1997. Does not include
355,600 shares issuable upon exercise of a warrant held by Mr. Durham. See
"Certain Relationships and Related Transactions."
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table set forth certain information regarding the
compensation earned during the 1996 fiscal year by (i) the Company's Chief
Executive Officer, (ii) each of the four other most highly compensated executive
officers of the Company serving as such as of the end of the last fiscal year
whose total annual salary and bonus exceeded $100,000 and (iii) one former
executive officer of the Company, for services rendered in all capacities to the
Company for the fiscal years ended December 31, 1996 and December 31, 1995. Such
individuals will be hereafter referred to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------ ----------------
OTHER SECURITIES
FISCAL ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/WARRANTS
- --------------------------------- ------ -------- ------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
James D. Durham.................. 1996 $187,425 $ -- $ -- 101,600
Chairman of the Board, 1995 178,003 -- -- 388,574(1)
President and Chief Executive
Officer
Robert Burrows................... 1996 127,500(2) -- 18,229(3) 130,000(4)
Former President and Chief 1995 -- -- -- --
Operating Officer
John V. Cracchiolo............... 1996 133,333(5) 52,000 -- --
Executive Vice President, Chief 1995 73,149(6) -- 14,000(3) 70,000
Financial Officer and Secretary
Kevin H. Arner................... 1996 9,167(7) -- 20,115(8) 12,100
Executive Vice President and 1995 -- -- -- --
President, EDI Division
Frederick Stodolak............... 1996 118,141(9) -- 134,198(10) --
Executive Vice President and 1995 -- -- -- 24,000
President, Value-Added Systems
Division
Suzanne J. Blumenthal............ 1996 110,000 32,646(11) -- --
Senior Vice President, Business 1995 85,000 28,505(12) -- 20,400
Development
</TABLE>
- ---------------
(1) Includes a warrant to purchase 254,000 shares which was originally issued
in September 1995. In September 1996, this warrant was combined with the
warrant to purchase 101,600 shares which was originally issued in June
1996. Also includes a warrant to purchase 134,574 shares. See "Certain
Relationships and Related Transactions."
10
<PAGE> 13
(2) Represents salary paid from March 1996 through December 1996. Mr. Burrows
resigned from the Company effective January 1997.
(3) Represents reimbursement for moving expenses.
(4) Upon Mr. Burrows' resignation from the Company, all of these options were
cancelled.
(5) Effective November 1996, Mr. Cracchiolo's annual salary was increased from
$130,000 to $150,000 by the Board of Directors.
(6) Represents salary paid from May 1995 through December 1995.
(7) Represents salary paid for December 1996.
(8) Represents accrued vacation which was paid to Mr. Arner in December 1996.
(9) Represents salary paid through June 15, 1996 and from November 19, 1996
through December 31, 1996. Mr. Stodolak's annual salary for 1996 was
$175,000. In addition, for the period of September 1, 1996 through November
18, 1996, Mr. Stodolak was a consultant with the Company and received a
$20,000 retainer fee.
(10) For the period June 16, 1996 through August 31, 1996, Mr. Stodolak received
35,786 shares of Common Stock, at $3.75 per share, in lieu of receiving
cash salary. The fair market value of the Common Stock was $7.50 per share.
The aggregate value of the difference between the fair market value and the
purchase price of the shares was $134,198.
(11) Includes $12,646 for commissions earned and paid.
(12) Represents commissions earned and paid.
STOCK OPTIONS
The following table sets forth information concerning the stock option
grants made to each of the Named Executive Officers during the 1996 fiscal year.
No stock appreciation rights were granted during the 1996 fiscal year to the
Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED
------------------------ ANNUAL RATES OF
NUMBER OF PERCENT OF EXERCISE STOCK
SECURITIES TOTAL OPTIONS OR BASE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PER EXPIRATION -------------------
NAME GRANTED FISCAL 1996 SHARE(1) DATE 5% 10%
- ------------------------------ ---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James D. Durham............... 101,600(3) 29.1% $ 3.75 06/26/01 $105,263 $232,604
Robert Burrows................ 130,000(4) 37.3 7.50 04/11/01 269,375 595,247
John V. Cracchiolo............ -- -- -- -- -- --
Kevin H. Arner(5)............. 8,824 2.5 2.18 03/03/05 12,098 30,658
2,016 0.6 2.18 02/27/06 2,764 7,004
1,260 0.4 6.51 08/01/06 5,159 13,073
Frederick Stodolak............ -- -- -- -- -- --
Suzanne J. Blumenthal......... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a cashless
purchase procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares and the
federal and state income tax liability incurred by the optionee in
connection with such exercise.
(2) There can be no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price appreciation
over the 10-year option term will be at the assumed 5% and 10% compounded
annual rates or at any other defined level. Unless the market price of the
Common
11
<PAGE> 14
Stock appreciates over the option term, no value will be realized from the
option grants made to the Named Executive Officers.
(3) In June 1996, the Company issued a warrant to Mr. Durham to purchase up to
101,600 shares of Common Stock at an exercise price of $3.75 per share. In
September 1996, this warrant was combined with another warrant held by Mr.
Durham to purchase up to 254,000 shares of Common Stock at an exercise price
of $3.75 per share. Provided Mr. Durham continues to perform services for
the Company as an employee, consultant or director through September 26,
2000, the warrant will at that time become exercisable in full and will
remain exercisable until 2001 when it will expire. The warrant will become
exercisable prior to September 26, 2000 upon the occurrence of certain
events. See "Certain Relationships and Related Transactions."
(4) These options were granted under the Company's 1994 Stock Plan. Upon Mr.
Burrow's resignation from the Company in January 1997, all of these options
were cancelled.
(5) Mr. Arner originally was granted options to purchase 4,800 shares of the
common stock of InterMed HealthCare Systems, Inc. ("InterMed") pursuant to
InterMed's 1995 Stock Incentive Plan. Upon the Company's acquisition of
InterMed HealthCare Systems, Inc. in December 1996, the options were assumed
by the Company under the Company's 1996 Plan at a conversion ratio of 2.52
shares of the Company's Common Stock for each one share of InterMed's common
stock. These options are immediately exercisable for fully vested shares.
The options expire on the dates set forth in the table, subject to earlier
termination upon the optionee's cessation of service with the Company.
OPTION EXERCISES AND YEAR-END VALUES
No options were exercised by the Named Executive Officers and no SARs were
outstanding during the 1996 fiscal year. The following table sets forth certain
information with respect to the Named Executive Officers concerning shares of
the Company's Common Stock subject to exercisable and unexercisable stock
options which the Named Executive Officers held at the end of the 1996 fiscal
year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
James D. Durham............................ 139,887(2) 355,600(3) $ 1,078,599 $ 2,755,900
Robert Burrows(4).......................... -- -- -- --
John V. Cracchiolo......................... 70,000 -- 542,500 --
Kevin H. Arner............................. 12,100 -- 107,316 --
Frederick Stodolak......................... 24,000 -- 186,000 --
Suzanne J. Blumenthal...................... 36,400 -- 282,100 --
</TABLE>
- ---------------
(1) Calculated by determining the difference between the fair market value of
the Company's Common Stock as of December 31, 1996 and the exercise price of
the option.
(2) Includes 134,574 shares of Common Stock issuable upon exercise of a warrant
held by Trigon Resources Corporation and 5,313 shares of Common Stock
issuable upon exercise of a warrant held by Wentorf International
Corporation. See "Security Ownership of Certain Beneficial Owners and
Management."
(3) Represents 355,600 shares of Common Stock issuable upon exercise of a
warrant held by Mr. Durham. See "Certain Relationships and Related
Transactions."
(4) At fiscal year-end, Mr. Burrows held 130,000 options with a value of
$422,500. Upon Mr. Burrows's resignation from the Company in January 1997,
all of these options were cancelled. As of such date none of these options
had vested.
12
<PAGE> 15
EMPLOYMENT AGREEMENTS; CHANGE IN CONTROL ARRANGEMENTS
In April 1995, the Company entered into a letter agreement with John V.
Cracchiolo, the Company's Chief Financial Officer. Pursuant to the letter
agreement, Mr. Cracchiolo is to receive a base salary of $150,000 for the 1997
calendar year and is eligible for such annual cash bonuses as the Board of
Directors in its discretion shall award. The letter agreement also includes (i)
a severance provision pursuant to which Mr. Cracchiolo, if terminated without
cause, will receive four months' salary, and (ii) a provision entitling Mr.
Cracchiolo to an option to purchase 40,000 shares of Common Stock at an exercise
price of $3.75 per share.
In December 1996, the Company entered into an employment agreement with
Kevin H. Arner, the Company's Executive Vice President and President, EDI
Division. Pursuant to the terms of the agreement, Mr. Arner is to receive a base
salary of $110,000 per year, subject to increases at the discretion of the Board
of Directors. The agreement also contains a severance provision pursuant to
which Mr. Arner will receive a sum equal to his annual salary at the time of
termination if he is terminated other than (i) for cause, (ii) because he has
become completely disabled or (iii) because he has died. The agreement
terminates in August 1998.
In December 1996, the Company entered into an employment agreement with
Frederick Stodolak, the Company's Executive Vice President and President,
Value-Added Systems Division. Pursuant to the terms of the agreement, Mr.
Stodolak is to receive a base salary of $175,000 per year and is eligible for
such annual cash bonuses as the Board of Directors in its discretion shall
award. The agreement also contains a severance provision pursuant to which Mr.
Stodolak will receive $175,000 if Mr. Stodolak terminates his employment with
cause (as defined in the agreement) or if Mr. Stodolak is terminated by the
Company (i) without cause or (ii) because he has become disabled. The agreement
terminates in December 1998 unless extended by mutual agreement of the parties.
In January 1997, the Company entered into a letter agreement with James D.
Durham, the Company's President and Chief Executive Officer. Pursuant to the
letter agreement, Mr. Durham is to receive a base salary of $225,000 for the
1997 calendar year. In addition, Mr. Durham (i) is eligible for such annual cash
bonuses as the Board of Directors in its discretion shall award, based upon the
recommendation of the Board's Compensation Committee, and (ii) will receive a
car allowance of approximately $500 per month during the term of his employment.
The letter agreement also contains the following severance provisions: (i) if
Mr. Durham dies, his estate will receive a special termination payment equal to
one months' salary and (ii) if Mr. Durham is terminated by reason of disability
or an Involuntary Termination other than a Termination for Cause (as those terms
are defined in the letter agreement), Mr. Durham will receive an aggregate
amount equal to the sum of his average annual rate of base salary for the two
immediately preceding calendar years and will also continue to receive for a
period of 12 months (24 months if Mr. Durham's termination is effected in
connection with a Change in Control, as defined in the letter agreement) his
life, health and disability and other benefits. The letter agreement terminates
on December 31, 1998, but will automatically renew for a term of one year on
such date and each succeeding anniversary of such date, unless the Company
provides written notice to Mr. Durham, not later than three months prior to such
anniversary date, that it will not extend the term of the letter agreement.
In March 1997, the Company entered into a letter agreement with Keith M.
Roberts, the Company's Vice President and General Counsel. Pursuant to the
letter agreement, Mr. Roberts is to receive a base salary of $125,000 for the
1997 calendar year and is eligible for such annual cash bonuses as the Board of
Directors in its discretion shall award. The letter agreement also includes (i)
a provision entitling Mr. Roberts to an option to purchase 85,000 shares of
Common Stock at an exercise price of $9.625 per share, and (ii) a severance
provision pursuant to which Mr. Roberts, if terminated without cause or in
connection with a change in control of the Company, will receive six months'
salary and his option to purchase 85,000 shares of Common Stock will vest
immediately.
In connection with an acquisition of the Company by merger or asset sale,
each outstanding option held by the Chief Executive Officer and the other
executive officers under the Company's 1994 Stock Plan (the predecessor equity
incentive program to the 1996 Plan) or the 1996 Plan will automatically
accelerate in full, except to the extent such options are to be assumed by the
successor corporation. In addition, the
13
<PAGE> 16
Compensation Committee as Plan Administrator of the 1996 Plan will have the
authority to provide for the accelerated vesting of the shares of Common Stock
subject to outstanding options held by the Chief Executive Officer or any other
executive officer or any unvested shares of Common Stock subject to direct
issuances held by such individual, in connection with the termination of the
officer's employment following: (i) a merger or asset sale in which these
options are assumed or are assigned or (ii) certain hostile changes in control
of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the Company's inception in September 1993, the Company has issued, in
private placement transactions (collectively, the "Private Placement
Transactions"), shares of Preferred Stock as follows: an aggregate of 912,314
shares of Series A Preferred Stock at $4.79 per share on March 16, 1994, July 7,
1994 and February 21, 1995, an aggregate of 250,653 shares of Series A Preferred
Stock in exchange for an aggregate of 6,971,856 shares of the Common Stock of
THCS Holding, Inc. on June 26, 1996 and an aggregate of 1,632,500 shares of
Series B Preferred Stock at $5.25 per share on February 21, 1995 and June 27,
1996. All of the Preferred Stock issued in the Private Placement Transactions
converted into Common Stock on a one-for-one basis upon the completion of the
Company's initial public offering in October 1996. The following table
summarizes the shares of Preferred Stock purchased in the Private Placement
Transactions by executive officers, directors and stockholders of the Company
holding five percent or more of a class of the Company's stock and persons and
entities associated with them:
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED PREFERRED
INVESTOR(1) STOCK STOCK
------------------------------------------------------------- --------- ---------
<S> <C> <C>
Entities Managed by Hancock Venture Partners,
Inc.(1)(2)(3).............................................. -- 740,904
Tullis-Dickerson Capital Focus L.P. (2)(4)................... 362,838 206,990
CW Ventures II, L.P.(2)(5)................................... 361,794 207,939
New Enterprise Associates V, Limited Partnership(2)(6)....... 326,366 121,363
Oxford BioScience Partners(1)(2)(7).......................... -- 274,409
Peter Del Col(8)............................................. 5,787 2,550
</TABLE>
- ---------------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Security Ownership of Certain Beneficial Owners and Management."
(2) Holder of five percent or more of a class of the Company's capital stock.
(3) Represents 686,024 shares of Series B Preferred Stock purchased by Hancock
Venture Partners IV--Direct Fund L.P. and 54,880 shares of Series B
Preferred Stock purchased by Falcon Ventures II L.P. Laurie J. Thomsen, a
director of the Company, was a general partner of the respective general
partners of Hancock Venture Partners IV--Direct Fund L.P. and Falcon
Ventures II L.P., from October 1984 until November 1995.
(4) Joan P. Neuscheler, a director of the Company, is a general partner of
Tullis-Dickerson Partners, the general partner of Tullis-Dickerson Capital
Focus L.P. Ms. Neuscheler disclaims beneficial ownership of the shares held
by Tullis-Dickerson Capital Focus L.P., except to the extent of her
pecuniary interest arising from her general partnership interests in
Tullis-Dickerson Partners.
(5) Walter Channing, a director of the Company from September 1993 to May 1996,
is a general partner of CW Partners III, L.P., which is the general partner
of CW Ventures II, L.P.
(6) Ronald H. Kase, a director of the Company from January 1994 to May 1996, is
a general partner of New Enterprise Associates. Mr. Kase is not affiliated
with the general partner of New Enterprise Associates V, Limited
Partnership.
(7) Represents 214,578 shares of Series B Preferred Stock purchased by Oxford
Bioscience Partners L.P. and 59,831 shares of Series B Preferred Stock
purchased by Oxford Bioscience Partners (Bermuda) Limited
14
<PAGE> 17
Partnership. Cornelius T. Ryan, a director of the Company, is a general
partner of OBP Management L.P. and OBP Management (Bermuda) Limited
Partnership, the general partners of Oxford Bioscience Partners L.P. and
Oxford Bioscience Partners (Bermuda) Limited Partnership., respectively. Mr.
Ryan disclaims beneficial ownership in the shares held by Oxford Bioscience
Partners L.P. and Oxford Bioscience Partners (Bermuda) Limited Partnership,
except to the extent of his pecuniary interest arising from his general
partnership interests in OBP Management L.P. and OBP Management (Bermuda)
Limited Partnership
(8) Peter Del Col was a director of the Company from January 1994 to May 1996.
The Company entered into certain other agreements in connection with the
Private Placement Transactions. Pursuant to one such agreement, certain
stockholders acquired registration rights.
In July 1994, the Company issued to James D. Durham, the Company's
President and Chief Executive Officer, a warrant to purchase up to 48,540 shares
of Common Stock at an exercise price of $3.75 per share. Mr. Durham exercised
this warrant in August 1994.
In September 1994, the Company entered into a Loan and Warrant Agreement
with certain stockholders of the Company (the "September 1994 Bridge
Investors"), pursuant to which the Bridge Investors loaned the Company an
aggregate of $500,000. The September 1994 Bridge Investors were issued warrants
to purchase an aggregate of 16,001 shares of Series A Preferred Stock at a
purchase price of $4.79 per share. Each of such warrants expires on September
29, 1999. In February 1995, the notes issued in connection with the Loan and
Warrant Agreement and cancellation of other indebtedness were converted into an
aggregate of 76,805 shares of Series A Preferred Stock. CW Ventures II, L.P. and
Tullis-Dickerson Capital Focus L.P., each a greater than five percent
stockholder of the Company, were September 1994 Bridge Investors. Wentorf
International Corporation, a corporation wholly owned by James D. Durham, the
Company's President and Chief Executive Officer, and Peter Del Col, a former
director of the Company, were also September 1994 Bridge Investors. See
"Security Ownership of Certain Beneficial Owners and Management."
Also in September 1994, the Company entered into a consulting arrangement
with Colson Investments, an affiliate of Peter Del Col, pursuant to which the
Company issued to each of Mr. Del Col and another individual a warrant to
purchase 17,000 shares of Common Stock at a purchase price of $4.79 per share.
Under the consulting arrangement, Mr. Del Col agreed to serve on the Company's
Board of Directors, and Mr. Del Col and the other individual agreed to provide
various management and financial consulting services to the Company. The
consulting arrangement expired on December 31, 1995. The warrants expire on
October 31, 2004. Mr. Del Col was a director of the Company from January 1994 to
May 1996.
In November 1994 and January 1995, the Company entered into Loan Agreements
with certain stockholders of the Company (the "November 1994 Bridge Investors"),
pursuant to which the November 1994 Bridge Investors loaned the Company an
aggregate of $300,000 and $371,269, respectively. In February 1995, the notes
issued in connection with the Loan Agreements were converted into an aggregate
of 129,614 shares of Series B Preferred Stock. The following greater than five
percent stockholders of the Company were November 1994 Bridge Investors: CW
Ventures II, L.P., New Enterprise Associates V, Limited Partnership and
Tullis-Dickerson Capital Focus L.P. See "Security Ownership of Certain
Beneficial Owners and Management."
In September 1995, the Company issued to James D. Durham, its President and
Chief Executive Officer, a warrant to purchase up to 254,000 shares of Common
Stock at an exercise price of $3.75 per share (the "September Warrant"). In June
1996, the Company issued to Mr. Durham a warrant to purchase an additional
101,600 shares of Common Stock at an exercise price of $3.75 per share (the
"June Warrant"). The September Warrant and the June Warrant were issued to Mr.
Durham as compensation for services rendered to the Company, as an incentive for
his future performance as Chief Executive Officer and Chairman of the Board of
Directors of the Company and in an effort to retain his services in these
capacities. The September Warrant and the June Warrant were combined into one
warrant in September 1996 because the issuance of the June Warrant would have
resulted in a charge to earnings for compensation expense of approximately
$380,000 over the vesting period of the June Warrant. Provided Mr. Durham is
performing
15
<PAGE> 18
services for the Company in the capacity of an employee, consultant or director
at September 26, 2000, the warrant will then become exercisable in full and
remain exercisable until September 26, 2001, when it expires. The warrant will
become exercisable prior to September 26, 2000 upon certain events, which
include: (i) the sale of all or substantially all of the Company's assets or the
sale of 80% or more of the Company's outstanding capital stock, in each case for
cash in an amount that exceeds certain valuation thresholds; (ii) a merger of
the Company with another entity that has a publicly traded security, and which
meets certain valuation thresholds; or (iii) not less than six nor more than 18
months following the Company's initial public offering if certain valuation
thresholds are met.
In October 1995, the Company entered into a joint development proposal for
a capitation management system with UniHealth, pursuant to which the Company and
UniHealth jointly developed a capitation management application designed to
manage capitation payments to providers, risk pool accounting, modeling and
forecasting in the inpatient and outpatient settings. In connection with the
joint development agreement, the Company issued to UniHealth a warrant to
purchase 28,560 shares of Common Stock. John H. Austin, M.D., a director of the
Company, was President, Professional Services Division of UniHealth, and may be
deemed to have had an indirect material interest in such joint development
agreement.
In December 1995, the Company issued a warrant to KTU, an affiliate of
James D. Durham the Company's President and Chief Executive Officer. This
warrant was issued to KTU as compensation for services rendered to the Company
by Mr. Durham, as an incentive for his future performance as Chief Executive
Officer and Chairman of the Board of Directors of the Company and in an effort
to retain his services in these capacities. In June 1996, Mr. Durham transferred
the warrant to Trigon Resources Corporation ("Trigon"), a corporation owned by
Mr. Durham and his two children. The warrant gives Trigon the right to purchase
up to 134,574 shares of Common Stock at an exercise price of $3.75 per share.
The warrant is immediately exercisable and expires on December 28, 2005.
In January 1996, the Company entered into a Bridge Loan Agreement (the
"1996 Bridge Loan Agreement") with certain stockholders of the Company (the
"January 1996 Bridge Investors"), pursuant to which the January 1996 Bridge
Investors loaned the Company an aggregate of approximately $3.9 million. In
addition, the January 1996 Bridge Investors, other than New Enterprise
Associates V, Limited Partnership, were issued warrants to purchase an aggregate
of 957,376 shares of Common Stock at a purchase price of $3.75 per share. In
June 1996, the notes issued in connection with the 1996 Bridge Loan Agreement
were converted into an aggregate of 740,981 shares of Series B Preferred Stock.
The following greater than five percent stockholders of the Company were January
1996 Bridge Investors: CW Ventures II, L.P., Hancock Venture Partners IV-Direct
Fund L.P. and affiliates ("Hancock"), New Enterprise Associates V, Limited
Partnership, Oxford Bioscience Partners L.P. and affiliates ("Oxford"), and
Tullis-Dickerson Capital Focus L.P. Peter Del Col, a director of the Company
from January 1994 to May 1996, was also a January 1996 Bridge Investor. See
"Security Ownership of Certain Beneficial Owners and Management."
In connection with the 1995 bridge financings of the Company and in order
to induce other venture capital investors to participate in such financings, New
Enterprise Associates V, Limited Partnership and CW Ventures II, L.P., investors
in the Company, agreed to indemnify the Company for certain amounts paid in
settlement of or pursuant to a judgment in certain litigation. In June 1996, an
aggregate of 6,400 shares of Series B Preferred Stock were returned to the
Company by entities associated with New Enterprise Associates and The CW Group
in payment of certain attorneys' fees (amounting to approximately $53,000)
incurred by the Company.
In June 1996, the stockholders of the Company entered into an Exchange
Agreement pursuant to which all outstanding shares of capital stock of QuadraMed
Corporation, a California corporation (the "Operating Company"), were exchanged
for shares of QuadraMed Holdings, Inc., a California corporation. The sole
purpose of this exchange was to reorganize the Company into a holding company
structure. Following the reorganization, QuadraMed Holdings, Inc. changed its
name to Quadramed Corporation and was reincorporated in Delaware and the
Operating Company changed its name.
The Company entered into an Amended and Restated Agreement Regarding
Adjustment Shares dated as of June 27, 1996 with certain investors (the
"Adjustment Agreement"). Pursuant to the Adjustment
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<PAGE> 19
Agreement, the Company has agreed to issue to such investors additional shares
of Common Stock without payment of further consideration in the event the
Company is required to pay damages or issue Common Stock and/or options to
purchase Common Stock to the plaintiffs in certain litigation in excess of
certain agreed-upon amounts. The investors are entitled to receive a sufficient
number of additional shares such that following their issuance, the aggregate
percentage ownership interest in the Company held by the investors equals their
aggregate percentage ownership interest in the Company prior to the issuance of
such shares or options as a result of the litigation. In the event the
litigation results in a cash payment by the Company above a specified amount,
the investors are entitled to receive a number of additional shares determined
based on a formula. The following greater than five percent stockholders are
parties to this agreement: CW Ventures II, L.P., Hancock, New Enterprise
Associates V, Limited Partnership, Oxford and Tullis-Dickerson Capital Focus
L.P.
See "Executive Compensation" for a discussion of certain transactions
between the Company and certain of its executive officers.
BANKRUPTCY MATTERS
In November 1992, Mr. Durham, the Company's current Chairman, President and
Chief Executive Officer, became the chief executive officer of Trim Healthcare
Services, Inc. ("Trim"), a reimbursement consulting services company then owned
by certain of the Company's venture capital investors. Mr. Durham was hired by
Trim with the goal of implementing a "turnaround" strategy. In the fall of 1993,
certain Trim investors became interested in selling their equity interests in
Trim, culminating in the sale of the outstanding stock of Trim to the previous
owners of Trim in December 1993. As part of this transaction, certain assets of
Trim were sold to the Company, which was founded by Mr. Durham in September
1993, and Mr. Durham resigned as an officer and director of Trim. Subsequently,
in January 1994, Trim filed a petition for bankruptcy in the Northern District
of California. In March and July 1994, February 1995 and June 1996, the former
investors of Trim participated in equity financings for the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent stockholders are
required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) reports they file. Kevin H. Arner, the
Company's Executive Vice President and President, EDI Division, should have
filed a Form 3 in December 1996, but instead filed such Form 3 in April 1997.
Frederick Stodolak, the Company's Executive Vice President and President, Value
Added Systems Division, should have filed such Form 3 in December 1996, but
instead filed a Form 3 in April 1997.
MATTERS RELATED TO INDEPENDENT PUBLIC ACCOUNTANTS
The Company has not yet selected an independent public accounting firm for
the fiscal year ending December 31, 1997. The Company is currently evaluating
several independent public accounting firms to serve for the fiscal year ending
December 31, 1997. The firm of Arthur Andersen LLP served as independent public
accountants for the Company for the fiscal year ended December 31, 1996. A
representative of Arthur Andersen LLP will not be present at the 1997 Annual
Meeting.
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<PAGE> 20
STOCKHOLDER PROPOSALS
From time to time stockholders present proposals which may be proper
subjects for inclusion in the proxy statement and for consideration at an annual
meeting. To be included in the proxy statement for the 1998 annual meeting,
proposals must be received by the Company no later than December 29, 1997.
Stockholders may present proposals which are proper subjects for
consideration at an annual meeting, even if the proposal is not submitted by the
deadline for inclusion in the proxy statement. To do so, the stockholder must
comply with the procedures specified by the Company's By-laws. The Company's
By-laws require all stockholders who intend to make proposals at an annual
stockholders meeting to submit their proposals to the Company 60 to 90 days
before the anniversary date of the previous year's annual meeting. To be
eligible for consideration at the 1998 annual meeting, proposals which have not
been submitted by the deadline for inclusion in the proxy statement must be
received by the Company between February 20 and March 21, 1998. The provision is
intended to allow all stockholders to have an opportunity to consider business
expected to be raised at the meeting.
OTHER MATTERS
Management does not know of any matters to be presented at the 1997 Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement. If a stockholder vote is necessary to transact any other
business at the 1997 Annual Meeting, the proxyholders intend to vote their
proxies in accordance with their best judgment related to such business.
It is important that your shares be represented at the meeting, regardless
of the number of shares that you hold. YOU ARE, THEREFORE, URGED TO EXECUTE
PROMPTLY AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE THAT HAS BEEN
ENCLOSED FOR YOUR CONVENIENCE. Stockholders who are present at the meeting may
revoke their proxies and vote in person or, if they prefer, may abstain from
voting in person and allow their proxies to be voted.
By Order of the Board of Directors,
/s/ James D. Durham
-------------------
James D. Durham
Chairman of the Board
April 28, 1997
Larkspur, California
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<PAGE> 21
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
- --------------------- 1. Election of Directors
QUADRAMED CORPORATION With- For All
- --------------------- For hold Except
John H. Austin, M.D. / / / / / /
Albert L. Greene
Kenneth E. Jones
NOTE: If you do not wish your shares voted "For"
a particular nominee, mark the "For All Except"
box and strike a line through the nominee's(s')
name(s). Your shares will be voted for the
remaining nominee(s).
RECORD DATE SHARES:
2. In their discretion, the proxies are authorized
to vote upon any other business that may
properly come before the meeting or at any
adjournment(s) thereof.
Please be sure to sign and Mark box at right if an address change or
date this Proxy. comment has been noted on the reverse side / /
of this card.
Date
Stockholder sign here
- -------------------------------
Co-owner sign here
- -------------------------------
DETACH CARD DETACH CARD
QUADRAMED CORPORATION
Dear Stockholder,
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Corporation that require your immediate attention and approval. These are
discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders on May
21, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
James D. Durham
Chairman of the Board, President and Chief Executive Officer
<PAGE> 22
QUADRAMED CORPORATION
80 E. SIR FRANCIS DRAKE BLVD.
LARKSPUR, CALIFORNIA 94939
ANNUAL MEETING OF STOCKHOLDERS - MAY 21, 1997
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints John V. Cracchiolo
and Keith M. Roberts as Proxies, with full power of substitution to each, to
vote for and on behalf of the undersigned at the 1997 Annual Meeting of
Stockholders of QuadraMed Corporation to be held at the offices of the Company,
80 E. Sir Francis Drake Blvd., Larkspur, California 94939, on Wednesday, May
21, 1997, at 9:00 a.m., and at any adjournment or adjournments thereof. The
undersigned hereby directs the said proxies to vote in accordance with their
judgment on any matters which may properly come before the Annual Meeting, all
as indicated in the Notice of Annual Meeting, receipt of which is hereby
acknowledged, and to act on the following matters set forth in such notice as
specified by the undersigned.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" PROPOSAL 1.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE.
Please sign exactly as your name(s) appear(s) on the books of the Company.
Joint owners should each sign personally. Trustees, custodians, and other
fiduciaries should indicate the capacity in which they sign, and where more
than one name appears, a majority must sign. If the stockholder is a
corporation, the signature should be that of an authorized officer who should
indicate his or her title.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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