<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 0-21031
QUADRAMED CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWA RE 52-1992861
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
80 E. SIR FRANCIS DRAKE BLVD., SUITE 2A, 94939
LARKSPUR, CA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 461-7725
---------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of August 1, 1997, there were 6,212,703 shares of the Registrant's Common
Stock outstanding, par value $0.01.
This quarterly report on Form 10-Q consists of 21 pages of which this is
page 1. The Exhibit Index is located at page 22.
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<PAGE> 2
QUADRAMED CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
<S> <C> <C> <C>
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June
30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations
for the three and six months ended June 30, 1997
and 1996 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security
Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 8,537 $ 18,486
Restricted cash ..................................................... 33 30
Accounts receivable, net ............................................ 7,556 4,040
Prepaid expenses and other .......................................... 575 328
-------- --------
Total current assets ........................................ 16,701 22,884
-------- --------
EQUIPMENT:
Equipment ........................................................... 5,289 3,528
Accumulated depreciation ............................................ (2,055) (1,533)
-------- --------
Equipment, net .............................................. 3,234 1,995
-------- --------
Long-term investment ................................................ 2,500 -
Capitalized software development costs, net ......................... 1,121 950
Acquired software, net .............................................. 1,455 1,617
Goodwill, net ....................................................... 6,655 2,038
Other ............................................................... 210 85
-------- --------
$ 31,876 $ 29,569
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations ..................... $ 58 $ 79
Accounts payable .................................................... 665 1,523
Accrued liabilities ................................................. 1,648 1,410
Deferred revenue .................................................... 1,226 1,515
-------- --------
Total current liabilities ................................... 3,597 4,527
-------- --------
Capital lease obligations, less current portion ..................... 366 149
-------- --------
Total liabilities ..................................................... 3,963 4,676
-------- --------
STOCKHOLDERS' EQUITY:
Common stock ........................................................ 60 57
Deferred compensation ............................................... (291) (336)
Additional paid-in capital .......................................... 41,872 40,244
Accumulated deficit ................................................. (13,728) (15,072)
-------- --------
Total stockholders' equity .................................. 27,913 24,893
-------- --------
$ 31,876 $ 29,569
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
3
<PAGE> 4
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Licenses .................................... $ 4,314 $ 3,783 $ 8,477 $ 7,809
Services .................................... 3,287 900 4,259 1,640
-------- -------- -------- --------
Total revenues ...................... 7,601 4,683 12,736 9,449
-------- -------- -------- --------
OPERATING EXPENSES:
Cost of licenses ............................ 1,692 1,977 3,293 3,711
Cost of services ............................ 1,831 663 2,404 1,422
General and administration .................. 960 821 1,792 1,477
Sales and marketing ......................... 1,004 661 1,769 1,293
Research and development .................... 763 597 1,411 1,263
Amortization of goodwill .................... 242 107 362 219
Non-recurring start-up charges .............. 360 -- 694 --
-------- -------- -------- --------
Total operating expenses ............ 6,852 4,826 11,725 9,385
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS ................. 749 (143) 1,011 64
OTHER INCOME (EXPENSE):
Interest income (expense) ................... 162 (168) 388 (284)
Other income (expense) ...................... (1) 1 (5) (24)
-------- -------- -------- --------
Total other income (expense) ........ 161 (167) 383 (308)
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 910 (310) 1,394 (244)
Provision for income taxes .................. 11 -- 50 --
-------- -------- -------- --------
NET INCOME (LOSS) ............................. $ 899 $ (310) $ 1,344 $ (244)
======== ======== ======== ========
NET INCOME (LOSS) PER SHARE .................. $ 0.13 $ (0.07) $ 0.19 $ (0.05)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING ........... 7,169 4,747 7,250 4,747
======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
4
<PAGE> 5
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................... $ 1,344 $ (244)
-------- --------
Adjustments to reconcile net income (loss)
to net cash used for operating
activities:
Depreciation & amortization ............. 642 710
Amortization of deferred
compensation ......................... 45 --
Cash paid for the acquisition of Synergy ... (2,771) --
Changes in assets and liabilities:
Accounts receivable, net ................ (2,796) (2,296)
Restricted cash ......................... (3) 78
Prepaid expenses and other .............. (206) (40)
Other assets ............................ -- 11
Accounts payable and accrued
liabilities .......................... (2,082) 1,169
Deferred revenue ........................ (337) 9
-------- --------
Cash used for operating activities . (6,164) (603)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to equipment ..................... (1,078) (240)
Long-term investment ....................... (2,500) --
Capitalization of computer
software development costs .............. (249) (278)
-------- --------
Cash used for investing
activities ...................... (3,827) (518)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal on capital
lease obligations ....................... (56) (80)
Borrowings under notes payable
to related parties ...................... -- (3,750)
Borrowings under line of credit ............ -- 973
Deferred offering costs .................... -- (308)
Issuance of convertible preferred stock .... -- 3,890
Proceeds from the issuance of
common stock ............................ 98 187
-------- --------
Cash provided by financing
activities ........................ 42 912
-------- --------
Net increase (decrease) in cash
and cash equivalents ....................... (9,949) (209)
CASH AND CASH EQUIVALENTS,
beginning of period ........................ 18,486 266
-------- --------
CASH AND CASH EQUIVALENTS, end
of period .................................. $ 8,537 $ 57
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
</TABLE>
5
<PAGE> 6
QUADRAMED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements and notes thereto
should be read in conjunction with the Company's audited consolidated financial
statements for the year ended December 31, 1996 included in the Company's Annual
Report on Form 10-KSB. The unaudited information contained herein has been
prepared on the same basis as the Company's audited consolidated financial
statements and, in the opinion of the Company's management, includes all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information for the periods presented. The interim
results presented herein are not necessarily indicative of the results of
operations that may be expected for the full fiscal year ending December 31,
1997 or any other future period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUES
The Company licenses a variety of software products and provides a variety
of services. License revenue includes license, installation, consulting and
post-contract support fees, third-party hardware sales and other revenues
related to licensing of the Company's software products. Service revenue is
composed of business office outsourcing services. The Company's product suite is
comprised of three primary elements: financial management, decision support and
EDI (electronic data interchange) software. Each of these elements includes a
variety of products which can be licensed individually or as a suite of
interrelated products. Products are generally licensed under term arrangements
(which range from one year to three years) which typically include monthly
payments over the term of the arrangement. However, the product suite can also
be licensed on a perpetual basis.
Revenues from term licenses of EDI products are recognized ratably over the
term of the license arrangement, beginning on the date of installation. Revenues
from perpetual licenses of the financial management and decision support
products are recognized upon shipment of the software if there are no
significant post-delivery obligations, payment of the license fee is due within
one year and collectibility is probable. If an acceptance period is required,
revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period.
The Company provides business office outsourcing services to certain
hospitals under contract service arrangements. Business office outsourcing
revenues typically consist of contingency or fixed monthly fees plus
incentive-based payments that are based on a percentage of dollars recovered for
the provider for which the service is being performed. The contingency or
monthly fees are recognized as revenue when earned at the end of each month.
Incentive fees are recognized as the conditions upon which such fees are based
are realized based on collection of accounts from payors.
Other services are also provided to certain of the Company's licensees of
software products, which consist primarily of consulting and post-contract
customer support. Consulting services generally consist of installation of
software at customer sites and revenues for such services is recognized upon
completion of installation. Such services generally do not include customization
or modification of the underlying software code. If included in a license
agreement, such services are unbundled at their fair market value based on the
value established by the independent sale of such services to customers. If
customization of the software code is performed, the license and service fees
are recognized together on a percentage-of-completion basis during the
customization period. Post-contract customer support is recognized ratably over
the term of the support period. If support is included in a perpetual license
agreement such amounts are unbundled from the license fee at its fair market
value based on the value established by the independent sale of such support to
customers.
6
<PAGE> 7
Cost of license revenues consist primarily of salaries, benefits and allocated
costs related to the installation process and customer support and royalties to
third parties.
Cost of service revenues consist primarily of salaries, benefits and allocated
costs related to providing such services.
Deferred revenue primarily consists of revenue deferred under annual maintenance
and annual license agreements.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares include Convertible Preferred Stock (using the if converted method in the
three and six months ended June 30, 1996) and stock options and warrants in both
periods(using the treasury stock method). Common stock options and warrants are
excluded from the computation if their effect is antidilutive except that,
pursuant to the Securities and Exchange Commission Staff Accounting Bulletins
and staff policy, such computations for the three and six months ended June 30,
1996 include all common and common equivalent shares issued within the 12 months
preceding the filing date of the Company's initial public offering as if they
were outstanding for all periods presented (under the treasury stock method
using an assumed initial public offering price). Convertible Preferred Stock
outstanding during the 1996 period is included (using the if converted method)
in the computation as common equivalent shares even though the effect is
antidilutive. Primary and fully diluted earnings per share were substantially
the same in all periods presented.
In March 1997, the Financial Accounting Standards Board issued Statement
No. 128 (SFAS No. 128), "Earnings per Share" and requires adoption of such
provisions in 1997. The Company will adopt the provisions of SFAS No. 128
effective December 31, 1997 for its year ending December 31, 1997. The pro forma
effect of SFAS No. 128 for the three and six months ended June 30, 1997, would
be as follows:
<TABLE>
<CAPTION>
Three Six
Months Months
Ended Ended
June 30, June 30,
1997 1997
----------- -----------
<S> <C> <C>
Reported earnings per share $ 0.13 $ 0.19
Basic earnings per share (pro forma) $ 0.15 $ 0.22
Diluted earnings per share (pro forma) $ 0.13 $ 0.19
</TABLE>
3. SUBSEQUENT EVENTS
In July 1997, the Company entered into a line of credit arrangement to
borrow up to $5,000,000 at the bank's prime rate. The line of credit expires in
July 1998 and contains certain restrictions, including among others, maintaining
a minimum quick ratio, tangible net worth and total liabilities to tangible net
worth retroactive to June 30, 1997. The Company was in compliance with these
covenants at June 30, 1997. The line of credit is unsecured.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Except for the historical financial information contained herein, the
matters discussed in this Quarterly Report on Form 10-Q may be considered
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such statements include declarations regarding the intent, belief or
current expectations of the Company and its management. Prospective investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve a number of risks and uncertainties and that
actual results could differ materially from those indicated by such
forward-looking statements. Among the important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements are: (i) that the information is of a preliminary nature and may be
subject to further adjustment, (ii) variability in quarterly operating results,
(iii) identification, consummation and assimilation of acquisitions, (iv)
dependence on large orders and customer concentration, (v) demand for the
Company's products and services in the health care information systems and
services markets, (vi) legislative or market-driven reforms in the health care
industry, (vii) the Company's ability to develop and introduce new products,
(viii) management of the Company's
7
<PAGE> 8
changing operations, (ix) dependence on key personnel, (x) development by
competitors of new or superior products or entry into the market of new
competitors, (xi) risks related to product defects, (xii) dependence on
intellectual property rights, (xiii) volatility in the Company's stock price and
historically low trading volume, (xiv) the success or failure of strategic
alliances, (xv) risk of interruption in data processing, (xvi) other risks
identified from time to time in the Company's reports and registration
statements filed with the Securities and Exchange Commission, including the
registration statement on Form SB-2 related to the Company's initial public
offering.
OVERVIEW
QuadraMed develops, markets and sells a suite of financial management,
decision support and electronic data interchange software products and network
services that enable health care providers and payors to increase operational
efficiency, measure the cost of care and more effectively administer managed
care contracts. The Company also provides business office outsourcing and cash
flow management services. The Company was formed in September 1993 and has
completed a number of acquisitions. In October 1993, QuadraMed acquired the net
assets of Coast Micro, Inc., through which the Company acquired the predecessor
of the Company's EDI product. In November 1993, the Company acquired the net
assets of Seton Financial, through which the Company acquired the foundation of
its business office outsourcing business. In December 1995, the Company
purchased the net assets of Healthcare Design Systems, and thereby acquired
several of the predecessor Company's decision support and other related software
products. In December 1996, the Company completed the acquisition and merger of
InterMed Healthcare Systems Inc., a provider of client-server information
systems that assist health care payors in managing administrative and financial
transactions with providers.
In April 1997, the Company purchased all of the outstanding stock of
Healthcare Recovery, Inc., an accounts receivable managment company based in New
Jersey and doing business as Synergy HMC ("Synergy"), for an aggregate purchase
price of $3,300,000 paid in cash and common stock of the Company. The
acquisition was accounted for as a purchase. In connection with the acquisition,
the Company repaid substantially all of the debt of Synergy, totalling
approximately $1,700,000.
The Company has experienced operating margins at differing levels related to
licenses and services. The service business has historically realized
fluctuating margins that were significantly lower than margins associated with
licenses. The Company expects this trend to continue with the recent acquisition
of Synergy.
The Company has and believes it will continue to experience seasonal
patterns in its operating results, with the second and fourth fiscal quarters
having higher revenues and net income. The Company attributes this seasonality
in large part to software licenses that are based on annual renewals. In
addition, the signing of a major perpetual license agreement could generate an
increase in revenues and net income for any given quarter or fiscal year. The
Company typically experiences long sales cycles for new customers that may
extend over several quarters. As a result, the Company believes that quarterly
results of operations will continue to be subject to significant fluctuations
and that its results of operations for any particular quarter or year may not be
indicative of results of operations for future periods.
The Company believes continued significant investment in the development of
new products and the further development and integration of acquired
technologies into the Company's suite of products, as well as the expansion of
its direct sales force, are critical to its success. Specifically, the Company's
development plans include enhancing the functionality of its products and
rewriting certain of its products to function within the Microsoft Windows(TM)
NT operating system. Accordingly, the aggregate amounts invested in research and
development and sales and marketing are expected to increase.
The Company capitalizes a portion of its software costs for internally
developed software products. These capitalized costs relate primarily to the
development of new products and the extension of applications to new markets or
platforms using existing technologies. The capitalized costs are amortized on a
straight-line basis over the estimated lives (usually five years), commencing
when each product is available to the market.
In February 1997, the Company entered into an arrangement with EDI USA to
serve as the exclusive provider of EDI processing and management services for
all transactions on EDI USA's transaction network. The Company recorded
non-recurring charges of $360,000 and $694,000 in the second quarter and six
month period ended June 30, 1997, related to start-up costs incurred in
connection with the processing arrangement. QuadraMed expects to incur similar
charges in the remaining two quarters of 1997, until the electronic transaction
network is operational.
8
<PAGE> 9
REVENUES
License. License revenues for the quarter ended June 30, 1997 increased 14%
to $4,314,000, compared to $3,783,000 in the same period last year. For the six
months ended June 30, 1997, license revenues increased 9% to $8,477,000
compared to $7,809,000 in the same period last year. The increase in license
revenues was due principally to an increase in new customers and several
perpetual license agreements entered into during the second quarter of 1997.
Service. Service revenues for the quarter ended June 30, 1997 increased
265% to $3,287,000, compared to $900,000 in the same period last year. For the
six months ended June 30, 1997, service revenues increased 160% to $4,259,000,
compared to $1,640,000 in the same period last year. The increase in service
revenues was due principally to new customers acquired from the Synergy
acquisition in April 1997.
COST OF REVENUES
Cost of Licenses. Cost of license revenues for the quarter ended June 30,
1997 decreased 14% to $1,692,000 from $1,977,000 in the same period last year.
Cost of licenses includes installation, customer support and royalties. As a
percentage of license revenues, cost of licenses decreased to 39% in the second
quarter of 1997 from 52% in the same period last year. For the six months ended
June 30, 1997, cost of license revenues decreased 11% to $3,293,000 from
$3,711,000 in the same period last year. As a percentage of license revenues,
cost of licenses decreased to 39% in the six months ended June 30, 1997 from 48%
in the same period last year. The decrease in cost of licenses and cost of
licenses as a percentage of license revenues is principally due to fewer
third-party hardware sales in the second quarter of 1997 and a decrease in
royalties on software sales.
Cost of Services. Cost of service revenues for the quarter ended June 30,
1997 increased 176% to $1,831,000 from $663,000 in the same period last year.
Cost of services includes expenses associated with services performed in
connection with business office outsourcing. As a percentage of service
revenues, cost of services decreased to 56% in the second quarter of 1997 from
74% in the same period last year. For the six months ended June 30, 1997, cost
of service revenues increased 69% to $2,404,000 from $1,422,000 in the same
period last year. As a percentage of service revenues, cost of services
decreased to 56% in the six months ended June 30, 1997 from 87% in the same
period last year. The increase in cost of services was principally due to
additional operating costs associated with Synergy, which was acquired in April
1997, while cost of services as a percentage of service revenues decreased
principally due to increased revenues which had relatively moderate costs
associated with such revenues.
OPERATING EXPENSES
General and Administration. General and administration expenses for the
quarter ended June 30, 1997 increased to $960,000 from $821,000 in the same
period last year, and decreased as a percentage of total revenues to 13% from
18% in the same period last year. For the six months ended June 30, 1997,
general and administration expenses increased to $1,792,000 from $1,477,000 in
the same period last year, and decreased as a percentage of total revenues to
14% from 16% in the same period last year. The increase in general and
administration expenses reflects significant legal costs incurred in the second
quarter of 1997 to settle certain litigation. The Company believes that general
and administration expenses will increase in the future, but should decline
slightly as a percentage of total revenues, although there can be no assurance
in this regard.
Sales and Marketing. Sales and marketing expenses for the quarter ended
June 30, 1997 increased to $1,004,000 from $661,000 in the same period last
year, and decreased as a percentage of total revenues to 13% from 14% in the
same period last year. For the six months ended June 30, 1997, sales and
marketing expenses increased to $1,769,000 from $1,293,000, and remained
constant as a percentage of total revenues at 14% for the six months ended June
30, 1997 and 1996, respectively. The increase in sales and marketing expenses
resulted principally from the addition of sales personnel hired by the Company
during the first and second quarters of 1997, including Synergy personnel, and
higher advertising costs incurred by the Company. The Company believes sales
and marketing expenses will continue to increase primarily due to the hiring of
additional sales and marketing personnel, but should remain relatively constant
as a percentage of total revenues, although there can be no assurance in this
regard.
9
<PAGE> 10
Research and Development. Research and development expenses for the quarter
ended June 30, 1997 increased to $763,000 from $597,000 in the same period last
year, and decreased as a percentage of total revenues to 10% from 13% in the
same period last year. For the six months ended June 30, 1997, research and
development expenses increased to $1,411,000 from $1,263,000 in the same period
last year, and decreased as a percentage of total revenues to 11% from 13% in
the same period last year. The increase in research and development expenses in
the second quarter of 1997 was principally due to the hiring of additional
software programmers. The Company intends to continue to make substantial
investments in the development of new products and in the further integration of
acquired technologies into the Company's suite of products and, accordingly,
believes that these expenses will increase significantly in the future.
Amortization of Goodwill. Amortization of goodwill for the quarter ended
June 30, 1997 was $242,000 compared to $107,000 in the same period last year.
For the six months ended June 30, 1997, amortization of goodwill was $362,000
compared to $219,000 in the same period last year. Goodwill is principally due
to the acquisitions of Healthcare Design Systems Inc. in December 1995 and
Synergy in April 1997.
Non-Recurring Start-Up Charges. The Company recorded non-recurring start-up
charges of $360,000 and $694,000 in the second quarter ended and six months
ended June 30, 1997, respectively, associated with start-up costs incurred for
the claims processing arrangement entered into with EDI USA, Inc. during the
first quarter of 1997. The Company expects to incur similar charges in the
remaining two quarters of 1997, until the electronic transaction network is
operational.
Interest Income (Expense). Interest income was $162,000 in the quarter ended
June 30, 1997, compared to interest expense of $168,000 for the same period last
year. For the six months ended June 30, 1997, interest income was $388,000,
compared to interest expense of $284,000 in the same period last year. Interest
income is the result of the Company's initial public offering in October 1996,
which raised net proceeds of approximately $26,400,000. Interest expense in the
second quarter of 1996 was principally the result of debt the Company incurred
for the acquisition of Healthcare Design Systems Inc. and for working capital
purposes.
LIQUIDITY AND CAPITAL RESOURCES
From inception until the Company's initial public offering in October 1996,
the Company's primary source of working capital was private placements of
Preferred Stock through which it raised approximately $12,800,000, net of
expenses. In 1994 and 1995, Series A Preferred Stock was issued for cash and
forgiveness of indebtedness totalling $4,200,000. Also in 1995, Series B
Preferred Stock was issued for cash of $4,000,000 and the conversion of notes
payable and accrued interest of $680,000. In June 1996, the Company completed a
second Series B Preferred Stock financing for the conversion of notes payable of
$3,900,000, which provided the downpayment for the acquisition of the net assets
of Healthcare Design Systems Inc. In October 1996, the Company completed its
initial public offering of 2,500,000 shares of common stock, which raised net
proceeds of approximately $26,400,000.
Net cash used in operating activities was $6,164,000 and $603,000 in the
six months ended June 30, 1997 and 1996, respectively. Net cash used in
operating activities in the six months ended June 30, 1997 was principally due
to cash paid for the acquisition of Synergy, a decrease in accounts payable and
accrued liabilities and an increase in accounts receivable. Accounts payable and
accrued liabilities decreased due to payments to vendors using the proceeds from
the initial public offering in October 1996. Accounts receivable increased
primarily due the acquisition of Synergy, which significantly increased
receivables and the volume of monthly billings. Net cash used in operating
activities in the six months ended June 30, 1996 was principally due to
investments in the Company's infrastructure.
Net cash used in investing activities was $3,827,000 and $518,000 in the six
months ended June 30, 1997 and 1996, respectively. Investing activities in 1997
primarily included additions to capital equipment, the investment in EDI USA,
and the capitalization of computer software development costs. Investing
activities in 1996 related to additions to capital equipment and the
capitalization of computer software development costs.
Net cash provided by financing activities was $42,000 and $912,000 in the
six months ended June 30, 1997 and 1996, respectively. Financing activities in
the six months ended June 30, 1997 related to the issuance of common stock
through the Company's Stock Purchase Plan, offset by payments made under capital
lease obligations. Financing activities in the six months ended June 30, 1996
related to the issuance of convertible notes and common stock, offset by
borrowings under a note payable and the Company's line of credit.
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In July 1997, the Company entered into a line of credit arrangement to
borrow up to $5,000,000 at the bank's prime rate. The line expires in July 1998
and contains certain restrictions, including among others, maintaining a minimum
quick ratio, minimum tangible net worth and a minimum ratio of total liabilities
to tangible net worth retroactive to June 30, 1997. The Company was in
compliance with these covenants at June 30, 1997. The line of credit is
unsecured.
FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS
DEPENDENCE ON HOSPITAL MARKET; MARKET ACCEPTANCE; DEPENDENCE ON STRATEGIC
ALLIANCES; SYSTEM ENHANCEMENTS
The Company's customers are typically hospitals and other health care
providers, and substantially all of the Company's revenues in 1996 and the six
months ended June 30, 1997 were derived from the sale of software products and
services to hospitals. The Company's performance is dependent on continued
demand for its products and services in the health care information systems and
services industry. Consolidation in the health care information systems and
services industry could have a material adverse effect on the Company due to the
decrease in the number of potential purchasers of the Company's products and
services or the acquisition of one or more of the Company's customers by an
acquiror that uses products that compete with those of the Company. Legislative
or market-driven reforms could also have unpredictable effects on the Company's
business, financial condition and results of operations. In addition, the
decision to purchase the Company's products often involves the approval of
several individuals within hospitals and other health care providers.
Consequently, it is difficult for the Company to predict the timing or outcome
of the buying decisions of customers or potential customers.
The Company's future performance is also dependent in part on the success of
its marketing strategy which involves, to a substantial degree, a reliance upon
strategic alliance partners to sell the Company's products as a component of the
integrated systems being marketed by such partner or to endorse the Company's
products. If these strategic alliance partners elect to remove their product
endorsement or elect not to include the Company's products as components in
their integrated systems or are unsuccessful in achieving significant sales of
the systems into which the Company's products are to be integrated, the
Company's business, financial condition and results of operations would be
materially adversely affected.
Moreover, the Company's future performance will depend in large part upon
the Company's ability to provide the increasing functionality required by its
customers through the timely development and successful introduction of new
products and enhancements to its existing suite of products. The Company has
historically devoted significant resources to product enhancements and research
and development and believes that significant continuing development efforts
will be required to sustain the Company's operations. There can be no assurance
that the Company will successfully develop, acquire, introduce and market new
product enhancements or products, or that product enhancements or new products
developed by the Company will meet the requirements of hospitals and other
health care providers and achieve market acceptance.
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RISKS ASSOCIATED WITH ACQUISITIONS
The Company has expanded, and intends to continue to expand, in substantial
part through acquisitions of products, technologies and businesses. The
Company's ability to expand successfully through acquisitions depends on many
factors, including the successful identification and acquisition of products,
technologies or businesses and management's ability to effectively negotiate and
consummate acquisitions and integrate and operate, including reducing operating
expenses through synergies, the new products, technologies or businesses. There
is significant competition for acquisition opportunities in the Company's
industry, which may intensify due to consolidation in the health care industry,
increasing the costs of capitalizing on acquisition opportunities. The Company
competes for acquisition opportunities with other companies that have
significantly greater financial and management resources than the Company. The
inability to successfully identify appropriate acquisition opportunities,
consummate acquisitions or successfully integrate acquired products,
technologies, operations, personnel or businesses would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, acquisitions may divert management's attention from other business
concerns, expose the Company to the risks of entering markets in which the
Company has no direct prior experience or to risks associated with the market
acceptance of acquired products and technologies, or result in the loss of key
employees of the Company or the acquired company. Moreover, future acquisitions
by the Company may result in potentially dilutive issuances of equity
securities, the incurrence of additional debt and the recognition of
amortization expenses related to goodwill and other intangible assets, which
could adversely affect the Company's business, financial condition and results
of operations. The acquisition and merger of InterMed Healthcare Systems Inc. in
December 1996 increased the number and complexity of software products offered
by the Company. The further integration of this company's products and
operations into the products and operations of the Company will divert
management attention from other matters, will place further pressure on the
Company's executive officers and may result in additional administrative
expense. Failure to complete successfully this integration of products and
operations and assimilation of new employees could have a material adverse
effect on the Company's business, financial condition and results of operations.
The acquisition of Synergy in April 1997, substantially increased the number of
employees of the Company and the breadth of services offered by the Company. The
Company's acquisition of Synergy will require the reduction of operating
expenses and the successful integration of the Company's business office
outsourcing services with those services of Synergy. Failure to successfully
reduce operating expenses and integrate the services of Synergy could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON LARGE ORDERS; CUSTOMER CONCENTRATION
In any given fiscal quarter or year, the Company's revenues may consist of
large orders from a limited number of customers. While the individual customer
may vary from period to period, the Company may nevertheless be dependent upon
these large orders for a substantial portion of its total revenues. There can be
no assurance that the Company will obtain such large orders on a consistent
basis. The Company's inability to obtain sufficient large orders could have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, the timing and shipment of such orders may
cause the operating results of the Company in any given quarter to differ from
projections of securities analysts, which could adversely affect the trading
price of the Company's Common Stock. Losses arising from customer disputes
regarding shipping schedules, product condition or performance, or the Company's
inability to collect accounts receivable from any major customer could also have
a material adverse effect on the Company's business, financial condition and
results of operations.
POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. Quarterly revenues and operating results may fluctuate as
a result of a variety of factors, including the following: variability in demand
for the Company's products and services; the timing of acquisitions; the timing
of large orders; the number, timing and significance of announcements and
releases of product enhancements and new products by the Company and its
competitors; the timing and significance of announcements concerning the
Company's present or prospective strategic alliances; the termination of, or a
reduction in, offerings of the Company's products and services; the loss of
customers due to consolidation in the health care industry, delays in product
delivery requested by customers; the timing of revenue recognition; the amount
of backlog at the beginning of any particular quarter; customer budgeting cycles
and changes in customer budgets; investments by the Company in certain projects
or in marketing, sales, research and development, and administrative personnel
necessary to support the Company's anticipated operations; marketing and sales
promotional activities; software defects and other quality factors; and general
economic conditions.
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In particular, the timing of revenue recognition can be affected by many
factors, including the timing of customer purchases which are difficult to
predict given the complex procurement decision process that exists in most
health care providers. As a result, the Company typically experiences sales
cycles that extend over several quarters for new customers. There can be no
assurance that the Company will not experience delays in recognizing revenues in
the future. Moreover, the Company's operating expense levels are relatively
fixed and, to a large degree, are based on anticipated revenues. If revenues are
below expectations, net income is likely to be disproportionately affected.
Further, it is likely that in some future quarter the Company's revenues,
backlog or operating results will be below the expectations of securities
analysts and investors. In such event, the trading price of the Company's Common
Stock would likely be materially adversely affected.
HIGHLY COMPETITIVE MARKET
Competition in the market for the Company's products and services is intense
and is expected to increase. The Company's competitors include other providers
of health care information software and services, as well as health care
consulting firms. The Company's principal competitors include CIS Technologies,
Inc., a division of National Data Corporation, Inc., and Sophisticated Software,
Inc. in the market for its EDI products; Healthcare Cost Consultants, Inc.
("HCC"), a division of CIS Technologies, Inc. and Trego Systems, Inc. in the
market for its contract management products; IMNET Systems, Inc., Optika Imaging
Systems, Inc. and LanVision Systems, Inc. in the market for its electronic
document management products; Transition Systems, Inc. ("TSI") and Healthcare
Microsystems, Inc., a division of Health Management Systems Inc. ("HMS"), HCIA
Inc. and MediQual Systems, Inc. in the market for its decision support products;
and HMS and ARTRAC, a division of Medaphis Corp., in the market for its business
office outsourcing services. In addition, current and prospective customers
evaluate the Company's capabilities against the merits of their existing
information systems and expertise. Furthermore, major health care information
companies not presently offering products that compete with those offered by the
Company may enter the Company's markets. Increased competition could result in
price reductions, reduced gross margins, and loss of market share, any of which
could materially adversely affect the Company's business, financial condition
and results of operations. In addition, many of the Company's competitors and
potential competitors have significantly greater financial, technical, product
development, marketing and other resources and market recognition than the
Company. Many of the Company's competitors also currently have, or may develop
or acquire, substantial installed customer bases in the health care industry. As
a result of these factors, the Company's competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than the Company. There can be no assurance that the Company will be
able to compete successfully against current and future competitors or that
competitive pressures faced by the Company will not materially adversely affect
its business, financial condition and results of operations.
NEED TO MANAGE CHANGING OPERATIONS; DEPENDENCE UPON KEY PERSONNEL
The Company's anticipated future operations may place a strain on its
management systems and resources. The Company expects that it will be required
to continue to improve its financial and management controls, reporting systems
and procedures, and will need to expand, train and manage its work force. There
can be no assurance that the Company will be able to effectively manage these
tasks, and the failure to do so could have a material adverse effect on the
Company's business, financial condition and results of operations. In 1994, 1995
and 1996 the Company experienced significant turnover in its sales personnel,
including its Senior Vice President of Sales. The Company has hired in the last
year and intends to continue to hire a significant number of additional sales
personnel. Thus, a substantial percentage of the Company's sales force is
currently inexperienced in selling the Company's products and will remain so for
some time. In addition, competition for experienced sales personnel is intense,
and there can be no assurance that the Company will be able to attract,
assimilate or retain highly qualified employees in the future. If the Company is
unable to hire and retain such personnel, particularly those in key positions,
the Company's business, financial condition and results of operations could be
materially adversely affected. The Company's future success also depends in
significant part upon the continued service of its executive officers, its
product managers and other key sales, marketing, and development personnel.
In July 1997, the Company hired Lemuel Stewart, Jr. as President of its EDI
Division, who must be successfully integrated into its management team.
Additions of new and departures of existing personnel can be disruptive and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
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LIMITED PROPRIETARY RIGHTS; RISK OF INFRINGEMENT
The Company relies on a combination of trade secrets, copyright and
trademark laws, nondisclosure and other contractual provisions to protect its
proprietary rights. The Company has not filed any patent applications covering
its technology or registered any of its copyrights with state or federal
agencies. There can be no assurance that measures taken by the Company to
protect its intellectual property will be adequate or that the Company's
competitors will not independently develop products and services that are
substantially equivalent or superior to those of the Company. Substantial
litigation regarding intellectual property rights exists in the software
industry, and the Company expects that software products may be increasingly
subject to third-party infringement claims as the number of competitors in the
Company's industry segment grows and the functionality of products overlaps.
Although the Company believes that its products do not infringe upon the
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future or
that a license or similar agreement will be available on reasonable terms in the
event of an unfavorable ruling on any such claim. In addition, any such claim
may require the Company to incur substantial litigation expenses or subject the
Company to significant liabilities and could have a material adverse effect on
the Company's business, financial condition and results of operations.
RISK OF PRODUCT DEFECTS; FAILURE TO MEET PERFORMANCE CRITERIA
Products such as those offered by the Company frequently contain errors or
failures, especially when first introduced or when new versions are released.
Although the Company conducts extensive testing, the Company has discovered
software errors in certain of its enhancements and products after their
introduction. The Company is currently developing various new applications as
well as new versions of certain of its existing applications designed to
function with the Microsoft Windows(TM) NT operating system. There can be no
assurance that, despite testing by the Company and by current and potential
customers, errors or performance failures will not occur in these products under
development or in other enhancements or products after commencement of
commercial shipments, resulting in loss of revenues or delay in market
acceptance, diversion of development resources, damage to the Company's
reputation or increased service and warranty costs, any of which could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
RISK OF INTERRUPTION OF DATA PROCESSING
The Company currently processes large amounts of customer data at its
facilities in Larkspur, California and Neptune, New Jersey. While the Company
has safeguards for emergencies such as power interruption or breakdown in
temperature controls, the Company has no mirror processing site to which
processing could be transferred in the case of a catastrophic event at either of
these facilities. The occurrence of a major catastrophic event at either the
Larkspur facility or the Neptune facility could lead to an interruption of data
processing and could have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS RELATED TO PRODUCT CONVERSION TO WINDOWS NT
The Company intends to enhance its products to run on the Microsoft
Windows(TM) NT operating system. Some potential clients may delay purchasing
decisions until Windows(TM) NT versions of the Company's products are available.
There can be no assurance that the Company will not experience difficulties that
could delay or prevent the successful and timely development, introduction and
marketing of the new Windows(TM) NT versions of its products, or that such
products will achieve or sustain market acceptance.
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The occurrence of product conversion problems or the failure to achieve or
sustain market acceptance of the Windows(TM) NT versions could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISKS RELATED TO OUTSOURCING BUSINESS
The Company provides business office outsourcing, including the billing and
collection of receivables. The infrastructure for the Company's outsourcing
business was acquired by the Company from Seton Financial in November 1993 and
from Synergy in April 1997, and the Company often uses its software products
to provide outsourcing services. As a result, the Company has not been required
to make significant investments since the acquisition of Seton Financial in
order to service existing outsourcing contracts. However, if the Company
experiences a period of substantial expansion in its outsourcing business, the
Company may be required to make substantial investments in capital assets and
personnel, and there can be no assurance that the Company will be able to assess
accurately the investment required and negotiate and perform in a profitable
manner any of the outsourcing contracts it may be awarded. The Company's failure
to estimate accurately the resources and related expenses required for a project
or its failure to complete its contractual obligations in a manner consistent
with the project plan upon which its contract was based could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company's failure to meet a client's expectations
in the performance of its services could damage the Company's reputation and
adversely affect its ability to attract new business. Finally, the Company could
incur substantial costs and expend significant resources correcting errors in
its work, and could possibly become liable for damages caused by such errors.
GOVERNMENT REGULATION
The United States Food and Drug Administration (the "FDA") is responsible
for assuring the safety and effectiveness of medical devices under the Federal
Food, Drug and Cosmetic Act. Computer products are subject to regulation when
they are used or are intended to be used in the diagnosis of disease or other
conditions, or in the cure, mitigation, treatment or prevention of disease, or
are intended to affect the structure or function of the body. The FDA could
determine in the future that any predictive aspects of the Company's products
make them clinical decision tools subject to FDA regulation. Compliance with
these regulations could be burdensome, time consuming and expensive. The Company
also could become subject to future legislation and regulations concerning the
development and marketing of health care software systems. These could increase
the cost and time necessary to market new products and could affect the Company
in other respects not presently foreseeable. The Company cannot predict the
effect of possible future legislation and regulation.
The confidentiality of patient records and the circumstances under which
such records may be released for inclusion in the Company's databases are
subject to substantial regulation by state governments. These state laws and
regulations govern both the disclosure and the use of confidential patient
medical record information. Although compliance with these laws and regulations
is at present principally the responsibility of the hospital, physician or other
health care provider, regulations governing patient confidentiality rights are
evolving rapidly. Additional legislation governing the dissemination of medical
record information has been proposed at both the state and federal level. This
legislation may require holders of such information to implement security
measures that may require substantial expenditures by the Company. There can be
no assurance that changes to state or federal laws will not materially restrict
the ability of health care providers to submit information from patient records
using the Company's products.
UNCERTAINTY IN THE HEALTH CARE INDUSTRY
The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
health care organizations. Changes in current health care financing and
reimbursement systems could result in the need for unplanned product
enhancements, in delays or cancellations of product orders or shipments or in
the revocation of endorsement of the Company's products by hospital associations
or other customers. Any of such occurrences could have a material adverse effect
on the Company's business, financial condition and results of operations. During
the past several years, the United States health care industry has been subject
to an increase in governmental regulation of, among other things, reimbursement
rates. Certain proposals to reform the U.S. health care system are periodically
under consideration by Congress. These programs may contain proposals to
increase government involvement in health care and otherwise change the
operating environment for the Company's customers. Health care organizations may
react to these proposals and the uncertainty surrounding such proposals by
curtailing or deferring investments in cost containment tools and related
technology such as the Company's products. The Company
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cannot predict what impact, if any, such factors might have on its business,
financial condition and results of operations. In addition, many health care
providers are consolidating to create integrated health care delivery systems
with greater regional market power. As a result, these emerging systems could
have greater bargaining power, which may lead to price erosion of the Company's
products. The failure of the Company to maintain adequate price levels would
have a material adverse effect on the Company's business, financial condition
and results of operations. Other legislative or market-driven reforms could have
unpredictable effects on the Company's business, financial condition and results
of operations.
RISK OF PRODUCT-RELATED CLAIMS
Certain of the Company's products and services relate to the payment or
collection of health care claims. Any failure by employees of the Company or by
the Company's products to accurately process or collect such claims could result
in claims against the Company by its customers. The Company has been and
currently is involved in claims for money damages related to services provided
by its accounts receivable management business. The Company maintains insurance
to protect against certain claims associated with the use of its products, but
there can be no assurance that its insurance coverage would adequately cover any
claim asserted against the Company. A successful claim brought against the
Company in excess of, or excluded from, its insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations. Even unsuccessful claims could result in the Company's
expenditure of funds in litigation and management time and resources. There can
be no assurance that the Company will not be subject to material claims in the
future, that such claims will not result in liability in excess of its insurance
coverage, that the Company's insurance will cover such claims or that
appropriate insurance will continue to be available to the Company in the future
at commercially reasonable rates. In addition, if liability of the Company were
to be established, substantial revisions to its products could be required that
may cause the Company to incur additional unanticipated research and development
expenses.
POSSIBLE VOLATILITY OF STOCK PRICE; LOW TRADING VOLUME
The stock market historically has experienced volatility which has affected
the market price of securities of many companies and which has sometimes been
unrelated to the operating performance of such companies. The trading price of
the Company's Common Stock could also be subject to significant fluctuations in
response to variations in quarterly results of operations, announcements of new
products or acquisitions by the Company or its competitors, governmental
regulatory action, other developments or disputes with respect to proprietary
rights, general trends in the industry and overall market conditions, and other
factors. The market price of the Company's Common Stock may also be
significantly affected by factors such as announcements of new products by the
Company's competitors, as well as variations in the market conditions in the
medical cost containment or software industries in general. The market price may
also be affected by movements in prices of equity securities in general. In
addition, the average daily trading volume of the Company's Common Stock since
public trading of the Common Stock commenced has been low. To the extent this
trading pattern continues, the price of the Common Stock may fluctuate
significantly as a result of changes in demand for such shares and sales of
stock by stockholders.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None
ITEM 2. CHANGES IN SECURITIES.
Between April 1, 1997 and June 30, 1997, the Registrant issued the following
securities which were not registered under the Securities Act of 1933 (the
"Securities Act"): the Registrant granted stock options to its employees under
its 1996 Stock Incentive Plan covering an aggregate of 42,300 shares of the
Registrant's Common Stock, all at an exercise price of $7.50 per share.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, or Regulation D promulgated thereunder,
or Rule 701 promulgated under Section 3(b) of the Securities Act, as
transactions by an issuer not involving any public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensation as
provided under Rule 701.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. None
ITEM 5. OTHER INFORMATION. None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits
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2.1 Form of Agreement and Plan of Merger by and between
QuadraMed Corporation, a Delaware corporation and QuadraMed
Corporation, a California corporation.(1)
2.2 Assets Purchase Agreement dated December 31, 1995, by
and among QuadraMed Acquisition Corporation, Kaden Arnone,
Inc. and its stockholders.(1)
2.3 Exchange Agreement dated June 25, 1996, by and among
QuadraMed Holdings, Inc., QuadraMed Corporation, and certain
stockholders listed on Schedule A thereto.(1)
2.4 Acquisition Agreement and Plan of Merger dated December 2,
1996, between the Company and InterMed Acquisition
Corporation, a wholly owned subsidiary of the Company, and
InterMed Healthcare Systems Inc. and its Stockholders.(2)
2.5 Acquisition Agreement and Plan of Merger, dated as of
March 1, 1997, by and among QuadraMed Corporation,
Healthcare Recovery Acquisition Corporation, Healthcare
Recovery Incorporated and its Shareholders (the "HRI
Acquisition Agreement and Plan of Merger"). (3)
2.6 First Amendment to HRI Acquisition Agreement and Plan of
Merger, dated as of April 22, 1997. (3)
2.7 Second Amendment to HRI Acquisition Agreement and Plan of
Merger, dated as of April 24, 1997. (3)
3.1 Reserved.
3.2 Second Amended and Restated Certificate of Incorporation
of the Company.(1)
3.3 Reserved.
3.4 Amended and Restated Bylaws of the Company.(1)
4.1 Reference is made to Exhibits 3.2 and 3.4.(1)
4.2 Form of Common Stock certificate.(1)
4.3 Form of Exchange Agreement dated March 16, 1994, by and
among the Company, THCS Holding, Inc. and certain
stockholders listed on Schedule A thereto.(1)
4.4 Reserved.
4.5 Reserved.
4.6 Reserved.
4.7 Amended and Restated Agreement Regarding Adjustment Shares
dated June 25, 1996, by and among the Company, QuadNet
Corporation and the individuals listed on Schedule A
thereto.(1)
4.8 Amended and Restated Shareholder Rights Agreement dated June
25, 1996, by and between the Company and the investors
listed on Schedule A thereto.(1)
4.9 Stock Purchase Warrant dated September 27, 1995 issued to
James D. Durham and amendment #1 thereto dated July 10,
1997.
4.10 Reserved.
4.11 Form of Warrant to Purchase Common Stock.(1)
4.12 Reserved.
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10.1 1996 Stock Incentive Plan of the Company.(1)
10.2 1996 Employee Stock Purchase Plan of the Company.(1)
10.3 Summary Plan Description, QuadraMed Corporation 401(k)
Plan.(1)
10.4 Form of Indemnification Agreement between the Company and
its directors and executive officers.(1)
10.5 Reserved.
10.6 Lease dated February 26, 1996 for facilities located at 1345
Campus Parkway, Building M, Block #930, Lot #51.02, Neptune,
New Jersey.(1)
10.7 Lease dated May 23, 1994 for facilities located at 80 East
Sir Francis Drake Boulevard, Suite 2A, Larkspur,
California.(1)
10.8 Lease Agreement dated December 14, 1989 for facilities
located at 1130 East Shaw Avenue, Suites 108 and 209,
Fresno, California.(1)
10.9 Employment Agreement dated March 1, 1994 by and between
James D. Durham and the Company.(1)
10.10 Stock Purchase Agreement dated March 3, 1994, by and between
the Company and James D. Durham.(1)
10.11 Letter dated April 17, 1995 from James D. Durham, as
President and Chief Executive of QuadraMed Corporation, to
John V. Cracchiolo regarding terms of employment.(1)
10.12 Letter dated March 14, 1996 from James D. Durham, as
President and Chief Executive Officer of QuadraMed
Corporation, to Robert Burrows regarding terms of
employment.(1)
10.13 Letter from Walter Channing to Thomas McNulty effective
December 1995, regarding service as Chairman of the Board of
Directors.(1)
10.14 Agreement dated May 11, 1994, by and between Colson
Investments and the Company.(1)
10.15 Credit Terms and Conditions dated July 2, 1997, by and
between Imperial Bank and the Company, with addendum
thereto.
10.16 Reserved.
10.16.1 Reserved.
10.17 Reserved.
10.18 ERA/Secondary Billing and Claimstar Licenses Agreement dated
April 10, 1995, by and between the Company and Blue Cross of
California, as amended by the Second Amendment dated April
19, 1995.(1)
10.19 Cooperative Agreement dated June 30, 1995, by and between
The Compucare Company and the Company, with Amendment
thereto.(1)
10.20 Agreement dated April 1, 1995, by and between the Company
and National Electronic Information Corporation (now Envoy
Corporation).(1)
10.21 QuadraMed Corporation Cooperative Marketing Agreement dated
August 15, 1995, by and between the Company and Health
Systems Design Corporation.(1)
10.22 Agreement to Market QuadraMed Software dated June 1, 1996
between the Company and Health Communication Services,
Inc.(1)
10.23 Joint Marketing and Services Agreement dated November 1,
1995, by and between QuadraMed Acquisition Corporation, the
Company and Kaden Arnone, Inc.(1)
10.24 License Agreement dated November 1, 1994, by and between the
Company and Learned-Mahn, Inc.(1)
10.25 Master Agreement dated June 1, 1995, by and between Premier
Health Alliance, Inc. and the Company.(1)
10.26 Agreement dated October 3, 1995, by and between Shared
Services Healthcare, Inc. and the Company.(1)
10.27 Letter Agreement dated March 3, 1994 by and between NJUP
Plus and the Company.(1)
10.28 Endorsement Agreement dated November 1, 1994, by and between
ServiShare of Iowa and the Company, relating to ContraQ.(1)
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10.29 Endorsement Agreement dated November 1, 1994, by and between
ServiShare of Iowa and the Company, relating to
ClaimStar.(1)
10.30 Memorandum of Understanding dated October 24, 1995, by and
between the Company and St. Anthony Publishing, Inc. (now
NexUS Capital Healthcare Information Corp.).(1)
10.31 Software Development Agreement dated August 3, 1995, by and
between St. Joseph's Hospital of Atlanta, Inc. and the
Company.(1)
10.32 Letter Agreement dated December 27, 1995, by and between the
Company and UniHealth, with related Joint Development
Proposal for a Capitation Management System dated October
20, 1995.(1)
10.33 Employment Agreement with Kevin H. Arner, President of EDI
Services Division.(6)
10.34 Letter dated March 6, 1997 from James D. Durham, as
President and Chief Executive Officer of QuadraMed
Corporation, to Keith M. Roberts regarding terms of
employment.(7)
10.35 Employment Agreement dated December 19, 1996 by and between
Frederick Stodolak and the Company.(7)
10.36 Letter dated January 1, 1997 from the Company to James
Durham regarding terms of employment.(7)
10.37 Letter dated April 22, 1997 from the Company to Eugene M.
Arnone regarding terms of employment.(3)
10.38 Non-Competition and Non-Circumvention Agreement, dated
March 1, 1997, by and among the Company, Healthcare Recovery
Acquisition Corporation and Eugene M. Arnone.(3)
27.1 Financial Data Schedule.
</TABLE>
- ----------
(1) Incorporated by reference from the exhibit with the same number to the
Company's Registration Statement on Form SB-2, No. 333-5180-LA, as filed
with the Commission on June 28, 1996, as amended by Amendment No. 1,
Amendment No. 2 and Amendment No. 3 thereto, as filed with the Commission
on July 26, 1996, September 9, 1996, and October 2, 1996, respectively.
(2) Incorporated by reference from the exhibit with the same number to the
Company's Current Report on Form 8-K, as filed with the Commission on
January 9, 1997.
(3) Incorporated by reference from the exhibit with the same number to the
Company's Current Report on Form 8-K, as filed with the Commission on May
9, 1997.
(4) Incorporated by reference from Exhibit 99.16 to the Company's
Registration Statement on Form S-8, No. 333-16385, as filed with the
Commission and declared effective on November 19, 1996.
(5) Incorporated by reference from Exhibit 10.16 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1996, as filed
with the Commission on November 14, 1996.
(6) Incorporated by reference from Exhibit 10.32 to the Company's Current
Report on Form 8-K, as filed with the Commission on January 9, 1997.
(7) Incorporated by reference from the exhibit with the same number to the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1996, as filed with the Commission on March 28, 1997, as amended by
Amendment No. 1 thereto, as filed with the Commission on April 18, 1997.
b. Reports on Form 8-K.
The Company filed a report on Form 8-K on January 9, 1997 in which it
reported the acquisition and merger of InterMed Healthcare Systems Inc. through
the Company's wholly-owned subsidiary InterMed Acquisition Corporation.
19
<PAGE> 20
The Company filed a report on Form 8-K on May 9, 1997 in which it reported
the acquisition and merger of Healthcare Recovery, Inc., a New Jersey
corporation and successor in interest to the Synergy Companies doing business as
"Synergy". The Company filed an amended report on Form 8-K/A on July 8, 1997 for
this same acquisition.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUADRAMED CORPORATION
(Company)
Date: August 14, 1997 By: /s/ JOHN V. CRACCHIOLO
---------------------------------------
John V. Cracchiolo
Executive Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer)
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<S> <C>
4.9 Stock Purchase Warrant issued to
` James D. Durham and amendment #1 thereto.
10.15 Credit Terms and Conditions of
Line of Credit.
27.1 Financial Data Schedule
</TABLE>
22
<PAGE> 1
EXHIBIT 4.9
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT
TO RULE 144 OF SUCH ACT.
STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock of
QUADRAMED CORPORATION
THIS CERTIFIES that, for value received, James D. Durham (the
"Executive"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase, from QuadraMed
Corporation, a California corporation (the "Company"), up to 8,890,000 shares of
Common Stock. The purchase price of one share of Common Stock under this Warrant
shall be equal to $0.15, subject to adjustment as set forth herein (the "Common
Price"), the fair market value of one share of the Company's Common Stock on
the date of this Warrant as determined by the Company's Board of Directors.
1. Exercisability of this Warrant. Provided Executive is
performing services for the Company in the capacity of an employee, consultant
or director at September 26, 2000, this Warrant will thereupon become
exercisable for all of the underlying shares of Common Stock and may be
exercised in whole or in part at any time after September 26, 2000 and before
the close of business on September 26, 2001 after which time this Warrant shall
terminate and shall be void and of no further force or effect.
This Warrant will become exercisable in full before September
26, 2000 upon the following events (each a "Full Acceleration Event"), provided
that Executive is performing services for the Company in the capacity of an
employee, consultant or director at the time of such event:
1.
<PAGE> 2
A. Sale of Assets.
(i) Sale of all or substantially all of the Company's assets
for cash at or above the "Minimum Value" (as determined below) on or before June
30, 2000; or
(ii) Not more than eighteen months after the sale of all or
substantially all of the Company's assets for stock at or above the "Minimum
Value," provided (1) the stock is publicly traded and has a market value of
public float prior to such sale of at least $100 million, (2) the "lockup"
period, if any, limiting sales by officers, directors and principal shareholders
has expired, (3) at the time the lockup period has expired the valuation for the
Company is at or above the "Minimum Value," and (4) such event occurs on or
before June 30, 2000.
B. Sale of Stock.
(i) Sale of 80% or more of the outstanding capital stock of
the Company for cash at or above the "Minimum Value" on or before June 30, 2000;
or
(ii) Not more than eighteen months after the sale of 80% or
more of the outstanding capital stock of the Company for stock at or above the
"Minimum Value," provided (1) the stock is publicly traded and has a market
value of public float prior to such sale of at least $100 million, (2) the
"lockup" period, if any, limiting sales by officers, directors and principal
shareholders has expired, (3) at the time the lockup period has expired the
valuation for the Company is at or above the "Minimum Value," and (4) such event
occurs on or before June 30, 2000.
C. Merger. Merger of the Company on or before June 30, 2000 with a
corporation, which has a publicly traded security with a market value or public
float prior to the merger of at least $100 million, at a valuation for the
Company at or above the "Minimum Value."
D. Public Offering. Not less than six nor more than eighteen months
after the completion of an initial public offering of the Company's securities
with net proceeds to the Company of not less than $15 million; provided (1) the
"lockup" period limiting sales by officers, directors and principal shareholders
in such offering has expired; (2) at the time the lockup period has expired the
valuation for the Company is at or above the "Minimum Value" and (3) such lockup
period expires on or before June 30, 2000.
As used herein, "Minimum Value" shall mean a value for the Company such
that the value for each share of Common Stock outstanding on the date of
issuance of this Warrant (based on the number of shares then outstanding, on a
fully-diluted basis,
2
<PAGE> 3
including those that would be outstanding upon full exercise of the Warrant)
equals or exceeds the levels set forth below. If the Minimum Value is not met,
but would be met if this Warrant were reduced to a lesser number of shares, then
the number of shares for which this Warrant shall become exercisable at the time
of the Full Acceleration Event shall be reduced to such number of shares as will
permit the Minimum Value to be met. However, any shares for which this Warrant
does not become so exercisable at the time of the Full Acceleration Event shall
remain subject to this Warrant and shall become exercisable in accordance with
the other provisions of this Warrant.
Quarter Share
Ended Price
------- -----
Sep 95 $0.96
Dec 95 $0.96
Mar 96 $0.96
Jun 96 $0.96
Sep 96 $0.96
Dec 96 $0.96
Mar 97 $0.96
Jun 97 $1.09
Sep 97 $1.24
Dec 97 $1.42
Mar 98 $1.59
Jun 98 $1.82
Sep 98 $1.92
Dec 98 $1.92
Mar 99 $1.92
Jun 99 $1.92
Sep 99 $2.01
Dec 99 $2.11
Mar 00 $2.20
In the event the Minimum Value is to be determined at a time when the
Company's Common Stock is traded on an exchange or is quoted on the Nasdaq
National Market, the determination shall be made on the basis of the average
closing sales price for the 20 business days preceding the applicable quarter
ended period. If the Company's Common Stock is not traded on an exchange or on
the Nasdaq National Market, but is traded in the over-the-counter market, the
determination shall be made on the basis of the average closing bid and ask
prices for the 20 business days preceding the applicable quarter ended period.
E. The Board of Directors of the Company shall have complete
discretion, exercisable at any time while this Warrant remains outstanding, to
accelerate the exercisability of this Warrant in full or in part.
3.
<PAGE> 4
2. Procedures to Exercise Warrant. The purchase rights
represented by this Warrant are exercisable by the registered holder hereof by
the surrender of this Warrant and the Subscription Form annexed hereto duly
executed at the office of the Company in Larkspur, California (or other such
office or agency of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books
of the Company), and upon payment of the purchase price of the shares thereby
purchased (by cash or by check or bank draft payable to the order of the
Company or by cancellation of indebtedness of the Company to the holder hereof,
if any, at the time of exercise in an amount equal to the purchase price of the
shares thereby purchased) whereupon the holder of this Warrant shall be
entitled to receive a certificate for the number of shares of Common Stock so
purchased. The Warrant may also be exercised in whole or in part through a
special sale and remittance procedure pursuant to which the Executive shall
concurrently provide irrevocable written instructions (a) to a
Company-designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Company, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local income
and employment taxes required to be withheld by the Company by reason of such
exercise and (b) to the Company to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale. The
Company agrees that if at the time of the surrender of this Warrant and
purchase the holder hereof shall be entitled to exercise this Warrant, the
shares so purchased shall be and be deemed to be issued to such holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been exercised as aforesaid. Certificates for shares
purchased hereunder shall be delivered to or on behalf of the holder hereof
within a reasonable time after the date on which this Warrant shall have been
exercised as aforesaid. The Company covenants that all shares of Common Stock
which may be issued upon the exercise of rights represented by this Warrant
will, upon exercise of the rights represented by this Warrant, be fully paid
and nonassessable and free from all taxes, liens and charges in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).
3. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon the exercise
of this Warrant, an amount equal to such fraction multiplied by the then
current price at which each share may be purchased hereunder shall be paid in
cash to the holder of this Warrant.
4.
<PAGE> 5
4. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and provided, further, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.
5. No Rights as Shareholder. This Warrant does not entitle the
holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise thereof.
6. Exchange and Registry of Warrants. This Warrant is
exchangeable, upon the surrender hereof by the registered holder at the
above-mentioned office or agency of the Company, for a new Warrant of like
tenor and dated as of such exchange. The Company shall maintain at the
above-mentioned office or agency a registry showing the name and address of the
registered holder of this warrant. This Warrant may be surrendered for
exchange, transfer or exercise, in accordance with its terms, at such office or
agency of the Company, and the Company shall be entitled to rely in all
respects, prior to written notice to the contrary, upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant. Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
8. Saturdays, Sundays, Holidays, etc. If the last or appointed
day for the taking of any action or the expiration of any right required or
granted herein shall be a Saturday or a Sunday or shall be a legal holiday,
then such action may be taken or such right may be exercised on the next
succeeding day not a legal holiday.
5.
<PAGE> 6
9. Adjustment to Number and Type of Securities and Authorized
Shares.
(a) Adjustment. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant exist into the
same or a different number of securities of any class or classes, this Warrant
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the securities which were subject to the purchase rights under this Warrant
immediately prior to such subdivision, combination, reclassification or other
change. If shares of the Company's Common Stock are subdivided or combined into
a greater or smaller number of shares of Common Stock, the purchase price under
this Warrant shall be proportionately reduced in the case of subdivision of
shares or proportionately increased in the case of combination of shares, in
both cases by the ratio which the total number of shares of Common Stock to be
outstanding immediately after such event bears to the total number of shares of
Common Stock outstanding immediately prior to such event.
(b) Mergers, Consolidations or Sale of Assets. If at any
time there shall be a capital reorganization of the Common Stock (other than a
combination, reclassification, exchange or subdivision otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving corporation, or the sale
of the Company's properties and assets as, or substantially as, an entirety to
any other person, then, as a part of such reorganization, merger, consolidation
or sale, lawful provision shall be made so that the Executive shall thereafter
be entitled to receive upon exercise of this Warrant, during the period
specified in this Warrant and upon payment of the purchase price then in effect,
the number of shares of stock or other securities or property of the successor
corporation resulting from such reorganization, merger, consolidation or sale,
to which a holder of the Company's Common Stock would have been entitled under
the provisions of the agreement in such reorganization, merger, consolidation or
sale if this Warrant had been exercised immediately before that reorganization,
merger, consolidation or sale. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect to the rights and
interests of the Executive after the reorganization, merger, consolidation or
sale to the end that the provisions of this Warrant (including adjustment of the
purchase price then in effect and the number of shares issuable hereunder) shall
be applicable after that event, as near as reasonably may be, in relation to any
shares or other property deliverable after that event upon exercise of this
Warrant.
<PAGE> 7
(c) Cash Distributions. No adjustment on account of cash
dividends or interest on the Company's Common Stock or other securities
purchasable hereunder will be made to the purchase price under this Warrant.
(d) Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Company's Common Stock upon the exercise of purchase rights under this Warrant.
10. Miscellaneous.
(a) Issue Date. The provisions of this Warrant shall be
construed and shall be given effect in all respects as if it had been issued and
delivered by the Company on the date hereof. This Warrant shall be binding upon
any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of the State of California and for all purposes shall be
construed in accordance with and governed by the laws of said state.
(b) Restrictions; Registration. The holder hereof acknowledges
that the Common Stock acquired upon the exercise of this Warrant may have
restrictions upon its resale imposed by state and federal securities laws. The
Company acknowledges that this Warrant has been issued to Executive in
consideration of services provided and to be provided to the Company, and that
absent registration of the Common Stock issuable hereunder under the Securities
Act of 1933, upon exercise Executive will be unable to sell such Common Stock
into the public market. Accordingly, the Company agrees to include such Common
Stock in a registration statement on Form S-8 (or similar successor form)
promptly following the completion of an initial public offering of the Company's
Common Stock and to keep such registration statement effective until the earlier
of (i) the termination of the Warrant or (ii) 90 days following the exercise of
the Warrant for all of the shares issuable hereunder.
(c) Non-Assignment. This Warrant and any rights hereunder are
not transferable by the Executive, other than a transfer by will or the laws of
intestate succession following the Executive's death, and the transferee shall
have all the rights of the Executive to exercise this Warrant in accordance with
its terms.
7.
<PAGE> 8
IN WITNESS WHEREOF, QuadraMed Corporation has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: September 27, 1995
QUADRAMED CORPORATION
By /s/ JOHN V. CRACCHIOLO
-----------------------------------
John V. Cracchiolo
Title: Executive V.P. & CFO, Secretary
-------------------------------
8.
<PAGE> 9
NOTICE OF EXERCISE
To: _________________________________
(1) The undersigned hereby elects to purchase shares of Common Stock of
QuadraMed Corporation pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price in full, together with all applicable
transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
___________________
(Name)
___________________
(Address)
______________________________ _______________________________________
(Date) (Signature)
9.
<PAGE> 10
Amendment No. 1 To Warrant
To Purchase Shares of Common Stock
of QuadraMed Corporation
Effective as of July 10, 1997
The warrant to purchase up to 355,600 shares (on a post-split basis)
of the Common Stock of QuadraMed Corporation (the "Company") at an exercise
price of $3.75 per share issued to James D. Durham ("Executive") and dated as
of September 27, 1995 (the "Warrant") is hereby amended, effective as of the
10th day of July, 1997, as follows:
1. Paragraph 1 is hereby amended by the addition of a new subparagraph F,
which shall read in its entirety as follows:
F. This Warrant will become exercisable to the extent provided in
the following table before September 26, 2000 upon the following
events (each a "Partial Acceleration Event"), provided that
Executive is performing services for the Company in the capacity
of an employee, consultant or director at the time of such
event:
Case I Applicable
Measurement Date Target Price Partial Vesting %
----------------- ------------ -----------------
June 30, 97 $12.50 10%
Case II Applicable
Measurement Date Target Price Partial Vesting %
------------------ ------------ -----------------
June 30, 97 $14.50 15%*
Sept 30, 97 $15.50 15%*
Dec 31, 97 $16.50 15%*
* Case II partial vesting amounts are incremental with respect
to Case I partial vesting amounts, but not with respect to
other Case II partial vesting amounts. As a result, partial
vesting cannot exceed 25% in the aggregate.
For purposes of this subparagraph F, the Partial Acceleration Event
shall be achieved if during the 6 month period following the Case I
Applicable Measurement Date or during the 3 month period following a
Case II Applicable Measurement Date the closing sales price of the
Company's Common Stock on any exchange or the Nasdaq National Market
meets or exceeds the Target Price for any 20 consecutive trading days.
The achievement of any Partial Acceleration Event shall not affect the
ability of Executive to achieve full acceleration by achieving a Full
Acceleration Event.
2. All capitalized terms used in this Amendment shall have the meanings
assigned to them in the Warrant, unless otherwise defined herein. To the
extent that there is a conflict between the provisions of the Warrant
and the provisions of this Amendment, the provisions of this Amendment
shall control.
3. Except as modified by this Amendment, the terms and provisions of the
Warrant shall continue in full force and effect.
<PAGE> 11
IN WITNESS WHEREOF, QuadraMed Corporation has caused this Amendment to be
executed on its behalf by its duly authorized officer as of the 10th day of
July, 1997.
QUADRAMED CORPORATION
By: /s/ John V. Cracchiolo
-------------------------------------
John V. Cracchiolo
Title: Executive Vice President,
Chief Financial Officer and Secretary
<PAGE> 1
EXHIBIT 10.15
[LOGO IMPERIAL BANK LOGO]
MEMBER FDIC
CORPORATE RESOLUTION REGARDING CREDIT
OFFICE: San Francisco Regional Address: 456 Montgomery Street
San Francisco, California 94104
RESOLVED, that QUADRAMED CORPORATION borrow from IMPERIAL BANK,
hereinafter referred to as "Bank", from time to time, such sums of money as, in
the judgement of the officer or officers hereinafter authorized, this
corporation may require; provided that the aggregate amount of such borrowing,
pursuant to this resolution, shall not at any one time exceed the principal
sum of Five Million and No/100 DOLLARS ($5,000,000.00), in addition to such
amount as may be otherwise authorized:
RESOLVED FURTHER, that any 1 of the following named officers
John V. Cracchiolo the Executive VP/CFO/Secretary
James D. Durham the Chairman/President/CEO
of this corporation (the officer or officers acting in combination, authorized
to act pursuant hereto being hereinafter designated as "authorized officers"),
be and they are hereby authorized, directed and empowered, for and on behalf
and in the name of this corporation (1) to execute and deliver to the Bank such
notes or other evidences of indebtedness of this corporation for the monies so
borrowed, with interest thereon, as the Bank may require, and to execute and
deliver, from time to time, renewals or extensions of such notes or other
evidences of indebtedness; (2) to grant a security interest in, transfer, or
otherwise hypothecate or deed in trust for Bank's benefit and deliver by such
instruments in writing or otherwise as may be demanded by the Bank, any of the
property of this corporation as may be required by the Bank to secure the
payment of any notes or other indebtedness of this corporation or third parties
to the Bank, whether arising pursuant to this resolution or otherwise and (3)
to perform all acts and execute and deliver all instruments which the bank
may deem necessary to carry out the purposes of this resolution;
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized and empowered, and that any one of said authorized officers be and
he/she is hereby authorized and empowered (1) to discount with or sell to the
Bank conditional sales contracts, notes, acceptances, drafts, bailment
agreements, leases, receivables and evidences of indebtedness payable to this
corporation, upon such terms as may be agreed upon by them and the Bank, and to
endorse in the name of this corporation said notes, acceptances, drafts,
bailment agreements, leases, receivables and evidences of indebtedness so
discounted, and to guarantee the payment of the same to the Bank, and (2) to
apply for and obtain from the Bank letters of credit and in connection
therewith to execute such agreement, applications, guarantees, indemnities and
other financial undertakings as Bank may require;
RESOLVED FURTHER, that said authorized officers are also authorized to
direct the disposition of the proceeds of any such obligation, and to accept or
direct delivery from the Bank of any property of this corporation at any time
held by the Bank;
RESOLVED FURTHER, that the authority given hereunder shall be deemed
retroactive and any and all acts authorized hereunder performed prior to the
passage of this resolution are hereby ratified and affirmed;
RESOLVED FURTHER, that this resolution will continue in full force and
effect until the Bank shall receive official notice in writing from this
corporation of the revocation thereof by a resolution duly adopted by the Board
of Directors of this corporation, and that the certification of the Secretary
of this corporation as to the signatures of the above named persons shall be
binding on this corporation.
I, John V. Cracchiolo, Secretary of the above named corporation, duly
organized and existing under the laws of the State of Delaware, do hereby
certify that the foregoing is a full, true and correct copy of a resolution of
the Board of Directors of said corporation, duly and regularly passed and
adopted by the Board of Directors of said corporation.
I further certify that said resolution is still in full force and
effect and has not been amended or revoked, and that the specimen signatures
appearing below are the signatures of the officers authorized to sign for this
corporation by virtue of said resolution.
EXECUTED ON July 2, 1997
AUTHORIZED SIGNATURES:
Signature: /s/ JOHN V. CRACCHIOLO
----------------------------
John V. Cracchiolo
Signature: /s/ JAMES D. DURHAM /s/ JOHN V. CRACCHIOLO
---------------------------- -------------------------------
James D. Durham (Secretary)
John V. Cracchiolo
L 550 (Rev 10/92)
<PAGE> 2
[IMPERIAL BANK LOGO]
NOTE
$5,000,000.00 San Francisco, California July 2, 1997
On July 1, 1998, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its SAN FRANCISCO REGIONAL OFFICE, the principal sum
of $5,000,000.00 MAXIMUM or such sums up to the maximum if so stated, as the
Bank may now or hereafter advance to or for the benefit of the undersigned in
accordance with the terms hereof, together with interest from date of
disbursement or N/A, whichever is later, on the unpaid principal balance [ ] at
the rate of % per year [X] at the rate of 0.000*% per year in excess of
the rate of interest which Bank has announced as its prime lending rate (the
"Prime Rate"), which shall vary concurrently with any change in such Prime
Rate, or $250.00, whichever is greater. Interest shall be computed at the above
rate on the basis of the actual number of days during which the principal
balance is outstanding, divided by 360, which shall, for interest computation
purposes, be considered one year.
Interest shall be payable [X] monthly [ ] quarterly [ ] included with principal
[ ] in addition to principal [ ] beginning AUGUST 1, 1997, and if not so paid
shall become a part of the principal. All payments shall be applied first to
interest, and the remainder, if any, on principal. [ ] (If checked), Principal
shall be payable in installments of $ , or more, each installment on
the day of each , beginning .
Advances not to exceed any unpaid balance owing at any one time equal to the
maximum amount specified above, may be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining
to this note, at the option of the holder hereof and without notice or demand,
the entire balance of principal and accrued interest then remaining unpaid
shall (a) become immediately due and payable, and (b) thereafter bear interest,
until paid in full, at the increased rate of 5% per year in excess of the rate
provided for above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the
maker(s) to pay principal or interest when due; the filing as to each person
obligated hereon, whether as maker, co-maker, endorser or guarantor
(individually or collectively referred to as the "Obligor") of a voluntary or
involuntary petition under the provisions of the Federal Bankruptcy Act; the
issuance of any attachment or execution against any asset of any Obligor; the
death of any Obligor; or any deterioration of the financial condition of any
Obligor which results in the holder hereof considering itself, in good faith,
insecure.
[X] If any installment payment or principal balance payment due hereunder is
delinquent ten or more days, Obligor agrees to pay a late charge in the amount
of 5% of the payment so due and unpaid, in addition to the payment; but nothing
in this paragraph is to be construed as any obligation on the part of the
holder of this note to accept payment of any installment past due or less than
the total unpaid principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all
costs and expenses of collection and reasonable attorney's fees incurred by the
holder hereof on account of such collection, plus interest at the rate
applicable to principal, whether or not suit is filed hereon. Each Obligor
shall be jointly and severally liable hereon and consents to renewals,
replacements and extensions of time for payment hereof, before, at, or after
maturity; consents to the acceptance, release or substitution of security for
this note; and waives demand and protest and the right to assert any statute of
limitations. Any married person who signs this note agrees that recourse may be
had against separate property for any obligations hereunder. The indebtedness
evidenced hereby shall be payable in lawful money of the United States. In any
action brought under or arising out of this note each Obligor, including
successor(s) or assign(s) hereby consents to the application of California law,
to the jurisdiction of any competent court within the State of California, and
to service of process by any means authorized by California law.
No single or partial exercise of any power hereunder, or under any deed
of trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder hereof
in exercising any right hereunder, or under any deed of trust, security
agreement or other agreement, shall not operate as a waiver of such right, or
of any other right, under this note or any deed of trust, security agreement or
other agreement in connection herewith.
*See attached Libor Addendum and Reference Provision
INITIAL
HERE J.C. QUADRAMED CORPORATION
- ----------------------------------- ------------------------------------
By /s/ John V. Cracchiolo
- ----------------------------------- ------------------------------------
- ----------------------------------- ------------------------------------
<PAGE> 3
IMPERIAL BANK LIBOR ADDENDUM
LOGO TO NOTE
This Libor Addendum ("Addendum") is dated as of July 02, 1997, and is
by and between QUADRAMED CORPORATION ("Borrower") and Imperial Bank ("Bank").
This Addendum amends and supplements the Note to which it is attached (the
"Note") and forms a part of and is incorporated into the Note.
In the event of any inconsistency between the terms herein and the
terms of the Note, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meanings set forth in the Note.
1. ADVANCES.
1.1 Prime Loans. Advances permitted pursuant to the terms of the
Note or this Addendum which bear interest in relation to Bank's Prime Rate
shall be referred to herein as "Prime Loans" and each such advance shall be a
"Prime Loan." Each Prime Loan shall bear interest at an annual rate equal to
the sum of 0.00% plus the Bank's Prime Rate. "Prime Rate" shall mean the rate
of interest publicly announced by Bank from time to time in Inglewood,
California, as its prime rate for lending. The Prime Rate is not intended to be
the lowest rate of interest charged by Bank in connection with extensions of
credit to borrowers.
1.2 Libor Loans. Advances permitted pursuant to the terms of the
Note or this Addendum which bear interest in relation to the Libor Rate shall
be referred to herein as "Libor Loans" and each such advance shall be a "Libor
Loan." Each Libor Loan shall bear interest at the Libor Rate, as defined
below. A Libor Loan shall be in the minimum amount of One Million Dollars
($1,000,000) or such greater amount which is an integral multiple of Fifty
Thousand Dollars ($50,000). No Libor Loan shall be made after the last Business
Day that is at least three (3) months prior to the Maturity Date described in
the Note.
2. INTEREST ON LIBOR LOANS.
2.1 Rate of Interest. Each Libor Loan shall bear interest on the
unpaid principal amount thereof from the Loan Date through the date paid
(whether by acceleration or otherwise) at a rate equal to the sum of 2.000% per
annum plus the Libor Rate for the Interest Period.
(a) "Loan Date" shall mean the date on which (i) a Libor
Loan is made, a Libor Loan is continued, or a Prime Loan is converted to a
Libor Loan.
(b) "Interest Period" shall mean a period of one (1), three
(3), six (6) months, commencing on the applicable Loan Date, as selected by
Borrower pursuant to Section 2.2; provided, however, that Borrower may not
select an Interest Period that would otherwise extend beyond the Maturity Date
of the Loan. Borrower may also select a twelve (12) month Interest Period if
and when Bank notifies Borrower that such Interest Period is available, as
determined by Bank in its sole discretion.
(c) "Libor Rate" shall mean, for the applicable Interest
Period for a Libor Loan, a rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of 1%) equal to (i) the Libor Base Rate for such Interest
Period divided by (ii) 1.00 minus the Reserve Requirement Rate (expressed as a
decimal fraction) for such Interest Period.
(d) "Libor Base Rate" shall mean with respect to any
Interest Period, the rate equal to the arithmetic mean (rounded upwards, if
necessary, to the nearest 1/16 of 1%) of:
(i) the offered rates per annum for deposits in U.S.
Dollars for a period equal to such Interest Period which appears
at 11:00 a.m., London time, on the Reuters Screen LIBOR Page on
the Business Day that is two (2) Business Days before the first
day of such Interest Period, in each case if at least four (4)
such offered rates appear on such page, or
(ii) if cause (i) is applicable, (x) the offered rate
per annum for deposits in U.S. Dollars for a period equal to
such Interest Period which appears as of 11:00 a.m., London time
on the Telerate Monitor on Telerate Screen 3750 on the Business
Day which is two (2) Business Days before the first day of such
Interest Period; or (y) if clause (x) above is inapplicable, the
arithmetic mean (rounded upwards, if necessary, to the nearest
1/16 of 1%) of the interest rates per annum offered by at least
three (3) prime banks selected by Bank at approximately 11:00
a.m. London time, on the Business Day which is two (2) Business
Days before such date for deposits in U.S. Dollars to prime
banks in the London interbank market, in each case for a period
equal to such Interest Period in an amount equal to the amount
to which the Libor Rate applies.
Page 1 of 4
<PAGE> 4
(f) "Reuters Screen LIBOR Page" means the display
designated as page LIBOR on the Reuters Monitor Money Rates Service or such
other page as may replace the LIBOR page on the service for the purpose of
displaying London interbank offered rates of major banks.
(g) "Reserve Requirement Rate" means, for any Interest
Period, the aggregate of the rates, effective as of the Business Day which is
two (2) Business Days before the first day of the Interest Period, at which:
(i) reserves (including any marginal, supplemental
or emergency reserves) are required to be maintained during such
Interest Period under Regulation D against "Eurocurrency liabilities"
(as such term is used in Regulation D) by member banks of the Federal
Reserve System; and
(ii) any additional reserves are required to be
maintained by Bank by reason of any Regulatory Change against (x) any
category of liabilities which includes deposits by reference to which
the Libor Rate is to be determined as provided in the definition of
"Libor Base Rate;" or (y) any category of extensions of credit or other
assets which include Libor Loans.
(h) "Regulatory Change" means, with respect to Bank, any
change on or after the date of the Note and this Addendum in any Governmental
Regulation, including the introduction of any new Governmental Regulation or
the rescission of any existing Governmental Regulation.
(i) "Governmental Regulation" means any (i) United States
Federal, state or foreign law or regulation (including without limitation
Regulation D); and (ii) the adoption or making of any interpretation,
application, directive or request applying to a class of lenders, including
Bank, of or under any United States Federal, state, or any foreign law or
regulation (whether or not having the force of law) by any court or by any
governmental, central banking, monetary or taxing authority charged with the
interpretation or administration of such law or regulation.
2.2 Determination of Interest Rate. Subject to the terms and
conditions of the Note and this Addendum, Borrower, at its option, may request
an advance in the form of a Libor Loan, a continuation of a Libor Loan, or a
conversion of a Prime Loan into a Libor Loan, only upon delivery to Bank of an
irrevocable written notice received by Bank at least three (3) Business Days
prior to the requested Loan Date, specifying (i) the principal amount of such
Libor Loan, (ii) the requested Loan Date, and (iii) the selected Interest
Period. Upon receiving such notice, Bank shall determine (which determination
shall be in accordance with Section 2.1 and shall, absent manifest error, be
final, conclusive and binding upon all parties hereto) the Libor Rate
applicable to such Libor Loan two (2) Business Days prior to the Loan Date, and
shall promptly give notice thereof (in writing or by telephone confirmed in
writing) to Borrower. If Borrower shall fail to notify Bank of its selected
Interest Period for a Libor Loan (including the continuation of an existing
Libor Loan or the conversion of a Prime Loan into a Libor Loan), the Borrower
shall be deemed to have selected an Interest Period of three (3) months.
2.3 Computation of Interest and Fees. All computations of interest
and fees payable pursuant to the Note shall be calculated on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed (less
the date of repayment).
2.4 Recordation by Bank. Bank is hereby authorized to record the
Loan Date, the applicable Interest Period, the principal amount, and the
interest rate of each Libor Loan made (or continued or converted) by Bank, and
the date and amount of each payment or prepayment of principal thereof, in
Bank's records. Any such recordation shall constitute prima facie evidence of
the accuracy of the information recorded; provided that the failure to make any
such recordation shall not in any way affect the Borrower's obligations
hereunder.
3. CONVERSION TO PRIME LOANS.
3.1 Election by Borrower. Subject to all the terms and conditions
of this Addendum, Borrower may elect from time to time to convert a Libor Loan
to a Prime Loan by giving Bank at least three (3) Business Days' prior
irrevocable notice of such election, and any such conversion of a Libor Loan
shall be made on the last day of the Interest Period with respect thereto.
3.2 Failure of Notice by Borrower. If Borrower otherwise fails to
give notice specifying its requests with respect to any Libor Loans that are
scheduled to become due, such failure shall be deemed, in the absence of any
notice from Borrower to the contrary, to be notice of a requested advance in
the form of a Prime Loan in a principal amount equal to the amount of said
Libor Loan.
4. PREPAYMENTS.
4.1 Voluntary Prepayment by Borrower. Subject to the terms and
conditions of the Note and this Addendum, Borrower may, upon at least three (3)
Business Days' irrevocable notice to Bank as provided herein, at any time and
from time to time on any Business Day prepay any Prime Loan or Libor Loan in
whole or in part, without penalty or premium, other than customary actual
"Breakage Fees" and "Prepayment Costs" as defined below, resulting from
prepayment of any Libor Loan prior to the expiration of the Interest Period
relating thereto. The notice of prepayment shall specify the date and amount of
the prepayment, and the Loan to which the
Page 2 of 4
<PAGE> 5
prepayment applies. Each partial prepayment of a Libor Loan shall be in an
amount not less than Fifty Thousand Dollars ($50,000) or such greater amount
which is an integral multiple of Fifty Thousand Dollars ($50,000); provided that
unless a Libor Loan is prepaid in full, no prepayment shall be made if, after
giving effect to such prepayment, the aggregate principal amount of Libor Loans
having the same Interest Period shall be less than One Million Dollars
($1,000,000). Notice of prepayment having been delivered as aforesaid, the
principal amount of the prepayment specified in such notice shall become due and
payable on the prepayment date set forth in such notice. All payments of
principal under this Section 4 shall be accompanied by accrued but unpaid
interest on the amount being prepaid through the date of such prepayment.
4.2 Breakage Fees. If for any reason (including voluntary or
mandatory prepayment, voluntary or mandatory conversion of a Libor Loan into a
Prime Loan, or acceleration), Bank receives all or part of the principal amount
of a Libor Loan prior to the last day of the Interest Period for such Loan,
Borrower shall immediately notify Borrower's account officer at Bank and, on
demand by Bank, pay Bank the Breakage Fees, defined as the amount (if any) by
which (i) the additional interest which would have been payable on the amount so
received had it not been received until the last day of such Interest Period
exceeds (ii) the interest which would have been recoverable by Bank (without
regard to whether Bank actually so invests said funds) by placing the amount so
received on deposit in the certificate of deposit markets or the offshore
currency interbank markets or United States Treasury investment products, as the
case may be, for a period starting on the date on which it was so received and
ending on the last day of such Interest Period at the interest rate determined
by Bank in its reasonable discretion. Bank's determination as to such amount
shall be conclusive and final, absent manifest error.
4.3 Prepayment Costs. Borrower shall pay to Bank, upon the demand of
Bank, such other amount or amounts as shall be sufficient (in the sole good
faith opinion of Bank) to compensate it for any loss, costs or expense incurred
by it as a result of any prepayment by Borrower (including voluntary or
mandatory prepayment, voluntary or mandatory conversion of a Libor Loan into a
Prime Loan, or prepayment due to acceleration) of all or part of the principal
amount of a Libor Loan prior to the last day of the Interest Period for such
Loan (including without limitation any failure by Borrower to borrow a Libor
Loan on the Loan Date for such borrowing specified in the relevant notice of
borrowing hereunder). Such costs shall include, without limitation, any
interest or fees payable by Bank to lenders of funds obtained by it in order to
make or maintain its loans based on the London interbank eurodollar market.
Bank's determination as to such costs shall be conclusive and final, absent
manifest error.
5. REMEDIES UPON EVENTS OF DEFAULT.
5.1 Conversion to Prime Loans. If any Event of Default has
occurred and is continuing under the Note or this Addendum, then in addition to
all other remedies available to Bank under the Note, at the option of Bank and
without demand or notice, all Libor Loans then outstanding shall be
automatically converted to Prime Loans on the last day of each respective
Interest Period for each Libor Loan.
5.2 Indemnity. Borrower agrees to pay and indemnify Bank for, and to
hold Bank harmless from, any and all cost, loss or expense (including without
limitation any such cost, loss or expense arising from interest or fees payable
by Bank to lenders of funds obtained by it in order to maintain its Libor Loans
hereunder, or in its reemployment of funds obtained in connection with the
making or maintaining of Libor Loans) which Bank may sustain or incur as a
consequence of any default by Borrower in connection with or related to: (a)
payment of the principal amount of or interest on Libor Loans, (b) making a
borrowing or conversion of a Libor Loan after Borrower has given a notice
thereof in accordance with this Addendum, or (c) making a prepayment of a Libor
Loan after Borrower has given a notice thereof in accordance with this Addendum,
or any prepayment (whether optional or mandatory) of any Libor Loan prior to the
end of the applicable Interest Period for such Loan.
6. ADDITIONAL PROVISIONS REGARDING LIBOR LOANS
6.1 Libor Rate Taxes. All payments of principal, interest, fees,
costs, expenses and all other amounts payable to Borrower pursuant to the Note
and this Addendum shall be made free and clear of and without reduction by
reason of all present and future income, stamp and other taxes or other charges
whatsoever imposed, assessed, levied or collected by any national government or
any political subdivision or taxing authority thereof or any organization of
which it is a member (excluding (i) any taxes imposed on or measured by the
overall net income or gross receipts of Bank by any such entity, and (ii) any
taxes which would have been imposed even if no provisions for Libor Loans had
appeared in this Addendum) (collectively, "Libor Taxes").
If any Libor Taxes are required to be withheld from any amounts payable
to Bank, Borrower shall pay such additional amounts as may be necessary so as to
yield to Bank a net amount equal to the total amount of the payments provided
for in this Addendum or under the Note which Bank would have received if such
amounts had not been subject to Libor Taxes.
If any Libor Taxes are payable directly by Borrower, they shall be paid
by Borrower prior to the date on which penalties attach for failure to timely
pay such Libor Taxes. Within forty five (45) days after the date on which
payment of any such Libor Taxes is due pursuant to applicable law, Borrower
will furnish Bank the original receipt for the full payment of such Libor
Taxes or, if such is not available, evidence of such payment satisfactory in
form and substance to Bank. Borrower shall indemnify and hold Bank harmless
against, and will reimburse to Bank, upon demand, any incremental taxes,
interest or penalties that may become payable by Bank as a result of any
failure by Borrower to pay any Libor Taxes when due.
L617E (5/96) Page 3 of 4
<PAGE> 6
6.2 Inability to Determine Fair Interest Rate. If any time Bank,
in its sole and absolute discretion, determines that: (i) the amount of the
Libor Loans for periods equal to the corresponding Interest Periods are not
available to Bank in the offshore currency interbank markets, (ii) the Libor
Rate does not accurately reflect the cost to Bank of lending the Libor Loan, or
(iii) by reason of any changes arising after the date of the Note affecting the
London interbank eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in Sections
2.1 and 2.2 above, then Bank shall promptly give notice thereof to Borrower.
Upon the giving of such notice, Bank's obligation to make Libor Loans shall
terminate, unless Bank and the Borrower agree in writing to a different
interest rate applicable to Libor Loans, or until such time as Bank notifies
Borrower that the circumstances giving rise to Bank's notice no longer exist.
While such circumstances continue to exist, (x) any requested Libor Loan shall
be treated as a request for a Prime Loan, (y) any Prime Loan that was to have
been converted to a Libor Loan shall be continued as a Prime Loan, and (z) any
outstanding Libor Loan shall be converted retroactively, on the first day of
the then current Interest Period with respect thereto, to a Prime Loan.
6.3 Illegality and Impracticability. If (i) due to any
governmental Regulation it shall become unlawful for Bank to continue to fund
or maintain any Libor Loans, or to perform its obligations hereunder, or (ii)
due to any contingency occurring after the date of the Note which has a
material adverse effect on the London interbank eurodollar market, it has
become impracticable for Bank to continue to fund or maintain any Libor Loans,
or to perform its obligations hereunder, then Bank shall promptly give notice
thereof to Borrower. Upon the giving of such notice, Bank's obligation to make
Libor Loans shall terminate, and in such event, (x) any requested Libor Loan
shall be treated as a request for a Prime Loan, (y) Prime Loan that was to have
been converted to a Libor Loan shall be continued as a Prime Loan, and (z) any
outstanding Libor Loan shall be converted retroactively, on the first day of
the then current Interest Period with respect thereto, to a Prime Loan.
6.4 Governmental Regulations; Increased Costs. Borrower shall pay
to Bank, within 15 days after demand by Bank, from time to time such amounts
as Bank may determine to be necessary to compensate it for any increased costs
incurred by Bank that Bank determines are attributable to its making or
maintaining of any Libor Loans to Borrower (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"), in
each case resulting from any Regulatory Change which:
(a) imposes a new tax or changes the basis of taxation of
any amounts payable to Bank under the Note or this Addendum in respect of any
Libor Loans (other than changes which affect taxes measured by or imposed on
the overall net income of Bank by the jurisdiction in which such Bank has its
principal office); or
(b) imposes or modifies any reserve, special deposit or
similar requirements relating to any extensions of credit or other assets of,
or any deposits or other liabilities with or for the account of Bank (including
any Libor Loans or any deposits referred to in the definition of Libor Base
Rate); or
(c) imposes any other condition affecting the Note (or any
of such extensions of credit or liabilities); or
(d) imposes or modifies a Governmental Regulation regarding
capital adequacy which has or would have the effect of reducing the rate of
return on capital of Bank or any person or entity controlling Bank ("Parent")
as a consequence of its obligations hereunder to a level below that which Bank
(or its Parent) could have achieved but for such adoption, change or compliance
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by Bank to be material.
Bank will notify Borrower of any event occurring after the date of the
Note which will entitle Bank to Additional Costs pursuant to this Section 6.4
as promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Bank will furnish Borrower with a statement setting
forth the basis and amount of each request by Bank for Additional Costs under
this Section 6.4. Determinations and allocations by Bank for purposes of this
Section 6.4 of the effect of any Regulatory Change on its costs of maintaining
its obligations to make Libor Loans or of making or maintaining Libor Loans or
on amounts receivable by it in respect of Libor Loans, and of the additional
amounts required to compensate Bank in respect of any Additional Costs, shall
be conclusive and final, absent manifest error.
This Addendum is executed as of the date first written above.
BORROWER BANK
QUADRAMED CORPORATION IMPERIAL BANK,
- -----------------------------------, a California banking corporation
a California corporation
- ----------------------------------- By
By /s/ John Cracchiolo --------------------------------
-------------------------------- Its
Its Chief Financial Officer ----------------------------
-------------------------------
By
--------------------------------,
Its
------------------------------
L 617 E (5/96) Page 4 of 4
<PAGE> 7
The following Reference Provision is by this reference incorporated in the Note
Dated July 2, 1997
REFERENCE PROVISION
1. Other than (i) non-judicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii)
the appointment of a receiver, or the exercise of other provisional remedies
(any and all of which may be initiated pursuant to applicable law each
controversy, dispute or claim between the parties arising out of or relating to
this Note ("Agreement"), which controversy, dispute or claim is not settled in
writing within thirty (30) days after the "Claim Date" (defined as the date on
which a party subject to the Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure ("CCP"), or their
successor section, which shall constitute the exclusive remedy for the
settlement of any controversy, dispute or claim concerning this Agreement,
including whether such controversy, dispute or claim is subject to the
reference proceeding and except as set forth above, the parties waive their
rights to initiate any legal proceedings against each other in any court or
jurisdiction other than the Superior Court in the County where the Real
Property, if any, is located or Los Angeles County if none (the "Court"). The
referee shall be a retired Judge of the Court selected by mutual agreement of
the parties, and if they cannot so agree within forty-five (45) days after the
Claim Date, the referee shall be promptly selected by the Presiding Judge of
the Court (or his representative). The referee shall be appointed to sit as a
temporary judge, with all of the powers of a temporary judge, as authorized by
law, and upon selection should take and subscribe to the oath of office as
provided for in Rule 244 of the California Rules of Court (or and subsequently
enacted Rule). Each party shall have one peremptory challenge pursuant to CCI
Section 170.6. The referee shall (a) be requested to set the matter for hearing
within sixty (60) days after the Claim Date and (b) try any and all issues of
law or fact and report a statement of decision upon them, if possible, within
ninety (90) days of the Claim Date. Any decision rendered by the referee will
be final, binding and conclusive and judgment shall be entered pursuant to CCP
Section 644 in any court in the State of California having jurisdiction. Any
party may apply for a reference proceeding at any time after thirty (30) days
following the notice to any other party of the nature of the controversy,
dispute or claim, by filing a petition for a hearing and/or trial. All
discovery permitted by this Agreement shall be completed no later than fifteen
(15) days before the first hearing date established by the referee. The referee
may extend such period in the event of a party's refusal to provide requested
discovery for any reason whatsoever, including, without limitation, legal
objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days written
notice, and request for production or inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties. Pending
appointment of the referee as provided herein, the Court is empowered to issue
temporary and/or provisional remedies, as appropriate.
INITIAL
Page 1 of 2 HERE
J.C.
<PAGE> 8
2. Except as expressly set forth in this Agreement, the referee shall
determine the manner which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial shall be conducted without a court reporter, except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
3. The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings law in the State of California will
be applicable to the reference proceeding. The referee shall be empowered to
enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon the
parties. The referee shall issue a single judgment at the close of the
reference proceeding which shall dispose of all the claims of the parties that
are the subject of the reference. The parties hereto expressly reserve the
right to contest or appeal from the final judgment of any appealable order or
appealable judgment entered by the referee. The parties hereto expressly
reserve the right to findings of fact, conclusions of law, a written statement
of decision, and the right to move for a new trial or a different judgment,
which new trial, if granted, is also to be a reference proceeding under this
provision.
4. In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to all such arbitration proceeding.
QUADRAMED CORPORATION
By /s/ John V. Cracchiolo
---------------------------
---------------------------
Page 2 of 2
<PAGE> 9
[LOGO IMPERIAL BANK LOGO]
Member FDIC July 2, 1997
456 Montgomery Street
San Francisco, California Borrower: QuadraMed Corporation
Subject: Credit Terms and Conditions ("Agreement")
Gentlemen:
To induce you to make loans to the undersigned (herein called "Borrower"), and
in consideration of any loan or loans you, in your sole discretion, may make
to Borrower, Borrower warrants and agrees as follows:
A. Borrower represents and warrants that:
1. EXISTENCE AND RIGHTS.
QuadraMed Corporation is a corporation.
Borrower is duly organized and existing and in good standing under the laws of
the State of Delaware and is authorized and in good standing to do business in
the State of California. Borrower has powers and adequate authority, rights and
franchises to own its property and to carry on its business as now conducted,
and is duly qualified and in good standing in each State in which the character
of the properties owned by it therein or the conduct of its business makes such
qualification necessary, and Borrower has the power and adequate authority to
make and carry out this Agreement. Borrower has no investment in any other
business entity, except as previously disclosed to Bank (including an April,
1997, $2,500,000 investment for its 10.2% equity interest in EDI, USA). Upon
Borrower's settlement of litigation involving Pendleton and Sodahl, Borrower
intends to invest approximately $1,200,000 in VantageMed, a company set up to
acquire and operate healthcare businesses.
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of
any governmental body or other regulatory authority; are not in contravention
of or in conflict with any law or regulation or any term or provision of
Borrower's articles of incorporation, by-laws, or Articles of Association, as
the case may be, and this Agreement is the valid, binding and legally
enforceable obligation of Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this Agreement
are not in contravention of or in conflict with any agreement, indenture or
undertaking to which Borrower is a party or by which it or any of its property
may be bound or affected, and do not cause any lien, charge or other
encumbrance to be created or imposed upon any such property by reason thereof.
4. LITIGATION. With the exception of a lawsuit filed by Richard W.
Pendleton et al. against Borrower, a lawsuit filed by various parties against
Seton Financial (Seton Financial was acquired by Borrower in December,
1993), a lawsuit not yet filed but threatened to be filed by Option Care of
Florida against Borrower, and a counterclaim against Borrower and other named
plaintiffs resulting from a lawsuit recently filed by Borrower against
Integrated Systems Solutions Corporation, there is no litigation or other
proceeding pending or threatened against or affecting Borrower, and Borrower is
not in default with respect to any order, writ, injunction, decree or demand of
any court or other governmental or regulatory authority.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of 3/31/97,
and the related profit and loss statement for the quarter ending on that date, a
copy of which has heretofore been delivered to you by Borrower, and all other
statements and data submitted in writing by Borrower to you in connection with
this request for credit are true and correct, and said balance sheet and profit
and loss statement truly present the financial condition of Borrower as of the
date thereof and the results of the operations of Borrower for the period
covered thereby, and have been prepared in accordance with generally accepted
accounting principles on a basis consistently maintained. Since such date there
have been no materially adverse changes in the financial condition or business
of Borrower. Borrower has no knowledge of any liabilities, contingent or
otherwise, at such date not reflected in said balance sheet, and Borrower has
not entered into any special commitments or substantial contracts which are not
reflected in said balance sheet, other than in the ordinary and normal course of
its business, which may have a materially adverse effect upon its financial
condition, operations or business as now conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the same
are not subject to any liens or encumbrances other than those permitted by
Section C.3 hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state, local or
federal taxes, and if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
9. REGULATION U. The proceeds of this loan shall not be used to purchase
or carry margin stock (as defined with Regulation U of the Board of Governors
of the Federal Reserve system).
B. Borrower agrees that so long as it is indebted to you, it will, unless you
shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises and
other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair, conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against
fire and other hazards with responsible insurance carriers to the extent
usually maintained by similar businesses.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against it or any of its properties, and all its
other liabilities at any time existing, except to the extent and so long as: (a)
The same are being contested in good faith and by appropriate proceedings in
such manners as not to cause any materially adverse effect upon its financial
condition or the loss of any right of redemption from any sale thereunder, and
(b) it shall have set aside on its books reserves (segregated to the extent
required by generally accepted accounting practice) deemed by it adequate with
respect thereto.
4. RECORDS AND REPORTS. Maintain a standard and modern system of accounting
in accordance with generally accepted accounting principles on a basis
consistently maintained; permit your representatives to have access to, and to
examine its properties, books and records at all reasonable times; and furnish
you:
(a) As soon as available, and in any event within 50 days after the close of
each; fiscal quarter of Borrower, commencing with the quarter next ending, a
balance sheet, profit and loss statement and reconciliation of Borrower's
capital accounts, and 10-Q Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934, as of the close of such period and covering
operations for the portion of Borrower's fiscal year ending on the last day of
such period, all in reasonable detail and stating in comparative form the
figures for the corresponding date and period in the previous fiscal year,
prepared in accordance with generally accepted accounting principles on a basis
consistently maintained by borrower and certified by an appropriate officer of
Borrower, subject, however, to year-end audit adjustments;
(b) As soon as available, and in any event within 95 days after the close of
each fiscal year of Borrower, a report of audit of Company and 10-K Annual
Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 as of
the close of and for such fiscal year, all in reasonable detail and stating in
comparative form the figures as of the close of and for the previous fiscal
year, with the unqualified opinion of accountants satisfactory to you.
(c) Within 50 days after the close of each fiscal quarter of Borrower and within
95 days after the close of each fiscal year of Borrower, a certificate by chief
financial officer or partner of Borrower, stating that Borrower has performed
and observed each and every covenant contained in this Letter of Inducement to
be performed by it and that no event has occurred and no condition then exists
which constitutes an event of default hereunder or would
<PAGE> 10
constitute such an event of default upon the lapse of time or upon the giving
of notice and the lapse of time specified herein, or, if any such event has
occurred or any such condition exists, specifying the nature thereof;
(d) Promptly after the receipt thereof by Borrower, copies of any detailed
audit reports submitted to Borrower by independent accountants in connection
with such annual or interim audit of the accounts of Borrower made by such
accountants;
(e) Promptly after the same are available, copies of all such proxy
statements, financial statements and reports as Borrower shall send to its
stockholders, if any, and copies of all reports which Borrower may file with
the Securities and Exchange Commission or any governmental authority at any
time substituted therefor; and
(f) Such other information relating to the affairs of Borrower as you
reasonably may request from time to time.
(g) Notice of Default. Promptly notify the Bank in writing of the occurrence
of any event of default hereunder or any event which upon notice and lapse of
time would be an event of default.
C. Borrower agrees that so long as it is indebted to you, it will not, without
your written consent (for items 1-5) or your receipt of notification of
acquisition, sale of business, merger, or consolidation (for item 6):
1. TYPE OF BUSINESS; MANAGEMENT. Make any substantial change in the
character of its business; or make any change in its executive management.
2. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from you except obligations
now existing as shown in financial statement dated 3/31/97, excluding those
being refinanced by your bank or capitalized leases; or sell or transfer,
either with or without recourse, any accounts or notes receivable or any moneys
due to become due.
3. LIENS AND ENCUMBRANCES. Create, incur, or assume any mortgage, pledge
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it, other than
liens for taxes not delinquent, liens in your favor, and liens for capitalized
leases.
4. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
to any person or other entity other than in the ordinary and normal course of
its business (including up to a maximum of $1,200,000 in loans to and/or
investments in Vantage Med, a company set up to acquire and operate healthcare
businesses) as now conducted or make any investment in the securities of any
person or other entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in
the ordinary and normal course of its business.
5. DIVIDENDS, STOCK PAYMENTS. If a corporation, declare or pay any
dividend (other than dividends payable in common stock of Borrower) or make any
other distribution on any of its capital stock now outstanding or hereafter
issued or purchase, redeem or retire any of such stock, with the exception of
$250,000 allowed on an annual basis for Borrower's repurchase of stock from
employees, officers, directors, and consultants
6. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings
therefor; or sell any assets except in the ordinary and normal course of its
business as now conducted; or sell, lease, assign, or transfer any substantial
part of its business or fixed assets, or any property or other assets necessary
for the continuance of its business as now conducted including without
limitation the selling of any property or other asset accompanied by the
leasing back of the same.
D. The occurrence of any one of the following events of default shall, at your
option, terminate your commitment to lend and make all sums of principal and
interest then remaining unpaid on all Borrower's indebtedness to you
immediately due and payable, all without demand, presentment or notice, all of
which are hereby expressly waived;
1. FAILURE TO PAY NOTE. Failure to pay any installment of principal or of
interest on any indebtedness of Borrower to you.
2. BREACH OF COVENANT. Failure of Borrower to perform any other term or
condition of this Agreement binding upon Borrower.
3. BREACH OF WARRANTY. Any of Borrower's representations or warranties
made herein or any statement or certificate at any time given in writing
pursuant hereto or in connection herewith shall be false or misleading in any
material respect.
4. INSOLVENCY; RECEIVER OR TRUSTEE. Borrower shall become insolvent; or
admit its inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business.
5. JUDGMENTS, ATTACHMENTS. Any money judgment, writ or warrant of
attachment, or similar process shall be entered or filed against Borrower or
any of its assets and shall remain unvacated, unbonded or unstayed for a period
of 10 days or in any event later than five days prior to the date of any
proposed sale thereunder.
6. BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower and, if
instituted against it, shall be consented to.
E. MISCELLANEOUS PROVISIONS.
1. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
your Bank or any holder of Notes issued hereunder, in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege. All rights and remedies existing under this agreement or any note
issued in connection with a loan that your Bank may make hereunder, are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
See Addendum dated July 2, 1997 attached hereto and incorporated herein by this
reference for additional terms. In the event of a conflict between this
Agreement and the Addendum, the terms in the Addendum prevail.
QuadraMed Corporation
By /s/ JOHN V. CRACCHIOLO
--------------------------------------------
John V. Cracchiolo, Executive Vice President
and Chief Financial Officer
(Authorized Signature and Title)
<PAGE> 11
QUADRAMED CORPORATION
ADDENDUM TO CREDIT TERMS AND CONDITIONS DATED JULY 2, 1997
I. FINANCIAL COVENANTS
Borrower to maintain on a quarterly basis unless stated otherwise:
o MINIMUM QUICK RATIO OF TWO AND A HALF TO ONE (2.5:1) beginning with the
quarter ending June 30, 1997. Quick ratio is defined as Cash and Cash
Equivalents plus Trade Accounts Receivable divided by Current
Liabilities.
o MINIMUM TANGIBLE NET WORTH OF TWENTY MILLION DOLLARS ($20,000,000)
beginning with the quarter ending June 30, 1997. Tangible Net Worth is
defined as the financial statement net worth of Borrower prepared
according to generally accepted accounting principles less intangible
assets.
o MAXIMUM TOTAL LIABILITIES TO TANGIBLE NET WORTH OF ONE HALF TO ONE
(.50:1) beginning with the quarter ending June 30, 1997.
o MINIMUM NET CASH FLOW OF AT LEAST FIVE MILLION DOLLARS ($5,000,000).
Net Cash Flow is defined as the sum of Borrower's annual after-tax
income, depreciation, amortization, and any non-recurring expenses
(non-recurring expenses include start-up costs associated with the
development of a claims processing clearinghouse in Atlanta, Georgia to
service Borrower's claims processing contract with EDIUSA), less any
non-recurring income, distributions, dividends, the current portion of
any long term debt, and the current portion of capitalized leases; all
as shown on Borrower's regular financial statements prepared in
accordance with GAAP. This covenant will be monitored beginning with
the fiscal year ending December 31, 1997.
o AFTER-TAX PROFITABILITY ON A QUARTERLY BASIS.
II. OTHER COVENANT
o Principal operating accounts and banking activities of Borrower to be
maintained with Bank. Borrower agrees to maintain monthly average
demand deposit account collected balances of not less than Two Hundred
and Fifty Thousand Dollars ($250,000), as well as Time Certificates of
Deposit.
QUADRAMED CORPORATION
ACCEPTED AND AGREED TO ON 7/2, 1997.
By: /s/ JOHN V. CRACCHIOLO
------------------------------------
John V. Cracchiolo
Executive Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SIX MONTHS
ENDED JUNE 30, 1997 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,537
<SECURITIES> 0
<RECEIVABLES> 7,849
<ALLOWANCES> 293
<INVENTORY> 0
<CURRENT-ASSETS> 16,701
<PP&E> 5,289
<DEPRECIATION> 2,055
<TOTAL-ASSETS> 31,876
<CURRENT-LIABILITIES> 3,597
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 27,853
<TOTAL-LIABILITY-AND-EQUITY> 31,876
<SALES> 12,736
<TOTAL-REVENUES> 12,736
<CGS> 5,697
<TOTAL-COSTS> 6,028
<OTHER-EXPENSES> (383)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,394
<INCOME-TAX> 50
<INCOME-CONTINUING> 1,344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,344
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
