<PAGE> 1
================================================================================
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, 2000
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)
DELAWARE 52-1992861
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
22 Pelican Way
San Rafael, CA 94901 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (415)482-2100
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 10, 2000, there were 25,753,429 shares of the Registrant's
Common Stock outstanding, par value $0.01. This quarterly report on Form 10-Q
consists of 37 pages of which this is page 1. The Exhibit Index is located at
page 37.
================================================================================
<PAGE> 2
QUADRAMED CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) 3
Condensed Consolidated Balance Sheets as of
June 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Operations 4
for the three and six months ended June 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows 5
for the six months ended June 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 29
Part I. Financial Information
Item 1. Financial Statements
</TABLE>
2
<PAGE> 3
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
--------- ---------
(UNAUDITED) (RESTATED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 16,523 $ 10,623
Restricted cash 9,005 1,036
Short-term investments 14,758 19,109
Accounts receivable, net 35,220 51,480
Unbilled receivables 9,425 17,027
Notes and other receivables 738 2,390
Prepaid expenses and other current assets 5,168 6,072
--------- ---------
Total current assets 90,837 107,737
Long-term investments -- 12,102
Long-term notes receivable 3,600 3,600
Equipment, net 11,611 11,839
Capitalized software development costs, net 11,265 8,958
Acquired software, net 1,862 8,211
Intangibles, net 31,226 38,533
Non-marketable investments 22,257 14,210
Other long-term assets 7,160 9,471
--------- ---------
Total assets $ 179,818 $ 214,661
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 416 $ 437
Notes payable 20 24
Accounts payable 1,759 3,392
Accrued liabilities 18,431 20,377
Deferred revenue 9,136 7,258
--------- ---------
Total current liabilities 29,762 31,488
Capital lease obligations, less current portion 207 207
Convertible subordinated debentures 115,000 115,000
Net liabilities of discontinued operations 4,712 5,385
--------- ---------
Total liabilities 149,681 152,080
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock 192 187
Additional paid-in capital 268,799 270,691
Deferred compensation -- (2,519)
Accumulated other comprehensive loss (3,748) (287)
Accumulated deficit (235,106) (205,491)
--------- ---------
Total stockholders' equity 30,137 62,581
--------- ---------
Total liabilities & stockholders' equity $ 179,818 $ 214,661
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(Restated) (Restated)
<S> <C> <C> <C> <C>
REVENUES:
Licenses $ 22,905 $ 29,676 $ 41,075 $ 63,405
Services 13,420 16,586 28,429 32,358
--------- --------- --------- ---------
Total revenues 36,325 46,262 69,504 95,763
--------- --------- --------- ---------
OPERATING EXPENSES:
Cost of licenses 13,301 12,195 27,450 25,680
Cost of services 9,397 9,782 20,412 20,847
General and administration 5,603 4,329 11,506 8,110
Sales and marketing 5,648 5,456 11,581 10,592
Research and development 5,555 4,950 11,384 10,494
Amortization of intangibles 1,430 1,684 3,606 3,792
Acquisition costs -- 563 -- 6,898
Non-recurring charges 15,899 -- 28,319 18,754
Impairment of intangible assets -- -- 927 10,592
--------- --------- --------- ---------
Total operating expenses 56,833 38,959 115,185 115,759
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS (20,508) 7,303 (45,681) (19,996)
OTHER INCOME (EXPENSE), NET:
Interest expense, net (1,155) (636) (2,359) (1,092)
Other income (expense), net (19) 53 (79) 126
--------- --------- --------- ---------
Total other expense, net (1,174) (583) (2,438) (966)
--------- --------- --------- ---------
INCOME(LOSS)BEFORE PROVISION FOR
INCOME TAXES (21,682) 6,720 (48,119) (20,962)
Provision for income taxes (127) (797) (160) (814)
--------- --------- --------- ---------
INCOME(LOSS)FROM CONTINUING OPERATIONS $ (21,809) $ 5,923 $ (48,279) $ (21,776)
--------- --------- --------- ---------
DISCONTINUED OPERATIONS:
Income from discontinued operations,
net of tax 514 1,395 1,458 2,629
Gain on sale of assets, net of tax 17,208 -- 17,208 --
--------- --------- --------- ---------
NET INCOME (LOSS) $ (4,087) $ 7,318 $ (29,613) $ (19,146)
========= ========= ========= =========
EARNINGS PER COMMON SHARE:
DILUTED
Continuing operations $ (0.85) $ 0.24 $ (1.89) $ (0.95)
Discontinued operations 0.02 0.05 0.06 0.12
Discontinued operations-gain on sale 0.67 -- 0.68 --
--------- --------- --------- ---------
Net Income (Loss) $ (0.16) $ 0.29 $ (1.16) $ (0.84)
========= ========= ========= =========
BASIC
Continuing operations $ (0.85) $ 0.24 $ (1.89) $ (0.95)
Discontinued operations 0.02 0.05 0.06 0.12
Discontinued operations-gain on sale 0.67 -- 0.68 --
--------- --------- --------- ---------
Net Income (Loss) $ (0.16) $ 0.29 $ (1.16) $ (0.84)
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Diluted 25,547 25,192 25,478 22,838
Basic 25,547 24,820 25,478 22,838
</TABLE>
4
<PAGE> 5
QUADRAMED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
-------- --------
(Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(29,613) $(19,147)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 6,434 6,288
Amortization of deferred compensation 2,519 394
Cash flows from discontinued operations (673) (3,639)
Gain on sale of assets (net of tax) (17,208) --
Write-off of capital software -- --
Impairment of intangible assets 927 --
Noncash settlement of litigation -- 10,592
Changes in assets and liabilities, net of acquisitions:
Accounts receivable and unbilled receivables, net 25,514 (5,685)
Prepaid expenses and other 3,214 (9,881)
Accounts payable and accrued liabilities (3,578) (2,539)
Deferred revenue 1,878 (2,144)
-------- --------
Cash provided by (used in) operating activities (10,586) (25,761)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for immaterial acquisition -- (762)
Sale of assets 17,208 --
Purchase of technology rights -- (6,000)
Write-off of technology rights 6,000 --
Investment in ChartOne (11,661) --
Purchase of non-marketable investments -- (3,000)
Maturity (purchase) of available-for-sale securities, net 11,612 7,153
Additions to equipment (1,978) (2,021)
Restricted cash (2,974) --
Increase in notes receivable and other -- (2,542)
Capitalization of computer software development costs 193 (2,218)
-------- --------
Cash provided by (used for) investing activities 18,400 (9,390)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of principal on capital lease obligations (21) (254)
Borrowings (repayments) under notes and loans payable (5) (21,888)
Issuance of common stock through Employee Stock Purchase Plan (1,888) --
Proceeds from exercise of common stock options and
warrants to purchase stock -- 2,675
-------- --------
Cash provided by (used for) financing activities (1,914) (19,467)
-------- --------
Net increase (decrease) in cash and cash equivalents 5,900 (54,618)
CASH AND CASH EQUIVALENTS, beginning of period 10,623 65,899
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 16,523 $ 11,281
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Unrealized gain (loss) on investments $ (3,461) $ --
Security interest in marketable securities related to
line of credit (13,900) --
Conversion of note receivable to
equity investment in VantageMed $ -- $ 500
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
QUADRAMED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(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. 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, 1999 included in the Company's Annual Report on Form 10-K. 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. Management is continuing to review the Company's
financial statements. Although the review is not expected to result in any
material adjustments, certain additional adjustments may be made. 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,
2000 or any other future period.
2. Summary of Significant Accounting Policies
Revenues
The Company licenses a variety of products and provides a variety of
services. License revenue includes license, installation, consulting and
post-contract customer support fees, third-party hardware sales and other
revenues related to licensing of the Company's software products. Service
revenue consists of business office and health information management
outsourcing, cash flow management, compliance and consulting services.
The license product suite is comprised of enterprise-wide systems, business
office solutions, and medical records office solutions. Products can be licensed
individually or as a suite of interrelated products. Products are licensed
either under term arrangements (which range from one year to three years and
typically include monthly or annual payments over the term of the arrangement)
or on a perpetual basis. Revenues from enterprise-wide systems are recognized
based upon percentage of completion. Term licenses for business office solutions
and medical records office solutions are recognized monthly or annually over the
term of the license arrangement, beginning at the date of installation. Revenues
from perpetual licenses of business office solutions and medical records office
solutions are recognized upon shipment of the software if there is persuasive
evidence of an agreement, collection of the resulting receivable is probable and
the fee is fixed and determinable. If an acceptance period is required, revenues
are recognized upon the earlier of customer acceptance or the expiration of the
acceptance period.
Other services are also provided to certain of the Company's licensees of
software products. These services consist primarily of consulting and
post-contract customer support. Consulting services generally consist of
installation of software at customer sites and revenue is recognized upon
completion of installation. Unbilled receivables consist of work performed or
software delivered which has not been billed under the terms of the contractual
arrangement with the customer. Post-contract customer support is recognized
ratably over the term of the support period. Deferred revenue primarily consists
of revenue deferred under annual maintenance and annual license agreements on
which amounts have been received from customers and for which the earnings
process has not been completed.
The Company provides business office and health information management
outsourcing, compliance, and consulting services to hospitals under contract
service arrangements. Outsourcing revenues typically consist of fixed monthly
fees plus, in the case of business office outsourcing, incentive-based payments
that are based on a percentage of dollars recovered for the provider for which
the service is being performed. The monthly fees are recognized as revenue on a
monthly basis at the end of each month. Incentive fees based upon collection of
accounts from payors are recognized upon payment by the payor to the customer.
Incentive fees based upon acknowledgement from the customer are recognized upon
such acknowledgement. These fees are recorded as unbilled revenue until the
government
6
<PAGE> 7
agency pays the customer. Compliance and consulting revenues are recognized as
the services are provided.
Cost of license revenues consists primarily of salaries, benefits, hardware
costs and allocated costs related to the installation process, and customer
support and royalties to third parties.
Cost of service revenues consists primarily of salaries, benefits and
allocated costs related to providing such services.
Net Income (Loss) Per Share
Basic net income (loss) available to common stockholders per share is
computed using the weighted average number of common shares outstanding during
the period. Diluted net (loss) available to common stockholders per share is
computed using the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares consist of stock
options and warrants (using the treasury stock method) and convertible
subordinated debentures (using the if converted method). Common equivalent
shares are excluded from the dilutive computation only if their effect is
anti-dilutive. As the Company recorded a net (loss) in the three months ended
June 30, 2000, and in the six months ended June 30, 2000 and 1999 no common
equivalent shares are included in diluted weighted average common shares
outstanding for those periods.
Comprehensive Income
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which was adopted by the Company in the first quarter of
1998. SFAS No. 130 requires companies to report a new, additional measure of
income on the income statement or to create a new financial statement that has
the new measure of income on it.
The components of comprehensive income (loss) for the three and six months
ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $(4,087) $7,318 $(29,613) $(19,147)
Unrealized gain (loss) on
available-for-sale Securities (1,445) (199) (3,461) (124)
------- ------ -------- --------
Comprehensive income (loss) $(5,532) $7,119 $(33,074) $(19,271)
======= ====== ======== ========
</TABLE>
3. Acquisitions
In March 1999, the Company completed the acquisition of the Compucare
Company ("Compucare") by acquiring all the outstanding capital stock of
Compucare in exchange for 2,957,000 shares of common stock. The acquisition was
accounted for as a pooling of interests. Upon closing of the acquisition, the
assets and liabilities of Compucare were recorded at net book value and
consisted primarily of accounts receivable, fixed assets, accounts payable,
accrued liabilities, and deferred revenue.
The Company acquired Med Data in July 1999. The original entry to record
the transaction included $4,901,000 to Intangibles, net (goodwill). Based upon
an asset valuation prepared by an independent consulting firm the Intangibles,
net (goodwill) amount should have been $1,310,000. In June 2000 the Company
reclassified $2,873,000 ($3,591,000 less amortization of $718,000) to
Capitalized Software from Intangibles, net (goodwill).
4. Convertible Subordinated Debt
In April 1998, the Company completed an offering of $115 million
principal amount of Convertible Subordinated Debentures (the "Debentures"),
including the underwriters' over-allotment option. The debentures are due May 1,
2005 and bear interest at 5.25 percent per annum. The Debentures are convertible
into common stock at any time prior to the redemption
7
<PAGE> 8
or final maturity, initially at the conversion price of $33.25 per share
(resulting in an initial conversion ratio of 30.075 shares per $1,000 principal
amount). Net proceeds to the Company from the offering were $110.8 million.
5. Line of Credit and Debt Guarantee
At June 30, 2000, the Company had $7,005,000 of stand-by letters of credit
outstanding under several bank-financing agreements. The stand-by letters of
credit are secured with $7,005,000 in certificates of deposit. Additionally the
Company has $2,000,000 in escrow guaranteeing the payment of interest on a line
of credit for another company. The $9,005,000 is recorded as restricted cash on
the condensed balance sheet.
6. Discontinued Operations
In connection with the acquisition of Compucare in March 1999, the Company
assumed the net liabilities of discontinued operations from certain prior
acquisitions of Compucare. In November 1996, Compucare consummated the sale of
Antrim Corporation ("Antrim"), a wholly owned subsidiary of Compucare. In
December of 1996, Compucare announced it was evaluating a plan of "spin-off" or
sale of operations of Health Systems Integration, Inc. ("HSII"), a wholly owned
subsidiary of Compucare. Compucare completed transactions related to the sale of
HSII's intellectual property and the majority of its customer base in December
1997. Discontinued operations for the three and six months ended June 30, 2000
and 1999, respectively, present Antrim and HSII as discontinued operations.
Results from discontinued operations for Antrim and HSII for the three and six
months ended June 30, 2000 and 1999 were not material. The assets and
liabilities related to Antrim and HSII, have been segregated on each of the
aforementioned balance sheets. Net liabilities related to discontinued
operations at June 30, 2000 were $4.7 million.
QuadraMed created a wholly owned subsidiary named ChartOne, Inc., and
transferred and assigned to ChartOne the assets and liabilities of its Released
of Information Division (ROI) business pursuant to the terms of an Asset
Contribution Agreement dated May 3, 2000. On June 7, 2000, ChartOne, Inc.,
completed the sale of 2,520,000 shares of its Series A Preferred Stock to
Warburg, Pincus Equity Partners, L.P. and certain of its affiliates, and
Prudential Securities Group, Inc. for an aggregate cash purchase of $25.2
million. The sale of the securities was made pursuant to the terms of a
Securities Purchase Agreement, dated May 5, 2000. On the basis of these
transactions, QuadraMed recorded a gain on sale of ChartOne for the three and
six months ended June 30, 2000 of $17,208,000 (net of income tax expense of
$800,000).
Results of the ROI Division have been included in discontinued operations
for all periods, as required by APB-30. For the three months ended June 30, 2000
and 1999, income from discontinued operations were $514,000 (net of income tax
expense of $73,000) and $1,458,000 (net of income tax expense of $240,000),
respectively. For the six months ended June 30, 2000 and 1999, income from
discontinued operations were $1,395,000 (net of income tax expense of $140,000)
and $2,629,000 (net of income tax expense of $323,000), respectively.
The ROI Division's revenues for the three months ended June 30, 2000 and
1999 were $9.7 million and $11.3 million respectively. For the six months ended
June 30, 2000 and 1999 revenues were $23.8 million and $21.9 million
respectively.
8
<PAGE> 9
The following is a summary of the net assets sold on the contribution date
of May 3, 2000:
<TABLE>
<CAPTION>
May 3, 2000 December 31, 1999
(In thousands) (In thousands)
-------------- -----------------
<S> <C> <C>
Current Assets $12,176 $ 9,354
Equipment and software 1,034 1,010
Intangibles 3,868 3,735
Other long term assets 84 79
------- -------
Total assets $17,162 $14,178
------- -------
Current Liabilities $ 3,242 $ 4,668
------- -------
Total Liabilities $ 3,242 $ 4,668
------- -------
Net assets of discontinued operations $13,920 $ 9,510
</TABLE>
The 57% interest in ChartOne that QuadraMed retains has been classified to
non-marketable securities.
7. Non-recurring Charges
During the first and second quarter of 2000, the Company recorded
approximately $28.3 million of non-recurring charges. Those charges were
primarily related to the sunsetting of the EnOvation product, the write-down of
certain other receivables, the payments to employees for severance agreements
and costs associated with office closures. The charge also included costs
related to further product integration efforts and product consolidation.
Furthermore, the Company recorded a write-down of $10.6 million of HealthCast
assets as well as additional expenses of $5.3 million associated with officers'
separation agreements.
During the six months ended June 30, 1999, the Company recorded
approximately $18.8 million of non-recurring charges. Those charges consisted
primarily of severance payments and future rent and lease obligations associated
with the closing of several duplicative operating facilities primarily within
the Company's Business Office Division and certain integration costs related to
prior acquisitions. Future rents and lease obligations are expected to be paid
through July 2003. At December 31, 1999, there was $1,467,000 accrued for future
rents and lease obligations.
The following table sets forth the Company's restructuring reserve and the
activity against the reserve (in thousands):
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Description December 31, 1999 Costs and Expenses Payments June 30, 2000
----------- ----------------- ------------------ -------- --------------
<S> <C> <C> <C> <C>
Rents and lease obligations $1,467 $-- $(354) $1,113
------ --- ----- ------
Total Restructuring Accrual $1,467 $-- $(354) $1,113
====== === ===== ======
</TABLE>
8. Impairment of Intangibles
During the quarter ended March 31, 2000, the Company recorded a $927,000
charge for the write-down of certain intangible assets. The intangible assets
were associated with the Business Office Division, and were related to the
acquisition of Velox in 1998. In accordance with SFAS No. 121, "Impairment of
Long-Lived Assets", projected cash flows from this product line were not
sufficient to cover future amortization of the intangible assets and therefore
were written-down during the quarter ended March 31, 2000.
During the quarter ended March 31, 1999, the Company recorded a $10,600,000
charge for the write-down of certain intangible assets. The intangible assets
were associated with the Business Office Division, and were related to the
acquisitions of Synergy in 1997, InterLink, Velox and American Hospital
Directory in 1998. In accordance with SFAS No. 121,
9
<PAGE> 10
"Impairment of Long-Lived Assets", projected cash flows from these product lines
were not sufficient to cover future amortization of the intangible assets and
therefore were written-down during the quarter ended March 31, 1999.
9. Segment Reporting
The Company reported on three operating segments in 2000 and 1999: the
Business Office Division(BO), the Health Information Management Division(HIM),
and the Enterprise Division ENT). The results of the ROI business have been
excluded from all periods. They had previously been included in the HIM and BO
Divisions' results. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
does not track long-lived assets by segment and therefore related disclosures
are not relevant and are not presented.
The Company's reportable segments are strategic business units that offer
different products and services. Each segment, with its own unique position in
the healthcare technology marketplace, yields individual technology and service
criteria. The Company's business lines in the Business Office Division target a
provider's chief financial officer as the primary buyer. The divisions'
solutions address the complex administrative and financial management demands
placed on healthcare organizations today, providing the technology and expertise
to increase cash flow and reduce administrative costs. The division is comprised
of the following product and service categories: decision support,
patient-focused solutions, electronic business office, managed care, executive
information systems and business office outsourcing.
QuadraMed's Health Information Management Division's business lines
primarily target medical records directors, as well as chief financial officers
throughout the provider system. The division is comprised of the following
products and services: coding and abstracting, compliance, document imaging and
workflow, and HIM outsourcing and consulting.
The Company's Enterprise Division consists primarily of Compucare and
provides enterprise systems to providers and integrated delivery networks.
Less than 5% of the Company's revenues were generated from Canada. The
Company developed its business divisions as a result of various acquisitions
during 1998. As such, financial performance was not reported to management in
this manner prior to 1998.
For the six months ended June 30, 2000 and 1999, respectively, the
following table reports selected segment information required by SFAS No. 131:
<TABLE>
<CAPTION>
2000 1999
(restated) (restated)
----------------------------------------------- ---------------------------------------------
BO HIM ENT TOTAL BO HIM ENT TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
License revenues $ 11,318 $ 10,809 $ 18,948 $ 41,075 $ 23,735 $ 13,433 $ 26,238 $ 63,405
Service revenues 4,233 24,196 -- 28,429 2,691 29,667 -- 32,358
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue 15,551 35,005 18,948 69,504 26,426 43,099 26,238 95,763
Segment earnings (loss) $ (6,354) $ (3,542) $(19,807) $(29,613) $ 1,031 $ (1,486) $(18,693) $(19,146)
</TABLE>
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivative financial instruments on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. In July 1999, the Financial Accounting Standards Board issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities Deferral of
the Effective Date of FASB Statement No. 133 -- An amendment of FASB Statement
No. 133." SFAS No. 137 defers the implementation of SFAS No. 133 by one year.
This statement is not expected to have a material impact on the financial
condition or results of the operations of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which provides
10
<PAGE> 11
guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. The Company will adopt SAB 101 as
required in the fourth quarter of 2000. Management is evaluating the effect that
such adoption of SAB 101 will have on the financial position or results of the
operations of the Company.
The financial information required in this Form 10-Q by Rule 10-01 of
Regulation S-X has been subject to a review by Pisenti & Brinker, the Company's
independent certified public accountants, as described in their report dated
August 7, 2000.
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 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; 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) variability in
quarterly operating results, (ii) identification, consummation and assimilation
of acquisitions, (iii) dependence on large orders and customer concentration,
(iv) dependence on hospitals and demand for the Company products and services in
the healthcare information systems and services markets, (v) legislative or
market-driven reforms in the health care industry, (vi) the Company's ability to
develop and introduce new products, (vii) management of the Company's changing
operations, (viii) dependence on key personnel, (ix) development by competitors
of new or superior products or entry into the market of new competitors, (x)
risks related to product defects, (xi) risks associated with pending litigation,
(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) risks associated with certain investments in early stage companies, and
(xvii) other risks identified from time to time in the Company's reports and
registration statements filed with the SEC.
Overview
QuadraMed Corporation (QuadraMed) leverages its industry expertise and
product breadth to deliver product and service solutions that link the nation's
hospitals to their diverse constituents, including payors, physicians, patients,
insurers and governmental agencies. We are focused on customer service
excellence and delivering a return on investment for our customers through
increased efficiency and improved cash flow. We have implemented our solutions
in approximately 4,000 provider sites, representing more than 60% of the
nation's hospitals.
We have a significant talent pool, which, through our active participation
in professional and trade organizations, has helped to shape the healthcare
information technology industry. We also have substantial expertise in the core
components required by the Health Insurance Portability and Accountability Act
of 1996 (HIPAA). In addition to our web-enabled solutions, we have developed the
American Hospital Directory(ahd.com), the most comprehensive resource for
hospital and healthcare benchmarking on the worldwide web. Our site is the only
one of its kind to integrate data from the American Hospital Association.
We have expanded significantly since our inception in 1993, primarily
through the acquisition of other businesses, products and services. Accordingly,
our consolidated financial statements have been restated to include historical
results of entities acquired on a pooling of interests basis. The addition of
historical results of acquired entities should be considered when reading the
Period-to-period comparisons. Additionally, reference is made to the
consolidated financial statements and notes thereto for the effect of such
acquisitions.
As of June 30, 2000, QuadraMed and its subsidiaries had more than 4,000
customers, approximately 80% of which were hospitals, located in all 50 states,
the District of Columbia, Canada, Puerto Rico, South Africa and Singapore. We
expect to maintain a high percentage of hospital customers, but also expect our
customer mix to transition to a
11
<PAGE> 12
higher percentage of other providers, including integrated delivery health care
systems ("IDSs"), as well as physicians, payors and employers. No single
customer accounted for more than 10% of our revenues in 1999 or the six months
ended June 30, 2000.
QuadraMed licenses a variety of products and provides a variety of
services. License revenue includes license, installation, consulting and
post-contract customer support fees, third-party hardware sales and other
revenues related to licensing of our software products. Service revenue is
comprised of business office and health information management outsourcing, cash
flow management, compliance and consulting services.
The license product suite is comprised of enterprise-wide systems, business
office solutions, and medical records office solutions. Products can be licensed
individually or as a suite of interrelated products. Products are licensed
either under term arrangements (which range from one year to three years and
typically include monthly or annual payments over the term of the arrangement)
or on a perpetual basis. Revenues from enterprise-wide systems are recognized
based upon percentage of completion. Term licenses for business office solutions
and medical records office solutions are recognized monthly or annually over the
term of the license arrangement, beginning at the date of installation. Revenues
from perpetual licenses of business office solutions and medical records office
solutions are recognized upon shipment of the software if there is persuasive
evidence of an agreement, collection of the resulting receivable is probable and
the fee is fixed and determinable. If an acceptance period is required, revenues
are recognized upon the earlier of customer acceptance or the expiration of the
acceptance period.
We also provide services to certain of our licensees of software products.
These services consist primarily of consulting and post-contract customer
support. Consulting services generally consist of installation of software at
customer sites, and revenue is recognized upon completion of installation.
Unbilled receivables consist of work performed or software delivered which has
not been billed under the terms of the contractual arrangement with the
customer. Post-contract customer support is recognized ratably over the term of
the support period. Deferred revenue primarily consists of revenue deferred
under annual maintenance and annual license agreements on which amounts have
been received from customers and for which the earnings process has not been
completed.
We also provide business office and health information management
outsourcing, cash flow management, compliance and consulting services to
hospitals under contract service arrangements. Outsourcing revenues typically
consist of fixed monthly fees plus, in the case of business office outsourcing,
incentive-based payments that are based on a percentage of dollars recovered for
the provider for which the service is being performed. The monthly fees are
recognized as revenue on a monthly basis at the end of each month. Incentive
fees based upon collection of accounts from payors are recognized upon payment
by the payor to the customer. Incentive fees based upon acknowledgement from the
customer are recognized upon such acknowledgement. These fees are recorded as
unbilled revenue until the government agency pays the customer. Compliance and
consulting revenues are recognized as the services are provided. We have
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.
We capitalize a portion of our 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) of the
products, commencing when each product is available to the market.
Revenues
License. License revenues for the quarter ended June 30, 2000 decreased
22.8% to $22.9 million, compared to $29.7 million in the same period last year.
For the six months ended June 30, 2000, license revenues decreased 35.2% to
$41.1 million compared to $63.4 million in the same period last year. The
decrease in license revenues was due principally to a decrease in sales due to
delayed purchase decisions resulting from concerns regarding government
regulations and from economic pressures facing the hospital industry. License
revenues include license, installation, consulting and post-contract support
fees, third-party hardware sales and other revenues related to licensing of our
software products.
Service. Service revenues for the quarter ended June 30, 2000 decreased
19.1% to $13.4 million, compared to $16.6 million in the same period last year.
For the six months ended June 30, 2000, services revenues decreased 12.1% to
$28.4 million, compared to $32.4 in the same period last year. The decrease in
service revenues was due principally to the loss of hospital service contracts
during the quarter.
12
<PAGE> 13
Cost of Revenues
Cost of licenses. Cost of license revenues for the quarter ended June 30,
2000 increased 9.1% to $13.3 million, compared to $12.2 million in the same
period last year. For the six months ended June 30, 2000 cost of license
revenues increased 6.9% to $27.5 million, compared to $25.7 million in the same
period last year. Cost of licenses consists primarily of salaries, benefits and
allocated costs related to software installations, hardware costs, customer
support and royalties to third parties. As a percentage of license revenues,
cost of licenses were 58.1% in the quarter ended June 30, 2000, compared with
41.1% in the same period last year. As a percentage of license revenues, cost of
licenses were 66.8% in the six months ended June 30, 2000, compared with 40.5%
in the same period last year. The increase in cost of services was due
principally to additional operating costs associated with the health information
management outsourcing services and to a lesser extent, the hiring of additional
compliance consultants. Cost of services as a percentage of service revenues
increased for the quarter ended June 30, 2000, principally due to a lower
revenue contribution from the health information management outsourcing business
unit because of the additional operating costs.
Cost of services. Cost of service revenues for the quarter ended June 30,
2000 decreased 3.9% to $9.4 million, compared to $9.8 million, in the same
period last year. For the six months ended June 30, 2000 cost of services
revenues decreased 2.1% to $20.4 million, compared to $20.8 million, in the same
period last year. Cost of services includes expenses associated with services
performed in connection with health information management and business office
outsourcing, compliance and consulting services. As a percentage of service
revenues, cost of services increased to 70.0% in the quarter ended June 30, 2000
from 59.0% in the same period last year. As a percentage of service revenues,
cost of services were 71.8% in the six months ended June 30, 2000 compared with
64.4% in the same period last year. The increase in cost of services was due
principally to additional operating costs associated with the health information
management outsourcing services and to a lesser extent, the hiring of additional
compliance consultants. Cost of services as a percentage of service revenues
decreased for the quarter ended June 30, 2000, principally due to a lower
revenue contribution from the health information management outsourcing business
unit because of the additional operating costs.
Operating Expenses
General and Administration. General and administration expenses for the
quarter ended June 30, 2000 increased 29.4% to $5.6 million, compared to $4.3
million in the same period last year, and as a percentage of total revenues
increased to 15.4% for the quarter ended June 30, 2000 from 9.4% in the same
period last year. For the six months ended June 30, 2000, general and
administration expenses increased 41.9% to $11.5 million, compared to $8.1
million in the same period last year, and as a percentage of total revenues
increased to 16.6% for the six months ended June 30, 2000 from 8.5% in the same
period last year. The increase in general and administration expenses in
absolute dollars and as a percentage of total revenues for the three and six
months ended June 30, 2000 was principally due to outside services provided,
legal, auditor fees, recruitment fees, along with an increase in employee
benefit programs. In addition, general and administration as a percentage of
revenue increased due to a smaller revenue base.
Sales and Marketing. Sales and marketing expenses for the quarter ended
June 30, 2000 increased 3.5% to $5.6 million, compared to $5.5 million in the
same period last year, and increased as a percentage of total revenues to 15.6%
from 11.8% in the same period last year. For the six months ended June 30, 2000,
sales and marketing expenses increased 9.3% to $11.6 million, compared to $10.6
million in the same period last year, and increased as a percentage of total
revenues to 16.7% from 11.1% in the same period last year. The increase in sales
and marketing expenses resulted principally from the addition of sales and
marketing personnel in 2000 and higher advertising costs. As a percentage of
total revenues, sales and marketing expenses increased principally due to a
smaller revenue base.
Research and Development. Research and development expenses for the quarter
ended June 30, 2000 increased 12.2% to $5.6 million, compared to $5.0 million in
the same period last year, and as a percentage of total revenues increased to
15.3% from 10.7% in the same period last year. For the six months ended June 30,
2000 research and development expenses increased 8.5% to $11.4 million, compared
to $10.5 million in the same period last year, and as a percentage of total
revenues increased to 16.4% from 11.0% in the same period last year. Research
and development expenses increased principally due to the addition of software
developers for the purpose of migrating and integrating our products to a
consistent architecture.
13
<PAGE> 14
We believe that research and development expenditures are essential to
maintaining our competitive position. As a result, we intend to continue to make
investments in the development of new products and in the further integration of
acquired technologies into our suite of products.
Amortization of Intangibles. Amortization of intangibles for the quarter
ended June 30, 2000 decreased 15.1% to $1.4 million compared to $1.7 million in
the same period last year. For the six months ended June 30, 2000 amortization
of intangibles decreased 4.9% to $3.6 million compared to $3.8 million in the
same period last year.
Acquisition Costs. The Company incurred $563,000 and $6.9 million of
acquisition costs for the three and six months ended June 30, 1999. These
acquisition costs related to the Compucare acquisition in the first quarter of
1999. Such costs were primarily for financial advisor fees of approximately $5.7
million incurred by QuadraMed and Compucare and to a lesser extent, legal and
accounting fees of approximately $1.2 million. There were no acquisition charges
for the three and six months ended June 30, 2000.
Non-recurring Charges. During the first and second quarter 2000, QuadraMed
recorded approximately $28.3 million of non-recurring charges. Those charges
were primarily related to the sun setting of the EnOvation product, the
write-down of certain other receivables, the payments to employees for severance
agreements and costs associated with office closures. The charge also included
costs related to further product integration efforts and product consolidation.
Non-recurring charges of $18.8 million in the first quarter of 1999 were
associated with the closing of duplicative operating facilities within several
of our business units. These charges consisted primarily of severance payments
and future rent and lease obligations. Furthermore, the Company recorded a
write-down of $10.6 million of HealthCast assets, as well as additional expenses
of $5.3 million associated with officers' severance agreements.
Intangible assets. We recorded a $927,000 charge in 2000 to write-down
certain intangible assets related to acquisition of Velox in 1998. We recorded a
$10.6 million charge in 1999 to write-down certain intangible assets related to
acquisitions of companies made in 1997 and 1998. The write-down related to the
acquisitions of Synergy, InterLink, Velox and American Hospital Directory.
Interest Income (Expense), Net. Interest expense, net was $1.2 million and
$2.4 million in the three and six months ended June 30, 2000, compared to
$636,000 and $1.1 million for the same period last year. Interest expense in
2000 and 1999 was principally due to QuadraMed's $115 million Convertible
Subordinated Debentures, which closed in April 1998, partially offset by
interest income from QuadraMed's cash and investments. The increase in interest
expense in 2000 compared to 1999 is due to less interest income, from a smaller
portfolio of investments, to offset the expense.
Provision for income taxes. Provision for income taxes in the six months
ended June 30, 2000 was $160,000. The provision for income taxes is primarily
due to state and alternative minimum tax liabilities on certain of the Company's
legal entities. For financial reporting purposes, a 100% valuation allowance has
been recorded against the Company's deferred tax assets under SFAS No. 109,
"Accounting for Income Taxes."
Liquidity and Capital Resources
At June 30, 2000, QuadraMed had $16.5 million in cash and cash equivalents
compared to $10.6 million at December 31, 1999.
In October 1996, QuadraMed completed its initial public offering of common
stock, which resulted in net proceeds of approximately $26.4 million. In October
1997, we completed a follow-on offering of common stock, which resulted in net
proceeds of approximately $57.3 million. In April 1998, QuadraMed completed an
offering of $115.0 million principal amount of Convertible Subordinated
Debentures, including the initial purchasers' over-allotment option. The
debentures are due May 1, 2005 and bear interest, which is payable semi-annually
at 5.25 percent per annum. Proceeds from the offering were $110.8 million.
Net cash provided by (used) in operating activities was ($10.6) million and
($25.8) million in the six months ended June, 2000 and 1999, respectively. Net
cash used in operating activities in the six months ended June 30, 2000 related
to the net loss for the period excluding the gain on the sale of ChartOne,
offset by the increase in the deferred revenue for annual maintenance fees and
the decrease in accounts receivable and unbilled receivables related to the sun
setting of the EnOvation product. Net cash used in the operating activities for
the six months ended June 30, 2000 related to the net loss for the period,
offset by the write-down of certain intangible
14
<PAGE> 15
assets and the increase in accounts payable and accrued liabilities related to
the closure of several duplicative office facilities.
Net cash provided by investing activities was $18.4 million in the six
months ended June 30, 2000. Net cash used for investing activities was $9.4
million in the six months ended June 30, 1999. Investing activities for 2000
included the gain on the sale of ChartOne and the maturity of long-term
investments. Investing activities for 1999 primarily included the purchase of
short and long-term investments from the proceeds from our offering of $115.0
million Convertible Subordinated Debentures and the additional equity investment
of $3.0 million in VantageMed.
Net cash used in financing activities was $1.9 million and $19.5 million in
the six months ended June 30, 2000 and 1999, respectively. Financing activities
in the six months ended June 30, 2000 primarily related to the proceeds from the
exercise of common stock options and the purchase through the Employee Stock
Purchase Plan. Financing activities in the six months ended June 30, 1999
related to the repayment of the outstanding balances under the line of credit
assumed as part of the Compucare acquisition, offset by the proceeds from the
exercise of common stock options and purchase through the Employee Stock
Purchase Plan.
QuadraMed believes that its current cash and investments and borrowing
capacity will be sufficient to fund operations at least through December 31,
2000.
Item 3. Quantitative and Qualitative Disclosures about Market Risks.
QuadraMed's exposure to market risk for changes in interest rates primarily
relates to its investment portfolio and Subordinated Convertible Debentures. The
Company invests in high-quality issuers and includes money market funds,
corporate debt securities and securities issued by the United States Government.
It is the Company's intent to ensure the safety and preservation of its invested
principal funds by limiting default risk, market risk and reinvestment risk. The
Company continually reviews both its investment policy and its investments to
ensure this objective is being met.
CERTAIN FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
We incurred net losses of $19.5 million and $12.3 million in fiscal years
1998 and 1999, respectively, and a net loss of $29.6 million for the six months
ended June 30, 2000. As of June 30, 2000, our accumulated deficit was $235.1
million. These losses include write-offs for acquired in-process research and
development of $14.5 million and $1.7 million in fiscal years 1998 and 1999
respectively. In connection with our acquisitions, we have and will incur
significant non-recurring charges and we will be required to amortize
significant expenses related to goodwill and other intangible assets in future
periods. It is uncertain whether we will be able to achieve or sustain revenue
growth or profitability on a quarterly or annual basis.
POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS
Our quarterly operating results have varied significantly in the past. Our
quarterly revenues and operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside our
control. These factors include:
- integration of acquired businesses with our business;
- variability in demand for our products and services;
- the introduction of product enhancements and new products by us and
our competitors;
- the timing and significance of announcements concerning our present or
prospective strategic alliances;
- the termination of, or a reduction in, the products and services we
offer,
- the loss of customers due to consolidation in the health care industry;
- delays in product delivery requested by our customers;
15
<PAGE> 16
- the length of the sales cycle for our products or the timing of our
sales;
- the amount of new potential contracts at the beginning of any
particular quarter;
- budgeting cycles of our customers and changes in our customer's
budgets;
- our investment in marketing, sales, research and development, and
administrative personnel necessary to support our anticipated
operations;
- costs incurred in connection with our marketing and sale promotional
activities;
- software defects and other quality factors in our products; and
- general economic conditions and resulting effects on the health care
industry.
We cannot accurately forecast the timing of our customer purchases due to
the complex procurement decision process associated with most health care
providers and payors. As a result, we typically experience sales cycles that
extend over several quarters. In addition, certain products we acquired as a
result of our acquisition of the Compucare Company in March 1999 have higher
average selling prices and longer sales cycles than many of our other products.
This may increase the volatility of our quarterly operating results. Moreover,
our operating expense levels, which will increase with the addition of acquired
businesses, are relatively fixed. Accordingly, if future revenues are below our
expectations, we would experience a disproportionate adverse affect on our net
income and financial results. Further, it is likely that, in some future
quarter, our revenues or operating results may fall below the expectations of
securities analysts and investors. In such an event, the trading price of our
common stock would likely be materially and adversely affected.
16
<PAGE> 17
Integration Of Acquired Companies Into QuadraMed
Realizing benefits from acquisitions depends in significant part upon
several factors and is accompanied by a number of risks, including:
- successful integration of the operations, products and personnel of
the acquired company;
- possible costs, delays or other problems we may incur to
successfully complete such integration;
- the potential interruption or disruption of our ongoing business and
the distraction of management from other matters; and
- significant operational and administrative expense relating to such
integration.
Any difficulties encountered in the integration process could have a
material adverse effect on our business, operating results and financial
condition. Even if we are able to successfully integrate these businesses with
our business, the acquired operations may not achieve sales, productivity and
profitability commensurate with our historical or projected operating results.
Failure to achieve such projected results would have a material adverse effect
on our financial performance, and in turn, on the market value of THE OUR Common
Stock. There can be no assurance that we will realize any of the anticipated
benefits of our acquisitions or that such acquisitions will enhance our business
or financial performance.
Acquisition Strategy
We will consider expansion in part through acquisitions of products,
technologies and businesses. Our ability to expand successfully through
acquisition depends on many factors, including:
- the successful identification and acquisition of products,
technologies or businesses;
- management's ability to effectively negotiate and consummate
acquisitions and integrate and operate the new products, technologies
or businesses;
- significant competition for acquisition opportunities in our industry,
which may intensify due to increasing consolidation in the health care
industry, thereby increasing the costs of capitalizing on acquisition
opportunities; and
- competition for acquisition opportunities with other companies that
have significantly greater financial and management resources than us.
From time to time, we also consider various strategic alternatives,
including potential business combinations, divestitures of business units,
strategic partnerships and discontinuance of lines of business. Each of these
strategic alternatives carries certain risks that are difficult to predict but
which may have a material adverse effect on our business.
RISKS ASSOCIATED WITH ACQUISITIONS, INCLUDING LITIGATION; NEED TO MANAGE
CHANGING OPERATIONS
Acquisitions involve a number of special risks including:
- managing geographically dispersed operations;
- failure of the acquired business to achieve expected results;
- failure to retain key personnel of the acquired business;
- inability to integrate the new business into existing operations and
risks associated with unanticipated events or liabilities;
- potential increases in stock compensation expense and increased
compensation expense resulting from newly hired employees;
17
<PAGE> 18
- the assumption of unknown liabilities and potential disputes with the
sellers of one or more acquired entities; and
- exposure to the risks of entering markets in which we have no direct
prior experience or to risks associated with the market acceptance of
acquired products and technologies.
We may not be successful in addressing these risks and our failure to do so
could have a material adverse effect on our business, results of operations and
financial condition.
From time to time, our acquisitions have resulted in disputes with the
sellers of one or more of the acquired entities. We are a party to a number of
legal proceedings arising out of our previous acquisitions. While we do not
believe that the adverse determination of any such pending litigation,
individually, would have a material adverse effect on our business, financial
condition, results of operations, cash flows or prospects, the adverse
determination of such proceedings could, in the aggregate, have such a material
adverse effect.
Additionally, customer dissatisfaction or performance problems at a single
acquired company could have an adverse effect on our sales and marketing
initiatives and on our reputation. With the addition of the acquired businesses,
our anticipated future operations may place a strain on our management systems
and resources. We expect that we will be required to continue to improve our
financial and management controls, reporting systems and procedures, and will
need to expand, train and manage our workforce. There can be no assurance that
we will be able to effectively manage these tasks, and the failure to do so
could have a material adverse effect on our business, financial condition and
results of operations.
Moreover, future acquisitions by us 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. Our inability to successfully deal with these factors could have a
material adverse effect on our business, financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL
We are substantially dependent upon the continued service of our executive
officers, product managers and other key sales, marketing and development
personnel and have experienced significant attrition with respect to such
personnel. If we fail to retain the services of any of our executive officers or
fail to hire, retain and motivate other key employees, our business will be
adversely affected. Furthermore, additions of new, and departures of existing,
personnel could have a disruptive effect on our business and operations.
RISKS RELATED TO HOSPITAL AND MANAGED CARE MARKETS; UNCERTAINTY IN THE
HEALTHCARE INDUSTRY
A substantial portion of our revenues has been and is expected to be,
derived from the sale of software products and services to hospitals.
Consolidation in the health care industry, particularly in the hospital and
managed care markets, could cause a decrease in the number of existing or
potential purchasers of our products and services, which could adversely affect
our business. In addition, the decision to purchase our products often involves
the approval of several members of management of a hospital or health care
provider. Consequently, it is difficult for us to predict the timing or outcome
of the buying decisions of our customers or potential customers.
The health care industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of health care organizations. We believe that then
commercial value and appeal of our products may be adversely affected if the
current health care financing and reimbursement system were to reverse our
current evolution to a managed care model back to a fee-for-service model. In
addition, many of our customers are providing services under capitated service
agreements, and a reduction in the use of capitation arrangements as a result of
regulatory or market changes could have a material adverse effect on our
business, financial condition and operating results. During the past several
years, the health care industry has been subject to increasing levels of
governmental regulation of, among other things, reimbursement rates and certain
capital expenditures. Certain proposals to reform the health care system have
been and are being considered by Congress. These proposals, if enacted, could
change the operating environment of our clients in ways that cannot be
18
<PAGE> 19
predicted. Health care organizations may react to these proposals by curtailing
or deferring investments, including those for our products and services.
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 our products by hospital associations or other customers. Any of these
occurrences could have a material adverse effect on our business. 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
our products. If we fail to maintain adequate price levels, our business,
financial condition and results of operations would be adversely affected. Other
market-driven reforms could also have adverse effects on our business, financial
condition and results of operations.
HIGHLY COMPETITIVE MARKET
Competition in the market for our products and services is intense and is
expected to increase. Increased competition could result in price reductions,
reduced gross margins and loss of market share, any of which could materially
adversely affect our business, financial condition and results of operations. We
compete with other providers of health care information software and services,as
well as health care consulting firms. Some principal competitors include, among
others:
- Healtheon/WebMD Corporation, CIS Technologies, Inc., a division of
National Data Corporation, Inc., and Sophisticated Software, Inc. in
the market for our EDI products;
- McKesson HBOC, Inc. and SoftMed Corporation Inc. in the market for our
electronic document management products;
- Eclipsys Corporation and Healthcare Microsystems, Inc., a division of
Health Management Systems Inc. and MediQual Systems, Inc., a division
of
- Cardinal Health, Inc., in the market for our decision support
products;
- McKesson HBOC, Inc., Shared Medical Systems, Inc., MediTech
Corporation and Eclipsys Corporation in the market for our enterprise
products;
- a subsidiary of Minnesota Mining and Manufacturing, in the market for
our medical records products; and
- FYI Corporation and SMART Corporation in the market for our health
information management services.
In addition, current and prospective customers evaluate our capabilities
against the merits of their existing information systems and expertise.
Furthermore, major software information systems companies, including those
specializing in the health care industry, not presently offering products that
compete with those offered by us, may enter our markets. In addition, many of
our competitors and potential competitors have significantly greater financial,
technical, product development, marketing and other resources and market
recognition than us. Many of our competitors also currently have, or may develop
or acquire, substantial installed customer bases in the health care industry. As
a result of these factors, our competitors may be able to respond more quickly
to new or emerging technologies, changes in customer requirements and political,
economic or regulatory changes in the health care industry and may devote
greater resources to the development, promotion and sale of their products than
us. There can be no assurance that we will be able to compete successfully
against current and future competitors or that such competitive pressures will
not materially adversely affect our business, financial condition and operating
results.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rule 144 of the
Securities Act and through the exercise of registration rights could lower the
market price of our Common Stock. As of June 30, 2000, approximately 3,161,817
shares were available for sale in the public market subject to compliance with
Rule 144. Certain of our existing stockholders holding an aggregate of 1,179,220
shares of Common Stock as of June 30, 2000 have rights under certain
circumstances to require us to register their shares for future sale.
19
<PAGE> 20
In September 1998, we closed the acquisition of IMN. In connection with the
acquisition of IMN, we issued an aggregate of 1,550,000 shares of Common Stock.
In June 1998, we closed the acquisition of Pyramid. In connection with the
acquisition of Pyramid, we issued an aggregate of 2,784,508 shares of Common
Stock and warrants to purchase 62,710 shares of Common Stock. In connection with
the acquisition of Compucare, we issued an aggregate of 2,957,000 shares of
common stock. All of these shares were registered for resale under the
Securities Act.
Sales of a substantial number of the aforementioned shares in the public
markets or the prospect of such sales could adversely affect or cause
substantial fluctuations in the market price of our common stock and impair our
ability to raise additional capital through the sale of our securities.
NEW PRODUCT DEVELOPMENT AND SYSTEM ENHANCEMENT
Our performance depends in large part upon our ability to provide the
increasing functionality required by our customers through the timely
development and successful introduction of new products and enhancements to our
existing suite of products. We have historically devoted significant resources
to product enhancements and research and development and believe that
significant continuing development efforts will be required to sustain our
operations and integrate the products and technologies of acquired businesses
with our products. There can be no assurance that we will successfully or in a
timely manner develop, acquire, integrate, introduce and market new product
enhancements or products, or that product enhancements or new products developed
by us will meet the requirements of hospitals or other health care providers and
payors and achieve or sustain market acceptance.
LIMITED PROPRIETARY RIGHTS; RISK OF INFRINGEMENT
We rely on a combination of trade secrets, copyright and trademark laws,
nondisclosure and other contractual provisions to protect our proprietary
rights. We have not filed any patent applications covering our technology. There
can be no assurance that measures we have taken to protect our intellectual
property will be adequate or that our competitors will not independently develop
products and services that are substantially equivalent or superior to the
products and services we offer.
There is substantial litigation regarding intellectual property rights in
the software industry. We expect that software products may be increasingly
subject to third-party infringement claims as the number of competitors in our
industry segment grows and the functionality of products overlaps. We have not
been notified that our products infringe upon the proprietary rights of third
parties. However, there can be no assurance that third parties will not assert
infringement claims against us in the future. QuadraMed may incur substantial
litigation expenses in defending any such claim regardless of the merit of the
claim. In the event of an unfavorable ruling on any such claim, we cannot
guarantee that a license or similar agreement will be available to us on
reasonable terms, if at all. Infringement may result in significant monetary
liabilities, which would have a material adverse effect on our business,
financial condition and results of operations. We cannot guarantee that we will
be successful in the defense of these or similar claims.
RISK OF PRODUCT DEFECTS; FAILURE TO MEET PERFORMANCE CRITERIA
Products such as our products frequently contain errors or failures,
especially when initially introduced or when new versions are released. Although
we conduct extensive testing on our products, software errors have been
discovered in certain enhancements and products after their introduction. We
cannot guarantee that despite such testing by us, and by our current
and potential customers, products under development, enhancements or shipped
products will be free of errors or performance failures, resulting in, among
other things:
- loss of revenues and customers;
- delay in market acceptance;
- diversion of resources;
- damage to our reputation; or
- increased service and warranty costs.
20
<PAGE> 21
The occurrence of any of these consequences could have a material adverse
effect upon our business, financial condition and results of operations.
WE MAY STILL FACE YEAR 2000 COMPLIANCE ISSUES
As is true for most companies, the Year 2000 computer issue creates a risk
for us. The year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000.
Notwithstanding significant efforts by many participants in the computer
industry and corporate and other users worldwide to address what is broadly
known as the Year 2000 problem, we believe that there may be computer and
software products that remain coded to accept only two-digit entries in the date
code field, or that have not been properly coded to properly recognize and
handle all dates after January 1, 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities. If systems do not correctly recognize date
information, there could be an adverse impact on our operations.
We face risks in four areas: systems used by us to run our business,
systems used by our suppliers, potential warranty or other claims from our
customers, and the potential reduction in spending by other companies on our
products and solutions as a result of significant information systems spending
on Year 2000 remediation. To date, neither we, nor any of our key third party
suppliers and customers, have experienced any material Year 2000 problems that
affected our business. We are continuing to monitor our computer systems and
those of our key third party suppliers and customers throughout the year 2000 to
ensure that any latent year 2000 problems that may arise are addressed promptly.
We do not expect to experience any Year 2000 problems in the future.
RISK OF INTERRUPTION OF DATA PROCESSING
We currently process substantially all our customer data at our facilities
in San Rafael, California and Neptune, New Jersey. Although we back up our data
nightly and have safeguards for emergencies such as power interruption or
breakdown in temperature controls, we have no mirror-processing site to which
processing could be transferred in the case of a catastrophic event at either of
these facilities. In the event that a major catastrophic event occurs at either
the San Rafael or the Neptune facility, possibly leading to an interruption of
data processing, our business, financial condition and results of operations
could be adversely affected.
RISKS RELATED TO OUTSOURCING BUSINESS
We provide compliance, consulting and business office outsourcing and cash
flow management services, including the billing and collection of receivables.
We acquired the infrastructure for our outsourcing business through an
acquisition. In addition, we often use our software products to provide
outsourcing services. As a result, we have not been required to make significant
capital expenditures in order to service existing outsourcing contracts.
However, if we experience a period of substantial expansion in our outsourcing
business, we may be required to make substantial investments in capital assets
and personnel. We cannot guarantee that we will be able to assess accurately the
investment required and negotiate and perform in a profitable manner any of the
outsourcing contracts we may be awarded. Our failure to either estimate
accurately the resources and related expenses required for a project, or to
complete our contractual obligations in a manner consistent with the project
plan upon which a contract was based, could have a material adverse effect on
our business, financial condition and results of operations. In addition, our
failure to meet a client's expectations in the performance of our services could
damage our reputation and adversely affect our ability to attract new business.
Finally, we could incur substantial costs and expend significant resources
correcting errors in our work, and could possibly become liable for damages
caused by these 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
21
<PAGE> 22
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 our products make them clinical decision tools subject
to FDA regulation. Compliance with these regulations could be burdensome, time
consuming and expensive. We could also become subject to future legislation and
regulations concerning the development and marketing of health care software
systems. Such legislation could increase the cost and time necessary to market
new products and could affect us in other respects not presently foreseeable. We
cannot predict the effect of possible future legislation and regulation.
State governments substantially regulate the confidentiality of patient
records and the circumstances under which such records may be released for
inclusion in our databases. 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 levels. This legislation may
require holders of such information to implement security measures that may
require us to incur substantial expenditures. We are not sure that changes to
state or federal laws will not materially restrict the ability of health care
providers to submit information from patient records using our products.
RISK OF PRODUCT-RELATED CLAIMS
Some of our products and services are used in the payment, collection,
coding and billing of health care claims and the administration of managed care
contracts. If our employees or our products fail to accurately assess, process
or collect these claims, our customers may file claims against us. We have been
and currently are involved in claims for money damages related to services
provided by our accounts receivable management business. We maintain insurance
to protect against certain claims associated with the use of our products, but
there can be no assurance that our insurance coverage would adequately cover any
claim brought against us. A successful claim brought against us that is in
excess of, or is not covered by, our insurance coverage could adversely affect
our business, financial condition and results of operations. Even a claim
without merit could result in significant legal defense costs and would consume
management time and resources. We do not know whether we will be subject to
material claims in the future which may result in liability in excess of our
insurance coverage, or which our insurance may not cover. We may not be able to
obtain appropriate insurance in the future at commercially reasonable rates. In
addition, if we were found liable, we would have to significantly alter our
products resulting in additional unanticipated research and development
expenses.
RISKS ASSOCIATED WITH CERTAIN INVESTMENTS
We have made equity investments to acquire minority interests in certain
early stage companies. We do not have the ability to control the operations of
any of these companies. Investing in such early stage companies is subject to
certain significant risks. There can be no assurance that any of these companies
will be successful or achieve profitability or that we will ever realize a
return on our investments. In addition, to the extent any of such companies fail
or become bankrupt or insolvent, we may lose some or all of our investment.
Losses resulting from such investment could have a material adverse effect on
our operating results.
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISION
Our Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock may be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change of
control of QuadraMed without further action by the stockholders and may
adversely affect the voting and other rights of the holders of Common Stock. We
have no present plans to issue shares of Preferred Stock.
Further, certain provisions of our Certificate of Incorporation and Bylaws
could discourage potential takeover attempts and make attempts by stockholders
to change management more difficult. For example, our Board of Directors is
classified into three
22
<PAGE> 23
classes of directors serving staggered, three-year terms and has the authority
without action by our stockholders to impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. In addition, our Certificate of Incorporation
provides that directors may be removed only by the affirmative vote of the
holders of two-thirds of the shares of capital stock of QuadraMed entitled to
vote. Any vacancy on the Board of Directors may be filled only by vote of the
majority of directors then in office. Further, our Certificate of Incorporation
provides that any "Business Combination" (as therein defined) requires the
affirmative vote of two-thirds of the shares entitled to vote, voting together
as a single class. These provisions, and certain other provisions of the
Certificate of Incorporation, which may have the effect of delaying proposed
stockholder actions until the next annual meeting of stockholders, could have
the effect of delaying or preventing a tender offer for our Common Stock or
other changes of control or management of QuadraMed, which could adversely
affect the market price of our Common Stock. Finally, certain provisions of
Delaware law could have the effect of delaying, deterring or preventing a change
in control of QuadraMed, including Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
from the date the person became an interested stockholder unless certain
conditions are met.
VOLATILITY OF STOCK PRICE
The stock market in general, and the NASDAQ National Market, has
historically experienced extreme price and volume fluctuations that have often
been unrelated to the operating performance of companies and which has affected
the market price of securities of many companies. The trading price of our
Common Stock has been and is likely to continue to be highly volatile and could
also be subject to significant fluctuations in price in response to such factors
as:
- variations in quarterly results of operations;
- announcements of new products or acquisitions by us or our competitors;
- governmental regulatory action;
- developments or disputes with respect to proprietary rights;
- general trends in our industry and overall market conditions; and
- other events or factors, many of which are beyond our control.
The market price of our Common Stock may also be affected by movements in
prices of equity securities in general.
CONTINUING REVIEW OF FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements contained herein
have been prepared on the same basis as the Company's audited consolidated
financial statements and, in the opinion of management, include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the information for the periods presented. Management is
continuing to review the Company's financial statements and will obtain the
assistance of outside resources as deemed necessary. Management's review is not
expected to result in any material adjustments or charges; however, there can be
no assurance that additional adjustments and/or charges will not be required.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities and Use of Proceeds.
On June 7, 2000, ChartOne, Inc. ("ChartOne"), a subsidiary of the
Company, completed the sale of 2,520,000 shares of its Series A
Preferred Stock to Warburg, Pincus Equity Partners, L.P. and certain
of its affiliates and Prudential Securities Group, Inc., for an
aggregate cash purchase price of $25.2 million. The sale of the
securities was made pursuant to the terms of a Securities Purchase
Agreement, dated as of May 5, 2000, by and among the Company,
QuadraMed Operating Corporation, certain investors named therein and
ChartOne. The 2,520,000 shares of Series A Preferred Stock sold in
the transaction represent approximately 43% of the shares of common
stock of ChartOne calculated on a fully-diluted basis. The issuance
of the Series A Preferred stock was exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to Vote of Security Holders. None
Item 5. Other Information.
23
<PAGE> 24
(a) By letter dated June 1, 2000, the NASDAQ Stock Market, Inc.
("NASDAQ") informed the Company that the Company did not meet
requirements for continued listing on the NASDAQ National Market
under Maintenance Standards 1 and No. 2. The Company does not
currently meet the net tangible assets test of Standard No. 1. In
addition, the Company is currently not in compliance with the $5
minimum bid price for continued listing on the NASDAQ National
Market under Maintenance Standard 2. The NASDAQ advised the
Company that the Company's common stock would be delisted from
quotation on the NASDAQ National Market if the Company is unable
to demonstrate compliance with Maintenance Standards 1 and 2 on
or before August 30, 2000 or has not submitted an application to
transfer to the NASDAQ Small Cap Market by August 30, 2000.
The Company is currently in negotiations with the NASDAQ relating
to its continued listing on the NASDAQ National Market. The
Company is evaluating various alternatives to present to the
NASDAQ in order to maintain its listing. In the event the Company
is unsuccessful in maintaining its NASDAQ listing, it will file
an application for listing on the NASDAQ Small Cap Market. The
Company believes that it currently qualifies for listing on the
NASDAQ Small Cap Market.
(b) James D. Durham Separation Agreement. The Company entered into a
Separation Agreement, dated June 12, 2000, with James D. Durham,
pursuant to which Mr. Durham's employment with the Company as its
Chief Executive Officer and his employment agreement, dated
January 1, 1999, terminated effective June 12, 2000. Mr. Durham
also resigned as a director and/or officer of all subsidiaries
and affiliates of the Company (except ChartOne, Inc.). The
Company and Mr. Durham agreed that Mr. Durham would continue as a
part-time employee of the Company and as Chairman of the Board.
Mr. Durham will resign as Chairman, on or prior to December 31,
2000.
Pursuant to the Separation Agreement, the Company shall make the
following payments and provide the following benefits to Mr.
Durham:
(1) As payment in full of its obligations under Mr. Durham's
employment agreement to pay severance benefits upon an
Involuntary Termination (as defined in the employment
agreement) a lump sum severance benefit of $2,316,000 and
continuation for a minimum period of 24 months of all life,
health and disability plan participation, benefit plans and
other coverages to which Mr. Durham and his dependents are
entitled.
(2) In consideration for Mr. Durham's continued services as
Chairman and a part-time employee, salary at an annual rate
of $250,000 through January 1, 2001 and at a salary of
$2,000 per month thereafter through December 31, 2003. Mr.
Durham shall also receive the same benefits as other
directors, including an initial grant of 10,000 options, an
annual option grant, retainer and meeting fees.
(3) All restrictions and repurchase rights on 112,000 restricted
shares of common stock of the Company granted to Mr. Durham
in October, 1998, shall be deemed to have lapsed.
(4) Accelerated vesting of 105,208 options granted to Mr.
Durham, for a total of 405,000 fully vested options, which
options will remain exercisable for the full term of the
applicable option agreement.
24
<PAGE> 25
(5) Continuation of indemnification of Mr. Durham and coverage
under the Company's Directors' and Officers' Insurance,
until December 31, 2007 with respect to acts occurring prior
to termination of his Board membership.
(6) Mr. Durham's interest in the QuadraMed Corporation Stock
Exchange Deferred Compensation Plan and QuadraMed
Corporation's Supplemental Executive Retirement Plan will
continue to vest during the period of Mr. Durham's continued
service as a director. Mr. Durham agreed that the changes
effected by the Separation Agreement would not be treated as
an involuntary termination under the Plans. Mr. Durham
agreed that the changes effected by the Separation Agreement
would not be treated as an Involuntary Termination under the
Plans. The Company will make premium payments of
approximately $500,000 with respect to life insurance
policies designed to fund payments under the Stock Exchange
Plan in the third and fourth fiscal quarters of 2000.
(7) Mr. Durham is entitled to reimbursement for all customary,
ordinary and necessary business expenses.
(8) The Company will continue to pay premiums with respect to
Mr. Durham's split-dollar life insurance arrangement and
will continue Mr. Durham's group life insurance policy in
the amount of $1,000,000 during the time Mr. Durham is
serving as an employee or director of the Company.
(9) Mr. Durham shall be entitled to gross-up payments relating
to excise taxes resulting from payments by the Company to
Mr. Durham.
(10) As a condition to Mr. Durham's entitlement to the
compensation, payments and benefits provided under the
Separation Agreement, Mr. Durham executed and delivered to
the Company an irrevocable general release. The Company also
executed and delivered a general release to Mr. Durham.
(c) John V. Cracchiolo Separation Agreement. The Company entered into
a Separation Agreement, dated June 12, 2000, with John V.
Cracchiolo, pursuant to which Mr. Cracchiolo's employment with
the Company as its President and Chief Operating Officer and his
employment agreement, dated April 1, 1999, terminated effective
June 30, 2000. Mr. Cracchiolo also resigned as of June 30, 2000
as a director and/or officer of all subsidiaries and affiliates
of the Company and as a trustee of the Company's pension plans.
The Company and Mr. Cracchiolo agreed that Mr. Cracchiolo would
provide consulting services to the Company as requested from time
to time through and including October 31, 2000, for which he
shall be compensated at the rate of $150 per hour.
Pursuant to the Separation Agreement, the Company shall make the
following payments and provide the following benefits to Mr.
Cracchiolo:
(1) As payment in full of its obligations under Mr. Cracchiolo's
employment agreement to pay severance benefits upon an
Involuntary Termination (as defined in the employment
agreement), a lump sum severance benefit of $687,500 and
continuation for a minimum period of 12 months of all life,
health and disability plan participation, benefit plans and
other coverages to which Mr. Cracchiolo and his dependents
are entitled.
(2) All restrictions and repurchase rights on 60,000 restricted
shares of common stock of the Company granted to Mr.
Cracchiolo in October, 1998, shall be deemed to have lapsed.
(3) Accelerated vesting of 68,235 options granted to Mr.
Cracchiolo, for a total of 270,000 fully vested options,
which options will remain exercisable for the full term of
the applicable option agreement.
(4) Continuation of indemnification of Mr. Cracchiolo and
coverage under the Company's Directors' and Officers'
Insurance, until December 31, 2007 with respect to acts
occurring prior to termination of his Board membership.
25
<PAGE> 26
(5) Mr. Cracchiolo's interest in the QuadraMed Corporation Stock
Exchange Deferred Compensation Plan and QuadraMed
Corporation's Supplemental Executive Retirement Plan will
vest in full immediately. Mr. Cracchiolo agreed that his
termination of employment would not be treated as an
Involuntary Termination under the Plans and, therefore,
amounts due Mr. Cracchiolo pursuant to the Plan are not
payable immediately, but shall be payable in accordance with
the terms thereof.
(6) Mr. Cracchiolo agreed to forfeit all rights to payment of
any kind under the Company's Supplemental Executive
Retirement Plan and that his termination of employment would
not be treated as an Involuntary Termination under that
Plan.
(7) Mr. Cracchiolo is entitled to reimbursement for all
customary, ordinary and necessary business expenses incurred
in connection with his consulting duties.
(8) The Company will continue to pay premiums with respect to
Mr. Cracchiolo's split-dollar life insurance arrangement.
(9) Mr. Cracchiolo shall be entitled to gross-up payments
relating to excise taxes resulting from payments by the
Company to Mr. Cracchiolo.
(10) As a condition to Mr. Cracchiolo's entitlement to the
compensation, payments and benefits provided under the
Separation Agreement, Mr. Cracchiolo executed and delivered
to the Company an irrevocable general release. The Company
also executed and delivered a general release to Mr.
Cracchiolo.
(d) Lawrence P. English Employment Agreement. The Company entered
into a letter agreement, dated June 12, 2000, with Lawrence P.
English, pursuant to which Mr. English is employed as the
Company's Chief Executive Officer. The letter agreement provides
that Mr. English shall be elected as a member of the Board and
appointed as Chairman on or before December 31, 2000. Mr. English
shall be paid for service in the 2000 calendar year a base salary
at the annual rate of $400,000. Mr. English's base salary is
subject to annual adjustment by the Board. In addition,
Mr. English is subject to a guaranteed bonus of $100,000 upon
completion of his first six months of service. Subsequent bonus
ranges shall be established by the Board and payable upon
achievement of performance goals. Mr. English will also be paid
additional compensation in an amount of the net increase in his
state income tax resulting solely from his becoming a California
resident.
Mr. English received a grant of non-qualified stock options to
purchase 1,000,000 shares of common stock at an exercise price of
$2.50. The options vest over a four-year period, with 250,000
options vesting after one year and the balance vesting ratably on
a monthly basis thereafter.
The letter agreement also includes the following severance
provisions: (i) if Mr. English dies, his estate will be paid any
unpaid compensation for services rendered through the date of
death; (ii) if Mr. English is disabled, he will be paid any
unpaid compensation for services rendered through the date of
disability, together with any income continuation payments
provided under any policies or programs funded by the Company on
his behalf; (iii) if Mr. English is terminated by reason of an
Involuntary Termination other than a Termination for Cause (as
those terms are defined in the letter agreement), Mr. English
will receive in one lump sum within thirty days of the date of
such an Involuntary Termination, an aggregate amount equal to two
times Mr. English's then-current base salary. Alternatively, at
Mr. English's option, he may receive the severance payment in
monthly installments over a one-year period following the date of
Involuntary Termination. In addition, if Mr. English voluntarily
resigns or is terminated by reason of Involuntary Termination
(other than a Termination for Cause) during the one year period
ending June 12, 2001, the Company shall make the lease payments
for an apartment or condominium inhabited by Mr. English through
June 12, 2001, provided the terms of the lease were reasonably
approved by the Company and the Company has the right to sublease
the premises.
26
<PAGE> 27
Solely in connection with an Involuntary Termination (other
than a Termination with Cause), and solely in the case where
such Involuntary Termination is not in connection with a
Change in Control (as defined in the letter agreement), Mr.
English's options granted under the Company's Stock Option
Plan (to the extent not otherwise vested) will automatically
accelerate and vest so that at least 250,000 of such options
will be immediately exercisable as of the date of termination
and all such vested options shall remain exercisable for the
full term of the option. In addition, to the extent any
acquiring company in a Change in Control transaction does not
assume or otherwise continue in force Mr. English's
outstanding options, those options shall automatically
accelerate and vest so that each such option, immediately
prior to the Change in Control, becomes fully exercisable;
such options shall terminate immediately after the Change in
Control transaction.
On or after the closing of a transaction involving a Change in
Control arising from (i) a merger or acquisition in which the
Company is not the surviving entity, except for a transaction
the principal purpose of which is to change the State of the
Company's incorporation; (ii) a stockholder approved sale,
transfer or other disposition of all or substantially all of
the assets of the Company; (iii) a transfer of all or
substantially all of the Company's assets pursuant to a
partnership or joint venture agreement or similar arrangement
where the Company's resulting interest is less than fifty
percent (50%); or (iv) any reverse merger in which the Company
is the surviving entity but in which fifty percent (50%) or
more of the Company's outstanding voting stock is transferred
to holders different from those who held the stock immediately
prior to such merger, Mr. English will have the option,
exercisable in his discretion within sixty (60) days of such
Change in Control, to voluntarily terminate his employment
under the letter agreement (the "Termination Election").
Effective upon such Termination Election, one-half of any of
his options, which are unvested at the time of such
Termination Election, shall accelerate and vest in full sixty
(60) days after such Change in Control (the "Vesting Date").
Each such Option will become immediately exercisable and fully
exercisable and vested as of the Vesting Date and, together
with Mr. English's other vested options, shall remain
exercisable and outstanding for the full term of the option.
In the event that Mr. English makes the Termination Election,
he shall have no right to receive any severance payments
pursuant to the letter agreement. Acceleration of Mr.
English's options shall be contingent upon his continued
service under the letter agreement following such Change in
Control for a minimum period of sixty (60) days after such
Change in Control.
The letter agreement also provides as following with respect
to any options which are to be assumed or otherwise continued
in effect in a Change in Control, and any restricted or
unvested shares of common stock held by Mr. English at the
time of the Change in Control. Any option which does not
accelerate, and any restricted or unvested shares of common
stock which do not vest at the time of the Change in Control
will immediately accelerate and vest in full and any
repurchase rights with respect thereto will terminate upon any
Involuntary Termination of Mr. English's employment following
the Change in Control (other than a Termination for Cause) so
that each such option or share of restricted or unvested
common stock will become immediately exercisable and fully
exercisable or vested as of the date of such an Involuntary
Termination and shall remain exercisable and outstanding for
the full term of the option. Each option will be appropriately
adjusted to apply to the number and class of securities which
would have been issued to Mr. English in the consummation of
the Change in Control transaction had the option been
exercised immediately prior to such transaction, and
appropriate adjustments will be made to the option exercise
price payable per share, provided the aggregate exercise price
will remain the same.
The initial term of the Letter agreement is from June 12, 2000
to June 12, 2002, unless sooner terminated. Thereafter, the
term of the Letter agreement shall be automatically extended
on each succeeding
27
<PAGE> 28
June 12 for an additional one year period, unless either party
gives three months prior written notice to the other than he or
it does not wish to extend the term thereof.
(e) Mark Thomas Employment Agreement. The Company entered into a
letter agreement, dated May 12, 2000, with Mark Thomas, pursuant
to which Mr. Thomas is employed as the Company's Executive Vice
President and Chief Financial Officer.
Mr. Thomas shall be paid for service in the 2000 calendar year a
base salary at the annual rate of $250,000. Mr. Thomas's base
salary is subject to annual adjustment by the Board. In addition,
Mr. Thomas will receive a guaranteed bonus of $100,000 no later
than February 1, 2001. In the event of an Involuntary Termination
(as defined in the letter agreement), Mr. Thomas will receive the
guaranteed bonus in addition to his other severance benefits
described below. Subsequent bonuses will be established by the
Board in its sole discretion and based upon the recommendation of
the Compensation Committee and such additional factors as the
Board deems appropriate, including Mr. Thomas's individual
performance and the Company's financial results. Mr. Thomas
participates in all bonus plans applicable to the Company's
executives.
Mr. Thomas received a grant of stock options to purchase 200,000
shares of common stock at an exercise price of $2.188, subject to
vesting.
Under the letter agreement, the Company also reimbursed Mr.
Thomas $22,987 representing unvested 401(K) funds with his prior
employer.
The letter agreement also includes the following severance
provisions: (i) if Mr. Thomas dies, his estate will be paid any
unpaid compensation for services rendered through the date of
death; together with a special termination payment equal to 30
days base salary; (ii) if Mr. Thomas is disabled, he will be paid
any unpaid compensation for services rendered through the date of
disability, together with the severance benefits payable in the
event of an Involuntary Termination of employment (other than a
Termination for Cause), offset, dollar-for-dollar by any income
continuation payments provided under any policies or programs
funded by the Company on his behalf; (iii) if Mr. Thomas is
terminated by reason of an Involuntary Termination other than a
Termination for Cause (as those terms are defined in the letter
agreement), Mr. Thomas will receive in one lump sum within thirty
days of the date of such an Involuntary Termination, an aggregate
amount equal to one-times Mr. Thomas's then-current base salary;
alternatively, at Mr. Thomas's option, he may receive the
severance payment in monthly installments over a one year period
following the date of Involuntary Termination. In addition, if
Mr. Thomas is terminated by reason of Involuntary Termination
(other than a Termination for Cause) he will receive a lump sum
payment equal to his annual bonus of 40% of base compensation.
Mr. Thomas (or his dependents, as applicable) shall also be
provided with the same life, health and disability participation,
benefits and other coverages for a period of 12 months after his
disability or involuntary termination.
In connection with an Involuntary Termination (other than a
Termination with Cause), whether before or after a Change in
Control (as defined in the letter agreement), Mr. Thomas's
options granted under the Company's Stock Option Plan and all
restricted or unvested common stock granted by the Company (to
the extent not otherwise vested) will automatically accelerate
and vest and any repurchase rights with respect thereto will
terminate so that each such option or share will be immediately
exercisable and fully vested as of the date of termination and
all such vested options shall remain exercisable for a period of
three years following the Involuntary Termination. In addition,
to the extent any acquiring company in a Change in Control
transaction does not assume or otherwise continue in force Mr.
Thomas's outstanding options, those options shall automatically
accelerate and vest so that each such option, immediately prior
to the
28
<PAGE> 29
Change in Control, becomes fully exercisable; such options
shall terminate immediately after the Change in Control.
To the extent the acquiring company in any Change in Control
transaction does not assume or otherwise continue in full
force and effect Mr. Thomas's outstanding options under the
Stock Option Plan, those options shall automatically
accelerate and vest so that each such option will, immediately
prior to the Change in Control, become fully exercisable for
all the option shares and shall terminate immediately after
the Change in Control transaction.
The letter agreement includes the following provisions with
respect to any options, which are to be assumed or otherwise
continued in effect in the Change in Control and any
restricted or unvested shares of common stock held by Mr.
Thomas at the time of the Change in Control.
The options will accelerate and vest at the time of the Change
in Control so that each option will become exercisable for all
of the option shares immediately prior to the Change in
Control transaction, except to the extent the option parachute
payment attributable to such accelerated vesting would
otherwise result in an excess parachute payment under Internal
Revenue Code Section 280G. Any option which does not
accelerate and vest at the time of the Change in Control by
reason of the foregoing limitation will continue to become
exercisable and vest in accordance with the vesting schedule
applicable to that option immediately prior to the Change in
Control. Any restricted or unvested shares of common stock
held by Mr. Thomas at the time of the Change in Control shall
immediately vest at that time and the Company's repurchase
rights with respect to those shares shall terminate, except to
the extent the parachute payment attributable to the
acceleration of Mr. Thomas's outstanding options, would result
in an excess parachute payment under Code Section 280G. The
Company's repurchase rights with respect to any restricted or
unvested shares which do not vest at the time of the Change in
Control by reason of the foregoing limitation shall continue
in effect and shall be assigned to any successor entity in the
Change in Control transaction, and Mr. Thomas shall continue
to vest in those shares in accordance with the vesting
schedule in effect for the shares immediately prior to the
Change in Control.
Any option which does not accelerate, and any restricted or
unvested shares of common stock which do not vest at the time
of the Change in Control by reason of the foregoing
limitations shall immediately vest in full upon any
Involuntary Termination of Mr. Thomas's employment following
the Change in Control (other than a Termination for Cause).
Each such accelerated option, together with each of Mr.
Thomas's other vested options shall remain exercisable and
outstanding for a period of three (3) years and may be
exercised for any or all of the option shares, including the
accelerated shares, in accordance with the provisions of the
option agreement evidencing such option.
Each option will be appropriately adjusted to apply to the
number and class of securities which would have been issued to
Mr. Thomas in the consummation of the Change in Control
transaction had the option been exercised immediately prior to
such transaction, and appropriate adjustments will be made to
the option exercise price payable per share, provided the
aggregate exercise price will remain the same.
Item 6. Exhibits and Reports On Form 8-K.
(a) Exhibits.
2.1 Form of Agreement and Plan of Merger by and between
QuadraMed Corporation, a Delaware corporation and
QuadraMed Corporation, a California corporation.(1)
29
<PAGE> 30
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 QuadraMed and InterMed Acquisition
Corporation, a wholly owned subsidiary of QuadraMed 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)
2.7 Reserved.
2.8 Acquisition Agreement and Plan of Merger, dated as of
September 24, 1997, by and among QuadraMed Corporation,
HRM Acquisition Corporation, Healthcare Revenue
Management,Inc. and its Stockholders (the "Acquisition
Agreement and Plan of Merger").(4)
2.9 First Amendment to Acquisition Agreement and Plan of
Merger, dated as of September 29, 1997.(4)
2.10 Agreement and Plan of Reorganization by and between
QuadraMed Corporation and Medicus Systems Corporation,
dated as of November 9, 1997.(5)
2.11 Amendment No. 1 to Agreement and Plan of Reorganization,
dated as of February 26, 1998.(10)
2.12 Amendment No. 2 to Agreement and Plan of Reorganization,
dated as of March 24, 1998.(10)
2.13 Acquisition Agreement and Plan of Merger dated as of
December 29, 1997, by and among QuadraMed Corporation
and Resource Health Partners, L.P.(6)
2.14 Acquisition Agreement and Plan of Merger dated as of
February 2, 1998, by and among QuadraMed Corporation and
Cabot Marsh Corporation.(7)
2.15 Acquisition Agreement and Plan of Merger by and among
QuadraMed Corporation and Pyramid Health Acquisition
Corporation and Pyramid Health Group, Inc. and its
stockholders.(11)
2.16 Acquisition Agreement and Plan of Merger by and among
QuadraMed Corporation and IMN Acquisition Corp. , and
IMN Corp. dated September 30, 1998.(14)
2.17 Acquisition Agreement and Plan of Merger dated December
23, 1998 by and among QuadraMed and Premiere Healthcare
Acquisition Corporation, and Premiere Healthcare
Corporation and its subsidiaries(19)
2.18 Acquisition Agreement and Plan of Merger by and among
QuadraMed Corporation and Compucare Acquisition
Corporation, and The
30
<PAGE> 31
Compucare Company and certain of its stockholders dated
February 3, 1999.(15)
2.19 First Amendment to Acquisition Agreement and Plan of
Merger by and among QuadraMed Corporation and Compucare
Acquisition Corporation and The Compucare Company and
certain of its stockholders, dated March 3, 1999.(18)
2.20 Securities Purchase Agreement, dated as of May 5, 2000,
by and among QuadraMed Corporation, QuadraMed Operating
Corporation, Certain Investors and ChartOne, Inc. (23)
3.1 Reserved.
3.2 Reserved.
3.3 Reserved.
3.4 Amended and Restated Bylaws of QuadraMed.(1)
3.5 Third Amended and Restated Certificate of Incorporation
of QuadraMed.(16)
4.1 Reference is made to Exhibits 3.4 and 3.5.(1)(16)
4.2 Form of Common Stock certificate.(1)
4.3 Form of Exchange Agreement dated March 16, 1994, by and
among QuadraMed, 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 QuadraMed,
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 QuadraMed and the
investors listed on Schedule A thereto.(1)
4.9 Reserved.
4.10 Reserved.
4.11 Form of Warrant to Purchase Common Stock.(1)
4.12 Registration Rights Agreement dated December 5, 1996, by
and between QuadraMed and the investors listed on
Schedule A thereto.(8)
4.13 Registration Rights Agreement, dated as of December
29,1997, by and among QuadraMed Corporation, Resource
Health Partners, L.P. and certain stockholders.(6)
4.14 Registration Rights Agreement, dated as of June 5, 1998,
by and among QuadraMed Corporation and the stockholders
of Pyramid Health group, Inc. named therein.(11)
4.15 Subordinated Indenture, dated as of May 1, 1998 between
QuadraMed and The Bank of New York. (13)
4.16 Officers' Certificate delivered pursuant to Sections 2.3
and 11.5 of the Subordinated Indenture.(13)
31
<PAGE> 32
4.17 Registration Rights Agreement dated April 27, 1998 by
and among QuadraMed and the Initial Purchasers named
therein.(13)
4.18 Form of Global Debenture.(13)
4.19 Form of Certificated Debenture.(13)
4.20 Registration Rights Agreement, dated as of September 30,
1998, by and among QuadraMed Corporation, IMN Corp. and
the shareholders of IMN named therein (14)
4.21 Registration Rights Agreement dated December 23, 1998 by
and between QuadraMed and the shareholders listed
therein(19).
4.22 Registration Rights Agreement, dated as of March 3,
1999, by and among QuadraMed Corporation and the
stockholders of The Compucare Company named therein.(18)
10.1 1996 Stock Incentive Plan of QuadraMed.(1)
10.2 1996 Employee Stock Purchase Plan of QuadraMed.(1)
10.3 Summary Plan Description, QuadraMed Corporation 401(k)
Plan.(1)
10.4 Form of Indemnification Agreement between QuadraMed and
its directors and executive officers.(1)
10.5 1999 Supplemental Stock Option Plan for QuadraMed. (22)
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 November 19, 1998 for facilities located at
22 Pelican Way, San Rafael, California.(22)
10.8 Reserved.
10.9 Reserved.
10.10 Stock Purchase Agreement dated March 3, 1994, by and
between QuadraMed and James D. Durham.(1)
10.11 Reserved.
10.12 Reserved.
10.13 Reserved.
10.14 Reserved.
10.15 Reserved.
10.16 Reserved.
10.17 Reserved.
10.18 Reserved.
10.19 Reserved.
10.20 Reserved.
10.21 Reserved.
10.22 Reserved.
10.23 Reserved.
10.24 Reserved.
32
<PAGE> 33
10.25 Reserved.
10.26 Reserved.
10.27 Reserved.
10.28 Reserved.
10.29 Reserved.
10.30 Reserved.
10.31 Reserved.
10.32 Reserved.
10.33 Reserved.
10.34 Reserved.
10.35 Reserved.
10.36 Reserved.
10.37 Reserved.
10.38 Reserved.
10.39 Reserved.
10.40 Form of Stock Purchase Agreement dated as of November
9, 1997 by and among QuadraMed Corporation and
certain stockholders of Medicus Systems
Corporation.(5)
10.41 Form of Stock Purchase Warrant dated as of November
9, 1997 issued to certain stockholders of Medicus
(including as Appendix A to Exhibit 10.40).(5)
10.42 Reserved.
10.43 Reserved.
10.44 Reserved.
10.45 Reserved.
10.46 Reserved.
10.47 Reserved.
10.48 Reserved.
10.49 Reserved.
10.50 Reserved.
10.51 Employment Agreement dated January 1, 1999 between
James D. Durham and QuadraMed.(20)
10.52 Employment Agreement dated April 1, 1999 between
Michael Sanderson and QuadraMed. (21)
10.53 Employment Agreement dated April 1, 1999 between
Michael Wilstead and QuadraMed. (21)
10.54 Employment Agreement dated April 1, 1999 between
Nancy Nelson and QuadraMed. (21)
10.55 Reserved.
33
<PAGE> 34
10.56 Employment Agreement dated April 1, 1999 between Patrick
Ahearn and QuadraMed. (21)
10.57 Employment Agreement dated April 1, 1999 between Keith
Roberts and QuadraMed. (21)
10.58 Reserved.
10.59 Employment Agreement dated May 18, 1999 between John V.
Cracchiolo and QuadraMed. (21)
10.60 Asset Contribution Agreement, dated May 3, 2000 by and
among ChartOne, QuadraMed and QuadraMed Operating
Corporation (23)
10.61 ChartOne, Inc. Stockholders Agreement, dated as of June
7, 2000, among ChartOne, Inc., QuadraMed Operating
Corporation, and certain investors named therein. (23)
10.62 ChartOne, Inc. Registration Right Agreement, dated as of
June 7, 2000, among ChartOne, Inc., QuadraMed Operating
Corporation, and certain investors named therein. (23)
10.63 Second Amended and Restated Certificate of Incorporation
of ChartOne, Inc. (23)
10.64 Separation Agreement, dated June 12, 2000, between James
D. Durham and QuadraMed Corporation.
10.65 Separation Agreement, dated June 12, 2000, between John
V. Cracchiolo and QuadraMed Corporation.
10.66 Employment Agreement, dated June 12, 2000, between
Lawrence P. English and QuadraMed Corporation.
10.67 Employment Agreement, dated May 12, 2000, between Mark
Thomas and QuadraMed Corporation.
15 Accountant's Letter.
21 List of subsidiaries of QuadraMed.
27.1 Financial Data Schedule for the Quarter Ended
06/30/2000.
27.2 Financial Data Schedule for the Quarter Ended
06/30/1999.
(1) Incorporated herein by reference from the
exhibit with the same number to our 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 herein by reference from the
exhibit with the same number to our Current
Report on Form 8-K, as filed with the Commission
on January 9, 1997.
(3) Incorporated herein b y reference from the
exhibit with the same number to our Current
Report on Form 8-K, as filed with the Commission
on May 9, 1997, as amended on July 8, 1997 and
March 10, 1998.
34
<PAGE> 35
(4) Incorporated herein by reference from the
exhibit with the same number to our Current
Report on Form 8-K, as filed with the
Commission on October 10, 1997, as amended on
March 10, 1998.
(5) Incorporated by reference from the exhibit with
the same number to our Current Report on Form
8-K, as filed with the Commission on November
21, 1997.
(6) Incorporated herein by reference from Exhibit
2.11 to our Current Report on Form 8-K, as
filed with the Commission on January 13, 1998.
(7) Incorporated herein by reference from Exhibit
2.12 to our Current Report on Form 8-K, as
filed with the Commission on February 18, 1998.
(8) Incorporated herein by reference from the
exhibit with the same number to our Quarterly
Report on Form 10-Q for the quarter ended June
30, 1997, as filed with the Commission on
August 14, 1997, as amended September 4, 1997.
(9) Incorporated by reference from the exhibit
with the same number to our Registration
Statement on Form S-3, No. 333-36189, as
filed with the Commission on September 23,
1997, as amended by Amendment No. 1 and
Amendment No. 2 thereto, as filed with the
Commission on October 1, 1997 and October
15, 1997 respectively.
(10) Incorporated by reference from the exhibit with
the same number to our Annual Report on Form
10-K/A for the year ended December 31, 1997, as
filed with the Commission on April 20, 1998.
(11) Incorporated by reference from our Current
Report on Form 8-K, as filed with the
Commission on June 11, 1998.
(12) Incorporated by reference from our Current
Report on Form 8-K/A filed with the Commission
on June 17, 1998
(13) Incorporated by reference from our
Registration Statement on Form S-3, No.
333-55775, as filed with the Commission on
June 2, 1998, as amended by Amendment No. 1
thereto, as filed with the Commission on
June 17, 1998.
(14) Incorporated by reference from our Current
Report on Form 8-K, as filed with the
Commission on October 15, 1998.
(15) Incorporated by reference from Exhibit 2.1 to
our Current Report on Form 8-K, as filed with
the Commission on February 18, 1999.
(16) Incorporated by reference from the Exhibit with
the same number to our Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, as
filed with the Commission on August 14, 1998,
as amended August 24, 1988.
(17) Incorporated herein by reference from our
Annual Report on Form 10-K, as filed with the
Commission on March 31, 1998, as amended April
20, 1998.
(18) Incorporated herein by reference from our
Current Report on Form 8-K/A filed with the
Commission on March 22, 1999.
35
<PAGE> 36
(19) Incorporated herein by reference from our
Registration Statement on Form S-3, No.
333-80617, as filed with the Commission on
June 14, 1999, as amended by Amendment No. 1
thereto, as filed with the Commission on
August 4, 1999.
(20) Incorporated herein by reference from the
exhibit with the same number to our Quarterly
Report on Form 10-Q for the quarter ended March
31, 1999 as filed with the Commission on May
17, 1999.
(21) Incorporated herein by reference from the
exhibit with the same number to our Quarterly
Report on Form 10-Q for the quarter ended June
30, 1999 as filed with the Commission on August
16, 1999.
(22) Incorporated herein by reference from our
Annual Report on Form 10-K, as filed with the
Commission on March 30, 2000, as amended May 1,
2000.
(23) Incorporated by reference from our Current
Report on Form 8-K, as filed with the
Commission on June 22, 2000.
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K (Item 4), dated May 8,
2000, on May 15, 2000, in which it reported the appointment of
its new independent accountants.
(1) The Company filed a report on Form 8-K (Item 2), dated
June 22, 2000, in which it reported the sale of
2,520,000 shares of Series A Preferred Stock by
ChartOne, Inc., a subsidiary of the Company.
(2) The Company filed a report on Form 8-K (Item 5), dated
June 9, 2000, on June 22, 2000, in which it reported
certain changes in management.
36
<PAGE> 37
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 10, 2000 By: -------------------------------------
Lawrence P. English
Chief Executive Officer (Principal
Executive Officer)
By: -------------------------------------
Mark N. Thomas
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
EXHIBIT
NO.
-------
10.64 Separation agreement, dated June 12, 2000, between James D. Durham
and QuadraMed Corporation.
10.65 Separation agreement, dated June 12, 2000, between John V. Cracchiolo
and QuadraMed Corporation.
10.66 Employment agreement, dated June 12, 2000, between Lawrence P.
English and QuadraMed Corporation.
10.67 Employment agreement, dated May 12, 2000, between Mark Thomas and
QuadraMed Corporation.
15 Accountant's Letter
27.1 Financial Data Schedule for the Quarter Ended 06/30/2000
27.2 Financial Data Schedule for the Quarter Ended 06/30/1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: QuadraMed Corporation
37
