<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ACCESS HEALTH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 8748 68-0163589
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
11020 WHITE ROCK ROAD
RANCHO CORDOVA, CALIFORNIA 95670
(916) 851-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
THOMAS E. GARDNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ACCESS HEALTH, INC.
11020 WHITE ROCK ROAD
RANCHO CORDOVA, CALIFORNIA 95670
(916) 851-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
BARRY E. TAYLOR, ESQ. JAMES C. T. LINFELD, ESQ.
TREVOR J. CHAPLICK, ESQ. JAMES H. CARROLL, ESQ.
ROBERT G. O'CONNOR, ESQ. CARRIE L. SCHIFF, ESQ.
WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD LLP
PROFESSIONAL CORPORATION 2595 CANYON BOULEVARD, SUITE 250
650 PAGE MILL ROAD BOULDER, COLORADO 80302
PALO ALTO, CA 94304 (303) 546-4000
(415) 493-9300
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
UPON CONSUMMATION OF THE MERGER DESCRIBED HEREIN.
---------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO PRICE PER OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value per share....... 5,375,000 shares $ N/A $ N/A $100.00
- -------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) This Registration Statement relates to securities of the Registrant
issuable to Informed Access Systems, Inc., a Delaware corporation
("Informed Access"), in the proposed acquisition of Informed Access by
Registrant.
(2) There is no established trading market for the shares of Informed Access
which are to be converted into shares of Common Stock of the Registrant
pursuant to the Merger described herein. In accordance with Rule 457(f)(2)
under the Securities Act of 1933, as amended, given that Informed Access
has an accumulated capital deficit, the Proposed Maximum Aggregate
Offering Price has been calculated on the basis of one-third of the
aggregate par value of the Informed Access shares. One-third of such
aggregate par value was $1,929 on October 9, 1996, the most recent
practicable date for determination.
(3) In accordance with Section 6(b) under the Securities Act of 1933, as
amended, the registration fee is set at a minimum amount for filing of a
registration statement. The entire amount of such Registration Fee is
offset by the filing fee previously paid by the Registrant upon the filing
of preliminary copies of the proxy materials that are a part of this
Registration Statement with the Commission under cover of Schedule 14A on
September 24, 1996.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ACCESS HEALTH, INC.
October , 1996
Dear Stockholder:
A Special Meeting of Stockholders of Access Health, Inc. ( "Access Health")
will be held on , November , 1996 at 9:00 a.m., local time, at Access
Health's offices located at 11020 White Rock Road, Rancho Cordova, California.
At this Special Meeting, you will be asked to consider and vote upon the
approval of the issuance of shares of Access Health Common Stock pursuant to
the terms of an Agreement and Plan of Reorganization dated as of September 3,
1996 (the "Merger Agreement"), entered into by and among Access Health, a
newly-formed, wholly-owned subsidiary of Access Health, Access Acquisition
Corp. ("Merger Sub"), and Informed Access Systems, Inc., a Delaware
corporation ("Informed Access"), which provides for the merger of Merger Sub
with and into Informed Access, with Informed Access being the surviving
corporation and becoming a wholly-owned subsidiary of Access Health (the
"Merger"), as described in the Notice of Special Meeting of Stockholders
mailed to the stockholders of Access Health on October , 1996 and the
accompanying Proxy Statement/ Prospectus and Consent Solicitation Statement.
As a result of the Merger, all outstanding shares of Informed Access Common
Stock and Informed Access Preferred Stock will be converted into shares of
Access Health Common Stock and all outstanding options and warrants to acquire
Informed Access Common Stock or Informed Access Preferred Stock will become
options and warrants to acquire Access Health Common Stock. The number of
shares of Access Health Common Stock to be issued in the Merger in exchange
for the outstanding shares of Informed Access Common Stock and Preferred Stock
will depend upon the capitalization of Informed Access at the time of the
Merger and will not exceed 5,375,000 shares. The rules of the Nasdaq National
Market require that the issuance of Access Health Common Stock pursuant to the
Merger Agreement be approved by a majority of the votes cast at the Special
Meeting. Consummation of the proposed Merger is conditioned upon, among other
things, the receipt of all required stockholder approvals.
ACCESS HEALTH'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND HAS DETERMINED THAT
THE MERGER IS FAIR AND IN THE BEST INTERESTS OF ACCESS HEALTH AND ITS
STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE IN FAVOR OF APPROVAL OF THE ISSUANCE OF SHARES OF ACCESS
HEALTH COMMON STOCK PURSUANT TO THE TERMS OF THE MERGER AGREEMENT.
In addition, at the Special Meeting you will also be asked to consider and
vote upon (i) a proposal to approve and adopt an amendment (the "Certificate
Amendment") to Access Health's Certificate of Incorporation increasing the
authorized number of shares of Access Health Common Stock from 30,000,000 to
75,000,000 shares, and (ii) a proposal to ratify and approve an amendment to
Access Health's 1989 Incentive Stock Plan (the "Incentive Plan Amendment") to
increase the number of shares available for options under the plan by
1,000,000 shares. The approval of the Certificate Amendment requires the
affirmative vote of the holders of a majority of the outstanding shares of
Access Health Common Stock and the approval of the Incentive Plan Amendment
requires the affirmative vote of a majority of the shares of Access Health
Common Stock present in person or represented by proxy and voting at the
Special Meeting. The Access Health Board of Directors has unanimously approved
the Certificate Amendment and the Incentive Plan Amendment and recommends a
vote in favor of approval and adoption of the Certificate Amendment and
ratification and approval of the Incentive Plan Amendment.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Proxy Statement/Prospectus and Consent Solicitation
Statement relating to the actions to be taken by Access Health Stockholders at
the Special Meeting (as well as the actions to be taken by the Informed Access
Stockholders by written consent) and a Proxy Card. The Proxy
Statement/Prospectus and Consent Solicitation Statement more fully describes
the proposed Merger and includes information about Access Health and Informed
Access.
<PAGE>
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ACCOMPANYING PROXY CARD AND RETURN IT IN THE ENCLOSED PREPAID ENVELOPE.
You may revoke your proxy at any time before it has been voted, and if you
attend the meeting you may vote in person even if you have previously returned
your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
Kenneth B. Plumlee
Chairman of the Board
Thomas E. Gardner
President and Chief Executive
Officer
<PAGE>
ACCESS HEALTH, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER , 1996
TO THE STOCKHOLDERS OF ACCESS HEALTH:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Access
Health, Inc., a Delaware corporation ("Access Health"), will be held on ,
November , 1996 at 9:00 a.m., local time, at Access Health's offices located
at 11020 White Rock Road, Rancho Cordova, California, for the following
purposes:
1. To consider and vote upon the approval of the issuance of shares of
Access Health Common Stock pursuant to the terms of an Agreement and Plan
of Reorganization dated as of September 3, 1996 (the "Merger Agreement"),
entered into by and among Access Health, a newly-formed, wholly-owned
subsidiary of Access Health, Access Acquisition Corp. ("Merger Sub"), and
Informed Access Systems, Inc., a Delaware corporation ("Informed Access"),
which provides for Merger Sub to be merged with and into Informed Access,
with Informed Access being the surviving corporation and becoming a wholly-
owned subsidiary of Access Health (the "Merger"). As a result of the
Merger, all outstanding shares of Informed Access Common Stock and Informed
Access Preferred Stock will be converted into shares of Access Health
Common Stock and all outstanding options and warrants to acquire Informed
Access Common Stock or Informed Access Preferred Stock will become options
and warrants to acquire Access Health Common Stock. The number of shares of
Access Health Common Stock to be issued in the Merger in exchange for the
outstanding shares of Informed Access Common Stock and Preferred Stock will
depend upon the capitalization of Informed Access at the time of the
Merger, and will not exceed 5,375,000 shares.
2. To consider and vote upon a proposal to ratify and approve an
amendment to Access Health's Certificate of Incorporation increasing the
authorized number of shares of Access Health Common Stock from 30,000,000
to 75,000,000 shares.
3. To consider and vote upon a proposal to ratify and approve an
amendment to Access Health's 1989 Incentive Stock Plan to increase the
number of shares available for options under the plan by 1,000,000 shares.
4. To transact such other business as may properly come before the
Special Meeting, including any motion to adjourn to a later date to permit
further solicitation of proxies if necessary, or before any adjournments
thereof.
The Merger and related transactions are more fully described in the Proxy
Statement/Prospectus and Consent Solicitation Statement and the annexes
thereto, including the Merger Agreement, accompanying this Notice. Any action
may be taken on any of the foregoing proposals at the Special Meeting on the
date specified above or on any date to which the Special Meeting may properly
be adjourned. Only stockholders of record at the close of business on October
15, 1996 are entitled to notice of and to vote at the Special Meeting or any
adjournment thereof.
For the Board of Directors
Kenneth B. Plumlee
Chairman of the Board
Thomas E. Gardner
President and Chief Executive
Officer
Rancho Cordova, California
October , 1996
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
October , 1996
Dear Stockholder:
You will find enclosed a written consent of stockholders of Informed Access
Systems, Inc. ("Informed Access"). The written consent (the "Written Consent")
requests your approval and adoption of an Agreement and Plan of Reorganization
dated as of September 3, 1996 (the "Merger Agreement"), among Informed Access,
Access Health, Inc. ("Access Health") and its wholly-owned subsidiary, Access
Acquisition Corp. ("Merger Sub"), providing for the merger of Informed Access
with Merger Sub (the "Merger"), as described in the Written Consent and the
accompanying Proxy Statement/Prospectus and Consent Solicitation Statement.
As a result of the Merger, all outstanding shares of Informed Access Common
Stock and Informed Access Preferred Stock will be converted into shares of
Access Health Common Stock and all outstanding options and warrants to acquire
Informed Access Common Stock or Informed Access Preferred Stock will become
options and warrants to acquire Access Health Common Stock. Upon consummation
of the Merger, for each share of Informed Access Capital Stock you hold will
be converted into the right to receive the number of shares Access Health
Common Stock equal to 5,375,000 (less 64,500 shares of Access Health Common
Stock to be distributed from escrow to the financial advisors of Informed
Access in payment of financial advisory fees in connection with the Merger)
divided by the sum of the number of shares of Informed Access Capital Stock
(i) outstanding immediately prior to the Merger and (ii) issuable upon the
exercise of warrants and options to purchase Informed Access Capital Stock
outstanding immediately prior the Merger. Based upon Informed Access' current
capitalization, each share of Informed Access Capital Stock would be entitled
to receive approximately .80 shares of Access Health Common Stock in the
Merger. Of the shares issuable to each Informed Access stockholder in the
Merger, however, 2.5% will be held in escrow for up to six months following
the Merger as security for breaches of the representations, warranties and
covenants made by Informed Access in the Merger Agreement. Upon completion of
the Merger, Informed Access will be a wholly-owned subsidiary of Access
Health.
INFORMED ACCESS' BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE MERGER IS
FAIR AND IN THE BEST INTERESTS OF INFORMED ACCESS AND ITS STOCKHOLDERS. AFTER
CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN
FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
If the Merger is approved and consummated, you will receive detailed
information on how to transmit your Informed Access share certificates to
obtain your shares of Access Health Common Stock representing the Merger
consideration. Please read the Proxy Statement/Prospectus and Consent
Solicitation Statement prior to voting.
In addition, the Written Consent requests that you consider and vote upon a
proposal to approve payments of certain bonuses to, and the accelerated
vesting of stock options held by, certain officers of Informed Access.
Stockholder approval of these items is necessary in order for Informed Access
and such Informed Access officers to avoid certain adverse income tax
consequences related thereto. If stockholder approval is not obtained, the
bonus payments and option acceleration will be reduced to the extent necessary
in order to eliminate such tax consequences. The Board of Directors has
approved such acceleration of stock options and the payment of these bonuses
and unanimously recommends a vote in favor of the proposal to approve these
items.
TO ENSURE THAT YOUR SHARES ARE VOTED ON THESE IMPORTANT MATTERS, PLEASE
COMPLETE, SIGN AND DATE THE ACCOMPANYING WRITTEN CONSENT AND RETURN IT IN THE
ENCLOSED PREPAID ENVELOPE AS SOON AS POSSIBLE. Your prompt cooperation will be
greatly appreciated.
Sincerely,
Joseph P. Tallman
President and Chief Executive
Officer
<PAGE>
PROXY STATEMENT/PROSPECTUS
OF
ACCESS HEALTH, INC.
--------------
CONSENT SOLICITATION STATEMENT
OF
INFORMED ACCESS SYSTEMS, INC.
--------------
This Proxy Statement/Prospectus of Access Health, Inc., a Delaware
corporation ("Access Health") and Consent Solicitation Statement of Informed
Access Systems, Inc., a Delaware corporation ("Informed Access"), is being
furnished to the stockholders of Access Health, in connection with the
solicitation of proxies by the Access Health Board of Directors for use at the
Special Meeting of Access Health Stockholders (the "Access Health Meeting") to
be held at 9:00 a.m., local time, on November , 1996, at Access Health's
offices located at 11020 White Rock Road, Rancho Cordova, California, and at
any adjournments or postponements of the Access Health Meeting. At the Access
Health Meeting, holders of Access Health Common Stock (as defined below) will
be asked to consider and vote upon (i) the approval of the issuance of shares
of Access Health Common Stock pursuant to the terms of an Agreement and Plan
of Reorganization dated as of September 3, 1996 (the "Merger Agreement"),
entered into by and among Access Health, a newly-formed, wholly-owned
subsidiary of Access Health, Access Acquisition Corp. ("Merger Sub"), and
Informed Access Systems, Inc., a Delaware corporation ("Informed Access"),
(ii) a proposal to approve an amendment to Access Health's Certificate of
Incorporation increasing the authorized number of shares of Access Health
Common Stock from 30,000,000 to 75,000,000 shares, and (iii) a proposal to
ratify and approve an amendment to Access Health's 1989 Incentive Stock Plan
to increase the number of shares available for options under the plan by
1,000,000.
This Proxy Statement/Prospectus of Access Health and Consent Solicitation
Statement of Informed Access is also being furnished to holders of shares of
Common Stock of Informed Access, par value $.001 per share ("Informed Access
Common Stock"), and holders of shares of Preferred Stock of Informed Access,
par value $.001 per share ("Informed Access Preferred Stock"), in connection
with the solicitation of written consents by the Informed Access Board of
Directors to consider and vote upon (i) the approval and adoption of the
Merger Agreement, pursuant to which, among other things, Informed Access would
be acquired by Access Health by means of the Merger of Merger Sub with and
into Informed Access, with Informed Access being the surviving corporation and
becoming a wholly-owned subsidiary of Access Health (the "Merger"), and (ii) a
proposal to approve payment of certain bonuses to, and the accelerated vesting
of stock options held by, certain officers of Informed Access.
This Proxy Statement/Prospectus of Access Health and Consent Solicitation
Statement of Informed Access constitutes the Prospectus of Access Health with
respect to up to 5,375,000 shares of Access Health Common Stock to be issued
in connection with the proposed Merger. As a result of the Merger, all
outstanding shares of Informed Access Common Stock and Informed Access
Preferred Stock (collectively, "Informed Access Capital Stock") will be
converted into shares of Access Health Common Stock, all outstanding options
to acquire shares of Informed Access Common Stock will become options to
acquire shares of Access Health Common Stock, and all outstanding warrants to
acquire shares of Informed Access Capital Stock (other than warrants which
will expire as of the Effective Time) will become warrants to acquire shares
of Access Health Common Stock. The number of shares of Access Health Common
Stock to be issued for each share of Informed Access Capital Stock exchanged
in the Merger will depend upon the capitalization of Informed Access at the
Effective Time (defined herein). Assuming that the capitalization of Informed
Access at the Effective Time is in all respects identical to the
capitalization of Informed Access at September 3, 1996 (although there can be
no assurance as to the foregoing), each share of Informed Access Common Stock
exchanged in the Merger will be converted into the right to receive
approximately .80 of a share of Access Health Common Stock. See "Approval of
the Merger and Related Transactions--Manner and Basis of Converting Shares."
In connection with the Merger, 2.5% of the shares of Access Health Common
Stock otherwise issuable to holders of Informed Access Capital Stock by virtue
of the Merger (the "Escrow Shares") will be placed into escrow and held as
security for losses incurred by Access Health in the event of certain breaches
by Informed Access of the covenants, representations or warranties contained
in the Merger Agreement. An additional 64,500 shares of Access Health Common
Stock will be placed into escrow and will be distributed following the Merger
to Informed Access' financial advisors in payment of Informed Access'
financial advisory fees in connection with the Merger. See "Approval of the
Merger and Related Transactions--Escrow Fund." Holders of Informed Access
Capital Stock who do not vote in favor of the Merger may, under certain
circumstances and by following prescribed statutory procedures, receive cash
for their shares. See "Approval of the Merger and Related Transactions--
Delaware Appraisal Rights."
This Proxy Statement/Prospectus and Consent Solicitation Statement and the
accompanying form of proxy card and form of written consent are first being
mailed to the stockholders of Access Health and Informed Access, respectively,
on or about October , 1996.
--------------
SEE "RISK FACTORS" BEGINNING AT PAGE 19 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY STOCKHOLDERS OF ACCESS HEALTH AND INFORMED ACCESS IN
EVALUATING THE PROPOSALS TO BE VOTED UPON AND THE ACQUISITION OF THE
SECURITIES OFFERED HEREBY.
--------------
NEITHER THIS TRANSACTION NOR THE SECURITIES OF ACCESS HEALTH OFFERED HEREBY
HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS AND CONSENT SOLICITATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus and Consent Solicitation Statement
is October , 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION.................................................... 4
TRADEMARKS............................................................... 4
FORWARD-LOOKING STATEMENTS............................................... 5
PROSPECTUS SUMMARY....................................................... 6
The Companies.......................................................... 6
Special Meeting of Stockholders of Access Health....................... 7
Solicitation of Written Consents of Informed Access Stockholders....... 8
Recommendations of the Boards of Directors............................. 8
Opinion of Access Health's Financial Advisor........................... 9
The Merger............................................................. 9
Selected Historical and Selected Pro Forma Combined Financial Data..... 16
Comparative Per Share Data............................................. 18
RISK FACTORS............................................................. 19
Risks Related to the Merger............................................ 19
Risks Related to the Business and Operations of Access Health and
Informed Access....................................................... 20
INTRODUCTION............................................................. 26
ACCESS HEALTH MEETING.................................................... 26
Date, Time and Place of Access Health Meeting.......................... 26
Purposes of Access Health Meeting...................................... 26
Record Date and Outstanding Shares..................................... 26
Vote Required; Quorum.................................................. 26
Voting of Proxies...................................................... 27
Solicitation of Proxies; Expenses...................................... 27
SOLICITATION OF WRITTEN CONSENTS OF INFORMED ACCESS STOCKHOLDERS......... 28
Purposes of Informed Access Written Consent............................ 28
Record Date and Outstanding Shares..................................... 28
Vote Required.......................................................... 28
Written Consent Solicitation; Expenses................................. 28
Appraisal Rights....................................................... 29
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS.......................... 29
Access Health's Reasons For the Merger................................. 29
Informed Access' Reasons For the Merger................................ 31
Background of the Merger............................................... 33
Recommendations of the Boards of Directors............................. 36
Opinion of Access Health's Financial Advisor........................... 36
Interests of Certain Persons in the Merger............................. 40
Effective Time......................................................... 42
Manner and Basis of Converting Shares.................................. 42
Stock Ownership Following the Merger................................... 44
Escrow Fund............................................................ 44
Legal Structure of the Merger.......................................... 45
Conduct of Informed Access' Business Prior to the Merger............... 45
Conduct of Access Health's Business Prior to the Merger................ 47
No Solicitation........................................................ 47
Expenses; Termination Fees............................................. 48
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Conditions to the Merger.............................................. 48
Termination........................................................... 50
Affiliate/Voting Agreements and Affiliate Agreements.................. 51
Indemnification of Informed Access Officers and Directors............. 51
Employment Agreements; Employment Matters............................. 52
Non-Competition Agreements............................................ 52
Interim Credit Facility............................................... 52
Registration Rights Agreement......................................... 53
Certain Federal Income Tax Considerations............................. 53
Governmental and Regulatory Approvals................................. 55
Accounting Treatment.................................................. 55
Delaware Appraisal Rights............................................. 55
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS....................... 57
ACCESS HEALTH BUSINESS.................................................. 63
ACCESS HEALTH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................... 72
ACCESS HEALTH MANAGEMENT AND EXECUTIVE COMPENSATION..................... 78
ACCESS HEALTH STOCK INFORMATION......................................... 83
INFORMED ACCESS BUSINESS................................................ 85
INFORMED ACCESS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................... 90
INFORMED ACCESS MANAGEMENT.............................................. 96
INFORMED ACCESS STOCKHOLDERS............................................ 100
CERTAIN TRANSACTIONS.................................................... 102
DESCRIPTION OF CAPITAL STOCK............................................ 103
Description of Access Health Capital Stock............................ 103
Description of Informed Access Capital Stock.......................... 104
COMPARISON OF RIGHTS OF HOLDERS OF ACCESS HEALTH COMMON STOCK
AND HOLDERS OF INFORMED ACCESS CAPITAL STOCK........................... 106
APPROVAL OF AMENDMENT TO ACCESS HEALTH'S CERTIFICATE OF INCORPORATION... 106
APPROVAL OF AMENDMENT TO ACCESS HEALTH'S 1989 INCENTIVE STOCK PLAN...... 107
APPROVAL OF OPTION AND BONUS PROPOSAL .................................. 113
STOCKHOLDER PROPOSALS................................................... 114
ADJOURNMENT OF ACCESS HEALTH SPECIAL MEETING............................ 114
EXPERTS................................................................. 115
LEGAL MATTERS........................................................... 115
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ACCESS HEALTH AND
INFORMED ACCESS........................................................ F-1
ANNEX A--Agreement and Plan of Reorganization
ANNEX B--Opinion of Montgomery Securities
ANNEX C--Section 262 of the Delaware General Corporation Law
</TABLE>
3
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE
MATTERS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY ACCESS HEALTH OR INFORMED ACCESS.
NEITHER THE DELIVERY HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF. THIS PROXY
STATEMENT/PROSPECTUS AND CONSENT SOLICITATION STATEMENT DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY
THIS PROXY STATEMENT/PROSPECTUS AND CONSENT SOLICITATION STATEMENT WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
AVAILABLE INFORMATION
Access Health is subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at Seven World Trade Center, New York, New York 10048, and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60601-2511. Copies of such
material may be obtained by mail from the Public Reference Section of the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Access Health Common Stock is quoted on the Nasdaq National
Market ("Nasdaq"), and such reports, proxy statements and other information
can also be inspected at the offices of Nasdaq Operations, 1735 K Street,
N.W., Washington, D.C. 20006. The SEC maintains a Web site at
http:\\www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
Access Health has filed with the SEC a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Proxy Statement/Prospectus and Consent Solicitation
Statement does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Statements contained in this Proxy
Statement/Prospectus and Consent Solicitation Statement as to the contents of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information,
reference is hereby made to the Registration Statement. Copies of the
Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the offices of the SEC, or obtained at
prescribed rates from the Public Reference Section of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
----------------
TRADEMARKS
Access Health, Personal Health Advisor, Access Care Management System, ASK-
A-NURSE, ASK-A- NURSE Advantage, Cancer HELPLINK, Life Match, AudioHealth
Library and HEALTH MATCH are trademarks of Access Health. Informed Access,
IAS, FirstHelp and FirstHelp IRA are trademarks of Informed Access. All other
brand names or trademarks appearing in this Proxy Statement/Prospectus and
Consent Solicitation Statement are the property of their respective holders.
----------------
4
<PAGE>
FORWARD-LOOKING STATEMENTS
THIS PROXY STATEMENT/PROSPECTUS AND CONSENT SOLICITATION STATEMENT CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT
OF THE RISK FACTORS SET FORTH BELOW BEGINNING ON PAGE 20 HEREOF. NEITHER
ACCESS HEALTH NOR INFORMED ACCESS MAKES ANY EXPRESS OR IMPLIED REPRESENTATION
OR WARRANTY AS TO THE ATTAINABILITY OF THE PROJECTED FINANCIAL INFORMATION SET
FORTH HEREIN OR AS TO THE ACCURACY OR COMPLETENESS OF THE ASSUMPTIONS FROM
WHICH THAT PROJECTED INFORMATION IS DERIVED. PROJECTIONS OF THE COMBINED
COMPANIES' FUTURE PERFORMANCE ARE NECESSARILY SUBJECT TO A HIGH DEGREE OF
UNCERTAINTY AND MAY VARY MATERIALLY FROM ACTUAL RESULTS. REFERENCE IS MADE TO
THE PARTICULAR DISCUSSIONS SET FORTH UNDER "ACCESS HEALTH MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"INFORMED ACCESS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS." IN CONNECTION WITH FORWARD-LOOKING STATEMENTS
WHICH APPEAR IN THESE AND OTHER DISCLOSURES, STOCKHOLDERS OF ACCESS HEALTH AND
INFORMED ACCESS SHOULD CAREFULLY REVIEW THE FACTORS SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS AND CONSENT SOLICITATION STATEMENT UNDER "RISK FACTORS"
BEGINNING ON PAGE 19 HEREOF.
5
<PAGE>
PROSPECTUS SUMMARY
The following contains a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus and Consent Solicitation Statement. This
summary does not contain a complete statement of all material elements of the
proposals to be voted on and is qualified in its entirety by the more detailed
information appearing elsewhere in this Proxy Statement/Prospectus and Consent
Solicitation Statement and in the information and documents annexed hereto.
THE COMPANIES
Access Health, Inc. Access Health is a leading provider of personal health
management products and services to the health care industry. Access Health's
clients include managed care organizations, health plans, military managed
health care providers, self-insured employers, and hospital and physician
delivery systems. Personal health management services are designed to improve
the quality and accessibility of health care by educating and empowering
consumers to make more informed decisions, thereby reducing inappropriate use
of the health care system and the cost of care while improving member
satisfaction. Access Health's personal health management services provide
members with a broad range of health care information, prevention and care
management programs.
Access Health was founded in 1987 and until 1993 primarily provided consumer
health care information products and services designed to help hospitals and
other health care providers market their services. In response to opportunities
created by increasing pressure to provide more cost effective health care,
beginning in 1993, Access Health changed its focus to developing and marketing
personal health management products and services to health plans and payors. At
the same time, Access Health altered its business model to price its products
and services predominantly on a recurring per-member per-month fee basis rather
than on a non-recurring basis. Access Health's personal health management
business has grown significantly; the number of enrolled members has increased
to over 10.7 million at September 30, 1996, from approximately 100,000 at the
beginning of fiscal 1994.
Access Health's primary personal health management product, Personal Health
Advisor ("PHA"), provides eligible health plan members with toll-free telephone
access to registered nurse counselors, pre-recorded information on various
health care topics, and other health care and information services on a 24-
hour-a-day, 7-day-a-week basis. PHA is marketed to managed care organizations,
health plans and large self-insured employer groups. Access Health's health
systems services also offers a broad range of health care information products
and services to health care providers. Access Health's primary health systems
services products include ASK-A-NURSE, Cancer HELPLINK and a series of software
products providing membership management and referral management capability.
Access Health was incorporated in California in October 1987 as Referral
Systems Group, Inc., adopted the name Access Health Marketing, Inc. in July
1990, reincorporated in Delaware in January 1992 and changed its name to Access
Health, Inc. in March 1995. Access Health maintains its executive offices at
11020 White Rock Road, Ranch Cordova, California 95670, and its telephone
number is (916) 851-4000.
Informed Access Systems, Inc. Informed Access is a leading provider of health
care coordination products and services to the health care industry. Informed
Access' primary clients are major managed health care providers including
health maintenance organizations (HMOs), preferred provider organizations
(PPOs), indemnity insurers, integrated delivery systems and physician groups.
Informed Access was founded in 1992 with the objective of developing and
delivering products and services that would simplify consumer access to the
health care system, improve the quality and consistency of health care services
and information and lower costs by reducing the inefficient use of health care
services. In 1994,
6
<PAGE>
Informed Access commercially introduced the FirstHelp line of health care
coordination products and services to meet this market need. The FirstHelp
system is a patented, integrated suite of products and services which enable
managed care organizations to improve and monitor the access, quality and cost-
effectiveness of health care services while enhancing the satisfaction of
health care service customers.
Informed Access provides its FirstHelp products and services to enrolled
members of managed care plans from its advanced call center staffed by
experienced registered nurses on a 24-hour-a-day, 7-day-a-week basis. The
FirstHelp system is also licensed to large health care providers and insurers
who operate their own call centers. At September 1, 1996, FirstHelp products
and services were available under contract to approximately six million members
from 40 client organizations, including four million call center members and
two million license site users.
Informed Access was incorporated in Texas in 1992 and reincorporated in
Delaware in 1993. Informed Access' principal executive offices are located at
310 Interlocken Parkway, Broomfield, Colorado 80021 and its telephone number is
(303) 443-4600.
Access Acquisition Corp. Merger Sub is a corporation recently organized by
Access Health for the purpose of effecting the Merger. It has no material
assets and has not engaged in any activities except in connection with the
Merger. Merger Sub's executive offices are located at 11020 White Rock Road,
Rancho Cordova, California 95670, and its telephone number is (916) 851-4000.
SPECIAL MEETING OF STOCKHOLDERS OF ACCESS HEALTH
Time, Date, Place and Purpose. A Special Meeting of Stockholders of Access
Health will be held at Access Health's offices located at 11020 White Rock
Road, Rancho Cordova, California, 95670 on , November , 1996 at 9:00 a.m.,
local time (the "Access Health Meeting"). The purpose of the Access Health
Meeting is (i) to approve the issuance of shares of Access Health Common Stock
pursuant to the terms of the Merger Agreement (the "Merger Proposal"), (ii)
approve and adopt an amendment to the Access Health Certificate of
Incorporation to increase the authorized number of shares of Access Health
Common Stock from 30,000,000 to 75,000,000 (the "Certificate Amendment"), and
(iii) to ratify and approve an amendment to the Access Health 1989 Incentive
Stock Plan to increase the number of shares available for options by 1,000,000
shares (the "Incentive Plan Amendment").
Record Date and Vote Required. Only Access Health stockholders of record at
the close of business on October 15, 1996 (the "Access Health Record Date") are
entitled to notice of and to vote at the Access Health Meeting. Under the rules
of the Nasdaq National Market, Delaware law and the charter documents of Access
Health, as applicable, approval of the Merger Proposal requires the affirmative
vote of holders of a majority of the total votes cast on the proposal at the
Access Health Meeting, the approval and the adoption of the Certificate
Amendment requires the affirmative vote of holders of a majority of the
outstanding shares of Access Health Common Stock and ratification and approval
of the Incentive Plan Amendment requires the affirmation vote of the holders of
a majority of the shares of Access Health Common Stock present in person or
represented by proxy and entitled to vote at the Access Health Meeting. All
directors and executive officers of Access Health, who beneficially own
approximately 5.4% of the shares entitled to vote at the Access Health Meeting,
have agreed to vote all shares over which they exercise voting control FOR the
approval of the Merger Proposal. See "The Access Health Special Meeting--Vote
Required; Quorum."
As of the Access Health Record Date, there were stockholders of record of
Access Health Common Stock and shares of Access Health Common Stock
outstanding.
On October , 1996, a notice meeting the requirements of Delaware law was
mailed to all Access Health stockholders of record as of the Access Health
Record Date.
7
<PAGE>
SOLICITATION OF WRITTEN CONSENTS OF INFORMED ACCESS STOCKHOLDERS
Purpose. A Written Consent of stockholders of Informed Access (the "Informed
Access Written Consent") will be mailed to stockholders of Informed Access on
or about, October , 1996. The purpose of the Informed Access Written Consent
is to consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement and (ii) a proposal to approve payment of certain bonuses to, and the
accelerated vesting of stock options held by, certain Informed Access officers
(the "Option and Bonus Proposal").
Record Date and Vote Required. Only Informed Access stockholders of record at
the close of business on October 15, 1996 (the "Informed Access Record Date")
are entitled to notice of, and to vote by, the Informed Access Written Consent.
Under Delaware law and the charter documents of Informed Access, approval and
adoption of the Merger Agreement requires the affirmative vote of (i) holders
of a majority of the outstanding shares of Informed Access Common Stock and
Informed Access Preferred Stock, voting together as a single class, and (ii)
holders of at least 60% of the outstanding shares of Informed Access Preferred
Stock, voting separately as a single class. Approval of the Merger Agreement by
the holders of Informed Access Preferred Stock shall also constitute the
election of such holders not to have the Merger treated as a liquidation of
Informed Access under its charter documents. Each of the items submitted for
approval as part of the Option and Bonus Proposal must be approved by the
affirmative vote of more than 75% of the outstanding Informed Access Capital
Stock excluding any shares held by persons who have an interest in the
particular item submitted for stockholder approval. See "Solicitation of
Written Consents of Informed Access Stockholders--Vote Required." Directors,
executive officers and certain stockholders of Informed Access beneficially
owning 75.1% of the outstanding Informed Access Preferred Stock and 73.3% of
the outstanding Informed Access Preferred Stock and Common Stock considered as
one class have agreed to vote all such shares in favor of the Merger Agreement.
Approval of the Merger Agreement by the written consent of the Informed Access
stockholders, therefore, is assured.
As of the Informed Access Record Date, there were 16 stockholders of record
of Informed Access Common Stock and 18 stockholders of record of Informed
Access Preferred Stock and 1,142,750 shares of Informed Access Common Stock and
4,628,061 shares of Informed Access Preferred Stock outstanding.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Access Health Board of Directors. The Board of Directors of Access Health
(the "Access Health Board") has unanimously approved the Merger Agreement and
the Merger and believes that the terms of the Merger Agreement are fair to, and
that the Merger is in the best interests of, Access Health and its stockholders
and therefore unanimously recommends that holders of Access Health Common Stock
vote FOR the approval of the issuance of Access Health Common Stock pursuant to
the Merger Agreement. In addition, the Access Health Board has unanimously
approved the Certificate Amendment and the Incentive Plan Amendment and
believes that such amendments are in the best interests of Access Health and
its stockholders. Therefore, the Access Health Board unanimously recommends
that holders of Access Health Common Stock vote FOR the approval of the
Certificate Amendment and the Incentive Plan Amendment. See "Approval of the
Merger and Related Transactions--Recommendations of the Boards of Directors."
Informed Access Board of Directors. The Board of Directors of Informed Access
(the "Informed Access Board") has approved the Merger Agreement and believes
that the Merger is fair to, and in the best interests of, Informed Access and
its stockholders. In addition, the Informed Access Board has approved the
bonuses and stock option acceleration which are being submitted for approval
under the Option and Bonus Proposal. The Informed Access Board, therefore,
unanimously recommends that holders of Informed Access Capital Stock vote FOR
approval of the Merger Agreement and FOR approval of the Option and Bonus
Proposal. See "Approval of the Merger and Related Transactions--Recommendations
of the Boards of Directors," and "Approval of Option and Bonus Proposal."
8
<PAGE>
OPINION OF ACCESS HEALTH'S FINANCIAL ADVISOR
Montgomery Securities ("Montgomery") delivered its oral opinion to the Access
Health Board on September 3, 1996, subsequently confirmed in writing as of such
date, to the effect that the consideration payable in the Merger was fair, from
a financial point of view, to Access Health. The full text of the written
opinion of Montgomery, which sets forth the assumptions made, procedures
followed, matters considered and limits of its review, is attached hereto as
Annex B and is incorporated herein by reference. HOLDERS OF ACCESS HEALTH
COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See
"Approval of the Merger and Related Transactions--Opinion of Access Health's
Financial Advisor."
THE MERGER
Effect of the Merger. At the Effective Time (as defined below), Merger Sub
will be merged with and into Informed Access, the separate corporate existence
of Merger Sub will cease and Informed Access will continue as a surviving
corporation and as a wholly-owned subsidiary of Access Health.
Subject to the terms and conditions of the Merger Agreement, as of the
Effective Time, by virtue of the Merger and without any action on the part of
Merger Sub, Informed Access or the holder of any shares of Informed Access
Capital Stock, the following will occur:
Conversion of Informed Access Capital Stock. In the Merger, Access Health
will issue up to 5,375,000 shares of Access Health Common Stock. Each share of
Informed Access Common Stock and each share of Informed Access Preferred Stock
issued and outstanding immediately prior to the Effective Time (other than any
shares held by a holder who has demanded and perfected appraisal rights for
such shares in accordance with the applicable provisions of the Delaware
General Corporation Law (the "DGCL") and who has not withdrawn or lost such
rights ("Dissenting Shares")) will be canceled and extinguished and be
converted automatically into the right to receive a fraction of a share of
Access Health Common Stock equal to the Exchange Ratio (as defined below), upon
surrender of the certificate representing such share of Informed Access Capital
Stock in the manner provided in a letter of transmittal to be sent to each
record holder of Informed Access Capital Stock promptly following the Effective
Time (a "Letter of Transmittal"), subject to the escrow provisions of the
Merger Agreement described under the section entitled "Approval of the Merger
and Related Transactions--Escrow Fund" below.
The "Exchange Ratio" will be equal to 5,375,000 (less 64,500 shares of Access
Health Common Stock to be distributed from escrow to the financial advisors of
Informed Access in payment of Informed Access' financial advisory fees in
connection with the Merger) divided by the sum of the number of shares of
Informed Access Capital Stock (i) outstanding immediately prior to the
Effective Time, (ii) issuable upon the exercise of options to purchase Informed
Access Capital Stock (the "Outstanding Option Amount") and (iii) issuable upon
the exercise of warrants to purchase Informed Access Capital Stock (other than
those which expire at the Effective Time if they remain unexercised) (the
"Outstanding Warrant Amount"). The Exchange Ratio will depend on the
capitalization of Informed Access at the Effective Time. Assuming that the
capitalization of Informed Access at the Effective Time is in all other
respects identical to the capitalization of Informed Access at September 3,
1996 (although there can be no assurance as to the foregoing), the Exchange
Ratio will be approximately .80 of a share of Access Health Common Stock for
each share of Informed Access Capital Stock. For a more detailed discussion of
the calculation of the Exchange Ratio, see "Approval of the Merger and Related
Transactions--Manner and Basis of Converting Shares" below. The Exchange Ratio
will be adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Access Health Common Stock or Informed Access Capital Stock),
reorganization, recapitalization or other like change with respect to Access
Health Common Stock or Informed Access Capital Stock occurring after the date
of execution of the Merger Agreement and prior to the Effective Time.
9
<PAGE>
Stock Options. At the Effective Time, each unexpired and unexercised option
to purchase shares of Informed Access Capital Stock (each an "Informed Access
Option") granted under the stock option plans and agreements of Informed Access
outstanding immediately prior to the Effective Time will be, in connection with
the Merger, assumed by Access Health (each, an "Assumed Informed Access
Option") (the aggregate number of shares of Informed Access Capital Stock
issuable upon the exercise of all outstanding Informed Access Options
immediately prior to the Effective Time is referred to as the "Outstanding
Option Amount"). Each Informed Access Option so assumed by Access Health will
continue to have, and be subject to, substantially the same terms and
conditions set forth in the documents governing such Informed Access Option
immediately prior to the Effective Time, except that (i) such Assumed Informed
Access Option will be exercisable for that number of whole shares of Access
Health Common Stock equal to the product of the number of shares of Informed
Access Capital Stock (on an as-converted to Common Stock basis) that were
purchasable under such Assumed Informed Access Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Access Health Common Stock and (ii) the per share
exercise price for the shares of Access Health Common Stock issuable upon
exercise of such Assumed Informed Access Option will be equal to the quotient
obtained by dividing the exercise price per share of Informed Access Capital
Stock (on an as-converted to Common Stock basis) at which such Informed Access
Option was exercisable immediately prior to the Effective Time by the Exchange
Ratio, rounded up to the nearest whole cent. In accordance with the provisions
of the Informed Access stock option plan, all Informed Access Options will
become fully vested and exercisable immediately prior to the Effective Time,
but only to the extent that such acceleration of vesting would not constitute
an "excess parachute payment" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"). If the Option and Bonus Proposal
is approved by the written consent of Informed Access stockholders, all
Informed Access Options will become fully vested and exercisable. If the Option
and Bonus Proposal is not approved, only a portion of the Informed Access
Options will become fully vested. See "Approval of Option and Bonus Proposal."
Holders of vested Informed Access Options may elect to exercise such options
prior to the Effective Time and receive the Access Health Common Stock by
providing notice of such exercise and payment of the exercise price thereof to
Informed Access at any time prior to the Effective Time. In the event that any
holder of Informed Access options does not exercise such options prior to the
Effective Time, such Informed Access options will become Assumed Informed
Access Options. As soon as practicable after the Effective Time, Access Health
will issue to each holder of an Assumed Informed Access Option a document
evidencing the stock option assumption by Access Health.
Warrants. Each warrant to purchase shares of Informed Access Capital Stock
remaining outstanding (other than those which will expire if they remain
unexercised as of the Effective Time) at the Effective Time will be, in
connection with the Merger, assumed by Access Health. Each warrant so assumed
by Access Health under the Merger Agreement will continue to have, and be
subject to, the same terms and conditions set forth in the warrant agreement
governing such warrant immediately prior to the Effective Time, except that
each such warrant will, following the Effective Time, be exercisable only for
shares of Access Health Common Stock, in such number, and at such exercise
price as is determined by applying the appropriate exchange ratio in accordance
with the terms of the applicable warrant agreement.
No Fractional Shares. No fractional shares will be issued by Access Health in
the Merger. Each stockholder of Informed Access otherwise entitled to a
fractional share (after aggregating all fractional shares of such stockholder)
will receive an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction multiplied by (ii) the average closing price of a
share of Access Health Common Stock for the five consecutive trading days
ending on the trading day immediately prior to the Effective Time, as reported
on the Nasdaq National Market ("Nasdaq").
Effective Time of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger with the Secretary of State of Delaware (the
"Effective Time"). Assuming all conditions to the Merger are met or waived
prior thereto, it is anticipated that the Effective Time will be on or about
November , 1996.
10
<PAGE>
Form S-8 Registration Statement. No later than thirty days after the
Effective Time, Access Health will file a registration statement on Form S-8
under the Securities Act covering the shares of Access Health Common Stock
issuable upon exercise of the Assumed Informed Access Options and will use its
reasonable best efforts to maintain the effectiveness (and current status) of
such registration statement for so long as such Assumed Informed Access Options
remain outstanding. See "Approval of the Merger and Related Transactions--
Manner and Basis of Converting Shares--Stock Options."
Escrow Fund. In connection with the Merger, at the Effective Time, the Escrow
Shares (as defined below) will be registered in the name of and deposited with
California National Association Global Escrow D.S., as escrow agent (the
"Escrow Agent"), such deposit to constitute the escrow fund (the "Escrow
Fund"). The "Escrow Shares" will be the number of shares of Access Health
Common Stock equal to (a) the product of (i) 0.025 and (ii) the 5,310,500
shares of Access Health Common Stock issuable in connection with the Merger
(excluding the 64,500 shares of Access Health Common Stock to be delivered from
the Escrow Fund to the financial advisors of Informed Access following the
Merger) minus the Outstanding Option Amount, the Outstanding Warrant Amount and
the number of shares of Informed Access Capital Stock for which dissenters
rights have been validly asserted, plus (b) 64,500. The Escrow Shares will be
contributed to the Escrow Fund on behalf of each holder of Informed Access
Capital Stock at the Effective Time in proportion to the aggregate number of
shares of Access Health Common Stock such holder would otherwise be entitled
under the Merger Agreements rounded down to the nearest whole share, with the
remaining number of shares that are distributed to such holder being rounded up
to the nearest share. The Escrow Fund will be available to compensate Access
Health for any losses incurred by Access Health directly or indirectly as a
result of any inaccuracy or breach of a representation or warranty of Informed
Access contained in the Merger Agreement or any failure by Informed Access to
perform or comply with any covenant contained therein. The Escrow Fund will
also be used to pay 64,500 shares of Access Health Common Stock to Informed
Access' financial advisors following the Merger in payment of Informed Access'
fees payable to its financial advisors in connection with the Merger. Informed
Access stockholders will have voting rights with respect to the Escrow Shares
while in escrow. Access Health may not receive any shares from the Escrow Fund
unless and until cumulative losses in excess of $500,000 have been suffered, in
which case Access Health may recover from the Escrow Fund the entire amount of
such cumulative losses. For the purpose of compensating Access Health for its
losses, the Escrow Shares will be valued at the average of the closing prices
of Access Health Common Stock for the five consecutive trading days ending two
days prior to the closing date of the Merger. Subject to resolution of
unsatisfied claims of Access Health, the Escrow Fund will terminate upon the
earlier of (i) six months following the closing date of the Merger or (ii) the
date of the independent auditors' report for the first audit of Access Health's
financial statements after the closing date of the Merger. See "Approval of the
Merger and Related Transactions--Escrow Fund."
BY APPROVING THE MERGER AGREEMENT, INFORMED ACCESS STOCKHOLDERS WILL BE
DEEMED TO HAVE CONSENTED TO THE APPOINTMENT OF KINNEY L. JOHNSON, A DIRECTOR
AND STOCKHOLDER OF INFORMED ACCESS, TO ACT AS THE SECURITYHOLDER AGENT ON
BEHALF OF INFORMED ACCESS' STOCKHOLDERS TO DELIVER SHARES HELD IN ESCROW TO
ACCESS HEALTH IN SATISFACTION OF CLAIMS BROUGHT BY ACCESS HEALTH, TO OBJECT TO
SUCH DELIVERIES, TO AGREE TO, TO NEGOTIATE AND TO ENTER INTO SETTLEMENTS AND
COMPROMISES WITH RESPECT TO SUCH CLAIMS, AND TO TAKE CERTAIN OTHER ACTION ON
BEHALF OF INFORMED ACCESS' STOCKHOLDERS, ALL AS MORE FULLY DESCRIBED IN ARTICLE
VII OF THE MERGER AGREEMENT. SEE ARTICLE VII OF THE MERGER AGREEMENT FOR A MORE
DETAILED EXPLANATION OF THE ESCROW FUND AND RIGHTS WITH RESPECT THERETO.
Market Price Data. Access Health Common Stock has been traded on Nasdaq under
the symbol "ACCS" since Access Health's initial public offering in February
1992. On August 30, 1996, the last trading day before the announcement by
Access Health and Informed Access that they had signed the Merger Agreement,
the closing price of Access Health Common Stock as reported on Nasdaq was
$50.75 per share. Following the Merger, Access Health Common Stock will
continue to be traded on Nasdaq under the symbol "ACCS." On October 9, 1996,
the closing price of Access Health Common Stock as reported on Nasdaq was
$43.00. There
11
<PAGE>
can be no assurance as to the actual price of Access Health Common Stock prior
to, at or at any time following the Effective Time of the Merger. See "Risk
Factors--Volatility of Access Health Stock Price" and "Access Health--Access
Health Stock Information."
No established trading market exists for Informed Access Capital Stock.
Reasons for the Merger. In the discussions that led to the signing of the
Merger Agreement, the Access Health Board identified a number of potential
benefits resulting from the Merger. Among the principal benefits were the
ability to create the preeminent personal health information company, the
opportunity to establish industry standards, an expanded customer base, the
ability to leverage Informed Access' clinically oriented database to enhance
product offerings, the ability to leverage Access Health's technology platforms
to enhance services and growth, and the opportunity to realize operating
synergies and to achieve longer-term operating results accretion. The Informed
Access Board also identified a number of potential benefits which would accrue
to Informed Access and its stockholders as a result of the Merger. The
potential benefits include the opportunity to facilitate continued rapid growth
and gain operational efficiencies by leveraging the expanded technical,
information and telecommunications systems, infrastructure, management and
financial resources of the combined entities; gain direct access to Access
Health's customer base; provide liquidity to holders of Informed Access Capital
Stock, and increased capabilities to pursue strategic transactions due to the
increased resources and availability of a publicly traded Common Stock. See
"Approval of the Merger and Related Transactions--Access Health's Reasons for
the Merger" and "--Informed Access' Reasons for the Merger."
Conduct of the Combined Companies Following the Merger. Access Health intends
to merge the operations of Access Health and Informed Access as soon as
practicable following the closing of the Merger; however, Access Health will
maintain the operations of Informed Access as a separate operating division of
Access Health managed by the current Informed Access management team. The
Informed Access division will have responsibility for the medical
management/managed care market. Other Access Health divisions will have
responsibility for the consumer, employer and international markets of the
combined company. For a period of at least one year following the Merger,
Access Health has agreed to maintain Informed Access' operations in the
Broomfield, Colorado area and to continue the employment of all persons
employed by Informed Access as of the Effective Time. See "Approval of the
Merger and Related Transactions--Employment Agreements; Employee Matters." Upon
consummation of the Merger, Joseph P. Tallman, Chief Executive Officer and a
director of Informed Access, and Kinney L. Johnson, a director of Informed
Access, will become directors of Access Health.
Exchange of Informed Access Stock Certificates. At or promptly after the
Effective Time, Access Health, acting through The First National Bank of Boston
as its exchange agent (the "Exchange Agent"), will deliver to each Informed
Access stockholder of record a letter of transmittal with instructions to be
used by such stockholder in surrendering certificates which, prior to the
Merger, represented shares of Informed Access Capital Stock. CERTIFICATES
SHOULD NOT BE SURRENDERED BY THE HOLDERS OF INFORMED ACCESS CAPITAL STOCK UNTIL
SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT. At the
Effective Time, each then outstanding option or warrant to purchase Informed
Access Capital Stock, whether vested or unvested, will be assumed by Access
Health without any action on the part of the holder thereof. OPTION AND WARRANT
AGREEMENTS NEED NOT BE SURRENDERED. See "Approval of the Merger and Related
Transactions--Manner and Basis of Converting Shares."
Conditions to the Merger. Consummation of the Merger is subject to the
satisfaction of various conditions, including approval of the Merger by the
requisite vote of the stockholders of each of Access Health, Merger Sub and
Informed Access and the receipt by Access Health and Informed Access of letters
from their respective independent auditors reaffirming their concurrence with
the managements of Access Health and Informed Access, respectively, that the
Merger may be accounted for as a pooling of interests. See "Approval of the
Merger and Related Transactions--Accounting Treatment." The ability of Access
Health to account for the
12
<PAGE>
Merger as a pooling of interests depends in part on there being no exercise of
appraisal rights under Delaware law as to greater than a certain number of
shares of Informed Access Capital Stock. If appraisal rights are exercised as
to a greater number of shares, then in the absence of a waiver from Access
Health regarding the failure to meet that condition, the Merger would not
close.
Consummation of the Merger is also subject to the satisfaction of the
following conditions: the Registration Statement filed with the SEC relating to
the issuance of shares of Access Health Common Stock in connection with the
Merger shall be effective and such shares shall be authorized for listing on
Nasdaq; no injunction, court order, or other legal restraint preventing
consummation of the Merger shall be in effect; and Access Health and Informed
Access shall have received opinions from their respective legal counsel to the
effect that the Merger will qualify as a tax free "reorganization" within the
meaning of the Code. In addition, the obligations of Informed Access to
consummate the Merger are subject to the following conditions, unless waived by
Informed Access: the representations and warranties of Access Health and Merger
Sub contained in the Merger Agreement shall be accurate except where any breach
or breaches did not, or would not reasonably be expected to, substantially
impair Access Health's ability after the closing of the Merger to continue to
develop, produce, sell and distribute the products and services that are
material to Access Health's business (a "Substantial Impairment"); Access
Health and Merger Sub shall have performed in all material respects the
covenants required by the Merger Agreement; there shall not have accrued any
material adverse change in the business, assets (including tangible assets),
financial condition or results of operations which change has resulted in or
reasonably would be expected to result in a Substantial Impairment; the
delivery by certain individuals of employment agreements and non-competition
agreements; Informed Access shall have received a legal opinion from counsel to
Access Health; and delivery by Access Health of an executed Registration Rights
Agreement. In addition, the obligations of Access Health to consummate the
Merger are subject to the following conditions, unless waived by Access Health:
the representations and warranties of Informed Access contained in the Merger
Agreement shall be accurate except where any breach or breaches did not, or
would not reasonably be expected to, substantially impair Informed Access'
ability after the closing of the Merger to continue to develop, produce, sell
and distribute the products and services that are material to Informed Access'
business; Informed Access shall have performed in all material respects the
covenants required by the Merger Agreement; any material third party consents,
approvals and waivers shall have been received; the delivery by certain
individuals of employment agreements and non-competition agreements; there
shall not have occurred any "Substantial Material Adverse Change" (as defined
in the Merger Agreement) relating to Informed Access and its business; and
Access Health shall have received a legal opinion from counsel to Informed
Access. See "Approval of the Merger and Related Transactions--Conditions to the
Merger."
Affiliate/Voting Agreements and Affiliate Agreements. Each of Informed
Access' directors, certain of its executive officers, and certain of its
stockholders affiliated with directors have entered into an Affiliate/Voting
Agreement with Access Health and Informed Access. Under the Affiliate/Voting
Agreement, each such stockholder of Informed Access agrees (i) to restrict
sales, dispositions or other transactions reducing their risk of investment in
respect of the shares of Informed Access Capital Stock held by them prior to
the Merger and shares of Access Health Common Stock acquired by them in or
after the Merger, subject to a de minimus exception, so as to comply with the
requirements of applicable federal securities and tax laws and to help ensure
that the Merger will be treated as a pooling of interests for accounting and
financial reporting purposes, and (ii) to vote in favor of approval of the
Merger Agreement and the Merger. The vote in accordance with the
Affiliate/Voting Agreements of the shares of Informed Access Capital Stock
subject to such Affiliate/Voting Agreements will be sufficient to approve the
Merger Agreement by Informed Access stockholders. In addition, all executive
officers and one 5% or more stockholder of Informed Access not executing
Affiliate/Voting Agreements have executed similar agreements to restrict
transfers of shares owned or acquired by them, subject to the same de minimus
exception, so as to comply with the requirements of applicable federal
securities and tax laws and to help ensure that the Merger will be treated as a
pooling of interests for accounting and financial reporting purposes.
13
<PAGE>
In addition, each of Access Health's directors and executive officers have
entered into an Affiliate Agreement, pursuant to which each director and
executive officer agrees (i) to restrict sales, dispositions or other
transactions reducing their risk of investment in respect of the shares of
Access Health Common Stock held by them prior to the Merger and shares of
Access Health Common Stock acquired by them after the Merger, subject to a de
minimus exception, so as to comply with the requirements of federal securities
laws and to help ensure that the Merger will be treated as a pooling of
interests for accounting and financial reporting purposes, and (ii) to vote in
favor of approval of the issuance of shares of Access Health Common Stock
pursuant to the Merger Agreement.
Termination; Termination Fees. The Merger Agreement may be terminated under
certain circumstances, including, without limitation, by mutual written consent
of Access Health and Informed Access; by either Access Health or Informed
Access if the other party commits certain breaches of any representation,
warranty or covenant contained in the Merger Agreement or if the Merger is not
consummated on or before February 28, 1997; or by Informed Access if the
closing price of a share of Access Health Common Stock on Nasdaq is below
$38.00 for any ten business days during the twenty business day period prior to
the closing date of the Merger. In the event of termination, each party shall
be liable to the other party for any willful breach of representation or
warranty and in addition for the following termination fees.
Informed Access will pay to Access Health a termination fee of $5 million in
the event that the closing of the Merger does not occur, the Merger Agreement
is terminated, Access Health is not in material breach of its obligations under
the Merger Agreement and either (i) Informed Access has willfully breached a
representation, warranty, covenant or agreement contained in the Merger
Agreement; (ii) the Merger has been submitted to a vote of Informed Access'
stockholders and the stockholders of Informed Access fail to approve the Merger
by the requisite vote; or (iii) the Informed Access Board fails to recommend or
changes its recommendation concerning the Merger, or shall disclose, in any
manner, its intention not to recommend or to change such recommendation.
Access Health will pay to Informed Access a termination fee of $5 million in
the event that the closing of the Merger does not occur, the Merger Agreement
is terminated, Informed Access is not in material breach of its obligations
under the Merger Agreement, and either (i) Access Health has willfully breached
any representation, warranty, covenant or agreement contained in the Merger
Agreement; (ii) the Access Health Board fails to recommend or changes its
recommendation concerning the Merger, or discloses, in any manner, its
intention not to recommend or to change its recommendation to stockholders
concerning the Merger; or (iii) the Merger has been submitted to a vote of
Access Health's stockholders and the stockholders of Access Health fail to
approve the issuance of shares of Access Health Common Stock pursuant to the
Merger by the requisite vote.
Interim Credit Facility. Access Health has agreed to provide Informed Access
an interim credit facility (the "Interim Credit Facility") constituting a line
of credit of up to $2 million. The line of credit may be drawn upon by Informed
Access until the closing of the Merger, termination of the Merger by Informed
Access or 60 days following termination of the Merger by Access Health. The
Interim Credit Facility is secured by a first security interest in all tangible
assets of Informed Access other than capital equipment which is otherwise
secured. In the event Access Health becomes liable to Informed Access for a
termination fee from termination of the Merger, the Interim Credit Facility
terminates and a portion of the break-up fee proceeds may be applied to any
outstanding balance due thereunder.
Certain Federal Income Tax Considerations. The Merger is intended to qualify
as a reorganization under Section 368(a) of the Code, in which case no gain or
loss should generally be recognized by the holders of shares of Informed Access
Capital Stock on the exchange of their shares of Informed Access Capital Stock
for shares of Access Health Common Stock. Receipt of an opinion from each
company's tax counsel that the Merger will constitute a reorganization under
Section 368(a) is a condition to the Merger. HOWEVER, ALL INFORMED ACCESS
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS. See "Approval of the
Merger and Related Transactions--Certain Federal Income Tax Considerations."
14
<PAGE>
Accounting Treatment. The Merger is intended to qualify as a pooling of
interests for financial reporting purposes in accordance with generally
accepted accounting principles. Consummation of the Merger is conditioned upon
receipt at the closing of the Merger by Access Health and Informed Access of
letters from Ernst & Young LLP, Access Health's independent auditors, and
Arthur Andersen LLP, Informed Access' independent auditors, reaffirming those
firms' concurrence with Access Health management's and Informed Access
management's conclusions, respectively, as to the appropriateness of pooling-
of-interests accounting for the Merger under Accounting Principles Board
Opinion No. 16, if consummated in accordance with the Merger Agreements. See
"Approval of the Merger and Related Transactions--Accounting Treatment."
Appraisal Rights. Stockholders of Informed Access who do not vote by written
consent in favor of the Merger may, under certain circumstances and by
following procedures prescribed by the DGCL, exercise appraisal rights and
receive cash for their shares of Informed Access Capital Stock. A dissenting
stockholder of Informed Access must follow the appropriate procedures under
Delaware law or suffer the termination or waiver of such rights. See "Approval
of the Merger and Related Transactions--Delaware Appraisal Rights." Delaware
law does not provide holders of Access Health Common Stock with any appraisal
rights with respect to the Merger.
Interest of Certain Persons in the Merger. A condition to the consummation of
the Merger is that certain officers and key employees of Informed Access enter
into employment agreements and noncompetition agreements with Access Health.
See "Approval of the Merger and Related Transactions--Employment Agreements"
and "--Non-Competition Agreements." In addition, in the Merger Agreement Access
Health has agreed, for the one year period following the Merger, not to
terminate the employment of persons employed by Informed Access as of the
Effective Time, except for reasonable cause. See "Approval of the Merger and
Related Transactions--Employment Matters." Subject to approval of the Option
and Bonus Proposal and approval of the Merger by Informed Access' stockholders,
all Informed Access Options will become fully vested and exercisable and
certain prior performance bonuses aggregating $1.5 million and bonuses related
to the completion of the Merger totaling $0.5 million will be paid to certain
Informed Access Officers. See "Approval of Option and Bonus Proposal."
Regulatory Matters. Access Health and Informed Access are aware of no
governmental or regulatory approvals required for consummation of the Merger,
other than compliance with the federal securities laws and applicable
securities laws of the various states. See "Approval of the Merger and Related
Transactions--Governmental and Regulatory Approvals."
15
<PAGE>
SELECTED HISTORICAL AND SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following selected historical financial information of Access Health and
Informed Access has been derived from their respective historical consolidated
financial statements and should be read in conjunction with the consolidated
financial statements and the notes thereto included herein. Access Health's
unaudited historical financial statement data as of and for the nine months
ended June 30, 1995 and 1996 and Informed Access' unaudited historical
financial statement data as of and for the six months ended June 30, 1995 and
1996 have been prepared on the same basis as the historical information derived
from audited financial statements and, in the opinion of Access Health's and
Informed Access' management, respectively, contain all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of
the financial position and results of operations for such periods. The
unaudited Selected Pro Forma Condensed Combined Financial Data are derived from
the unaudited Pro Forma Condensed Combined Financial Statements, appearing
elsewhere herein, which give effect to the Merger as a pooling of interests,
and should be read in conjunction with such pro forma statements and the notes
thereto. For the pro forma condensed combined statement of operations data,
Access Health's historical results for the nine months ended June 30, 1995 and
1996 and the years ended September 30, 1993, 1994 and 1995 have been combined
with Informed Access' historical results for the nine months ended June 30,
1995 and 1996 and the years ended December 31, 1993, 1994 and 1995,
respectively, to reflect the Merger as if it had occurred at the beginning of
the earliest period presented.
The pro forma information is presented for informational purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated as of the beginning of
the earliest period presented, nor necessarily indicative of the future
operating results or financial position of the combined companies. No cash
dividends have ever been declared or paid on Access Health Common Stock or
Informed Access Common Stock or Preferred Stock.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF OR FOR THE
AS OF OR FOR THE NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
---------------------------------------- -----------------
ACCESS HEALTH 1991 1992 1993 1994 1995 1995 1996
------------- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Total revenues......... $10,102 $12,399 $18,479 $18,629 $31,553 $ 20,954 $ 44,097
Income (loss) from
operations............ 1,610 1,911 1,640 (4,107) 2,026 333 8,291
Net income (loss)...... 1,014 1,359 1,274 (2,296) 1,540 452 5,612
Net income (loss) per
share(1).............. $ 0.14 $ 0.16 $ 0.13 $ (0.24) $ 0.14 $ 0.04 $ 0.43
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Total assets........... $11,849 $20,812 $24,206 $25,875 $31,129 $ 28,757 $ 73,269
Working capital........ 1,639 11,716 11,568 10,216 10,243 10,349 36,093
Long-term debt......... 1,206 881 1,039 690 398 489 --
Total stockholders'
equity................ 5,564 15,689 17,679 19,467 22,030 20,244 58,414
</TABLE>
<TABLE>
<CAPTION>
AS OF OR FOR AS OF OR FOR
THE YEAR ENDED THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------ ----------------
INFORMED ACCESS 1993 1994 1995 1995 1996
--------------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Total revenues................... $ 47 $ 125 $ 2,957 $ 558 $ 4,418
Net loss......................... (912) (2,381) (3,745) (2,066) (1,921)
Pro forma net loss per share(2).. $(0.45) $ (0.66) $ (0.73) $ (0.44) $ (0.34)
HISTORICAL CONSOLIDATED BALANCE
SHEET DATA:
Total assets..................... $ 749 $ 1,683 $ 5,180 $ 5,970 $ 5,142
Long-term liabilities............ -- 35 133 27 1,040
Mandatorily redeemable
convertible preferred stock..... 1,635 3,635 10,635 10,635 10,635
Total stockholders' deficit...... (1,023) (3,421) (7,127) (5,516) (9,037)
</TABLE>
- --------
(1) Share and per share information applicable to prior periods has been
restated to reflect a three-for-two stock split effected on February 15,
1996.
(2) Reflects the conversion of the Informed Access Preferred Stock into
Informed Access Common Stock on an "as if converted" basis from the time of
issuance.
16
<PAGE>
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED
--------------------------- ------------------
JUNE 30, JUNE 30,
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
DATA(1):
Total revenue................ $ 18,526 $ 18,754 $ 34,510 $21,583 $49,968
Income (loss) from
operations.................. 700 (6,526) (1,892) (2,669) 5,405
Net income (loss)............ 695 (3,798) (678) (1,279) 3,911
Net income (loss) per share.. $ 0.06 $ (0.31) $ (0.05) $ (0.09) $ 0.22
Shares used in per share
calculation................. 11,124 12,340 14,172 13,615 18,026
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1996
--------
<S> <C>
PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA(1):
Cash, cash equivalents and available-for-sale securities.............. $41,753
Working capital....................................................... 28,488
Total assets.......................................................... 78,411
Long-term liabilities................................................. 1,040
Total stockholders' equity............................................ 51,512
Book value per share.................................................. $ 3.01
</TABLE>
- --------
(1) Access Health and Informed Access estimate that they will incur Merger-
related expenses of approximately $12 million, consisting primarily of
transaction costs for financial advisory fees, attorneys, accountants, and
financial printing and one-time charges related to the transaction.
Approximately $3.5 million of the Merger related expenses will be paid from
escrow to the financial advisors of Informed Access in the form of 64,500
shares of Access Health Common Stock. See "Approval of Merger and Related
Transactions--Escrow Fund." This estimate is preliminary and is therefore
subject to change. These nonrecurring expenses will be charged to
operations in the fiscal quarter in which the Merger is consummated. The
Pro Forma Condensed Combined Balance Sheet gives effect to such expenses as
if they had been incurred as of June 30, 1996, but the Pro Forma Condensed
Combined Statements of Operations do not give effect to such expenses in
accordance with Regulation S-X.
See Pro Forma Condensed Combined Financial Statements and the notes thereto
included elsewhere herein.
17
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain historical per share data of Access
Health and Informed Access and combined per share data on an unaudited pro
forma basis after giving effect to the Merger on a pooling-of-interests basis
assuming the issuance of .80 of a share of Access Health Common Stock for each
outstanding share of Informed Access Capital Stock. The Exchange Ratio above
assumes that the transaction was consummated on June 30, 1996. The actual
number of shares of Access Health Common Stock to be exchanged for all of the
outstanding Informed Access Capital Stock will be determined at the Effective
Time based on the capitalization of Informed Access at the Effective Time. The
following data should be read in conjunction with the Selected Historical
Financial Data, the Selected Pro Forma Condensed Combined Financial Data, the
Pro Forma Condensed Combined Financial Statements and the separate historical
financial statements of Access Health and Informed Access included elsewhere
herein. The unaudited pro forma combined per share data are not necessarily
indicative of the operating results that would have been achieved had the
Merger been consummated as of the beginning of the earliest period presented
and should not be construed as representative of future operations. No cash
dividends have ever been declared or paid on Access Health Common Stock or
Informed Access Preferred Stock.
<TABLE>
<CAPTION>
AS OF OR AS OF OR FOR THE
FOR THE YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
---------------------- ------------------
1993 1994 1995 1995 1996
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
HISTORICAL--ACCESS HEALTH:
Net income (loss) per share...... $ 0.13 $(0.24) $ 0.14 $ 0.04 $ 0.43
Book value per share(1).......... $ 2.16 $ 4.66
<CAPTION>
AS OF OR AS OF OR FOR THE
FOR THE YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------- ------------------
1993 1994 1995 1995 1996
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
HISTORICAL--INFORMED ACCESS(6):
Pro forma net loss per share..... $(0.45) $(0.66) $(0.73) $ (0.66) $ (0.50)
Pro forma book value per
share(1)........................ $ 0.62 $ 0.28
<CAPTION>
AS OF OR AS OF OR FOR THE
FOR THE YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
---------------------- ------------------
1993 1994 1995 1995 1996
------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED NET
INCOME (LOSS) PER SHARE(2)(3):
Pro forma net income (loss) per
Access Health share............. $ 0.06 $(0.31) $(0.05) $ (0.09) $ 0.22
Equivalent pro forma net income
(loss) per Informed Access
share(4)........................ $ 0.05 $(0.25) $(0.04) $ (0.07) $ 0.18
UNAUDITED PRO FORMA COMBINED BOOK
VALUE PER SHARE(1)(3):
Pro forma book value per Access
Health share.................... $ 3.01
Equivalent pro forma book value
per Informed Access
share(4)(5)..................... $ 2.41
</TABLE>
- --------
(1) Historical book value per share is computed by dividing stockholders'
equity for Access Health and Informed Access by the number of shares of
common stock outstanding at the end of each period for Access Health and
Informed Access, respectively. Pro forma book value per share is computed
by dividing pro forma stockholders' equity by the pro forma number of
shares of common stock outstanding at the end of the period.
(2) This table combines financial information of Access Health for the fiscal
years ended September 30, 1993, 1994 and 1995 and the nine months ended
June 30, 1995 and 1996 with the financial information of Informed Access
for the years ended December 31, 1993, 1994 and 1995 and the nine months
ended June 30, 1995 and 1996, respectively.
(3) Access Health and Informed Access estimate that they will incur Merger-
related expenses of approximately $12 million, consisting primarily of
transaction costs for financial advisory fees, attorneys, accountants and
financial printing and other one-time charges related to the transaction.
Approximately $3.5 million of the Merger-related expenses will be paid from
escrow to the financial advisors of Informed Access in the form of 64,500
shares of Access Health Common Stock. See "Approval of Merger and Related
Transactions--Escrow Fund." The pro forma combined balance sheet data gives
effect to such expenses as if they had been incurred as of June 30, 1996;
however in accordance with Regulation S-X, the pro forma condensed combined
statements of operations do not give effect to such expenses. The pro forma
financial information includes pro forma adjustments to reflect the
combined tax liability as if Access Health and Informed Access had filed
consolidated income tax returns. As a result, combined income tax expense
has been reduced by $333,000, $879,000, $1,527,000, $1,198,000, and
$1,133,000 for the years ended September 30, 1993, 1994, and 1995 and the
nine months ended June 30, 1995 and 1996, respectively.
(4) The unaudited equivalent Informed Access pro forma per share amounts are
calculated by multiplying the Access Health combined pro forma per Access
Health share amounts by the Exchange Ratio.
(5) The pro forma combined balance sheet data gives effect to the conversion of
Informed Access redeemable Preferred Stock into 3,654,448 shares of Access
Health Common Stock based on the estimated exchange ratio.
(6) Reflects the conversion of the Informed Access Preferred Stock to Informed
Access Common Stock on an "as if converted" basis from the time of
issuance.
18
<PAGE>
RISK FACTORS
The following factors should be considered carefully in evaluating the
proposals to be voted upon by the stockholders of Access Health and Informed
Access and in evaluating an investment in the Access Health Common Stock
offered hereby. For periods following the Merger, references to the products,
business, results of operations or financial condition of Access Health should
be considered to refer to Access Health and its subsidiaries, including
Informed Access, unless the context otherwise requires.
RISKS RELATED TO THE MERGER
Uncertainties Relating to Integration of Operations. Access Health and
Informed Access have entered into the Merger Agreement with the expectation
that the Merger will result in beneficial synergies for the combined
companies. See "Approval of the Merger and Related Transactions--Access
Health's Reasons for the Merger" and "--Informed Access' Reasons for the
Merger." Achieving the anticipated benefits of the Merger will depend in part
upon whether the integration of the two companies' businesses is achieved in
an efficient, effective and timely manner, and there can be no assurance that
this will occur. The successful combination of the two companies will require,
among other things, the timely integration of the companies' respective
product and service offerings, coordination of their respective sales and
marketing and research and development efforts and integration of the
companies' respective telecommunications systems. The difficulties of such
integration may be increased by the necessity of coordinating geographically
separated organizations. There can be no assurance that integration will be
accomplished smoothly, on time or successfully. Integrating the operations of
the two companies could have a material adverse effect on Access Health's
business. For example, the process could (i) interrupt Access Health's
business, (ii) divert management attention, (iii) place further pressure on
Access Health's officers; and (iv) result in additional administrative
expense. Failure to effectively accomplish the integration of the two
companies' operations could have a material adverse effect on Access Health's
business, results of operations and financial condition.
Potential Dilutive Effect to Stockholders. The companies believe that
beneficial synergies will result from the Merger; however, there can be no
assurance that the combining of the two companies' businesses, even if
achieved in an efficient, effective and timely manner, will result in combined
results of operations and financial condition superior to what would have been
achieved by each company independently, including the results of operations
which each company could have achieved independently in the same period of
time. The issuance of Access Health Common Stock in connection with the Merger
is expected to have the effect of initially reducing Access Health's net
income per share and could reduce the market price of Access Health Common
Stock.While the transaction is expected to be accretive for fiscal 1997, the
degree of such accretion, if any, will depend on revenue growth, cost savings
and/or other business synergies sufficient to offset the effect of such stock
issuance. There can be no assurance that such synergies will be achieved. In
addition, there can be no assurance that stockholders of Informed Access would
not achieve greater returns on investment if Informed Access were to remain an
independent company.
Risks Associated with Fixed Exchange Ratio. Under the terms of the Merger
Agreement, each share of Informed Access Capital Stock issued and outstanding
at the Effective Time will be converted into the right to receive a fraction
of a share of Access Health Common Stock. The Merger Agreement does not
contain any provisions for adjustment of the Exchange Ratio based on
fluctuations in the price of Access Health Common Stock on the Nasdaq National
Market. Accordingly, the value of the consideration to be received by
stockholders of Informed Access upon the Merger will depend on the market
price of the Access Health Common Stock at the Effective Time. On September 3,
1996, the date the Merger Agreement was signed, the closing price of the
Access Health Common Stock on the Nasdaq National Market was $54.25. There can
be no assurance that the market price of the Access Health Common Stock on and
after the Effective Time will not be lower than such price. See "--Volatility
of Access Health Stock Prices."
Substantial Expenses Resulting from the Merger. The combined companies'
results of operations will be adversely affected by Merger-related expenses,
consisting primarily of nonrecurring transaction costs of financial
19
<PAGE>
advisors, attorneys, accountants, financial printing and other related charges
estimated to be approximately $12.0 million. These costs will be charged to
operations in, and will therefore negatively impact operating results for, the
fiscal quarter in which the Merger is consummated. Although the companies do
not believe that the costs will exceed these estimates, there is no assurance
that these estimates are correct or that unanticipated contingencies will not
occur that will substantially increase the costs of combining the operations
of the two companies or will result in a material adverse affect on the
results of operations of Access Health in future periods.
Shares Eligible for Future Sale. If the Merger is consummated, Access Health
will issue to securityholders of Informed Access an aggregate of approximately
5,375,000 shares of Access Health Common Stock (of which 64,500 shares are to
be distributed from Escrow to the financial advisors of Informed Access in
payment of financial advisory fees in connection with the Merger) based on the
number of shares of Informed Access Capital Stock outstanding as of September
15, 1996. Substantial sales of such shares of Access Health Common Stock could
occur after the Merger. Immediately upon consummation of the Merger,
approximately 1,119,860 of such shares will be freely tradeable. Following
publication of financial results covering 30 days of post-Merger combined
operations, an additional 3,562,103 shares issued in the Merger to persons who
may be deemed affiliates of Informed Access could be publicly sold pursuant to
Rule 145 under the Securities Act, subject to the volume and other limitations
thereof. In addition, based on the number of Informed Access options and
warrants outstanding on September 15, 1996, approximately 693,037 additional
shares of Access Health Common Stock will be reserved for issuance to holders
of Informed Access options and warrants to be assumed by Access Health in the
Merger. Future sales of a substantial number of such shares of Access Health
Common Stock could adversely affect or cause substantial fluctuations in the
market price of Access Health Common Stock.
RISKS RELATED TO THE BUSINESS AND OPERATIONS OF ACCESS HEALTH AND INFORMED
ACCESS
Fluctuations in Financial Results. During fiscal 1993 and 1994 Access Health
incurred significant expenses related to the start-up of its PHA product,
including the hiring and training of personnel and the expansion of its
operational infrastructure and sales and marketing programs. Because revenues
from PHA were not sufficient to cover these start-up expenses, operating
losses were sustained in fiscal 1994 and the first quarter of fiscal 1995.
Access Health returned to profitability in the second quarter of fiscal 1995
and achieved increased profitability in each quarter thereafter as additional
members have been enrolled in PHA.
Similarly, Informed Access has incurred significant costs and losses from its
inception in 1991 through the current period. Such losses have been
attributable to the development of its FirstHelp products and services as well
as expenses associated with start up, hiring and training of personnel,
infrastructure expansion and sales and marketing programs. There can be no
assurance that revenues and profitability from the combined companies will
continue to increase in future periods. In addition, Access Health expects to
incur substantial costs in connection with the Merger, estimated to be
approximately $12.0 million, which will be charged to operations in, and will
therefore negatively impact operating results for, the fiscal quarter in which
the Merger is consummated. Informed Access has incurred significant expenses
and operating losses for each of the past three years and for the six months
ended June 30, 1996. While Informed Access has significantly increased its
revenue and expects to achieve profitability by the end of 1996, there can be
no assurance that Informed Access' revenues will continue to increase or that
Informed Access will achieve and sustain profitability.
Following the Merger, Access Health may incur significantly increased sales,
marketing and promotional expenses in future periods, and may devote
additional resources to the further development of PHA, Informed Access'
FirstHelp system or other new products. To the extent that Access Health
incurs increased expenses, Access Health's operating results will be adversely
affected unless revenues and operating margins increase sufficiently to offset
such expenditures. Access Health believes that the combined company could
achieve operating results superior to what would have been achieved by each
company independently and further believes that such improved results could be
achieved during Access Health's 1997 fiscal year and for future fiscal years.
20
<PAGE>
However, such improved operating results depend on continued growth of both
companies' customer bases, including increasing the membership enrollment and
retaining existing customers and obtaining new contracts, controlling
operating expenses, and achieving operating synergies that reduce the expenses
of the combined companies as well as other business risks discussed herein.
There can be no assurance as to whether or when Access Health will achieve
improved operating results. See "Access Health's Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Informed
Access' Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Ability to Secure Additional Contracts and Expand and Retain Existing
Contracts. Access Health's ability to sustain and grow its business and
improve its results of operations is largely dependent on its continuing
ability to secure contracts with new customers and to retain and expand
contracts with existing customers. After an initial term of approximately one
to four years, contracts generally can be terminated upon 60 to 180 days
notice to Access Health. In addition, Access Health's customer contracts
periodically come up for renewal and may also be renegotiated. For example, in
June 1995 Access Health renegotiated a PHA contract with an existing customer
which reduced the minimum number of enrolled members required under the
contract, and renegotiated two contracts for two other clients for health
systems services. One of Access Health's three largest contracts is up for
renewal in fiscal 1997, and two are up for renewal in fiscal 1998. In
addition, Access Health's success in securing new contracts and retaining
existing contracts may be adversely affected by factors outside of Access
Health's control, such as government regulatory action or adverse publicity.
For example, certain of Access Health's contracts could be subject to early
termination by its customers if Access Health were not in compliance with any
applicable government regulation. See "--Dependence on Principal Contracts,"
"--Product Development; Technology Change," "--Government Regulation" and
"Access Health Business--Principal Customers."
Dependence on Principal Contracts. A significant portion of Access Health's
and Informed Access' revenues are generated by a limited number of customers.
Access Health's three largest customers accounted for approximately 17.2%,
12.2%, and 11.6% of its total revenues for the nine months ended June 30,
1996. Informed Access' three largest customers accounted for 20%, 14% and 10%
of its total revenues for 1995. These contracts are periodically up for
renewal and renegotiation and may be subject to early termination in certain
circumstances. The termination, non-renewal or renegotiation of any of such
agreements could have a material adverse effect on Access Health's business,
results of operation and financial condition. See "--Ability to Secure
Additional Contracts and Expand and Retain Existing Contracts," "Access Health
Business--Principal Customers" and "--Government Regulation."
Volatility of Access Health Stock Price. The market for Access Health's
Common Stock is highly volatile. The trading price of Access Health's Common
Stock is subject to wide fluctuations in response to a variety of factors,
including: (i) quarterly variations in operating and financial results; (ii)
the signing or loss of a major contract; (iii) announcements of new products
or service offerings by Access Health or its competitors; (iv) changes in
prices of Access Health's or its competitors' products and services; (v)
changes in the revenue and operating income and revenue and operating income
growth rates for Access Health; (vi) changes in governmental regulation; and
(vii) general conditions in the health care industry and the economy, as well
as other events or factors. Statements or changes in opinions, ratings, or
earnings estimates made by brokerage firms or industry analysts relating to
the market in which Access Health does business or relating to Access Health
specifically have resulted, and could in the future result, in an immediate
and adverse effect on the market price of Access Health's Common Stock.
Statements by financial or industry analysts regarding the extent of the
dilution in Access Health's net income per share resulting from the Merger and
the extent to which and timing when such analysts expect potential operational
efficiencies to offset such dilution can be expected to contribute to
volatility in the market price of Access Health Common Stock. In addition, the
stock market has from time to time experienced extreme price and volume
fluctuations which have particularly affected the market price for the
securities of many health care companies and which often have been unrelated
to the operating performance of these companies. These broad market
fluctuations may adversely affect the market price of Access Health Common
Stock.
21
<PAGE>
Competition. The market for Access Health's products and services is highly
competitive. There are a number of competitors that offer products or services
that compete with some or all of those offered by Access Health. Existing and
potential clients may also evaluate Access Health's products or services
against the cost of internally developed programs. Increased competition could
result in pricing pressure and margin erosion. In its existing business and as
Access Health offers new products or services, or enters new markets, it may
face increased competition from competitors, some of which may have
substantially greater financial, marketing and technical resources than Access
Health. There can be no assurance that Access Health will continue to compete
successfully with its existing competitors or will be able to compete
successfully with new competitors. See "Access Health Business--Competition."
Product Development; Technological Change. The health care industry has
undergone significant changes in recent years, and changes are expected to
continue. Containing health care costs has become a national priority in the
United States. As a result, the health care industry has become increasingly
dominated by managed health care plans, causing cost containment pressure to
rise. Access Health's personal health management products and services and
Informed Access' health care coordination products and services were developed
in response to industry demand for products which could help contain health
care costs. Continued change in the health care industry and pressure to
continually upgrade and enhance its products and services may cause Access
Health to incur significant product development expenses. Access Health and
Informed Access will need to upgrade and enhance their products and services
on a continual basis in order to remain competitive. For example, Access
Health and Informed Access will each need to add protocols and clinical
algorithms to their products on an ongoing basis in order to provide their
customers with current clinical information, new modules and advanced
features. In addition, Access Health and Informed Access may also be required
to do additional development work to permit the implementation of their
respective products with increasingly larger customer bases. As part of this
ongoing development process, Access Health and Informed Access may each
conduct large scale upgrades which have a significant impact on their
respective products. For example, Informed Access is currently developing a
new generation of the FirstHelp system to provide enhanced features,
flexibility and scalability. There can be no assurance that continued industry
change will not adversely affect Access Health's ability to compete or that
Access Health and Informed Access will be able to complete their product
development efforts in a timely and efficient manner or that the Access Health
and Informed Access products and services will achieve ongoing market
acceptance.
Government Regulation. The health care industry is subject to extensive and
evolving government regulation at both the federal and state level relating to
many aspects of Access Health's and its clients' businesses in use of Access
Health's programs, including the provision of health care services,
teleservicing, health care referral programs, and health maintenance
organizations and other similar plans. These statutes and regulations in many
cases predate the development of telephone-based health care information
services and other interstate transmission and communication of medical
information and services. The literal language of certain of these statutes
and regulations governing the provision of health care services, including the
practice of nursing and the practice of medicine, could be construed by
regulatory authorities to apply to certain of Access Health's activities
including without limitation teleservicing activities which use Arizona,
California, Colorado and Illinois registered nurses to provide out-of-state
personal health care management services such as nursing assessment and
counseling and information regarding appropriate health care providers and
treatment time frames. These statutes and regulations could also apply to
certain activities of Access Health's health care service customers when
operating Access Health's programs. Access Health has not been made, nor is it
aware that any of its clients with respect to operation of Access Health's
programs, or its nurse employees or any other organization providing out-of-
state teleservicing have ever been made, the subject of such requirements by a
regulatory authority. In addition, the literal language of the statutes and
regulations governing health maintenance organizations and other plans that
provide or arrange for the provision of health care services for a prepaid or
periodic charge could be construed by regulatory authorities to apply to
certain activities of Access Health that are provided on a per-member, per-
month basis. Access Health has not been made, nor is it aware that any other
company providing teleservicing has ever been made, the subject of such
requirements by a regulatory authority. However, if regulators seek to enforce
any of the foregoing statutory and regulatory requirements, Access Health,
22
<PAGE>
its employees and/or its clients could be required to obtain additional
licenses or registrations, to modify or curtail the operation of Access
Health's programs, to modify the method of payment for Access Health's
programs, or to pay fines or incur other penalties.
The payment of remuneration to induce the referral of health care business
has been the subject of increasing governmental and regulatory focus in recent
years including the federal anti-kickback statute, which provides criminal and
civil penalties for individuals or entities that knowingly and willfully
offer, pay, solicit or receive remuneration in order to induce referrals for
items or services for which payment may be made under the Medicare and
Medicaid programs and certain other government-funded programs. A number of
states in which Access Health operates have anti-kickback statutes similar to
the federal statute which may apply to government and non-government payment
programs as well as statutory and regulatory requirements governing referral
agencies and regulating franchising and business opportunity ventures. In
addition, the federal government and a number of states have enacted statutes
which contain outright prohibitions on referrals for specified services which
are made by referring providers who have an ownership interest in, or
compensation arrangement with, the entity to which the referral is made. If
Access Health or the use of its products and services were to be found in
violation of any of the foregoing statutes or regulations, Access Health or
its clients could be required to modify or curtail the operation of Access
Health's programs, or to pay fines or incur other penalties, and Access
Health's clients could be excluded from participation in the Medicare and
Medicaid programs and could be precluded from charging fees and obtaining
reimbursement for specified services.
There can be no assurance that Access Health or the use of its products and
services will not be subject to review or challenge by government regulators
under any of the foregoing statutes and regulations that apply to health care
services and products. In addition, additional laws and regulations could be
enacted in the future that would regulate Access Health or the use of its
products and services. Any government investigative or enforcement actions
with respect to Access Health or the use of its products or services could
generate adverse publicity irrespective of the final outcome, and could have a
material adverse effect on Access Health. See "Access Health Business--
Government Regulation."
Management of Growth. Both Access Health and Informed Access have
experienced rapid growth in recent years. Continued rapid growth may place a
significant strain on Access Health's management, telecommunications systems,
operational infrastructure, working capital and financial and management
control systems. In order for Access Health and Informed Access to manage
their respective client bases successfully, management will be required to
anticipate the changing demands of their growing operations and to adopt
systems and procedures accordingly. Failure to effectively implement or
maintain such systems and controls could adversely affect Access Health's
business, results of operation and financial condition. Further, there can be
no assurance that Access Health's current information systems,
telecommunications systems and operational infrastructure will be adequate for
its future needs, or that Access Health will be successful in implementing new
systems. Failure to upgrade its information systems, telecommunications
systems and operational infrastructure or unexpected difficulties encountered
with these systems during expansion could adversely affect Access Health's
business, financial condition and results of operations.
Key Personnel. Access Health's success depends in part on the continued
contributions of both companies' key management and technical personnel. While
Access Health key employees do not generally enter into employment or
noncompetition agreements, certain key employees of Informed Access have
entered into non-competition agreements and employment agreements in
connection with the Merger. The loss of the services of one or more of these
employees could have a material adverse affect on Access Health. See "Approval
of the Merger and Related Transactions--Employment Agreements; Employment
Matters" and "--Non-Competition Agreements." The success of Access Health also
depends on Access Health's ability to attract and retain other qualified
technical, managerial, sales and marketing personnel. The competition for such
personnel is intense in the health care industry. Uncertainty during
integration of the two companies' businesses may adversely affect the combined
companies' ability to attract and retain such personnel. See "--Uncertainties
Relating to Integration of Operations."
23
<PAGE>
Risk Management. In recent years, participants in the health care industry,
including physicians, nurses and other health care professionals, have been
subject to an increasing number of lawsuits alleging malpractice, product
liability and related legal theories, many of which involve large claims and
significant defense costs. Due to the nature of its business, Access Health
could become involved in litigation regarding the telephone information given by
its registered nurses or those of its licensees with the risk of adverse
publicity, significant defense costs and substantial damage awards. Access
Health has not adopted policies and procedures intended to reduce the risk of
claims, and, to date, Access Health has not been the subject of any claim
involving either clinical assessment systems, the operation of teleservicing
centers or the operation by hospital clients of on-site call centers. However,
there can be no assurance that claims will not be brought against Access Health.
Even if such claims ultimately prove to be without merit, defending against them
can be time consuming and expensive, and any adverse publicity associated with
such claims could have a material adverse effect on Access Health's business,
results of operations and financial condition.
While Access Health maintains professional liability insurance, there can be
no assurance that claims in excess of Access Health's insurance coverage will
not arise or that all claims would be covered by such insurance. In addition,
although Access Health has not experienced difficulty in obtaining insurance
coverage in the past, Access Health expects to seek increased insurance
coverage as its business grows. There can be no assurance that Access Health
will be able to maintain existing insurance coverage or obtain increased
coverage on acceptable terms or at all. See "Access Health Business--Risk
Management."
Risks Associated with Call Center Operations. Access Health maintains member
service and data centers ("call centers") in Rancho Cordova, California;
Chicago, Illinois; Phoenix, Arizona and Broomfield, Colorado (as of the
Effective Time). Access Health's operations depend on the adequate functioning
of the computer and telephone systems in its call centers. Although Access
Health has taken precautions to provide for power, computer, and telephone
systems redundancy, there can be no assurance that a fire or other disaster
affecting the centers or an equipment failure would not disable Access
Health's systems for a significant period of time. Any significant damage to
Access Health's facilities or an equipment failure could have a material
adverse effect on Access Health's results of operations. The integration of
Informed Access and Access Health's continued rapid growth may place
significant strain on Access Health's telecommunications systems. Access
Health's current telecommunications infrastructure will not be adequate for
its future needs and Access Health will need to continue to expand such
infrastructure to support its continued revenue growth. See "--Uncertainties
Relating to Integration of Operations" and "--Management of Growth."
Limitations on Protection of Proprietary Rights. Access Health regards its
software, clinical nursing assessment protocols and marketing and program
operation materials as proprietary and attempts to protect its intellectual
property with copyrights, trademarks, trade secret laws and restrictions on
disclosure, copying and transferring title. Access Health has no patents.
Informed Access holds one issued United States patent which covers a number of
inventions including the structure, use and process of its clinical decision
architecture ("CDA") and clinical database and certain capabilities of the
provider profiler product. There can be no assurance that competitors, some of
which have substantial resources and have made substantial investments in
competing technologies, will not seek to apply for and obtain patents that
will prevent, limit or interfere with Access Health's ability to make, use or
sell its products either in the United States or in international markets.
Furthermore, the laws of certain foreign countries do not protect Access
Health's intellectual property rights to the same extent as do the laws of the
United States. Litigation or regulatory proceedings, which could result in
substantial cost and uncertainty to Access Health, may also be necessary to
enforce Access Health's intellectual property rights or to determine the scope
and validity of other parties' proprietary rights. It is also possible that
Access Health may need to acquire licenses to, or contest the validity of,
issued or pending patents of third parties relating to Access Health's
technology. There can be no assurance that any of such licenses would be made
available to Access Health on acceptable terms, if at all, or that Access
Health, if it were to contest the validity of any issued or pending patents,
would prevail. In addition, Access Health could incur substantial costs in
defending itself in suits brought against Access Health on its patents or in
bringing suits against third parties to enforce Access Health's proprietary
rights including patents. Access Health also relies on copyright, trademarks,
24
<PAGE>
trade secret laws and restrictions on disclosure, copying and transferring
title. Despite Access Health's precautions, it may be possible for
unauthorized third parties to copy aspects of Access Health's products or to
obtain and use information that Access Health regards as proprietary. Existing
copyright laws afford only limited practical protection. In addition, the laws
of some foreign countries do not protect Access Health's proprietary rights to
the same extent as do the laws of the United States, which could be a factor
if Access Health expands into markets outside the United States.
Future Acquisitions. Access Health intends to evaluate future acquisitions
of complementary product lines and businesses as part of its business
strategy. Future acquisitions by Access Health may result in potentially
dilutive issuances of equity securities, the use of Access Health's cash
resources, the incurrence of additional debt and increased goodwill,
intangible assets and amortization expense which could negatively impact
Access Health's profitability. In addition, acquisitions involve numerous
risks, including difficulties in the assimilation of the operations and
products of the acquired companies, the diversion of management's attention
from other business concerns, risks of entering markets in which Access Health
has no or limited direct prior experience, and the potential loss of key
employees of the acquired company.
25
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus and Consent Solicitation Statement (i) is
furnished in connection with the solicitation of proxies by the Access Health
Board to be used at the Access Health Meeting and (ii) is furnished to holders
of Informed Access Capital Stock in connection with the solicitation of
written consents by the Informed Access Board of Directors to consider and
vote upon the matters set forth in the Informed Access Written Consent. This
Proxy Statement/Prospectus and Consent Solicitation Statement is also
furnished by Access Health to Informed Access stockholders in connection with
the issuance of shares of Access Health Common Stock in connection with the
Merger described herein.
The information set forth herein concerning Access Health has been furnished
by Access Health and the information set forth herein concerning Informed
Access has been furnished by Informed Access.
ACCESS HEALTH MEETING
DATE, TIME AND PLACE OF ACCESS HEALTH MEETING
The Access Health Meeting will be held on , November , 1996 at 9:00 a.m.,
local time, at Access Health's executive offices located at 11020 White Rock
Road, Rancho Cordova, California 95670.
PURPOSES OF ACCESS HEALTH MEETING
The purpose of the Access Health Meeting is to consider and vote upon the
approval of the issuance of shares of Access Health Common Stock pursuant to
the terms of the Merger Agreement. As a result of the Merger, all outstanding
shares of Informed Access Capital Stock will be converted into shares of
Access Health Common Stock and all outstanding options and warrants to acquire
Informed Access Capital Stock will become options and warrants to acquire
Access Health Common Stock. See "Approval of the Merger and Related
Transactions--Manner and Basis of Converting Shares."
Additional purposes of the Access Health Meeting are to consider and vote
upon (i) a proposal to approve and adopt the Certificate Amendment, which
increases the authorized number of shares of Access Health Common Stock from
30,000,000 to 75,000,000 shares, and (ii) a proposal to ratify and approve the
Incentive Plan Amendment, which increases the number of shares available for
options under the plan by 1,000,000 shares.
RECORD DATE AND OUTSTANDING SHARES
Only stockholders of record of Access Health Common Stock at the close of
business on October 15, 1996 (the "Access Health Record Date") are entitled to
notice of, and to vote at, the Access Health Meeting. As of the Access Health
Record Date, there were approximately stockholders of record holding an
aggregate of shares of Access Health Common Stock.
VOTE REQUIRED; QUORUM
Because the number of shares of Access Health Common Stock to be issued or
reserved for issuance in connection with the Merger will exceed 20% of the
number of shares of Access Health Common Stock outstanding prior to the
Merger, approval by a majority of the votes cast at the Access Health Meeting
of the issuance of the Access Health Common Stock pursuant to the Merger
Agreement is required under the rules of the Nasdaq National Market. If a
majority of the votes cast at the Access Health Meeting do not approve such
issuance, the Merger will not be consummated. In such event, Access Health
will be obligated to pay a termination fee of $5 million to Informed Access.
In addition, the approval of the Certificate Amendment requires the
affirmative vote of the holders of a majority of the outstanding shares of
Access Health Common Stock, and the approval of the Incentive Plan Amendment
requires the affirmative vote of a majority of the Access Health Common Stock
present in person or represented by proxy and voting at the Access Health
Meeting. Each stockholder of record of Access Health Common Stock on the
Access Health Record Date is entitled to cast one vote per share, exercisable
in person or by properly executed proxy, on each matter properly submitted for
the vote of the stockholders of Access Health at the Access Health Meeting.
26
<PAGE>
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Access Health Common Stock entitled to
vote at the Access Health Meeting will constitute a quorum. If an executed
Access Health proxy is returned and the stockholder has specifically abstained
from voting on any matter, the shares represented by such proxy will be
considered present at the Access Health Meeting for purposes of determining a
quorum and for purposes of calculating the vote, but will not be considered to
have been voted in favor of such matter. If an executed proxy is returned by a
broker holding shares in street name which indicates that the broker does not
have discretionary authority as to certain shares to vote on one or more
matters (a"broker non-vote"), such shares will be considered present at the
meeting for purposes of determining a quorum, but will not be considered to be
represented at the meeting for purposes of calculating the votes cast with
respect to such matter. Absentions and broker non-votes will have no effect on
the proposal to approve the Merger or the Incentive Plan Amendment, but will
have the effect of a vote against the Certificate Amendment.
Certain holders of Access Health Common Stock have entered into Affiliate
Agreements with Access Health, pursuant to which each such holder has agreed
to vote (i) in favor of approval of the issuance of the shares of Access
Health Common Stock pursuant to the Merger Agreement and (ii) against (among
other things) approval of any proposal made in opposition to or competition
with consummation of the issuance of shares in connection with the Merger. In
addition, each such holder has granted pursuant to such holder's Affiliate
Agreement, to each director on the Board of Directors of Access Health, an
irrevocable proxy to vote shares as aforesaid. These shares of Access Health
Common Stock subject to the Affiliate Agreements represent 5.4% of the votes
entitled to be cast by holders of shares of Access Health Common Stock as of
the Access Health Record Date.
VOTING OF PROXIES
All shares of Access Health Common Stock that are entitled to vote and are
represented at the Access Health Meeting either in person or by properly
executed proxies received prior to or at the Access Health Meeting and not
duly and timely revoked will be voted at the Access Health Meeting in
accordance with the instructions indicated on such proxies. If no such
instructions are indicated, such proxies will be voted for the approval of the
issuance of shares of Access Health Common Stock pursuant to the Merger
Agreement, for approval of the Certificate Amendment and for approval of the
Incentive Plan Amendment.
If any other matters are properly presented for consideration at the Access
Health Meeting (or any adjournments or postponements thereof) including, among
other things, consideration of a motion to adjourn or postpone the Access
Health Meeting to another time and/or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
enclosed forms of proxy and voting thereunder will have the discretion to vote
on such matters in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Access Health at or before the taking of the vote at the
Access Health Meeting, a written notice of revocation bearing a later date
than the proxy; (ii) duly executing a later-dated proxy relating to the same
shares and delivering it to the Secretary of Access Health, before the taking
of the vote at the Access Health Meeting or (iii) attending the Access Health
Meeting and voting in person (although attendance at the Access Health Meeting
will not in and of itself constitute a revocation of a proxy). Any written
notice of revocation or subsequent proxy should be sent so as to be delivered
to Access Health, Inc. at 11020 White Rock Road, Rancho Cordova, California
95670, Attention: Secretary, or hand-delivered to the Secretary of Access
Health, in each case at or before the taking of the vote at the Access Health
Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Access Health stockholders will be borne by
Access Health. Proxies may be solicited by certain Access Health directors,
officers and employees personally or by telephone, telecopy or other means of
communication. Such persons will not receive additional compensation, but may
be reimbursed for
27
<PAGE>
reasonable out-of-pocket expenses incurred in connection with such
solicitation. Following the original mailing of the proxies and other
soliciting materials, Access Health will request that brokers, custodians,
nominees and other record holders forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of Access Health
Common Stock and request authority for the exercise of proxies. In such cases,
Access Health, upon the request of the record holders, will reimburse such
record holders for their reasonable expenses. Access Health has retained
Corporate Investor Communications, Inc. to assist in the solicitation of
proxies at a cost of approximately $4,000, plus customary expenses.
SOLICITATION OF WRITTEN CONSENTS OF INFORMED ACCESS STOCKHOLDERS
PURPOSES OF THE INFORMED ACCESS WRITTEN CONSENT
The purpose of the Informed Access Written Consent is to consider and vote
by written consent upon (i) approval of the Merger Agreement and (ii) approval
of the Option and Bonus Proposal.
RECORD DATE AND OUTSTANDING SHARES
Only stockholders of record of Informed Access Capital Stock at the close of
business on October 15, 1996 (the "Informed Access Record Date") are entitled
to notice of, and to vote by, the Informed Access Written Consent. As of the
Informed Access Record Date, there were 16 stockholders of record holding an
aggregate of approximately 1,142,750 shares of Informed Access Common Stock
and 18 stockholders of record holding an aggregate of approximately 4,628,061
shares of Informed Access Preferred Stock.
VOTE REQUIRED
Approval and adoption of the Merger Agreement requires the affirmative vote
of the holders of (i) a majority of the outstanding Informed Access Common
Stock and Informed Access Preferred Stock voting together as a single class,
and (ii) 60% of the outstanding Informed Access Preferred Stock voting
separately as a single class. Each of the bonus payments and option
accelerations submitted for approval as part of the Option and Bonus Proposal
must be approved by the affirmative vote of more than 75% of the outstanding
Informed Access Common Stock and Preferred Stock excluding any shares held by
persons who have an interest in the particular item submitted for stockholder
approval. Each stockholder of record of Informed Access Common Stock and
Informed Access Preferred Stock on the Informed Access Record Date is entitled
to one vote per share on each matter properly submitted for the vote of the
stockholders of Informed Access by the Informed Access Written Consent.
Certain holders of Informed Access Common Stock and Informed Access
Preferred Stock have entered into Affiliate/Voting Agreements with Access
Health, pursuant to which each such holder has agreed to vote (i) in favor of
approval of the Merger Agreement and (ii) against (among other things)
approval of any proposal made in opposition to or in competition with
consummation of the Merger. In addition, each such holder has granted pursuant
to the Affiliate/Voting Agreements, to each director on the Board of Directors
of Access Health, an irrevocable proxy to vote shares as aforesaid and to
exercise other rights including the execution and delivery of written consents
with respect to such shares. The shares of Preferred Stock subject to the
Affiliate/Voting Agreements represent 73.3% of the votes entitled to be cast
by holders of shares of Informed Access Common Stock and Preferred Stock
voting together as one class as of the Informed Access Record Date and 75.1%
of the votes entitled to be cast by holders of shares of Informed Access
Preferred Stock. THE VOTE IN ACCORDANCE WITH THE AFFILIATE/VOTING AGREEMENTS
OF THE SHARES OF INFORMED ACCESS COMMON STOCK AND INFORMED ACCESS PREFERRED
STOCK SUBJECT TO THE AFFILIATE/VOTING AGREEMENTS WILL BE SUFFICIENT TO APPROVE
AND ADOPT THE MERGER AGREEMENT BY THE INFORMED ACCESS STOCKHOLDERS.
WRITTEN CONSENT SOLICITATION; EXPENSES
Informed Access stockholders are requested to complete, sign, date and
return promptly the enclosed Informed Access Written Consent in the postage-
prepaid envelope provided for the purpose of voting "FOR"
28
<PAGE>
approval of the Merger Agreement and "FOR" approval of the Option and Bonus
Proposal. FAILURE TO RETURN THE INFORMED ACCESS WILL HAVE THE PRACTICAL EFFECT
OF VOTING AGAINST THE APPROVAL OF THE MERGER AGREEMENT AND AGAINST APPROVAL OF
THE OPTION AND BONUS PROPOSAL SINCE SUCH FAILURE WOULD RESULT IN ONE LESS VOTE
FOR SUCH APPROVALS.
The cost of the solicitation of the written consent of Informed Access
stockholders will be borne by Informed Access. Consents may be solicited by
certain Informed Access directors, officers and employees personally or by
telephone, telecopy or other means of communication. Such persons will not
receive additional compensation, but may be reimbursed for reasonable out-of-
pocket expenses incurred in connection with such solicitation.
APPRAISAL RIGHTS
Stockholders of Informed Access who do not vote by written consent in favor
of the Merger may, under certain circumstances and by following procedures
prescribed by Section 262 of the DGCL, exercise appraisal rights and receive
cash for their shares of Informed Access Capital Stock. A dissenting
stockholder of Informed Access must follow the appropriate procedures under
Delaware law or suffer the termination or waiver of such rights. See "Approval
of the Merger and Related Transactions--Delaware Appraisal Rights."
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
The following discussion summarizes the proposed Merger and related
transactions. The following is not, however, a complete statement of all
provisions of the Merger Agreement and related agreements. Detailed terms of
and conditions to the Merger and certain related transactions are contained in
the Merger Agreement, a conformed copy of which is attached to this Proxy
Statement/Prospectus and Consent Solicitation Statement as Annex A. Statements
made in this Proxy Statement/Prospectus and Consent Solicitation Statement
with respect to the terms of the Merger and such related transactions are
qualified in their respective entireties by reference to, and holders of
Access Health Common Stock and Informed Access Capital Stock are urged to
read, the more detailed information set forth in the Merger Agreement and the
other documents annexed hereto.
ACCESS HEALTH'S REASONS FOR THE MERGER
The Access Health Board has unanimously approved the Merger Agreement and
the Merger, has determined that the terms of the Merger Agreement are fair to,
and that the Merger is in the best interests of, Access Health and its
stockholders and therefore unanimously recommends that the holders of Access
Health Common Stock vote in favor of approval of the issuance of Access Health
Common Stock pursuant to the Merger Agreement.
In reaching its determination to approve the Merger Agreement and the
transactions contemplated thereby, the Access Health Board has identified the
following potential benefits of the Merger that it believes will contribute to
the success of the combined company:
. Create the Preeminent Personal Health Information Company. The Merger is
expected to enable the combined company to become the largest, most
diversified personal health information company.
. Opportunity to Establish Industry Standards. The combined company's
experience, clinical assessment methodologies, technology, health care
information databases and membership base will help it to endeavor to
establish its products as standards in the growing personal health
information market.
. Expanded Customer Base. The combined company is expected to be able to
leverage Informed Access' relationships in the managed care sector and
Access Health's strength in the health plan, consumer and employer
markets to achieve a leading market position in each of its target
customer groups.
29
<PAGE>
. Leverage Informed Access' Clinically-Oriented Database to Enhance
Product Offerings. By cross-marketing Informed Access' clinically-
oriented, managed care focused products with Access Health's consumer-
focused platform, the combined company may provide its customers with a
broader, more complete product solution.
. Leverage Compatible Technology Platforms. Access Health's new, state-of-
the-art information systems platform is compatible with Informed Access'
clinical applications, which should facilitate the integration of the
companies.
. Leverage Call Center Capacity. The combined companies will have four
call centers, which are expected to position the Company to better
manage growth, provide better service and achieve operating
efficiencies.
. Accelerate Brand Recognition Initiatives. The combined company's product
portfolio and market position is expected to provide the opportunity to
achieve stronger brand recognition for each of its programs and is
expected to facilitate new product extensions.
. Accelerate and Refine Forms of Media. The combined company is expected
to be better positioned to (i) refine existing telephone-based,
software, broadcasting, and printed forms of media distribution and
(ii) further develop on-line initiatives and other forms of media.
. Opportunity to Reduce Duplicative Investments and Pursue New
Opportunities.The combined company is expected to have a more focused
and coordinated research and development program which should reduce
investment requirements and provide the opportunity for the combined
company to pursue new product opportunities.
. Develop the Premier Personal Health Database in the World. The combined
company will have a database of aggregated health care information
covering over 15 million clients which is expected to present
opportunities for other value-added applications.
. Expand Management Resources. The integrated management team is expected
to possess expanded expertise to manage the development of each of its
growing segments with particular emphasis on managed care, health plans,
employers, direct-to-consumer, and international sectors.
. Utilize Access Health's Infrastructure and Experience to Manage
Growth. The Merger is expected to enable Informed Access (which has
experienced recent rapid growth), to leverage Access Health's
infrastructure and experience to grow and achieve economies of scale.
. Opportunity to Realize Operating Synergies. Access Health and Informed
Access have jointly developed an integration plan which has identified
potential cost savings as a result of the transaction which is expected
to improve operating results of the combined company over time.
. Projected Long-Term Operating Results Accretion. Combined company
operating results are expected to become accretive during fiscal 1997
and increasingly accretive thereafter. With operating cost synergies,
combined company operating results are expected to become accretive
during and for fiscal 1997, excluding one time transaction costs.
In the course of its deliberations, the Access Health Board reviewed and
considered a number of other factors relevant to the Merger. In particular,
the Access Health Board considered, among other things, the following factors:
(i) The Access Health Board considered information concerning Access
Health's and Informed Access' respective businesses, financial position,
results of operations, product development schedules, technologies and
properties;
(ii) The Access Health Board considered the reports of Access Health's
management and, its financial advisor, Montgomery, including reports
relating to the extensive due diligence review which had been
30
<PAGE>
conducted regarding Informed Access' business, operations, technology and
competitive position, and possible synergistic and expansion opportunities
for the two companies;
(iii) The Access Health Board, with the assistance of Access Health's
financial advisors, considered the multiples of comparable publicly traded
companies in the industry, the discounted future cash flows of Informed
Access based on management's projections, and an analysis of the respective
contributions to revenues, operating profits and net profits of the
combined companies based on management's projections;
(iv) The Access Health Board considered the oral opinion of Montgomery
delivered September 3, 1996, subsequently confirmed in writing as of such
date, that the Exchange Ratio was fair, from a financial point of view, to
Access Health;
(v) The Access Health Board considered the expectation that the Merger
will qualify for pooling of interests treatment for financial reporting
purposes and will be tax free for federal income tax purposes to Access
Health;
(vi) The Access Health Board considered a review with Access Health's
legal counsel of the terms of the Merger Agreements, including the
obligation of Informed Access not to solicit or encourage other acquisition
proposals, the breakup fee provisions, the circumstances under which either
Access Health or Informed Access can terminate the Merger Agreement and the
closing conditions to the Merger;
(vii) The Access Health Board considered the compatibility of the
corporate cultures of Access Health and Informed Access which the Access
Health Board believed was important for the successful integration of the
companies; and
(viii) The Access Health Board considered that the issuance of Access
Health Common Stock pursuant to the Merger Agreement is conditioned upon
approval by a majority of the votes cast at the Access Health Meeting and
that the Merger is conditioned upon approval of the Merger Agreement by the
holders of Informed Access Capital Stock by the Informed Access Written
Consent.
The Access Health Board also considered a variety of potentially negative
factors in its deliberations concerning the Merger, including the following
factors: (i) the initial dilutive effect of the issuance of Access Health
Common Stock in the Merger; (ii) the risk that earnings per share accretion
may not materialize as quickly as anticipated; (iii) the substantial charges
expected to be incurred, primarily in the quarter ended December 31, 1996, in
connection with the Merger, including the transaction expenses arising from
the Merger and costs associated with combining the operations of the two
companies; (iv) the risk that, despite the intentions and the efforts of the
parties, the benefits sought to be achieved in the Merger will not be
achieved; (v) the risk that the market price of Access Health Common Stock
might be adversely affected by the public announcement of the Merger; (vi) the
risk that despite the intentions and efforts of the parties the key technical
and management personnel of Informed Access may not be retained by Access
Health; and (vii) the other risks described above under "Risk Factors."
The foregoing discussion of the information and factors considered by the
Access Health Board is not intended to be exhaustive but is believed to
include all material factors considered by the Access Health Board. In view of
the variety of factors considered in connection with its evaluation of the
Merger, the Access Health Board did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
the Access Health Board may have given different weights to different factors.
In the course of its deliberations, the Access Health Board did not establish
a range of value for Informed Access; however, based on the factors outlined
above and on the advice of its financial advisor, Montgomery, the Access
Health Board determined that the terms of the Merger Agreement are fair to,
and that the Merger is in the best interests of, Access Health and its
stockholders.
INFORMED ACCESS' REASONS FOR THE MERGER
The Informed Access Board has approved the Merger Agreements and the Merger,
has determined that the terms of the Merger Agreements are fair to, and that
the Merger is in the best interests of, Informed Access and
31
<PAGE>
its stockholders and therefore recommends that the holders of Informed Access
Capital Stock vote in favor of approval of the Merger Agreement.
The Informed Access Board believes the Merger will be beneficial for the
following principal reasons:
. Expanded Resources; Leverage Technical Capabilities. The Merger is
expected to provide Informed Access with greater financial, technical,
sales and marketing and other operational resources to facilitate its
continued rapid growth. In addition, the combined development efforts of
the companies are expected to enhance the breadth and productivity and
reduce the cost of product and system development.
. Operational Efficiencies. The combined operations of the companies should
result in operational efficiencies which will allow it to compete more
effectively. These efficiencies are expected to result from the: (i)
expanded technical and information systems and telecommunications systems
capabilities; (ii) increased research and development, sales, marketing
and account management resources and expertise, and (iii) greater
financial capacity, of the combined companies.
. Expanded Customer Base. The Merger is expected to enable Informed Access
to leverage Access Health's customer relationships in the health plan,
consumer and employer markets to help the combined company achieve a
leading market position in each of its target customer groups.
. Complementary Product Lines. The Merger is expected to bring together two
complementary product lines which should allow the combined companies to
address a broader market and to provide their customers with a more
complete product solution. In particular, the clinical strength of the
Informed Access FirstHelp system will be supplemented with the extensive
database of educational consumer oriented health information and
materials developed by Access Health.
. Liquidity. Informed Access stockholders will receive Access Health Common
Stock in the Merger for which there is a ready public market, in contrast
to the illiquid nature of their present holdings of Informed Access
stock.
. Expand Acquisition Capabilities. The Merger is expected to provide
Informed Access with substantially greater resources to pursue strategic
transactions, including acquisitions and joint ventures. To date,
Informed Access has been limited in its ability to pursue strategic
transactions by, among other things, the lack of a publicly traded
security to use as acquisition currency.
In reaching its conclusions to approve the Merger, the Informed Access Board
considered, among other things, the following factors:
(i) Access Health's and Informed Access' respective businesses, financial
position, historical and prospective results of operations, market
position, product development plans and technical capabilities;
(ii) Informed Access' other potential strategic and financial options,
including acquisition and partnership proposals which had been received
from other companies and the pursuit of an initial public offering as an
independent company in 1997 or some later date;
(iii) Reports of Informed Access' management and financial, legal and
accounting advisors, including reports relating to the due diligence review
which had been conducted regarding Access Health's business, operations,
technology and competitive position and possible synergistic and expansion
opportunities for the two companies;
(iv) With the assistance of its financial advisors, the value of the
consideration to be exchanged by Access Health for the Informed Access
Capital Stock relative to: (a) the respective contribution of Access Health
and Informed Access to the revenue, operating income and net income of the
combined companies, based on consensus estimates of Access Health's future
results from securities industry analysts; (b) the valuation multiples of
selected comparable publicly traded companies; and (c) the implied
valuation multiples in comparable merger transactions.
32
<PAGE>
(v) Information on historical price and volume trading data for Access
Health's Common Stock as well as the composition of Access Health's
stockholder base;
(vi) The expectation that the Merger will qualify for pooling of
interests treatment for financial reporting purposes and will constitute a
tax-free exchange for federal income tax purposes to Informed Access'
stockholders;
(vii) A review with Informed Access' legal counsel of the terms of the
Merger Agreement, including the Affiliate/Voting and Affiliate Agreements,
Employment Agreements, Registration Rights Agreement, Non-Competition
Agreements, Registration Rights Agreement, the obligation of Informed
Access not to solicit or encourage other acquisition proposals, the
representations and warranties of Informed Access and Access Health, the
break-up fee provisions, the share escrow and indemnification provisions,
the circumstances under which either Informed Access or Access Health can
terminate the Merger Agreement and the closing conditions to the Merger
(including stockholder approval requirements);
(viii) Integration plans for combining the companies post-Merger,
including related Merger Agreement and Employment Agreement terms, which
specify that Informed Access will operate as a separate division with a
charter of serving the medical management market for the combined
organization and Access Health's plan to retain the Informed Access
management team and employees;
(ix) The compatibility of the corporate cultures of Informed Access and
Access Health, which the Informed Access Board believed was important for
the successful integration of the companies; and
(x) The fact that two current directors of Informed Access would be
appointed to the Access Health Board since the former stockholders of
Informed Access would own approximately 28% of Access Health's shares
following the Merger.
The Informed Access Board also considered a variety of potentially negative
factors in its deliberations concerning the Merger, including: (i) the risk
that, despite the intentions and efforts of the parties, the operational and
competitive benefits sought to be achieved in the Merger will not be achieved;
(ii) the risk that the market price of Access Health Common Stock might be
adversely affected by the public announcement of the Merger; (iii) the risk
that existing or prospective customers may not respond positively to the
Merger announcement; (iv) the risk that despite the intentions and efforts of
the parties, the key technical and management personnel of Informed Access and
Access Health required to facilitate a successful integration may not remain
with the combined company; and (v) the other risks described above under "Risk
Factors."
The foregoing discussion of the information and factors considered by the
Informed Access Board is not intended to be exhaustive but is believed to
include all material factors considered by the Informed Access Board. In view
of the variety of factors considered in connection with its evaluation of the
Merger, the Informed Access Board did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
the Informed Access Board may have given different weights to different
factors.
BACKGROUND OF THE MERGER
After the formation of Informed Access in 1992, senior management of Access
Health, including Kenneth B. Plumlee, then Chief Executive Officer and
currently Chairman of the Board of Access Health, and Richard C. Miller,
Executive Vice President of Access Health, had discussions on several
occasions with Joseph P. Tallman, President and Chief Executive Officer of
Informed Access, regarding their respective businesses and ways that Access
Health and Informed Access could work together, including the possibility of a
business combination. Such discussions were general in nature and did not
result in any formal actions or consideration by their respective Boards of
Directors.
On May 10, 1996, at the request of Access Health, Messrs. Plumlee and Miller
met with Mr. Tallman, Elizabeth M. Snowden, Senior Vice President, Sales and
Marketing of Informed Access and a representative
33
<PAGE>
from Punk Ziegel & Knoell ("Punk Ziegel") in Denver, Colorado regarding
potential working relationships between the two companies, including the
possibility of a business combination. The discussion was general in nature
and no formal proposal or valuation was discussed.
On June 2, 1996, Thomas E. Gardner, the newly-appointed President of Access
Health, and Mr. Miller met in Denver with Mr. Tallman, Ms. Snowden and
representatives from Robertson, Stephens & Company ("Robertson") and Punk
Ziegel. The meeting was arranged by Access Health in order to introduce Mr.
Gardner and to discuss further the potential benefits of the two companies
working together.
On June 16 and 17, 1996, Mr. Gardner met in Boulder, Colorado with Mr.
Tallman and several other members of Informed Access' management team,
including Ms. Snowden, Michael E. Myers, Vice President of Marketing, and
Timothy H. Connor, Vice President and Chief Financial Officer. In these
meetings, Mr. Gardner discussed the possible benefits of a partnership between
Access Health and Informed Access and reviewed the business operations,
products and financial results and prospects of Informed Access. During the
meeting, there were no specific discussions regarding the potential timing,
structure or terms of a potential combination. At the end of the meeting, Mr.
Gardner delivered a letter to Mr. Tallman which expressed the desire of Access
Health to discuss a merger with Informed Access. The letter indicated that
Access Health would consider exchanging between 3,500,000 and 6,000,000 Access
Health shares for the equity of Informed Access. The letter was a general
indication of interest and listed a number of contingencies including the
approval of the Board of Directors of Access Health, satisfactory due
diligence and negotiation of specific agreement terms.
On July 8, 1996, representatives of Informed Access, including Mr. Tallman,
Ms. Snowden, Mr. Myers, Mr. Connor and Thomas A. Washing, a member of the
Informed Access Board, met with the management of Access Health at the Access
Health offices in Rancho Cordova, California. Access Health management
representatives included Mr. Gardner, James O. Steeb, Senior Vice President,
Information Systems, John V. Crisan, Senior Vice President, Finance and
Administration and Chief Financial Officer, David G. Pincus, Senior Vice
President, Consumer Health Division and a representative from Montgomery. The
discussions related to Access Health's business operations, products and
financial results and prospects.
On July 17, 1996, Mr. Gardner sent a letter to Mr. Tallman expressing Access
Health's desire to begin negotiations towards a merger with Informed Access
through the exchange of a minimum of 4,600,000 Access Health common shares for
the equity of Informed Access. The letter was subject to a number of
contingencies including the completion of satisfactory due diligence, the
execution of employment agreements by key management of Informed Access and
negotiation and execution of a definitive agreement.
On July 18, 1996, the Informed Access Board of Directors met in a regularly
scheduled Board meeting. At the meeting, the Informed Access Board discussed
the letter from Access Health and the potential merits of a business
combination with Access Health relative to other financial and strategic
alternatives available to Informed Access, including several informal
acquisition inquiries Informed Access had recently received and the
opportunity to remain independent and pursue an initial public offering in
1997 or later. Representatives from Robertson and Punk Ziegel attended a
portion of the meeting and discussed Informed Access' financial and strategic
options, including a potential combination with Access Health. Following
discussion, the Informed Access Board authorized the formation of a committee
to explore a possible merger with Access Health.
On July 24, 1996, Mr. Gardner met in Broomfield, Colorado at the new
headquarters of Informed Access with Mr. Tallman, Mr. Connor and Kinney L.
Johnson, a member of the Informed Access Board. At the meeting Mr. Gardner
discussed the potential benefits of a merger and the role that Informed Access
would play in a combined entity.
On July 30, 1996 Mr. Gardner met with Mr. Tallman and Mr. Connor in Salt
Lake City, Utah to discuss further the financial results and prospects of
Access Health and Informed Access and the valuation and structure of a
possible business combination.
34
<PAGE>
On August 9, 1996, Mr. Gardner sent a letter to Mr. Tallman indicating the
desire of Access Health to effect a merger with Informed Access through the
exchange of 5,100,000 shares. The indication of interest was conditioned upon
satisfactory due diligence, the execution of employment agreements by key
management of Informed Access and the negotiation and execution of a
definitive agreement.
On August 14, 1996, Mr. Tallman sent a letter to Mr. Gardner specifying the
terms under which Informed Access would be prepared to consider a merger with
Access Health. The letter indicated that Informed Access would enter into a
merger agreement which provided for, among other things, the exchange of
5,500,000 Access Health shares for the equity of Informed Access. The letter
also specified several non-financial conditions to a merger including the
maintenance of Informed Access operations in Colorado and the retention of all
management and other employees.
On August 15, 1996, Mr. Gardner and a representative from Montgomery met
with Mr. Tallman, Mr. Connor and Mr. Johnson and representatives from
Robertson and Punk Ziegel to discuss further the terms of a potential merger.
At the meeting, the relative valuation of the two companies was discussed and
it was determined that 5,375,000 shares of Access Health could be an
acceptable valuation, subject to resolving all other issues with the proposed
transaction and satisfactory due diligence by both companies.
On August 19, 1996, Mr. Gardner advised the directors at a special
telephonic meeting of the Access Health Board of the discussions with Informed
Access regarding the proposed transaction and the status of negotiations.
On August 21 and 22, 1996, representatives of Informed Access and their
financial advisors, Robertson and Punk Ziegel, met with management of Access
Health and representatives of their financial advisor, Montgomery, in
Sacramento, California to conduct business and financial due diligence on
Access Health.
On August 23 and 24, 1996, representatives of Access Health and Montgomery
met with representatives of Informed Access, Robertson and Punk Ziegel in
Boulder, Colorado to conduct business and financial due diligence on Informed
Access.
From August 16 to September 2, 1996, legal counsel for Access Health and
Informed Access prepared and negotiated the terms of the definitive merger
agreement and related documents. Representatives of Access Health and Informed
Access and their respective financial advisors participated in these
negotiations by telephone on occasion during this time period.
On August 30, 1996, at a special telephonic meeting of the Access Health
Board (1) management and legal counsel reviewed the results of their due
diligence of Informed Access, (2) management reviewed the possible benefits
and risks relating to the proposed merger, (3) the directors reviewed with
management and legal counsel the specific terms of the proposed Merger
Agreement and (4) Montgomery made a presentation regarding the financial
aspects of proposed merger. On September 3, 1996, the Access Health Board held
a special telephonic meeting and reviewed the proposed final Merger Agreement
and related documents and received the oral opinion of Montgomery that the
consideration to be paid by Access Health pursuant to the Merger was fair,
from a financial point of view, as of such date, to Access Health. The Access
Health Board unanimously approved the Merger and the Merger Agreement.
On September 3, 1996, at a special telephonic meeting of the Informed Access
Board (1) management reviewed the results of their due diligence of Access
Health and the benefits and risks relating to the proposed Merger, (2)
management and legal counsel reviewed the principal terms of the proposed
final Merger Agreement and related agreements and (3) representatives of
Robertson and Punk Ziegel presented their views on the Merger. At the meeting,
the Informed Access Board approved the Merger and Merger Agreement.
Later on September 3, 1996, Access Health and Informed Access executed the
Merger Agreement and, subsequently, issued a joint press release announcing
the execution of the Merger Agreement.
35
<PAGE>
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
THE ACCESS HEALTH BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, ACCESS HEALTH AND ITS STOCKHOLDERS.
AFTER CAREFUL CONSIDERATION, THE ACCESS HEALTH BOARD UNANIMOUSLY RECOMMENDS A
VOTE IN FAVOR OF APPROVAL OF THE ISSUANCE OF ACCESS HEALTH COMMON STOCK
PURSUANT TO THE MERGER AGREEMENT.
THE INFORMED ACCESS BOARD HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, INFORMED ACCESS AND ITS STOCKHOLDERS. AFTER
CAREFUL CONSIDERATION, THE INFORMED ACCESS BOARD UNANIMOUSLY RECOMMENDS A VOTE
IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE
MERGER.
OPINION OF ACCESS HEALTH'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated August 8, 1996 (the "Engagement
Letter"), Access Health retained Montgomery to act as financial advisor to
Access Health in connection with the Merger and to render an opinion with
respect to the fairness, from a financial point of view, to Access Health of
the consideration to be paid by Access Health pursuant to the Merger.
Montgomery is a nationally recognized firm, and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
their securities in connection with merger transactions and other types of
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Access Health selected Montgomery to render a fairness opinion in
connection with the Merger on the basis of its experience and expertise in
transactions similar to the Merger and its reputation in the health care and
investment communities. No limitations were imposed by Access Health on
Montgomery with respect to the investigations made or procedures followed in
rendering its opinion.
At the September 3, 1996 meeting of the Access Health Board of Directors,
Montgomery rendered its oral opinion, subsequently confirmed in writing as of
such date, that the consideration to be paid by Access Health pursuant to the
Merger was fair to Access Health, from a financial point of view, as of such
date.
THE FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO THE ACCESS HEALTH BOARD OF
DIRECTORS IS ATTACHED HERETO AS ANNEX B AND IS INCORPORATED BY REFERENCE AND
SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT/PROSPECTUS AND CONSENT SOLICITATION STATEMENT. THE FOLLOWING SUMMARY
OF MONTGOMERY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION. MONTGOMERY'S OPINION IS ADDRESSED TO THE ACCESS HEALTH
BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY ACCESS
HEALTH STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE ACCESS HEALTH
MEETING. IN FURNISHING ITS OPINION, MONTGOMERY DID NOT ADMIT THAT IT IS AN
EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS USED IN THE SECURITIES ACT
AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER, OR THAT ITS OPINION
CONSTITUTES A REPORT OR VALUATION WITHIN THE MEANING OF SECTION 11 OF THE
SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER, AND
STATEMENTS TO SUCH EFFECT ARE INCLUDED IN THE TEXT OF MONTGOMERY'S WRITTEN
OPINION.
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS AND PROJECTIONS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT. THE PROJECTIONS ARE BASED UPON A NUMBER OF ASSUMPTIONS AND
ESTIMATES THAT, WHILE PRESENTED WITH NUMERICAL SPECIFICITY AND CONSIDERED
REASONABLE BY ACCESS HEALTH WHEN TAKEN AS A WHOLE, ARE INHERENTLY SUBJECT TO
SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF ACCESS HEALTH AND ARE
BASED UPON SPECIFIC ASSUMPTIONS WITH RESPECT TO FUTURE BUSINESS DECISIONS,
SOME OF WHICH WILL CHANGE. PROJECTIONS ARE NECESSARILY SPECULATIVE IN NATURE,
AND IT CAN BE EXPECTED THAT SOME OR ALL OF THE ASSUMPTIONS OF THE PROJECTIONS
WILL NOT MATERIALIZE OR WILL VARY SIGNIFICANTLY FROM ACTUAL RESULTS.
ACCORDINGLY, THE PROJECTIONS ARE ONLY AN ESTIMATE. ACTUAL RESULTS WILL VARY
FROM THE PROJECTIONS AND THE VARIATIONS MAY BE MATERIAL AND ARE LIKELY TO
INCREASE OVER TIME. CONSEQUENTLY, THE INCLUSION OF THE
36
<PAGE>
PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS A REPRESENTATION BY ACCESS HEALTH
OR ANY OTHER PERSON OF RESULTS THAT WILL ACTUALLY BE ACHIEVED. PROSPECTIVE
PURCHASERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE, AND WILL BE DEEMED NOT
TO HAVE RELIED, ON THE PROJECTIONS.
In connection with the opinion, Montgomery, among other things: (i) reviewed
certain financial and other data with respect to Informed Access and Access
Health, including the consolidated financial statements for recent years and
interim periods to June 30, 1996 and certain other relevant financial and
operating data relating to Informed Access and Access Health made available to
Montgomery from published sources and from the internal records of Informed
Access and Access Health; (ii) reviewed and discussed with representatives of
the management of Informed Access and Access Health certain forward-looking
information of a business and financial nature furnished to Montgomery by
them, including stand-alone and pro forma financial forecasts and other
information relating to Informed Access, Access Health and the combined
companies following the Merger, and information relating to certain strategic
and operational benefits anticipated by Access Health's management to result
from the Merger, (iii) reviewed the Merger Agreement; (iv) reviewed certain
publicly available information concerning the trading of, and the trading
market for, Access Health Common Stock; (v) compared Informed Access and
Access Health from a financial point of view; (vi) compared Informed Access
and Access Health from a financial point of view with certain other companies
in the healthcare information services industry which Montgomery deemed to be
relevant; (vii) considered the financial terms, to the extent publicly
available, of selected recent business combinations of companies in the
healthcare information services industry; (viii) made inquiries regarding and
discussed the Merger and the Merger Agreement and other matters related
thereto with Access Health's counsel; and (ix) performed such other analyses
and examinations as Montgomery deemed appropriate.
In connection with its review, Montgomery relied upon the accuracy and
completeness of the foregoing information and did not assume any obligation
independently to verify such information. With respect to the financial
forecasts for Informed Access, Access Health and the pro forma combined
companies provided to Montgomery by the management of Access Health and
Informed Access, upon their advice and with their consent, Montgomery assumed
for purposes of its opinion that such forecasts (including assumptions
regarding related cost reductions and operating synergies) were reasonably
prepared on bases reflecting the best available estimates and judgments of the
respective management at the time of preparation as to the future financial
performance of Access Health, Informed Access and the pro forma combined
companies and that they provided a reasonable basis upon which Montgomery
could form its opinion. Montgomery also assumed that there were no material
changes in Access Health's or Informed Access' assets, financial condition,
results of operations, business or prospects since the respective dates of
their last financial statements made available to Montgomery. Montgomery
relied upon advice of counsel to Informed Access and Access Health as to all
legal matters with respect to Informed Access, Access Health, the Merger and
the Merger Agreement. In rendering its opinion, Montgomery expressed no view
with respect to, nor did it consider, the tax consequences of the Merger and
it assumed that the Merger would be recorded as a pooling of interests under
generally accepted accounting principles. Montgomery also assumed that the
Merger would be consummated in a manner that complies in all respects with the
Securities Act, the Exchange Act and all other applicable federal and state
statutes, rules and regulations. In addition, Montgomery did not assume
responsibility for making an independent evaluation, appraisal or physical
inspection of any assets or liabilities (contingent or otherwise) of Informed
Access or Access Health, nor was Montgomery furnished with any such
appraisals. Finally, Montgomery's opinion was based on economic, monetary and
market and other conditions as in effect on, and the information made
available to Montgomery as of, September 3, 1996. Accordingly, although
subsequent developments may effect Montgomery's opinion, Montgomery has not
assumed any obligation to update, revise or reaffirm its opinion.
Montgomery further assumed, with Access Health's consent, that the Merger
would be consummated in accordance with the terms described in the Merger
Agreement, without any further amendments thereto, and without waiver by
Access Health of any conditions to its obligations thereunder.
Set forth below is a brief summary of the report presented by Montgomery to
the Access Health Board of Directors on September 3, 1996 in connection with
its opinion.
37
<PAGE>
Contribution Analysis. Montgomery analyzed the contribution of each of
Informed Access and Access Health to, among other things, the projected income
statements of the pro forma combined companies for the years ended December
31, 1996, December 31, 1997 and December 31, 1998. Because of the high growth
nature of Informed Access, Montgomery emphasized the projected information for
calendar years 1997 and 1998 in evaluating the contribution analysis.
Montgomery's analysis of the projected income statements for the pro forma
combined companies showed that Informed Access is projected to contribute
16.0%, 27.8% and 35.4%, respectively, of the total projected revenue, -10.9%,
26.4% and 33.9%, respectively, of total projected earnings before interest,
taxes, depreciation and amortization ("EBITDA"), -26.0%, 25.8% and 34.8%,
respectively, of total projected earnings before interest and taxes ("EBIT"),
and -46.7%, 22.7% and 32.7%, respectively, of total projected net income of
the combined companies in the periods described above. Based on a closing
price of Access Health Common Stock on August 30, 1996 (the last trading day
prior to approval of the Merger by Access Health Board of Directors) of
$50.75, the Exchange Ratio equated to a contribution of "Implied Aggregate
Value" (defined for this purpose as total implied market capitalization plus
total long-term debt minus cash and cash equivalents) by Informed Access of
29.2% and pro forma ownership of the combined companies by the shareholders of
Informed Access of 28.0%.
Pro Forma Transaction Analysis. Montgomery analyzed certain pro forma
effects resulting from the Merger, including, among other things, the impact
of the Merger on the projected earnings per share of Access Health for the (i)
quarters ended December 31, 1996, March 31, 1997, June 30, 1997, September 30,
1997, and December 31, 1997; (ii) fiscal year ended September 30, 1997; and
(iii) calendar years ended December 31, 1997 and December 31, 1998, based on
the financial forecasts and projected cost reductions and operating synergies
provided by the managements of Informed Access and Access Health. The
projected pro forma combined earnings per share of Access Health for the
stated periods were compared to the projected earnings per share of Access
Health on a stand-alone basis for such periods. The results of the pro forma
transaction analysis suggested that the Merger would be approximately
breakeven to the stockholders of Access Health based on the Exchange Ratio and
taking into account projected cost reductions and operating synergies in the
quarter ended March 31, 1997 and accretive thereafter, accretive for the
fiscal year ended September 30, 1997 and accretive for the calendar years
ended December 31, 1997 and December 31, 1998. Without taking into account
projected cost reductions and operating synergies, the pro forma transaction
analysis suggested that the Merger would become approximately breakeven to the
stockholders of Access Health in the quarter ended December 31, 1997 and
accretive for the calendar year ended December 31, 1998.
Analysis of Selected Comparable Publicly Traded Companies. Montgomery
compared certain financial information for Informed Access to the
corresponding projected financial information for (i) Access Health and (ii)
four publicly traded healthcare information services companies which
Montgomery deemed to be reasonably similar to Informed Access: HCIA, Inc., HPR
Inc., Mecon, Inc. and Summit Medical Systems, Inc. (collectively, the
"Healthcare Information Services Selected Companies"). Montgomery calculated
multiples of such companies of "Aggregate Value" (defined for this purpose as
total market capitalization plus total long-term debt minus cash and cash
equivalents), to projected calendar year 1996, 1997 and 1998 revenue, EBITDA,
and EBIT and multiples of market capitalization to projected calendar year
1996, 1997 and 1998 net earnings, and compared these multiples against the
multiples for Informed Access implied by the Exchange Ratio. All multiples
were based on closing stock prices as of August 30, 1996. Montgomery also
analyzed profit margins and historical and projected growth rates of Informed
Access, Access Health and the Healthcare Information Services Selected
Companies. Projected amounts for Access Health and the Healthcare Information
Services Selected Companies were based upon information supplied by Access
Health management and selected publicly available analyst reports,
respectively.
The multiples for Access Health were as follows: (i) the ratios of Aggregate
Value to projected 1996, 1997 and 1998 revenue were 9.4x, 6.1x, and 4.5x,
respectively; (ii) the ratios of Aggregate Value to projected 1996, 1997 and
1998 EBITDA were 53.3x, 24.5x and 17.4x, respectively; (iii) the ratios of
Aggregate Value to projected 1996, 1997 and 1998 EBIT were 50.1x, 29.1x and
20.5x, respectively; and (iv) the ratios of market capitalization to projected
1996, 1997 and 1998 net earnings were 79.7x, 48.1x and 34.5x, respectively.
38
<PAGE>
The multiples for the Healthcare Information Services Selected Companies
were as follows: (i) the average ratios of Aggregate Value to projected 1996,
1997 and 1998 revenue were 8.1x, 5.3x and 3.8x, respectively; (ii) the average
ratios of Aggregate Value to projected 1996, 1997 and 1998 EBIT were 43.7x,
21.7x and 14.6x, respectively; and (iii) the average ratios of market
capitalization to projected 1996, 1997 and 1998 net earnings were 61.5x, 38.7x
and 27.5x, respectively.
Based on a closing price for Access Health Common Stock of $50.75 of August
30, 1996, the Exchange Ratio equated to the following implied multiples for
Informed Access: (i) the ratios of Implied Aggregate Value to projected 1996,
1997 and 1998 revenue were 20.3x, 6.5x and 3.3x, respectively; (ii) the ratios
of Implied Aggregate Value to projected 1996, 1997 and 1998 EBITDA were -
170.5x, 28.2x and 14.0, respectively; (iii) the ratios of Implied Aggregate
Value to projected 1996, 1997 and 1998 EBIT were -101.0x, 34.5x and 15.8x; and
(iv) the ratios of implied market capitalization to projected 1996, 1997 and
1998 net earnings were -97.4x, 63.6x and 27.7x, respectively.
Montgomery concluded that, while analysis of the Healthcare Information
Services Selected Companies was relevant, these companies were not directly
comparable to Informed Access primarily because of significant differences in
product offerings and target markets. Montgomery's analysis indicated that the
company most comparable to Informed Access was Access Health.
Analysis of Merger and Acquisition Transactions. Using publicly available
information, Montgomery analyzed the purchase price and implied transaction
multiples of latest twelve months revenue and EBIT paid or proposed to be paid
in 30 selected transactions in the healthcare information services industry
since April 1, 1994. Montgomery concluded that none of the transactions
evaluated were comparable to the Merger because (i) the companies involved had
significantly different product offerings and target markets, and
(ii) financial analysis of such transactions is based primarily on multiples
of historical revenue and income data, which analysis would not be meaningful
in the case of Informed Access.
Discounted Cash Flow Analysis. Montgomery performed a discounted cash flow
analysis of the projected free cash flow of Informed Access on a stand-alone
basis for the calendar years 1997 through 2003, based on management estimates
and assuming, among other things, discount rates of 15.0%, 16.0% and 17.0% and
terminal multiples of EBITDA of 10.0x to 12.0x. The analysis resulted in an
aggregate value reference range for Informed Access of approximately $316.2
million to $407.9 million. Based upon the closing price of Access Health
Common Stock on August 30, 1996 of $50.75 per share, the Exchange Ratio
equated to an Implied Aggregate Value of $272.4 million in the Merger.
The summary set forth above does not purport to be a complete description of
the presentation by Montgomery to the Access Health Board of Directors or of
the analyses performed by Montgomery. The preparation of a fairness opinion is
not necessarily susceptible to partial analysis or summary description.
Montgomery believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses and of the
factors considered, without considering all analyses and factors, would create
an incomplete view of the process underlying the analyses set forth in the
presentation to the Access Health Board of Directors. In addition, Montgomery
may have given various analyses more or less weight than other assumptions, so
that the ranges of valuations resulting from any particular analysis described
above should not be taken to be Montgomery's view of the actual value of
Informed Access or of the combined companies. The fact that any specific
analysis has been referred to in the summary above is not meant to indicate
that such analysis was given greater weight than any other analysis.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Informed Access or
Access Health. The analyses performed by Montgomery are not necessarily
indicative of actual values or actual future results, which may be more or
less favorable than suggested by such analyses. Such analyses were prepared
solely as part of Montgomery's analysis of the fairness of the Merger to
Access Health and were provided to the Access Health Board of Directors in
connection with the delivery of Montgomery's opinion. The
39
<PAGE>
analyses do not purport to be appraisals or to reflect the prices which a
company might actually be sold or the prices at which any securities may trade
at the present time or at any time in the future.
As noted under the caption "Approval of the Merger and Related
Transactions--Access Health's Reasons for the Merger," Montgomery's opinion
and presentation to the Access Health Board of Directors were among many
factors taken into consideration by the Access Health Board of Directors in
making its determination to approve the Plan of Merger and to submit the
Merger Agreement for the approval of the holders of Access Health Common
Stock.
Pursuant to the Engagement Letter, Access Health engaged Montgomery to act
as financial advisor to Access Health in connection with the Merger and to
render an opinion to its Board of Directors with respect to the fairness, from
a financial point of view, to Access Health of the consideration to be paid to
Informed Access in connection with the Merger. Access Health has agreed to pay
Montgomery for its services in connection with the Merger a financial advisory
fee of approximately $2.3 million based on the total consideration involved in
the Merger which is estimated to be approximately $292 million based on a
value of $54.25 per share for Access Health Common Stock which was the last
reported sale price on the Nasdaq National Market on September 3, 1996. Since
the value of the consideration may be higher or lower on the transaction date,
the advisor fees may be greater than or less than $2.3 million. Additionally,
the financial advisory fee payable to Montgomery may be reduced by up to
$250,000 to the extent Access Health is obligated to other financial advisors.
Access Health also has agreed to reimburse Montgomery for its reasonable out-
of-pocket expenses. Pursuant to a separate letter agreement, Access Health has
agreed to indemnify Montgomery, its affiliates, and their respective partners,
directors, officers, agents, consultants, employees and controlling persons
against certain liabilities, including liabilities under the federal
securities laws.
In the ordinary course of business, Montgomery has provided various
investment banking services to Access Health. Montgomery was a co-manager of
an underwritten public offering of Access Health Common Stock in December
1995. Montgomery trades equity securities of Access Health for its own account
and for the accounts of customers and, accordingly, may at any time hold a
long or short position in such securities. Montgomery also provides brokerage
services to Kenneth B. Plumlee, the Chairman of the Board of Access Health.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Informed Access Board with respect
to the Merger, Informed Access stockholders should be aware that certain
members of the Informed Access Board and management have certain interests in
the Merger that are in addition to the interests of Informed Access
stockholders generally. The Informed Access Board was aware of these interests
and considered them, among other factors, in approving the Merger Agreement.
These interests are as follows:
40
<PAGE>
Employment Agreements. In connection with the Merger Agreement, eleven
officers and members of the Informed Access management team will enter into
employment agreements with Access Health. The employment agreements generally
provide for: a term of employment of two years; fixed initial base
compensation; increased base compensation payable upon the earlier of
attainment of specified earnings targets or the first anniversary of the
Merger; eligibility for an incentive bonus of up to a specified percentage of
base compensation; and the grant of incentive stock options under the Access
Health Stock Plan. The following table summarizes the terms of the employment
agreements to be entered into by each person who has served as an executive
officer of Informed Access during 1996:
<TABLE>
<CAPTION>
INITIAL BASE ADJUSTED BONUS ELIGIBILITY NO. OF STOCK
NAME COMPENSATION BASE COMPENSATION (% OF BASE) OPTIONS GRANTED
- ---- ------------ ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Joseph P. Tallman....... $100,000 $180,000 50% 60,000
Elizabeth M. Snowden.... 100,000 140,000 40 40,000
Barry W. Wolcott........ 150,000 150,000 40 35,000
John R. Barr............ 100,000 100,000 30 25,000
Timothy H. Connor....... 100,000 130,000 30 25,000
Michael E. Myers........ 100,000 120,000 30 25,000
Jeremy K. Miller........ 100,000 120,000 30 25,000
Michael J. Modiz........ 100,000 100,000 30 25,000
</TABLE>
Management Bonuses. On September 3, 1996, the Informed Access Board approved
bonuses to certain officers of Informed Access. Performance bonuses in
recognition of past services by the executives were paid in September 1996 to
Joseph P. Tallman, Elizabeth M. Snowden, Barry W. Wolcott and David A. Johnson
in the amount of $500,000, $500,000, $300,000 and $200,000, respectively. The
bonuses were paid through the issuance of Informed Access promissory notes
which are payable in installments in March 1997 and September 1997. These
notes will be paid regardless of whether or not the Merger is consummated.
Bonuses of $100,000 each were awarded to Mr. Tallman and Ms. Snowden in order
to induce them to remain with Informed Access in order to assist with the
post-Merger integration with Access Health. These bonuses will be paid only if
the Merger closes and Mr. Tallman and Ms. Snowden remain with Informed Access
through March 1997. Lastly, a bonus of $300,000 was awarded to Mr. Tallman to
reward him for his services in initiating and negotiating the Merger. This
bonus will be paid only if the Merger is consummated. As described below under
"Approval of Option and Bonus Proposal," in the event of the Merger, these
bonuses will be paid only to the extent that such bonuses would not constitute
"excess parachute payments" within the meaning of Section 280G of the Code.
41
<PAGE>
Informed Access Stock Options. In accordance with the Informed Access stock
option plan, all outstanding Informed Access Options will become fully vested
and exercisable immediately prior to the Effective Time, but only to the
extent such acceleration does not constitute an excess parachute payment under
Section 280G of the Code. See "Approval of Option and Bonus Proposal." In
accordance with the Merger Agreement, each Informed Access Option will become
an option to purchase Access Health Common Stock. As of the Informed Access
Record Date, executive officers of Informed Access hold options to purchase
394,500 shares of Informed Access Common Stock with a weighted average
exercise price of approximately $1.00 per share. Assuming all such options
remain unexercised, such persons would hold options to purchase approximately
315,600 shares of Access Health Common Stock at a weighted average exercise
price of $1.25 per share. See "Approval of the Merger and Related
Transactions--Manner and Basis of Converting Shares--Stock Options." The
following table summarizes the Informed Access Options held by each person who
has served as an executive officer of Informed Access during 1996:
<TABLE>
<CAPTION>
AVERAGE
EXERCISE
NAME NO. OF OPTIONS PRICE
---- -------------- --------
<S> <C> <C>
Joseph P. Tallman.................................... 42,000 $ .46
Elizabeth M. Snowden................................. 75,000 .46
Barry W. Wolcott..................................... 75,000 .46
John R. Barr......................................... 25,000 1.50
Timothy H. Connor.................................... 50,000 1.50
Michael E. Myers..................................... 50,000 .77
Jeremy K. Miller..................................... 42,500 3.00
Michael J. Modiz..................................... 35,000 .76
</TABLE>
EFFECTIVE TIME
The Merger Agreement provides that the Merger will become effective upon the
filing of a Certificate of Merger with the Secretary of State of Delaware in
accordance with the DGCL (the "Effective Time"). It is anticipated that if all
conditions of the Merger have been fulfilled or waived, the Effective Time
will occur on or about November , 1996, or on a date as soon as practicable
thereafter.
MANNER AND BASIS OF CONVERTING SHARES
Subject to the terms and conditions of the Merger Agreement, as of the
Effective Time, by virtue of the Merger and without any action on the part of
Merger Sub, Informed Access or the holder of any shares of Informed Access
Capital Stock, the following will occur:
Conversion of Informed Access Capital Stock. Each share of Informed Access
Common Stock and each share of Informed Access Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any Dissenting
Shares) will be canceled and extinguished and be converted automatically into
the right to receive a fraction of a share of Access Health Common Stock equal
to the Exchange Ratio (as defined below), upon surrender of the certificate
representing such share of Informed Access Capital Stock in the manner
provided in a letter of transmittal to be sent to each record holder of
Informed Access Capital Stock promptly following the Effective Time (a "Letter
of Transmittal"), subject to the escrow provisions of the Merger Agreement
described under the section entitled "Approval of the Merger and Related
Transactions--Escrow Fund" below.
The "Exchange Ratio" will be equal to 5,375,000 (less 64,500 shares of
Access Health Common Stock to be distributed from escrow to Informed Access'
financial advisors in payment of such advisors' fees in connection with the
Merger), divided by the sum of the number of shares of Informed Access Capital
Stock (i) outstanding immediately prior to the Effective Time, (ii) issuable
upon the exercise of options to purchase Informed Access Capital Stock (the
"Outstanding Option Amount") and (iii) issuable upon the exercise of warrants
to purchase Informed Access Capital Stock (other than those which expire at
the Effective Time if they
42
<PAGE>
remain unexercised) (the "Outstanding Warrant Amount"). The Exchange Ratio
will depend on the capitalization of Informed Access at the Effective Time.
Assuming that the capitalization of Informed Access at the Effective Time is
in all respects identical to the capitalization of Informed Access at
September 3, 1996 (although there can be no assurance as to the foregoing),
the Exchange Ratio will be approximately .80 of a share of Access Health
Common Stock for each share of Informed Access Capital Stock. The Exchange
Ratio will be adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Access Health Common Stock or Informed Access Capital Stock),
reorganization, recapitalization or other like change with respect to Access
Health Common Stock or Informed Access Capital Stock occurring after the date
of execution of the Merger Agreement and prior to the Effective Time.
Stock Options. At the Effective Time, each unexpired and unexercised option
to purchase shares of Informed Access Capital Stock (each an "Informed Access
Option") granted under the stock option plans and agreements of Informed
Access outstanding immediately prior to the Effective Time will be, in
connection with the Merger, assumed by Access Health (each, an "Assumed
Informed Access Option") (the aggregate number of shares of Informed Access
Capital Stock issuable upon the exercise of all outstanding Informed Access
Options immediately prior to the Effective Time is referred to as the
"Outstanding Option Amount"). Each Informed Access Option so assumed by Access
Health will continue to have, and be subject to, substantially the same terms
and conditions set forth in the documents governing such Informed Access
Option immediately prior to the Effective Time, except that (i) such Assumed
Informed Access Option will be exercisable for that number of whole shares of
Access Health Common Stock equal to the product of the number of shares of
Informed Access Capital Stock (on an as-converted to Common Stock basis) that
were purchasable under such Assumed Informed Access Option immediately prior
to the Effective Time multiplied by the Exchange Ratio, rounded down to the
nearest whole number of shares of Access Health Common Stock and (ii) the per
share exercise price for the shares of Access Health Common Stock issuable
upon exercise of such Assumed Informed Access Option will be equal to the
quotient obtained by dividing the exercise price per share of Informed Access
Capital Stock (on an as-converted to Common Stock basis) at which such
Informed Access Option was exercisable immediately prior to the Effective Time
by the Exchange Ratio, rounded up to the nearest whole cent. In accordance
with the provisions of the Informed Access stock option plan, all Informed
Access Options will become fully vested and exercisable immediately prior to
the Effective Time, but only to the extent that such acceleration of vesting
would not constitute an "excess parachute payment" as defined in Section 280G
of the Code. If the Option and Bonus Proposal is approved by the written
consent of the Informed Access stockholders, all Informed Access Options will
become fully vested and exercisable. If the Option and Bonus Proposal is not
approved, only a portion of the Informed Access Options will become fully
vested. See "Approval of the Option and Bonus Proposal."
Holders of vested Informed Access Options may elect to exercise such options
prior to the Effective Time and receive the Access Health Common Stock by
providing notice of such exercise and payment of the exercise price thereof to
Informed Access at any time prior to the Effective Time. In the event that any
holder of Informed Access options does not exercise such options prior to the
Effective Time, such Informed Access Options will become Assumed Informed
Access Options. As soon as practicable after the Effective Time, Access Health
will issue to each holder of an Assumed Informed Access Option a document
evidencing the stock option assumption by Access Health.
In addition, no later than thirty days after the Effective Time, Access
Health will file a registration statement on Form S-8 under the Securities Act
covering the shares of Access Health Common Stock issuable upon exercise of
the Assumed Informed Access Options and will use its reasonable best efforts
to maintain the effectiveness (and current status) of such registration
statement for so long as such Assumed Informed Access Options remain
outstanding.
Warrants. Each warrant to purchase shares of Informed Access Capital Stock
remaining outstanding (other than those which will expire if they remain
unexercised as of the Effective Time) at the Effective Time will be, in
connection with the Merger, assumed by Access Health. Each warrant so assumed
by Access Health under
43
<PAGE>
the Merger Agreement will continue to have, and be subject to, the same terms
and conditions set forth in the warrant agreement governing such warrant
immediately prior to the Effective Time, except that each such warrant will,
following the Effective Time, be exercisable only for shares of Access Health
Common Stock, in such number, and at such exercise price as is determined by
applying the appropriate exchange ratio in accordance with the terms of the
applicable warrant agreement.
Fractional Shares. No fractional shares will be issued by Access Health in
the Merger. Each stockholder of Informed Access otherwise entitled to a
fractional share (after aggregating all fractional shares of such stockholder)
will receive an amount of cash (rounded to the nearest whole cent) equal to
the product of (i) such fraction multiplied by (ii) the average closing price
of a share of Access Health Common Stock for the five consecutive trading days
that Access Health Common Stock has traded ending on the trading day
immediately prior to the Effective Time, as reported on Nasdaq.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the capitalization of Informed Access as of September 3, 1996 and
assuming that all warrants for Informed Access Capital Stock and all Informed
Access Options will remain unexercised as of the Effective Time, an aggregate
of approximately 4,617,463 shares of Access Health Common Stock will be issued
to Informed Access stockholders in the Merger, 64,500 shares of Access Health
Common Stock will be distributed from escrow to Informed Access' financial
advisors following the Merger, and Access Health will assume options and
warrants exercisable for up to an additional approximately 693,037 shares of
Access Health Common Stock. Based upon the number of shares of Access Health
Common Stock issued and outstanding as of September 3, 1996, and after giving
effect to the issuance of Access Health Common Stock in connection with the
Merger (based upon the assumptions described in the previous sentence and also
assuming no exercise of appraisal rights and assuming all shares will be
released from the Escrow Fund (as defined below)), the former holders of
Informed Access Capital Stock would hold approximately 26.7% of Access
Health's total issued and outstanding shares and holders of former Informed
Access Options and Informed Access Warrants would hold options and warrants to
acquire Access Health Common Stock exercisable for approximately 3.9% of
Access Health's total issued and outstanding shares (assuming the exercise of
only such options and warrants). The foregoing numbers of shares and
percentages are subject to change in the event that the capitalization of
Informed Access changes subsequent to September 3, 1996 and prior to the
Effective Time. There can be no assurance as to the actual capitalization of
Informed Access at the Effective Time.
ESCROW FUND
In connection with the Merger, at the Effective Time, the Escrow Shares (as
defined below) will be registered in the name of and deposited with First
Trust of California, as escrow agent (the "Escrow Agent"), such deposit to
constitute the escrow fund (the "Escrow Fund"). The "Escrow Shares" will be
the number of shares of Access Health Common Stock equal to (a) the product of
(i) 0.025 and (ii) the 5,310,500 shares of Access Health Common Stock issuable
in connection with the Merger (excluding the 64,500 shares of Access Health
Common Stock to be delivered from the Escrow Fund to the financial advisors of
Informed Access following the Merger) minus the Outstanding Option Amount, the
Outstanding Warrant Amount and the number of shares of Informed Access Capital
Stock for which dissenters rights have been validly asserted, plus (b) 64,500.
The Escrow Shares will be contributed to the Escrow Fund on behalf of each
holder of Informed Access Capital Stock at the Effective Time in proportion to
the aggregate number of shares of Access Health Common Stock such holder would
otherwise be entitled under the Merger Agreement rounded down to the nearest
whole share, with the remaining number of shares that are distributed to such
holder being rounded up to the nearest share. The Escrow Fund will be
available to compensate Access Health for any losses incurred by Access Health
directly or indirectly as a result of any inaccuracy or breach of a
representation or warranty of Informed Access contained in the Merger
Agreement or any failure by Informed Access to perform or comply with any
covenant contained therein. The Escrow Fund will also be used to pay 64,500
shares of Access Health Common Stock to Informed Access' financial advisors
following the Merger in payment of Informed Access' fees payable to its
44
<PAGE>
financial advisors in connection with the Merger. Informed Access stockholders
will have voting rights with respect to the Escrow Shares while in escrow.
Access Health may not receive any shares from the Escrow Fund unless and until
cumulative losses in excess of $500,000 have been suffered, in which case
Access Health may recover from the Escrow Fund the entire amount of such
cumulative losses. For the purpose of compensating Access Health for its
losses, the Escrow Shares will be valued at the average of the closing prices
of Access Health Common Stock for the five consecutive trading days ending two
days prior to the closing date of the Merger. Subject to resolution of
unsatisfied claims of Access Health, the Escrow Fund will terminate upon the
earlier of (i) six months following the closing date of the Merger or (ii) the
date of the auditors' report for the first audit of Access Health's financial
statements after the closing date of the Merger.
BY APPROVING THE MERGER AGREEMENT, INFORMED ACCESS STOCKHOLDERS WILL BE
DEEMED TO HAVE CONSENTED TO THE APPOINTMENT OF KINNEY L. JOHNSON, DIRECTOR AND
A STOCKHOLDER OF INFORMED ACCESS, TO ACT AS THE SECURITYHOLDER AGENT ON BEHALF
OF INFORMED ACCESS' STOCKHOLDERS TO DELIVER SHARES HELD IN ESCROW TO ACCESS
HEALTH IN SATISFACTION OF CLAIMS BROUGHT BY ACCESS HEALTH, TO OBJECT TO SUCH
DELIVERIES, TO AGREE TO, TO NEGOTIATE AND TO ENTER INTO SETTLEMENTS AND
COMPROMISES WITH RESPECT TO SUCH CLAIMS, AND TO TAKE CERTAIN OTHER ACTION ON
BEHALF OF INFORMED ACCESS' STOCKHOLDERS, ALL AS MORE FULLY DESCRIBED IN
ARTICLE VII OF THE MERGER AGREEMENT. SEE ARTICLE VII OF THE MERGER AGREEMENT
FOR A MORE DETAILED EXPLANATION OF THE ESCROW FUND AND RIGHTS WITH RESPECT
THERETO.
LEGAL STRUCTURE OF THE MERGER
Under the Merger Agreement, Merger Sub, a wholly-owned subsidiary of Access
Health formed for this purpose, will merge with and into Informed Access with
Informed Access being the surviving corporation of the Merger (the "Surviving
Corporation"). The Certificate of Incorporation of Merger Sub in effect
immediately prior to the Effective Time will become the Certificate of
Incorporation of the Surviving Corporation, the Bylaws of Merger Sub will
become the Bylaws of the Surviving Corporation and the Board of Directors of
Merger Sub will become the initial Board of Directors of the Surviving
Corporation. In the event either Access Health or Informed Access determines
that the transaction as structured in the Merger Agreement will not be able to
be completed in a manner that will permit accounting treatment as a pooling of
interests, then Access Health and Informed Access will promptly negotiate an
amendment so that the transaction will be a stock for asset reorganization
under Section 368(a)(1)(C) of the Code that will qualify for accounting
treatment as a pooling of interests and under which Access Health to the
extent permissible under Section 368(a)(1)(C) and pooling of interests
accounting treatment will substitute Access Health stock options and warrants
for all outstanding unexercised Informed Access Options and warrants as of the
closing of the Merger.
CONDUCT OF INFORMED ACCESS' BUSINESS PRIOR TO THE MERGER
Under the Merger Agreement, Informed Access has agreed, during the period
from the date of the Merger Agreement and continuing until the earlier of the
termination of the Merger Agreement pursuant to its terms and the Effective
Time, except as contemplated by the Merger Agreement or to the extent that
Access Health otherwise consents in writing, which consent may not be
unreasonably withheld, to carry on its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted, to
pay its debts and taxes when due, to pay or perform other obligations when
due, and to use all reasonable efforts consistent with past practices and
policies to preserve intact Informed Access' present business organizations,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with Informed Access, with the
goal of preserving unimpaired Informed Access' goodwill and ongoing businesses
at the Effective Time. Among other things, Informed Access has agreed that,
subject to certain specific exceptions, it will not, without the prior written
consent of Access Health, which consent may not be unreasonably withheld:
(a) enter into any material commitment or transaction not in the ordinary
course of business;
(b) transfer to any person or entity any material rights to Informed
Access' intellectual property, other than pursuant to licenses in the
ordinary course of business;
45
<PAGE>
(c) enter into any material agreements (or material amendments thereto)
pursuant to which any other party is granted marketing, distribution or
similar rights of any type or scope with respect to any products of
Informed Access other than in the ordinary course of business consistent
with past practices;
(d) amend or otherwise modify (or agree to do so), except in the ordinary
course of business, or violate the material terms of, any of the agreements
set forth or described in Informed Access' disclosure schedule to the
Merger Agreement;
(e) commence any material litigation;
(f) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of capital stock of Informed Access,
or repurchase (except for repurchases of Informed Access Common Stock in
the ordinary course of business under the terms of Informed Access
restricted stock agreements), redeem or otherwise acquire, directly or
indirectly, any shares of its capital stock (or options, warrants or other
rights exercisable therefor);
(g) except as disclosed to Access Health and for the issuance of shares
of Informed Access Capital Stock upon exercise or conversion of presently
outstanding Informed Access Options or warrants, or Informed Access Common
Stock upon conversion of outstanding Informed Access Preferred Stock, or
the grant of stock options to new employees pursuant to outstanding written
offers of employment, issue, grant, deliver or sell or authorize or propose
the issuance, grant, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities;
(h) cause or permit any amendments to its Certificate of Incorporation or
Bylaws;
(i) acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets in an amount in excess of $50,000 in the case of a single
transaction or in excess of $100,000 in the aggregate in any 30-day period;
(j) sell, lease, license or otherwise dispose of any of its properties or
assets, except in the ordinary course of business;
(k) except for the Interim Credit Facility (as defined below) incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities of Informed Access or guarantee any debt
securities of others;
(l) grant any severance or termination pay (i) to any director or officer
or (ii) to any other employee, other than as contemplated by the
Reorganization Agreement;
(m) adopt or amend any employee benefit plan, or enter into any
employment contract, extend employment offers to any person whose aggregate
annual base salary would exceed $100,000, pay or agree to pay any special
bonus or special remuneration to any director or employee other than in
connection with the normal annual bonus and salary adjustments for all non-
officers and directors upon consultation with Access Health, or increase
the salaries or wage rates of its other employees, except as consistent
with the ordinary course of Informed Access consistent with past practice
(provided that the price per share of any equity participation in Informed
Access shall be agreed in advance by Access Health);
(n) revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(o) pay, discharge or satisfy, in an amount in excess of $25,000 (in any
one case) or $100,000 (in the aggregate), any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
46
<PAGE>
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against in
the Informed Access financial statements attached to the Merger Agreement
or that arose in the ordinary course of business subsequent to December 31,
1996 or unless payment of such claim, liability or obligation is due in
accordance with its terms or expenses consistent with the provisions of the
Merger Agreement incurred in connection with the transactions contemplated
thereby;
(p) make or change any material election in respect of taxes, adopt or
change any accounting method in respect of taxes, enter into any closing
agreement, settle any claim or assessment in respect of taxes, or consent
to any extension or waiver of the limitation period applicable to any claim
or assessment in respect of taxes; or
(q) take, or agree in writing or otherwise to take, any of the actions
described above, or any other action that would prevent Informed Access
from performing or cause Informed Access not to perform its covenants
hereunder.
CONDUCT OF ACCESS HEALTH'S BUSINESS PRIOR TO THE MERGER
Under the Merger Agreement, Access Health has agreed, during the period from
the date of the Merger Agreement and continuing to the earlier of the
termination of the Merger pursuant to its terms or the Effective Time, except
as contemplated by the Merger Agreement or to the extent Informed Access
consents in writing, which consent may not be unreasonably withheld, to carry
on its business in the usual, regular and ordinary course in substantially the
same manner as previously conducted, to pay its debts and taxes when due, to
pay or perform other obligations when due, and, to the extent consistent with
such business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees
and others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time.
NO SOLICITATION
The Merger Agreement provides that Informed Access may not, nor permit any
of its directors, officers, employees, representatives, agents and affiliates
to, directly or indirectly, (a) solicit, conduct discussions with or engage in
negotiations with any person, relating to the possible acquisition of Informed
Access or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
or their capital stock or assets, (b) provide information with respect to
Informed Access or any of its subsidiaries to any person, other than Access
Health, relating to the possible acquisition of Informed Access or any of its
subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its or their capital stock or
assets, (c) enter into an agreement with any person, other than Access Health,
providing for the acquisition of Informed Access or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets,
(d) make or authorize any statement, recommendation or solicitation in support
of any possible acquisition of Informed Access or any of its subsidiaries
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise) or any material portion of its or their capital stock or assets by
any person, other than by Access Health, or (e) conduct discussions with or
engage in negotiations with any person relating to the possible filing of a
registration statement for the initial public offering of Informed Access
Capital Stock.
However, the Merger Agreement does not prohibit (i) Informed Access from
disclosing, under protection of an appropriate confidentiality agreement, non-
public information concerning Informed Access to, and engaging in discussions
and negotiations regarding any such possible acquisition with, a person who
has made a bona fide offer to engage in such a transaction for consideration
and on terms which the Informed Access Board reasonably believes are more
favorable to the Informed Access stockholders than the Merger, and who can
reasonably be expected to consummate the transaction on the terms that have
been proposed and which
47
<PAGE>
disclosure, discussions and negotiations, in the judgment of Informed Access
after consultation with its legal counsel, shall be required by reason of the
fiduciary obligations of the Informed Access Board (a "Superior Proposal"); or
(ii) the Informed Access Board from withdrawing or modifying its
recommendation in favor of the adoption and approval of the Merger Agreement
and the approval of the Merger. Notwithstanding the above, Informed Access may
not provide non-public information or enter into discussions or negotiations
with any such third party unless (x) Informed Access has prior to the date
thereof provided such information to Access Health, (y) Informed Access has
notified Access Health in advance of any such proposed disclosure to any such
third party, with a description of the information to be disclosed, and (z)
Informed Access has provided copies to Access Health of all written
communications between such third party and Informed Access. If Informed
Access or its representatives receives any unsolicited offer, inquiry or
proposal to enter into discussions or negotiations relating to an alternative
transaction, Informed Access will immediately notify Access Health thereof,
including information as to the identity of the party making such contact and
the specific terms of any offer, inquiry or proposal, as the case may be.
In addition to the foregoing, Informed Access has agreed that if it receives
prior to the Effective Time or the termination of the Merger Agreement any
offer, letter of intent or other proposal, as applicable, relating to any of
the above, it shall promptly notify Access Health thereof, and will provide
information as to the identity of the offeror or the party making any such
offer or proposal and the specific terms of such offer or proposal, as the
case may be, and such other information related thereto as Access Health may
reasonably request.
EXPENSES; TERMINATION FEES
Except as set forth below, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby will be paid by
the party incurring such expenses, whether or not the Merger is consummated.
The parties have agreed, however, that the fees owed by Informed Access to
its financial advisors, Punk Ziegel and Robertson, shall be paid by having
64,500 shares of Access Health Common Stock distributed from the Escrow Fund
to such advisors shortly after the Merger. Such shares will be divided equally
between the two advisors.
The Merger Agreement provides that Informed Access will pay to Access Health
a termination fee of $5 million in the event that the closing of the Merger
does not occur, the Merger Agreement is terminated, Access Health is not in
material breach of its obligations under the Merger Agreement and either (i)
Informed Access has willfully breached a representation, warranty, covenant or
agreement contained in the Merger Agreement; (ii) the Merger has been
submitted to a vote of Informed Access' stockholders and the stockholders of
Informed Access fail to approve the Merger by the requisite vote; or (iii) the
Informed Access Board fails to recommend or changes its recommendation
concerning the Merger, or shall disclose, in any manner, its intention not to
recommend or to change such recommendation.
The Merger Agreement also provides that Access Health will pay to Informed
Access a termination fee of $5 million in the event that the closing of the
Merger does not occur, the Merger Agreement is terminated, Informed Access is
not in material breach of its obligations under the Merger Agreement, and
either (i) Access Health has willfully breached any representation, warranty,
covenant or agreement contained in the Merger Agreement; (ii) the Access
Health Board fails to recommend or changes its recommendation concerning the
Merger, or discloses, in any manner, its intention not to recommend or to
change its recommendation to stockholders concerning the Merger; or (iii) the
Merger has been submitted to a vote of Access Health's stockholders and the
stockholders of Access Health fail to approve the Merger by the requisite
vote.
CONDITIONS TO THE MERGER
The respective obligations of each party to the Merger Agreement to effect
the Merger are subject to the satisfaction at or prior to the Effective Time
of the following conditions: (a) the Merger Agreement and the
48
<PAGE>
Merger shall have been approved and adopted by the requisite vote of the
stockholders of each of Informed Access, Access Health and Merger Sub, (b) the
SEC shall have declared the Registration Statement effective; no stop order
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose, and no similar
proceeding in respect of this Proxy Statement/Prospectus and Consent
Solicitation Statement, shall have been initiated or threatened by the SEC;
and all requests for additional information on the part of the SEC shall have
been complied with to the reasonable satisfaction of the parties, (c) no
temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the Merger
shall be in effect, (d) Access Health and Informed Access shall each have
received substantially identical written opinions from their counsel, in form
and substance reasonably satisfactory to them, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code, (e) Access Health and Informed Access shall have each received letters
from Ernst & Young LLP and Arthur Andersen LLP reaffirming those firms'
concurrence with Access Health management's and Informed Access management's
conclusions, respectively, as to the appropriateness of pooling-of-interests
accounting for the Merger under Accounting Principles Board Opinion No. 16 if
closed and consummated in accordance with the Merger Agreement and (f) the
shares of Access Health Common Stock issuable to stockholders of Informed
Access pursuant to the Merger Agreement and such other shares required to be
reserved for issuance in connection with the Merger shall have been authorized
for listing on Nasdaq upon official notice of issuance.
In addition, the obligations of Informed Access to consummate the Merger are
further subject to the satisfaction of a number of conditions, unless waived
by Informed Access, including (a) the truth and accuracy of the
representations and warranties of Access Health and Merger Sub contained in
the Merger Agreement except for breaches which, individually or in the
aggregate of all such breaches, neither have substantially impaired nor
reasonably would be expected to substantially impair Access Health's ability
after the closing of the Merger to continue to develop, produce, sell and
distribute the products and services that are material to Access Health's
business, and delivery to Informed Access of a certificate to such effect
signed on behalf of Access Health by a duly authorized officer of Access
Health, (b) Access Health and Merger Sub shall have performed or complied in
all material respects with all agreements and covenants required by the Merger
Agreement and have delivered to Informed Access of a certificate to such
effect signed on behalf of Access Health by a duly authorized officer of
Access Health, (c) Informed Access shall have been furnished with evidence
satisfactory to it that Access Health has obtained the consents, approvals and
waivers contemplated by the Merger Agreement, (d) Informed Access shall have
received a legal opinion from Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel to Access Health, (e) there shall not have occurred any
material adverse change (within the meaning of the Merger Agreement) in the
business, assets, financial condition or results of operations of Access
Health since September 3, 1996, which change has resulted in or reasonably
would be expected to result in a substantial impairment of Access Health's
ability after the closing of the Merger to develop, produce, sell and
distribute the products and services that are material to Access Health's
business, (f) certain individuals shall have executed and delivered to Access
Health Employment Agreements and Non- Competition Agreements, and (g) Access
Health shall have delivered and executed a copy of the Registration Rights
Agreement.
In addition, the obligations of Access Health and Merger Sub to consummate
the Merger are further subject to the satisfaction of a number of conditions,
unless waived by Access Health, including (a) the truth and accuracy of the
representations and warranties of Informed Access contained in the Merger
Agreement except for breaches which, individually or in the aggregate of all
such breaches, neither have substantially impaired nor would be expected to
substantially impair Informed Access' ability after the closing of the Merger
to continue to develop, produce, sell and distribute the products and services
that are material to Informed Access' business, and delivery to Access Health
and Merger Sub of a certificate to such effect signed on behalf of Informed
Access by a duly authorized officer of Informed Access, (b) Informed Access
shall have performed or complied in all material respects with all agreements
and covenants required by the Merger Agreement to be performed or complied
with by it on or prior to the Effective Time, and Access Health and Merger Sub
shall have received a certificate to such effect signed on behalf of Informed
Access by a duly authorized officer of Informed Access,
49
<PAGE>
(c) Access Health shall have been furnished evidence satisfactory to it that
Informed Access has obtained the consents, approvals and waivers contemplated
by the Merger Agreement, (d) Access Health shall have received a legal opinion
from Cooley Godward LLP, counsel to Informed Access, (e) certain employees of
Informed Access shall have signed and delivered to Access Health Non-
Competition Agreements and Employment Agreements, and such agreements shall be
in full force and effect, (f) holders of no more than five percent of the
outstanding shares of Informed Access Capital Stock shall have exercised or
continue to have the right to exercise appraisal or dissenters' rights, and
(g) there shall not have occurred any Substantial Material Adverse Change
since September 3, 1996. A "Substantial Material Adverse Change" is deemed to
have occurred only in the event that prior to the Effective Time any of the
following occurs (i) more than two of Informed Access' largest customers
terminate (and do not replace) their agreements with Informed Access and such
customer's do not become customers of Access Health; (ii) the President or two
or more vice presidents of Informed Access terminate or announce their
intention to terminate their employment with Informed Access and announce
their intention not to accept employment with Access Health; (iii) Informed
Access receives a bona fide written threat of a lawsuit or a lawsuit is filed
against Informed Access regarding Informed Access' intellectual property
rights which has a substantial likelihood of being meritorious and would
substantially impair Informed Access' ability after the closing of the Merger
to continue to develop, produce, sell and distribute Informed Access' material
products and services or which has a substantial likelihood of being
meritorious and of resulting in a judgment in excess of $3 million against
Informed Access, or (iv) Informed Access' operating loss before taxes and
extraordinary items, including bonuses in the aggregate amount of $1.5 million
approved in September 1996 by the Informed Access Board and disclosed to
Access Health (determined in accordance with GAAP applied on a basis
consistent with the basis on which Informed Access' audited financials were
prepared), is greater than $5.0 million for the nine months ended September
30, 1996.
TERMINATION
The Merger Agreement provides that it may be terminated and the Merger
abandoned at any time prior to the Effective Time (a) by mutual consent of
Access Health and Informed Access; (b) by Access Health or Informed Access if:
(i) the Effective Time has not occurred by February 28, 1997 (provided that
the right to terminate the Merger Agreement under this clause (b) shall not be
available to any party whose willful failure to fulfill any obligation under
the Merger Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date); (ii) there shall be a final
non-appealable order of a federal or state court in effect preventing
consummation of the Merger; (iii) there shall be any statute, rule, regulation
or non-appendable order enacted, promulgated or issued or deemed applicable to
the Merger by any governmental entity that would make consummation of the
Merger illegal; or (iv) the approval of the Merger by Informed Access'
stockholders or the approval of the Merger by Access Health's stockholders
shall not have been obtained at a meeting duly convened therefor or any
adjournment thereof or by written consent, as the case may be; (d) by Access
Health or Informed Access if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable
to the Merger, by any governmental entity, which would: (i) prohibit Access
Health's or Informed Access' ownership or operation of any portion of the
business of Informed Access or (ii) compel Access Health or Informed Access to
dispose of or hold separate, as a result of the Merger, any portion of the
business or assets of Informed Access or Access Health; in either case, the
unavailability of which assets or business would have a material adverse
effect on Access Health or would reasonably be expected to have a material
adverse effect on Access Health's ability to realize the benefits expected
from the Merger; (e) by Access Health if it is not in material breach of its
representations, warranties or obligations under the Merger Agreement and
there has been a breach of any representation, warranty, covenant or agreement
contained in the Merger Agreement on the part of Informed Access and as a
result of such breach certain conditions to the Merger set forth above would
not then be satisfied; provided, however, that if such breach is curable by
Informed Access within thirty days through the exercise of its reasonable best
efforts, then for so long as Informed Access continues to exercise such
reasonable best efforts Access Health may not terminate the Merger Agreement
under this clause (e) unless such breach is not cured within thirty days (but
no cure period shall be required for a breach which by its nature cannot be
cured); (f) by Informed Access if it is not in material breach of its
representations, warranties or obligations under the Merger Agreement and
there has
50
<PAGE>
been a breach of any representation, warranty, covenant or agreement contained
in the Merger Agreement on the part of Access Health or Merger Sub and as a
result of such breach certain conditions to the Merger set forth above would
not then be satisfied; provided, however, that if such breach is curable by
Access Health or Merger Sub within thirty days through the exercise of its
reasonable best efforts, then for so long as Access Health or Merger Sub
continues to exercise such reasonable best efforts Informed Access may not
terminate the Merger Agreement under this clause (f) unless such breach is not
cured within thirty days (but no cure period shall be required for a breach
which by its nature cannot be cured); (g) by Access Health if the Informed
Access Board shall have failed to recommend or change its recommendation
concerning the Merger or shall have disclosed in any manner its intention to
changed such recommendation; (h) by Informed Access if the Access Health Board
shall have failed to recommend or change its recommendation concerning the
Merger or shall have disclosed in any manner its intention to change such
recommendation; and (i) by Informed Access if the closing price of Access
Health Common Stock as reported on Nasdaq is below $38.00 per share (as
appropriately adjusted for any stock splits, consolidations, stock dividends,
reorganization, recapitalization or other like changes occurring or having a
record or ex-dividend date after September 3, 1996) for any ten business days
during the twenty business days prior to the closing date of the Merger.
AFFILIATE/VOTING AGREEMENTS AND AFFILIATE AGREEMENTS
Each of Informed Access' directors, certain executive officers and certain
stockholders affiliated with directors have entered into an Affiliate/Voting
Agreement with Access Health and Informed Access. Under the Affiliate/Voting
Agreement, each such stockholder of Informed Access agrees (i) to restrict
sales, dispositions or other transactions reducing their risk of investment in
respect of the shares of Informed Access Capital Stock held by them prior to
the Merger and shares of Access Health Common Stock acquired by them in or
after the Merger, subject to a de minimus exception, so as to comply with the
requirements of applicable federal securities and tax laws and to help ensure
that the Merger will be treated as a pooling of interests for accounting and
financial reporting purposes, and (ii) to vote in favor of approval of the
Merger Agreement and the Merger. The vote in accordance with the
Affiliate/Voting Agreements of the shares of Informed Access Capital Stock
subject to such Affiliate/Voting Agreements will be sufficient to approve the
Merger Agreement and the Merger by Informed Access stockholders. In addition,
all executive officers and one 5% or more stockholder of Informed Access not
executing Affiliate/Voting Agreements have executed agreements to restrict
transfers of shares owned or acquired by them, subject to the same de minimus
exception, so as to comply with the requirements of applicable federal
securities and tax laws and to help ensure that the Merger will be treated as
a pooling of interests for accounting and financial reporting purposes.
In addition, each of Access Health's directors and officers has executed an
Affiliate Agreement, pursuant to which such persons agree to restrict sales,
dispositions or other transactions reducing their risk of investment in
respect of the shares of Access Health Common Stock held by them prior to the
Merger and shares of Access Health Common Stock acquired by them after the
Merger, subject to a de minimus exception, so as to comply with the
requirements of federal securities laws and to help ensure that the Merger
will be treated as a pooling of interests for accounting and financial
reporting purposes.
INDEMNIFICATION OF INFORMED ACCESS OFFICERS AND DIRECTORS
The Merger Agreement provides that commencing with the effectiveness of the
Merger, Access Health will cause Informed Access, to the fullest extent
permitted under applicable law, to indemnify, defend and hold harmless each
current or former officer or director of Informed Access or person who served
at the request of Informed Access as an officer or director of another entity
against and from any losses, claims, damages, expenses (including reasonable
attorney's fees and costs), liabilities, or judgments, and any amounts that
are paid in settlement of any proceeding, that are based on, or that arise out
of, the fact that such person is or was an officer or director of Informed
Access or is or was serving at the request of Informed Access as an officer or
director of another entity. In addition, the Merger Agreement provides that
Access Health will use reasonable efforts to assist in the defense of any
matter asserted in any claim, action, suit, proceeding or investigation
against
51
<PAGE>
such person where such person is entitled to indemnification under applicable
law. Access Health is entitled to participate at its own expense in and assume
the defense of any proceeding for which indemnification is sought and Access
Health may settle such proceeding with the consent of such person subject to
certain conditions. Notwithstanding the foregoing, Access Health will not be
liable for any settlement effected without its written consent and will not be
liable for the fees and expenses of more than one counsel for all persons
entitled to indemnity in connection with a proceeding except to the extent two
or more such persons have a conflict of interest in the outcome of such
proceeding. In addition, the Merger Agreement provides that Access Health will
cause Informed Access to continue in full force provisions in Informed Access'
Certificate of Incorporation and Bylaws in effect on the date of the Merger
Agreement. The indemnity obligations of Access Health will survive the
consummation of the Merger for a period of six years to the extent a claim for
indemnification is made during such period, and in the event Access Health
transfers all or substantial portion of its properties or assets to any other
person or entity, such successor or assignee must assume such indemnification
obligations of Access Health.
EMPLOYMENT AGREEMENTS; EMPLOYMENT MATTERS
In connection with the Merger, eleven officers of Informed Access will enter
into employment agreements with Access Health. These agreements generally
provide for: a two year term of employment; fixed initial base compensation;
increased base compensation payable upon the earlier of attainment of
specified earnings targets or the first anniversary of the Merger; eligibility
for an incentive bonus of up to a specified percentage of base compensation;
and the grant of incentive stock options under the Access Health Stock Plan.
The executives will receive base compensation for the greater of the remainder
of the employment term or 12 months in the event the agreement is terminated
by Access Health or by the executive following a "constructive termination,"
which is defined to include a reduction in salary or benefits, relocation or
failure of Informed Access' business to be run in accordance with the charter
therefor agreed to by Informed Access and Access Health, except where such
reduction, relocation or failure is approved by the current president of the
Informed Access division or his successor in the event of his death,
disability, termination for cause or resignation. Severance will not be paid,
if the executive materially breaches the terms of the non-competition
agreement described below. The aggregate number of options for Access Health
Common Stock to be issued under the employment agreements is 280,000. Access
Health intends to grant such options under the 1989 Incentive Stock Plan if
the Incentive Plan Amendment or outside the plan if such amendment is not
approved. See "Interests of Certain Persons in the Merger--Employment
Agreements."
For a period of at least one year following the Merger, Access Health has
agreed to maintain Informed Access' operations in the Broomfield, Colorado
area and to continue the employment of all persons employed by Informed Access
as of the Effective Time.
NON-COMPETITION AGREEMENTS
Certain officers and other employees of Informed Access have entered into
non-competition agreements with Access Health and Informed Access. The non-
competition agreements contain provisions restricting such persons for a
period of two years following the closing of the Merger from participating or
engaging in the financing, operation, ownership, management or control of any
person, firm, corporation or business engaging in the development, marketing,
and distribution of health information products and services or any other
business which Informed Access was engaged in or had under development as of
the date of the Merger Agreement.
INTERIM CREDIT FACILITY
Access Health has agreed to provide Informed Access an interim line of
credit facility (the "Interim Credit Facility") constituting a line of credit
of up to $2 million. The line of credit may be drawn upon by Informed Access
until the closing of the Merger, termination of the Merger Agreement by
Informed Access or 60 days following termination of the Merger by Access
Health. Thereafter, Access Health at its discretion may advance
52
<PAGE>
funds to Informed Access. The line of credit bears interest at 1 1/2% over the
prime commercial rate, subject to an increase in the event the Merger
Agreement is terminated to the lesser of 20% or the maximum rate otherwise
allowed by law. Interest is payable monthly and the balance is due at maturity
which is the earlier of 12 months from the closing of the Interim Credit
Facility or six months from the termination of the Merger. The Interim Credit
Facility is secured by a first priority security interest in all tangible
assets of Informed Access other than leased capital equipment. In the event
Access Health becomes liable to Informed Access for a termination fee from
termination of the Merger Agreement, the Interim Credit Facility terminates
and a portion of the termination fee proceeds may be applied to any
outstanding balance due thereunder.
REGISTRATION RIGHTS AGREEMENT
Upon the Effective Time of the Merger, Access Health has agreed to enter
into a Registration Rights Agreement (the "Registration Rights Agreement")
which will provide certain rights with respect to the registration of the
shares of Access Health Common Stock received by the Informed Access
stockholders in the Merger. Under the Registration Rights Agreement, if Access
Health proposes to register any of its securities under the Securities Act,
the holders are entitled to notice of such proposed registration and the
opportunity to include their shares therein, subject to certain conditions and
limitations including the right of the underwriters of an offering to limit
the number of shares included in such registration to 35% of the total number
of shares to be registered in certain circumstances. Access Health will pay
all registration expenses for such registration, but the Informed Access
holders included in such registration must bear their proportionate share of
all selling expenses. The holders may also require that Access Health file up
to three registration statements under the Securities Act with respect to the
underwritten public offerings of their shares at any time beginning after the
date Access Health has published the combined financial results of Access
Health and Informed Access for a period of at least 30 days of combined
operations. The Informed Access holders must bear all registration and selling
expenses incurred in connection with such registration. The registration
rights under the Registration Rights Agreement (i) will terminate as to any
holder at such time as such holder may sell all his or her shares using the 1%
volume limitation pursuant to Rule 144 under the Securities Act and (ii) may
not be exercisable by a holder at such time as a holder could sell all his or
her shares in a three month period using the average weekly trading volume
limitation pursuant to Rule 144 under the Securities Act.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
consequences of the exchange of shares of Informed Access Common Stock for
Access Health Common Stock pursuant to the Merger. This summary is based upon
opinions of counsel (the "Tax Opinions") delivered by Cooley Godward LLP and
Wilson Sonsini Goodrich & Rosati, Professional Corporation (collectively
"Counsel") that the Merger will constitute a "reorganization" within the
meaning of Section 368 of the Code (a "Reorganization").
Informed Access stockholders should be aware that this discussion does not
address the federal income tax considerations applicable to holders of
Informed Access warrants, nor does it deal with all federal income tax
considerations that may be relevant to particular stockholders of Informed
Access in light of their particular circumstances, such as stockholders who
are banks, insurance companies, tax-exempt organizations, dealers in
securities, who are foreign persons, who do not hold their Informed Access
Capital Stock as capital assets, or who acquired their shares in connection
with stock option or stock purchase plans or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of the Merger under foreign, state or local tax laws or the tax
consequences of transactions effectuated prior or subsequent to or
concurrently with the Merger (whether or not such transactions are in
connection with the Merger), including, without limitation, transactions in
which Informed Access Capital Stock is acquired or Access Health Common Stock
(including the Escrow Shares) is disposed of. ACCORDINGLY, INFORMED ACCESS
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
53
<PAGE>
Subject to the limitations and qualifications referred to herein, Counsel is
of the opinion that the Merger will qualify as a Reorganization which will
result in the following federal income tax consequences:
(a) No gain or loss will be recognized by holders of Informed Access
Capital Stock solely upon their receipt of Access Health Common Stock
solely in exchange for Informed Access Capital Stock in the Merger (except
to the extent of cash received in lieu of a fractional share of Access
Health Common Stock).
(b) The aggregate tax basis of the Access Health Common Stock (including
the Escrow Shares) received by Informed Access stockholders in the Merger
will be the same as the aggregate tax basis of Informed Access Capital
Stock surrendered in exchange therefor less the tax basis, if any,
allocated to fractional share interests.
(c) The holding period of the Access Health Common Stock (including the
Escrow Shares) received in the Merger will include the period for which the
Informed Access Capital Stock surrendered in exchange therefor was held,
provided that the Informed Access Capital Stock is held as a capital asset
at the time of the Merger.
(d) Cash payments received by holders of Informed Access Capital Stock in
lieu of a fractional share will be treated as if a fractional share of
Access Health Common Stock had been issued in the Merger and then redeemed
by Access Health. A stockholder of Informed Access receiving such cash will
generally recognize gain or loss upon such payment, equal to the difference
(if any) between such stockholder's basis in the fractional share and the
amount of cash received.
(e) A shareholder who exercises dissenters' rights with respect to a
share of Informed Access Capital Stock and who receives payment for such
stock in cash should generally recognize capital gain or loss (if such
share was held as a capital asset at the time of the Merger) measured by
the difference between the shareholder's basis in such share and the amount
of cash received, provided that such payment is neither essentially
equivalent to a dividend nor has the effect of a distribution of a dividend
(a "Dividend Equivalent Transaction"). A sale of capital stock of Informed
Access pursuant to an exercise of dissenters' rights will generally not be
a Dividend Equivalent Transaction if, as a result of such exercise, the
shareholder exercising dissenters' rights and all parties related to such
Shareholder own no shares of Access Health Stock (either actually or
constructively with the meaning of Section 318 of the Code) after the
Merger. If, however, a shareholder's sale for cash of Informed Access
capital stock pursuant to an exercise of dissenters' rights is a Dividend
Equivalent Transaction, then such shareholder will generally recognize
income for federal income tax purposes in an amount up to the entire amount
of cash so received.
(f) Neither Access Health, Sub nor Informed Access will recognize
material amounts of gain solely as a result of the Merger.
In order to satisfy the "continuity of interest" requirement under the Code,
Informed Access stockholders must not, pursuant to a plan or intent at or
prior to the Effective Time of the Merger, dispose of or transfer so much of
either (i) their Informed Access Capital Stock in anticipation of the Merger
or (ii) the Access Health Common Stock to be received in the Merger
(collectively, "Planned Dispositions"), such that the Informed Access
stockholders, as a group, would no longer have a significant equity interest
in the Informed Access business being conducted by the combined company after
the Merger. Informed Access stockholders will generally be regarded as having
a significant equity interest as long as the Access Health Common Stock
received in the Merger (after taking into account Planned Dispositions), in
the aggregate, represents a substantial portion of the entire consideration
received by the Informed Access stockholders in the Merger. No assurance can
be made that the "continuity of interest" requirement will be satisfied, and
if such requirement is not satisfied, the Merger would not be treated as a
Reorganization under the Code having the federal income tax consequences
described above.
No ruling has been or will be obtained from the Internal Revenue Service
(the "IRS") in connection with the Merger. Informed Access stockholders should
be aware that the Tax Opinions do not bind the IRS and that the IRS is
therefore not precluded from successfully asserting a contrary opinion. The
Tax Opinions are also subject to certain assumptions and qualifications and
will be based on the truth and accuracy of certain representations made by
Access Health, Merger Sub and Informed Access and stockholders of Informed
Access, including representations in certificates to be delivered to counsel
by the respective managements of Access Health, Merger Sub and Informed Access
and certain stockholders of Informed Access.
54
<PAGE>
A successful IRS challenge to the Reorganization status of the Merger would
result in Informed Access stockholders recognizing taxable gain or loss with
respect to each share of Informed Access Capital Stock surrendered equal to
the difference between the stockholder's basis in such share and the fair
market value, as of the Effective Time, of the Access Health Common Stock
received in exchange therefor. In such event, a stockholder's aggregate basis
in the Access Health Common Stock so received would equal its fair market
value and the holding period for such stock would begin the day after the
Effective Time.
GOVERNMENTAL AND REGULATORY APPROVALS
Other than compliance with the federal securities laws and applicable
securities laws of the various states, Access Health and Informed Access are
aware of no governmental or regulatory approvals required for consummation of
the Merger.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting
principles. Consummation of the Merger is conditioned upon receipt by Access
Health and Informed Access of letters from Ernst & Young LLP, Access Health's
independent auditors, and Arthur Andersen LLP, Informed Access' independent
auditors, reaffirming those firms' concurrence with Access Health management's
and Informed Access management's conclusions, respectively, as to the
appropriateness of pooling-of-interests accounting for the Merger under APB
No. 16, if consummated in accordance with the Merger Agreement.
DELAWARE APPRAISAL RIGHTS
Stockholders of Informed Access who do not vote by written consent in favor
of the Merger may, under certain circumstances and by following the procedure
prescribed by the DGCL, exercise appraisal rights and receive cash for their
shares of Informed Access Capital Stock. The stockholders exercising appraisal
rights under the DGCL must follow the appropriate procedures under the DGCL or
suffer the termination or waiver of such rights.
If a holder of Informed Access Capital Stock exercises appraisal rights in
connection with the Merger under Section 262 of the DGCL ("Section 262"), any
shares of Informed Access Capital Stock in respect of which such rights have
been exercised and perfected will not be converted into Access Health Common
Stock but instead will be converted into the right to receive such
consideration as may be determined by the Delaware Court of Chancery (the
"Court") to be due with respect to such shares pursuant to the laws of the
State of Delaware.
The following summary of the provisions of Section 262 is not intended to be
a complete statement of such provisions and is qualified in its entirety by
reference to the full text of Section 262, a copy of which is attached to this
Proxy Statement/Prospectus and Consent Solicitation Statement as Annex C and
incorporated herein by reference.
Holders of shares of Informed Access Capital Stock who object to the Merger
and who follow the procedures in Section 262 will be entitled to have their
shares of Informed Access Capital Stock appraised by the Court and to receive
payment of the "fair value" of such shares as of the Effective Time of the
Merger.
In the event that the Informed Access stockholders approve the Merger
Agreement by written consent in accordance with the DGCL, either before the
Effective Time or within ten days thereafter, Access Health must notify each
Informed Access stockholder who did not so consent in writing of such
Effective Time and that appraisal rights are available for any or all of the
shares of Informed Access Capital Stock held by such stockholder. A
stockholder of Informed Access electing to exercise appraisal rights must,
within 20 days of the date of mailing of such notice, perfect his, her or its
appraisal rights by demanding in writing from Informed
55
<PAGE>
Access the appraisal of his, her or its shares of Informed Access Capital
Stock, as provided in Section 262. A holder who elects to exercise appraisal
rights should mail or deliver his, her or its written demand to Informed
Access at 310 Interlocken Parkway, Suite A, Broomfield, Colorado 80021. The
demand should specify the holder's name and mailing address, the number of
shares of Informed Access Capital Stock owned and that such holder is
demanding appraisal of his, her or its shares. Only a holder of record of
shares of Informed Access Capital Stock (or his, her or its duly appointed
representative) is entitled to assert appraisal rights for the shares
registered in that holder's name.
Within 120 days after the Effective Time of the Merger, any stockholder who
has made a valid written demand and who has not voted in favor of approval and
adoption of the Merger Agreement may (i) file a petition in the Court
demanding a determination of the value of shares of Informed Access Capital
Stock, and (ii) upon written request, receive from Informed Access a statement
setting forth the aggregate number of shares of Informed Access Capital Stock
not voted in favor of approval and adoption of the Merger Agreement and
approval of the Merger and with respect to which demands for appraisal have
been received and the aggregate number of holders of such shares. Such
statement must be mailed within ten days after the written request therefor
has been received by Informed Access.
If a petition for an appraisal is timely filed, at a hearing on such
petition, the Court is required to determine the holders of Dissenting Shares
entitled to appraisal rights and to determine the "fair value" of the
Dissenting Shares exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the value of the Dissenting Shares. In
determining such "fair value", the Court is required to take into account all
relevant factors, including the market value of Informed Access Capital Stock
and the net asset and earnings value of Informed Access, and in determining
the fair value of interest, the Court may consider the rate of interest which
Informed Access would have had to pay to borrow money during the pendency of
the proceeding. Upon application by a stockholder, the Court may also order
that all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts utilized in
the appraisal proceeding, be charged pro rata against the value of all the
shares of Informed Access Capital Stock entitled to appraisal.
Any holder of Dissenting Shares who has duly demanded an appraisal under
Section 262 will not, after the Effective Time of the Merger, be entitled to
vote the shares subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on such Dissenting Shares (except
dividends or other distributions payable to stockholders of record as of a
date prior to the Effective Time of the Merger).
If any holder of shares of Informed Access Capital Stock who demands
appraisal under Section 262 effectively withdraws or loses, his, her or its
right to appraisal, the shares of such holder will be converted into a right
to receive that number of shares of Access Health Common Stock as is
determined in accordance with the Merger Agreement. A holder will effectively
lose his right to appraisal if he, she or it votes in favor of approval and
adoption of the Merger Agreement, or if no petition for appraisal is filed
within 120 days after the Effective Time of the Merger, or if the holder
delivers to Informed Access a written withdrawal of such holder's demand for
an appraisal and an acceptance of the Merger, except that any such attempt to
withdraw made more than 60 days after the Effective Time of the Merger
requires the written approval of Informed Access. A holder of stock
represented by certificates may also lose his, her or its right to appraisal
if he, she or it fails to comply with the Court's direction to submit such
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings.
56
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements,
including the notes thereto, are qualified in their entirety by reference to
and should be read in conjunction with, the historical consolidated financial
statements of Access Health and Informed Access, including the notes thereto,
included herein.
The unaudited pro forma condensed combined financial statements assume a
business combination between Access Health and Informed Access accounted for
on a pooling-of-interests basis and are based on each company's respective
historical consolidated financial statements and notes thereto, which are
included herein. The pro forma condensed combined balance sheet combines
Access Health's consolidated condensed balance sheet as of June 30, 1996 with
Informed Access' consolidated condensed balance sheet as of June 30, 1996,
giving effect to the Merger as if it had occurred on June 30, 1996. The
unaudited pro forma combined condensed statements of operations combine Access
Health's historical results for the nine months ended June 30, 1995 and 1996
and the years ended September 30, 1993, 1994 and 1995 with Informed Access'
historical results for the nine months ended June 30, 1995 and 1996, and the
years ended December 31, 1993, 1994 and 1995, respectively, giving effect to
the Merger as if it had occurred at the beginning of the earliest period
presented.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated at the beginning of the
earliest period presented, nor is it necessarily indicative of future
operating results or financial position.
57
<PAGE>
ACCESS HEALTH, INC. AND INFORMED ACCESS SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1993, 1994 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INFORMED ACCESS
ACCESS HEALTH, INC. SYSTEMS, INC. PRO FORMA COMBINED
------------------------- ------------------------ -------------------------
1993 1994 1995 1993 1994 1995 1993 1994 1995
------- ------- ------- ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Commercial revenue..... $16,282 $16,355 $31,553 $ 47 $ 125 $ 2,957 $16,329 $16,480 $34,510
Development program
with related party.... 2,197 2,274 -- -- -- -- 2,197 2,274 --
------- ------- ------- ------ ------- ------- ------- ------- -------
Total................ 18,479 18,629 31,553 47 125 2,957 18,526 18,754 34,510
Costs and expenses:
Cost of commercial
revenue............... 8,954 12,741 20,712 -- 96 2,773 8,954 12,837 23,485
Product and other
development........... 1,051 1,085 1,708 876 1,123 1,460 1,927 2,208 3,168
Development program.... 2,455 2,541 -- -- -- -- 2,455 2,541 --
Sales and marketing.... 2,467 3,767 3,651 66 729 1,640 2,533 4,496 5,291
General and
administrative........ 1,912 2,602 3,456 45 596 1,002 1,957 3,198 4,458
------- ------- ------- ------ ------- ------- ------- ------- -------
Total costs and
expenses............ 16,839 22,736 29,527 987 2,544 6,875 17,826 25,280 36,402
------- ------- ------- ------ ------- ------- ------- ------- -------
Income (loss) from
operations............. 1,640 (4,107) 2,026 (940) (2,419) (3,918) 700 (6,526) (1,892)
Non-operating income
(expenses):
Interest and other
income................ 586 612 661 28 43 205 614 655 866
Interest expense....... (228) (153) (91) -- (5) (32) (228) (158) (123)
------- ------- ------- ------ ------- ------- ------- ------- -------
Income (loss) before
income taxes........... 1,998 (3,648) 2,596 (912) (2,381) (3,745) 1,086 (6,029) (1,149)
Provision (credit) for
income taxes........... 724 (1,352) 1,056 -- -- -- 391 (2,231) (471)
------- ------- ------- ------ ------- ------- ------- ------- -------
Net income (loss)....... $ 1,274 $(2,296) $ 1,540 $ (912) $(2,381) $(3,745) $ 695 $(3,798) $ (678)
======= ======= ======= ====== ======= ======= ======= ======= =======
Pro forma net income
(loss) per share....... $ 0.13 $ (0.24) $ 0.14 $(0.45) $ (0.66) $ (0.73) $ 0.06 $ (0.31) $ (0.05)
======= ======= ======= ====== ======= ======= ======= ======= =======
Shares used in per share
calculation............ 9,515 9,456 11,145 2,011 3,605 5,118 11,124 12,340 14,172
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
58
<PAGE>
ACCESS HEALTH, INC. AND INFORMED ACCESS SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INFORMED ACCESS PRO FORMA
ACCESS HEALTH, INC. SYSTEMS, INC. COMBINED
-------------------- ---------------- ----------------
1995 1996 1995 1996 1995 1996
--------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total commercial
revenue................ $ 20,954 $ 44,097 $ 629 $ 5,871 $21,583 $49,968
Costs and expenses:
Cost of commercial
revenue............... 14,442 24,207 559 4,067 15,001 28,274
Product and other
development........... 1,259 2,368 1,219 1,790 2,478 4,158
Sales and marketing.... 2,580 4,668 1,226 1,896 3,806 6,564
General and
administrative........ 2,340 4,563 627 1,004 2,967 5,567
--------- --------- ------- ------- ------- -------
Total costs and
expenses............ 20,621 35,806 3,631 8,757 24,252 44,563
--------- --------- ------- ------- ------- -------
Income (loss) from
operations............. 333 8,291 (3,002) (2,886) (2,669) 5,405
Non-operating income
(expenses):
Interest and other
income................ 488 1,099 107 112 595 1,211
Interest expense....... (60) (37) (34) (60) (94) (97)
--------- --------- ------- ------- ------- -------
Income (loss) before
income taxes........... 761 9,353 (2,929) (2,834) (2,168) 6,519
Provision (credit) for
income taxes........... 309 3,741 -- -- (889) 2,608
--------- --------- ------- ------- ------- -------
Net income (loss)....... $ 452 $ 5,612 $(2,929) $(2,834) $(1,279) $ 3,911
========= ========= ======= ======= ======= =======
Pro forma net income
(loss) per share....... $ 0.04 $ 0.43 $ (0.66) $ (0.50) $ (0.09) $ 0.22
========= ========= ======= ======= ======= =======
Shares used in per share
calculation............ 11,148 13,144 4,467 5,647 13,615 18,026
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
59
<PAGE>
ACCESS HEALTH, INC. AND INFORMED ACCESS SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
INFORMED
ACCESS ACCESS PRO FORMA
HEALTH, INC. SYSTEMS, INC. COMBINED
------------ ------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................... $29,556 $1,829 $31,385
Available-for-sale securities........... 10,368 -- 10,368
Accounts and licenses receivable........ 8,712 1,253 9,965
Prepaid expenses and other current
assets................................. 2,312 317 2,629
------- ------ -------
Total current assets.................. 50,948 3,399 54,347
Property and equipment, net.............. 13,008 1,634 14,642
Investment in AHN........................ 5,000 -- 5,000
Other assets............................. 4,313 109 4,422
------- ------ -------
Total assets.......................... $73,269 $5,142 $78,411
======= ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 2,967 $ 920 $ 3,887
Accrued payroll and related expenses.... 2,918 544 3,462
Other accrued expenses.................. 4,694 152 4,846
Current portion of long-term debt....... -- 415 415
Deferred revenue........................ 2,626 473 3,099
Deferred income taxes................... 1,650 -- 1,650
Accrued merger-related expenses......... -- -- 8,500
------- ------ -------
Total current liabilities............. 14,855 2,504 25,859
Long-term debt........................... -- 1,040 1,040
Mandatorily redeemable convertible
preferred stock......................... -- 10,635 --
Stockholders' equity (deficit):
Common stock............................ 50,211 106 64,452
Retained earnings (deficit)............. 8,203 (9,143) (12,940)
------- ------ -------
Total stockholders' equity (deficit).. 58,414 (9,037) 51,512
------- ------ -------
Total liabilities and stockholders'
equity............................... $73,269 $5,142 $78,411
======= ====== =======
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
60
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of operations combine
the historical statements of operations of Access Health for the nine months
ended June 30, 1995 and 1996, and the years ended September 30, 1993, 1994 and
1995 with the historical statements of operations of Informed Access for the
nine months ended June 30, 1995 and 1996, and the years ended December 31,
1993, 1994 and 1995, respectively.
No adjustments have been made in these pro forma financial statements to
conform the accounting policies of the combining companies. The nature and
extent of such adjustments, if any, are not expected to be significant.
NOTE 2. PRO FORMA NET INCOME (LOSS) PER SHARE
The number of Access Health common shares which will be issued in exchange
for the outstanding shares of Informed Access Capital Stock is based on the
final exchange ratio. The exchange ratio will depend upon the capitalization
of Informed Access at the Effective Time of the Merger. An assumed exchange
ratio of .80 was used in preparing the pro forma combined financial data and
the following table which provides the pro forma number of shares to be issued
in connection with the Merger:
<TABLE>
<S> <C>
Informed Access Common Stock and Preferred Stock outstanding as
of June 30, 1996.............................................. 5,727,186
Common exchange ratio.......................................... .80
----------
Number of Access Health common shares exchanged for Informed
Access stock.................................................. 4,581,748
Total number of Access Health common shares outstanding as of
June 30, 1996................................................. 12,523,757
----------
Number of Access Health common shares outstanding after
completion of the Merger...................................... 17,105,505
==========
</TABLE>
The pro forma combined net income (loss) per share is based on the combined
weighted average number of common and dilutive common equivalent shares of
Access Health and Informed Access and assumes a Common Stock exchange ratio as
of June 30, 1996 of .80 shares of Access Health Common Stock for each
outstanding share of Informed Access Capital Stock. The actual number of
shares of Access Health Common Stock to be exchanged for all of the
outstanding Informed Access Common Stock will be determined at the Effective
Time.
Share and per share information applicable to prior periods for Access
Health have been restated to reflect a three-for-two stock split which was
effective on February 15, 1996. The net loss per share for Informed Access
reflects the conversion of the Informed Access Preferred Stock into Informed
Access Common Stock on an "as if converted" basis from the time of issuance.
NOTE 3. PRO FORMA ADJUSTMENTS
Access Health and Informed Access estimate that they will incur merger-
related expenses of approximately $12 million, consisting primarily of
transaction costs for financial advisory fees, attorneys, accountants and
financial printing and other one-time charges related to the transaction.
Approximately $3.5 million of the Merger related expenses will be paid from
escrow to the financial advisors of Informed Access in the form of 64,500
shares of Access Health Common Stock. See "Approval of Merger and Related
Transaction--Escrow Fund." This estimate is preliminary and is therefore
subject to change. These nonrecurring expenses will be charged to operations
as incurred.
The pro forma condensed combined balance sheet gives effect to such expenses
as if they had been incurred as of June 30, 1996; however, in accordance with
Regulation S-X the pro forma condensed combined statements of operations do
not give effect to such expenses.
61
<PAGE>
The pro forma condensed combined financial statements include pro forma
adjustments to reflect the combined tax liability as if Access Health and
Informed Access had filed consolidated income tax returns. As a result,
combined income tax expense has been reduced by $333,000, $879,000,
$1,527,000, $1,198,000, and $1,133,000 for the years ended September 30, 1993,
1994, and 1995 and the nine months ended June 30, 1995 and 1996, respectively.
The pro forma combined balance sheet data gives effect to the automatic
conversion of redeemable Informed Access Preferred Stock into 3,654,448 shares
of Access Health Common Stock based on the estimated exchange ratio.
62
<PAGE>
ACCESS HEALTH BUSINESS
GENERAL
Access Health is a leading provider of personal health management products
and services to the health care industry. Access Health's clients include
managed care organizations, health plans, military managed health care
providers, self-insured employers, and hospital and physician delivery
systems. Personal health management services are designed to improve the
quality and accessibility of health care by educating and empowering consumers
to make more informed decisions, thereby reducing inappropriate use of the
health care system and the cost of care while improving member satisfaction.
Access Health's personal health management services provide members with a
broad range of health care information, prevention and care management
programs. Access Health believes that personal health management programs
currently cover an estimated 30 million lives and that the total potential
market in the United States could extend to include the more than 200 million
persons covered by medical insurance.
Access Health was founded in 1987 and until 1993 primarily provided consumer
health care information products and services designed to help hospitals and
other health care providers market their services. In response to
opportunities created by increasing pressure to provide more cost effective
health care, beginning in 1993, Access Health changed its focus to developing
and marketing personal health management products and services to health plans
and payors. At the same time, Access Health altered its business model to
price its products and services predominantly on a recurring per-member per-
month fee basis rather than on a non-recurring basis. Access Health's personal
health management business has grown dramatically; the number of enrolled
members has increased to over 10.7 million in September 1996 from
approximately 100,000 at the beginning of fiscal 1994.
Access Health's primary personal health management product, Personal Health
Advisor ("PHA"), provides eligible health plan members with toll-free
telephone access to registered nurse counselors, pre-recorded information on
various health care topics, and other health care and information services on
a 24-hour-a-day, 7-day-a-week basis. PHA is marketed to health plans, managed
care organizations, large self-insured employer groups and directly to the
consumer. Access Health's health systems services also offers a broad range of
health care information products and services to health care providers. Access
Health's primary health systems services products include ASK-A-NURSE, Cancer
HELPLINK and a series of software products providing membership management and
referral management capability.
Access Health provides its personal health management products and services
from three advanced teleservice centers. The service centers are staffed by
registered nurses and other health counselors who use sophisticated voice and
data technology along with proprietary databases of clinical protocols and
membership and provider information. In anticipation of new information needs
in health care, Access Health is broadening the scope of its products and
services into such areas as disease management and prevention and wellness
programs. In its efforts to establish PHA as the industry standard and
preferred brand name in personal health care management products and services,
Access Health has expanded its delivery technologies to include personal
computers, Internet applications and cable television.
Access Health has entered into a contract to publish a health education CD-
Rom for retail and wholesale distribution by fall 1996. Additionally, Access
Health is in the process of launching its PHA-Online service. Further, in
March 1996, Access Health made a 6% equity investment in America's Health
Network, the first cable television network focused solely on consumer health
care concerns. In addition to the equity stake, Access Health and America's
Health Network also have a co-marketing agreement.
INDUSTRY BACKGROUND
The rate of health care spending increases in the United States continues to
exceed gross domestic product ("GDP") growth. The Health Care Financing
Administration expected national health expenditures to reach 14.2% of GDP or
slightly more than one trillion dollars in 1995. Containment of health care
costs has become a
63
<PAGE>
national priority. As a result, the health care system is increasingly
dominated by cost-conscious managed health care programs.
A number of factors have contributed to escalating health care costs. These
include:
. Lack of access. Individuals who lack timely access to health care and to
reliable health care information may delay needed treatment, self-treat
inappropriately or seek unnecessary care, all of which can lead to
poorer health outcomes and ultimately higher costs.
. Lack of preventive care and early intervention. Appropriate preventive
care and early intervention can dramatically influence health and well-
being and is demonstrably cost-effective. Preventive care and timely
intervention both depend on an individual's access to information.
. Inappropriate use of health care resources. Poorly-informed individuals
may choose more costly or less effective means of treatment for their
health care needs. For example, studies indicate that up to 55% of all
emergency room visits may be inappropriate.
Personal health care management programs were developed in response to these
problems. These programs generally include telephone-based health counseling
services to help individuals optimize their use of the health care system.
These services assist users in managing their own health and empower them to
make better informed decisions. The information they receive helps them both
to obtain proper care and to avoid unnecessary care, ultimately reducing
health care costs, improving health outcomes and increasing member
satisfaction with their health care plan.
Recent studies indicate that personal health management programs can
meaningfully reduce annual medical expenses. Government and commercial health
care plans and insurers increasingly view personal health management programs
as an effective means to cope with capitated reimbursement of health care
costs.
Personal health management programs are typically contracted by health
plans, managed care programs, and self-insured employers. Access Health
believes that the greatest value may actually enure to the individual caller
or consumer. A personal health management program is considered to be both a
member benefit and a vehicle to rationalize member usage of the health care
delivery system. Access Health believes that personal health management
programs currently cover an estimated 30 million lives and that the total
potential market in the United States could extend to include the more than
200 million persons covered by medical insurance.
STRATEGY
Access Health seeks to position each of its products and services as the
leading brand in its category and create consumer recognition and preference
through the following business strategies:
Focus on key market segments. Many participants in health care benefit from
providing personal health management services to their employees or members.
Access Health has segmented the marketplace around the unique needs of large
self-insured employers, health plans and managed care organizations, military
managed health care providers, individual consumers, Medicare, Medicaid, and
integrated physician and hospital delivery systems. Access Health adapts its
programs to meet the particular needs of various market segments by creating
special member communication materials for different literacy levels and
language requirements, segment-specific medical information and targeted
clinical programs. Access Health employs teams of sales and account management
personnel with specific expertise in each segment.
Build Personal Health Advisor brand equity. Access Health seeks to establish
Personal Health Advisor as the personal health management brand of choice
among consumers and health plans by meeting and anticipating the needs of
members, physicians, and health plans. Access Health intends to support this
strategy by building brand awareness through consumer advertising, trade
advertising, and other promotional activities. Additionally, Access Health has
invested in proprietary technology to enable PHA to track member health care
needs over
64
<PAGE>
time and build a repository of personal health information. In this way,
Access Health seeks to create a long-term relationship between individuals and
PHA even when individuals change health plans, physicians, or employers.
Deliver significant value to customers. Access Health seeks to provide
health plans and payors a return on investment in the form of reduced health
care costs, increased member satisfaction and improved quality of care. Access
Health continues to invest in clinical programs and delivery capabilities in
order to provide members with the highest quality and most comprehensive set
of personal health management services. More than 87% of PHA users report that
PHA increases their satisfaction with their health plan. One study conducted
on behalf of Access Health and a customer showed that the customer received a
return on its PHA investment of more than 4 to 1.
Expand range and scope of services. Access Health plans to continue to
enhance the clinical applications and delivery options offered under the PHA
and ASK-A-NURSE brand names. Clinical applications are being expanded to
include disease management and prevention and wellness products and services.
Access Health is also extending the delivery of its branded health information
products to electronic media including personal computer-based consumer
software and on-line services. Access Health is developing these clinical
products and services and electronic delivery options internally and through
strategic alliances. Access Health also may make acquisitions to augment its
product offerings.
Provide a full range of personal health management solutions. Outsourcing
personal health management services has become a common practice for self-
insured employers, health plans and managed care organizations. Factors
supporting this trend include economies of scale, speed of market entry,
required clinical and technology capabilities, and quality of service. Access
Health's Personal Health Advisor meets the needs of organizations that choose
to outsource personal health management capabilities. For organizations
choosing to provide personal health management services in-house, Access
Health offers Access Care Management System ("ACMS"), a program consisting of
software and clinical guidelines. Access Health will continue to develop its
products to be responsive to the changing marketplace and needs of its
customers.
Exploit multiple media. Different media such as telephone, online services,
cable TV and print can be used to deliver tailored health care information
appropriate to particular audiences. Access Health has made significant
commitments in each of these areas as evidenced by its investment in, and co-
marketing agreement with, America's Health Network which provides health care
information over cable television and the recently launched PHA-OnLine service
which provides health care information over the Internet.
PRODUCTS AND SERVICES
Access Health's products and services enable its clients to facilitate
appropriate consumer health care decisions, providing for better outcomes,
improving member satisfaction and avoiding unnecessary utilization of health
care services or inappropriate care. Access Health's products and services
provide members 24-hour telephone access to registered nurse counselors who
offer timely symptom-specific assessments, consultation on appropriate sources
of care, information about major diagnoses or procedures, and referrals to
physicians and other services. Access Health uses five databases from which
services are delivered: (i) a person-based, portable, lifetime membership
database, (ii) a clinical protocol database, (iii) a database of information
as relates to the rules of each client's health plan, (iv) a database of
health plan specific authorized providers and (v) a healthcare information and
education database.
Access Health's products and services are designed to meet the needs of
specific customer groups including managed care providers, self-insured
employers, individual consumers, Medicare, Medicaid and hospital and health
systems.
Personal health management services
Personal Health Advisor. Personal Health Advisor is a membership benefit
sponsored by managed care organizations, self-insured employers and hospital-
based delivery systems for use by members enrolled in the
65
<PAGE>
organization's health plan. Per-member per-month fees are paid by the plan
sponsor and are periodically adjusted based on usage patterns. PHA is also
available to individual consumers on a self-sponsored basis for a monthly fee.
PHA provides members 24-hour toll-free telephone access to specially-trained
registered nurse phone counselors for general health information, symptom-
specific, non-diagnostic nursing assessments and decision counseling for major
diagnostic or treatment issues. A special feature of the program is Health
Counseling, a service that provides individually researched information on
care alternatives for significant health care episodes, such as maternity,
major illnesses and surgery. Members also can access the AudioHealth Library,
a sophisticated database of pre-recorded information on more than 430 topics
in both English and Spanish. The information provided through the AudioHealth
Library includes comprehensive self-care and prevention information designed
to help callers make appropriate health care decisions. After listening to a
topic, the caller can choose to discuss specific concerns with a registered
nurse or to request printed information on a variety of topics. Health care
counselors assist PHA members in selecting physicians or other services
available under their particular health care benefit plan. Access Health is
exploring or has already launched additional information distribution channels
for offering PHA that include desktop PC software, on-line services, expanded
printed material capabilities and cable video programming.
As of September 1, 1996, Access Health had 41 customers representing more
than 10.7 million members enrolled in PHA, compared to eight customers
representing approximately 480,000 enrolled members at September 30, 1994 and
14 customers and 4.3 million enrolled members at September 30, 1995.
Member communication services. Member communication services are tailored to
meet specific sponsor needs. These services consist of the development,
execution and fulfillment of membership enrollment materials, such as
membership kits, newsletters and other mailings, on-going communication
programs designed to facilitate use of the program, and fulfillment of member
requests for literature for specific health care topics. Access Health charges
a flat fee or per-member per-month fees based on the mix of services provided.
Health systems services
Access Care Management System. The Access Care Management System, introduced
in 1994, is utilized by those organizations seeking to provide in-house
personal health management services. ACMS is an integrated package of
software, clinical guidelines and care management functions that enables
hospitals, physician groups, integrated health care delivery systems and
health plans to offer personal health management services directly to patients
and member groups through the sponsoring organization's own telephone call
center. ACMS customers pay Access Health on a per-member per-month basis and
in return receive technical support and software and clinical database
upgrades.
ASK-A-NURSE. The ASK-A-NURSE family of products is licensed to hospitals and
other health care systems, enabling them to provide health care information
and referral services. ASK-A-NURSE programs are staffed by registered nurses
and are accessible by telephone 24 hours a day. ASK-A- NURSE was introduced in
1986 and is currently licensed to more than 70 clients representing over 300
participating hospitals in the United States.
ASK-A-NURSE was originally introduced to help hospitals compete in a fee-
for-service health care environment by offering phone-based information as a
community service. The program was designed to create awareness of the
hospital and project an image within the community as a quality source for
health care information. By offering useful information, participating
hospitals are able to help callers determine if care is needed and to educate
callers regarding the hospitals' affiliated physicians and services. ASK-A-
NURSE Advantage, introduced in 1993, allows hospitals to offer an enhanced,
fee-based version of these services to members of selected groups.
Cancer HELPLINK. Cancer HELPLINK is a specialized information and referral
system staffed by registered nurses experienced in cancer care and trained in
the extensive information needs of cancer patients,
66
<PAGE>
their families and others concerned about cancer. Cancer HELPLINK, introduced
in 1989, provides needed information to patients diagnosed with cancer and
refers callers who have cancer symptoms to appropriate physicians and
diagnostic and treatment services. Access Health's cancer products are
currently licensed to more than 35 clients representing over 70 hospitals.
Access Health licenses the ASK-A-NURSE and Cancer HELPLINK products and the
ASK-A-NURSE brand name on an exclusive basis to a single hospital or group of
hospitals within a geographically-defined market.
LIFE MATCH Family of Software Products. Access Health sells and supports the
LIFE MATCH family of software products, consisting of HEALTH MATCH, HEALTH
MATCH Advantage and LIFE MATCH, which are designed to support health care
information and referral programs. These products enable participating
hospitals to match individuals' health care needs with physicians and hospital
services and to manage referral, medical information and reporting functions.
In addition, these software products allow hospitals to manage membership
programs, scripted outbound call programs and other database management
activities. HealthSelect, Access Health's newest software product, is a
Windows-based product designed to provide hospitals, physicians and integrated
health care delivery systems with the technology to manage referral, medical
information and personal health management programs. More than 300 hospitals
have licensed one or more of these software products.
PRODUCT DEVELOPMENT
Access Health's growth and future success largely depend upon its ability to
develop new products for the health care industry and to continue to develop
and enhance its existing personal health management products. Current
development initiatives include:
. Clinical applications. Expanding clinical applications to new areas such
as illness prevention and wellness and disease management programs, and
enhancing the protocols and libraries for existing applications.
. Electronic delivery systems. Developing the capabilities to use on-line
communications and other electronic media to deliver Access Health's
products and services.
. Technology infrastructure. Enhancing Access Health's infrastructure by
installing new hardware and software systems to improve capability, ease
of use and scalability.
. Customized products. Customizing products for specific market segments
such as those with special literacy or foreign language needs.
PRINCIPAL CUSTOMERS
Access Health markets its products and services to managed care
organizations, government agencies, self-insured employers, hospitals,
integrated hospital organizations, physician groups, independent physician
associations and direct to the consumer.
As of September 1, 1996, Access Health had contracts with 41 customers
representing more than 10.7 million members enrolled in PHA. Other customers
have announced contract awards to Access Health that would represent an
additional 2.3 million members by the end of 1997. These additional contracts
are subject to final negotiation and have not yet been executed. Access
Health's enrolled members include members for which Access Health receives
revenues. Certain of Access Health's contracts specify a guaranteed enrollment
rate for members and Access Health receives revenues for such amounts even if
the customer has not yet identified all the particular members. For the nine
months ended June 30, 1996, the top three major customers included Blue Cross
of Western Pennsylvania, Empire Blue Cross and Foundation Health Plan which
represent 17.2%, 12.2% and 11.6%, respectively, of Access Health's revenues
for the nine months ended June 30, 1996. After initial
67
<PAGE>
terms of approximately one to four years, contracts generally can be
terminated upon 60 to 180 days notice. One of the three largest contracts is
up for renewal in fiscal 1997, and two are up for renewal in fiscal 1998.
Access Health's ASK-A-NURSE and Cancer HELPLINK products are currently
licensed to more than 110 clients representing over 400 participating
hospitals. Examples of Access Health's principal customers for these product
lines include Florida Hospital in Orlando, Covenant Health Care Systems in
Milwaukee and Emory University Systems of Health Care in Atlanta.
SALES, MARKETING AND SUPPORT
Access Health's sales and marketing strategy includes tailoring its products
to specific market segments, employing a direct sales force organized around
these segments, utilizing experienced account management teams and engaging in
promotional activities to increase brand awareness and recognition of Access
Health's products. The 16-person direct sales force is organized into groups
focused on selling Access Health's products and services to managed care
organizations, self-insured employers, commercial insurers, government
entities, and hospitals and health care systems. Access Health intends to
increase its sales force to further penetrate these existing markets.
Access Health manages its on-going relationships with clients through the
use of account management teams that include clinical and technical support.
These teams work closely with new and existing clients to implement custom
tailored programs, coordinate member communication programs, ensure client
satisfaction, and evaluate program effectiveness. This structure allows the
account management teams to anticipate new member needs.
Additionally, Access Health markets PHA directly to consumers and currently
has more than 25,000 self-sponsored consumer members who pay monthly fees.
This marketing effort is conducted through an alliance with a consumer
marketing partner. However, Access Health is currently planning to assume full
responsibility for selling PHA to the consumer market.
Access Health's marketing strategy also includes building brand awareness
and brand identity for its PHA, ASK-A-NURSE and Cancer HELPLINK products.
Access Health has an extensive promotional program that includes direct mail,
advertising, and participation in industry conferences and trade shows.
ACQUISITION STRATEGY
Since its management-led buyout of the ASK-A-NURSE business in 1988, Access
Health has grown in part through strategic product and business acquisitions.
These acquisitions include the buy-out of a joint venture partner in Cancer
HELPLINK and the acquisition of the LIFE MATCH family of products from Baxter
Health Care, Inc. The Merger with Informed Access Systems would be the largest
acquisition completed to date. In keeping with Access Health's strategy to
complement and expand the products and services it offers, Access Health
continues to evaluate products or businesses that may be acquired.
COMPETITION
The market for Access Health's products and services is highly competitive.
Access Health's competition includes independent companies as well as
divisions of large managed care organizations. Access Health also faces
competition from potential and existing customers who may elect to develop
their own personal health management solution, and Access Health may face
competition from new entrants to the market. Access Health believes that it
competes favorably on the basis of price, operational capabilities, clinical
content of its call guidelines, ability to rapidly enroll new members and
performance with respect to cost savings, superior outcomes and member
satisfaction. To the extent Access Health offers new products or services or
offers its existing products and services in new markets, it expects to face
increased competition from competitors, some of which may have substantially
greater financial, marketing or technical resources than Access Health.
68
<PAGE>
GOVERNMENT REGULATION
The health care industry is subject to extensive and evolving government
regulation at both the federal and state levels relating to many aspects of
Access Health's and its clients' businesses in use of Access Health's
programs, including the provision of health care services, teleservicing,
health care referral programs, and health maintenance organizations and other
similar plans. These statutes and regulations in many cases predate the
development of telephone-based health care information and other interstate
transmission and communication of medical information and services. The
literal language of certain of these statutes and regulations governing the
provision of health care services, including the practice of nursing and the
practice of medicine, could be construed by regulatory authorities to apply to
certain of Access Health's activities, including without limitation
teleservicing activities which use California, Illinois and Arizona registered
nurses to provide out-of-state personal health management services such as
nursing assessments and information regarding appropriate sources of care and
treatment time frames. These statutes and regulations could also apply to
certain activities of Access Health's health service customers when operating
Access Health's programs. Access Health has not been made, nor is it aware
that any of its clients with respect to operation of Access Health's programs,
or its nurse employees or any other organization providing out-of-state
teleservicing have ever been made, the subject of such requirements by a
regulatory authority. In addition, the literal language of the statutes and
regulations governing health maintenance organizations and other plans that
provide or arrange for the provision of health care services for a prepaid or
periodic charge could be construed by regulatory authorities to apply to
certain activities of Access Health that are provided on a per-member, per-
month basis. Access Health has not been made, nor is it aware that any other
company providing out-of-state teleservicing has ever been made, the subject
of such requirements by a regulatory authority. However, if regulators seek to
enforce any of the foregoing statutory and regulatory requirements, Access
Health, its employees and/or its clients could be required to obtain
additional licenses or registrations, to modify or curtail the operation of
Access Health's programs, to modify the method of payment for Access Health's
programs, or to pay fines or incur other penalties.
The payment of remuneration to induce the referral of health care business
has been a subject of increasing governmental and regulatory focus in recent
years. Section 1128B(b) of the Social Security Act (sometimes referred to as
the "Federal anti-kickback statute") provides criminal penalties for
individuals or entities that knowingly and willfully offer, pay, solicit or
receive remuneration in order to induce referrals for items or services for
which payment may be made under the Medicare and Medicaid programs and certain
other government-funded programs. The Social Security Act provides authority
to the Office of the Inspector General through civil proceedings to exclude an
individual or entity from participation in the Medicare and state health
programs if it is determined any such party has violated Section 1128B(b) of
the Social Security Act. Regulations have been promulgated specifying certain
payment practices which will not be subject to criminal prosecution or civil
exclusion. These regulations, commonly referred to as the "safe harbor"
regulations, do not expand the scope of the federal anti-kickback statute, and
the fact that a business arrangement does not fit within a safe harbor does
not mean the business arrangement violates the federal anti-kickback statute.
Access Health's programs do not meet the requirements of the safe harbor for
referral services. A number of states in which Access Health operates have
anti-kickback statutes similar to the federal statute as well as statutory and
regulatory requirements governing referral agencies and regulating franchising
and business opportunity ventures. In addition, the federal government and a
number of states have enacted statutes which contain outright prohibitions on
referrals for specified services which are made by referring providers who
have an ownership interest in, or compensation arrangement with, the entity to
which the referral is made. If Access Health or the use of its products and
services were to be found in violation of such statutes, Access Health or its
clients could be required to modify or curtail the operation of Access
Health's programs, or to pay fines or incur other penalties, and Access
Health's clients could be excluded from participation in the Medicare and
Medicaid programs and could be precluded from charging fees and obtaining
reimbursement for specified services.
There can be no assurance that Access Health or the use of its products and
services will not be subject to review or challenge by government regulators
under any of the foregoing statutes and regulations that apply to health care
services and products. In addition, additional laws and regulations could be
enacted in the future that would regulate Access Health or the use of its
products and services. Any government investigative or
69
<PAGE>
enforcement actions with respect to Access Health or the use of its products
or services could generate adverse publicity irrespective of the final
outcome, and could have a material adverse effect on Access Health.
RISK MANAGEMENT
In recent years, participants in the health care industry, including
physicians, nurses and other health care professionals, have been subject to
an increasing number of lawsuits alleging malpractice, product liability and
related legal theories, many of which involve large claims and significant
defense costs. Due to the nature of its business, Access Health could become
involved in litigation regarding the telephone information given by its
registered nurses or those of its licensees with the risk of adverse
publicity, significant defense costs and substantial damage awards. Access
Health has established policies and procedures that limit the information
provided by its registered nurses to that contained in its protocols and in
other approved reference sources. In connection with its teleservices
operations, Access Health has a quality assurance program that includes real-
time audits of calls and post call reviews to monitor compliance with
established policies and procedures. Generally clients review and approve
Access Health's protocols and guidelines prior to program implementation and
do not modify them without medical approval. To date, Access Health has not
been the subject of any claim involving either its clinical assessment
systems, the operation of its teleservicing centers or the operation by
hospital clients of on-site call centers. However, there can be no assurance
that claims will not be brought against Access Health. Even if such claims
ultimately prove to be without merit, defending against them can be time
consuming and expensive, and any adverse publicity associated with such claims
could have a material adverse effect on Access Health.
INTELLECTUAL PROPERTY
Access Health regards its software, clinical nursing assessment protocols
and marketing and program operation materials as proprietary and attempts to
protect its intellectual property with copyrights, trademarks, trade secret
laws and restrictions on disclosure, copying and transferring title. Despite
these precautions, it may be possible for unauthorized third parties to copy
aspects of Access Health's products or to obtain and use information that
Access Health regards as proprietary. Access Health has no patents, and
existing copyright laws afford only limited practical protection. In addition,
the laws of some foreign countries do not protect Access Health's proprietary
rights to the same extent as do the laws of the United States, which could be
a factor if Access Health expands into markets outside the United States.
EMPLOYEES
As of September 7, 1996, Access Health had 443 full-time and 73 part-time
employees, including 214 registered nurses. None of Access Health's employees
is covered by a collective bargaining agreement, and Access Health believes
that its relations with its employees are good.
PHYSICIAN ADVISORS
Access Health's medical affairs are directed by Jeremy J. Nobel, M.D.,
Senior Vice President for Medical Affairs. He is supported by two full time MD
employees--Steve Silverstein, M.D., board certified in internal medicine and
emergency medicine and Maury Gloster, MD, board certified in internal
medicine. In addition, Access Health has entered into consulting arrangements
with other physicians who are recognized clinical experts. These physician
consultants help Access Health in setting direction and strategy for clinical
activities, developing and assuring the quality of clinical nursing assessment
protocols, responding to new and emerging medical information, developing new
clinical applications, and providing consulting services to client medical
directors. Access Health's medical advisors are as follows:
Charles A. Coltman, Jr., M.D., Member of the Cancer HELPLINK Physician
Advisory Council. Dr. Coltman is Professor of Medicine at the University of
Texas Health Science Center and the Director of the San Antonio Cancer
Institute. He is President and CEO of the Cancer and Research Center, Chairman
of the
70
<PAGE>
Southwest Oncology Group, the largest cancer clinical trials group in the
U.S., and has received numerous citations for his research in cancer control
and the treatment of leukemias, lymphomas, and Hodgkin's Disease.
W. David Dawdy, M.D., serves as a pediatric consultant for Access Health and
is a practicing pediatrician. In addition, he is a Clinical Assistant
Professor of Pediatrics of Ohio State University and serves as the Pediatric
Director of the University ASK-A-NURSE program. He is active in numerous local
and state organizations and committees involved with education for medical
residents.
Robert W. Derlet, M.D., serves as a consultant for Access Health's clinical
assessment guideline system. Dr. Derlet is an Associate Clinical Professor and
Chief of Emergency Medicine at the University of California at Davis Medical
Center. He is board-certified in emergency medicine and internal medicine. Dr.
Derlet has conducted research and authored several publications dealing with
re-directing emergency department patients to more appropriate levels of care
within the health care delivery system.
G. Denman Hammond, M.D., Cancer HELPLINK National Medical Director and
Chairman of the Cancer HELPLINK Physician Advisory Council. Dr. Hammond is
Associate Vice President for Health Affairs and Professor of Pediatrics at the
University of Southern California. He is Chairman of the National Cancer
Institute-sponsored Children's Cancer Study Group and a leading authority on
the blood disorders and cancers of infants and children. Dr. Hammond has
authored or co-authored over 200 scientific manuscripts, books and book
chapters.
Access Health's medical advisors receive an annual retainer and consult with
Access Health on a periodic basis. Dr. Dawdy and Dr. Derlet typically devote
approximately one to four days per month to Company matters, and the other
medical advisors typically devote approximately one day per quarter to Access
Health's matters.
71
<PAGE>
ACCESS HEALTH MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Access Health is a leading provider of personal health management products
and services to the health care industry. Access Health was founded in 1987
and until 1993 primarily provided consumer health care information products
and services designed to help hospitals and other health care providers market
their services. Beginning in 1993, Access Health changed its focus to
developing and marketing personal health management products and services to
health plans and payors. In connection with the transition, Access Health
incurred significant development expenses for its Personal Health Advisor
("PHA") product, including expenses for the hiring and training of personnel,
capacity expansion and sales and marketing programs. Because revenues from
personal health management services were not sufficient to cover start-up
expenses, Access Health's gross margins decreased and operating losses were
sustained in the third and fourth quarters of fiscal 1994 and the first
quarter of fiscal 1995. Access Health returned to profitability in the second
quarter of fiscal 1995 and has achieved increased profitability each quarter
since as additional members have been enrolled in PHA and gross margins
improved.
Personal health management services. Access Health's primary personal health
management product, Personal Health Advisor, is designed to generate recurring
revenues through a fee structure that is based on per-member per-month fees.
Revenues are generated principally from Access Health's PHA contracts. Managed
care organizations, health plans and large self-insured employers purchase PHA
for use by their members or employees in order to reduce unnecessary health
care utilization, improve member satisfaction and lower health care costs.
Access Health also earns fees for providing member communications services to
its customers.
Health systems services. Access Health also markets a line of personal
health management products and services to hospitals and other health care
providers. Those products include the ASK-A-NURSE family of products, Cancer
HELPLINK, Access Care Management System ("ACMS") and the LIFE MATCH family of
products. Access Health's revenues from these products include license
implementation fees as well as on-going fees for program support,
teleservices, and direct marketing activities.
RESULTS OF OPERATIONS--NINE MONTH PERIOD COMPARISON
Revenues. Revenues consist of revenues from personal health management
services and health systems services. Revenues increased from $21.0 million
during the nine months ended June 30, 1995 to $44.1 million for the nine
months ended June 30, 1996.
Revenues from personal health management services increased from $12.4
million during the first nine months of fiscal 1995 to $36.5 million during
the first nine months of fiscal 1996 because the number of members enrolled
under Access Health's PHA contracts increased during these periods. As of June
30, 1996, approximately 10.3 million members were enrolled in PHA compared to
approximately 3.6 million members enrolled as of June 30, 1995. Revenue from
PHA contracts is recognized ratably in accordance with contract terms on the
basis of per-member fees.
Revenues from health systems services decreased from $8.6 million for the
first nine months of fiscal 1995 to $7.6 million during the first nine months
of fiscal 1996 due to lower licensing and teleservicing revenues resulting
from changes taking place in the hospital industry and the discontinuation of
certain ASK-A-NURSE teleservices contracts during fiscal 1995 and fiscal 1996.
Discontinuation of additional teleservices contracts is expected during the
remainder of fiscal 1996. Access Health expects that revenues from health
systems services will continue to decline as a percentage of Access Health's
total revenues and may continue to decline in absolute dollars.
Cost of Revenues. The cost of personal health management services revenues
includes the costs of operating Access Health's services centers, on-going
client consultation and charges for providing PHA member
72
<PAGE>
communications services. The gross margins for personal health management
services were 27.0% during the first nine months of fiscal 1995 compared to
48.4% during the first nine months of fiscal 1996. Gross margin for personal
health management services improved during the nine month period ended June
30, 1996 compared to the prior period due to economies of scale resulting from
growth in PHA enrollment.
The cost of health systems services revenues includes the costs of license
implementations, call processing, on-going client consultation, annual users'
conferences, advertising materials, and other support services for ASK-A-
NURSE, Cancer HELPLINK, ACMS and LIFE MATCH licensees. The gross margin
percentages for health system services were 37.0% for the first nine months of
fiscal 1995 compared to 29.3% for the first nine months of fiscal 1996. Health
systems services gross margin declined during the nine month period ended June
30, 1996 compared to the prior period due to the decline in revenue,
previously discussed.
Product and Other Development Expenses. Product development expenses were
$1.3 million, or 6.0% of revenues, for the first nine months of fiscal 1995
compared to $2.4 million, or 5.4% of revenues, during the first nine months of
fiscal 1996. Increases in product development expenses relate to the Company's
acceleration of efforts to meet consumer needs beyond triage and health care
information for general populations.
Sales and Marketing Expenses. Sales and marketing expenses were $2.6
million, or 12.3% of revenues, and $4.7 million, or 10.6% of revenues, during
the first nine months of fiscal 1995 and 1996, respectively. Sales and
marketing expenses increased as a result of the strengthening of the marketing
and advertising program and the addition of sales resources to focus on the
employer market. Sales and marketing expenses may increase in fiscal 1996 as
the Company continues to pursue its strategy of building brand awareness for
its personal health management products and could increase significantly as
the Company enters the direct to consumer market.
General and Administrative Expenses. General and administrative expenses
totaled $2.3 million, or 11.2% of revenues and $4.6 million, or 10.4% of
revenues, during the first nine months of fiscal 1995 and 1996, respectively.
The increase from fiscal 1995 to fiscal 1996 reflects stepped costs associated
with building the infrastructure necessary to manage a larger and rapidly
growing company and professional fees related to evaluating and negotiating
strategic investment opportunities.
Income from Operations. Income from operations increased from $333,000 to
$8.3 million during the first nine months of fiscal 1995 and fiscal 1996,
respectively. The improvement is attributable to the factors and trends
described in the preceding paragraphs.
Non-Operating Income (Expense). Access Health generates interest and other
income from cash balances and available-for-sale securities. Interest and
other income, net of interest expense, increased from $428,000 to $1.1 million
during the first nine months of fiscal 1995 and 1996, respectively, primarily
as a result of increases in income earned on cash proceeds received during the
first quarter of fiscal 1996 from a secondary stock offering (see Liquidity
and Capital Resources).
Effects of Inflation and Changing Prices. Inflation and changing prices have
not had a material effect on Access Health's operations and, at current
levels, are not expected to in future years.
73
<PAGE>
RESULTS OF OPERATIONS--FISCAL YEAR COMPARISON
The following shows the components of Access Health's consolidated
statements of operations as a percentage of total revenues:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Revenues:
Personal health management services..................... 3.2% 15.6% 64.0%
Health systems services................................. 84.9 72.2 36.0
----- ----- -----
Total commercial revenues............................. 88.1 87.8 100.0
Development program with related party.................. 11.9 12.2 --
----- ----- -----
Total revenues........................................ 100.0 100.0 100.0
Costs and expenses:
Cost of revenues:
Personal health management services.................... 2.5 18.8 41.9
Health systems services................................ 46.0 49.6 23.8
Product and other development........................... 5.7 5.8 5.4
Development program..................................... 13.3 13.6 --
Sales and marketing..................................... 13.4 20.2 11.6
General and administrative.............................. 10.3 14.0 10.9
----- ----- -----
Total costs and expenses.............................. 91.2 122.0 93.6
----- ----- -----
Income (loss) from operations............................. 8.8 (22.0) 6.4
Interest and other income, net............................ 1.9 2.4 1.8
----- ----- -----
Income (loss) before income taxes......................... 10.7 (19.6) 8.2
Provision (credit) for income taxes....................... 3.9 (7.4) 3.3
----- ----- -----
Net income (loss)......................................... 6.8% (12.2)% 4.9%
===== ===== =====
Gross margins by product line:
Personal health management services..................... 23.1% (20.0)% 34.6%
Health systems services................................. 45.8% 31.2 % 33.9%
</TABLE>
Commercial revenues. Commercial revenues consist of revenues from personal
health management services, and health systems services. Commercial revenues
increased from $16.3 million and $16.4 million in fiscal 1993 and 1994,
respectively, to $31.6 million in fiscal 1995.
Revenues from personal health management services increased from $585,000 in
fiscal 1993 to $2.9 million in fiscal 1994 and to $20.2 million in fiscal 1995
because the number of members enrolled under Access Health's PHA contracts
increased during this period. As of September 30, 1995, approximately 4.3
million members were enrolled in PHA, compared to approximately 480,000
enrolled as of September 30, 1994 and approximately 100,000 enrolled as of
September 30, 1993. Revenue from PHA contracts is recognized ratably on a per-
member, per-month basis and commences upon the enrollment of members.
Revenues from health systems services decreased from $15.7 million in fiscal
1993 to $13.4 million in fiscal 1994 and to $11.3 million in fiscal 1995.
Health systems services revenues include licensing implementations, program
support, and teleservicing activities. Revenues from licensing implementations
decreased from $4.3 million in fiscal 1993 to $1.2 million in fiscal 1994 and
to $0.8 million in fiscal 1995. The decrease is due to changes taking place in
the hospital industry and Access Health's shift from one-time license
implementation fees to recurring per-member, per-month fees. Access Health
recently began marketing new products to serve the changing needs of this
market. Program support services revenues increased from $5.6 million in both
fiscal 1993 and 1994 to $6.1 million in fiscal 1995 primarily because of sales
of ACMS to hospital clients. Teleservicing revenues increased from $5.9
million in fiscal 1993 to $6.6 million in fiscal 1994 but then decreased to
$4.3 million
74
<PAGE>
in fiscal 1995 due to discontinuation of certain ASK-A-NURSE teleservices
contracts during the last half of fiscal 1994 and the first half of fiscal
1995. Discontinuation of additional teleservices contracts is expected during
fiscal 1996. Access Health expects that revenues from health systems services
will continue to decline as a percentage of Access Health's total revenues and
may decline in absolute dollars.
Revenues from development program with related party. During fiscal 1993
Access Health entered into an agreement with Personal Health Management, L.P.
("PHMLP") which provided funding of up to $5,000,000 for the development of
PHA, including expanded delivery capability and related marketing programs for
the managed care industry. Revenues from development program consist of
amounts recognized pursuant to this agreement. In fiscal 1993 and fiscal 1994,
Access Health recognized $2.2 million and $2.3 million, respectively, in
revenues and incurred $2.5 million during each year in expenses related to the
development program. The development program ended during the second quarter
of fiscal 1994. In May 1994, Access Health exercised its option to acquire the
rights to the PHA product and marketing programs.
Cost of revenues. The cost of personal health management services revenues
includes the costs of operating Access Health's services centers, on-going
client consultation and charges for providing PHA member communications
services. The gross margins for personal health management services were
23.1%, (20.0)% and 34.6% for fiscal 1993, 1994 and 1995, respectively. Gross
margin for personal health management services decreased in fiscal 1994 from
1993, reflecting costs of staffing and additional facilities to expand call
center capacity, and improved from 1994 to 1995 due to the growth in PHA
enrollment, as previously discussed.
The cost of health systems services revenues includes the costs of license
implementations, operating call processing, on-going client consultation,
annual users' conferences, advertising materials, and other support services
for ASK-A-NURSE, Cancer HELPLINK, ACMS and LIFE MATCH licensees. The gross
margin percentages for health system services were 45.8%, 31.2%, and 33.9% for
fiscal 1993, 1994 and 1995, respectively. Gross margin declined in fiscal 1994
due to an increase in the proportion of lower margin products and services.
Product and other development expenses. Product development expenses totaled
$1.1 million in both 1993 and 1994 and $1.7 million in 1995. These costs
related to further enhancements of Access Health's systems and clinical
protocols. Product and other development expenses also include costs
associated with new managed care products incurred prior to and after the
development agreement with PHMLP. Product and other development expenses will
increase in fiscal 1996 as Access Health continues to make investments in
personal health management products and could increase as a percentage of
revenues.
Development program expenses. Development program expenses incurred in
fiscal 1993 and 1994 were associated with the development and marketing of PHA
products and services and the operation of pilot programs. These expenses were
principally funded by revenues received from the development agreement with
PHMLP. The agreement terminated in May 1994 when Access Health bought out the
partnership. No development revenues were received by Access Health in fiscal
1995.
Sales and marketing expenses. Sales and marketing expenses for fiscal 1993
and for the first half of fiscal 1994 were related primarily to health systems
services products. Sales and marketing expenses for the second half of fiscal
1994 and 1995 consist of expenses related to both the personal health
management and health systems services products. Sales and marketing expenses
as a percentage of revenues were 13.4%, 20.2% and 11.6% in fiscal 1993, 1994
and 1995, respectively. During fiscal 1993 and the first six months of fiscal
1994, most of the sales and marketing expenses for PHA were included in
development program expenses. Sales and marketing expenses in fiscal 1994
increased from fiscal 1993 because Access Health shifted its sales and
marketing emphasis to its managed care products in mid-1994 which included the
development and implementation of a major advertising program related to the
commercial introduction of PHA during the third quarter of fiscal 1994. Sales
and marketing expenses declined as a percentage of revenues in 1995 due to the
growth in personal health management services revenues previously discussed.
75
<PAGE>
Sales and marketing expenses may increase in fiscal 1996 as Access Health
continues to pursue its strategy of building brand awareness for its personal
health management products.
General and administrative expenses. General and administrative expenses
were $1.9 million, or 10.3% of revenues in fiscal 1993, were $2.6 million, or
14.0% of revenues in fiscal 1994, and increased to $3.5 million, or 11.0% of
revenues in fiscal 1995. The increase from 1993 through 1995 reflects
increased expenses for management information systems and additional finance
and human resources personnel.
Income (loss) from operations. Income (loss) from operations decreased from
$1.6 million in fiscal 1993 to ($4.1) million in fiscal 1994 and increased to
$2.0 million in fiscal 1995. The loss from operations in fiscal 1994 can be
attributed primarily to significant investments made by Access Health to
develop and market its personal health management services. The return to
profitability in 1995 is due to economies of scale associated with the
increased enrollment in PHA.
Non-operating income (expense). Access Health generates interest and other
income from cash balances and from interest imputed on license receivables due
after one year. Interest and other income increased from $586,000 in fiscal
1993 to $612,000 in fiscal 1994 and to $661,000 in fiscal 1995 primarily as a
result of increases in interest income earned on cash and short-term
investments.
Interest expense reflects interest on debt incurred in connection with the
acquisition of Cancer HELPLINK, term debt and capitalized leases secured to
finance equipment purchases. Interest expense decreased from fiscal 1993 to
fiscal 1994 and to fiscal 1995 primarily because of scheduled debt repayments.
Income taxes. Access Health recorded an income tax provision of $724,000 in
1993, an income tax benefit of $1.4 million in 1994 and an income tax
provision of $1.1 million in 1995. Access Health's effective income tax rate
was 36% in 1993 and 41% in 1995.
Effects of inflation and changing prices. Inflation and changing prices have
not had a material effect on Access Health's operations and, at current
levels, are not expected to in future years.
LIQUIDITY AND CAPITAL RESOURCES
Access Health completed a secondary public offering of its common stock
during the first quarter of fiscal 1996. A total of 4.8 million shares were
sold at $21.33 per share of which 1.5 million shares were sold by the Company
and 3.3 million shares were sold by Access Health's original venture capital
stockholders who are now fully divested. Net proceeds to Access Health from
the offering were approximately $29.5 million.
As of June 30, 1996, Access Health held cash and equivalents and available-
for-sale securities totaling $39.9 million which increased from a balance of
$11.7 million as of September 30, 1995 primarily due to the proceeds received
from Access Health's secondary public stock offering as previously discussed.
Cash provided by operations during the first nine months of fiscal 1996 was
$11.2 million compared with $3.5 million for the first nine months of fiscal
1995.
Gross accounts receivable increased $3.0 million during the first nine
months of fiscal 1996 primarily as a result of increased revenues from PHA
contracts.
During the first nine months of fiscal 1996 $8.4 million of property and
equipment were purchased which included $7.4 million of computer equipment and
software. Access Health expects to purchase additional capital equipment
during the remaining quarter of fiscal 1996 to expand its call centers and
systems capacity.
During the second quarter of fiscal 1996 Access Health invested $5.0 million
in America's Health Network, L. P. ("AHN"), a new 24-hour-a-day, 7-day-a-week
cable television channel devoted to consumer healthcare information. Access
Health has agreed to invest an additional $5.0 million in AHN, subject to
AHN's achievement of certain milestones, in January 1997, and has an option to
invest on additional $5.0 million in AHN in January 1997.
76
<PAGE>
Access Health repaid all long-term debt, including loans and capital leases,
during the first quarter of fiscal 1996.
Access Health believes its current capital resources are adequate to fund
cash needs for anticipated operating levels for at least the next twelve
months. Access Health also may use capital resources in connection with
business expansion that may include the acquisition of complementary product
lines or businesses during fiscal 1996 or beyond.
77
<PAGE>
ACCESS HEALTH MANAGEMENT AND EXECUTIVE COMPENSATION
MANAGEMENT
The directors and executive officers of Access Health and their ages as of
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---- --- ------
<S> <C> <C>
Kenneth B. Plumlee...... 36 Chairman of the Board
Thomas E. Gardner....... 48 President, Chief Executive Officer and Director
Richard C. Miller....... 48 Executive Vice President, Secretary and Director
John V. Crisan.......... 51 Senior Vice President of Finance and Administration and
Chief Financial Officer
Kipp A. Johnson......... 49 Senior Vice President, Managed Care Services
Jeremy J. Nobel, M.D.... 42 Senior Vice President, Medical Affairs
David G. Pincus......... 47 Senior Vice President, Consumer Health Division
James O. Steeb.......... 35 Senior Vice President, Information Systems
Julie A. Brooks......... 50 Senior Vice President and General Counsel
John R. Durant, M.D..... 66 Director
Alice H. Lusk........... 48 Director
Brent T. Rider.......... 53 Director
Edward K. Rygiel........ 56 Director
</TABLE>
Kenneth B. Plumlee is a founder of Access Health and has served as Chairman
of the Board since June 1996. He also served as President of Access Health
from 1988 to June 1996 and as Chief Executive Officer from 1988 to September
1996.
Thomas E. Gardner joined Access Health in June 1996 and currently serves as
President and Chief Executive Officer. Prior to joining Access Health, he
served as President and Chief Executive Officer of Dun & Bradstreet Healthcare
Information from 1992 to 1995 and as President, CEO and COO of IMS America
Ltd., a division of Dun & Bradstreet from 1990 to 1992.
Richard C. Miller is a founder of Access Health and has served as Vice
President of Business Development and Secretary and a director of Access
Health since the management-led buyout of Referral Systems Group. In 1991 he
became Executive Vice President.
John V. Crisan joined Access Health in April 1994 as Senior Vice President
of Finance and Administration and Chief Financial Officer. From 1991 to 1994
he served as Chief Operating Officer and Chief Financial Officer of American
PsychManagement, Inc., a subsidiary of Value Health, Inc. From 1989 to 1990 he
served as Vice President of Health Affairs for Blue Cross and Blue Shield of
Ohio, Inc. Prior to that, he held various positions with various insurance
companies. Mr. Crisan is a Certified Public Accountant.
Kipp A. Johnson joined Access Health in May 1992 as Senior Vice President of
Operations. From 1986 to April 1992 he was employed by MCI Communications, a
telecommunications company, where he held various positions, most recently
Vice President of Consumer Sales.
Jeremy J. Nobel, M.D. joined Access Health in October 1995 as Senior Vice
President for Medical Affairs and previously served as an advisor to Access
Health on clinical matters related to outcome and measurement systems and
clinical system strategies. He is board-certified in internal medicine and has
received a master's degree in both Epidemiology and Health Policy. Prior to
joining Access Health, Dr. Nobel was a consultant to a number of companies and
an adjunct faculty member at the Harvard School of Public Health, where he
retains an appointment. Dr. Nobel teaches health policy and management, and
his areas of interest include development of computer based information
technology applications that coordinate critical aspects of health care
delivery.
78
<PAGE>
Mr. Pincus joined Access Health in September 1994 and currently serves as
Senior Vice President, Consumer Health Division. From September 1994 to July
1996 he served as Vice President of Marketing. Prior to joining Access Health,
Mr. Pincus served five years as Vice President of Marketing for Blue Cross of
California.
James O. Steeb joined Access Health in 1989 and currently serves as Senior
Vice President, Information Systems. Prior to joining Access Health, he spent
seven years with Baxter Healthcare Corporation where he was Director of
Operations and Group Manager, Research and Development.
Julie A. Brooks joined Access Health on September 30, 1996. Prior to joining
Access Health, Ms. Brooks served as the principal executive officer of The
General Counsel, Inc., a legal services company that Ms. Brooks founded in
1992. Prior to 1992, Ms. Brooks served as the vice president, general counsel
and corporate secretary for Westmark International, Inc., a manufacturer of
diagnostic ultrasound and patient monitoring systems.
John R. Durant, M.D. became a director of Access Health in October, 1995.
Since April 1995, Dr. Durant has been Executive Vice President of the American
Society of Clinical Oncology. Prior to that, he was Vice President for Health
Affairs, Director of the Medical Center and Professor of Medicine at the
University of Alabama, Birmingham. A member of the National Cancer Advisory
Board of the National Cancer Institute since 1986, Dr. Durant is author or
contributing author of several leading texts on chemotherapy and related
issues.
Alice H. Lusk became a director of Access Health in June 1996. Since
September 1996, Ms. Lusk has been Senior Vice President of NCR Corp. Prior to
that, she spent 20 years with Electronic Data Systems, most recently as
Corporate Vice President of the insurance and healthcare business.
Brent T. Rider became a director of Access Health in 1988. He has been a
General Partner of El Dorado Ventures, L.P. since May 1986.
Edward K. Rygiel became a director of Access Health in 1990. He has been
President of MDS Health Ventures, Inc., a Canadian venture capital corporation
specializing in health care investments, since April 1988. Since 1976, Mr.
Rygiel has been Senior Vice President of Corporate Development for MDS Health
Group Limited, a diversified health care company that has a 33% equity
interest in MDS Health Ventures, Inc.
79
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by Access Health during
each of the three fiscal years ended September 30, 1996, to (i) the Chief
Executive Officer of Access Health, (ii) each individual who served as Chief
Executive Officer of Access Health during fiscal 1996, and (iii) the four
other most highly compensated executive officers of Access Health during
fiscal 1996 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- ---------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OTHER AWARDS($) OPTIONS(#) COMPENSATION(2)
- --------------------------- ---- ------- -------- ----- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas E. Gardner(3).... 1996 94,959 -- -- 101,250 230,000 170
President and Chief
Executive 1995 -- -- -- -- --
Officer 1994 -- -- -- -- -- --
Kenneth B. Plumlee(4)... 1996 281,865 -- -- -- 112,500 296
Chairman of the Board 1995 210,276 119,800 -- -- 60,000 296
1994 169,231 -- -- -- 37,322 291
Richard C. Miller....... 1996 207,534 -- -- -- 75,000 245
Executive Vice President
and 1995 177,283 90,958 -- -- 45,000 245
Secretary 1994 140,354 -- -- -- 31,034 241
John V. Crisan(5)....... 1996 152,453 -- -- -- 45,000 286
Senior Vice President
and 1995 145,224 57,033 -- -- 9,750 286
Chief Financial Officer 1994 71,615 -- 8,700 -- 52,500 217
Kipp A. Johnson(6)...... 1996 157,493 -- -- -- 60,000 259
Senior Vice President, 1995 136,460 38,198 -- -- 11,250 259
Managed Care Services 1994 124,719 -- -- -- 15,000 238
James O. Steeb.......... 1996 147,794 -- -- -- 60,000 222
Senior Vice President, 1995 123,951 35,263 -- -- 67,500 222
Information Services 1994 105,443 -- -- -- 11,250 204
</TABLE>
- --------
(1) Bonus amounts earned by the Named Executive Officers during fiscal 1996
cannot be determined as of the date of this Proxy Statement/Prospectus and
Consent Solicitation Statement and, therefore, have not been included.
(2) The dollar amounts in this column represent premium payments made by
Access Health with respect to insurance policies for the lives of the
Named Executive Officers for which Access Health is not a beneficiary.
(3) Mr. Gardner joined the Company as President and Chief Operating Officer in
May 1996 and was elected Access Health's Chief Executive Officer in
September 1996. Salary amount shown is based on an annual salary of
$250,000. Mr. Gardner received 2,000 restricted shares of Access Health
Common Stock on May 8, 1996 which, based on the closing price of Access
Health Common Stock of $50.625 on such date, had a value as of such date
of $101,250. Such restricted shares vest at a rate of 50% annually from
their date of issue and had a value of $112,500 at year-end 1996, based on
a closing price of $56.25.
(4) Mr. Plumlee served as Chief Executive Officer for all periods shown
through September 1996. Since June 1996, Mr. Plumlee has served as
Chairman of the Board of Access Health.
(5) Mr. Crisan joined Access Health in April 1994. In connection with Mr.
Crisan's relocation to California, Access Health paid for his temporary
living expenses (included in other annual compensation) which amounted to
$8,700 in fiscal 1994.
(6) Mr. Johnson also received $9,425 and $11,554 in reimbursement for
relocation expenses in fiscal 1995 and 1994, respectively.
80
<PAGE>
OPTION GRANTS IN FISCAL 1996
The following table sets forth each grant of stock options during the fiscal
year ended September 30, 1996 to the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
NUMBER OF APPRECIATION FOR
SECURITIES PERCENT OF TOTAL INDIVIDUAL GRANTS OPTION TERM(2)
UNDERLYING OPTIONS GRANTED ------------------- ------------------------
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED(1) FISCAL YEAR PRICE DATE 5% 10%
---- ---------- ---------------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Gardner....... 230,000 14.6% $50.63 5/8/03 $ 1,800,488 $ 4,195,903
Kenneth B. Plumlee...... 112,500 8.4 39.31 3/27/03 4,740,176 11,046,625
Richard C. Miller....... 75,000 5.6 39.31 3/27/03 1,200,325 2,797,269
John V. Crisan.......... 45,000 3.3 17.83 10/20/02 326,692 761,331
Kipp A. Johnson......... 60,000 4.5 17.83 10/20/02 435,589 1,015,108
James O. Steeb.......... 60,000 4.5 17.83 10/20/02 435,589 1,015,108
</TABLE>
- --------
(1) Options granted under Access Health's 1989 Incentive Stock Option (the
"Stock Plan"). The option exercise price of all incentive stock options
granted under the Stock Plan is generally equal to the fair market value
of the shares of Common Stock on the date of grant; the options have
terms of five to seven years and generally vest at the rate of 20% of the
shares subject to the option for each year that the optionee remains in
continuous status as an employee or consultant.
(2) Potential realizable value is based on the assumption that the Common
Stock of Access Health appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect Access Health's
estimate of future stock price growth.
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises in fiscal 1996
by the Named Executive Officers and the value of such officers' unexercised
options at September 30, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE(1) OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT SEPT. 30, 1996 SEPT. 30, 1996
ACQUIRED ON VALUE(1) ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Gardner....... -- -- -- 230,000 $ -- $1,293,750
Kenneth B. Plumlee...... 16,667 $ 943,069 55,048 175,428 2,659,678 4,840,957
Richard C. Miller....... -- -- 58,652 123,415 2,888,448 3,632,011
John V. Crisan.......... 22,950 867,939 -- 84,300 -- 3,649,406
Kipp A. Johnson......... 40,500 1,360,490 18,750 94,500 965,870 4,046,373
James O. Steeb.......... 20,667 801,975 42,862 78,752 2,324,935 3,232,368
</TABLE>
- --------
(1) Market value of underlying securities at exercise or year-end 1996 as the
case may be, minus the exercise price, based on a closing price of $56.25.
COMPENSATION OF DIRECTORS
Other than reimbursement for certain expenses incurred in connection with
attendance at board and committee meetings, the directors of Access Health did
not receive any cash compensation for services provided as directors during
fiscal 1996. Outside directors are granted nonstatutory stock options under
the 1995 Director Option Plan. Currently, there are four Outside Directors.
Please see "Employee Benefit Plans--1995 Director Option Plan" for information
with respect to the 1995 Director Option Plan.
81
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION AND CHANGE OF CONTROL ARRANGEMENTS
The 1995 Director Option Plan provides that upon a change in control of
Access Health, the unvested portion of all options held by Outside Directors
shall become immediately exercisable. The 1989 Incentive Stock Plan provides
that in the event of a change in control of Access Health, outstanding stock
options and stock purchase rights shall be assumed or equivalent options or
rights shall be substituted by the successor entity. Unless such successor
corporation does not agree to such assumption or substitution, Access Health's
Board of Directors must provide for the options or rights to become
immediately exercisable in full. In addition, option agreements and stock
purchase agreements for executive officers at the Vice President level and
above provide that options under such agreements become immediately
exercisable in full in the event of a change in control of Access Health.
Access Health has entered into an agreement with Jeremy Nobel, M.D. which
states that in the event Dr. Nobel's employment terminates as a result of
constructive termination or termination without cause, Dr. Nobel's stock
options shall become exercisable in full and Access Health must continue to
pay his current salary or consulting fees for three months after the date of
termination. Dr. Nobel shall have six months from the date of termination of
employment in which to exercise non-qualified stock options and three months
from such termination to exercise any incentive stock options to the extent
such options are exercisable on the date of termination. Dr. Nobel's stock
options shall also become exercisable in full in the event of a change in
control of Access Health. Access Health has also agreed to provide Dr. Nobel
with an allowance of up to $1,200 per month for housing or hotel expenses
incurred while Dr. Nobel is working for Access Health in the Sacramento area.
Access Health has agreed to enter an employment agreement with Thomas E.
Gardner under which Mr. Gardner will receive a base salary of $250,000
annually and be eligible for a performance bonus of up to 60% of base
compensation. Salary and bonus are subject to adjustment by the Board of
Directors based on annual reviews. Mr. Gardner has been granted options to
purchase 230,000 shares of Common Stock at an exercise price of $50.625 which
vest 20% annually and has been issued 2,000 shares of restricted Common Stock
which vest 50% annually in each case from May 8, 1996. Access Health has
agreed to employ Mr. Gardner in the position of President and Chief Executive
Officer and to nominate Mr. Gardner for election as a director. Access Health
has also agreed that it will pay temporary living expenses of Mr. Gardner for
12 months and reimburse Mr. Gardner's relocation expenses and commissions on
selling his former residence through a promissory note that will be forgiven
ratably over 24 months subject to continued employment.
There are no other employment contracts between Access Health and any of the
Named Executive Officers, and there are no other compensatory plans or
arrangements with respect to a Named Executive Officer which will result in
payments upon resignation, retirement, or any other termination of such
executive officer's employment or from a change of control of Access Health.
82
<PAGE>
ACCESS HEALTH STOCK INFORMATION
ACCESS HEALTH PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of Access Health's
Common Stock as of September 15, 1996, as to (i) each person who is known by
Access Health to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each director of Access Health, (iii) each of the executive
officers named in the Summary Compensation Table below and (iv) all directors
and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY APPROXIMATE PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OWNED(1)
- ------------------------------------ ------------------- -------------------
<S> <C> <C>
Pilgrim Baxter & Associates Ltd. ..... 1,343,750 10.7%
1255 Drummers Lane-300
Wayne, PA 19087-1501
The Kaufmann Fund, Inc. .............. 900,000 7.1
140 E. 45th St. 43rd Floor
New York, NY 10017
Driehaus Capital Management, Inc. .... 836,412 6.6
25 East Erie Street
Chicago, IL 60611-2703
Denver Investment Advisors LLC........ 751,924 6.0
1225 17th Street 26th Floor
Denver, CO 80202-5526
Kenneth B. Plumlee(2)................. 262,136 2.1
Thomas E. Gardner..................... 2,000 *
Richard C. Miller(3).................. 138,566 1.1
James O. Steeb(4)..................... 55,853 *
Kipp A. Johnson(5).................... 74,539 *
John V. Crisan(6)..................... 10,448 *
Brent T. Rider(7)..................... 7,500 *
Edward K. Rygiel(8)................... 7,500 *
John R. Durant, M.D.(9)............... 4,500 *
Jeremy J. Nobel, M.D(10).............. 113,000 *
David G. Pincus(11)................... 3,241 *
Alice H. Lusk(12)..................... 625 *
All directors and executive officers
as a group (12 persons)(13).......... 679,908 5.4%
</TABLE>
- --------
* Less than one percent
(1) Applicable percentage of ownership is based on 12,592,774 shares of
Common Stock outstanding as of September 15, 1996, together with
applicable options and warrants for such stockholder. Beneficial
ownership is determined in accordance with the rules of the Securities
and Exchange Commission, and includes voting and investment power with
respect to shares. Shares of Common Stock subject to options and warrants
currently exercisable or exercisable within 60 days after September 15,
1996, are deemed outstanding for computing the percentage ownership of
the person holding such options and warrants, but are not deemed
outstanding for computing the percentage of any other person.
(2) Includes 8,675 shares held by Mr. Plumlee as custodian for his daughters
and 55,048 shares issuable upon exercise of options to purchase shares of
Common Stock which are exercisable within 60 days after September 15,
1996.
(3) Includes 8,450 shares held by Mr. Miller as custodian for his son and
daughter and 58,652 shares issuable upon exercise of options to purchase
shares of Common Stock which are exercisable within 60 days after
September 15, 1996.
(4) Includes 48,862 shares issuable upon exercise of options to purchase
shares of Common Stock which are exercisable within 60 days of September
15, 1996.
83
<PAGE>
(5) Includes 24,750 shares issuable upon exercise of options to purchase
shares of Common Stock which are exercisable within 60 days after
September 15, 1996.
(6) Includes 8,000 shares issuable upon exercise of options to purchase
shares of Common Stock which are exercisable within 60 days after
September 15, 1996.
(7) Includes 7,500 shares issuable upon exercise of options to purchase
shares of Common Stock which are exercisable within 60 days after
September 15, 1996.
(8) Includes 7,500 shares issuable upon exercise of options to purchase
shares of Common Stock which are exercisable within 60 days after
September 15, 1996.
(9) Includes 3,750 shares issuable upon exercise of options to purchase
shares of Common Stock which are exercisable within 60 days after
September 15, 1996.
(10) Includes 110,000 shares issuable upon exercise of options to purchase
shares of Common Stock which are exercisable within 60 days after
September 15, 1996.
(11) Includes 3,000 shares issuable upon exercise of options to purchase
shares of Common Stock which are exercisable within 60 days after
September 15, 1996.
(12) Includes 625 shares issuable upon exercise of options to purchase shares
of Common Stock which are exercisable within 60 days after September 15,
1996.
(13) Includes 325,687 shares issuable upon exercise of options to purchase
shares of Common Stock which are exercisable within 60 days after
September 15, 1996.
ACCESS HEALTH STOCK PRICE AND DIVIDEND INFORMATION
Access Health Common Stock is traded on Nasdaq under the symbol "ACCS." The
following table sets forth the range of high and low closing prices for the
Access Health Common Stock as reported on Nasdaq for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1995*
First Quarter.......................................... $14 59/64 $9 59/64
Second Quarter......................................... 13 21/64 9 1/2
Third Quarter.......................................... 14 5/64 10 1/4
Fourth Quarter......................................... 19 1/2 12 27/64
Fiscal 1996
First Quarter.......................................... 30 21/64 13 53/64
Second Quarter......................................... 44 27 1/2
Third Quarter.......................................... 65 1/2 38 3/4
Fourth Quarter......................................... 59 1/4 38
Fiscal 1997
First Quarter (through October 9, 1996)................ 56 1/4 37 1/4
</TABLE>
- --------
* The prices shown prior to February 29, 1996 have been adjusted to reflect a
three-for-two stock split effected in the form of a stock dividend as of
that date.
Access Health has not paid any dividends since its inception and does not
intend to pay any dividends in the foreseeable future.
84
<PAGE>
INFORMED ACCESS BUSINESS
GENERAL
Informed Access is a leading provider of health care coordination products
and services to the health care industry. Informed Access' primary clients are
major managed health care providers, including health maintenance
organizations (HMOs), preferred provider organizations (PPOs), indemnity
insurers, integrated delivery systems and physician groups.
Informed Access was founded in 1992 with the objective of developing and
delivering products and services that would simplify consumer access to the
health care system, improve the quality and consistency of health care
services and information and lower costs by reducing the inefficient use of
health care services. In 1994, Informed Access commercially introduced the
FirstHelp(TM) line of health care coordination products and services to meet
this market need. The FirstHelp system is a patented, integrated suite of
products and services which enable managed care organizations to improve and
monitor the access, quality and cost-effectiveness of health care services
while enhancing the satisfaction of health care service consumers.
Informed Access provides its FirstHelp products and services to enrolled
members of managed care plans from its advanced call center staffed by
experienced registered nurses on a 24-hour-a-day, 7-day-a-week basis. The
FirstHelp system is also licensed to large health care providers and insurers
who operate their own call centers. At September 1, 1996, FirstHelp products
and services were available under contract to approximately six million
members from 40 client organizations, including approximately four million
call center members and two million license site users. Informed Access'
clients include Blue Cross and Blue Shield of Massachusetts, IHC Hospitals,
CaliforniaCare Health Plans (Blue Cross of California), Mayo Management
Services, Oxford Health Plans and the Harris Health Plans.
PRODUCTS AND SERVICES
The FirstHelp system is an integrated suite of care coordination products
and services which are designed to help health care consumers make informed,
appropriate decisions about the use of health care services for both acute and
chronic conditions and to help guide these consumers to the most appropriate
point of care within a managed care network. Managed care providers and
insurers use the FirstHelp system to facilitate easier access to the plan
network by members, reduce operating costs by reducing inefficient use of
network resources and improve the quality of care for plan members. The
FirstHelp system is used by managed care organizations in a variety of
applications including use as the primary "gateway" to a plan network, as an
emergency room precertification tool, a health care management tool for
individuals with chronic conditions, or solely as a health care information
service for plan members. The FirstHelp system also provides extensive
reporting which enables managed care organizations to more efficiently
configure their service delivery network.
Clinical Decision Architecture.
The foundation of the FirstHelp system is Informed Access' patented Clinical
Decision Architecture ("CDA"). CDA is a proprietary software system and
database which allows a nurse to assess a patient's symptoms and to recommend
the appropriate level of care based on that assessment. CDA primarily utilizes
four information databases, including a database of Informed Access'
proprietary clinical algorithms, a detailed provider information database, a
health care information database which includes extensive self-care
instructions and a database of health plan members and rules.
Informed Access' proprietary database of binary branch chain algorithms for
clinical assessment of a patient's condition is a critical component of the
CDA. These algorithms facilitate consistent patient assessment and care
recommendations. The database consists of over 500 symptomatic clinical
algorithms for the assessment of pediatric, adult, senior, women's health and
mental health conditions. Informed Access' CDA is designed to direct a patient
to the appropriate level of care required to respond to the patient's
condition. The CDA
85
<PAGE>
determines the appropriate level of care by determining the most serious
conditions which can not be ruled out in the assessment process.
After using the database of clinical algorithms to reach a care
recommendation, Informed Access' CDA provider information database assists the
patient with identifying and locating appropriate health care providers based
on a wide variety of criteria, including age and gender of patient, office
hours, physical proximity, specialty, office policies, health plan rules and
the clinical experience and self-reported treatment approach of the provider.
The CDA health information and self-care database also includes self-care
instructions and other health information on approximately 2,000 topic areas.
The FirstHelp System
The FirstHelp system includes patient assessment algorithms, provider
matching, selection and profiling information, audio tape library access,
chronic condition management programs and illness risk assessment tools.
Patient Assessment and Counseling. Informed Access' call center is the
central platform for the delivery of the FirstHelp system. The call center
provides consumers with immediate access to experienced, registered nurses who
provide patient assessment and care recommendations on a 24-hour-a-day, 7-day-
a-week basis. Using Informed Access' patented CDA and related databases,
FirstHelp nurses assess specific symptoms presented by patients and recommend
the most appropriate level of care to the patient. Patients may also be
provided with more general health information or information about the rules
of their health plan or providers in their health plan network. Informed
Access nurses also make follow-up calls to patients and monitor patient
compliance with self-care recommendations. Informed Access also licenses the
FirstHelp system to clients who are large health care providers or insurers
who elect to operate their own call centers.
Provider Profiling and Selection. When a nurse determines that a patient can
benefit from a visit with a health care provider, the FirstHelp system enables
the nurse to help the caller identify and select health care providers within
the defined health plan network and health plan rules who are conveniently
located and are able to respond to the reported set of symptoms. Providers are
identified based on the urgency of the patient's potential condition, the
physical location of the patient and the provider, the office hours of the
provider, the health plan rules and the expertise, skill-set and preferences
of the provider.
In 1996, Informed Access developed a provider profiler product which assists
managed care providers in gathering and managing detailed information on the
providers in their networks, including all credentialing data required by the
National Committee for Quality Assurance (NCQA). The provider profiler is
currently in beta test. The provider profiler product maximizes the benefit of
the FirstHelp system by providing more complete and timely collection and
management of provider information.
Audio Tape Health Information Library. Customers have access via touch-tone
or rotary telephone to the FirstHelp audio tape health information library.
The audio tape library is a sophisticated database of pre-recorded information
on a wide variety of health topics, including information on specific
conditions and self-care and prevention information. After reviewing
information in the audio tape library, the customer can elect to speak
directly with a FirstHelp nurse.
Chronic Condition Management. Informed Access has developed disease
management programs designed to proactively assist patients with managing
chronic conditions. The goals of the programs are both to improve the quality
of life for patients who have chronic conditions by reducing the risk of
chronic condition complications and to help contain health care costs by
reducing the need for extensive use of health care services by patients with
chronic conditions. Patients who enroll in the chronic condition management
program receive regular calls from FirstHelp nurses who monitor the patient's
condition and the patient's compliance with treatment regiments. The enrolled
patients also receive information to educate them on how to effectively manage
their chronic condition.
86
<PAGE>
Illness Risk Assessment. Informed Access is introducing an illness risk
assessment tool, FirstHelp IRA, to assist managed care organizations in
identifying plan members who are at the greatest risk of requiring significant
use of health care services. The FirstHelp IRA program will collect and
analyze patient specific predictors of high levels of future use of health
care services. This information will be inserted into a patient's FirstHelp
record to be used in conjunction with FirstHelp chronic condition management
programs to provide proactive monitoring and intervention for higher risk
patients.
MEMBER COMMUNICATIONS
Informed Access provides clients with FirstHelp member communications
services to assist the client with meeting their objectives for the awareness
and use of the FirstHelp system by plan members. Member communications
services include the development and fulfillment of new member kits and
ongoing communications programs and newsletters to members and providers.
Clients can use existing FirstHelp member communications materials or work
with Informed Access professionals to develop custom materials.
SALES, MARKETING AND SUPPORT
Informed Access sells FirstHelp products and services to managed care
providers through a direct sales team. The sales team is supported by a
marketing organization which develops and implements promotional activities to
increase awareness of Informed Access and the FirstHelp system.
Informed Access has a dedicated team of implementation and account
management professionals who support and manage relationships with Informed
Access' clients. The implementation team assists new clients in implementing a
customized FirstHelp system and in coordinating member communications
programs. Informed Access' team of account managers are responsible for:
ensuring client satisfaction; monitoring the effectiveness of FirstHelp
programs in meeting client objectives; implementing new members for existing
clients; delivering technical support; and, in conjunction with the Informed
Access sales force, expanding the use of FirstHelp products and services by
existing clients.
Informed Access has a dedicated research team which continually evaluates
the effectiveness of the FirstHelp system in delivering consistent, high
quality health care recommendations and reducing health care costs for
clients. The research team assists the sales process and existing clients by
providing weekly and monthly reports to clients regarding the use of FirstHelp
by their customers, cost/benefit information, and baseline health care
utilization costs and statistics, as well as information about patient
assessment and care recommendations. The team also actively reviews the
performance of the FirstHelp system against predetermined benchmarks and
assists the clinical development organization with refining the CDA
algorithms, as appropriate.
CUSTOMERS
Informed Access' primary clients are large managed health care providers. At
September 1, 1996, Informed Access had contracted to provide FirstHelp call
center services and/or licensed the FirstHelp system to 40 clients.
Informed Access typically enters into long-term contracts with its FirstHelp
call center and license clients. While each agreement is different, the
typical contract provisions include monthly payments on a per member, per
month basis, a three year term and a minimum number of covered plan members.
The contract terms usually provide that the monthly per member, per month
payment will vary depending on the volume of patient calls to the call center,
subject to a minimum payment on a per member, per month basis. Informed Access
has several contracts which provide for bonuses or risk sharing arrangements
in which payments vary depending upon the success of the FirstHelp system in
achieving predetermined objectives.
Informed Access provides member communications services to clients under
contract for a fixed fee or fees on a per member, per month basis.
87
<PAGE>
PRODUCT DEVELOPMENT
The success of Informed Access' business is dependent in part on its ability
to continue to enhance existing products and to develop new products which
meet the requirements of its managed care clients. Informed Access has 23
professionals engaged in product development and enhancement. Informed Access
also engages independent consultants to assist with product development from
time to time. Informed Access' technology development efforts are focused on
six primary areas, including: (i) enhancing existing FirstHelp CDA clinical
algorithms; (ii) expanding capabilities, ease of use and scalability of the
FirstHelp system; (iii) customizing the products for specific market
applications; (iv) developing new applications, including disease management
modules; (v) continuing the development and expansion of the Informed Access
telecommunications infrastructure; and (vi) customizing existing products to
satisfy client-specific requirements.
COMPETITION
The market for Informed Access' products and services is highly competitive.
Informed Access' competition ranges from small independent companies to large
managed care organizations. Many of these companies have significantly greater
financial, technical or marketing resources than Informed Access. In addition,
many of these companies have name recognition, established positions in the
market and long-standing relationships with health care consumers. Informed
Access believes that it will compete against these companies on the basis of
the performance of its CDA and related database of algorithms, its operational
capabilities, its ability to rapidly enroll new members and the cost of the
FirstHelp system.
INTELLECTUAL PROPERTY
Informed Access holds one issued United States patent which covers a number
of inventions including the structure, use and process of its CDA and clinical
database and certain capabilities in its provider profiler product. There can
be no assurance that competitors, some of which have substantial resources and
have made substantial investments in competing technologies, will not seek to
apply for and obtain patents that will prevent, limit or interfere with
Informed Access' ability to make, use or sell its products either in the
United States or in international markets. Furthermore, the laws of certain
foreign countries do not protect Informed Access' intellectual property rights
to the same extent as do the laws of the United States. Litigation or
regulatory proceedings, which could result in substantial cost and uncertainty
to Informed Access, may also be necessary to enforce Informed Access'
intellectual property rights or to determine the scope and validity of other
parties' proprietary rights. It is also possible that Informed Access may need
to acquire licenses to, or contest the validity of, issued or pending patents
of third parties relating to Informed Access' technology. There can be no
assurance that any of such licenses would be made available to Informed Access
on acceptable terms, if at all, or that Informed Access, if it were to contest
the validity of any issued or pending patents, would prevail. In addition,
Informed Access could incur substantial costs in defending itself in suits
brought against Informed Access on its patents or in bringing suits against
third parties. Informed Access also relies on copyright, trademarks, trade
secret laws and restrictions on disclosure, copying and transferring title.
Despite these precautions, it may be possible for unauthorized third parties
to copy aspects of Informed Access' products or to obtain and use information
that Informed Access regards as proprietary. There can be no assurance that
the proprietary information or confidentiality agreements will not be
breached, that Informed Access will have adequate remedies for any breach, or
that Informed Access' trade secrets and proprietary know-how will not
otherwise become known to or be independently developed by others.
Furthermore, there can be no assurance that other companies with significantly
greater financial resources will not enter Informed Access' markets.
EMPLOYEES
At September 1, 1996, Informed Access had approximately 170 full-time and 30
part-time employees, including 110 registered nurses. None of Informed Access'
employees is covered by a collective bargaining agreement and Informed Access
believes its relations with employees is good.
88
<PAGE>
FACILITIES
Informed Access' corporate offices and main call center are located in a
33,000 square foot facility in Broomfield, Colorado. The facility is leased
pursuant to an agreement that expires in June 1998 with an option to extend to
June 1999. Informed Access also leases a 20,825 square foot facility in
Boulder, Colorado in a lease which expires in December, 1999. Informed Access'
backup call center occupies approximately 11,571 square feet of the Boulder
facility and the balance of the space is subleased to a third party.
89
<PAGE>
INFORMED ACCESS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Informed Access is a leading provider of health care coordination products
and services to the health care industry. Informed Access was formed in 1992
with the objective of developing and delivering products and services that
would simplify consumer access to the health care system, improve the quality
and consistency of health care services and information and lower costs by
reducing inefficient use of health care services. From inception to late 1994,
substantially all activities of Informed Access were related to the
development of its patented "FirstHelp(TM)" system product and services. In
1993 and 1994, revenues earned by Informed Access were minimal and resulted
primarily from fees earned from clients performing beta tests of the FirstHelp
system.
Informed Access began to actively market the FirstHelp system and began
licensing its product and services to clients for use in their own call
centers in late 1994. In January of 1995, Informed Access opened its own call
center and began providing FirstHelp services from this center. Throughout
1995 and the six months ended June 30, 1996, Informed Access continued to
actively market FirstHelp, develop and enhance the FirstHelp system and
establish the operational infrastructure necessary to support Informed Access'
growth. Since inception, revenues have not been sufficient to cover the costs
of marketing, development and operations. As a result, operating losses were
incurred in these periods.
Informed Access derives its revenue primarily from clients in the managed
care industry, including health maintenance organizations (HMOs), preferred
provider organizations (PPOs), indemnity insurers, integrated delivery
systems, and physician groups. Informed Access recognizes revenue from three
primary sources:
Call Center. Informed Access' revenue is generated principally from its long
term contracts with clients to provide the FirstHelp products and services to
enrolled members of its clients' managed health care plans from its call
center. Call center revenue is typically billed monthly and is calculated on a
per-member, per-month basis. The per member, per month fees under individual
contracts typically varies depending on the volume of member calls handled by
the Informed Access call center, subject to monthly minimum per member, per
month rates. Generally, call center clients are charged a one-time fee to
cover the cost of the initial loading of the client's database of enrolled
members and provider data into the FirstHelp system, algorithm reviews, and
unique contract requirements.
License Sites. FirstHelp is licensed on a limited basis to large health care
providers and insurers who operate their own call centers ("license sites").
License services are typically billed monthly and calculated on a per member,
per month basis or based on the number of call center concurrent users.
License site clients are typically charged a one-time implementation fee.
Member Communications. Informed Access earns revenue from providing member
communications services to its clients. These services are typically provided
under contract for a flat fee or on a per member, per month basis. The amount
charged for these services varies based on the volume of services being
provided.
90
<PAGE>
The following shows the components of Informed Access' consolidated
statement of operations as a percentage of total revenues:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------------------- --------------
1993 1994 1995 1995 1996
-------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Revenue:
Call center and client im-
plementation fees......... 0.0 % 0.0 % 46.7 % 49.3 % 60.7 %
License and license site
implementation fees....... 100.0 100.0 34.2 50.7 14.0
Communications and other
fees...................... 0.0 0.0 19.1 0.0 25.3
-------- -------- ------ ------- ------
Total revenue............... 100.0 100.0 100.0 100.0 100.0
-------- -------- ------ ------- ------
Costs and Expenses
Cost of sales:
Call center and client im-
plementation fees......... 0.0 % 0.0 % 56.3 % 75.2 % 45.6 %
License and license site
implementation fees....... 0.0 76.6 24.0 14.9 6.7
Communications and other
fees...................... 0.0 0.0 13.5 0.0 17.1
Research and development.... 1,879.5 897.6 49.4 148.7 29.0
Selling and marketing....... 141.9 582.7 55.5 169.0 30.1
General and administrative.. 97.2 476.6 33.9 74.6 15.1
-------- -------- ------ ------- ------
Total costs and expenses.... 2,118.6 2,033.6 232.5 482.6 143.7
-------- -------- ------ ------- ------
Loss from operations........ (2,018.6) (1,933.6) (132.5) (382.6) (43.7)
Other income (expense):
Interest and other income.. 60.7 % 33.9 % 6.9 % 18.0 % 1.5 %
Interest and other ex-
penses.................... 0.0 (4.0) (1.1) (5.3) (1.3)
-------- -------- ------ ------- ------
Net loss.................... (1,957.9)% (1,903.7)% (126.7)% (369.9)% (43.5)%
======== ======== ====== ======= ======
Gross Margin:
License and license site
implementation fees....... N/A 23.4 % 30.0 % 70.6 % 52.0 %
Communications and other... N/A N/A 29.2 N/A 32.4
Call Center and client im-
plementation.............. N/A N/A (20.6) (52.6) 24.8
Total...................... N/A 23.4 % 6.2 % 9.8 % 30.5 %
</TABLE>
RESULTS OF OPERATIONS--SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO THE SIX
MONTHS ENDED 1996
Revenue. Revenue consists of revenues from license and license site
implementation fees, call center and client implementation fees and
communications and other fees. Revenue increased 691.2% from $558,000 for the
six months ended June 30, 1995 to $4,418,000 for the six months ended June 30,
1996 due to an increase in the number of contracts and members enrolled under
Informed Access' contracts during the period. As of June 30, 1995,
approximately 1.8 million members were enrolled to use the FirstHelp system
under call center and license contracts, compared to approximately 4.0 million
members enrolled at June 30, 1996. Revenue under Informed Access' call center
and license contracts is recognized ratably on a per-member, per-month basis
and revenue recognition commences upon the enrollment of members.
Additionally, revenue increased from member communications contracts in the
six months ended June 30, 1996 for which there were no comparable sales in the
six months ended June 30, 1995. The first revenue from member communications
occurred in the second half of 1995.
Cost of Sales. Cost of Sales includes costs of operating Informed Access'
call center, providing support for license sites and charges for providing
member communications, as well as the cost of the initial implementation of
FirstHelp for each call center and license site client. Cost of sales
increased 509.7%, from $503,000 for the six months ended June 30, 1995 to
$3,069,000 for the six months ended June 30, 1996 primarily due to the
expansion of Informed Access' call center to provide service to the increased
number of enrolled members as well as the sale of member communications
services in the six months ended June 30, 1996 for which there was no
comparable item in the six months ended June 30, 1995.
The gross margin for Informed Access' call center for the six months ended
June 30, 1995 was (52.6%) compared to 24.8% for the six months ended June 30,
1996. This change reflects the economies of scale resulting
91
<PAGE>
from the significant growth in members enrolled to use FirstHelp. The gross
margin for license sites was 70.6% for the six months ended June 30, 1995
compared to 52.0% for the six months ended June 30, 1996. The decrease
resulted from additional costs from increased training, account management and
systems support provided to license sites in the six months ended June 30,
1996 compared to the six months ended June 30, 1995. The gross margin for
member communications services and other fees was 32.4% for the six months
ended June 30, 1996. There is no comparative margin for the six months ended
June 30, 1995 because member communications services were not sold until
September 1995.
Research and Development. Research and development expenses relate to
development and enhancement of the FirstHelp system and costs associated with
new product development. All development costs are expensed as incurred.
Research and development expenses increased 54.2% from $831,000 in the six
months ended June 30, 1995 to $1,281,000 in the six months ended June 30, 1996
due to increased costs related to the enhancement of the FirstHelp system.
These enhancements include the development of certain additional algorithms,
and improvements in system and database performance and capabilities. As a
percent of revenue, research and development expenses decreased from 148.7%
for the six months ended June 30, 1995 to 29.0% for the six months ended June
30, 1996, due primarily to increased revenue in the six months ended June 30,
1996 compared to the six months ended June 30, 1995.
Selling and Marketing. Selling and marketing expenses increased 40.9% from
$944,000 for the six months ended June 30, 1995 to $1,331,000 for the six
months ended June 30, 1996. This increase resulted primarily from the addition
of the sales and marketing personnel subsequent to introduction of the
FirstHelp system in 1994. As a percent of revenue, selling and marketing
expenses decreased from 169% of revenue for the six months ended June 30, 1995
to 30.1% of revenue for the six months ended June 30, 1996 due to increased
revenues in the six months ended June 30, 1996 compared with the six months
ended June 30, 1995 as discussed above.
General and Administrative. General and administrative expenses increased
59.9% from $417,000 for the six months ended June 30, 1995 to $666,000 for the
six months ended June 30, 1996. The increase primarily reflects the addition
of administrative and management personnel and the expansion of operational
infrastructure.
Loss from Operations. Operating losses decreased 9.7% from $2,136,000 for
the six months ended June 30, 1995 to $1,929,000 for the six months ended June
30, 1996. The losses from operations are attributable to the significant
investment made to continue the development of the FirstHelp system and an
increase in Informed Access' sales and marketing efforts and operational
infrastructure in anticipation of future growth.
Other Income (Expense). Informed Access generates interest income from cash
balances. Interest income decreased 33.6% from $101,000 for the six months
ended June 30, 1995 to $67,000 for the six months ended June 30, 1996.
Interest income decreased due to a lower average cash balance and slightly
lower interest rates related to those balances in the six months ended June
30, 1996 as compared with the six months ended June 30, 1995.
Interest expense increased 184.5% from $21,000 for the six months ended June
30, 1995 to $59,000 for the six months ended June 30, 1996. Interest expense
for the six months ended June 30, 1996 was incurred primarily from asset
financing arrangements (capital leases and long term debt with fixed assets as
collateral). Interest expense for the six months ended June 30, 1995 was
incurred primarily from a $1.0 million bridge note with investors which was
converted to Series C Preferred Stock on March 17, 1995.
RESULTS OF OPERATIONS--COMPARISON OF 1993, 1994 AND 1995
Revenue. Revenue increased 168.5% from $47,000 in 1993 to $125,000 in 1994
and increased 2,263.8% to $2,957,000 in 1995. The increase from 1993 to 1994
of $78,000 is due to an increase in enrolled members from 172,000 members
enrolled at two (beta) license sites in 1993 to 382,000 members enrolled at
six license sites in 1994. The increase from 1994 to 1995 of $2,832,000
resulted from the opening of Informed Access' first
92
<PAGE>
call center in January 1995, providing FirstHelp services through this call
center to 514,000 members enrolled through eight clients at year end; an
increase from 382,000 members enrolled through six license sites to 2,581,000
members enrolled through 12 license sites; and the initial rollout of member
communications services in 1995.
Cost of Sales. Cost of sales increased from $0 in 1993 to $96,000 in 1994
and increased 2,795.3% to $2,773,000 in 1995. The increases in 1994 and 1995
resulted from the addition of personnel and facilities to support the rollout
of the FirstHelp system and growth in enrolled members.
The gross margin for Informed Access' call center for 1995 was (20.6%)
reflecting lack of economies of scale due to low call volumes received during
the startup phase of Informed Access' call center early in 1995. The gross
margin for license sites was 23.4% for 1994 versus 30.0% in 1995 due to
economies of scale in supporting the increased number of license sites in
1995. The gross margin for communications and other fees was 29.2% for 1995.
There is no comparative margin for 1994 and 1993 because communications
services were not sold until September 1995.
Research and Development. Research and development expenses increased 28.2%
from $876,000, in 1993 to $1,123,000 in 1994 and increased 30.0% from
$1,123,000 in 1994 to $1,460,000 in 1995. These costs related to continued
enhancements made to the FirstHelp system. Research and development expenses
also include costs associated with new product development. All research and
development costs are expensed as incurred. Research and development expenses
were 1,879.5%, 897.6% and 49.4% of revenue for 1993, 1994 and 1995,
respectively. The decrease in these percentages is primarily a result of the
growth in revenue in 1994 and 1995.
Selling and Marketing. Selling and marketing expenses increased 1,002.6%
from $66,000 in 1993 to $729,000 in 1994 and increased 125.0% from $729,000 in
1994 to $1,640,000 in 1995. These increases resulted primarily from the
continued addition of sales and marketing personnel in preparation for and
following the commercial introduction of the FirstHelp system. Selling and
marketing expenses were 141.9%, 582.7% and 55.5% of revenue for 1993, 1994 and
1995, respectively. This change corresponds with the growth in revenues in
1995 and the increase in sales and marketing costs in 1994 and 1995.
General and Administrative. General and administrative expense increased
1,217.1% from $45,000 in 1993 to $596,000 in 1994 and increased 68.0% from
$596,000 in 1994 to $1,002,000 in 1995. The $551,000 increase from 1993 to
1994 and the $406,000 increase from 1994 to 1995 primarily reflects the
addition of finance, human resources and other corporate management personnel
and operational infrastructure to support Informed Access' growth. General and
administrative expenses were 97.2%, 476.6% and 33.9% of revenue for 1993, 1994
and 1995, respectively. The change in these percentages is a result of the
growth in revenue and the addition of finance, human resources and other
corporate management personnel and operational infrastructure necessary to
support anticipated growth in the business in 1994 and 1995.
Loss from Operations. Operating losses increased 157.2% from ($940,000) in
1993 to ($2,419,000) in 1994 and increased 62.0% from ($2,419,000) in 1994 to
($3,918,000) in 1995. The losses from operations are attributable to the
significant investment made in the continued development of the FirstHelp
system and increased sales and marketing efforts.
Other Income (Expense). Informed Access generated interest income from cash
balances. Interest income was $28,000 for 1993, $42,000 for 1994 and $205,000
for 1995. The increase of $14,000 or 49.9% from 1993 to 1994 and the increase
of $163,000 or 382.6% from 1994 to 1995 was due to increased cash balances.
Informed Access' interest and other expense increased 532.0% from $5,000 in
1994 to $31,000 in 1995 and consisted primarily of interest incurred from a
$1.0 million bridge note with an investor issued on December 16, 1994 which
was converted into Series C Preferred Stock on March 17, 1995.
Effects of inflation and changing prices. Inflation and changing prices have
not had a material effect on Informed Access' operations and, at current
levels, are not expected to in future years.
93
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, Informed Access has financed the development of its
products and services and met its operating and capital requirements primarily
through private sales of equity securities, through leases of capital
equipment, issuance of notes payable secured by capital equipment and, to a
lesser extent, from revenue from operations. Through June 30, 1996, Informed
Access raised $10.6 million through the sales of equity securities, and had
funded $1.6 million of capital expenditures through lease and note agreements.
At June 30, 1996, Informed Access had approximately $350,000 of additional
financing available for capital expenditures under a lease line.
At June 30, 1996, sources of liquidity included $1.8 million in cash and
cash equivalents, a decrease of $1.4 million from a balance of $3.2 million at
December 31, 1995. The cash was primarily used to fund development of the
FirstHelp system and operational infrastructure and to build infrastructure to
support the addition of new enrolled members scheduled to come on line later
in 1996 and 1997.
Accounts receivable increased from $0.8 million at December 31, 1995 to $1.2
million at June 30, 1996 due to increased revenue.
During the six months ended June 30, 1996, Informed Access purchased
$920,000 of property and equipment which included $739,000 of computer
hardware and software. In June 1996, Informed Access committed to purchase two
telephone switching systems for a total of $403,000. These switches were
financed under separate lease agreements from those under contract at June 30,
1996. Informed Access currently has no other material commitments for capital
expenditures.
Long term debt consists solely of the above mentioned lease and loan
agreements secured by capital equipment. Long term debt increased from
$133,000 at December 31, 1995 to $1,040,000 at June 30, 1996 to finance
capital expenditures during the six months ended June 30, 1996. In connection
with the proposed merger of Informed Access and Access Health, the parties
have entered into a line of credit under which Access Health will advance
Informed Access up to $2,000,000 to fund short term cash requirements. The
line of credit will mature upon the earlier of September 1997 or six months
following a termination of the Merger.
In September 1996, the Informed Access Board approved the payment of
performance bonuses aggregating $1,500,000 to four members of management who
are also Informed Access stockholders. The performance bonuses were awarded in
recognition of Informed Access' significant growth in 1996. The performance
bonuses were paid in September 1996 through the issuance of promissory notes
which are payable in installments in March 1997 and September 1997. The
payment of the promissory notes is not contingent on the closing of the
Merger. Informed Access will recognize a charge of $1.5 million in its
September 1996 quarter related to payment of the performance bonuses. The
Informed Access Board also approved the award of $200,000 in bonuses to two
individuals to induce them to remain with Informed Access through March 31,
1997 to help facilitate the integration of Informed Access and Access Health
and the award of a $300,000 bonus to the President of Informed Access in
recognition of his significant efforts in relation to the initiation and
negotiation of the Merger. These bonuses will be paid when earned only if the
Merger closes. The payment of all or a portion of the promissory notes and the
merger related bonuses is subject to stockholder approval of the Option and
Bonus Proposal.
Informed Access believes that its current capital resources, available
balance on its lease line, borrowing capacity under the line of credit from
Access Health and revenue from operations will allow Informed Access to fund
operations and planned capital expenditures through at least the first half of
1997. In the event the Merger does not close, Informed Access will be required
to raise capital in 1997 to fund the retirement of the Bonus Notes and to
repay any outstanding balances under the line of credit from Access Health.
Informed Access is unable to predict the precise amount of future capital that
it may require, and there can be no assurance that any additional financing
will be available to Informed Access. The inability to generate revenue and
operating income or obtain additional financing on acceptable terms would have
a material adverse effect on Informed Access' business, results of operations
and financial condition.
94
<PAGE>
INCOME TAXES
Informed Access has net operating loss carryforwards totaling approximately
$8.0 million and research and development tax credits of approximately
$200,000 at June 30, 1996. The net operating loss carryforwards expire at
various dates through the year 2010. Informed Access has not paid income taxes
since its inception. The Tax Reform Act of 1986 and other income tax
regulations contain provisions which may limit the net operating loss
carryforwards available in any given year, if certain events occur, including
changes in ownership interests. Informed Access has established a valuation
allowance for the entire amount of its deferred tax asset since inception due
to its history of operating losses and uncertainty of future profitability.
95
<PAGE>
INFORMED ACCESS MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth information as of September 30, 1996
regarding the directors and executive officers of Informed Access who will
become directors or executive officers of Access Health upon consummation of
the Merger, along with information regarding the current executive officers of
Informed Access. As described under "Approval of the Merger and Related
Transactions--Employment Agreements; Employment Matters," each of the current
officers and employees of Informed Access will be employed in the Informed
Access division of Access Health following the Merger.
<TABLE>
<CAPTION>
CURRENT POSITION WITH
NAME AGE INFORMED ACCESS
---- --- ---------------------
<C> <C> <S>
Kinney L. Johnson................... 52 Director
Joseph P. Tallman................... 44 President, Chief Executive Officer
and Director
Elizabeth M. Snowden................ 39 Senior Vice President, Sales &
Marketing and Secretary
Barry W. Wolcott.................... 50 Vice President, Medical Affairs
John R. Barr........................ 34 Vice President, Development/Technical
Timothy H. Connor................... 38 Chief Financial Officer and Vice
President, Finance and
Administration
Jeremy K. Miller.................... 45 Vice President, Sales
Michael J. Modiz.................... 40 Vice President, Operations
Michael E. Myers.................... 39 Vice President, Marketing
</TABLE>
Kinney L. Johnson, has served as a director of Informed Access since its
inception in 1992. Mr. Johnson has been a general partner of Capital Health
Venture Partners ("CHVP"), a private venture capital firm, since June 1986.
CHVP is the general partner of American Healthcare Funds I and II. Mr. Johnson
also serves on the Board of Directors of The Spectranetics Corporation,
Fischer Imaging Corporation and Somatogen, Inc. Mr. Johnson will become a
director of Access Health upon the closing of the Merger.
Joseph P. Tallman, a founder of Informed Access, has served as a director,
President and Chief Executive Officer since Informed Access' incorporation in
1992. Prior to founding Informed Access, Mr. Tallman was Co-founder, Chairman,
President and Chief Executive Officer of Consumer Health Services, Inc., a
consumer health services company from 1982 until 1989. From 1989 to 1992, Mr.
Tallman was an independent consultant and was involved in the formation of
Informed Access. Mr. Tallman received a B.S. in General Engineering from the
United States Military Academy, West Point and an M.B.A. from Stanford
University. Mr. Tallman is the husband of Ms. Snowden. Mr. Tallman will become
an Executive Vice President and a director of Access Health upon the closing
of the Merger.
Elizabeth M. Snowden, a founder of Informed Access, has served as Senior
Vice President, Sales & Marketing and Secretary since Informed Access'
incorporation in 1992. Prior to founding Informed Access, Ms. Snowden served
as Vice President, Western Region of Consumer Health Services, Inc., a
consumer health services company, from 1987 until 1990. From 1990 to 1992, Ms.
Snowden was an independent consultant and was involved in the formation of
Informed Access. Ms. Snowden received a B.A. in Psychology from Stanford
University and an M.B.A. from Harvard Graduate School of Business
Administration. Ms. Snowden is the wife of Mr. Tallman.
Dr. Barry W. Wolcott, a founder of Informed Access, has served as Vice
President, Medical Affairs since Informed Access' incorporation in 1992. Prior
to founding Informed Access, Dr. Wolcott held various positions with the
United States Army, most recently as Commandant of the Uniformed Services
University of Texas Health Sciences Center Medical School, Bethesda, Maryland
from 1990 until 1993. Dr. Wolcott has also served as Associate Professor of
Operational and Emergency Medicine at the Uniformed Services University since
1979. Dr. Wolcott received an A.B. in Chemistry from Middlebury College and an
M.D. from Johns Hopkins University.
96
<PAGE>
John R. Barr, joined Informed Access in July 1996 as Vice President of
Development/Technology. Prior to joining Informed Access, Mr. Barr held
various management positions since November 1990 at HBO & Company (formerly
CliniCom), a health care information systems company, most recently serving as
Vice President, Clinical Systems. Mr. Barr received a B.S. in Computer
Engineering from McMaster University.
Timothy H. Connor, joined Informed Access in June 1996 as Chief Financial
Officer and Vice President, Finance and Administration. Prior to joining
Informed Access, Mr. Connor was with Lehman Brothers Inc., an investment
banking company, since 1985, most recently as a Managing Director in the
Investment Banking Group. Mr. Connor received a B.A. in Economics from
Washington College and an M.B.A. from Harvard Graduate School of Business
Administration.
Jeremy K. Miller, joined Informed Access in August 1996 as Vice President,
Sales. From December 1989 to August 1996, Mr. Miller held a variety of
management positions with Perot Systems Corporation and its European
subsidiary, Perot Systems Europe, an information technology outsourcing
company. Mr. Miller received a B.S. in Engineering from the United States
Military Academy, West Point.
Michael J. Modiz, joined Informed Access in April 1996 as Vice President,
Operations. Prior to joining Informed Access, Mr. Modiz served as President
and Chief Executive Officer of Independent Care, Inc., a managed health care
company, since October 1993. From February 1988 to December 1991, Mr. Modiz
was Director of Business Operations and MIS of CareNetwork, Inc., a managed
health care company. In January 1992 he was elected Vice President, Operations
and MIS and in November 1992 he was elected Vice President, Corporate Planning
& TQM. Mr. Modiz received a B.S. in Computer Science from the University of
Wisconsin-La Crosse and an M.B.A. from the University of Wisconsin-Milwaukee.
Michael E. Myers, joined Informed Access in April 1996 as Vice President,
Marketing. Prior to joining Informed Access, Mr. Myers held a variety of
positions, including Director of Product Marketing and Product Manager, with
HBO & Company (formerly CliniCom), a health care information systems company,
since April 1988. In February 1993 he was elected Vice President, Product
Marketing & Client Services and in February 1994 he was elected Vice President
Product Marketing & Development. Mr. Myers received a B.S. in Political
Science from the University of Colorado and a Masters in International
Business from Arizona Graduate School of Industrial Management (Thunderbird).
97
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain compensation of the only executive
officer of Informed Access earning in excess of $100,000 for services rendered
in 1995 that will serve as an executive officer of Access Health following the
Merger (the "Named Executive Officer"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
1995 ANNUAL COMPENSATION COMPENSATION
------------------------------- AWARDS--
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL SALARY COMPENSATION UNDERLYING ALL OTHER
POSITION ($) BONUS ($) ($) OPTIONS COMPENSATION
------------------ -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Joseph P. Tallman....... $100,000 -- -- 42,000(1) $1,059(2)
President and Chief
Executive Officer
</TABLE>
- --------
(1) Options are incentive stock options granted under the Informed Access
Option Plan with an exercise price of $0.46 per shares.
(2) Other compensation for Mr. Tallman includes $1,059 in the form of health
insurance premiums.
OPTION GRANTS DURING 1995
The following table sets forth each grant of stock options made during the
year ended December 31, 1995 by Informed Access to the Named Executive
Officer:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION FOR
NUMBER OF SECURITIES GRANTED TO EXERCISE OPTION TERM(3)
UNDERLYING EMPLOYEES PRICE PER EXPIRATION -----------------------
NAME OPTIONS GRANTED IN FISCAL YEAR SHARE DATE 5% 10%
---- -------------------- -------------- --------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Joseph P. Tallman....... 42,000 12.83% $0.46(2) November 14, 2005 $ 29,972 $ 45,556
</TABLE>
- --------
(1) Option vests in four equal annual installments beginning on November 15,
1996.
(2) The exercise price per share of the option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors.
(3) The potential realizable value is calculated based on the term of the
option at the date of grant (10 years). It is calculated assuming that the
fair market value of Informed Access' Common Stock on the date of grant
appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the
last day of its term for the appreciated stock price.
98
<PAGE>
OPTIONS HELD IN 1995
The following table sets forth, as of December 31, 1995, (i) the number of
unexercised options and (ii) the value of unexercised in-the-money options
(i.e., options for which the fair market value of the Informed Access Common
Stock exceeds the exercise price) held by the Named Executive Officer.
OPTION EXERCISE AND YEAR END VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE DECEMBER 30, 1995 (#) DECEMBER 30, 1995
NAME ON EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Joseph P. Tallman....... -- -- 0/42,000 $0/$0
</TABLE>
EMPLOYMENT AGREEMENTS
In connection with the Merger Agreement, Mr. Tallman will enter into an
employment agreement with Access Health. For a description of the agreement,
see "Approval of the Merger and Related Transactions--Interests of Certain
Persons in the Merger," and "--Employment Agreements; Employee Matters."
99
<PAGE>
INFORMED ACCESS STOCKHOLDERS
The following table sets forth certain information as of September 15, 1996
with respect to the beneficial ownership of Informed Access Common Stock,
Informed Access Preferred Stock, and Informed Access Common Stock as adjusted
to give effect to the conversion of all outstanding shares of Preferred Stock
into shares of Common Stock, for (i) each person (or group of affiliated
persons) who is known by Informed Access to own beneficially more than 5% of
the Informed Access Common Stock, the Informed Access Preferred Stock or the
Informed Access Common Stock on an as-converted basis, (ii) each of Informed
Access' directors, and (iii) all directors and executive officers of Informed
Access as a group. Except as otherwise noted, the persons or entities in this
table have sole voting and investing power with respect to all the shares of
Common Stock owned by them.
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK PREFERRED STOCK AS CONVERTED
------------------------- ------------------------- -------------------------
NUMBER OF NUMBER OF NUMBER
SHARES PERCENT SHARES PERCENT OF SHARES PERCENT
NAME AND ADDRESS OF BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED OWNED OWNED OWNED OWNED OWNED(1)(2)
------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Crosspoint Venture
Partners III, L.P.(3).. -- -- 959,527 20.7% 959,527 16.6%
18552 MacArthur Blvd.
Suite 400
Irvine, CA 92715
American Healthcare Fund
II, L.P................ -- -- 885,778 19.1 885,778 15.4
2084 South Milwaukee
Avenue
Denver, CO 80210(4)
Mosby-Year Book, Inc.... -- -- 879,065 19.0 879,065 15.2
The Times Mirror Co.
11830 Westline
Industrial Drive
St. Louis, MO 63146(5)
Sevin Rosen Fund IV, -- -- 875,778 18.9 875,778 15.2
L.P....................
Two Galeria Tower
13455 Noel Road
Suite 1670
Dallas, Texas 75240
The Hill Partnership -- -- 752,802 16.3 752,802 13.1
III....................
885 Arapahoe
Boulder, CO 80302
Joseph P. Tallman....... 833,631 66.4% -- -- 833,631 14.2
310 Interlocken Parkway
Suite A
Broomfield, CO 80021(6)
Kinney L. Johnson(4).... -- -- 885,778 19.1 885,778 15.4
Donald B. Milder(3)..... -- -- 959,527 20.7 959,527 16.6
Virgil Mette(5)......... -- -- 879,065 19.0 879,065 15.2
Richard K. Tompkins..... 20,000 1.8 -- -- 20,000 *
Thomas G. Washing....... 15,000 1.3 -- -- 15,000 *
John R. Barr(7)......... 25,000 2.2 -- * 25,000 *
Timothy H. Connor(8).... 50,000 4.2 20,000 * 70,000 1.2
Jeremy K. Miller(9)..... 42,500 3.6 -- -- 42,500 *
Michael J. Modiz(10).... 35,000 3.0 -- -- 35,000 *
Michael E. Myers(11).... 50,000 4.2 20,000 * 70,000 1.2
Elizabeth M. 833,631 66.4 -- -- 833,631 14.2
Snowden(12)............
Barry W. Wolcott(13).... 255,244 21.0 -- -- 255,244 4.4
All directors and
executive officers as a
group (12
persons)(14)........... 1,326,375 86.5% 2,764,370 59.7% 4,090,745 66.4%
</TABLE>
- --------
* Less than one percent.
100
<PAGE>
1. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options and warrants currently exercisable, or exercisable
within 60 days of September , 1996, are deemed outstanding for computing
the percentage of the person or entity holding such securities but are not
outstanding for computing the percentage of any other person or entity.
Except as indicated by footnote, and subject to community property laws
where applicable, the persons named in the table above have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
2. Percentage of ownership is based on 1,139,125 shares of Common Stock and
4,628,061 shares of Preferred Stock and 5,767,186 shares of Common Stock
on an as-converted basis outstanding on September 15, 1996.
3. Consists of 885,778 shares held by American Healthcare Fund II, L.P., a
Delaware limited partnership ("American Healthcare"). Mr. Johnson, a
director of Informed Access, is a general partner of Capital Health
Venture Partners, the general partner of American Healthcare. Mr. Johnson
on behalf of American Healthcare exercises discretionary voting and
dispositive power over such shares. Mr. Johnson disclaims beneficial
ownership of the shares held by American Healthcare except to the extent
of his pecuniary interest therein arising from his general partnership
interest therein.
4. Consists of 959,527 shares held by Crosspoint Venture Partners III, L.P.,
a Delaware limited partnership ("Crosspoint"). Mr. Milder, a director of
Informed Access, is a general partner of Crosspoint. Mr. Milder on behalf
of Crosspoint exercises discretionary voting and dispositive power over
such shares. Mr. Milder disclaims beneficial ownership of the shares held
by Crosspoint except to the extent of his pecuniary interest therein
arising from his general partnership interests therein.
5. Virgil Mette, a director of Informed Access, is Vice President of The
Times Mirror Co. Mr. Mette disclaims beneficial ownership of the shares
held by The Times Mirror Co.
6. Includes 255,244 shares held by Mr. Tallman's wife, Elizabeth M. Snowden,
and 42,000 shares subject to stock options that are exercisable
immediately prior to the completion of the Merger.
7. Includes 25,000 shares subject to stock options that are exercisable
immediately prior to the completion of the Merger.
8. Includes 50,000 shares subject to stock options that are exercisable
immediately prior to the completion of the Merger.
9. Includes 42,500 shares subject to stock options that are exercisable
immediately prior to the completion of the Merger.
10. Includes 35,000 shares subject to stock options that are exercisable
immediately prior to the completion of the Merger.
11. Includes 50,000 shares subject to stock options that are exercisable
immediately prior to the completion of the Merger.
12. Includes 578,387 shares held by Ms. Snowden's husband, Joseph P. Tallman,
and 75,000 shares subject to stock options that are exercisable
immediately prior to the completion of the Merger.
13. Includes 75,000 shares subject to stock options that are exercisable
immediately prior to the completion of the Merger.
14. Includes shares included pursuant to notes (6)--(13).
101
<PAGE>
CERTAIN TRANSACTIONS
In February 1993, American Healthcare purchased 375,000 shares of Series A
Preferred Stock of Informed Access at a purchase price of $1.00 per share. In
March 1994, American Healthcare purchased 324,240 shares of Series B Preferred
Stock of Informed Access at a purchase price of $1.415 per share. In March
1995, American Healthcare purchased 186,538 shares of Series C Preferred Stock
of Informed Access at a purchase price of $4.6072 per share. Kinney L.
Johnson, a director of Informed Access, is a general partner of Capital Health
Venture Partners, the general partner of American Healthcare.
In 1992, in connection with founding Informed Access, Joseph P. Tallman, the
President, Chief Executive Officer and a director of Informed Access,
purchased 434,375 shares of Informed Access' Common Stock at a purchase price
of $0.001 per share. In December 1993, Mr. Tallman purchased an additional
102,012 shares of Common Stock at a purchase price of $0.05 per share.
102
<PAGE>
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF ACCESS HEALTH CAPITAL STOCK
As of September 15, 1996, the authorized capital stock of Access Health
consisted of 30,000,000 shares of Common Stock, $0.001 par value, and
5,000,000 shares of Preferred Stock, $0.001 par value if the holders of Access
Health Common Stock approve the Certificate Amendment at the Access Health
Special Meeting, the number of authorized shares of Access Health Common Stock
will increase to 75,000,000.
Access Health Common Stock. As of September 15, 1996, there were
approximately 12,592,774 shares of Access Health Common Stock outstanding held
of record by approximately 428 stockholders. Access Health Common Stock is
listed on Nasdaq under the symbol "ACCS." Holders of Access Health Common
Stock are entitled to one vote per share on all matters to be voted upon by
the stockholders, except that holders of Access Health Common Stock may
cumulate votes in the election of directors, so long as the names of the
director or directors for whom such holder intends to cumulate votes has been
placed in nomination prior to the voting and the stockholder, or any other
holder of Access Health Common Stock, has given notice at the meeting prior to
the voting of the intention to cumulate votes. The holders of Access Health
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up
of Access Health, the holders of Access Health Common Stock are entitled to
share ratably in all assets remaining after payment of liabilities. The Access
Health Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Access Health Common Stock. All outstanding shares of Access
Health Common Stock are fully paid and non-assessable, and the shares of
Access Health Common Stock to be outstanding upon completion of the Merger
will be fully paid and non-assessable.
Preferred Stock. The Board of Directors of Access Health has the authority
to issue up to 5,000,000 shares of Preferred Stock in one or more series and
to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any unissued and undesignated shares of Preferred Stock and to
fix the number of shares constituting any series and the designations of such
series, without any further vote or action by the stockholders. Although it
presently has no intention to do so, the Board of Directors, without
stockholder approval, can issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power or other rights of the
holders of Access Health Common Stock. The issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of
Access Health. Access Health has no present plans to issue Preferred Stock.
Registration Rights. If the Merger is completed, the Registration Rights
Agreement will provide certain rights with respect to the registration of the
shares of Access Health Common Stock received by the Informed Access
stockholders in the Merger. Under the Registration Rights Agreement, if Access
Health proposes to register any of its securities under the Securities Act,
the holders are entitled to notice of such proposed registration and the
opportunity to include their shares therein, subject to certain conditions and
limitations including the right of the underwriters of an offering to limit
the number of shares included in such registration to 35% of the total number
of shares to be registered in certain circumstances. Access Health will pay
all registration expenses for such registration, but the Informed Access
holders included in such registration must bear their proportionate share of
all selling expenses. The holders may also require that Access Health file up
to three registration statements under the Securities Act with respect to
underwritten public offerings of their shares at any time beginning after the
date Access Health has published the combined financial results of Access
Health and Informed Access for a period of at least 30 days of combined
operations. The Informed Access holders must bear all registration and selling
expenses incurred in connection with such registration. The registration
rights under the Registration Rights Agreement (i) will terminate as to any
holder at such time as such holder may sell all his or her shares using the 1%
volume limitation pursuant to Rule 144 under the Securities Act and (ii) may
not be exercisable by a holder at such time as a holder could sell all his or
her shares in a three month period using the average weekly trading volume
limitation pursuant to Rule 144 under the Securities Act.
103
<PAGE>
Delaware General Corporation Law Section 203. As a corporation organized
under the laws of the State of Delaware, Access Health is subject to Section
203 of the DGCL which restricts certain business combinations between Access
Health and an "interested stockholder" (in general, a stockholder owning 15%
or more of Access Health's outstanding voting stock) or its affiliates or
associates for a period of three years following the date on which the
stockholder becomes an "interested stockholder." The restrictions do not apply
if (i) prior to an interested stockholder becoming such, the Access Health
Board approves either the business combination or the transaction in which the
stockholder becomes an interested stockholder, (ii) upon consummation of the
transaction in which any person becomes an interested stockholder, such
interested stockholder owns at least 85% of the voting stock of Access Health
outstanding at the time the transaction commences (excluding shares owned by
persons who are both directors and officers of Access Health) or (iii) on or
subsequent to the date an interested stockholder becomes such, the business
combination is both approved by the Access Health Board and authorized at an
annual or special meeting of Access Health's stockholders, not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock not owned by the interested stockholder.
Transfer Agent and Registrar. The Transfer Agent and Registrar for the
Access Health Common Stock is The First National Bank of Boston.
DESCRIPTION OF INFORMED ACCESS CAPITAL STOCK
As of September 15, 1996 the authorized capital stock of Informed Access
consisted of 6,892,165 shares of authorized Common Stock, $.001 par value, and
4,783,040 shares of authorized Preferred Stock, $.001 par value; of which
1,635,000 shares are designated Series A Preferred Stock; 1,431,356 shares are
designated Series B Preferred Stock; and 1,716,684 shares are designated
Series C Preferred Stock.
Informed Access Common Stock. As of September 15, 1996 there were 1,139,125
shares of Informed Access Common Stock issued and outstanding. Holders of
Informed Access Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. In the event of a liquidation,
dissolution or winding up of Informed Access, after payment of all liabilities
and payment in full of the liquidation preference of the Preferred Stock as
described below, the holders of Informed Access Common Stock are entitled to
receive a payment of $.50 for each share of Common Stock then held by them.
After payment has been made to the holders of Preferred Stock and Common
Stock, respectively, of the full amounts to which they are entitled,
respectively, the holders of the Common Stock are entitled to participate
ratably with the holders of Preferred Stock in the distribution of the
remaining assets of Informed Access, if any, on an as-converted to Common
Stock basis. The Informed Access Common Stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the Informed Access Common Stock. All outstanding
shares of Informed Access Common Stock are fully paid and non-assessable.
Informed Access Preferred Stock. As of September 15, 1996 there were
1,635,000 shares of Series A Preferred Stock issued and outstanding; 1,413,688
shares of Series B Preferred Stock issued and outstanding; and 1,579,373
shares of Series C Preferred Stock, issued and outstanding. The principal
rights, privileges and preferences of the issued and outstanding shares of
Informed Access Preferred Stock are as set forth below.
Dividends. The holders of Informed Access Preferred Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors of Informed Access out of funds legally available
therefor in an amount equal to $.10 per share of Series A Preferred Stock,
$.1415 per share of Series B Preferred Stock and $.46072 per share of Series C
Preferred Stock. If a dividend is declared then it will accrue on the
Preferred Stock from the respective date of first issuance of each series of
Preferred Stock. The dividends, if declared, are payable quarterly on the last
day of each calendar quarter. Informed Access may not pay cash dividends on
Informed Access Common Stock while there are any declared but unpaid cash
dividends on any shares of Informed Access Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock outstanding.
104
<PAGE>
Liquidation. In the event of a liquidation, dissolution or winding up of
Informed Access, after payment of all liabilities and prior to the payment of
the liquidation preference to the Common Stock described above, the holders of
Informed Access Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock are entitled to receive $1.00, $1.415 and $4.6072 per share,
respectively, plus all declared and unpaid dividends. After payment has been
made to the holders of Preferred Stock and Common Stock, respectively, of the
full amounts to which they are entitled, the holders of the Preferred Stock
are entitled to participate ratably with the holders of the Common Stock in
the distribution of the remaining assets of Informed Access, if any, on an as-
converted to Common Stock basis.
Conversion. Each share of Informed Access Preferred Stock is presently
convertible into one share of Informed Access Common Stock, subject to anti-
dilution provisions.
Protective Provisions. In addition to any other rights provided by law or
agreement, so long as any of the Informed Access Preferred Stock is issued and
outstanding, Informed Access may not, without first obtaining the affirmative
vote or written consent of the holders of at least 60% of the shares of
Preferred Stock on an as-converted to Common Stock basis: (i) amend the
Informed Access Certificate of Incorporation or Bylaws: (ii) reclassify an
existing convertible security or create any new convertible security having
any preference or priority as to dividends, assets, redemption or otherwise on
a parity with or superior in any preferences or priorities of the Preferred
Stock, or which in any manner adversely affects the rights and preferences of
the Preferred Stock; (iii) merge, consolidate, reorganize or sell, lease or
transfer all or substantially all of the assets of Informed Access; or (iv)
dissolve, liquidate or otherwise wind-up the affairs and business of Informed
Access.
Redemption. Subject to the terms set forth below, beginning February 9,
1999, each holder of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, respectively may require Informed Access to redeem
up to 25% of their shares of Preferred Stock at the redemption price of $1.00,
$1.415 and $4.6072 per share plus any declared but unpaid dividends,
respectively. The percentage of Preferred Stock which may be redeemed
increases to 33%, 50% and 100% beginning February 9, 2000, February 9, 2001
and February 9, 2002, respectively. All redemptions are to be done on a pro
rata basis out of funds legally available therefor.
Preemptive Rights. The holders of Informed Access Common Stock have the pro
rata right to participate in future equity financings of Informed Access,
subject to customary exclusions.
The Informed Access Preferred Stock has no sinking fund provisions. All
outstanding shares of Informed Access Preferred Stock are fully paid and non-
assessable.
Voting Rights. Subject to the protective provisions described above and
except as otherwise required by law, the holders of Informed Access Preferred
Stock and Common Stock are entitled to notice of any stockholders' meeting and
to vote together as one class upon any matter submitted to the stockholders
for a vote on the following basis:
(a) Common Stock. Each share of Informed Access Common Stock issued and
outstanding has one vote.
(b) Preferred Stock. Each share of Informed Access Preferred Stock issued
and outstanding has a number of votes equal to the number of full shares of
Informed Access Common Stock into which such Informed Access Preferred
Stock is then convertible.
The holders of Informed Access Common Stock and Preferred Stock may take
action by written consent but they may not cumulate their votes in connection
with the election of Directors.
105
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF ACCESS HEALTH
COMMON STOCK AND HOLDERS OF INFORMED ACCESS CAPITAL STOCK
The rights of Access Health stockholders are governed by the Access Health
Certificate of Incorporation, the Access Health Bylaws and the laws of the
State of Delaware. The rights of Informed Access' stockholders are governed by
the Informed Access Certificate of Incorporation, the Informed Access Bylaws
and the laws of the State of Delaware. After the effective time of the Merger,
the rights of Informed Access stockholders who become Access Health
stockholders will be governed by the Access Health Certificate of
Incorporation, Access Health Bylaws and the laws of the State of Delaware. In
most respects, the rights of Access Health stockholders and Informed Access
stockholders are similar. The following discussion of certain similarities and
material differences between the rights of Access Health stockholders and the
rights of Informed Access stockholders under their respective Certificates of
Incorporation and Bylaws is only a summary of certain provisions and does not
purport to be a complete description of such similarities and differences. The
following discussion is qualified in its entirety by reference to the laws of
the State of Delaware and the full texts of the respective Certificates of
Incorporation and Bylaws of Access Health and Informed Access. Copies of such
documents may be obtained from Access Health and Informed Access, as the case
may be, and such documents of Access Health are incorporated by reference as
exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part.
Upon consummation of the Merger, the holders of Informed Access Common Stock
and the holders of Informed Access Preferred Stock will become holders of
Access Health Common Stock. As of the Effective Time, holders of Informed
Access Preferred Stock will no longer be entitled to certain rights and
privileges previously provided for in Informed Access' Certificate of
Incorporation. Such rights include (i) a dividend preference in the amounts
described above, (ii) a liquidation preference in the amounts described above,
(iii) certain protective provisions as described above, (iv) certain
redemption rights as described above, and (v) the right to vote as a separate
class concerning certain corporate transactions including the Merger. In
addition, holders of Informed Access Common Stock will no longer have pro rata
rights to participate in future equity financings of Informed Access as
described above. Appraisal rights are available to stockholders of Informed
Access with respect to the Merger. See "Approval of the Merger and Related
Transactions--Delaware Appraisal Rights."
In addition, certain other rights and privileges of Informed Access
stockholders will change as a result of the Merger. Upon completion of the
Merger, the percentage ownership of Access Health by each former Informed
Access stockholder will be substantially less than his, her or its current
percentage ownership of Informed Access. Accordingly, former Informed Access
stockholders will have a significantly smaller voting influence over the
affairs of Access Health than they currently enjoy over the affairs of
Informed Access. Moreover, certain contractual rights presently possessed by
holders of Informed Access Preferred Stock will cease to exist after the
Merger. Specifically, certain information rights, registration rights, rights
to representation on, or attendance at meetings of the Informed Access Board
and other rights unique to the organization and financing of Informed Access
will terminate at the Effective Time.
APPROVAL OF AMENDMENT TO ACCESS HEALTH'S
CERTIFICATE OF INCORPORATION
GENERAL
At the Access Health Special Meeting, Access Health stockholders will
consider and vote upon a proposal to amend the Access Health Certificate to
increase the authorized shares of Access Health Common Stock to 75,000,000
shares (the "Certificate Amendment"). Access Health currently is authorized to
issue 30,000,000 shares of Access Health Common Stock. As of the Access Health
Record Date, there were shares of Access Health Common Stock outstanding
and shares of Access Health Common Stock reserved for issuance under stock
plans of Access Health. Further, it is anticipated that up to 5,375,000 shares
of Access
106
<PAGE>
Health Common Stock will be issued in connection with the Merger; however, the
actual number of shares of Access Health Common Stock to be issued in the
Merger will depend upon the number of shares of Informed Access Stock issued
and outstanding at the Effective Time.
REASONS FOR THE CERTIFICATE AMENDMENT
The Access Health Board believes the Certificate Amendment is desirable for
several reasons. The additional shares of Access Health Common Stock to be
authorized would be available for possible future financing and acquisition
transactions, stock dividends or splits and other corporate purposes. Having
such shares available for issuance in the future would give Access Health
greater flexibility and allow shares of Access Health Common Stock to be
issued without the expense and delay of a special stockholders' meeting. The
additional shares of Access Health Common Stock would be available for
issuance without further action by the stockholders unless any such action is
required by applicable law or the rules of any stock exchange on which Access
Health securities may be listed. The Nasdaq National Market, on which the
issued shares of Access Health Common Stock are, and the shares of Access
Health Common Stock issued in connection with the Merger and related
transactions will be, listed currently requires stockholder approval as a
prerequisite to listing shares in certain instances, including in connection
with acquisition transactions where the present or potential issuance of
shares could result in an increase in the number of shares of common stock
outstanding by 20% or more.
At the present time, there are no plans to issue shares of Access Health
Common Stock for which authorization is being sought, other than pursuant to
or as contemplated by the Merger Agreement and under Access Health's benefit
and stock plans.
The approval of the Certificate Amendment is not a condition to the
consummation of the Merger. See "Approval of the Merger and Related
Transactions--Conditions to the Merger."
The Access Health Board reserves the right, notwithstanding stockholder
approval and without further action of the stockholders, to determine not to
proceed with the Certificate Amendment, if, at any time before filing the
amended Certificate of Incorporation with the Secretary of State of the State
of Delaware, the Access Health Board, in its sole discretion, determines that
the Certificate Amendment is no longer in the best interests of Access Health
and its stockholders.
ACCESS HEALTH BOARD RECOMMENDATION; VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding Access
Health Common Stock is required to approve the Certificate Amendment. The
Access Health Board has unanimously approved the Certificate Amendment and has
determined that the Certificate Amendment is in the best interests of Access
Health and its stockholders, and therefore unanimously recommends a vote FOR
approval of the Certificate Amendment.
APPROVAL OF AMENDMENT TO ACCESS HEALTH'S
1989 INCENTIVE STOCK PLAN
GENERAL
Access Health's 1989 Incentive Stock Plan (the "Access Health Stock Plan")
was amended by the Access Health Board of Directors in August 1996 in
connection with the Merger, subject to approval by the Access Health
stockholders, to reserve an additional 1,000,000 shares for issuance
thereunder, bringing the total number of shares under the Access Health Stock
Plan to 3,550,000 (the "Incentive Plan Amendment").
107
<PAGE>
REASONS FOR THE INCENTIVE PLAN AMENDMENT
The Access Health Board believes that it is in the best interests of Access
Health stockholders to increase the number of shares reserved for issuance
under the Access Health Stock Plan. The Access Health Board believes that in
order to retain the continued services of its key employees and executives,
and to provide incentives for such employees and executives to exert maximum
efforts for the success of Access Health, it is necessary to grant the right
to purchase Access Health Common Stock to such employees and executives. If
the Incentive Plan Amendment is approved, the Access Health Board will grant
options under the Access Health Stock Plan for 280,000 shares to employees of
Informed Access. If the Incentive Plan Amendment is not approved, Access
Health has agreed to grant such options as non-qualified options not under
such plan.
The essential features of the Access Health Stock Plan are outlined below.
PURPOSE
The purposes of the Access Health Stock Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to
provide additional incentive to the employees and consultants of Access Health
and to promote the success of Access Health's business.
ADMINISTRATION
With respect to grants of options to employees who are also officers or
directors of Access Health, the Access Health Stock Plan provides that it
shall be administered by (i) the Board of Directors of Access Health if the
Board may administer the Access Health Stock Plan in compliance with Rule 16b-
3 under the Exchange Act ("Rule 16b-3"), with respect to a plan intended to
qualify under Rule 16b-3 as a discretionary plan, or (ii) a committee
designated by the Board of Directors to administer the Access Health Stock
Plan, which committee shall be constituted in such a manner as to permit the
Access Health Stock Plan to comply with Rule 16b-3 with respect to a plan
intended to qualify thereunder as a discretionary plan. With respect to grants
of options to employees or consultants who are neither officers nor directors
of Access Health, the Access Health Stock Plan provides that it shall be
administered by (i) the Board of Directors or (ii) a committee designated by
the Board, which committee shall be constituted in such a manner as to satisfy
the legal requirements relating to the administration of incentive stock
option plans, if any, of Delaware corporate law, federal and state and
securities laws and the Code. If permitted by Rule 16b-3, the Access Health
Stock Plan may be administered by different bodies with respect to directors,
non-director officers and employees who are neither officers nor directors and
consultants who are not directors. Currently, with respect to grants of
options to employees who are also officers or directors of Access Health, the
Access Health Stock Plan is administered by the Compensation Committee of the
Board. With respect to grants of options to employees or consultants who are
neither officers or directors of Access Health, the Access Health Stock Plan
is administered by the Incentive Stock Committee of the Board.
ELIGIBILITY
The Access Health Stock Plan provides for granting of options and sale of
shares to employees of and consultants to Access Health. Only employees may be
granted incentive stock options. The Board or a committee of the Board selects
the purchasers and optionees and determines the number of shares to be sold or
made subject to options.
TERMS OF OPTIONS
Each option granted under the Access Health Stock Plan is evidenced by a
written stock option agreement between Access Health and the optionee. Options
are generally subject to the terms and conditions set forth below but specific
terms may vary.
(a) Exercise of the Option. The Board or its committee determines when
options may be exercised. In no event may any incentive stock option granted
under the Access Health Stock Plan be exercised more than ten
108
<PAGE>
years after the date of grant. Incentive stock options currently being granted
generally expire after seven years. An option is exercised by giving written
notice of exercise to Access Health specifying the number of full shares of
Access Health Common Stock to be purchased and by tendering payment of the
purchase price. Payment for shares purchased upon exercise of an option shall
be in such form of consideration as is authorized by the Access Health Stock
Plan and determined by the Board, and such form of consideration may vary for
each option.
(b) Exercise Price. The exercise price of options granted under the Access
Health Stock Plan is determined by the Board or its committee and may not be
less than 100% of the fair market value of the Access Health Common Stock on
the date the option is granted. In the case of incentive stock options granted
to an optionee who owns more than 10% of the voting power or value of all
classes of stock of Access Health, the exercise price must not be less than
110% of the fair market value on the date of grant. The fair market value of
the Access Health Common Stock is the closing sale price on the NASDAQ
National Market on the date of grant.
(c) Termination of Employment. If the optionee's employment or association
with Access Health terminates for any reason (other than death or disability),
the optionee may, but only within 30 days (or such other period as may be
determined by the Board, but not exceeding three months for incentive stock
options) following the date of such termination, exercise any option granted
under the Access Health Stock Plan, but only to the extent such option was
exercisable on the date of termination. To the extent that the option is not
exercised within such 30-day (or other) period, the option terminates.
(d) Disability. In the event that an employee or consultant is unable to
continue his or her employment or consulting relationship with Access Health
as a result of total and permanent disability (as defined in Section 22(e)(3)
of the Code), the optionee may, but only within six months (or such other
period of time not exceeding one year as is determined by the Board at the
time of grant of the option) from the date of termination, exercise the option
to the extent it was otherwise exercisable at the date of such termination. To
the extent that the option is not exercised within such period, the option
terminates.
(e) Death. If an optionee should die while employed by Access Health, the
option may be exercised at any time within 12 months after death by the
optionee's estate to the extent the option would have been exercisable if the
optionee had continued living and remained an employee of Access Health for 12
months after the date of death. If an optionee should die within one month
after termination of employment with Access Health (or such other period of
time not exceeding three months as is determined by the Board at the time of
grant of the option), the option may be exercised by the optionee's estate at
any time within 12 months following the date of death, but only to the extent
such options were exercisable on the date of termination.
(f) Non-transferability of Options. An option is not transferable by the
optionee, other than by will or the laws of descent and distribution, and is
exercisable during the optionee's lifetime only by the optionee.
(g) Withholding of Shares to Pay Tax Liability. The Access Health Stock Plan
allows Access Health to withhold shares as to which an option has been
exercised in order to comply with regulations requiring Access Health to
withhold taxes upon certain exercises of options. See "Tax Information--
Nonstatutory Stock Options."
(h) Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Access Health Stock Plan
as may be determined by the Board or its committee.
OPTIONS OUTSTANDING
Options granted under the Access Health Stock Plan generally become
exercisable in installments. Most options become exercisable as to 20% of the
total shares subject to option one year after the date of beginning employment
(for new employees) or the date of option grant (for existing employees), and
as to an additional 20% after each subsequent twelve-month period so long as
the optionee remains an employee of Access Health. Exercisability is
accelerated, in certain cases, following a change in control.
109
<PAGE>
As of September 30, 1996, 26,744 shares had been sold or granted directly,
options to purchase 645,524 shares of Access Health's Common Stock had been
exercised, options to purchase 1,864,167 were outstanding, and 65 shares
remained available for future sale or grant, under the Access Health Stock
Plan (excluding 1,000,000 shares to be approved pursuant to this Proposal).
The range of exercise prices per share for options outstanding under the
Access Health Stock Plan as of September 30, 1996, was from $0.167 to $60.75,
and the weighted average exercise price per share was approximately $17.72.
Expiration dates for outstanding options range from December 1996 to September
2003.
STOCK PURCHASE RIGHTS
Stock purchase rights to purchase shares of Access Health Common Stock may
be granted under the Access Health Stock Plan either alone, in addition to or
in tandem with other awards under the plan and/or cash awards made outside of
the Access Health Stock Plan, at a price determined by the Board or its
committee, for limited periods of up to 60 days under such terms, conditions
and restrictions as the Board of Directors or its committee may determine.
Unless otherwise determined by the Board of Directors or its committee, shares
which have been purchased pursuant to the grant of a stock purchase right are
subject to a repurchase option in favor of Access Health exercisable upon
termination of the recipient's employment or consulting relationship for any
reason. The repurchase option lapses at such rate as the Board of Directors or
its committee may determine. The grant of a stock purchase right with an
exercise price below fair market value at the date of grant will result in a
compensation charge against Access Health's earnings which will be calculated
on the date on which the performance criteria or other conditions under the
purchase right are met and which will be charged to earnings over the vesting
period. The amount of such charge will be the difference between the exercise
price and the fair market value of the shares covered by the purchase right.
NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS
The options and stock purchase rights may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the optionee or purchaser, only by such optionee or purchaser.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION OR MERGER
In the event a change, such as a stock split or stock dividend payable in
Common Stock, is made in Access Health's capitalization which results in an
exchange of Common Stock for a greater or lesser number of shares without
receipt of consideration by Access Health, appropriate adjustment shall be
made in the number of shares subject to outstanding stock options or stock
purchase rights under the Access Health Stock Plan, as well as in the price
per share of Access Health Common Stock covered by such options and rights.
Such adjustment shall be made by the Board of Directors, whose determination
shall be final, binding and conclusive.
In the event of the proposed dissolution or liquidation of Access Health,
stock options and stock purchase rights will terminate immediately prior to
the consummation of such actions, unless otherwise provided by the Board. In
the event of a proposed sale of all or substantially all of the assets of
Access Health, or the merger of Access Health with or into another
corporation, outstanding stock options and stock purchase rights shall be
assumed or equivalent options or rights shall be substituted by the successor
entity, unless such successor corporation does not agree to such assumption or
substitution, in which case the Board shall provide for the options or rights
to become immediately exercisable in full. The Board may, in its discretion in
such instances, declare that any outstanding option or right will terminate as
of a date fixed by the Board and give each participant the right to exercise
his or her option or right as to all shares covered thereby.
Option agreements and stock purchase agreements for officers at the Vice
President level and above provide that they become immediately exercisable in
full, in the event of a change in control.
110
<PAGE>
AMENDMENT AND TERMINATION OF THE ACCESS HEALTH STOCK PLAN
The Board of Directors may amend the Access Health Stock Plan at any time or
from time to time or may terminate the Access Health Stock Plan without
approval of the stockholders; provided, however, that stockholder approval of
any amendment to the Access Health Stock Plan shall be obtained to the extent
necessary and desirable to comply with Rule 16b-3 or with Section 422 of the
Code (or any successor rule or statute or other applicable law rule or
regulation). Such stockholder approval, if required, shall be obtained in such
a manner and to such a degree as is required by the applicable law, rule or
regulation. Any amendment or termination of the Access Health Stock Plan shall
not affect options or stock purchase rights already granted and such options
or stock purchase rights shall remain in full force and effect as if the
Access Health Stock Plan had not been amended or terminated, unless mutually
agreed otherwise between the optionee or purchaser (as the case may be) and
Access Health, which agreement must be in writing and signed by the optionee
or purchaser (as the case may be) and Access Health.
TAX INFORMATION
Incentive Stock Options
Options granted under the Access Health Stock Plan may be either "incentive
stock options," as defined in Section 422A of the Code, or nonstatutory
options.
If an option granted under the Access Health Stock Plan is an incentive
stock option, the optionee will recognize no income upon grant of the option
and incur no tax liability due to the exercise of the option unless the
optionee is subject to the alternative minimum tax. Access Health will not be
allowed a deduction for federal income tax purposes as a result of the
exercise of an incentive stock option regardless of the applicability of the
alternative minimum tax.
Upon the sale or exchange of the shares at least two years after the grant
of the option and one year after receipt of the shares by the optionee, any
gain will be treated as long-term capital gain. If these holding periods are
not satisfied, the optionee will recognize ordinary income generally measured
as the difference between the exercise price and the lower of the fair market
value of the stock at the date of the option exercise or the sale price of the
stock. A different rule for measuring ordinary income upon such a premature
disposition may apply if the optionee is also an officer, director or 10%
stockholder of Access Health. Access Health will be entitled to a deduction in
the same amount as the ordinary income recognized by the optionee. Any gain
recognized on such a premature disposition of the shares in excess of the
amount treated as ordinary income will be characterized as long-term capital
gain. Capital gain is fully included in gross income and is currently taxed at
a federal rate no greater than 28%.
Nonstatutory Stock Options
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income at the time of grant of a nonstatutory option. Upon its
exercise, the optionee will recognize ordinary income for tax purposes
measured by the excess of the then fair market value of the shares over the
exercise price. In certain circumstances, where the shares are subject to a
substantial risk of forfeiture when acquired or where the optionee is an
officer, director or 10% stockholder of Access Health, the date of taxation
may be deferred unless the optionee files an election with the Internal
Revenue Service pursuant to Section 83(b) of the Code.
The income recognized by an optionee who is also an employee of Access
Health will be subject to tax withholding by Access Health by payment in cash
or out of the current earnings paid to the optionee. Upon sale of such shares
by the optionee, any difference between the sales price and the exercise
price, to the extent not recognized as ordinary income as provided above, will
be treated as capital gain or loss. Access Health will be entitled to a
deduction in the same amount as the ordinary income recognized by the
optionee. Capital gain is fully included in gross income and is currently
taxed at a federal rate no greater than 28%.
111
<PAGE>
Stock Purchase Rights
Stock purchase rights will generally be subject to the tax consequences
discussed above under "Tax Information--Nonstatutory Stock Options."
The foregoing summary of the effect of federal income taxation upon the
participant and Access Health with respect to the purchase of shares under the
Access Health Stock Plan does not purport to be complete, and reference should
be made to the applicable provisions of the Code. In addition, the foregoing
summary does not discuss the provisions of the income tax laws of any
municipality, state or foreign country in which the participant may reside.
Furthermore, future legislative, administrative or judicial changes could
affect the accuracy of the foregoing summary.
CAPITAL CHANGES
In the event any change is made in Access Health's capitalization which
results in an exchange of Access Health Common Stock for a greater or lesser
number of shares without receipt of consideration, appropriate adjustment will
be made in the exercise price and in the number of shares subject to options
outstanding under the Access Health Stock Plan, as well as in the number of
shares reserved for issuance under the Access Health Stock Plan.
AMENDMENT AND TERMINATION OF THE PLAN
The Board may at any time amend, alter, suspend or discontinue the Access
Health Stock Plan, but no amendment, alteration, suspension or discontinuation
shall be made which would impair the rights of any optionee under any grant
theretofore made, without such optionee's consent. In addition, to the extent
necessary and desirable to comply with Rule 16b-3 or with Section 422 of the
Code (or any other applicable law or regulation, including the requirements of
the NASD or an established stock exchange), Access Health shall obtain
stockholder approval of any Plan amendment in such a manner and to such a
degree as required.
VOTE REQUIRED FOR APPROVAL OF AMENDMENT
The affirmative vote of the majority of the Votes Cast will be required
under Delaware law to approve the amendment to the Access Health Stock Plan.
For this purpose, the "Votes Cast" are defined under Delaware law to be the
shares of Access Health's Common Stock present in person or represented by
proxy at the Access Health Meeting and "entitled to vote on the subject
matter." Votes that are cast against the proposal will be counted for purposes
of determining (i) the presence or absence of a quorum for the transaction of
business and (ii) the total number of Votes Cast with respect to the proposal.
While there is no definitive statutory or case law authority in Delaware as to
the proper treatment of abstentions in the counting of votes with respect to a
proposal such as the amendment of the Access Health Stock Plan, Access Health
believes that abstentions should be counted for purposes of determining both
(i) the presence or absence of a quorum for the transaction of business and
(ii) the total number of Votes Cast with respect to the proposal. In the
absence of controlling precedent to the contrary, Access Health intends to
treat abstentions in this manner. Accordingly, abstentions will have the same
effect as a vote against the proposal. In a 1988 Delaware case, Berlin v.
Emerald Partners, the Delaware Supreme Court held that, while broker non-votes
may be counted for purposes of determining the presence or absence of a quorum
for the transaction of business, broker non-votes should not be counted for
purposes of determining the number of Votes Cast with respect to the
particular proposal on which the broker has expressly not voted. Accordingly,
broker non-votes with respect to this proposal will not be counted as Votes
Cast.
RECOMMENDATION OF ACCESS HEALTH BOARD OF DIRECTORS
The Access Health Board has unanimously approved the Incentive Plan
Amendment and has determined that the Incentive Plan Amendment is in the best
interests of Access Health and its stockholders, and therefore unanimously
recommends a vote FOR approval of the Incentive Plan Amendment.
112
<PAGE>
APPROVAL OF OPTION AND BONUS PROPOSAL
GENERAL
Certain payments made (or deemed to be made) to certain officers of Informed
Access in connection with the Merger may constitute "parachute payments" under
section 280G of the Code. In general, a parachute payment is any payment made
in the nature of compensation to (or for the benefit of) a "disqualified
individual" that is contingent on a change in ownership or effective control
of a corporation, but only if the aggregate value of all such payments equals
or exceeds three times the disqualified individual's base amount. For purposes
of the Code, the value of the acceleration of the vesting of outstanding stock
options will be taken into account along with any cash payments made in
connection with the Merger. In general, a disqualified individual would
include any substantial stockholder, corporate officer or highly compensated
employee of Informed Access, and an individual's base amount is generally his
or her average annual compensation which was includible in the individual's
gross income in the five taxable years preceding the calendar year in which
the change of control occurs. Parachute payments do not include amounts shown
by clear and convincing evidence to be reasonable compensation for services
actually rendered or to be rendered or amounts approved by shareholders in the
manner described below. An "excess parachute payment" is any parachute payment
in excess of the "base amount" allocated to such payments. For any payments
made (or deemed to be made) by Informed Access in connection with the Merger
that are excess parachute payments, no deduction would be allowed to Informed
Access and a non-deductible 20% excise tax would be imposed on the recipient
of such excess parachute payment.
Under applicable provisions of the Code and proposed Treasury Regulations,
payments made in connection with a change of control will not be considered
parachute payments if (i) immediately prior to the change of control the stock
of the corporation making the payments was not publicly traded, (ii) such
payments are approved by a separate vote of more than 75% of the corporation's
voting stock outstanding immediately prior to the change of control (but
excluding any voting shares actually or constructively owned by the individual
receiving the payments in question) and (iii) there is adequate disclosure to
the stockholders of all material facts concerning such payments.
PROPOSAL TO APPROVE CERTAIN PAYMENTS
Under Informed Access's stock option plan, all outstanding stock options
will become fully vested immediately prior to the Effective Time of the
Merger, but only to the extent that such vesting would not constitute an
excess parachute payment under the Code. See "Approval of the Merger and
Related Transactions--Manner and Basis of Converting Shares--Stock Options"
and "--Interests of Certain Persons in the Merger." In addition, in September
1996 the Informed Access Board approved the payment of performance bonuses in
the aggregate amount of $1.5 million to Ms. Snowden and Messrs. Tallman,
Wolcott and Johnson and merger-related bonuses totaling $0.5 million to Mr.
Tallman and Ms. Snowden (the "Bonuses"), but only to the extent that the
payment of such Bonuses would not constitute excess parachute payments. See
"Approval of the Merger and Related Transactions--Interests of Certain Persons
in the Merger--Management Bonuses" for a description of the terms of the
Bonuses.
Based upon estimates, Informed Access believes that such full vesting of
stock options and/or the payment of the Bonuses could be deemed to constitute,
in part, excess parachute payments with respect to certain officers and
employees of Informed Access, including Ms. Snowden and Messrs. Tallman,
Wolcott, Conhor, Bull, Myers, Miller and Modiz.
The Informed Access Written Consent requests stockholders to consent to a
proposal approving (i) the full vesting immediately prior to the Effective
Time of the Merger of all stock options outstanding under the Informed Access
stock option plans, and (ii) the payment of the bonuses.
113
<PAGE>
If the required stockholder approval of this proposal is obtained, the
accelerated vesting of stock options and payment of the Bonuses will not
constitute excess parachute payments subject to the 20% excise tax described
above and such payments would be deductible by Informed Access to the extent
otherwise permitted under the Code. If such stockholder approval is not
obtained, in accordance with the terms of the stock option plan and the
Bonuses, options will be accelerated and Bonuses will be paid only to the
extent that such payments do not constitute excess parachute payments. Because
the reductions required in order to avoid characterization as an excess
parachute payment could be effectuated in a number of different ways with
respect to each individual, Informed Access is not able to estimate with
certainty the precise extent to which options would be accelerated and Bonuses
paid in the absence of the requisite stockholder approval.
VOTE REQUIRED
In order to be adopted, the proposal to approve these payments must receive
the affirmative vote of more than 75% of the Informed Access Common Stock and
Preferred Stock outstanding immediately prior to the Merger held by persons
who do not have an interest in the particular payment being submitted for
approval. Shares held by Mr. Tallman and Ms. Snowden, for example, will be
excluded for purposes of the approval of their option vesting and Bonuses;
their shares would be counted, however, with respect to the approval of the
vesting of options held by, and the payment of Bonuses to, other officers of
Informed Access. Each share of Informed Access Common Stock and Preferred
Stock will have one vote with respect to this matter.
RECOMMENDATION OF INFORMED ACCESS BOARD OF DIRECTORS
The Board of Directors of Informed Access unanimously recommends that
stockholders vote "FOR" the approval of the Bonuses and the accelerated
vesting of Informed Access stock options.
STOCKHOLDER PROPOSALS
Proposals of stockholders of Access Health which are intended to be
presented by such stockholders at Access Health's 1997 Annual Meeting of
Stockholders were to have been received by the Secretary of Access Health no
later than October 16, 1996 in order to be included in the proxy statement and
form of proxy relating to that meeting.
ADJOURNMENT OF ACCESS HEALTH MEETING
In the event that there are not sufficient votes to approve the issuance of
shares of Access Health Common Stock pursuant to the Merger Agreements at the
time of the Access Health Meeting, such proposal could not be approved unless
the Access Health Meeting were adjourned in order to permit further
solicitation of proxies from holders of Access Health Common Stock. Proxies
that are being solicited by the Access Health Board grant the discretionary
authority to vote for any such adjournment, if necessary. If it is necessary
to adjourn the Access Health Meeting and the adjournment is for a period of
less than 30 days, no notice of the time and place of the adjourned meeting is
required to be given to stockholders other than an announcement of such time
and place at the Access Health Meeting. A majority of the shares represented
and voting at the Access Health Meeting is required to approve any such
adjournment, provided that a quorum is present. If a quorum is not present,
then either the chairman of the meeting or the stockholders entitled to vote
at the meeting may adjourn the meeting.
114
<PAGE>
EXPERTS
The consolidated financial statements of Access Health, Inc. at September
30, 1994 and 1995, and for each of the three years in the period ended
September 30, 1995, included in this Proxy Statement/Prospectus and Consent
Solicitation Statement of Access Health, Inc. and Informed Access Systems,
Inc., which is referred to in and made as part of the Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Informed Access Systems, Inc. as of
December 31, 1994 and 1995, and for each of the three years ended December 31,
1993, 1994 and 1995 included in this Proxy Statement/Prospectus and Consent
Solicitation Statement have been so included in reliance on the report of
Arthur Andersen LLP, independent auditors, given on the authority of such firm
as experts in auditing and accounting.
LEGAL MATTERS
The validity of the Access Health Common Stock issuable pursuant to the
Merger will be passed on by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Cooley Godward LLP, Boulder, Colorado, is
acting as counsel for Informed Access in connection with certain legal matters
relating to the Merger and the transactions contemplated thereby.
115
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ACCESS HEALTH, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Consolidated Balance Sheets at September 30, 1994 and 1995 (audited) and
June 30, 1996 (unaudited)................................................ F-3
Consolidated Statements of Operations for the years ended September 30,
1993, 1994, and 1995 (audited) and the nine months ended June 30, 1995
and 1996 (unaudited)..................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1993, 1994, and 1995 (audited) and the nine months ended
June 30, 1996 (unaudited)................................................ F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1993, 1994, and 1995 (audited) and the nine months ended June 30, 1995
and 1996 (unaudited)..................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
INFORMED ACCESS SYSTEMS, INC.
Report of Arthur Andersen LLP, Independent Auditors....................... F-16
Consolidated Balance Sheets at December 31, 1994 and 1995 (audited) and
June 30, 1996 (unaudited)................................................ F-17
Consolidated Statements of Operations for the years ended December 31,
1993, 1994, and 1995 (audited) and the six months ended June 30, 1995 and
1996 (unaudited)......................................................... F-19
Consolidated Statements of Mandatorily Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit) for the years ended December 31,
1993, 1994, and 1995 (audited) and the six months ended June 30, 1996
(unaudited).............................................................. F-20
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994, and 1995 (audited) and the six months ended June 30, 1995 and
1996 (unaudited)......................................................... F-21
Notes to Consolidated Financial Statements................................ F-23
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Access Health, Inc.
We have audited the accompanying consolidated balance sheets of Access
Health, Inc. as of September 30, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Access Health, Inc. at September 30, 1994 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended September 30, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young llp
Sacramento, California
October 27, 1995, except for
Note 10 as to which the date
is February 15, 1996
F-2
<PAGE>
ACCESS HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................ $ 5,674 $ 6,523 $29,556
Available-for-sale securities................... 2,509 5,172 10,368
Accounts receivable, net of allowance for
doubtful accounts of $150, $400, and $558 at
September 30, 1994 and 1995, and June 30, 1996,
respectively................................... 2,891 4,227 7,103
Licenses receivable, net of allowance for
doubtful accounts of $97, $100, and $100 at
September 30, 1994 and 1995, and June 30, 1996,
respectively................................... 1,974 1,525 1,609
Income taxes receivable......................... 1,614 84 84
Prepaid expenses................................ 855 914 1,266
Other current assets............................ 417 499 962
------- ------- -------
Total current assets.......................... 15,934 18,944 50,948
Licenses receivable due after one year............ 1,307 782 241
Property and equipment, net....................... 3,245 6,571 13,008
Purchased intangibles, net of accumulated
amortization of $3,142, $3,735, and $4,179 at
September 30, 1994 and 1995, and June 30, 1996,
respectively..................................... 4,663 4,070 3,626
Investment in AHN................................. -- -- 5,000
Other assets...................................... 726 762 446
------- ------- -------
$25,875 $31,129 $73,269
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 1,379 $ 2,127 $ 2,967
Accrued payroll and related expenses............ 637 1,737 2,918
Other accrued expenses.......................... 800 1,122 4,694
Current portion of long-term debt............... 349 292 --
Deferred revenue................................ 2,368 2,473 2,626
Deferred income taxes........................... 185 950 1,650
------- ------- -------
Total current liabilities..................... 5,718 8,701 14,855
Long-term debt.................................... 690 398 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value--5,000,000
shares authorized, no shares issued and
outstanding.................................... -- -- --
Common stock, $.001 par value--30,000,000 shares
authorized, 9,997,825, 10,217,665 and
12,523,757 shares issued and outstanding at
September 30, 1994 and 1995, and June 30, 1996,
respectively................................... 10 10 12
Additional paid-in capital...................... 18,415 19,429 50,199
Retained earnings............................... 1,051 2,591 8,203
Stockholder notes receivable.................... (9) -- --
------- ------- -------
Total stockholders' equity.................... 19,467 22,030 58,414
------- ------- -------
$25,875 $31,129 $73,269
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
ACCESS HEALTH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
---------------------------- -----------------------
1993 1994 1995 1995 1996
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Personal health
management services... $ 585 $ 2,912 $ 20,207 $12,358 $36,456
Health systems
services.............. 15,697 13,443 11,346 8,596 7,641
-------- -------- -------- ------- -------
Total commercial
revenues............ 16,282 16,355 31,553 20,954 44,097
Development program
with related party.... 2,197 2,274 -- -- --
-------- -------- -------- ------- -------
Total revenues..... 18,479 18,629 31,553 20,954 44,097
Costs and expenses:
Cost of revenues:
Personal health
management
services............ 450 3,493 13,214 9,025 18,807
Health systems
services............ 8,504 9,248 7,498 5,417 5,400
Product and other
development........... 1,051 1,085 1,708 1,259 2,368
Development program.... 2,455 2,541 -- -- --
Sales and marketing.... 2,467 3,767 3,651 2,580 4,668
General and
administrative........ 1,912 2,602 3,456 2,340 4,563
-------- -------- -------- ------- -------
Total costs and
expenses.......... 16,839 22,736 29,527 20,621 35,806
-------- -------- -------- ------- -------
Income (loss) from
operations.............. 1,640 (4,107) 2,026 333 8,291
Non-operating income
(expense):
Interest and other
income................ 586 612 661 488 1,099
Interest expense....... (228) (153) (91) (60) (37)
-------- -------- -------- ------- -------
Income (loss) before
income taxes............ 1,998 (3,648) 2,596 761 9,353
Provision (credit) for
income taxes............ 724 (1,352) 1,056 309 3,741
-------- -------- -------- ------- -------
Net income (loss)........ $ 1,274 $ (2,296) $ 1,540 $ 452 $ 5,612
======== ======== ======== ======= =======
Net income (loss) per
share................... $ 0.13 $ (0.24) $ 0.14 $ 0.04 $ 0.43
======== ======== ======== ======= =======
Shares used in per share
calculations............ 9,515 9,456 11,145 11,148 13,144
</TABLE>
See accompanying notes.
F-4
<PAGE>
ACCESS HEALTH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
ADDITIONAL STOCKHOLDER TOTAL
PAID-IN RETAINED NOTES STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE EQUITY
---------- ------ ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1992................... 8,979,151 $ 9 $13,618 $ 2,073 $(11) $15,689
Sale of common stock.. 140,609 -- 224 -- -- 224
Sale of common stock
warrants, net of
expenses............. -- -- 490 -- -- 490
Repayment of
stockholder note
receivable........... -- -- -- -- 2 2
Net income............ -- -- -- 1,274 -- 1,274
---------- ---- ------- ------- ---- -------
Balance, September 30,
1993................... 9,119,760 9 14,332 3,347 (9) 17,679
Sale of common stock.. 198,975 -- 570 -- -- 570
Issuance of common
stock to purchase
product.............. 679,090 1 3,513 -- -- 3,514
Net loss.............. -- -- -- (2,296) -- (2,296)
---------- ---- ------- ------- ---- -------
Balance, September 30,
1994................... 9,997,825 10 18,415 1,051 (9) 19,467
Sale of common stock.. 219,840 -- 664 -- -- 664
Repayment of
stockholder note
receivable........... -- -- -- -- 9 9
Income tax benefit
from exercise of
stock options........ -- -- 350 -- -- 350
Net income............ -- -- -- 1,540 -- 1,540
---------- ---- ------- ------- ---- -------
Balance, September 30,
1995................... 10,217,665 10 19,429 2,591 -- 22,030
Sale of common stock
(unaudited).......... 2,306,092 2 30,770 -- -- 30,772
Net income
(unaudited).......... -- -- -- 5,612 -- 5,612
---------- ---- ------- ------- ---- -------
Balance, June 30, 1996
(unaudited)............ 12,523,757 $ 12 $50,199 $ 8,203 $-- $58,414
========== ==== ======= ======= ==== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
ACCESS HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
---------------------------- -----------------------
1993 1994 1995 1995 1996
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)...... $ 1,274 $ (2,296) $ 1,540 $ 452 $ 5,612
Adjustments to
reconcile net income
(loss) to cash
provided (used) by
operating activities:
Allowance for doubtful
accounts............. (41) (62) 253 4 158
Depreciation and
amortization......... 1,110 1,441 1,863 1,202 2,390
Deferred income
taxes................ (44) 166 1,115 -- 700
Changes in:
Accounts and licenses
receivable.......... (3,452) 1,540 (615) (1,530) (2,577)
Income taxes
receivable.......... -- (1,614) 1,530 1,614 --
Prepaid expenses and
other current
assets.............. (575) 495 (141) (552) (815)
Accounts payable..... 341 604 748 466 840
Income taxes
payable............. (317) -- -- -- --
Accrued payroll and
related expenses.... 353 (261) 1,100 972 1,181
Other accrued
expenses............ 22 563 322 421 3,572
Deferred revenue..... 660 (259) 105 494 153
-------- -------- -------- ------- --------
Net cash provided
(used) by operating
activities......... (669) 317 7,820 3,543 11,214
-------- -------- -------- ------- --------
Cash flows from
investing activities:
Purchases of
available-for-sale
securities........... -- (4,009) (6,919) (3,227) (25,799)
Maturities of
available-for-sale
securities........... -- 1,500 4,256 3,090 20,603
Purchase of property
and equipment........ (2,040) (1,059) (4,596) (2,740) (8,383)
Investment in AHN..... -- -- -- -- (5,000)
(Increase) decrease in
other assets......... (39) (476) (36) 118 316
-------- -------- -------- ------- --------
Net cash used by
investing
activities......... (2,079) (4,044) (7,295) (2,759) (18,263)
Cash flows from
financing activities:
Proceeds from long-term
debt.................. 1,100 -- -- -- --
Payment of long-term
debt.................. (755) (767) (349) (248) (690)
Payment of stockholder
note receivable....... 2 -- 9 -- --
Sale of common stock
warrants.............. 236 -- -- -- --
Sale of common stock... 224 570 664 325 30,772
-------- -------- -------- ------- --------
Net cash provided
(used) by financing
activities......... 807 (197) 324 77 30,082
-------- -------- -------- ------- --------
Net increase (decrease)
in cash and
equivalents............ (1,941) (3,924) 849 861 23,033
Cash and equivalents at
beginning of period.... 11,539 9,598 5,674 5,674 6,523
-------- -------- -------- ------- --------
Cash and equivalents at
end of period.......... $ 9,598 $ 5,674 $ 6,523 $ 6,535 $ 29,556
======== ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(INFORMATION AS OF JUNE 30, 1995 AND 1996 AND FOR THE NINE MONTHS ENDED JUNE
30, 1995 AND 1996 IS UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization, Business and Principles of Consolidation
These financial statements include the accounts of Access Health, Inc. and
its wholly-owned subsidiaries. The consolidated entity is referred to herein
as the Company. All intercompany accounts and transactions have been
eliminated in consolidation.
The Company develops, markets and supports personal health management
programs which help managed care organizations, self-insured employers and
hospitals manage consumer demand for health care services.
Name Change
In March, 1995, the Company completed a name change from Access Health
Marketing, Inc. to Access Health, Inc.
Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the interim periods, and in the opinion of management,
reflect all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the Company's consolidated financial position at
June 30, 1996, and the consolidated results of operations and cash flows for
the nine months ended June 30, 1995 and 1996. Results for the nine months
ended June 30, 1996 are not necessarily indicative of the results to be
expected for the entire fiscal year.
Revenue Recognition
Commercial revenues include personal health management services, which
consist of program membership and member communications fees from the
Company's Personal Health Advisor contracts with managed care organizations,
self-insured employers and hospitals. Commercial revenues also include health
systems services, which consist of licensing and support revenues related to
the Company's ASK-A-NURSE, Cancer HELPLINK, Access Care Management System, and
LIFE MATCH products.
Program membership fees from Personal Health Advisor contracts are
recognized ratably in accordance with contract terms on the basis of per-
member fees. Member communications fees are recognized upon the delivery of
services.
Health system services license revenues from ASK-A-NURSE and Cancer HELPLINK
are recognized when program implementation services are substantially
completed. Revenues from ASK-A-NURSE and Cancer HELPLINK include the present
value of contract installments, discounted at the prime rate (which ranged
from 6% to 9% for the periods presented), plus 3%, that are billable more than
one year after the license grant date. Licenses receivable due are $1,625,402,
$478,581, $222,669 and $80,749 for 1996, 1997, 1998 and thereafter,
respectively. LIFE MATCH software product licensing revenue is recognized
partially upon delivery of the software, with the remainder deferred until
installation and training services are complete.
Health system services support revenues are comprised of ASK-A-NURSE and
Cancer HELPLINK support revenue, LIFE MATCH software support revenue, direct
marketing fees and teleservicing fees. Revenue from
F-7
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1995
(INFORMATION AS OF JUNE 30, 1995 AND 1996 AND FOR THE NINE MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
support contracts and software maintenance contracts is deferred when billed
and recognized ratably over the contract term. Direct marketing fees are
recognized upon the delivery of services. Teleservicing fees are recognized in
accordance with contract terms on the basis of per-call fees or fees based on
phone counselor staffing.
In fiscal 1993, the Company entered into a development agreement which
provided for the funding of specified development projects. Development
program revenue was recognized pro rata as costs were incurred under the
related agreement, net of amounts allocable to the sale of common stock
warrants (Note 8). Funding received in advance of work performed under this
agreement was recorded as deferred revenue. Related development expenses were
charged to expense as incurred.
Cash Equivalents and Available-For-Sale Securities
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for
Certain Investments in Debt and Equity Securities." The Company adopted the
provisions of the new standard for investments held as of or acquired after
October 1, 1994. In accordance with the statement, prior period financial
statements have not been restated to reflect the change in accounting
principle. The adoption of SFAS No. 115 did not have a material impact on the
Company's consolidated financial position or results of operations.
The Company invests its excess cash in high quality money market instruments
and certain other investments. The Company considers highly liquid investments
with maturities of three months or less to be cash equivalents. Available-for-
sale securities are carried at fair value (which approximated amortized cost
as of September 30, 1995) and all available-for-sale securities have
maturities of less than one year.
Property and Equipment
Property and equipment are stated at cost and consist of office furniture
and equipment, computer equipment, leasehold improvements and capitalized
software for internal use. Depreciation and amortization of furniture and
equipment, computer equipment and leasehold improvements are provided on the
straight-line basis over the useful lives of the respective assets or the
lease term if shorter, which range from two to ten years. Capitalized software
consists of the direct cost of internally-developed software and is being
amortized on the straight-line basis over its estimated useful life of four
years.
Purchased Intangibles
Purchased intangibles consist primarily of product rights and are being
amortized on the straight-line basis over three to ten years.
Investment in AHN (unaudited)
During the second quarter of fiscal 1996 the Company invested $5.0 million
in America's Health Network, L.P. ("AHN"), a new 24-hour, 7 day a week cable
television channel devoted to consumer healthcare information. The investment
in AHN is being accounted for using the cost method.
F-8
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1995
(INFORMATION AS OF JUNE 30, 1995 AND 1996 AND FOR THE NINE MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
Concentrations of Credit Risk and Major Customers
During fiscal 1995, sales to each of the Company's three largest customers
were $6,438,000, $4,077,000 and $3,624,000.
The Company's accounts and licenses receivable are primarily with companies
in the health care and insurance industries. The Company believes that
adequate provision for uncollectible accounts and licenses receivable has been
made in the accompanying financial statements.
Net Income (Loss) per Share
The Company's net income (loss) per share is based upon the weighted average
number of shares of common stock outstanding. Common stock issuable upon the
exercise of stock options and stock warrants has been included in the
computation, to the extent dilutive, using the treasury stock method.
Income Taxes
Deferred income tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws
that are scheduled to be in effect when the differences are expected to
reverse.
Reclassifications
Certain reclassifications have been made to amounts reported as of and for
the years ended September 30, 1993 and 1994 to conform with the September 30,
1995 presentation.
NOTE 2: AVAILABLE-FOR-SALE SECURITIES
The following is a summary of available-for-sale securities as of September
30, 1995 (in thousands):
<TABLE>
<S> <C>
U.S. government and municipal debt securities....................... $ 5,172
Corporate debt securities........................................... 525
Corporate and municipal bond funds.................................. 2,500
-------
Total debt securities............................................... 8,197
Less: amounts included in cash and equivalents...................... (3,025)
-------
$ 5,172
=======
</TABLE>
Realized and unrealized gains and losses on available-for-sale securities
were immaterial as of and for the year ended September 30, 1995.
F-9
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1995
(INFORMATION AS OF JUNE 30, 1995 AND 1996 AND FOR THE NINE MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 3: PROPERTY AND EQUIPMENT
As of September 30, 1994 and 1995, property and equipment consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Office furniture and equipment............................. $ 1,188 $ 1,761
Computer equipment......................................... 3,504 6,477
Leasehold improvements..................................... 491 790
Capitalized software for internal use...................... 169 767
------- -------
5,352 9,795
Less: accumulated depreciation............................. (2,107) (3,224)
------- -------
$ 3,245 $ 6,571
======= =======
</TABLE>
NOTE 4: DEVELOPMENT PROGRAM
In August 1993, the Company entered into an agreement with Personal Health
Management L.P. ("PHMLP") for the development of an enhanced product, expanded
delivery capability and related marketing programs for the managed care
industry, now known as the Company's Personal Health Advisor product. PHMLP
was a limited partnership owned by Personal Health Management, Inc. ("PHM"),
1% ownership interest and General Partner; MDS Health Ventures, Inc. ("MDS"),
59% ownership interest; and The Health Care and Biotechnology Venture Fund
("HCBVF"), 40% ownership interest. PHM was 60% owned by MDS and 40% owned by
HCBVF. MDS and HCBVF are stockholders of the Company.
PHM was initially capitalized with approximately $5,000,000 through the sale
of its common stock and contributed substantially all of these proceeds to
PHMLP to pay the Company for its work under the development agreement.
Completion of the project by the Company was on a best efforts basis.
In connection with the agreements with PHM and PHMLP, the Company issued
525,000 warrants to the owners of PHM to purchase one share of the Company's
common stock at $6.833 per share (Note 8). The warrants had an estimated fair
value at the time of issuance of $525,000.
In May 1994, the Company exercised its option to acquire the rights to the
Personal Health Advisor product and related marketing programs by issuing
679,090 shares of its common stock with a fair value on the date of issuance
of approximately $3,514,000 in exchange for outstanding shares of PHM common
stock and the outstanding partnership interests in PHMLP.
F-10
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1995
(INFORMATION AS OF JUNE 30, 1995 AND 1996 AND FOR THE NINE MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 5: LONG-TERM DEBT
As of September 30, 1994 and 1995, long-term debt consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1994 1995
------ -----
<S> <C> <C>
Installment note payable to a bank bearing interest at 7.36%,
requiring monthly principal and interest payments of $21,502
through March 1998.......................................... $ 796 $ 590
Equipment leases, secured by leased equipment (Note 7),
payable in equal monthly installments of principal and
interest at rates ranging from 13.0% to 18.2% in amounts
ranging from $2,654 to $7,564 through May 1997.............. 243 100
------ -----
1,039 690
Less amounts due within one year............................. (349) (292)
------ -----
Amounts due after one year................................... $ 690 $ 398
====== =====
</TABLE>
The installment note payable to a bank is secured by equipment with a net
book value of $345,164 at September 30, 1995.
Scheduled maturities of long-term debt in 1996 and the two subsequent fiscal
years are $291,754, $267,924 and $129,970, respectively. Interest paid during
the years ended September 30, 1993, 1994 and 1995 was $236,819, $181,907 and
$91,393, respectively.
In May 1995, the Company signed a revolving credit agreement (the "Credit
Agreement") with a bank under which the Company may borrow up to $3 million
for qualifying equipment purchases. Interest on borrowings under the Credit
Agreement accrues at the bank's prime rate plus .75% (9.5% as of September 30,
1995) and is payable monthly. The Credit Agreement expires on February 1,
1996, at which time any outstanding balance will be converted into a 35 month
term loan. The Credit Agreement contains restrictive financial covenants which
require the Company to maintain specified levels of working capital, tangible
net worth and cash flow. Borrowings under the Credit Agreement would be
secured by substantially all of the Company's assets. The Company has no
balances outstanding under the Credit Agreement at September 30, 1995.
NOTE 6: INCOME TAXES
The provision (credit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
1993 1994 1995
---- ------- ------
<S> <C> <C> <C>
FEDERAL:
Current............................................. $578 $(1,518) $ 40
Deferred (Prepaid).................................. (47) 266 781
---- ------- ------
Total federal..................................... 531 (1,252) 821
STATE:
Current............................................. 190 -- 6
Deferred (Prepaid).................................. 3 (100) 229
---- ------- ------
Total state....................................... 193 (100) 235
---- ------- ------
Provision (credit) for income taxes................... $724 $(1,352) $1,056
==== ======= ======
</TABLE>
F-11
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1995
(INFORMATION AS OF JUNE 30, 1995 AND 1996 AND FOR THE NINE MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
The income tax provisions differ from the amount computed by applying the
federal statutory income tax rate (34% in each year presented) to income
(loss) before income taxes. A reconciliation to the statutory federal income
tax rate is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.......................... 34% (34%) 34%
State income taxes, net of federal benefit................. 6 (2) 6
Tax exempt interest income................................. (4) (3) --
Other...................................................... -- 2 1
--- ---- ---
Effective income tax rate.................................. 36% (37%) 41%
=== ==== ===
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities at September 30, 1994 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
---- ------
<S> <C> <C>
Deferred income tax liabilities:
Depreciation and amortization................................. $210 $ 331
Prepaid expenses.............................................. 471 2,550
Other......................................................... 39 --
---- ------
Total deferred income tax liabilities........................... 720 2,881
Deferred income tax assets:
Vacation accrual.............................................. 147 191
Accrued expenses.............................................. -- 271
State income taxes............................................ -- 61
Receivable allowances and reserves............................ 161 213
Alternative minimum tax credit................................ 56 129
Inventory reserve............................................. -- 85
Net operating loss............................................ 156 623
Stock compensation............................................ -- 350
Other......................................................... 15 8
---- ------
Total deferred income tax assets................................ 535 1,931
---- ------
Net deferred income tax liability............................... $185 $ 950
==== ======
</TABLE>
A portion of the Company's federal net operating loss generated in fiscal
1994 was carried back to the three prior tax years. Due to the carryback and
carryforward of the net operating loss, the Company now has approximately
$129,000 of alternative minimum tax credits to carry forward to reduce the
Company's regular tax liability in future years as well as approximately
$1,400,000 of federal net operating loss carryforward. The federal net
operating loss carryforward will expire in 2009. The Company has a state net
operating loss carryforward of approximately $2,800,000 which will expire in
1999 through 2009.
Income tax payments were $1,222,650, $70,149 and $49,715 for the years ended
September 30, 1993, 1994 and 1995, respectively. The Company received income
tax refunds of $426,564 and $1,629,658 during the years ended September 30,
1994 and 1995, respectively.
F-12
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1995
(INFORMATION AS OF JUNE 30, 1995 AND 1996 AND FOR THE NINE MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
The Company's income tax returns for fiscal years ended September 30, 1989,
1990 and 1994 are currently under examination by the Internal Revenue Service
(the "IRS"). The IRS is examining the deductibility of certain expenses
claimed in connection with prior acquisitions by the Company. The Company
believes that these deductions were properly taken and that adequate provision
has been made in the statements of operations for taxes owed.
In May 1994, the IRS contacted the Company with a settlement offer issued in
conjunction with its national initiative to settle pending cases related to
intangible asset amortization. The Company has rejected the settlement offer
and will continue to contest any proposed adjustments.
NOTE 7: COMMITMENTS
Operating Leases
The Company leases its offices under the terms of operating leases that
expire between September 1998 and November 2001. Annual minimum rental
payments for fiscal, 1996, 1997, 1998, 1999, 2000 and thereafter are
$1,129,083, $1,170,910, $1,186,488, $1,132,330, $1,192,169 and $1,312,087,
respectively. Rental expenses are reported on a straight-line basis over the
respective lease terms and were $589,034, $1,080,980 and $1,292,539 for the
years ended September 30, 1993, 1994 and 1995, respectively.
Capital Leases
The Company leases certain furniture and equipment under capital leases
obtained during 1992. Assets recorded under capital leases totaling $629,000
and $366,000 were included in property and equipment at September 30, 1994 and
1995, respectively. Accumulated depreciation on leased assets at September 30,
1994 and 1995 is $399,000 and $314,000, respectively.
Annual minimum lease payments for capital leases for fiscal 1996 and the
subsequent fiscal year are $77,718, and $30,995, respectively. As of September
30, 1995, the interest portion of the remaining minimum lease payments is
$9,098 and the present value of the remaining minimum payments is $99,615.
F-13
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1995
(INFORMATION AS OF JUNE 30, 1995 AND 1996 AND FOR THE NINE MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
NOTE 8: STOCKHOLDERS' EQUITY
Employee Stock Options
The Company established an employee common stock participation plan in 1989
(the "1989 Incentive Stock Plan") under which incentive stock options,
nonqualified stock options, and restricted common stock may be issued or sold
to employees and consultants. As of September 30, 1995 a total of 1,800,000
shares of common stock have been reserved for issuance under this plan, of
which 238,689 shares remained available for the granting of options at
September 30, 1995.
The following table summarizes incentive stock option activity for the years
ended September 30, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Balance, September 30, 1992........................... 551,712 $0.167-2.50
Options granted..................................... 408,405 3.253-6.833
Options exercised................................... (42,660) 0.167-2.00
Options cancelled................................... (22,215) 0.167-4.33
---------
Balance, September 30, 1993........................... 895,242 0.167-6.833
Options granted..................................... 367,605 5.33-8.83
Options exercised................................... (54,495) 0.167-5.42
Options cancelled................................... (33,285) 1.333-5.42
---------
Balance, September 30, 1994........................... 1,175,067 0.167-8.83
Options granted..................................... 259,365 10.25-13.75
Options exercised................................... (102,975) 0.167-6.917
Options cancelled................................... (17,475) 0.167-10.25
---------
Balance, September 30, 1995........................... 1,313,982 0.167-13.75
=========
</TABLE>
Incentive stock options generally become exercisable at the rate of twenty
percent per year commencing on the first anniversary of the date of grant,
however certain officers of the Company may exercise options for restricted
common stock at the date of grant. As of September 30, 1994 and 1995, options
to purchase 372,990 and 510,498 shares, respectively, were exercisable at
exercise prices ranging from $0.167 to $12.667 per share.
Common Stock Warrants and Options
In August, 1993, the Company issued warrants to purchase 525,000 shares of
the Company's common stock, of which all are outstanding as of September 30,
1995. The warrants became exercisable in January 1994 and expire on November
30, 1998.
In October 1988, nonqualified stock options to purchase 98,975 shares of
Series A Preferred Stock at $0.46 per share, which converted to common stock
options on February 28, 1992, were granted to a former director and are
currently exercisable and expire on October 25, 1998. As of September 30,
1995, 55,581 shares of common stock have been purchased pursuant to this
option. Nonqualified stock options to purchase 22,500 shares of common stock
at prices ranging from $4.167 to $6.667 per share were granted in fiscal 1993
to certain
F-14
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SEPTEMBER 30, 1995
(INFORMATION AS OF JUNE 30, 1995 AND 1996 AND FOR THE NINE MONTHS
ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
consultants of the Company. The options become exercisable in equal
installments over a five-year period commencing on the first anniversary of
the date of grant; as of September 30, 1995, options to purchase 9,000 shares
are exercisable.
Stock Purchase Plan
The Company established a stock purchase plan in 1991 (the "1991 Plan")
under which most employees of the Company may participate. A total of 825,000
shares of the Company's common stock have been reserved for issuance under the
1991 Plan. The 1991 Plan is administered by a committee appointed by the Board
of Directors. Employees can elect to have from 1% to 10% of their monthly
gross salary deducted during each offering period and applied to the purchase
of stock. The purchase price is an amount equal to 85% of the fair market
value of a share of common stock of the Company on the enrollment date or on
the purchase date, whichever is lower. During the years ended September 30,
1993, 1994 and 1995, the Company sold 97,949 shares of common stock for
$210,608, 144,480 shares of common stock for $410,553 and 72,822 shares of
common stock for $468,710, respectively.
Director Options
The Company established a director common stock participation plan in 1995
(the "1995 Director Stock Option Plan") under which nonqualified stock options
may be granted to directors. As of September 30, 1995 a total of 150,000
shares of common stock have been reserved for issuance under this plan, of
which 150,000 shares remained available for the granting of options at
September 30, 1995.
NOTE 9: MERGER AGREEMENT (UNAUDITED)
On September 3, 1996, the Company entered into an agreement with Informed
Access Systems, Inc. ("Informed Access"), whereby the Company will acquire all
outstanding capital stock of Informed Access in a transaction to be accounted
for as a pooling-of-interests. The number of shares of the Company's common
stock to be issued in the merger in exchange for the outstanding shares of
Informed Access stock will depend upon the capitalization of Informed Access
at the time of the merger and will not exceed 5,375,000 shares.
NOTE 10: SUBSEQUENT EVENT
On February 15, 1996, the Company effected a three-for-two stock split. All
references in the accompanying financial statements to the number of capital
shares and per-share amounts have been retroactively restated to reflect the
stock split.
F-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Informed Access Systems, Inc.:
We have audited the accompanying consolidated balance sheets of INFORMED
ACCESS SYSTEMS, INC. (a Delaware corporation) and subsidiary as of December
31, 1994 and 1995, and the related consolidated statements of operations,
mandatorily redeemable convertible preferred stock and stockholders' deficit
and cash flows for each of the three years ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Informed Access Systems,
Inc. and subsidiary as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years ended December 31,
1995, in conformity with generally accepted accounting principles.
Arthur Andersen llp
Denver, Colorado,
March 12, 1996
F-16
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............ $1,036,717 $3,246,102 $1,829,714
Accounts receivable, net of allowance
for doubtful accounts of $0, $32,002
and $38,535 at December 31, 1994 and
1995 and June 30, 1996,
respectively........................ 24,000 753,641 1,211,126
Related party receivables............ 4,688 23,395 41,531
Prepaids............................. 47,006 37,565 153,421
Other................................ 27,006 31,392 163,272
---------- ---------- ----------
Total current assets............... 1,139,417 4,092,095 3,399,064
---------- ---------- ----------
PROPERTY AND EQUIPMENT, at cost:
Computer hardware and software....... 490,262 848,236 1,587,687
Furniture, fixtures and equipment.... 176,586 482,973 593,535
Leasehold improvements............... -- 38,738 108,573
---------- ---------- ----------
666,848 1,369,947 2,289,795
Less--Accumulated depreciation....... (123,250) (406,953) (655,739)
---------- ---------- ----------
Property and equipment, net........ 543,598 962,994 1,634,056
PATENT COSTS AND OTHER INTANGIBLE
ASSETS,
net of accumulated amortization of $0,
$1,342 and $22,444 at
December 31, 1994 and 1995 and June
30, 1996, respectively................ -- 124,730 109,165
---------- ---------- ----------
Total assets....................... $1,683,015 $5,179,819 $5,142,285
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-17
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------------ JUNE 30, JUNE 30,
1994 1995 1996 1996
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 2)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable......... $ 152,390 $ 502,945 $ 919,540
Accrued salaries......... 71,251 118,933 397,455
Accrued vacation......... 33,594 92,164 146,755
Other accrued
liabilities............. 13,009 188,977 53,538
Customer deposits........ 50,000 70,000 70,000
Deferred revenue......... 65,334 508,990 473,334
Convertible notes payable
to stockholders......... 1,000,000 -- --
Note payable--other...... 32,128 -- 27,745
Current portion of
capital leases payable.. 15,239 56,011 237,821
Current portion of long
term note............... -- -- 177,455
----------- ----------- -----------
Total current
liabilities........... 1,432,945 1,538,020 2,503,643
CAPITAL LEASES PAYABLE..... 35,450 133,352 598,450
NOTES PAYABLE.............. -- -- 441,915
COMMITMENTS AND
CONTINGENCIES
(Notes 8 and 12)
MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED
STOCK, $.001 par value,
aggregate liquidation and
redemption preference of
$3,635,368 at December 31,
1994 and $10,635,423 at
December 31, 1995 and June
30, 1996; 4,634,200
authorized; 3,048,688,
4,568,061 and 4,568,061
issued and outstanding as
of December 31, 1994 and
1995 and June 30, 1996,
respectively, and none
issued and outstanding on
an unaudited pro forma
basis .................... 3,635,368 10,635,423 10,635,423 --
STOCKHOLDERS' EQUITY
(DEFICIT):
Common stock, $.001 par
value; 6,519,373 shares
authorized; 909,375,
1,121,875 and 1,159,125
shares issued and
outstanding at December
31, 1994 and 1995 and
June 30, 1996,
respectively, and
5,727,186 on an
unaudited pro forma
basis................... 909 1,122 1,159 5,727
Additional paid-in
capital................. 14,041 94,138 104,917 10,735,772
Accumulated deficit...... (3,435,698) (7,222,236) (9,143,222) (9,143,222)
----------- ----------- ----------- -----------
Total stockholders'
equity (deficit)...... (3,420,748) (7,126,976) (9,037,146) 1,598,277
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity
(deficit)............. $ 1,683,015 $ 5,179,819 $ 5,142,285 $ 5,142,285
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-18
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- --------------------------
1993 1994 1995 1995 1996
--------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
License and license
site
implementation fees.. $ 46,586 $ 125,086 $ 1,011,743 $ 283,054 $ 618,119
Call center and client
implementation fees.. -- -- 1,379,542 275,395 2,681,467
Communications and
other fees........... -- -- 565,511 -- 1,118,902
--------- ----------- ----------- ------------ ------------
46,586 125,086 2,956,796 558,449 4,418,488
--------- ----------- ----------- ------------ ------------
COST OF SALES:
License and license
site
implementation fees.. -- 95,781 708,450 83,353 296,880
Call center and client
implementation fees.. -- -- 1,664,409 420,121 2,016,458
Communications and
other fees........... -- -- 400,275 -- 756,134
--------- ----------- ----------- ------------ ------------
-- 95,781 2,773,134 503,474 3,069,472
--------- ----------- ----------- ------------ ------------
GROSS PROFIT............ 46,586 29,305 183,662 54,975 1,349,016
--------- ----------- ----------- ------------ ------------
OPERATING EXPENSES:
General and
administrative....... 45,268 596,222 1,001,681 416,834 666,433
Selling and
marketing............ 66,107 728,927 1,640,253 944,045 1,330,595
Research and
development.......... 875,585 1,122,830 1,459,802 830,537 1,280,931
--------- ----------- ----------- ------------ ------------
Loss from
operations......... (940,374) (2,418,674) (3,918,074) (2,136,441) (1,928,943)
OTHER INCOME (EXPENSE):
Interest income....... 28,283 42,387 204,552 100,649 66,867
Interest expense
(including $0,
$3,287, $16,658,
$16,658
and $0, respectively,
to related parties).. -- (4,335) (26,401) (20,867) (59,364)
Other income
(expense), net....... -- (618) (4,904) (8,946) 454
--------- ----------- ----------- ------------ ------------
NET LOSS................ $(912,091) $(2,381,240) $(3,744,827) $ (2,065,605) $ (1,920,986)
========= =========== =========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-19
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
----------------------------------------
MANDATORILY
REDEEMABLE
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ ---------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- ------------ --------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31,
1992................... -- $ -- 446,875 $ 447 $ 563 $ (98,915)
Common stock issued on
February 1, 1993 for
cash and exchange of
stock................. -- -- 187,500 187 3 --
Series A redeemable
convertible preferred
stock issued in
February 1993 for cash
at $1.00 per share.... 1,635,000 1,635,000 -- -- -- --
Mandatorily redeemable
convertible preferred
stock issuance costs.. -- -- -- -- -- (26,627)
Common stock granted in
October 1993 to three
officers for services,
valued at $.05 per
share................. -- -- 275,000 275 13,475 --
Net loss............... -- -- -- -- -- ( 912,091)
---------- ------------ --------- ------ ----------- -----------
BALANCES, December 31,
1993................... 1,635,000 1,635,000 909,375 909 14,041 (1,037,633)
Series B mandatorily
redeemable convertible
preferred stock issued
in March 1994 for cash
at $1.42 per share.... 1,413,688 2,000,368 -- -- -- --
Mandatorily redeemable
convertible preferred
stock issuance costs.. -- -- -- -- -- (16,825)
Net loss............... -- -- -- -- -- (2,381,240)
---------- ------------ --------- ------ ----------- -----------
BALANCES, December 31,
1994................... 3,048,688 3,635,368 909,375 909 14,041 (3,435,698)
Series C mandatorily
redeemable convertible
preferred stock issued
in March 1995 for cash
of $5,980,110,
conversion of notes
payable of $1,000,000
and accrued interest
of $19,945 at $4.61
per share............. 1,519,373 7,000,055 -- -- -- --
Mandatorily redeemable
convertible preferred
stock issuance costs.. -- -- -- -- -- (41,711)
Issuance of common
stock for cash upon
exercise of stock
options in March,
October and November
1995 at $0.14 per
share................. -- -- 54,500 55 7,575 --
Common stock issued for
acquisition of assets
in November 1995, at
$0.46 per share....... -- -- 50,000 50 22,950 --
Issuance of common
stock in consideration
for discharge of
obligation, at $0.46
per share............. -- 108,000 108 49,572 --
Net loss............... -- -- -- -- -- (3,744,827)
---------- ------------ --------- ------ ----------- -----------
BALANCES, December 31,
1995................... 4,568,061 10,635,423 1,121,875 1,122 94,138 (7,222,236)
Issuance of common stock
for cash upon exercise
of stock options in
February, April and May
1996 (unaudited)....... -- -- 37,250 37 10,779 --
Net loss (unaudited).... -- -- -- -- -- (1,920,986)
---------- ------------ --------- ------ ----------- -----------
BALANCES, June 30, 1996
(unaudited)............ 4,568,061 10,635,423 1,159,125 1,159 104,917 (9,143,222)
Pro Forma Adjustments
(unaudited) (Note 2)... (4,568,061) (10,635,423) 4,568,061 4,568 10,630,855 --
---------- ------------ --------- ------ ----------- -----------
Pro Forma BALANCES, June
30, 1996 (unaudited)... -- $ -- 5,727,186 $5,727 $10,735,772 $(9,143,222)
========== ============ ========= ====== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-20
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss.............. $(912,091) $(2,381,240) $(3,744,827) $(2,065,605) $(1,920,986)
Adjustments to
reconcile net loss to
net cash used in
operating
activities--
Depreciation and
amortization......... 20,332 102,043 289,763 119,345 269,422
Compensation expense
related to the grant
of common stock to
officers for
services............. 13,750 -- -- -- --
(Gain) loss on
disposal of
equipment............ -- -- 2,997 839 (450)
Provision for doubtful
accounts receivable.. -- -- 32,002 16,000 12,000
Common stock issued in
consideration for
discharge of
obligation........... -- -- 49,680 -- --
Conversion of interest
expense to preferred
stock................ -- -- 16,658 16,658 --
Change in operating
assets and
liabilities--
(Increase) decrease
in accounts
receivable.......... (35,168) 11,168 (746,361) (293,525) (469,018)
Increase in related
party receivables... -- (4,688) (18,707) (18,811) (18,136)
Increase (decrease)
in prepaids and
other............... (10,250) (27,762) 8,379 7,124 (247,736)
Increase in accounts
payable............. 65,542 86,848 345,784 173,632 416,595
Increase in accrued
liabilities......... 34,603 78,440 266,151 121,483 274,042
Increase (decrease)
in deferred revenue
and customer
deposits............ -- 115,334 385,468 129,621 (35,656)
--------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities......... (823,282) (2,019,857) (3,113,013) (1,793,239) (1,719,923)
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment........ (161,146) (449,859) (553,533) (454,599) (187,142)
Proceeds from sale of
property and
equipment............ -- -- 16,290 -- 450
Patent costs.......... -- -- (34,921) -- (5,538)
--------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities......... (161,146) (449,859) (572,164) (454,599) (192,230)
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of mandatorily
redeemable
convertible preferred
stock................ 1,635,000 2,000,368 5,980,110 5,980,110 --
Proceeds from issuance
of common stock...... 190 -- -- -- --
Stock issuance costs.. (26,627) (16,825) (41,711) (31,456) --
Proceeds from
convertible notes
payable to
stockholders......... 30,000 1,000,000 -- -- --
Proceeds from note
payable.............. -- -- -- -- 680,089
Principal payments on
notes payable to
stockholders......... (94,636) (31,556) -- -- --
Principal payments on
note payable--other
and capital leases... -- (5,053) (51,467) (39,497) (195,140)
Proceeds from the
exercise of stock
options.............. -- -- 7,630 2,451 10,816
--------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 1,543,927 2,946,934 5,894,562 5,911,608 495,765
--------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-21
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ $ 559,499 $ 477,218 $2,209,385 $ 3,663,770 $(1,416,388)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. -- 559,499 1,036,717 1,036,717 3,246,102
--------- ---------- ---------- ----------- -----------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 559,499 $1,036,717 $3,246,102 $ 4,700,487 $ 1,829,714
========= ========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid for interest
to related parties.... $ 10,589 $ 1,048 $ 9,743 $ 9,743 $ --
========= ========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURE
OF NONCASH INVESTING
AND FINANCING
ACTIVITIES:
Issuance of common
stock to officers for
services.............. $ 13,750 $ -- $ -- $ -- $ --
========= ========== ========== =========== ===========
Telephone equipment
acquired with capital
lease................. $ -- $ 51,870 $ -- $ -- $ --
========= ========== ========== =========== ===========
Financed insurance
premiums.............. $ -- $ 36,000 $ -- -- $ 76,368
========= ========== ========== =========== ===========
Conversion of notes
payable to related
parties to preferred
stock................. $ -- $ -- $1,000,000 1,000,000 $ --
========= ========== ========== =========== ===========
Conversion of accrued
interest to preferred
stock................. $ -- $ -- $ 19,945 $ 19,945 $ --
========= ========== ========== =========== ===========
Equipment acquired with
capital lease......... $ -- $ -- $ 158,013 $ -- $ 732,706
========= ========== ========== =========== ===========
In November 1995, the
Company acquired
certain assets in
exchange for the
assumption of certain
liabilities and the
issuance of 50,000
shares of the
Company's common
stock, valued at
$23,000. The
allocation of the
purchase price to the
assets acquired and
liabilities assumed
(at their fair market
value) is as follows--
Accounts receivable.... $ 15,282
Prepaid expenses and
other................. 3,324
Property and
equipment............. 15,558
Intangibles............ 91,151
Accounts payable....... (4,771)
Accrued liabilities.... (19,356)
Other obligations
assumed............... (78,188)
----------
Issuance of stock to
seller................ $ 23,000
==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-22
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
(1) ORGANIZATION AND BUSINESS
Organization
Informed Access Systems, Inc., a Delaware corporation, was formed on
February 2, 1993 to develop software-based solutions for managing health care
resources, and is a successor corporation to a Texas corporation of the same
name formed on March 30, 1992. In connection with the formation of the
Delaware corporation, the shareholders of the Texas corporation exchanged all
of their stock for stock in the Delaware corporation. Accordingly, the
accompanying consolidated financial statements include the accounts of
Informed Access Systems, Inc. and its wholly owned subsidiary, (collectively,
the "Company"), on a consolidated basis from the inception of the Texas
corporation. All significant intercompany transactions have been eliminated in
the accompanying consolidated financial statements.
Business
The Company is currently developing and marketing innovative information
management services and products designed to manage demand for medical
services and, as a result, reduce medical expenses for its customers (HMO's,
insurance carriers, medical groups, etc.). The Company emerged from the
development stage in the first quarter of 1995. (See Note 11.)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid investments with original maturities of ninety days or less to be cash
equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed on a straight-line basis over the estimated useful lives
of three to five years for computer hardware and software, and five to seven
years for furniture, fixtures and equipment. Leasehold improvements are
capitalized and amortized over the shorter of the lease term or their
estimated useful life.
Revenue Recognition
The Company generates revenue from call center fees, licenses of its
software products, implementation services, and communication products. The
Company recognizes revenue as follows:
. Call Center--The Company generally charges its customers a per member per
month fee based on the customers' utilization of the Company's call center.
The Company recognizes call center revenue when earned.
. License Fees--The Company charges its customers a license fee for the use of
certain products and support in its customers' call centers. The Company
recognizes revenue ratably over the term of the contract starting from the
date that the software product is delivered to and accepted by the customer,
and it is determined that no significant Company obligations remain.
. Implementation Services--The Company charges its call center and license
customers an implementation fee for system set-up, installation, limited
product modifications and training services. The Company recognizes revenue
as these services are performed.
F-23
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
. Communications Fees--The Company charges its customers a fee for developing,
printing and mailing customized brochures to its customers' members. These
brochures describe the Company's services. The Company recognizes revenue in
the period the Company has completed its obligations to its customers and
the printed materials are available for shipment to the customers' members.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of salaries, travel, supplies and contract services related to the
development of the Company's products and services.
Patents
The Company capitalizes direct, external costs associated with patent
applications and filings. Capitalized costs will be written off at such time
it becomes known that an application will not be successful or when a
particular patent is deemed to no longer be of value. Costs associated with
successful applications are amortized using the straight-line method over five
years beginning with the date of issue.
Interim Results (Unaudited)
The accompanying balance sheet as of June 30, 1996, the statements of
operations and of cash flows for the six months ended June 30, 1995 and 1996,
and the statement of stockholders' (deficit) equity for the six months ended
June 30, 1996 are unaudited. In the opinion of management, the statements have
been prepared on the same basis as the audited financial statements and
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair statement of the results of the interim periods.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1996.
Concentration of Credit Risk
The Company has no significant off balance-sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. The Company maintains the majority of its cash with
financial institutions, in the form of demand deposits.
The Company performs ongoing evaluations of its customers' financial
condition and generally does not require collateral. Its accounts receivable
balances are primarily domestic and are concentrated among institutions within
the health care and insurance industries. The Company had certain customers
which were individually greater than 10% of the Company's revenue. These
customers represented 100%, 35% and 8% of the Company's accounts receivable as
of December 31, 1994 and 1995 and June 30, 1996, respectively.
Intangibles
The excess of consideration paid and liabilities assumed over identifiable
assets acquired (intangibles) of $91,151 is being amortized using the
straight-line method over three years. The Company reviews its recorded
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of intangibles may not be recovered and
provides currently for any indicated impairment.
F-24
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, short-term trade
receivables and payables and capital leases payable. The carrying values of
cash and short-term trade receivables and payables approximate fair value. The
fair value of capital leases payable is estimated based on current rates
available for similar debt with similar maturities and securities, and at
December 31, 1995, approximates the carrying value.
Unaudited Pro Forma Information
If the merger (Note 12) is consummated, all of the mandatorily redeemable
convertible preferred stock outstanding at the closing date will be exchanged
for shares of Access Health, Inc.'s common stock at the same ratio as the
Company's common stock. The unaudited pro forma balance sheet as of December
31, 1995, reflects the exchange of outstanding mandatorily redeemable
convertible preferred stock at June 30, 1996 as 4,568,061 shares of common
stock.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates may affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable and long-
lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. SFAS
No. 121 also establishes the procedures for review of recoverability, and
measurement of impairment if necessary, of long-lived assets and certain
identifiable intangibles to be held and used by an entity. The Company will be
required to adopt SFAS No. 121 for its year ended December 31, 1996.
Management believes that the adoption of SFAS No. 121 will not have a material
affect on the Company's reported consolidated financial position and results
of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
establishes financial accounting and reporting standards for stock-based
compensation, including stock-based employee compensation plans. The Statement
defines a fair value-based method of accounting for an employee stock option
or similar equity instrument. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value-based
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB Opinion No. 25"). Entities electing to remain with
the accounting in APB Opinion No. 25 must make pro forma disclosures of net
income and earnings per share, as if the fair value-based method of accounting
defined in the Statement had been applied. The Company will be required to
adopt SFAS No. 123 for its year ended December 31, 1996. Management believes
that the Company will continue to follow the accounting prescribed by APB
Opinion No. 25 and make the pro forma disclosure as allowed by SFAS No. 123.
F-25
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
Earnings Per Share
Historical earnings per share data have not been presented by Informed
Access because they are not considered meaningful due to the significant
additional shares of common stock which would be represented by Informed
Access' mandatorily redeemable convertible preferred stock upon their
conversion.
Income Taxes
The Company accounts for income taxes using the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). SFAS No. 109 requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences, based on enacted
tax laws, of temporary differences between the financial reporting and tax
bases of assets, liabilities and carryforwards. SFAS No. 109 also requires
recognition of deferred tax assets for the expected future effects of all
deductible temporary differences, loss carryforwards and tax credit
carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, more likely than
not based on current circumstances, are not expected to be realized (see Note
7).
Reclassifications
Certain reclassifications have been made to prior period balances to conform
with the current year presentation.
(3) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company is authorized to issue 4,634,000 shares of mandatorily
redeemable preferred stock. Under the articles of incorporation, shares of
mandatorily redeemable preferred stock may be issued from time to time in one
or more series with designations, rights, preferences and limitations
established by the Company's board of directors (the "Board of Directors").
Mandatorily redeemable preferred stock outstanding at December 31, 1994 and
1995 and June 30, 1996, is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30,
------------------------------------------ ---------------------
1994 1995 1996
-------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock, $.001
par value, 4,634,200
shares authorized,
stated at redemption
value:
Series A mandatorily
redeemable convertible
preferred stock,
1,635,000 shares
authorized, entitled
to a preference in
liquidation of
$1,635,000............ 1,635,000 $1,635,000 1,635,000 $ 1,635,000 1,635,000 $ 1,635,000
Series B mandatorily
redeemable convertible
preferred stock,
1,431,356 shares
authorized, entitled
to a preference in
liquidation of
$2,000,368............ 1,413,688 2,000,368 1,413,688 2,000,368 1,413,688 2,000,368
Series C mandatorily
redeemable convertible
preferred stock,
1,567,844 shares
authorized, entitled
to a preference in
liquidation of
$7,000,055............ -- -- 1,519,373 7,000,055 1,519,373 7,000,055
--------- ---------- --------- ----------- --------- -----------
3,048,688 $3,635,368 4,568,061 $10,635,423 4,568,061 $10,635,423
========= ========== ========= =========== ========= ===========
</TABLE>
F-26
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
On May 31, 1996, the Board of Directors approved the sale of 60,000 shares
of Series C preferred stock to certain employees at $6.00 per share which
shares were issued subsequent to June 30, 1996.
Holders of mandatorily redeemable preferred stock are entitled to annual
noncumulative dividends at 10% per share, when and if declared by the Board of
Directors. No distributions may be made to holders of common stock until all
dividends declared on the preferred stock have been paid.
In connection with the Series C mandatorily redeemable convertible preferred
stock offering, the Company amended its Certificate of Incorporation to
provide, retroactive to the inception of the Company, that Series A and B
accrue dividends only when and if declared by the Board of Directors. The
financial statements have been adjusted retroactively to reflect the effect of
the change. No such dividends have been declared. Previously, the Certificate
of Incorporation provided that a 10% per annum dividend accrue whether or not
declared by the Board of Directors.
Effective December 20, 1995, the Company restated its certificate of
incorporation. The terms and provisions of the restated certificate with
regard to the Company's mandatorily redeemable convertible preferred stock
have been reflected below.
Each share of mandatorily redeemable preferred stock is convertible, at the
option of the holder, into one share of common stock. The conversion rate is
subject to adjustment in the event the Company issues stock or other
securities at a price below the original issuance price of the mandatorily
redeemable preferred stock. The mandatorily redeemable preferred stock will
automatically be converted into common stock upon completion of a $10 million
or greater firmly underwritten initial public offering meeting certain
conditions, or immediately upon conversion of 60% of all of the shares of
mandatorily redeemable preferred stock.
In the event of liquidation, no distributions may be made to common
stockholders until an amount equal to $1.00, $1.42 and $4.61, plus declared
and unpaid dividends, if any, for each share of Series A, B and C,
respectively, has been distributed. Each holder of shares of common stock will
then be entitled to receive their pro rata share of a pool equal to $.50 per
share for each share of common stock, plus all accrued and unpaid dividends on
common stock, if any. Finally, any remaining assets will be ratably
distributed to holders of preferred and common stock on an as-converted to
common stock basis. Any holder of mandatorily redeemable preferred stock may
require the Company, out of funds legally available, to redeem the mandatorily
redeemable preferred stock on a pro rata basis with any other holders
requesting redemption, at the redemption price of $1.00, $1.42 and $4.61,
respectively, (plus any declared but unpaid dividends) on or after each of the
dates and in accordance with the percentage set forth below:
<TABLE>
<CAPTION>
REDEMPTION DATES PERCENTAGE
---------------- ----------
<S> <C>
On or after February 9:
1999.......................... 25%
2000.......................... 33%
2001.......................... 50%
2002.......................... 100%
</TABLE>
In July 1996, the Company issued a warrant to a customer to purchase 80,000
shares of the Series C mandatorily redeemable preferred stock. The warrant
becomes exercisable when (1) the customer waives its right to terminate its
FirstHelp contract in September 1997 and (2) when a minimum number of members
have been enrolled under the FirstHelp contract.
F-27
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
(4) STOCKHOLDERS' EQUITY
Common Stock
In November 1995, the Company discharged an obligation related to the
founding of the Company by issuing 108,000 shares of common stock. An amount
equal to $49,680, the fair market value of these shares, has been reflected as
general and administrative expense in the accompanying 1995 statement of
operations.
On October 26, 1993, the Company granted 275,000 shares of common stock to
three officers in consideration for past services to the Company. Compensation
expense of $13,750 has been recorded to reflect the fair market value of this
issuance.
Stock Option Plan
The Company has adopted a stock option plan (the "Plan") to provide
directors, officers, other employees and consultants options to purchase up to
700,000 at December 31, 1995 and 950,000 at June 30, 1996 shares of the
Company's common stock. Under the terms of the Plan, the Board of Directors
may grant either "nonqualified" or "incentive" stock options, as defined by
the Internal Revenue Code and regulations. Under the terms of the Plan, the
purchase price of the shares subject to an incentive stock option will be the
fair market value of the Company's common stock on the date the option is
granted. The purchase price of a nonqualified option will not be less than 85%
of fair market value. If the grantee owns more than 10% of the total combined
voting power or value of all classes of stock on the date of grant, the
purchase price of an incentive stock option shall be at least 110% of the fair
market value at the date of grant and the exercise term will be up to five
years from the date of grant. All other options granted under the Plan are
exercisable up to ten years from the date of grant. All options granted to
date are exercisable up to a five year period.
The activity relating to the Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PER SHARE
---------------------- EXERCISE
NONQUALIFIED INCENTIVE PRICE
------------ --------- ----------
<S> <C> <C> <C>
BALANCES, December 31, 1993 -- -- --
Granted.................................... 10,000 184,000 $.14
BALANCES, December 31, 1994.................. 10,000 184,000 .14
Granted.................................... 7,500 319,300 .14-$ .46
Exercised.................................. (17,500) (37,000) .14
Canceled................................... -- (105,000) .14
------- -------- ----------
BALANCES, December 31, 1995.................. -- 361,300 .14- .46
Granted.................................... 49,000 323,200 .46- 1.50
Exercised.................................. (17,500) (19,750) .14- .46
Canceled................................... -- (78,550) .14- .46
------- -------- ----------
BALANCES, June 30, 1996 (unaudited).......... 31,500 586,200 $.46-$1.50
======= ======== ==========
EXERCISABLE, June 30, 1996................... 3,000 36,000 $.14-$ .46
======= ======== ==========
</TABLE>
F-28
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
(5) NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND OTHER TRANSACTIONS
During October 1995, the Company entered into a term facility agreement (the
"Agreement") whereby the Company may borrow, in one or more borrowings, an
amount not to exceed $1,500,000 in the aggregate, subject to certain
conditions set forth in the Agreement. This commitment is in the form of a
$680,089 note payable facility, which had not been drawn upon at December 31,
1995, and a $819,911 capital lease facility. At December 31, 1995, cumulative
borrowings under the lease facility totaled $158,013. The Company has granted
a first perfected security interest in certain of its equipment, furniture and
fixtures as collateral to these borrowings. At December 31, 1995, the total
remaining commitment under this agreement was $1,341,987.
The amounts payable under the Agreement at December 31, 1995, bear interest
at 14.48% and are due in varying dates through June 1999, and require monthly
payments of principal and interest totaling $4,300.
In connection with the Agreement, the Company issued a warrant to the
lender. Under the terms of the warrant, the lender may acquire a number of
shares of Series C preferred stock, equal to $131,250 divided by an exercise
price calculated under the terms of the Agreement. The warrant is exercisable
for ten years after the date of issuance or five years after the date of an
initial public offering is completed by the Company, whichever is longer. The
value attributable to this warrant was not material.
During December 1994, the Company entered into a capital lease obligation
for telephone equipment totaling $51,870. As of December 31, 1995, the Company
had remaining obligation totaling $35,480 for this equipment. The net book
value of this equipment at December 31, 1995 is $31,350.
During 1994, the Company entered into a bridge loan with preferred
stockholders. Such notes payable to stockholders totaled $1,000,000 and
accrued interest at 8% per annum. On March 17, 1995, these notes payable and
related accrued interest were converted into shares of Series C Preferred
Stock at $4.61 per share.
During 1994, the Company financed insurance premiums totaling $36,000
through the issuance of short-term financing. Such financing was paid in full
as of August 1995.
During May 1996, the Company entered into an amendment to the agreement to
increase the amount that it may borrow to $2,000,000. At June 30, 1996,
cumulative borrowings under the agreement were $1,646,975. At June 30, 1996,
the total remaining commitment under the amended agreement was $353,025. In
connection with the amendment, the Company issued a warrant to the lender
under similar terms as the original agreement. The lender may acquire a number
of shares of Series C Preferred Stock equal to $40,750 divided by an exercise
price calculated under the terms of the agreement.
F-29
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
The following is a schedule of future minimum lease payments under capital
leases, together with the present value of net minimum lease payments, as of
December 31, 1995:
<TABLE>
<S> <C>
1996.......................................................... $ 81,235
1997.......................................................... 78,433
1998.......................................................... 57,815
1999.......................................................... 21,236
--------
238,719
Less: amount representing interest and taxes.................. (49,356)
--------
Present value of future minimum lease payments.............. 189,363
Less: current portion......................................... (56,011)
--------
Capital less obligations, long-term......................... $133,352
========
</TABLE>
(6) ACQUISITION
In November 1995, the Company acquired certain assets and assumed certain
liabilities of Bacharach Systems Inc. ("Bacharach"), a software business
located in Texas. This transaction was accounted for using the purchase method
of accounting, and the results of Bacharach's operations have been included
with the Company's since that date. As consideration for the assets
transferred to the Company, the Company assumed certain liabilities as of the
date of the transaction. Additionally, the Company issued 50,000 shares of
stock to this individual, valued at $0.46 per share. The 50,000 shares are in
the form of restricted common stock. This common stock is subject to
repurchase by the Company in certain circumstances, based on the occurrence of
certain events, as follows. In December 1995, the Company's right to
repurchase 10,000 shares terminated upon the Company's acceptance of a
deliverable specified by the Company. The Company's rights as to the remaining
40,000 shares will terminate in equal amounts over the next four years. If the
Company's right to repurchase is exercised, the shares still subject to the
right may be purchased, at the Company's option, for a nominal amount. This
transaction resulted in $91,151 of intangible assets. In August 1996, the
Company exercised its right to repurchase 20,000 shares issued under the
purchase agreement.
(7) INCOME TAXES
From its inception, the Company has generated losses for both financial
reporting and tax purposes. Accordingly, for income tax return reporting
purposes, the Company may utilize approximately $6,700,000 of net operating
loss carryforwards and approximately $211,000 of research and development tax
credits, which expire at various dates through the year 2010. The Internal
Revenue Code contains provisions which may limit the net operating loss
carryforwards available to be used in any given year if certain events occur,
including significant changes in ownership interests.
The tax benefit of the net operating loss carryforward is approximately
$2,500,000 as of December 31, 1995. This benefit has been fully offset by a
valuation allowance as it does not satisfy the realization criteria set forth
in SFAS No. 109, primarily due to the Company's history of operating losses.
F-30
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
(8) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space for its call center and operations. Total
rent expense for December 31, 1993, 1994 and 1995 and the six months ended
June 30, 1996 was $70,334, $70,334, $185,950 and $141,546, respectively.
Future minimum lease obligations under these agreements are as follows:
<TABLE>
<S> <C>
1996............................ $248,502
1997............................ 228,202
1998............................ 226,752
1999............................ 226,752
--------
$930,208
========
</TABLE>
The Company is subject to various claims and business disputes in the
ordinary course of business. Management does not anticipate that the ultimate
outcome of these issues will have a material impact on the Company's financial
position or results of operations.
(9) PROFIT SHARING PLAN
On October 1, 1994, the Company established the Informed Access Systems
Retirement Plan (the "401(k) Plan"). Under the 401(k) Plan's provisions,
eligible employees may contribute an amount up to but not exceeding 20% of
their compensation. The Company can make matching contributions of up to 100%
of an employee's contribution, but will not match employee contributions
beyond 4% of the employee's compensation. As of December 31, 1995 and 1994 and
June 30, 1996, the Company had not committed to make matching contributions.
(10) SIGNIFICANT CUSTOMERS
Below is a listing of major customers, each of which comprised more than 10%
of revenue:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30
------------------------------------------------ ---------------------
1993 1994 1995 1996
--------------- --------------- ---------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- -------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer 1.............. $ -- -- $ -- -- $604,539 20% $ 522,559 12%
Customer 2.............. -- -- -- -- 403,924 14% -- --
Customer 3.............. -- -- -- -- 286,882 10% -- --
Customer 4.............. -- -- 41,420 33% -- -- -- --
Customer 5.............. 10,000 21% 20,000 16% -- -- -- --
Customer 6.............. -- -- 18,000 14% -- -- -- --
Customer 7.............. 8,611 18% 16,666 13% -- -- -- --
Customer 8.............. -- -- 14,000 11% -- -- -- --
Customer 9.............. 20,000 43% 15,000 12% -- -- -- --
Customer 10............. -- -- -- -- -- -- 538,484 12%
</TABLE>
F-31
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
(11) INFORMATION ABOUT THE COMPANY'S REVENUE AND COST OF SALES (UNAUDITED)
Below is a summary of selected license and call center revenue and cost of
sales data for the year ended December 31, 1995, and the three months ended
December 31, 1995. The summary does not include revenue and cost of sales from
communications and other fees. This information has been provided for
additional analysis and is not part of the basic financial statements.
Informed Access opened its call center in January 1995, and incurred start-
up costs to meet specified terms of its initial call center contracts.
Informed Access began providing call center services to its two largest
customers in September of 1995. Additionally, Informed Access incurred certain
costs to install and customize its systems at its customer sites. The
associated revenue and cost of sales are summarized in the accompanying table.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE THREE
ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1995
------------ -------------
<S> <C> <C>
REVENUE:
License Fees--On-going............................ $ 443,123 $ 199,609
License Site Implementation Fees.................. 568,620 111,926
Call Center Fees--On-going........................ 1,195,292 684,334
Call Center Implementation Fees................... 184,250 55,250
----------- ----------
$ 2,391,285 $1,051,119
=========== ==========
COST OF SALES:
License Fees--On-going............................ $ (145,257) $ (38,225)
License Site Implementation Fees.................. (563,193) (125,055)
Call Center Fees--On-going........................ (1,480,159) (566,660)
Call Center Implementation Fees................... (184,250) (77,814)
----------- ----------
$(2,372,859) $ (807,754)
=========== ==========
GROSS PROFIT:
License Fees--On-going............................ $ 297,866 $ 161,384
License Site Implementation Fees.................. 5,427 (13,129)
Call Center Fees--On-going........................ (284,867) 117,674
Call Center Implementation Fees................... -- (22,564)
----------- ----------
$ 18,426 $ 243,365
=========== ==========
</TABLE>
(12) SUBSEQUENT EVENTS (UNAUDITED)
On September 3, 1996, Informed Access entered into an Agreement and Plan of
Reorganization ("Merger Agreement") and related agreements, with Access
Health, Inc. Subject to the terms and conditions of the Merger Agreement,
Informed Access will become a wholly owned subsidiary of Access Health, Inc.
(the "Merger"). The Merger Agreement provides, among other things, the mode of
effecting the merger and the manner and basis of converting each issued and
outstanding share of capital stock of Informed Access into shares of common
stock of Access Health, Inc. The closing of the Merger will take place after
satisfaction or waiver of conditions required of the parties involved as set
forth in the Reorganization Agreement. The Merger is intended to be a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986 and to be
F-32
<PAGE>
INFORMED ACCESS SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1996, AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 IS UNAUDITED)
accounted for as a pooling of interests pursuant to Opinion No. 16 of the
Accounting Principles Board. Informed Access anticipates closing of the Merger
to occur before November 30, 1996. In connection with the Merger, Access
Health has provided Informed Access with a $2,000,000 line of credit. The line
of credit will mature upon the earlier of September 1997 or the termination of
the Merger Agreement.
On September 3, 1996, the Board of Directors approved bonuses totalling $1.5
million payable to four members of management, who are also stockholders, who
have been instrumental in the growth of Informed Access during 1996. The bonus
was paid in the form of promissory notes which are payable in installments in
March 1997 and September 1997. The payment of the notes is not contingent on
the closing of the Merger. Informed Access also approved the payment of
bonuses totalling $200,000, payable to two such individuals to induce them to
stay with Informed Access through March 31, 1997, and a $300,000 bonus payable
to Informed Access's president upon the closing of the Merger in recognition
of his efforts in initiating and negotiating the proposed merger. The Company
will recognize a charge of $1.5 million in the September 1996 quarter for the
performance bonus.
F-33
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
ACCESS HEALTH, INC.,
ACCESS ACQUISITION CORP.
AND
INFORMED ACCESS SYSTEMS, INC.
DATED AS OF SEPTEMBER 3, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I THE MERGER...................................................... A-1
1.1 The Merger....................................................... A-1
1.2 Effective Time................................................... A-1
1.3 Effect of the Merger............................................. A-2
1.4 Certificate of Incorporation; Bylaws............................. A-2
1.5 Directors and Officers........................................... A-2
1.6 Effect on Capital Stock.......................................... A-2
1.7 Dissenting Shares................................................ A-4
1.8 Surrender of Certificates........................................ A-5
1.9 No Further Ownership Rights in Company Common Stock.............. A-6
1.10 Lost, Stolen or Destroyed Certificates........................... A-6
1.11 Tax and Accounting Consequences.................................. A-6
1.12 Taking of Necessary Action; Further Action....................... A-6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. A-6
2.1 Organization of the Company and Subsidiary....................... A-6
2.2 Company Capital Structure........................................ A-7
2.3 Subsidiaries..................................................... A-7
2.4 Authority........................................................ A-7
2.5 Company Financial Statements..................................... A-8
2.6 No Undisclosed Liabilities....................................... A-8
2.7 No Changes....................................................... A-8
2.8 Tax and Other Returns and Reports................................ A-9
2.9 Restrictions on Business Activities.............................. A-10
2.10 Title to Properties; Absence of Liens and Encumbrances........... A-11
2.11 Intellectual Property............................................ A-11
2.12 Agreements, Contracts and Commitments............................ A-12
2.13 Interested Party Transactions.................................... A-13
2.14 Compliance with Laws............................................. A-13
2.15 Litigation....................................................... A-13
2.16 Insurance........................................................ A-13
2.17 Minute Books..................................................... A-14
2.18 Environmental Matters............................................ A-14
2.19 Brokers' and Finders' Fees; Third Party Expenses................. A-14
2.20 Employee Matters and Benefit Plans............................... A-15
2.21 Products and Services............................................ A-17
2.22 Registration Statement........................................... A-17
2.23 Complete Copies of Materials..................................... A-17
2.24 Representations Complete......................................... A-17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB....... A-18
3.1 Organization, Standing and Power................................. A-18
3.2 Authority........................................................ A-18
3.3 Capital Structure................................................ A-19
3.4 SEC Documents; Parent Financial Statements....................... A-19
3.5 No Material Adverse Change....................................... A-19
3.6 Litigation....................................................... A-19
3.7 Registration Statement........................................... A-20
3.8 Opinion of Financial Advisor..................................... A-20
3.9 Intellectual Property............................................ A-20
3.10 Representations Complete......................................... A-20
3.11 No Undisclosed Liabilities....................................... A-20
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME.......................... A-21
4.1 Conduct of Business of the Company............................. A-21
4.2 No Solicitation; Initial Public Offering....................... A-22
4.3 Strategic Agreements........................................... A-23
4.4 Conduct of Business of Parent.................................. A-23
ARTICLE V ADDITIONAL AGREEMENTS......................................... A-24
5.1 Joint Proxy Statement; Registration Statement.................. A-24
5.2 Meeting of Stockholders........................................ A-24
5.3 Access to Information.......................................... A-25
5.4 Confidentiality................................................ A-25
5.5 Expenses....................................................... A-25
5.6 Public Disclosure.............................................. A-25
5.7 Consents....................................................... A-25
5.8 FIRPTA Compliance.............................................. A-25
5.9 Reasonable Efforts............................................. A-25
5.10 Conduct; Notification of Certain Matters....................... A-26
5.11 Pooling Accounting............................................. A-26
5.12 Affiliate Agreements........................................... A-26
5.13 Additional Documents and Further Assurances.................... A-26
5.14 Employment Agreements.......................................... A-26
5.15 Nasdaq National Market Listing................................. A-27
5.16 Blue Sky Laws.................................................. A-27
5.17 Re-location of Company's Operations; Company Employees......... A-27
5.18 Form S-8....................................................... A-27
5.19 Tax-Free Reorganization........................................ A-27
5.20 Board Representation........................................... A-28
5.21 Indemnification Continuation................................... A-28
5.22 Registration Rights Agreement.................................. A-29
5.23 Interim Credit Facility........................................ A-29
5.24 Incentive Plan Amendment....................................... A-29
5.25 Interim Financial Statement.................................... A-29
5.26 Transaction Structure.......................................... A-29
ARTICLE VI CONDITIONS TO THE MERGER..................................... A-30
6.1 Conditions to Obligations of Each Party to Effect the Merger... A-30
6.2 Additional Conditions to Obligations of the Company............ A-30
Additional Conditions to the Obligations of Parent and Merger
6.3 Sub............................................................ A-31
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW.......... A-32
7.1 Survival of Representations and Warranties..................... A-32
7.2 Escrow Arrangements............................................ A-33
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.......................... A-38
8.1 Termination.................................................... A-38
8.2 Effect of Termination.......................................... A-39
8.3 Termination Fee................................................ A-39
8.4 Amendment...................................................... A-40
8.5 Extension; Waiver.............................................. A-40
ARTICLE IX GENERAL PROVISIONS........................................... A-40
9.1 Notices........................................................ A-40
9.2 Interpretation................................................. A-41
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
9.3 Counterparts...................................................... A-42
9.4 Entire Agreement; Assignment...................................... A-42
9.5 Severability...................................................... A-42
9.6 Other Remedies.................................................... A-42
9.7 Governing Law..................................................... A-42
9.8 Rules of Construction............................................. A-42
9.9 Absence of Third-Party Beneficiary Rights......................... A-42
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of September 3, 1996 among Access Health, Inc., a Delaware
corporation ("Parent"), Access Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Informed Access Systems,
Inc., a Delaware corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that Parent combine with the Company through the statutory merger
of Merger Sub with and into the Company (the "Merger") and, in furtherance
thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms and
conditions of this Agreement, all of the issued and outstanding shares of
Common Stock of the Company ("Company Common Stock") and Preferred Stock of
the Company ("Company Preferred Stock") (the Company Common Stock and Company
Preferred Stock are collectively referred to herein as the "Company Capital
Stock") shall be converted into the right to receive shares of Common Stock of
Parent ("Parent Common Stock").
C. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and
conditions, all as set forth in Article VII hereof.
D. The Company, Parent and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
E. Parent and the Company have concluded that the integration of their
businesses, in accordance with their operational plans, offers opportunities
to efficiently expand product offerings and improve customer service of each
of Parent and the Company.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, intending to be legally bound hereby the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the General Corporation Law of the State of Delaware
("Delaware Law"), Merger Sub shall be merged with and into the Company, the
separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation and as a wholly-owned subsidiary of
Parent. The Company as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation". It is the
parties' intention that following the Effective Time (as defined in Section
1.2) the Company will be merged with and into the Parent as soon as
practicable once all requisite waivers and approvals have been obtained.
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to
Section 8.1, the closing of the Merger (the "Closing") will take place,
subject to satisfaction or waiver of the conditions set forth in Article VI,
at 11:00 am California time on the date on which the stockholders of Parent
and stockholders of the Company shall have approved this Agreement and the
Merger by the requisite vote under the rules of the Nasdaq National Market and
Delaware law, as applicable, or as soon thereafter as possible, at the offices
of Wilson, Sonsini,
A-1
<PAGE>
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California, unless another
place or time is agreed to by Parent and the Company. The date upon which the
Closing actually occurs is herein referred to as the "Closing Date". On the
Closing Date, the parties hereto shall cause the Merger to be consummated by
filing a Certificate of Merger (or like instrument) with the Secretary of
State of the State of Delaware (the "Certificate of Merger"), in accordance
with the relevant provisions of applicable law (the time of acceptance by the
Secretary of State of Delaware of such filing or, if later, the effective time
specified in such Certificate of Merger being referred to herein as the
"Effective Time"). The parties currently intend that the Closing Date will
occur on or prior to November 30, 1996.
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided under Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of
the Company and Merger Sub shall become the debts, liabilities and duties of
the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(i) Unless otherwise determined by Parent prior to the Effective Time (and
subject to the provisions of Section 5.21 hereof), at the Effective Time, the
Certificate of Incorporation of Merger Sub shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law; provided, however, that Article I of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read as
follows: "The name of the corporation is Informed Access Systems, Inc."
(ii) The Certificate of Merger shall provide that the Bylaws of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Bylaws of
the Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately prior
to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, each to hold office in accordance with the Bylaws
of the Surviving Corporation.
1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, as of the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, the Company or the holder of any shares of
the Company Capital Stock, the following shall occur:
(a) Capital Stock of Merger Sub. Each share of Common Stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of the
Surviving Corporation.
(b) Cancellation of Parent-Owned and Company-Owned Stock. Each share of
Company Capital Stock owned by Merger Sub, Parent, the Company or any direct
or indirect wholly-owned subsidiary of Parent or of the Company immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof.
(c) Conversion of Company Capital Stock. Each share of Company Common Stock
and each share of Company Preferred Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Company Capital Stock to
be canceled pursuant to Section 1.6(b) and any Dissenting Shares (as defined
and to the extent provided in Section 1.7(a)) will be canceled and
extinguished and be converted automatically, without any action on the part of
the holder thereof and subject to the escrow provisions of Article VII herein,
into the right to receive a fraction of a share of Parent Common Stock equal
to a fraction (the "Exchange Ratio")
A-2
<PAGE>
the numerator of which is 5,375,000 and the denominator of which is the total
number of shares of Company Capital Stock outstanding plus the total number of
shares of Company Capital Stock issuable upon exercise of all (x) outstanding
warrants of the Company (other than those which expire as of the Effective
Time if they remain unexercised as of the Effective Time) (the "Outstanding
Warrant Amount") and (y) Company Options (as defined in Section 1.6(d)), in
each case as of the Effective Time, and upon surrender of the certificate
representing such share of Company Capital Stock in the manner provided in
Section 1.8.
(d) Stock Options.
(i) At the Effective Time, each unexpired and unexercised option to purchase
shares of Company Capital Stock (a "Company Option") granted under the stock
option plans and agreements of the Company outstanding immediately prior to
the Effective Time shall be assumed by Parent (an "Assumed Company Option")
(the aggregate number of shares of Company Capital Stock issuable upon the
exercise of all outstanding Company Options immediately prior to the Effective
Time is referred to herein as the "Outstanding Option Amount.") Each Company
Option so assumed by Parent will continue to have, and be subject to,
substantially the same terms and conditions set forth in the documents
governing such Company Option immediately prior to the Effective Time, except
that (A) such Assumed Company Option will be exercisable for that number of
whole shares of Parent Common Stock equal to the product of the number of
shares of Company Capital Stock (on an as-converted to Common Stock basis)
that were purchasable under such Assumed Company Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, rounded down to the
nearest whole number of shares of Company Common Stock, and (B) the per share
exercise price for the shares of Company Common Stock issuable upon exercise
of such Assumed Company Option will be equal to the quotient obtained by
dividing the exercise price per share of Company Capital Stock (on an as-
converted to Common Stock basis) at which such Company Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to
the nearest whole cent. The parties intend that the assumption of the Company
Options hereunder will meet the requirements of Section 424(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and this Section shall be
interpreted consistent with such intention. Consistent with the terms of the
Company Options and the documents governing such Company Options, except as
disclosed on Schedule 2.2(b) hereto the Merger will not terminate or
accelerate any Assumed Company Option or any right of exercise, vesting or
repurchase relating thereto with respect to shares of Parent Common Stock
acquired upon exercise of such Company Option. Holders of Company Options will
not be entitled to acquire Company Capital Stock following the Merger.
(ii) Holders of vested Company Options may elect to exercise such options
prior to the Effective Time and receive the Parent Company Stock by providing
notice of such exercise and payment of the exercise price thereof to the
Company at any time prior to the Effective Time. In the event that any holder
of the Company Options does not exercise such Company Options prior to the
Effective Time, such Company Options shall become Assumed Company Options.
(iii) As soon as practicable after the Effective Time, Parent shall issue to
each holder of an Assumed Company Option a document evidencing the stock
option assumption by Parent. The right to receive an Assumed Company Option
may not be assigned or transferred except as permitted by the Company's Stock
Option Plans. Any attempted assignment contrary to this Section 1.6(d) shall
be null and void.
(e) Warrants. Each warrant to purchase shares of Company Capital Stock
remaining outstanding (other than those which will expire if they remain
unexercised as of the Effective Time) at the Effective Time shall be, in
connection with the Merger, assumed by Parent. Each warrant so assumed by
Parent under this Agreement shall continue to have, and be subject to, the
same terms and conditions set forth in the respective warrant agreements
governing such warrant immediately prior to the Effective Time, except that
each such warrant shall, following the Effective Time, be exercisable only for
shares of Parent Common Stock, in such number, and at such exercise price as
is determined by applying the appropriate Exchange Ratio in accordance with
the terms of the applicable warrant agreement.
A-3
<PAGE>
(f) Escrow. The shares placed in escrow (the "Escrow Shares") as collateral
for the indemnification obligations of the Company and certain financial
advisory fee obligations of the Company pursuant to Article VII of this
Agreement shall be the number of shares of Parent Common Stock equal to (a)
the product of (i) the aggregate number of shares of Parent Common Stock
issued or issuable in connection with the Merger in exchange for shares of
Company Capital Stock minus the Outstanding Option Amount, the Outstanding
Warrant Amount and the number of shares of Company Capital Stock for which
dissenters' rights have been validly asserted and (ii) 0.025 plus (b) 64,500.
The Escrow Shares shall be withheld pro rata from the shares of Parent Common
Capital Stock to be received by the stockholders of the Company upon exchange
of their shares of Company Capital Stock for Parent Common Stock.
Notwithstanding the provisions of this Section 1.6(f), any fraction of a share
that would otherwise result from the issuance of a certificate representing
the shares of Parent Common Stock to be deposited into escrow pursuant to
Article VII hereof shall be rounded down to the nearest whole share and any
fraction of a share that would otherwise result from the issuance of a
certificate representing the remaining shares of Parent Common Stock which
each such stockholder would otherwise be entitled to receive under Section 1.6
by virtue of ownership of outstanding shares of Company Common Stock shall be
rounded up to the nearest whole share.
(g) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect fully the effect of any stock split, reverse split, stock dividend
(including any dividend or distribution of securities convertible into Parent
Common Stock or Company Capital Stock), reorganization, recapitalization or
other like change with respect to Parent Common Stock or Company Capital Stock
that occurs or has a record date or ex-dividend date after the date hereof and
on or prior to the Effective Time.
(h) Fractional Shares. No fraction of a share of Parent Common Stock will be
issued, but in lieu thereof, each holder of shares of Company Capital Stock
who would otherwise be entitled to a fraction of a share of Parent Common
Stock (after aggregating all fractional shares of Parent Common Stock to be
received by such holder) shall be entitled to receive from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the average closing price of a share of Parent
Common Stock for the five (5) consecutive trading days ending on the trading
day immediately prior to the Closing Date, as reported on the Nasdaq National
Market.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Company Capital Stock held by a holder who has demanded and
perfected appraisal or dissenters' rights for such shares in accordance with
Delaware Law and who, as of the Effective Time, has not effectively withdrawn
or lost such appraisal or dissenters' rights ("Dissenting Shares"), shall not
be converted into or represent a right to receive Parent Common Stock pursuant
to Section 1.6, but the holder thereof shall only be entitled to such rights
as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of Company Capital Stock who demands appraisal of such shares under
Delaware Law shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive Parent Common Stock and
cash in lieu of fractional shares as provided in Section 1.6, without interest
thereon, upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written demands
for appraisal of any shares of Company Capital Stock, withdrawals of such
demands, and any other instruments served pursuant to Delaware Law and
received by the Company and (ii) the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under
Delaware Law. The Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to any demands for appraisal
of capital stock of the Company or offer to settle or settle any such demands.
A-4
<PAGE>
1.8 Surrender of Certificates.
(a) Exchange Agent. Boston Equiserve shall act as exchange agent (the
"Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I, the aggregate number of shares of Parent Common Stock
issuable pursuant to Section 1.6 in exchange for outstanding shares of Company
Capital Stock; provided that, on behalf of the holders of Company Capital
Stock, Parent shall deposit into the Escrow Fund (as defined in Section 7.2)
the Escrow Shares, out of the aggregate number of shares of Parent Common
Stock otherwise issuable pursuant to Section 1.6. The portion of the Escrow
Shares contributed on behalf of each holder of Company Capital Stock shall be
in proportion to the aggregate number of shares of Parent Common Stock which
such holder would otherwise be entitled to receive under Section 1.6 by virtue
of ownership of outstanding shares of Company Capital Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "Certificates") which immediately prior to the Effective
Time represented outstanding shares of Company Capital Stock whose shares were
converted into the right to receive shares of Parent Common Stock pursuant to
Section 1.6, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock (less the number of Escrow Shares to be
deposited in the Escrow Fund on such holder's behalf pursuant to Article VII
hereof), plus cash in lieu of fractional shares in accordance with Section
1.6, to which such holder is entitled pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Article VII hereof, Parent shall cause to be distributed to the Escrow
Agent (as defined in Section 7.2) a certificate or certificates representing
that number of Escrow Shares which shall be registered in the name of the
Escrow Agent. Such shares shall be beneficially owned by the holders on whose
behalf such shares were deposited in the Escrow Fund (as defined in Section
7.2) and shall be available to compensate Parent as provided in Article VII.
Until so surrendered, each outstanding Certificate that, prior to the
Effective Time, represented shares of Company Capital Stock will be deemed
from and after the Effective Time, for all corporate purposes, other than the
payment of dividends, to evidence the ownership of the number of full shares
of Parent Common Stock into which such shares of Company Capital Stock shall
have been so converted and the right to receive an amount in cash in lieu of
the issuance of any fractional shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Common Stock with a record date after the Effective Time will be paid to the
holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer
or other taxes required by reason of the issuance of a certificate for shares
of Parent Common Stock in
A-5
<PAGE>
any name other than that of the registered holder of the certificate
surrendered, or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this Section
1.8, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of shares of Parent Common Stock or Company
Capital Stock for any amount properly paid to a public official pursuant to
any applicable abandoned property, escheat or similar law.
1.9 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof (including any cash
in lieu of fractional shares paid in respect thereof) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Capital Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Capital Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article
I.
1.10 Lost, Stolen or Destroyed Certificates. In the event any certificates
evidencing shares of Company Capital Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed certificates, upon the making of an affidavit of that fact by the
holder thereof, such shares of Parent Common Stock and cash for fractional
shares, if any, as may be required pursuant to Section 1.6; provided, however,
that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
1.11 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall (i) constitute a reorganization within the meaning of
Section 368 of the Code and (ii) qualify for accounting treatment as a pooling
of interests.
1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and
directors of the Company and Merger Sub are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that the
representations and warranties set forth below shall be true and correct as of
the date hereof, subject to such exceptions as are disclosed in the disclosure
schedules supplied by the Company to Parent (the "Company Schedules") and
dated as of the date hereof (unless the context requires otherwise, all
references to the Company herein shall be deemed to refer to the Company and
all of its subsidiaries take as a whole).
2.1 Organization of the Company and Subsidiary. The Company and the
Company's subsidiary are corporations duly organized, validly existing and in
good standing under the laws of the State of Delaware or other jurisdiction of
incorporation, as the case may be. The Company and the Company's subsidiary
have the corporate power to own its properties and to carry on its business as
now being conducted. The Company and the Company's subsidiary are duly
qualified to do business and in good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, assets (including intangible assets),
financial condition or results of operations of the Company and its subsidiary
taken as a whole (hereinafter referred to as a "Material Adverse Effect on the
Company"). The Company has delivered
A-6
<PAGE>
a true and correct copy of the Certificate of Incorporation and Bylaws of the
Company and its subsidiary, each as amended to date, to Parent.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 6,892,165 shares
of authorized Common Stock, of which 1,159,125 shares are issued and
outstanding as of the date hereof and 1,635,000 shares of authorized Series A
Preferred Stock, all of which shares are outstanding as of the date hereof,
1,431,356 shares of Series B Preferred Stock, of which 1,413,688 shares are
outstanding as of the date hereof and 1,716,684 shares of Series C Preferred
Stock, of which 1,579,373 shares are outstanding as of the date hereof. As of
the date hereof the Company Capital Stock is held of record by the persons,
with the addresses of record and in the amounts set forth on Schedule 2.2(a).
All outstanding shares of Company Common Stock are duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of the Company
or any agreement to which the Company is a party or by which it is bound. All
outstanding Company Capital Stock has been issued in material compliance with
all applicable Federal and state securities laws.
(b) The Company has reserved 950,000 shares of Common Stock for issuance to
employees and consultants pursuant to the Stock Option Plans, of which 733,800
shares are subject to outstanding, unexercised options and 216,200 shares
remain available for future grant. Schedule 2.2(b) sets forth for each
outstanding Company Option, the name of the holder of such option, the number
of shares of Company Capital Stock subject to such option, the exercise price
of such option, including the extent vested to date and whether the
exercisability of such option will be accelerated and become exercisable by
the transactions contemplated by this Agreement. Except as described in
Schedule 2.2(b) or as provided for in the Company's Certificate of
Incorporation there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a party
or by which it is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of the Company. Except as described
in Schedule 2.2(b) as of the date hereof there are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which the Company is a party or by which it is bound obligating the Company to
grant, extend, accelerate the vesting of, change the price of, otherwise amend
or enter into any such option, warrant, call, right, commitment or agreement.
The holders of Company Options and any outstanding warrants have been or will
be given, or shall have properly waived, any required notice prior to the
Effective Time. As a result of the Merger, Parent will be the record and sole
beneficial owner of all Company Capital Stock and rights to acquire or receive
Company Capital Stock except for the Assumed Options and outstanding warrants
listed on Schedule 2.2(b) not exercised prior to the Effective Time.
2.3 Subsidiaries. Except as set forth on Schedule 2.3, the Company does not
have and has never had any subsidiaries or companies controlled by the Company
and does not otherwise own and has never otherwise owned any shares of capital
stock or any interest in, or controlled, directly or indirectly, any other
corporation, partnership, association, joint venture or other business entity.
The Company owns all of the outstanding capital stock of the subsidiary listed
on Schedule 2.3, free and clear of any claims, liens or encumbrances, and no
options, warrants or other rights to acquire shares of capital stock of any
subsidiary are outstanding.
2.4 Authority. Subject only to the requisite approval of the Merger and this
Agreement by the Company's stockholders, the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The vote required of the Company's
stockholders to duly approve the Merger and this Agreement is (i) that number
of shares as would constitute a majority of the outstanding shares of the
Company Common Stock and of the Company Preferred Stock, voting as a single
class and (ii) that number of shares equal to 60% of the outstanding shares of
Company Preferred Stock, voting as a single class. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of the
Company, subject only to the approval of the Merger by the Company's
stockholders. The Company's Board of Directors has unanimously approved the
Merger and this Agreement. This Agreement has been duly executed and
A-7
<PAGE>
delivered by the Company and constitutes the valid and binding obligation of
the Company, enforceable in accordance with its terms (except as enforcement
hereof may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium and similar laws, both state and federal, affecting the enforcement
of creditors' rights or remedies in general as from time to time in effect or
(ii) the exercise by courts of equity powers). Except as set forth on Schedule
2.4, subject only to the approval of the Merger and this Agreement by the
Company's stockholders, the execution and delivery of this Agreement by the
Company does not, and, as of the Effective Time, the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "Conflict") (i)
any provision of the Certificate of Incorporation or Bylaws of the Company or
(ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or its
properties or assets. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency
or commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or
any third party (so as not to trigger any Conflict), is required at or prior
to the Effective Time by or with respect to the Company in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger with the Delaware Secretary of State, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and (iii)
such other consents, waivers, authorizations, filings, approvals and
registrations which are set forth on Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5 sets forth the Company's
audited balance sheet as of December 31, 1995 and the related audited
statements of operations, stockholders' equity and cash flows for the two
years then ended (collectively, the "Audited Financials") and the Company's
unaudited balance sheet as of June 30, 1996 (the "Balance Sheet") and the
related unaudited statements of operations and cash flows for the six-month
period then ended (collectively, the "Unaudited Financials") (the Audited
Financials and the Unaudited Financials are collectively referred to herein as
the "Company Financials"). The Company Financials have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
basis consistent throughout the periods indicated and consistent with each
other. The Company Financials present fairly in all material respects the
financial condition and operating results of the Company as of the dates and
during the periods indicated therein, subject, in the case of the Unaudited
Financials, to normal year-end adjustments, which will not be material in
amount or significance, and the absence of footnotes. The Company has
furnished to Parent all accounting management letters and audit response
letters for the Company since January 1, 1994.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, the
Company does not have any liability, obligation or claim of any type (whether
accrued, absolute, contingent, matured, unmatured or other) which if known
would be required to be reflected in the financial statements of the Company
in accordance with GAAP, except for any such liability, obligation or claim,
(i) which has been reflected in the Balance Sheet, or (ii) has arisen in the
ordinary course of the Company's business since June 30, 1996, consistent with
past practices.
2.7 No Changes. Except as contemplated or permitted by this Agreement or as
set forth in Schedule 2.7, between June 30, 1996 and the date hereof, there
has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of business
consistent with past practices;
(b) amendments or changes to the Certificate of Incorporation or Bylaws of
the Company;
(c) capital expenditure or commitment by the Company of $25,000 in any
individual case or $100,000 in the aggregate.
A-8
<PAGE>
(d) destruction of, damage to or loss of any material assets, business or
customer of the Company (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(f) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its material assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct
or indirect redemption, purchase or other acquisition by the Company of any of
its capital stock;
(i) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or
advisors, or the declaration, payment or commitment or obligation of any kind
for the payment, by the Company, of a bonus or other additional salary or
compensation to any such person except in the ordinary course of business
consistent with past practices or as otherwise contemplated by this Agreement;
(j) sale, lease, license or other disposition of any of the material assets
or properties of the Company, except in the ordinary course of business
consistent with past practices;
(k) amendment or termination of any material contract, agreement or license
to which the Company is a party or by which it is bound;
(l) loan by the Company to any person or entity, incurring by the Company of
any indebtedness, guaranteeing by the Company of any indebtedness, issuance or
sale of any debt securities of the Company or guaranteeing of any debt
securities of others except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices;
(m) waiver or release of any material right or claim of the Company,
including any write-off or other compromise of any account receivable of the
Company;
(n) issuance or sale by the Company of any of its shares of capital stock,
or securities exchangeable, convertible or exercisable therefor, or of any
other of its securities other than issuance pursuant to exercise of Company
Options or repurchases of Company Common Stock at cost in the ordinary course
under terms of agreement relating to restricted stock issued by the Company
under incentive stock plans;
(o) material change in pricing or royalties set or charged by the Company to
its customers or licensees or in pricing or royalties set or charged by
persons who have licensed Intellectual Property (as defined in Section 2.11)
to the Company;
(p) event or condition of any character that has or reasonably would be
expected to have a Material Adverse Effect on the Company; or
(q) agreement by the Company or, to the Company's knowledge, any officer or
employees thereof to do any of the things described in the preceding clauses
(a) through (p) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or,
collectively, "Taxes", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions
A-9
<PAGE>
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed
with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have timely prepared and
filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all
Taxes concerning or attributable to the Company or its operations and, has
paid all Taxes shown thereon to be due and has provided adequate accruals
in accordance with GAAP in its financial statements for any Taxes that have
not been paid.
(ii) There is no material Tax deficiency proposed or assessed against the
Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax.
(iii) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(iv) The Company has provided or made available to Parent copies of all
federal and state income and all state sales and use Tax Returns for all
periods since January 1, 1994.
(v) There are (and as of immediately following the Closing there will be)
no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") on the assets of the Company relating to
or attributable to Taxes, other than Liens for Taxes not yet due and
payable.
(vi) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(vii) As of the Effective Time, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions
of this Agreement, covering any employee or former employee of the Company
that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Section 280G or 162 of the
Code, other than the vesting acceleration of all outstanding Company
Options which, for certain optionees, acceleration would constitute an
"excess parachute payment" unless such vesting acceleration is approved by
the Company's stockholders in accordance with Section 280G.
(viii) The Company has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to
any disposition of a subsection (f) asset (as defined in Section 341(f)(4)
of the Code) owned by the Company.
(ix) The Company is not a party to a tax sharing or allocation agreement
nor does the Company owe any amount under any such agreement.
(x) The Company is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2)
of the Code.
2.9 Restrictions on Business Activities. There is no agreement (noncompete
or otherwise), judgment, injunction, order or decree to which the Company is a
party or otherwise binding upon the Company which has or reasonably would be
expected to have the effect of prohibiting or impairing any business practice
of the Company, any acquisition of property (tangible or intangible) by the
Company or the conduct of business by the Company. Without limiting the
foregoing, except for those restrictions set forth in the contracts which are
A-10
<PAGE>
disclosed in the Company's Schedules, the Company has not entered into any
agreement under which the Company is restricted from selling, licensing or
otherwise distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property, nor has it ever owned any real
property. Schedule 2.10(a) sets forth a list of all real property leased by
the Company as of the date of this Agreement, the name of the lessor and the
date of the lease and each amendment thereto. All such current leases are in
full force and effect in accordance with their respective terms, and there is
not on the part of the Company, under any of such leases, any existing default
or event of default (or event which with notice or lapse of time, or both,
would constitute a default) which would constitute a Material Adverse Effect
on the Company.
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens (as defined in Section 2.8(b)), except
as reflected in the Company Financials or in Schedule 2.10(b) and except for
liens for Taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent,
and which do not materially detract from the value, or materially interfere
with the present use, of the property subject thereto or affected thereby.
2.11 Intellectual Property.
(a) The Company owns, possesses or has rights to use all intellectual
property rights, including, without limitation, licenses or other rights to
use all computer software, software programs, all source and object code,
algorithms, architecture, structure, display screens, layouts, development
tools, trademarks, trademark applications, trade secrets, service mark
applications, trade names, copyrights, copyright applications, compilations,
inventions, mask work rights, mask work applications, franchises, drawings,
designs, customer lists, proprietary know-how or proprietary processes or
formulae, or other rights with respect thereto, and all documentation and
media constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records (collectively referred to as
"Intellectual Property"), presently used in and material to the business of
the Company as it is now being conducted as of the date of this Agreement
including products currently under development (the "Company Intellectual
Property Rights"). Schedule 2.11(a) sets forth a complete list of all material
patents, registered and unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefor, included in the
Company Intellectual Property Rights, and specifies, where applicable, the
jurisdictions in which each such Company Intellectual Property Right has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners.
(b) Schedule 2.11(b) sets forth a complete list of all material licenses,
sublicenses and other agreements to which the Company is a party and pursuant
to which the Company or to the Company's knowledge any other person is
authorized to use any Company Intellectual Property Right (excluding object
code end-user licenses granted to end-users in the ordinary course of business
that permit use of software products without a right to modify, distribute or
sublicense the same ("End-User Licenses")) or any trade secret of the Company,
and includes the identity of all parties thereto. The execution and delivery
of this Agreement by the Company, and the consummation of the transactions
contemplated hereby, will neither cause the Company to be in violation or
default under any such license, sublicense or agreement, nor entitle any other
party to any such license, sublicense or agreement to terminate or modify such
license, sublicense or agreement except for any such violation, default,
termination or modification as would not cause a Material Adverse Effect on
the Company.
(c) No claims with respect to the Company Intellectual Property Rights have
been asserted since incorporation of the Company or, to the Company's
knowledge, are threatened by any person, nor, to the Company's knowledge, are
there any valid grounds for any bona fide claims (i) to the effect that the
manufacture, sale, licensing or use of any of the products of, or providing of
any services by, the Company infringes on any
A-11
<PAGE>
copyright, patent, trademark, service mark, trade secret or other proprietary
right or Intellectual Property of any other party, (ii) against the use by the
Company of any Intellectual Property used in the Company's business as
currently conducted including products currently under development, or (iii)
challenging the ownership by the Company, validity or effectiveness of any of
the Company Intellectual Property Rights. All registered trademarks, service
marks and copyrights held by the Company are valid and subsisting. The
business of the Company as currently conducted including products currently
under development has not and does not infringe on any Intellectual Property
of any third party. To the Company's knowledge, there is no material
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any employee or
former employee of the Company. No Company Intellectual Property Right or
product or service of the Company is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the licensing thereof by
the Company. Each employee who has been employed by the Company since January
1, 1993 and who has played a material role in the development of the Company's
Intellectual Property has executed a proprietary information and
confidentiality agreement substantially in the Company's standard forms.
2.12 Agreements, Contracts and Commitments. Except as set forth on Schedule
2.12(a), as of the date of this Agreement, the Company does not have, is not a
party to nor is it bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations authorizing payments to any
individual employee in excess of $5,000,
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement with an employee or
individual consultant or salesperson or consulting or sales agreement,
under which a firm or other organization provides services to the Company,
(v) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually in
excess of $100,000,
(viii) any agreement of indemnification or guaranty (except for
indemnification provisions contained in agreements disclosed in the
Company's Schedules or agreements not required to be disclosed because of
the amount or term thereof),
(ix) any agreement containing any covenant limiting in a material way the
freedom of the Company to engage in any line of business or to compete with
any person,
(x) any agreement relating to capital expenditures and involving future
payments in excess of $100,000,
(xi) any agreement relating to the disposition or acquisition of assets
or any interest in any business enterprise outside the ordinary course of
the Company's business,
(xii) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit, including guaranties referred to in
clause (viii) hereof,
A-12
<PAGE>
(xiii) any purchase order or contract for the purchase of raw materials
involving executory payments of $50,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development agreement not
cancelable without penalty within ninety (90) days,
(xvi) any agreement pursuant to which the Company has granted or may
grant in the future, to any party a source-code license or option or other
right to use or acquire source-code, or
(xvii) any other agreement that involves $100,000 or more or is not
cancelable without penalty within ninety (90) days.
The Company is not in breach, violation or default under, and there are no
events that would constitute a breach, violation or default with the lapse of
time, giving of notice, or both, with respect to, nor has the Company received
notice that it has breached, violated or defaulted under, any of the terms or
conditions of any agreement, contract or commitment required to be set forth
on Schedule 2.12(a) or Schedule 2.11(b) (any such agreement, contract or
commitment, a "Contract"). Each Contract is in full force and effect and,
except as otherwise disclosed in Schedule 2.12(b), is not subject to any
default thereunder of which the Company has knowledge by any party obligated
to the Company pursuant thereto.
2.13 Interested Party Transactions. Except as set forth on Schedule 2.13, to
the Company's knowledge, no officer, director or affiliate (as defined under
Regulation C under the Securities Act of 1933, as amended) of the Company (nor
any ancestor, sibling, descendant or spouse of any of such persons, or any
trust, partnership or corporation in which any of such persons has or has had
an economic interest), has or has had, directly or indirectly, (i) a material
economic interest in any entity which furnished or sold, or furnishes or
sells, a material amount of services or products that the Company furnishes or
sells, or (ii) a material economic interest in any entity that purchases from
or sells or furnishes to, the Company, any goods or services or (iii) a
material beneficial interest in any contract or agreement set forth in
Schedule 2.12(a) or Schedule 2.11(b); provided, that (x) ownership of no more
than one percent (1%) of the outstanding voting stock of a publicly traded
corporation and no more than ten percent (10%) of the outstanding equity of
any other entity shall not be deemed an "economic interest in any entity" for
purposes of this Section 2.13 and (y) this provision shall only apply if the
terms and conditions applicable to the subject relationship are materially
less favorable to the Company than the terms and conditions that could be
obtained in an arms-length relationship.
2.14 Compliance with Laws. The Company has complied in all material respects
with, is not in material violation of, and since January 1, 1993 has not
received any notices of any material violation with respect to, any foreign,
federal, state or local statute, law, rule or regulation.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no action,
suit or proceeding of any nature pending or, to the Company's knowledge,
threatened against the Company, its properties or, to the Company's knowledge,
any of its officers or directors, in their respective capacities as such.
Except as set forth in Schedule 2.15, there is no investigation pending or, to
the Company's knowledge, threatened against the Company, its properties, or to
the Company's knowledge, any of its officers or directors by or before any
Governmental Entity. Schedule 2.15 sets forth, with respect to any pending or
known threatened action, suit, proceeding or investigation, the forum, the
parties thereto, the subject matter thereof and the amount of damages claimed
or other remedy requested. No Governmental Entity has since January 1, 1993,
challenged or questioned the legal right of the Company to manufacture, offer
or sell any of its products or services in the present manner or style
thereof.
2.15 Insurance. With respect to the insurance policies and fidelity bonds
currently covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company, there is no claim
A-13
<PAGE>
by the Company pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and the Company is otherwise in material compliance with
the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). The Company has no knowledge of any
threatened termination of, or material premium increase with respect to, any
of such policies. The Company has not been refused any requested insurance
coverage.
2.17 Minute Books. The minute books of the Company made available to counsel
for Parent are the only minute books of the Company and contain a reasonably
accurate summary of all formal actions taken by the stockholders and Board of
Directors of the Company since the time of incorporation of the Company.
2.18 Environmental Matters.
(a) Hazardous Material. The Company has not: (i) operated any underground
storage tanks at any property that the Company has at any time owned,
operated, occupied or leased; or (ii) illegally released any material amount
of any substance that has been designated by any Governmental Entity or by
applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant to
said laws, (a "Hazardous Material"), but excluding office and janitorial
supplies properly and safely maintained. No Hazardous Materials are present,
as a result of the deliberate actions of the Company, or to the Company's
knowledge as a result of any actions of any third party or otherwise, in, on
or under any property, including the land and the improvements, ground water
and surface water thereof, that the Company has at any time owned, operated,
occupied or leased.
(b) Hazardous Materials Activities. The Company has not transported, stored,
used, manufactured, disposed of, released or exposed its employees or others
to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities")
in material violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) Permits. The Company currently holds all material environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and
businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending or threatened
concerning any Environmental Permit, Hazardous Material or any Hazardous
Materials Activity of the Company. The Company is not aware of any fact or
circumstance which would be reasonably likely to result in the imposition upon
the Company of any material environmental liability.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Except as set forth
on Schedule 2.19, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. Schedule 2.19 sets forth the principal terms
and conditions of any agreement, written or oral, with respect to such fees.
A-14
<PAGE>
2.20 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 2.20(a)(i) below (such definition shall only apply to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded,
including without limitation, each "employee benefit plan", within the
meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any "Employee" (as defined below), and
pursuant to which the Company or any Affiliate has or may reasonably be
expected to have any material liability contingent or otherwise;
(iv) "Employee" shall mean any current, former, or retired employee,
officer, or director of the Company or any Affiliate;
(v) "Employee Agreement" shall refer to each presently existing
management, employment, severance, consulting, relocation, repatriation,
expatriation, visa, work permit or similar agreement or contract between
the Company or any Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee Plan which is
an "employee pension benefit plan", within the meaning of Section 3(2) of
ERISA.
(b) Schedule. Schedule 2.20(b) contains an accurate and complete list of
each Company Employee Plan and each Employee Agreement. The Company does not
have any stated plan or commitment to establish any new Company Employee Plan
or Employee Agreement, to modify any Company Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Company
Employee Plan or Employee Agreement to the requirements of any applicable law,
in each case as previously disclosed to Parent in writing, or as required by
this Agreement), or to enter into any Company Employee Plan or Employee
Agreement.
(c) Documents. The Company has provided to Parent (i) correct and complete
copies of all documents embodying or relating to each Company Employee Plan
and each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three most recent
annual reports (Series 5500 and all schedules thereto), if any, required under
ERISA or the Code in connection with each Company Employee Plan or related
trust; (iv) if the Company Employee Plan is funded, the most recent annual and
periodic accounting of Company Employee Plan assets required under ERISA or
the Code; (v) the most recent summary plan description together with the most
recent summary of material modifications, if any, required under ERISA with
respect to each Company Employee Plan; (vi) all IRS determination letters and
rulings relating to Company Employee Plans and copies of all applications and
correspondence to or from the IRS or the Department of Labor ("DOL") with
respect to any Company Employee Plan; (vii) all communications material to any
Employee or Employees relating to any Company Employee Plan and any proposed
Company Employee Plans, in each case,
A-15
<PAGE>
relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or other
events which would result in any material liability to the Company; and (viii)
all registration statements and prospectuses prepared in connection with each
Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule 2.20(d), (i)
the Company has performed in all material respects all obligations required to
be performed by it under each Company Employee Plan and each Company Employee
Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA or
the Code; (ii) no "prohibited transaction", within the meaning of Section 4975
of the Code or Section 406 of ERISA, has occurred with respect to any Company
Employee Plan; (iii) there are no actions, suits or claims pending, or, to the
knowledge of the Company, threatened or anticipated (other than routine claims
for benefits) against any Company Employee Plan or against the assets of any
Company Employee Plan; and (iv) each Company Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance
with its terms, without liability to the Company, Parent or any of its
Affiliates (other than ordinary administration expenses typically incurred in
a termination event); (v) there are no inquiries or proceedings pending or, to
the knowledge of the Company, threatened by the IRS or DOL with respect to any
Company Employee Plan; and (vi) neither the Company nor any Affiliate is
subject to any penalty or tax with respect to any Company Employee Plan under
Section 402(i) of ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of
ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to or been
requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in Schedule 2.20(g),
no Company Employee Plan provides, or has any liability to provide, life
insurance, medical or other employee benefits to any Employee upon his or her
retirement or termination of employment for any reason, except as may be
required by statute, and the Company has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) would be
provided with life insurance, medical or other employee welfare benefits upon
their retirement or termination of employment, except to the extent required
by statute.
(h) Effect of Transaction.
(i) Except as provided in Section 1.6 of this Agreement or as set forth
in Section 2.8(b)(vii), the execution of this Agreement and the
consummation of the transactions contemplated hereby will not constitute an
event under any Company Employee Plan, Employee Agreement, trust or loan
that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any Employee.
(ii) Except as described in Section 2.8(b)(vii), no payment or benefit
which will or may be made by the Company or Parent or any of their
respective affiliates with respect to any Employee will be characterized as
an "excess parachute payment", within the meaning of Section 280G(b)(1) of
the Code.
(i) Employment Matters. The Company (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions
of employment and wages and hours, in each case, with respect to Employees;
(ii) has withheld all amounts required by law or by agreement to be withheld
from the wages, salaries and other payments to Employees; (iii) is not liable
for any arrears of wages or any taxes or any penalty for failure to comply
with any of the foregoing; and (iv) is not liable for any payment to any trust
or other fund or to any governmental or
A-16
<PAGE>
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent
with past practice).
(j) Labor. No work stoppage or labor strike against the Company is pending
or, to the knowledge of the Company, threatened. Except as set forth in
Schedule 2.20(j), the Company is not involved in or threatened with, any labor
dispute, grievance, or litigation relating to labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of
unfair labor practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate, result in liability to
the Company. The Company has not engaged in any unfair labor practices within
the meaning of the National Labor Relations Act which would, individually or
in the aggregate, directly or indirectly result in a material liability to the
Company. Except as set forth in Schedule 2.20(j), the Company is not
presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees
and no collective bargaining agreement is being negotiated by the Company.
(k) Terminations. Since June 30, 1996, there have been no resignation or
termination of employment of any of the Company's key employees, and the
Company has not received notice of the impending resignation or termination of
employment of any such employee.
2.21 Products and Services. The Company has delivered to Parent copies of
its warranty policies and all outstanding warranties or guarantees relating to
any of the Company's products or services other than warranties or guarantees
implied by law. The Company has not been subject to and there is no basis for
any claim asserting (a) any damage, loss or injury caused by any product or
service provided by the Company, or (b) any breach of any express or implied
warranty or any other similar claim with respect to any product or service
other than standard warranty obligations (to replace, repair or refund) made
by the Company in the ordinary course of business.
2.22 Registration Statement. None of the information supplied or to be
supplied by the Company for inclusion in the Registration Statement (as
defined below in Section 3.2) or the Joint Proxy Statement (as defined below
in Section 5.1) shall, at the respective times such documents are filed with
the SEC (as defined below in Section 3.2), and, in the case of the
Registration Statement, when it becomes effective, and in the case of the
Joint Proxy Statement, when it is first mailed to the stockholders of the
Company and to the Stockholders of Parent and at the time of the Company
Stockholders' Meeting and the Parent Stockholders' Meeting (each as defined
below in Section 5.2), be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading.
2.23 Complete Copies of Materials. The Company has delivered or made
available true and complete copies of each document (or summaries of same)
which has been requested by Parent or its counsel in connection with their
legal and accounting review of the Company.
2.24 Representations Complete. None of the representations or warranties
made by the Company (as modified by the Company Schedules and subject to the
qualifications and exceptions expressed therein), nor any statement made in
any Schedule or certificate furnished by the Company pursuant to this
Agreement, to the Company's knowledge, contains or will contain at the
Effective Time, any untrue statement of a material fact, or omits or will omit
at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading.
A-17
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby represent and warrant to the Company that the
representations and warranties set forth below shall be true and correct as of
the date hereof (unless the context requires otherwise, all references to the
Parent herein shall be deemed to refer to the Parent and all of its
subsidiaries):
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Each of Parent and
Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the business, assets (including
intangible assets), financial condition or results of operations of Parent and
its subsidiaries taken as a whole (hereinafter referred to as a "Material
Adverse Effect on the Parent").
3.2 Authority. Subject only to the requisite approval of the Merger and this
Agreement by Parent's stockholders, Parent and Merger Sub have all requisite
corporate power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The vote required of Parent's
stockholders under the rules of the Nasdaq National Market to duly approve the
Merger and this Agreement is that number of shares as would constitute a
majority of the total votes cast on the proposal to approve the Merger in
person or by proxy at a special meeting of Parent's stockholders duly held
under Delaware law. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub,
subject only to the approval of this Agreement and the Merger and (subject to
Section 5.24 hereof) the approval by Parent's stockholders of an amendment to
increase the number of shares available for options under Parent's 1989
Incentive Stock Plan by 1,000,000 shares (hereafter the "Incentive Plan
Amendment") by the Parent's stockholders. The Board of Directors of each of
Parent and Merger Sub have unanimously approved the Merger and this Agreement
and the Incentive Plan Amendment. This Agreement has been duly executed and
delivered by Parent and Merger Sub and constitutes the valid and binding
obligations of Parent and Merger Sub, enforceable against Parent and Merger
Sub in accordance with its terms (except as enforcement hereof may be limited
by (i) bankruptcy, insolvency, reorganization, moratorium and similar laws,
both state and federal, affecting the enforcement of creditors' rights or
remedies in general as from time to time effect or (ii) the exercise by courts
of equity powers). Subject only to the approval of the Merger and this
Agreement by Parent's stockholders and the approval by Parent's stockholders
of the Incentive Plan Amendment, the execution and delivery of this Agreement
by Parent and Merger Sub do not, and immediately prior to the Effective Time,
the consummation of the transactions contemplated hereby will not result in a
Conflict with (i) any provision of the Certificate of Incorporation or Bylaws
of Parent or Merger Sub or (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or Merger Sub or its respective properties or assets. No
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any Government Entity or any third party (so as
not to trigger any Conflict), is required at or prior to the Effective Time by
or with respect to Parent or Merger Sub in connection with Parent's and Merger
Sub's execution and delivery of this Agreement or its respective consummation
of the transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger with the Delaware Secretary of State, (ii) the filing
and effectiveness of the Registration Statement on Form S-4 (or such other or
successor form as shall be appropriate) (the "Registration Statement") with
the Securities and Exchange Commission (the "SEC"), (iii) the Filing of a Form
8-K with the SEC within 15 days after the Closing Date, (iv) the listing of
the Parent Common Stock to be issued upon Closing on the Nasdaq National
Market, (v) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and (vi) such other consents, waivers, authorizations,
filings, approvals and registrations which are set forth on Schedule 6.3(c).
A-18
<PAGE>
3.3 Capital Structure.
(a) The authorized stock of Parent consists of 30,000,000 shares of Common
Stock, of which 12,576,674 shares were issued and outstanding as of July 31,
1996, and 5,000,000 shares of Preferred Stock, none of which is issued or
outstanding. The Company intends to seek stockholder approval to increase the
number of shares of authorized Common Stock to 75,000,000 (the "Certificate
Amendment"). The authorized capital stock of Merger Sub consists of 1,000
shares of Common Stock, 1,000 shares of which, as of the date hereof, are
issued and outstanding and are held by Parent. Except for the Certificate
Amendment, all such shares have been duly authorized, and all such issued and
outstanding shares have been validly issued, are fully paid and nonassessable
and are free of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the Merger
and to be issued upon the exercise of options and warrants of the Company
assumed pursuant to this Agreement will be duly authorized, validly issued,
fully paid and non-assessable.
3.4 SEC Documents; Parent Financial Statements. Parent has furnished or made
available to the Company true and complete copies of all reports, registration
statements (except on Form S-8) and definitive proxy statements filed by it
(together with any amendments required to be made with respect thereto) with
the SEC under the Securities Act of 1933, as amended (the "Securities Act")
and under Securities Exchange Act of 1934, as amended (the "Exchange Act")
subsequent to September 30, 1995, all in the form so filed (all of the
foregoing together with all exhibits and schedules thereto and documents
incorporated by reference therein being collectively referred to as the "SEC
Documents"). As of their respective filing dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act or the
Exchange Act as applicable and the rules and regulations of the SEC
promulgated thereunder, and, to the knowledge of Parent, none of the SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were
made, not misleading, except to the extent corrected by a subsequently filed
document with the SEC. The SEC Documents constitute all reports, registration
statements, proxy statements and other filings required to be made by Parent
pursuant to the Securities Act and the Exchange Act subsequent to September
30, 1995. All material contracts and other documents of Parent and its
subsidiaries required to be filed as exhibits to the SEC Documents have been
filed as required. The financial statements of Parent, including the notes
thereto, included in the SEC Documents (the "Parent Financial Statements")
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP consistently
applied (except as may be indicated in the notes thereto) and present fairly
in all material respects the consolidated financial position of Parent at the
dates thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal audit adjustments
which will not be material in amount or significance). There has been no
change in Parent accounting policies except as described in the notes to the
Parent Financial Statements.
3.5 No Material Adverse Change. Since June 30, 1996, Parent has conducted
its business in the ordinary course and there has not occurred: (a) any
material adverse change in the financial condition, liabilities, assets or
business of Parent; (b) any amendment or change in the Certificate of
Incorporation or Bylaws of Parent; or (c) any damage to, destruction or loss
of any assets of the Parent, (whether or not covered by insurance) that
materially and adversely affects the financial condition or business of
Parent.
3.6 Litigation. Except for a legal action by the former employer of a newly
hired employee of Parent as disclosed to the Company, there is no action, suit
or proceeding of any nature pending or, to the Parent's knowledge, threatened
against the Parent, its properties or to the Parent's knowledge any of its
officers or directors, in their respective capacities as such which in any
manner challenges or seeks to prevent, enjoin, alter or materially delay any
of the transactions contemplated by this Agreement or which would have a
Material Adverse Effect on Parent.
A-19
<PAGE>
3.7 Registration Statement. None of the information supplied or to be
supplied by Parent for inclusion in the Registration Statement or the Joint
Proxy Statement (as defined below in Section 5.1) shall, at the respective
times such documents are filed with the SEC, and, in the case of the
Registration Statement, when it becomes effective, and in the case of the
Joint Proxy Statement, when it is first mailed to the stockholders of Company
and to the stockholders of the Parent and at the time of the Company
Stockholders' Meeting and the Parent Stockholders' Meeting (each as defined
below in Section 5.2), to Parent's knowledge, be false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
3.8 Opinion of Financial Advisor. Parent has received the written opinion of
its financial advisor, Montgomery Securities, that the terms of the Merger are
fair, from a financial point of view, to Parent.
3.9 Intellectual Property. Parent owns, possesses or has rights to use all
Intellectual Property presently used in and material to the business of Parent
as it is now being conducted as of the date of this Agreement including
products currently under development ("Parent Intellectual Property Rights").
The execution and delivery of this Agreement by the Parent, and the
consummation of the transactions contemplated hereby, will neither cause the
Parent to be in violation or default under any material license, sublicense or
other agreement to which the Parent is a party and under which Parent or, to
Parent's knowledge, any other person is authorized to use any Parent
Intellectual Property Rights (excluding any End-User Licenses), nor entitle
any other party to any such license, sublicense or agreement to terminate or
modify such license, sublicense or agreement except for any such violation,
default, termination or modification as would not cause a Material Adverse
Effect on Parent. Except as set forth on Schedule 3.9, no claims with respect
to Parent's Intellectual Property Rights are currently pending or have been
asserted since September 30, 1995 or, to the Parent's knowledge, are
threatened by any person, nor are there any valid grounds for any bona fide,
claims which would be reasonably likely to have a Material Adverse Effect on
Parent (i) to the effect that the manufacture, sale, licensing or use of any
of the products of, or providing of any services by, Parent infringes on any
copyright, patent, trademark, service mark, trade secret or other proprietary
right or Intellectual Property of any other party, (ii) against the use by
Parent of any Intellectual Property used in and material to Parent's business
as currently conducted including products currently under development, or
(iii) challenging the ownership by the Parent, validity or effectiveness of
any of Parent Intellectual Property Rights. To the Parent's knowledge, the
business of the Parent as currently conducted including products currently
under development by the Parent has not and does not infringe on any
Intellectual Property of any third party. To the Parent's knowledge, there is
no material unauthorized use, infringement or misappropriation of any of the
Parent Intellectual Property Rights by any third party, including any employee
or former employee of the Parent. No Parent Intellectual Property Right or
product or service of the Parent is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the licensing thereof by
the Parent.
3.10 Representations Complete. None of the representations or warranties
made by the Parent when read in conjunction with the SEC Documents, to
Parent's knowledge, contains or will contain at the Effective Time, any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading and which would have a Material Adverse Effect on Parent.
3.11 No Undisclosed Liabilities. Parent does not have any liability,
obligation or claim of any type (whether accrued, absolute, contingent,
matured unmatured or other) which if known would be required to be reflected
in the financial statements of Parent in accordance with GAAP, except for any
such liability, obligation or claim which (i) has been reflected in Parent's
balance sheet at June 30, 1996, or (ii) has arisen in the ordinary course of
Parent's business since June 30, 1996, consistent with past practices.
A-20
<PAGE>
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except as contemplated
by this Agreement or to the extent that Parent shall otherwise consent in
writing, which consent shall not be unreasonably withheld) to carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay its debts and Taxes when due, to pay or
perform other obligations when due, and, to the extent consistent with such
business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time.
Following the date of this Agreement, the Company shall promptly notify Parent
of any materially negative event related to the Company or its business.
Except as expressly contemplated by this Agreement or disclosed in Schedule
4.1, the Company shall not, without the prior written consent of Parent, which
consent shall not be unreasonably withheld:
(a) Enter into any material commitment or transaction not in the ordinary
course of business;
(b) Transfer to any person or entity any material rights to the Company
Intellectual Property Rights (other than pursuant to End-User Licenses in the
ordinary course of business);
(c) Enter into any material agreements (or material amendments thereto)
pursuant to which any other party is granted marketing, distribution or
similar rights of any type or scope with respect to any products of the
Company other than in the ordinary course of business consistent with past
practices;
(d) Amend or otherwise modify (or agree to do so), except in the ordinary
course of business, or violate the material terms of, any of the agreements
set forth or described in the Company Schedules;
(e) Commence any material litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of capital stock of the Company, or
repurchase (except for repurchases of Company Common Stock in the ordinary
course of business under the terms of the restricted stock agreements), redeem
or otherwise acquire, directly or indirectly, any shares of its capital stock
(or options, warrants or other rights exercisable therefor);
(g) Except as set forth on Schedule 2.2(b) and except for the issuance of
shares of Company Capital Stock upon exercise or conversion of presently
outstanding Company Options or warrants, or Company Common Stock upon
conversion of outstanding Company Preferred Stock, or the grant of stock
options to new employees pursuant to outstanding written offers of employment,
issue, grant, deliver or sell or authorize or propose the issuance, grant,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities;
(h) Cause or permit any amendments to its Certificate of Incorporation or
Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets in an amount in excess of $50,000 in the case of a single transaction
or in excess of $100,000 in the aggregate in any 30-day period;
A-21
<PAGE>
(j) Sell, lease, license or otherwise dispose of any of its properties or
assets, except in the ordinary course of business;
(k) Except for the Interim Credit Agreement, incur any indebtedness for
borrowed money or guarantee any such indebtedness or issue or sell any debt
securities of the Company or guarantee any debt securities of others;
(l) Grant any severance or termination pay (i) to any director or officer or
(ii) to any other employee other than in accordance with the severance policy
set forth on Schedule 4.1(l) with the consent of Parent;
(m) Adopt or amend any employee benefit plan, or enter into any employment
contract, extend employment offers to any person whose aggregate annual base
salary would exceed $100,000, pay or agree to pay any special bonus or special
remuneration to any director or employee other than in connection with normal
annual bonus and salary adjustments for all non-officers and directors upon
consultation with Parent, or increase the salaries or wage rates of its other
employees, except as consistent with the ordinary course of the Company
consistent with past practice (provided that the price per share of any equity
participation in the Company shall be agreed in advance by Parent);
(n) Revalue any of its assets, including without limitation writing down the
value of inventory or writing off notes or accounts receivable, other than in
the ordinary course of business;
(o) Pay, discharge or satisfy, in an amount in excess of $25,000 (in any one
case) or $100,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of business
of liabilities reflected or reserved against in the Company Financial
Statements (or the notes thereto) or that arose in the ordinary course of
business subsequent to December 31, 1995 or unless payment of such claim,
liability or obligation is due in accordance with its terms or expenses
consistent with the provisions of this Agreement incurred in connection with
the transactions contemplated hereby not in excess of $100,000;
(p) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to
any extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes; or
(q) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (p) above, or any other action that would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder.
4.2 No Solicitation; Initial Public Offering.
(a) Until the earlier of the Effective Time and the date of termination of
this Agreement pursuant to the provisions of Section 8.1 hereof, the Company
will not (nor will the Company permit any of the Company's officers,
directors, agents, representatives or affiliates to) directly or indirectly,
take any of the following actions with any party other than Parent and its
designees: (a) solicit, conduct discussions with or engage in negotiations
with any person, relating to the possible acquisition of the Company or any of
its subsidiaries (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its or their
capital stock or assets, (b) provide information with respect to the Company
or any of its subsidiaries to any person, other than Parent, relating to the
possible acquisition of the Company or any of its subsidiaries (whether by way
of merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its or their capital stock or assets, (c) enter into an
agreement with any person, other than Parent, providing for the acquisition of
the Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
or their capital stock or assets, (d) make or authorize any statement,
recommendation or solicitation in support of any possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
or their capital stock or assets by any person, other than by Parent or (e)
conduct discussions with or engage
A-22
<PAGE>
in negotiations with any person relating to the possible filing of a
registration statement for the initial public offering of the Company Capital
Stock. In addition to the foregoing, if the Company receives prior to the
Effective Time or the termination of this Agreement any offer, letter of
intent or other proposal, as applicable, relating to any of the above, the
Company shall promptly notify Parent thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and the
specific terms of such offer or proposal, as the case may be, and such other
information related thereto as Parent may reasonably request.
(b) Nothing in this Agreement shall be construed to prohibit (i) the Company
from disclosing, under protection of an appropriate confidentiality agreement,
non-public information concerning the Company to, and engaging in, discussions
and negotiations regarding any such possible acquisition with, a person who
has made a bona fide offer to engage in such a transaction for a consideration
and on terms which the Company's Board of Directors reasonably believes are
more favorable to the Company stockholders than the Merger, and who can
reasonably be expected to consummate the transaction on the terms that have
been proposed and which disclosure, discussions and negotiations, in the
judgment of the Company after consultation with its legal counsel, shall be
required by reason of the fiduciary obligations of the Board of Directors of
the Company (a "Superior Proposal"); or (ii) the Company's Board of Directors
from withdrawing or modifying from its recommendation referenced to in Section
5.1.
Notwithstanding the foregoing, the Company shall not provide non-public
information or enter into discussions or negotiations with any such third
party unless (i) the Company has prior to the date thereof provided such
information to the Parent or Parent's representatives; (ii) the Company has
notified the Parent in advance of any such proposed disclosure to any such
third party, with a description of the information to be disclosed; and (iii)
the Company shall have provided copies to the Parent of all written
communications between such third party and the Company.
If the Company or its representatives receives any unsolicited offer,
inquiry or proposal to enter into discussions or negotiations relating to an
alternative transaction, the Company shall immediately notify the Parent
thereof, including information as to the identity of the party making such
contact and the specific terms of any offer, inquiry or proposal, as the case
may be.
4.3 Strategic Agreements. The Company agrees that it will not enter into any
strategic alliance, joint development or joint marketing agreement during the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement and the Effective Time unless it has first
consulted with the Chief Financial Officer of Parent.
4.4 Conduct of Business of Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, Parent agrees (except as contemplated by
this Agreement or to the extent that the Company shall otherwise consent in
writing, which consent shall not be unreasonably withheld) to carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay its debts and Taxes when due, to pay or
perform other obligations when due, and, to the extent consistent with such
business, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve their
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
unimpaired its goodwill and ongoing businesses at the Effective Time.
Following the date of this Agreement, Parent shall promptly notify the Company
of any materially negative event related to Parent or its business.
A-23
<PAGE>
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Joint Proxy Statement; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement, Parent
and the Company shall prepare, and Parent shall file with the SEC the
Registration Statement, which shall include therein proxy materials to be sent
to the Company's stockholders and to the Parent's stockholders (the "Joint
Proxy Statement"), relating to the approval of the Merger, and which complies
as to form with applicable SEC requirements. Parent and the Company shall use
all reasonable efforts to cause the Registration Statement to become effective
as soon thereafter as practicable; provided, however, that Parent shall have
no obligation to agree to account for the Merger as a "purchase" in order to
cause the Registration Statement to become effective. The Joint Proxy
Statement shall include the recommendation of the Boards of Directors of the
Company and Parent in favor of the Merger; which shall not be changed unless
the Board of Directors of the Company or the Parent, as the case may be, upon
advice of its outside legal counsel, shall determine that to include such
recommendation or not withdraw such recommendation if previously included
would constitute a breach of such Board's fiduciary duty under applicable law.
(b) The Company shall provide to Parent and its counsel for inclusion in the
Joint Proxy Statement, in form and substance reasonably satisfactory to Parent
and its counsel, such information concerning the Company, its operations,
capitalization, technology, share ownership and other material as Parent or
its counsel may reasonably request. Each of Parent and the Company shall use
its reasonable best efforts to respond to any comments of the SEC and to have
the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. The Company shall cause the Joint
Proxy Statement to be mailed to the Company's stockholders and the Parent
shall cause the Joint Proxy Statement to be mailed to the Parent's
stockholders, respectively, at the earliest practicable time. Each party will
notify the other parties hereto promptly of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Registration Statement or the Joint Proxy Statement or
for additional information and will supply the other party with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff, on the other hand, with respect to the
Registration Statement or the Joint Proxy Statement. Whenever any event occurs
which should be set forth in an amendment or supplement to the Joint Proxy
Statement and the Registration Statement, Parent or the Company, as the case
may be, shall promptly inform the other party of such occurrence and cooperate
in filing with the SEC or its staff.
5.2 Meeting of Stockholders.
(a) The Company shall promptly after the date hereof take all action
necessary in accordance with Delaware Law and its Certificate of Incorporation
and Bylaws to convene a meeting of its stockholders (the "Company
Stockholders' Meeting") as soon as is practicable. The Company shall consult
with Parent and use its best efforts to hold the Company Stockholders' Meeting
on the same day as the Parent Stockholders' Meeting (as defined below).
Subject to Sections 4.2 and 5.1, the Company shall use reasonable efforts to
solicit from stockholders of the Company proxies in favor of the Merger.
(b) Parent shall promptly after the date hereof take all action necessary in
accordance with Delaware Law, its Certificate of Incorporation and Bylaws, and
the rules of the Nasdaq National Market to convene a meeting of its
stockholders (the "Parent Stockholders' Meeting") as soon as is practicable.
Parent shall consult with the Company and shall use all reasonable efforts to
hold the Parent Stockholders' Meeting on the same day as the Company
Stockholders' Meeting. Subject to Section 5.1, Parent shall use reasonable
efforts to solicit from stockholders of Parent proxies in favor of (i) the
Merger, (ii) the amendment of Parent's 1989 Incentive Stock Plan to increase
the number of shares available for issuance thereunder by 1,000,000 and (iii)
the amendment of Parent's Certificate of Incorporation to increase the
authorized Common Stock from 30,000,000 shares to 75,000,000 shares. Approval
of Parent's stockholders of the items referred to in (ii) and (iii) above
shall not be conditions to the consummation of the Merger.
A-24
<PAGE>
(c) The Company and Parent shall also use all reasonable best efforts to
hold such meetings prior to November 30, 1996.
5.3 Access to Information. Subject to any applicable contractual
confidentiality obligations (which each party shall use its reasonable best
efforts to cause to be waived) each party shall afford the other party and its
accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (a) all
of its properties, books, contracts, agreements and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request. No information or knowledge obtained in any investigation pursuant to
this Section 5.3 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties
to consummate the Merger.
5.4 Confidentiality. Each of the parties hereto hereby agrees to and
reaffirms the terms and provisions of the Mutual Nondisclosure Agreement
between Parent and the Company executed in August, 1996.
5.5 Expenses. All fees and expenses incurred in connection with the Merger
including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties ("Third Party
Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses; provided, however, that Parent and the
Company shall share equally all fees and expenses, other than attorneys fees,
incurred in relation to the printing and filing of the Registration Statement
(including financial statements and exhibits and the Proxy Statements) and any
amendments or supplements thereto. Notwithstanding the foregoing, in the event
the Merger is consummated, the Parent shall assume all liabilities incurred by
the Company in connection with the Merger, except for the fees and expenses of
the Company's financial advisors which the parties agree will be paid by means
of a distribution to such financial advisors of 64,500 Escow Shares from Escow
in accordance with Article VII hereof.
5.6 Public Disclosure. Unless otherwise required by law (including, without
limitation, securities laws) or, as to Parent, by the rules and regulations of
the National Association of Securities Dealers, Inc., prior to the Effective
Time, no disclosure (whether or not in response to an inquiry) of the
discussions or subject matter of this Agreement shall be made by any party
hereto unless approved by Parent and the Company prior to release, provided
that such approval shall not be unreasonably withheld.
5.7 Consents. The Company shall use its reasonable efforts to obtain the
consents, waivers and approvals under any of the Contracts or Company
Intellectual Property Rights as may be required in connection with the Merger
(all of such consents, waivers and approvals are set forth in Company
Schedules) so as to preserve all rights of, and benefits to the Company
thereunder which if not obtained would cause a Material Adverse Effect on the
Company and the Parent shall use its reasonable efforts to obtain any
consents, waivers and approvals as may be required in connection with the
Merger which if not obtained would cause a Material Adverse Effect on the
Parent.
5.8 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties hereto shall use its reasonable best efforts to
take promptly, or cause to be taken, all actions, and to do promptly, or cause
to be done, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings and to remove
any injunctions or other impediments or delays, legal or otherwise, in order
to consummate and make effective the transactions contemplated by this
Agreement for the purpose of securing to the parties hereto the benefits
contemplated by
A-25
<PAGE>
this Agreement; provided that neither the Company nor the Parent shall be
required to agree to any divestiture by Parent or the Company, as may be
applicable, or any of Parent's or Company's subsidiaries or affiliates of
shares of capital stock or of any business, assets or property of Parent or
its subsidiaries or affiliates or the Company or its affiliates, or the
imposition of any material limitation on the ability of any of them to conduct
their businesses or to own or exercise control of such assets, properties and
stock.
5.10 Conduct; Notification of Certain Matters. Each of Parent and Company
shall use its respective best efforts to not take, or fail to take, any action
that from the date hereof through the Closing would cause or constitute a
breach of any of its respective representations, warranties, agreements and
covenants set forth in this Agreement. The Company shall give prompt written
notice to Parent, and Parent shall give prompt written notice to the Company,
of (i) the occurrence or non-occurrence of any event, the occurrence or non-
occurrence of which causes or is likely to cause any representation or
warranty of the Company or Parent or Merger Sub, respectively, contained in
this Agreement (as modified by the Company Schedules) to be untrue or
inaccurate in any material respect at or prior to the Effective Time and (ii)
any failure of the Company or Parent or Merger Sub, as the case may be, to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.10 shall not limit
or otherwise affect the other party's right to rely on the representations and
warranties herein or any the other remedies available to the party receiving
such notice.
5.11 Pooling Accounting. Parent and the Company shall each use its
reasonable best efforts to cause the business combination to be effected by
the Merger to be accounted for as a pooling of interests. Each of Parent and
the Company shall use its reasonable best efforts to cause its respective
employees, directors, stockholders and affiliates not to take any action that
would adversely affect the ability of Parent to account for the business
combination to be effected by the Merger as a pooling of interests. Neither
Parent nor the Company shall take any action, including the acceleration of
vesting of any options, warrants, restricted stock or other rights to acquire
shares of the capital stock of the Company, which reasonably would be expected
to (i) interfere with Parent's ability to account for the Merger as a pooling
of interests or (ii) jeopardize the tax-free nature of the reorganization
hereunder.
5.12 Affiliate Agreements. Schedule 5.12 sets forth those persons who, in
the Company's reasonable judgment, are "affiliates" of the Company within the
meaning of Rule 145 (each such person an "Affiliate") promulgated under the
1933 Act ("Rule 145"). The Company shall provide Parent such information and
documents as Parent shall reasonably request for purposes of reviewing such
list. Each of the Company and Parent has delivered or shall cause to be
delivered to the other, concurrently with the execution of this Agreement,
from each of their respective Affiliates, an executed Affiliate Agreement in
the forms attached as Exhibit A-1 or A-2 and Exhibit B, respectively, which
shall include a covenant that each Affiliate, subject to certain exceptions,
shall not sell, transfer or otherwise dispose of Parent Common Stock until
Parent has published financial statements containing at least 30 days of
combined financial results of Parent and the Company. The Affiliate Agreement
shall also contain a covenant requiring certain of the stockholders of the
Company or the Parent, as appropriate, to vote all shares held by such person
in favor of the Agreement and the Merger. Parent and Merger Sub shall be
entitled to place appropriate legends on the certificates evidencing any
Parent Common Stock to be received by Affiliates of the Company pursuant to
the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for Parent Common Stock, consistent with
the terms of such Affiliate Agreements.
5.13 Additional Documents and Further Assurances. Each party hereto, at the
reasonable request of the other party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
reasonably necessary or desirable for effecting completely the consummation of
this Agreement and the transactions contemplated hereby.
5.14 Employment Agreements. Prior to the Effective Date, the individuals
listed on Schedule 5.14 will enter into employment agreements (the "Employment
Agreements") with Parent which shall become effective as of the Effective Time
in substantially the form attached hereto as Exhibit C on terms of employment
consistent
A-26
<PAGE>
with Schedule 5.14 and into two-year Non-Competition Agreements (the "Non-
Competition Agreements") with Parent and the Company in substantially the form
attached hereto as Exhibit D. Parent and the Company agree that the Informed
Access Systems Charter in substantially the form attached hereto as Exhibit I
be included as part of such Employment Agreements.
5.15 Nasdaq National Market Listing. Parent shall authorize for listing on
the Nasdaq National Market the shares of Parent Common Stock issuable, and
those required to be reserved for issuance, in connection with the Merger,
upon official notice of issuance.
5.16 Blue Sky Laws. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Company shall use its best efforts to assist Parent as may be reasonably
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Parent Common Stock
pursuant hereto.
5.17 Re-location of Company's Operations; Company Employees.
(a) For a period of not less than one year following the Effective Time,
Parent shall maintain the Company's operations in the area of Broomfield,
Colorado following the Closing Date and shall continue the employment and
current salary of all persons employed by the Company as of the Effective
Time. Such persons may be terminated during such one-year period only (i) for
reasonable cause or (ii) if the employee reaches normal retirement age. For
purposes of this Section 5.17(a), "cause" shall mean the willful and continued
failure of an employee, following reasonable notice and reasonable opportunity
to comply, to perform duties with due care, refusal to follow lawful
instructions of superiors, commission of tortious or criminal acts, failure to
comply with attendance policies and material failure to comply with other
general employment policies that may be announced by Parent from time to time.
(b) For a period of one year following the Effective Time, Parent will
either (i) cause to remain in effect all Company Employee Plans as in effect
on the date of this Agreement or (ii) provide benefits to employees of the
Company under plans of Parent that provide benefits that are no less
favorable, taken as a whole, to the benefits provided to comparable employees
of Parent.
(c) To the extent that eligibility for participation or entitlement to
benefits under any plan of Parent is determined by reference to periods of
service, then for purposes of determining the eligibility of employees of the
Company to participate in plans of Parent after the Effective Time or their
entitlement to benefits thereunder (including entitlement to early retirement
subsidies under any pension plan and any severance or vacation plans or
arrangements of Parent), the calculation of such periods of service shall
include periods of service with the Company and its subsidiaries.
(d) The provisions of this Section 5.17 are intended to benefit, and may be
enforced by, the employees covered by such provisions. This Section 5.17 shall
be binding upon all successors and assigns of the Company, Parent, Merger Sub,
and the Surviving Corporation.
5.18 Form S-8. Parent agrees to file a registration statement on Form S-8
for the Company Stock Option Plans no later than 30 days after the Closing
relating to the shares of Parent Common Stock underlying the Assumed Company
Options and shall use its reasonably best efforts to maintain the
effectiveness (and current status) of such registration statement for so long
as such Assumed Company Options remain outstanding. Parent shall administer
the plans relating to the Assumed Company Options in a manner that complies
with Rule 16b-3 promulgated by the SEC under the Exchange Act.
5.19 Tax-Free Reorganization. Parent and the Company shall each use its
reasonable best efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368 of the Code.
A-27
<PAGE>
5.20 Board Representation. Parent agrees to appoint Joseph Tallman and
Kinney Johnson (the "Company Representatives") to Parent's Board of Directors
as of the Effective Time. In the event the Parent implements a classified
Board of Directors consisting staggered terms, Joseph Tallman shall be
appointed to the class which has the longest term and Kinney Johnson shall be
appointed to the class that has the next longest term.
5.21 Indemnification Continuation.
(a) For purposes of this Section 5.21 (i) "Indemnified Person" means any
person who is now, or has been at any time prior to the Effective Time, an
officer or director of the Company or who was serving at the request of the
Company as an officer or director of another corporation, joint venture or
other enterprise, or a general partner of any partnership, or a trustee of any
trust and (ii) "Proceeding" means any claim, action, suit, proceeding or
investigation.
(b) From and after the Effective Time, Parent shall cause the Surviving
Corporation, to the fullest extent permitted under applicable law, to
indemnify, defend and hold harmless each Indemnified Person against and from
(i) any losses, claims, damages, expenses (including reasonable attorneys'
fees and court costs), liabilities or judgments, and (ii) any amounts that are
paid in settlement with the consent of the Surviving Corporation (which
consent will not be unreasonably withheld) of or in connection with any
Proceeding based directly or indirectly (in whole or in part) on, or arising
directly or indirectly (in whole or in part) out of, the fact that such
Indemnified Person is or was an officer or director of the Company or is or
was serving at the request of the Company as an officer or director of another
corporation, joint venture or other enterprise or general partner of any
partnership or a trustee of any trust, whether pertaining to any matter
arising before or after the Effective Time. The Surviving Corporation shall
use all reasonable efforts to assist in the vigorous defense of every matter
asserted in such Proceeding for which such Indemnified Person is entitled to
indemnification under applicable law. In the event of any proceeding, any
Indemnified Person wishing to claim indemnification will promptly notify the
Surviving Corporation thereof (provided that failure to so notify the
Surviving Corporation will not affect the obligations of the Surviving
Corporation to provide indemnification except to the extent that the Surviving
Corporation shall have been prejudiced as a result of such failure). With
respect to any Proceeding for which indemnification is requested, the
Surviving Corporation will be entitled to participate therein at its own
expense and, except as otherwise provided below, to the extent that it may
wish, the Surviving Corporation may assume the defense thereof, with counsel
reasonably satisfactory to the Indemnified Person. After notice from the
Surviving Corporation to the Indemnified Person of its election to assume the
defense of a Proceeding, the Surviving Corporation will not be liable to the
Indemnified Person for any legal or other expenses subsequently incurred by
the Indemnified Person in connection with the defense thereof, other than as
provided below. The Surviving Corporation will not settle any Proceeding
without the consent of the Indemnified Person unless such settlement includes
a full release of the Indemnified Person, does not impose any injunctive or
equitable remedy upon the Indemnified Person, does not include any admission
of civil or criminal liability on behalf of an officer or director and does
not require any payment to be made by the Indemnified Person. The Indemnified
Person will have the right to employ counsel in any Proceeding, but the fees
and expenses of such counsel incurred after notice from the Surviving
Corporation of its assumption of the defense thereof will be at the expense of
the Indemnified Person, unless (i) the employment of counsel by the
Indemnified Person has been authorized by the Surviving Corporation, (ii) the
Indemnified Person shall have reasonably concluded upon the advice of counsel
that there may be a conflict of interest between the Indemnified Person and
the Surviving Corporation in the conduct of the defense of a Proceeding, or
(iii) the Surviving Corporation shall not in fact have employed counsel to
assume the defense of a Proceeding, in each of which cases the reasonable fees
and expenses of counsel selected by the Indemnified Person will be at the
expense of the Surviving Corporation and the Surviving Corporation, to the
fullest extent permitted under applicable law, shall in such event pay
expenses in advance of the final disposition of any such Proceeding upon the
receipt from the Indemnified Person to whom such expenses are advanced of an
undertaking to repay such advances if it is ultimately determined that such
Indemnified Person is not entitled to be indemnified by Surviving Corporation.
Notwithstanding the foregoing, the Surviving Corporation will not be liable
for any settlement effected without its written consent and the Surviving
Corporation will not be obligated pursuant to this Section 5.21 to pay the
fees and disbursements of
A-28
<PAGE>
more than one counsel for all Indemnified Persons in any single Proceeding,
except to the extent two or more of such Indemnified Persons have conflicting
interests in the outcome of such action.
(c) In addition to the foregoing, Parent shall cause the Surviving
Corporation to continue in full force provisions in the Company's Certificate
of Incorporation and Bylaws in effect on the date of this Agreement providing
for indemnification of Indemnified Persons to the fullest extent now or
hereafter permitted under Delaware Law, which provisions shall not be amended
except as required by applicable law or except to make changes permitted by
law that would enlarge the Indemnified Persons' right of indemnification.
(d) The Surviving Corporation shall pay all expenses, including attorneys'
fees, that may be incurred by any Indemnified Person in enforcing the
indemnity and other obligations provided for in this Section 5.21.
(e) The rights of each Indemnified Person hereunder shall be in addition to
any other rights such Indemnified Person may have under Delaware Law, the
Company's Certificate of Incorporation or bylaws in effect prior to the
Effective Time, any agreement or otherwise. The provisions of this Section
5.21 shall survive the consummation of the Merger for a period of six years
and are expressly intended to benefit and may be relied upon each of the
Indemnified Persons; provided, however, that in the event that any claim or
claims for indemnification are asserted or made within such six-year period,
all rights to indemnification in respect of any such claim or claims shall
continue until the disposition of any and all such claims.
(f) In the event Parent or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any
other person or entity and shall not be the continuing or surviving
corporation or entity of such consolidation or merger, or (ii) transfers or
conveys all or a substantial portion of its properties or assets to any person
or entity, then, and in each such case, to the extent necessary to effectuate
the purposes of this Section 5.21 proper provision shall be made so that the
successors and assigns of Parent and the Surviving Corporation assume the
obligations set forth in this Section 5.21.
5.22 Registration Rights Agreement. At the Effective Time, Parent shall
execute and deliver for execution to each of the stockholders of the Company
which received Parent Common Stock as a result of the Merger a Registration
Rights Agreement in the form attached hereto as Exhibit E (the "Registration
Rights Agreement").
5.23 Interim Credit Facility. Exhibit F sets forth the principal terms of an
interim credit facility to be provided to the Company by Parent. Within
fifteen (15) days from the date of this Agreement, Parent shall execute and
deliver to the Company a definitive Interim Credit Facility Agreement with
terms substantially as set forth in Exhibit F (the "Interim Credit Facility
Agreement").
5.24 Incentive Plan Amendment. In the event the stockholders of Parent do
not approve the Incentive Plan Amendment at the Parent Stockholder Meeting
then the Company and Parent agree that all stock options to be issued to
employees of the Company pursuant to the Employment Agreements shall be non-
qualified rather than partially incentive stock options.
5.25 Interim Financial Statement. If the Closing occurs after November 30,
1996, and prior to January 1, 1997, Parent agrees to prepare and publish (in
accordance with applicable "pooling of interests" accounting rules) as soon as
practicable, but no later than February 21, 1997, an interim financial
statement with combined financial results of Parent and the Company for the
month of January 1997. If the Closing occurs prior to December 1, 1996, or
after December 31, 1996, Parent shall not be obligated to publish an interim
financial statement and the thirty (30) days of combined financial results of
Parent and the Company required by pooling of interest accounting rules shall
be included in Parent's regular quarter end financial statements.
5.26 Transaction Structure. Parent and the Company agree that in the event
either party determines that the transaction as structured in the Agreement
will not be able to be completed in a manner that will permit accounting
treatment as a pooling of interests then Parent and the Company will promptly
negotiate an appropriate amendment to this Agreement so that the transaction
will be a stock for asset reorganization under
A-29
<PAGE>
Section 368(a)(l)(C) of the Code that will qualify for accounting treatment as
a pooling of interests and under which Parent will to the extent permissible
under Section 368(a)(l)(C) and pooling of interests accounting treatment
substitute Parent stock options and warrants for all outstanding unexercised
Company Options and warrants as of the Closing Date.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of each of the
Company, Parent and Merger Sub.
(b) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective. No stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose, and no similar proceeding in respect of the
Joint Proxy Statement, shall have been initiated or threatened by the SEC; and
all requests for additional information on the part of the SEC shall have been
complied with to the reasonable satisfaction of the parties hereto.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(d) Tax Opinions. Parent and the Company shall each have received
substantially identical written opinions from their counsel, Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation, and Cooley Godward LLP,
respectively, in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. The parties to this Agreement agree to make
reasonable representations as requested by such counsel for the purpose of
rendering such opinions.
(e) Opinion of Accountants. Each of Parent and the Company shall have
received letters from Ernst & Young LLP, and Arthur Andersen L.L.P.,
respectively, reaffirming those firms' written concurrence, delivered
concurrently with the execution of this Agreement, with Parent management's
and the Company management's conclusions, respectively, as to the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16, if closed and consummated in
accordance with this Agreement.
(f) Nasdaq National Market Listing. The shares of Parent Common Stock
issuable to stockholders of the Company pursuant to this Agreement and such
other shares required to be reserved for issuance in connection with the
Merger shall have been authorized for listing on the Nasdaq National Market
upon official notice of issuance.
6.2 Additional Conditions to Obligations of the Company. The obligations of
the Company to consummate the Merger and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall be true and correct on
and as of the date hereof and as of the Closing Date, as though made on and as
of the Closing Date except for changes contemplated by this Agreement and
except for those representations and warranties which address matters only as
of a particular date (which shall remain true and correct as of such date),
with the same force and effect as if made on and as of the Closing Date,
except, in
A-30
<PAGE>
all such cases, for such breaches of such representations and warranties which
individually or in the aggregate of all such breaches, neither have
substantially impaired nor reasonably would be expected to substantially
impair Parent's ability after the Closing to continue to develop, produce,
sell and distribute the products and services that are material to Parent's
business; and the Company shall have received a certificate (addressed to the
Company and its stockholders) to such effect signed on behalf of Parent by a
duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied (which performance or compliance shall be subject to Parent's or
Merger Sub's ability to cure as provided in Section 8.1(e) below) in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by them on or prior to the Effective Time,
and the Company shall have received a certificate to such effect signed on
behalf of Parent by a duly authorized officer of Parent.
(c) Third Party Consents. The Company shall have been furnished with
evidence satisfactory to it that Parent has obtained the consents, approvals
and waivers set forth in Schedule 6.2(c).
(d) Legal Opinion. The Company shall have received a legal opinion from
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel to
Parent, in substantially the form attached hereto as Exhibit G.
(e) Material Adverse Change. There shall not have occurred any material
adverse change in the business, assets (including intangible assets),
financial condition or results of operations of Parent since the date of this
Agreement which change has resulted in or reasonably would be expected to
result in a substantial impairment of Parent's ability after the Closing to
continue to develop, produce, sell and distribute the products and services
that are material to Parent's business. For purposes of this condition, a
reduction in the trading price of Parent's Common Stock, whether occurring at
any time or from time to time, as reported by the Nasdaq National Market or
any other automated quotation system or exchange shall not, in and of itself,
constitute a material adverse change.
(f) Noncompetition and Employment Agreements. All individuals identified on
Schedule 5.14 shall have executed and delivered to Parent Non-competition
Agreements in substantially the form of Exhibit D and all of such Non-
competition Agreements shall be in full force and effect. A sufficient number
of persons listed on Schedule 5.14 shall have executed and delivered
Employment Agreements in the form of Exhibit C and with the terms of
employment consistent with Schedule 5.14 and all of such Employment Agreements
shall be in full force and effect such that a Substantial Material Adverse
Change (as defined in Section 6.3(e) below) shall not have occurred.
(g) Registration Rights Agreement. The Parent shall have delivered an
executed copy of the Registration Rights Agreement.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement shall be true and correct on and as of
the date hereof and as of the Closing Date, as though made on and as of the
Closing Date except for changes contemplated by this Agreement (including the
Company Schedules) and except for those representations and warranties which
address matters only as of a particular date (which shall remain true and
correct as of such date), with the same force and effect as if made on and as
of the Closing Date, except, in all such cases, for such breaches of such
representations and warranties which individually or in the aggregate of all
such breaches neither have substantially impaired nor reasonably would be
expected to substantially impair the Company's ability after the Closing to
continue to develop, produce, sell and distribute the products and services
that are material to the Company's business; and Parent and Merger Sub shall
have received a certificate to such effect signed on behalf of the Company by
a duly authorized officer of the Company;
A-31
<PAGE>
(b) Agreements and Covenants. The Company shall have performed or complied
(which performance or compliance shall be subject to the Company's ability to
cure as provided in Section 8.1(d) below) in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time, and Parent and Merger
Sub shall have received a certificate to such effect signed on behalf of the
Company by a duly authorized officer of the Company;
(c) Third Party Consents. Parent shall have been furnished with evidence
satisfactory to it that the Company has obtained the consents, approvals and
waivers set forth in Schedule 6.3(c).
(d) Legal Opinion. Parent shall have received a legal opinion from Cooley
Godward Castro Huddleson & Tatum, legal counsel to the Company, in
substantially the form attached hereto as Exhibit G.
(e) Substantial Material Adverse Change. There shall not have occurred any
Substantial Material Adverse Change since the date of this Agreement. A
"Substantial Material Adverse Change" shall be deemed to have occurred only in
the event that prior to the Effective Time any of the following occurs: (i)
more than two (2) of the customers identified on Schedule 6.3(e) terminate
(and do not replace) their agreement(s) with the Company and such customers do
not become customers of Parent; (ii) the President or two or more vice
presidents of the Company terminate or announce their intention to terminate
their employment with the Company and announce their intention not to accept
employment with Parent; (iii) the Company receives a bona fide written threat
of a lawsuit or a lawsuit is filed against the Company regarding the Company's
Intellectual Property Rights which has a substantial likelihood of being
meritorious and would substantially impair the Company's ability after the
Closing to continue to develop, produce, sell and distribute the Company's
material products and services or which has a substantial likelihood of being
meritorious and of resulting in a judgment in excess of $3,000,000 against the
Company or (iv) the Company's operating loss before taxes and extraordinary
items, including the bonuses in the aggregate amount of $1,500,000 approved in
September 1996 by the Company's board of Directors and disclosed to Parent
(determined in accordance with GAAP applied on a basis consistent with the
basis on which the Audited Financials were prepared), is greater than
$5,000,000 for the nine months ended September 30, 1996.
(f) Noncompetition and Employment Agreements. All individuals identified on
Schedule 5.14 shall have executed and delivered to Parent (i) Non-Competition
Agreements in substantially the form of Exhibit D and all of such Non-
Competition Agreements shall be in full force and effect. A sufficient number
of persons listed on Schedule 5.14 shall have executed and delivered
Employment Agreements in the form of Exhibit C and in the terms of employment
consistent with Schedule 5.14 and all of such Employment Agreements shall be
in full force and effect such that a Substantial Material Adverse Change (as
defined in Section 6.3(e) above) shall not have occurred.
(g) Dissenters' Rights. Holders of more than 5% of the outstanding shares of
Company Capital Stock shall not have exercised, nor shall they have any
continued right to exercise, appraisal, dissenters' or similar rights under
applicable law with respect to their shares by virtue of the Merger.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of the Company's
representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement (each as modified by the Company
Schedules) and all of Parent's and Merger Sub's representations and warranties
in this Agreement or in any instrument delivered pursuant to this Agreement
shall survive the Merger and continue until 5:00 p.m., California time, on the
earlier of the date which is the date of the auditor's report for the first
audit of the Parent's financial statements after the Closing Date or the date
which is six (6) months following the Closing Date (the "Expiration
A-32
<PAGE>
Date"); except that Parent's representations and warranties in Sections 3.5,
3.6, 3.9, 3.10 and 3.11 shall terminate on the Closing Date. Parent's
covenants shall survive the Merger except as otherwise specifically provided
for.
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time the Company's stockholders will be
deemed to have received and deposited with the Escrow Agent (as defined below)
the Escrow Shares (plus any additional shares as may be issued upon any stock
split, stock dividend or recapitalization effected by Parent after the
Effective Time), without any act of any stockholder. As soon as practicable
after the Effective Time, the Escrow Shares without any act of any
stockholder, will be deposited with First Trust of California National
Association Global Escrow D.S., (or other institution acceptable to Parent and
the Securityholder Agent (as defined in Section 7.2(g) below)) as Escrow Agent
(the "Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow
Fund") to be governed by the terms set forth herein and at Parent's cost and
expense. The portion of the Escrow Shares contributed on behalf of each
stockholder of the Company shall be in proportion to the aggregate Parent
Common Stock which such holder would otherwise be entitled under Section
1.6(c) rounded down to the nearest whole share, with the remaining number of
shares that are distributed to such holder being rounded up to the nearest
whole share. The Escrow Fund shall be available to compensate Parent and its
subsidiaries (including the Surviving Corporation) for any claims, losses,
liabilities, damages, deficiencies, costs and expenses, including reasonable
attorneys' fees and expenses, and expenses of investigation and defense
(calculated after deduction for insurance proceeds recovered or recoverable)
incurred by Parent and its subsidiaries (including the Surviving Corporation)
directly or indirectly as a result of any inaccuracy or breach of a
representation or warranty of the Company contained in Article II herein or in
any instrument delivered pursuant to this Agreement (each as modified by the
Company Schedules as delivered on the date of this Agreement and not as
modified by any revisions to the Company Schedules after such date), or any
failure by the Company to perform or comply with any covenant contained herein
(hereinafter individually a "Loss" and collectively "Losses"), and shall also
be available to provide payment of certain financial advisory fee obligations
of the Company. Parent and the Company each acknowledge that such Losses, if
any, would relate to unresolved contingencies existing at the Effective Time,
which if resolved at the Effective Time would have led to a reduction in the
aggregate Merger consideration. The right of Parent and its subsidiaries
(including the Surviving Corporation) after the Effective Time to assert
indemnification claims and receive indemnification payments from the Escrow
Fund pursuant to this Article VII shall be the sole and exclusive right and
remedy exercisable by such parties with respect to any inaccuracy or breach in
any representation, warranty, or covenant contained in this Agreement or in
any certificate delivered pursuant to this Agreement or in connection with the
transactions contemplated hereby. Subject to Section 8.3 below, nothing herein
shall limit the liability of the Company for any breach of any representation,
warranty or covenant if the Merger does not close. Parent may not receive any
shares from the Escrow Fund unless and until Officer's Certificates (as
defined in paragraph (d) below) identifying Losses, the aggregate cumulative
amount of which exceed $500,000, have been delivered to the Escrow Agent as
provided in paragraph (e); in such case, Parent may recover from the Escrow
Fund the entire amount of the cumulative Losses.
(b) Escrow Period; Distribution upon Termination of Escrow Periods. Subject
to the following requirements, the Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
California time, on the Expiration Date (the "Escrow Period"); provided that
the Escrow Period shall not terminate with respect to such amount (or some
portion thereof), that together with the aggregate amount remaining in the
Escrow Fund is necessary in the reasonable judgment of Parent, subject to the
objection of the Securityholder Agent and the subsequent arbitration of the
matter in the manner provided in Section 7.2(f) hereof, to satisfy any
unsatisfied Losses concerning facts and circumstances existing prior to the
termination of such Escrow Period specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period. As
soon as any such Loss has been resolved, the Escrow Agent shall deliver to the
stockholders of the Company the remaining portion of the Escrow Fund not
required to satisfy any other such unresolved Loss. Deliveries of Escrow
Shares to the stockholders of the Company pursuant to this Section 7.2(b)
shall be made in proportion to their respective original contributions to the
Escrow Fund.
A-33
<PAGE>
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during the
Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of this Agreement and not as the property of Parent and shall hold
and dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity securities issued
or distributed by Parent (including shares issued upon a stock split) ("New
Shares") in respect of Parent Common Stock in the Escrow Fund which have
not been released from the Escrow Fund shall be added to the Escrow Fund
and become a part thereof. New Shares issued in respect of shares of Parent
Common Stock which have been released from the Escrow Fund shall not be
added to the Escrow Fund but shall be distributed to the recordholders
thereof. Cash dividends on Parent Common Stock shall not be added to the
Escrow Fund but shall be distributed to the recordholders thereof.
(iii) Each stockholder shall have voting rights with respect to the
shares of Parent Common Stock contributed to the Escrow Fund by such
stockholder (and on any voting securities added to the Escrow Fund in
respect of such shares of Parent Common Stock).
(d) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or before the last
day of the Escrow Period of a certificate signed by any officer of Parent
(an "Officer's Certificate"): (A) stating that Parent has paid or properly
accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of
Losses included in the amount so stated, the date each such item was paid
or properly accrued, or the basis for such anticipated liability, and the
nature of the misrepresentation, breach of warranty or covenant to which
such item is related and to the extent known a reasonable summary of the
facts underlying the claim, and if no objection is received from the
Securityholder Agent in accordance with Section 7.2(e), the Escrow Agent
shall, subject to the provisions of Section 7.2(e) hereof, deliver to
Parent out of the Escrow Fund, as promptly as practicable, shares of Parent
Common Stock held in the Escrow Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of shares of Parent
Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 7.2(d)(i) hereof, the shares of Parent Common Stock shall be valued
at the average of the closing prices of Parent's Common Stock on the
principal securities exchange on which Parent's Common Stock is then
traded, or if not so traded, the Nasdaq National Market in either case as
reported in The Wall Street Journal for the five (5) consecutive trading
days ending on the date that is two (2) trading days prior to the Closing
Date. Parent and the Securityholder Agent shall certify such fair market
value in a certificate signed by both Parent and the Securityholder Agent,
and shall deliver such certificate to the Escrow Agent.
(iii) As provided in Section 5.5 hereof, 64,500 of the Escow Shares shall
be distributed from the Escow Fund following the Merger to the Company's
financial advisors in payment of the fees owed by the Company to such
advisors. The parties hereto agree that the Escow Agent shall be authorized
to release such shares from the Escow Fund upon receipt of an Officer's
Certificate from Parent and shall be authorized to deliver such shares to
the Company's financial advisor in accordance with the instructions set
forth in such Officer's Certificate.
(e) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent and for a period of thirty (30) days
after such delivery, the Escrow Agent shall make no delivery to Parent of any
Escrow Shares pursuant to Section 7.2(d) hereof unless the Escrow Agent shall
have received written authorization from the Securityholder Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow
Agent shall make delivery of shares of Parent Common Stock from the Escrow
Fund in accordance with Section 7.2(d) hereof,
A-34
<PAGE>
provided that no such payment or delivery may be made if the Securityholder
Agent shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow Agent
prior to the expiration of such thirty (30) day period.
(f) Resolution of Conflicts; Arbitration.
(i) In case the Securityholder Agent shall so object in writing to any
claim or claims made in any Officer's Certificate, the Securityholder Agent
and Parent shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the
Securityholder Agent and Parent should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely
on any such memorandum and distribute shares of Parent Common Stock from
the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith negotiation,
either Parent or the Securityholder Agent may demand arbitration of the
matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by
arbitration conducted by three arbitrators. Parent and the Securityholder
Agent shall each select one arbitrator, and the two arbitrators so selected
shall select a third arbitrator, each of which arbitrators shall be
independent and have at least ten years relevant experience. The
arbitrators shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgment of the arbitrators,
to discover relevant information from the opposing parties about the
subject matter of the dispute. The arbitrators shall rule upon motions to
compel or limit discovery and shall have the authority to impose sanctions,
including attorneys fees and costs, to the extent as a court of competent
law or equity, should the arbitrators determine that discovery was sought
without substantial justification or that discovery was refused or objected
to without substantial justification. The decision of a majority of the
three arbitrators as to the validity and amount of any claim in such
Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement, and notwithstanding anything in Section 7.2(e) hereof, the
Escrow Agent shall be entitled to act in accordance with such decision and
make or withhold payments out of the Escrow Fund in accordance therewith.
Such decision shall be written and shall be supported by written findings
of fact and conclusions which shall set forth the award, judgment, decree
or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in
Palo Alto, California, under the rules then in effect of the Judicial
Arbitration and Mediation Services, Inc. For purposes of this Section
7.2(f), in any arbitration hereunder in which any claim or the amount
thereof stated in the Officer's Certificate is at issue, Parent shall be
deemed to be the Non-Prevailing Party in the event that the arbitrators
award Parent less than the sum of seventy-five percent (75%) of the
disputed amount plus any amounts not in dispute; otherwise, the
stockholders of the Company as represented by the Securityholder Agent
shall be deemed to be the Non-Prevailing Party. The Non-Prevailing Party to
an arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative costs of the arbitration, and the expenses, including
without limitation, reasonable attorneys' fees and costs, incurred by the
other party to the arbitration. If Parent is the prevailing party, the
amounts owed by the Non-Prevailing Party shall be paid solely from the
Escrow Fund.
(g) Securityholder Agent of the Stockholders; Power of Attorney.
(i) In the event that the Merger is approved, effective upon such vote,
and without further act of any stockholder, Kinney L. Johnson, shall be
appointed as agent and attorney-in-fact (the "Securityholder Agent") for
each stockholder of the Company (except such stockholders, if any, as shall
have perfected their appraisal or dissenters' rights under Delaware Law),
for and on behalf of stockholders of the Company, to give and receive
notices and communications, to authorize delivery to Parent of shares of
Parent Common Stock from the Escrow Fund in satisfaction of claims by
Parent, to object to such deliveries, to agree to,
A-35
<PAGE>
negotiate, enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of arbitrators with
respect to such claims, and to take all actions necessary or appropriate in
the judgment of the Securityholder Agent for the accomplishment of the
foregoing. Such agency may be changed by the stockholders of the Company
from time to time upon not less than thirty (30) days prior written notice
to Parent; provided that the Securityholder Agent may not be removed unless
holders of a two-thirds interest of the Escrow Fund agree to such removal
and to the identity of the substituted agent. Any vacancy in the position
of Securityholder Agent may be filled by approval of the holders of a
majority in interest of the Escrow Fund. No bond shall be required of the
Securityholder Agent, and the Securityholder Agent shall not receive
compensation for his or her services. Notices or communications to or from
the Securityholder Agent shall constitute notice to or from each of the
stockholders of the Company.
(ii) The Securityholder Agent shall not be liable for any act done or
omitted hereunder as Securityholder Agent while acting in good faith and in
the exercise of reasonable judgment. The stockholders of the Company on
whose behalf the Escrow Shares were contributed to the Escrow Fund shall
severally indemnify the Securityholder Agent and hold the Securityholder
Agent harmless against any loss, liability or expense incurred without
negligence or bad faith on the part of the Securityholder Agent and arising
out of or in connection with the acceptance or administration of the
Securityholder Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Securityholder Agent.
(h) Actions of the Securityholder Agent. A decision, act, consent or
instruction of the Securityholder Agent shall constitute a decision of all the
stockholders for whom a portion of the Escrow Shares otherwise issuable to
them are deposited in the Escrow Fund and shall be final, binding and
conclusive upon each of such stockholders, and the Escrow Agent and Parent may
rely upon any such decision, act, consent or instruction of the Securityholder
Agent as being the decision, act, consent or instruction of each every such
stockholder of the Company. The Escrow Agent and Parent are hereby relieved
from any liability to any person for any acts done by them in accordance with
such decision, act, consent or instruction of the Securityholder Agent.
(i) Third-Party Claims. In the event Parent becomes aware of a third-party
claim which Parent believes may result in a demand against the Escrow Fund,
Parent shall notify the Securityholder Agent of such claim, and the
Securityholder Agent, as representative for the stockholders of the Company,
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that except with the consent of the Securityholder
Agent, no settlement of any such claim with third-party claimants shall alone
be determinative of the amount of any claim against the Escrow Fund. In the
event that the Securityholder Agent has consented in writing to any such
settlement and acknowledged that the claim by Parent is a valid claim against
the Escrow Fund, the Securityholder Agent shall have no power or authority to
object under any provision of this Article VII to the amount of any claim by
Parent against the Escrow Fund with respect to such settlement.
(j) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive
after the date of this Agreement which are signed by an officer of Parent
and the Securityholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to
be genuine and to have been signed or presented by the proper party or
parties. The Escrow Agent shall not be liable for any act done or omitted
hereunder as Escrow Agent while acting in good faith and in the exercise of
reasonable judgment, and any act done or omitted pursuant to the advice of
counsel shall be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow
A-36
<PAGE>
Agent obeys or complies with any such order, judgment or decree of any
court, the Escrow Agent shall not be liable to any of the parties hereto or
to any other person by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow Agent shall
not be liable to any party for damages, losses, or expenses, except for
gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure
to act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith
believe to be genuine, nor will the Escrow Agent be liable or responsible
for forgeries, fraud, impersonations, or determining the scope of any
representative authority. In addition, the Escrow Agent may consult with
the legal counsel in connection with Escrow Agent's duties under this
Agreement and shall be fully protected in any act taken, suffered, or
permitted by him/her in good faith in accordance with the advice of
counsel. The Escrow Agent is not responsible for determining and verifying
the authority of any person acting or purporting to act on behalf of any
party to this Agreement.
(vi) If any controversy arises between the parties to this Agreement, or
with any other party, concerning the subject matter of this Agreement, its
terms or conditions, the Escrow Agent will not be required to determine the
controversy or to take any action regarding it. The Escrow Agent may hold
all documents and shares of Parent Common Stock and may wait for settlement
of any such controversy by final appropriate legal proceedings or other
means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In
such event, the Escrow Agent will not be liable for damage.
Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and
rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and shares of Parent Common Stock held in
escrow, except all cost, expenses, charges and reasonable attorney fees
incurred by the Escrow Agent due to the interpleader action and which the
parties jointly and severally agree to pay. Upon initiating such action,
the Escrow Agent shall be fully released and discharged of and from all
obligations and liability imposed by the terms of this Agreement.
(vii) The parties to this Agreement and their respective successors and
assigns agree jointly and severally to indemnify and hold Escrow Agent
harmless against any and all losses, claims, damages, liabilities, and
expenses, including reasonable costs of investigation, counsel fees, and
disbursements that may be imposed on Escrow Agent or incurred by Escrow
Agent in connection with the performance of his/her duties under this
Agreement, including but not limited to any litigation arising from this
Agreement or involving its subject matter.
(viii) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to the parties; provided, however, that no
such resignation shall become effective until the appointment of a
successor escrow agent which shall be accomplished as follows: the parties
shall use their best efforts to mutually agree on a successor escrow agent
within thirty (30) days after receiving such notice. If the Parent and the
Securityholder Agent fail to agree upon a successor escrow agent within
such time, the Escrow Agent shall have the right to appoint a successor
escrow agent authorized to do business in the state of
A-37
<PAGE>
California. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts,
be vested with all the estates, properties, rights, powers, and duties of
the predecessor escrow agent as if originally named as escrow agent. The
Escrow Agent shall be discharged from any further duties and liability
under this Agreement.
(k) Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes
in, any litigation pertaining to this escrow or its subject matter, the Escrow
Agent shall be reasonably compensated for such extraordinary services and
reimbursed for all costs, attorney's fees, and expenses occasioned by such
default, delay, controversy or litigation. Parent promises to pay these sums
upon demand.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement may
be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not occurred by
February 28, 1997 (provided that the right to terminate this Agreement under
this clause 8.1(b)(i) shall not be available to any party whose willful
failure to fulfill any obligation hereunder has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date); (ii)
there shall be a final nonappealable order of a federal or state court in
effect preventing consummation of the Merger; (iii) there shall be any
statute, rule, regulation or non-appealable order enacted, promulgated or
issued or deemed applicable to the Merger by any Governmental Entity that
would make consummation of the Merger illegal or (iv) the approval of the
Merger by the Company's stockholders required by Section 5.2(a) or the
approval of the Merger by Parent's stockholders required by Section 5.2(b)
shall not have been obtained at a meeting duly convened therefor or at any
adjournment thereof;
(c) by Parent or the Company if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any Governmental Entity, which would:
(i) prohibit Parent's or the Company's ownership or operation of any portion
of the business of the Company or (ii) compel Parent or the Company to dispose
of or hold separate, as a result of the Merger, any portion of the business or
assets of the Company or Parent; in either case, the unavailability of which
assets or business would have a Material Adverse Effect on Parent or would
reasonably be expected to have a Material Adverse Effect on Parent's ability
to realize the benefits expected from the Merger.
(d) by Parent if it is not in material breach of its representations,
warranties or obligations under this Agreement and there has been a breach of
any representation, warranty, covenant or agreement contained in this
Agreement on the part of the Company and as a result of such breach the
conditions set forth in Section 6.3(a) or 6.3(b), as the case may be, would
not then be satisfied; provided, however, that if such breach is curable by
the Company within thirty (30) days through the exercise of its reasonable
best efforts, then for so long as the Company continues to exercise such
reasonable best efforts Parent may not terminate this Agreement under this
Section 8.1(d) unless such breach is not cured within thirty (30) days (but no
cure period shall be required for a breach which by its nature cannot be
cured);
A-38
<PAGE>
(e) by the Company if it is not in material breach of its representations,
warranties or obligations under this Agreement and there has been a breach of
any representation, warranty, covenant or agreement contained in this
Agreement on the part of Parent or Merger Sub and as a result of such breach
the conditions set forth in Section 6.2(a) or 6.2(b), as the case may be,
would not then be satisfied; provided, however, that if such breach is curable
by Parent or Merger Sub within thirty (30) days through the exercise of its
reasonable best efforts, then for so long as Parent or Merger Sub continues to
exercise such reasonable best efforts the Company may not terminate this
Agreement under this Section 8.1(e) unless such breach is not cured within
thirty (30) days (but no cure period shall be required for a breach which by
its nature cannot be cured);
(f) by Parent if the Company's Board of Directors shall have failed to
recommend or changed its recommendation concerning the Merger or shall have
disclosed in any manner its intention to change such recommendation;
(g) by the Company if the Parent's Board of Directors shall have failed to
recommend or changed its recommendation concerning the Merger or shall have
disclosed in any manner its intention to change such recommendation;
(h) by the Company if the closing price of the Parent's Common Stock as
reported on the Nasdaq National Market is below $38.00 per share (as
appropriately adjusted for any stock splits, consolidations, stock dividends,
reorganization, recapitalization or other like changes occurring or having a
record or ex-dividend date after the date of this Agreement) for any ten (10)
business days during the twenty (20) business days prior to the Closing Date.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 8.1, this Agreement shall forthwith become void and,
except as set forth in Section 8.3, there shall be no liability or obligation
on the part of Parent, Merger Sub or the Company, or their respective
officers, directors or stockholders, provided that, the provisions of Sections
5.4 and 5.5 and Article VIII of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.
8.3 Termination Fee.
(a) The Company shall pay to Parent, a termination fee of $5,000,000,
payable in cash by wire transfer or cashier's check (or assets, if sufficient
cash is not readily available), in the event, and only in the event, that the
Closing does not occur, this Agreement is terminated, Parent is not in
material breach of its obligations under this Agreement, and any of the
following events has occurred:
(i) the Company has willfully breached any representation, warranty,
covenant or agreement contained in this Agreement and as a result of such
breach the conditions set forth in Section 6.3(a) or 6.3(b), as the case
may be, would not be satisfied;
(ii) the Merger has been submitted to a vote of the Company's
stockholders as required hereunder, and the stockholders of the Company
shall have failed to approve the Merger by a requisite vote required for
such approval; or
(iii) the Board of Directors of the Company shall have failed to
recommend or changed its recommendation concerning the Merger, or shall
have disclosed, in any manner, its intention not to recommend or to change
such recommendation.
A-39
<PAGE>
(b) The Parent shall pay to the Company, a termination fee of $5,000,000,
payable in cash by wire transfer or cashier's check in the event, and only in
the event, that the Closing does not occur, this Agreement is terminated, the
Company is not in material breach of its obligations under this Agreement, and
any of the following events has occurred:
(i) Parent has willfully breached any representation, warranty, covenant
or agreement contained in this Agreement and as a result of such breach the
conditions set forth in Section 6.2(a) or 6.2(b), as the case may be, would
not be satisfied;
(ii) the Board of Directors of Parent shall have failed to recommend or
shall have changed its recommendation concerning the Merger, or shall have
disclosed, in any manner, its intention not to recommend or to change its
recommendation to stockholders concerning the Merger; or
(iii) the Merger has been submitted to a vote of the Parent's
stockholders and the stockholders of the Parent shall have failed to
approve the Merger by a requisite vote required for such approval.
(c) Any termination payment required under Section 8.3(a) or (b) shall be
made by the applicable party within ten (10) days after termination of this
Agreement.
(d) The payments called for by this Section 8.3 shall not be deemed to be a
liquidated damage, and shall be in addition to any rights or remedies at law
or equity arising out of a breach of the obligations set forth in this
Agreement, provided a party shall not be liable for breach of a representation
or warranty unless such breach is wilful.
8.4 Amendment. Except as is otherwise required by applicable law after the
stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.5 Extension; Waiver. At any time prior to the Effective Time, Parent and
Merger Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE IX
GENERAL PROVISIONS
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Access Health, Inc.
11020 White Rock Road
Rancho Cordova, California 95670
Attention: Thomas E. Gardner
Telephone No.: (916) 851-4000
Facsimile No.: (916) 852-2047
A-40
<PAGE>
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Barry E. Taylor, Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
(b) if to the Company, to:
Informed Access Systems, Inc.
310 Interlocken Parkway, Suite A
Broomfield, Colorado 80021
Attention: Joseph P. Tallman
Telephone No.: (303) 443-4600
Facsimile No.: (303) 466-9510
with a copy to:
Cooley Godward LLP
2595 Canyon Boulevard, Suite 250
Boulder, Colorado 80302
Attention: James C.T. Linfield, Esq.
Telephone No.: (303) 546-4000
Facsimile No.: (303) 546-4099
(c) if to the Securityholder Agent:
Capital Health Venture Partners
2084 S. Milwaukee Street
Denver, Colorado 80210
Attention: Kinney L. Johnson
Telephone No.: (303) 692-8600
Facsimile No.: (303) 692-9656
(d) if to the Escrow Agent:
First Trust of California
One California Street, 4th Floor
San Francisco, California 94111
Attention: Injy Shediac Shami
Telephone No.: (415) 273-4534
Facsimile No.: (415) 273-4593
9.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each
case to mean any contract, commitment or other agreement, whether oral or
written, that is legally binding. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. For purposes of this
Agreement, a fact or other matter shall not be deemed to be within the
"knowledge" of the Company unless such fact or other matter is within the
actual knowledge of the President or any Vice President of the Company.
A-41
<PAGE>
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the schedules and Exhibits
hereto, and the documents and instruments and other agreements among the
parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder (except with respect to
Section 5.17 and 5.22 for the persons specified therein and as provided in
Section 9.9 below); and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided.
9.5 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto agrees that process may be served upon
them in any manner authorized by the laws of the State of Delaware for such
persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction and such process.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
9.9 Absence of Third-Party Beneficiary Rights. No provision of this
Agreement is intended, or will be interpreted, to provide to or create for any
third-party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner or any party hereto or any
other person or entity, and all provisions hereof will be personal solely
between the parties to this Agreement, except that the provisions of
Section 5.21 shall be for the benefit of, and enforceable by, the Indemnified
Persons referred to therein, Section 5.17 shall be for the benefit of, and
enforceable by, the employees of the Company and shall be enforceable by such
individuals against the Parent and the Surviving Corporation, and the
stockholders of the Company may enforce the representations and warranties of
the Parent made in this Agreement during the period in which such
representations and warranties survive as provided in Section 7.1.
A-42
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub, the Company, the Securityholder Agent
(as to Article VII only) and the Escrow Agent (as to matters set forth in
Article VII only) have caused this Agreement to be signed by their duly
authorized respective officers, all as of the date first written above.
INFORMED ACCESS SYSTEMS, INC. ACCESS HEALTH, INC.
By /s/ Joseph P. Tallman By /s/ Thomas E. Gardner
---------------------------------- ----------------------------------
Joseph P. Tallman Thomas E. Gardner
President and Chief Executive President and Chief Executive
Officer Officer
SECURITYHOLDER AGENT: ACCESS ACQUISITION CORP.
/s/ Kinney L. Johnson By /s/ Thomas E. Gardner
- ------------------------------------- ----------------------------------
Kinney L. Johnson Thomas E. Gardner
President and Chief Executive
Officer
ESCROW AGENT
By /s/ Ann Gadsby
----------------------------------
Ann Gadsby
Assistant Vice President
***REORGANIZATION AGREEMENT***
A-43
<PAGE>
INDEX OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- -----------
<C> <S>
2.2(a) Stockholder List
2.2(b) Option and Warrant List
2.4 Governmental and Third Party Consents
2.5 Company Financial Statements
2.6 Undisclosed Liabilities
2.7 No Changes
2.8 Tax Returns and Audits
2.10(a) Leased Real Property
2.10(b) Liens on Property
2.11(a) Intellectual Property
2.11(b) Intellectual Property Licenses
2.12(a) Agreements, Contracts and Commitments
2.12(b) Breaches
2.13 Interested Party Transactions
2.15 Litigation
2.19 Brokers/Finders Fees; Expenses of Transaction
2.20(b) Employee Benefit Plans and Employees
2.20(d) Employee Plan Compliance
2.20(g) Post Employment Obligations
2.20(h)(i) Effect of Transaction
2.20(h)(ii) Excess Parachute Payments
2.20(j) Labor
3.9 Parent Intellectual Property
4.1 Conduct of the Business
5.12 Company Affiliate List
6.2(c) Third Party Consents Required of the Company
6.3(c) Third Party Consents Required of Parent
</TABLE>
<PAGE>
EXHIBIT A-1
AFFILIATE/VOTING AGREEMENT
THIS AFFILIATE/VOTING AGREEMENT (this "Agreement") is made and entered into
as of September 3, 1996, by and among Access Health, Inc., a Delaware
corporation ("Parent"), Informed Access Systems, Inc., a Delaware corporation
(the "Company"), and the undersigned stockholder who may be deemed an
affiliate ("Affiliate") of the Company. Capitalized terms used but not
otherwise defined herein shall have the meanings ascribed to them in the
Reorganization Agreement (as defined below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Reorganization (the "Reorganization Agreement") which
contemplates that the Company and a wholly-owned subsidiary of Parent ("Merger
Sub") will enter into an Agreement of Merger, which Agreements (collectively,
the "Merger Agreements") provide for the merger (the "Merger") of Merger Sub
with and into the Company. Pursuant to the Merger, all outstanding capital
stock of the Company will be converted into Common Stock of Parent.
B. Affiliate is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
number of shares of the outstanding Company capital stock as is indicated on
the final page of this Agreement, which shares shall be exchanged for shares
of Common Stock of Parent as a result of the Merger (for purposes of this
Agreement "Shares" means shares of Company capital stock and the shares of
Common Stock of Parent issued in exchange therefor as a result of the Merger).
C. Affiliate understands that, since the Merger will be accounted for using
the "pooling of interests" method and Affiliate may be deemed to be an
"affiliate" of the Company (within the meaning of Securities and Exchange
Commission ("SEC") Rule 145), the Shares may only be disposed of in conformity
with the limitations described herein. Affiliate has been informed that the
treatment of the Merger as a pooling of interests for accounting purposes, and
as a tax-free reorganization under applicable provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), is dependent upon the accuracy
of certain of the representations and warranties and the compliance with
certain of the agreements set forth herein. Affiliate further understands that
the representations, warranties and agreements set forth herein will be relied
upon by Parent, the Company and their respective counsel and independent
auditors.
NOW THEREFORE, the parties agree as follows:
1. Agreement to Retain Shares.
(a) Transfer and Encumbrance. Affiliate agrees not to transfer, sell,
exchange, pledge or otherwise dispose of or encumber (except as may be
specifically required by court order) the Shares or any New Shares (as defined
in Section 1(b) below) or to make any offer or agreement relating thereto, at
any time from the date of this Agreement until the Expiration Date. As used
herein, the term "Expiration Date" shall mean the date Parent shall have
published (in accordance with applicable "pooling of interests" accounting
rules) the combined financial results of Parent and the Company for a period
of at least 30 days of combined operations of Parent and the Company.
(b) New Shares. Affiliate agrees that any shares of capital stock of the
Company that Affiliate purchases or with respect to which Affiliate otherwise
acquires beneficial ownership after the date of this Agreement and prior to
the Expiration Date ("New Shares") shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of the
Company called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of
A-A-1-1
<PAGE>
the stockholders of the Company with respect to any of the following,
Affiliate shall vote the Shares and any New Shares: (i) in favor of approval
of the Merger Agreements and the Merger and any matter that could reasonably
be expected to facilitate the Merger (including without limitation the
conversion, if reasonably necessary, of any shares of Preferred Stock of the
Company into Common Stock of the Company immediately prior to or at the
effective time of the Merger, consistent with the provisions of the Company's
Certificate of Incorporation and with the requirements necessary to account
for the Merger as a "pooling-of-interests"); and (ii) against approval of any
proposal made in opposition to or in competition with consummation of the
Merger and against any merger, consolidation, sale of assets, reorganization
or recapitalization, with any party other than with Parent and its affiliates
and against any liquidation or winding up of the Company (each of the
foregoing is hereinafter referred to as an "Opposing Proposal"). Stockholder
agrees not to take any actions contrary to Stockholder's obligations under
this Agreement.
3. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Affiliate agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable to the extent permitted by
Section 212 of the General Corporation Law of the State of Delaware, with
respect to the total number of shares of capital stock of the Company
beneficially owned (as such term is defined in Rule 13d-3 under the Exchange
Act) by Affiliate set forth therein.
4. Tax Treatment; Rule 145. Affiliate understands and agrees that it is
intended that the Merger qualify as a "reorganization" under Section 368 of
the Code. Affiliate further understands and agrees that Affiliate may be
deemed to be an "affiliate" of the Company within the meaning of Rule 145
("Rule 145") promulgated by the SEC under the Securities Act of 1933, as
amended (the "Securities Act"), although nothing contained herein should be
construed as an admission of such fact.
5. Reliance Upon Representations, Warranties and Covenants. Affiliate has
been informed that the treatment of the Merger as a reorganization for federal
income tax purposes requires that a sufficient number of former stockholders
of the Company maintain a meaningful continuing equity ownership interest in
Parent after the Merger. Affiliate understands that the representations,
warranties and covenants of Affiliate set forth herein will be relied upon by
Parent, the Company and their respective counsel and accounting firms.
6. Representations, Warranties and Covenants of Affiliate. Affiliate
represents, warrants and covenants as follows:
(a) Affiliate has full power and authority to execute this Agreement, to
make the representations, warranties and covenants herein contained and to
perform Affiliate's obligations hereunder.
(b) Set forth below the signatures below is the number of shares of Company
capital stock owned by Affiliate, including all Company capital stock as to
which Affiliate has sole or shared voting or investment power and all rights,
options and warrants to acquire Company capital stock owned or held by
Affiliate.
(c) Except as may be specifically required by court order, Affiliate will
not sell, transfer, exchange, pledge or otherwise dispose of, or make any
offer or agreement relating to any of the foregoing with respect to, any
shares of Parent Common Stock that Affiliate may acquire in connection with
the Merger, or any securities that may be paid as a dividend or otherwise
distributed thereon or with respect thereto or issued or delivered in exchange
or substitution therefor (all such shares and other securities of Parent are
sometimes collectively referred to as "Restricted Securities"), or any option,
right or other interest with respect to any Restricted Securities, unless: (i)
such transaction is permitted pursuant to Rule 145(d) under the Securities
Act; (ii) counsel representing Affiliate, which counsel is reasonably
satisfactory to Parent, shall have advised Parent in a written opinion letter
satisfactory to Parent and Parent's legal counsel, and upon which Parent and
its legal counsel may rely, that no registration under the Securities Act
would be required in connection with the proposed sale, transfer or other
disposition; (iii) a registration statement under the Securities Act covering
the Parent Common Stock proposed to be sold, transferred or otherwise disposed
of, describing the manner and terms of the proposed sale, transfer or other
dispositions, and containing a current prospectus, shall have been filed with
the SEC and made
A-A-1-2
<PAGE>
effective under the Securities Act; or (iv) an authorized representative of
the SEC shall have rendered written advice to Affiliate (sought by Affiliate
or counsel to Affiliate, with a copy thereof and all other related
communications delivered to Parent) to the effect that the SEC would take no
action, or that the staff of the SEC would not recommend that the SEC take any
action, with respect to the proposed disposition if consummated.
(d) Affiliate has, and as of the Effective Time of the Merger will have, no
present plan or intent to engage in a sale, exchange, transfer, pledge,
disposition or any other transaction that results in a reduction in the risk
of ownership (collectively, a "Sale") with respect to more than 45% of the
shares of Parent Common Stock to be acquired by the undersigned Affiliate upon
consummation of the Merger. Affiliate is not aware of, or participating in,
any present plan or intention (a "Plan") on the part of the Company
stockholders to engage in Sales of shares of Parent Common Stock to be issued
in the Merger such that the aggregate fair market value, as of the Effective
Time of the Merger, of the shares subject to such Sales would exceed forty-
five percent (45%) of the aggregate fair market value of all shares of
outstanding Company capital stock immediately prior to the Merger. For
purposes of the preceding sentence, shares of Company capital stock (i) which
are exchanged for cash in lieu of fractional shares of Parent Common Stock or
(ii) with respect to which a pre-Merger Sale occurs in a Related Transaction
(as defined below), shall be considered to be shares of Company capital stock
that are exchanged for Parent Common Stock in the Merger and then disposed of
pursuant to a Plan. A Sale of Parent Common Stock shall be considered to have
occurred pursuant to a Plan if, among other things, such Sale occurs in a
Related Transaction. For purposes of this Section 4(d), a "Related
Transaction" shall mean a transaction that is in contemplation of, or related
or pursuant to, the Merger or the Merger Agreements. If any of Affiliate's
representations in this subsection (d) cease to be true at any time prior to
the Effective Time of the Merger, Affiliate will deliver to each of the
Company and Parent, prior to the Effective Time of the Merger, a written
statement to that effect, signed by Affiliate.
(e) Affiliate will not, and will not permit any entity under Affiliate's
control to: (i) solicit proxies or become a "participant" in a "solicitation"
(as such terms are defined in Regulation 14A under the Exchange Act) with
respect to an Opposing Proposal or otherwise encourage or assist any party in
taking or planning any action that would compete with, restrain or otherwise
serve to interfere with or inhibit the timely consummation of the Merger in
accordance with the terms of the Merger Agreements; (ii) initiate a
stockholders' vote or action by consent of the Company stockholders with
respect to an Opposing Proposal; or (iii) become a member of a "group" (as
such term is used in Section 13(d) of the Exchange Act) with respect to any
voting securities of the Company with respect to an Opposing Proposal.
7. Rules 144 and 145; Pooling.
(a) From and after the Effective Time of the Merger and for so long as is
necessary in order to permit Affiliate to sell the Parent Common Stock held by
Affiliate pursuant to Rule 145 and, to the extent applicable, Rule 144 under
the Securities Act, Parent will use its best efforts to file on a timely basis
all reports required to be filed by it pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended, referred to in paragraph (c)(l)
of Rule 144 under the Securities Act (or, if applicable, Parent will use its
best efforts to make publicly available the information regarding itself
referred to in paragraph (c)(2) of Rule 144), in order to permit Affiliate to
sell the Parent Common Stock held by it pursuant to the terms and conditions
of Rule 145 and the applicable provisions of Rule 144.
(b) Parent agrees that, to the extent that any "affiliate" of Parent within
the meaning of Rule 145 makes use of any "de minimis" exceptions to the
pooling of interest requirements, Affiliate shall be entitled to rely upon
such exceptions to the same extent and in the same manner.
8. Limited Resales. Affiliate understands that, in addition to the
restrictions imposed under Section 4 of this Agreement, the provisions of Rule
145 currently limit Affiliate's public resales of Restricted Securities, in
the manner set forth in subsections (a), (b) and (c) below:
(a) Unless and until the restriction "Cut-off" provisions of Rule 145(d)(2)
or Rule 145(d)(3) set forth below become available, public resales of
Restricted Securities may only be made by Affiliate in compliance
A-A-1-3
<PAGE>
with the requirements of Rule 145(d)(1). Rule 145(d)(1) permits such resales
only: (i) while Parent meets the public information requirements of Rule
144(c); (ii) in broker's transactions or in transactions with a market maker;
and (iii) where the aggregate number of Restricted Securities sold at any time
together with all sales of restricted Parent Common Stock sold for Affiliate's
account during the preceding three-month period does not exceed the greater of
(A) one percent (1%) of the Parent Common Stock outstanding or (B) the average
weekly volume of trading in Parent Common Stock on all national securities
exchanges, as reported through the automated quotation system of a registered
securities association, during the four (4) calendar weeks preceding the date
of receipt of the order to execute the sale.
(b) Affiliate may make unrestricted sales of Restricted Securities pursuant
to Rule 145(d)(2) if: (i) Affiliate has beneficially owned (within the meaning
of Rule 144(d) under the Securities Act) the Restricted Securities for at
least two (2) years after the Effective Time of the Merger; (ii) Affiliate is
not an affiliate of Parent; and (iii) Parent meets the public information
requirements of Rule 144(c).
(c) Affiliate may make unrestricted resales of Restricted Securities
pursuant to Rule 145(d)(3) if Affiliate has beneficially owned (within the
meaning of Rule 144(d) under the Securities Act) the Restricted Securities for
at least three (3) years and is not, and has not been for at least three (3)
months, an affiliate of Parent.
(d) Parent acknowledges that the provisions of Section 4(c) of this
Agreement will be satisfied as to any sale by the undersigned of the
Restricted Securities pursuant to Rule 145(d), by a broker's letter and a
letter from the undersigned with respect to that sale stating that each of the
above-described requirements of Rule 145(d)(1) has been met or is inapplicable
by virtue of Rule 145(d)(2) or Rule 145(d)(3) (as such Rules may be in effect
at such time); provided, however, that Parent has no reasonable basis to
believe that such sales were not made in compliance with such provisions of
Rule 145(d).
9. Legends. Affiliate also understands and agrees that stop transfer
instructions will be given to Parent's transfer agent with respect to
certificates evidencing the Restricted Securities and that there will be
placed on the certificate evidencing the Restricted Securities legends stating
in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED,
SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AND THE
OTHER CONDITIONS SPECIFIED IN THAT CERTAIN AFFILIATE/VOTING AGREEMENT DATED
AS OF SEPTEMBER 3, 1996 AMONG ACCESS HEALTH, INC., INFORMED ACCESS SYSTEMS,
INC. AND THE STOCKHOLDER, A COPY OF WHICH AFFILIATE/VOTING AGREEMENT MAY BE
INSPECTED BY THE HOLDER OF THIS CERTIFICATE AT THE PRINCIPAL OFFICES OF
NAME."
After the Expiration Date, Parent agrees to remove the above legend, and
replace such legend with the following legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD,
PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED."
Parent agrees to remove promptly such stop transfer instructions and legend
upon full compliance with this Agreement by the undersigned, including,
without limitation, a sale or transfer of Parent Common Stock permitted under
Section 4(c) above.
10. Termination. This Agreement shall be terminated and shall be of no
further force and effect in the event the termination of the Reorganization
Agreement pursuant to Article VIII of the Reorganization Agreement.
A-A-1-4
<PAGE>
11. Partnership Distributions. Any other provisions of this Agreement
notwithstanding, if the undersigned Affiliate is organized as a partnership,
the Company and Parent hereby agree that such partnership shall be permitted
to make a distribution to its partners of shares of Company capital stock (if
made prior to the effectiveness of the Merger) or of shares of Parent capital
stock received in the Merger so long as the undersigned Affiliate and its
partnership distributees provide assurances, acceptable to Parent and the
Company in their reasonable discretion, that such distributions (i) are
permissible under Rule 145, (ii) will not prevent the Merger from being
treated as a tax-free reorganization for federal income tax purposes, or (iii)
will not prevent the Merger from being accounted for as a pooling of
interests.
12. Miscellaneous.
(a) Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(b) Binding Agreement. This Agreement will inure to the benefit of and be
binding upon and enforceable against the parties and their successors and
assigns, including administrators, executors, representatives, heirs, legatees
and devisees of Affiliate and pledgees holding Restricted Securities as
collateral.
(c) Waiver. No waiver by any party hereto of any condition or of any breach
of any provision of this Agreement shall be effective unless in writing and
signed by each party hereto.
(d) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
Delaware, without giving effect to any choice or conflict of law provision or
rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.
(e) Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results
in a final judgment.
(f) Effect of Headings. The Section headings herein are for convenience only
and shall not affect the construction or interpretation of this Agreement.
(g) Third Party Reliance. Counsel to and independent auditors for the
parties shall be entitled to rely upon this Affiliate Agreement.
A-A-1-5
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to be
duly executed on the day and year first above written.
PARENT AFFILIATE
By: _________________________________ By: _________________________________
Name: _______________________________ Affiliate's Address for Notice:
Title: ______________________________ _____________________________________
_____________________________________
_____________________________________
COMPANY
By: _________________________________ Shares beneficially owned:
Name: _______________________________ ________shares of Company Common Stock
Title: ______________________________ ________shares of Company Common Stock
issuable upon exercise of
outstanding options and
warrants
_________shares of Company Preferred
Stock
[SIGNATURE PAGE TO AFFILIATE/VOTING AGREEMENT]
A-A-1-6
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of Informed Access Systems, Inc., a Delaware
corporation (the "Company") hereby irrevocably (to the full extent permitted
by Section 212 of the General Corporation Law of the State of Delaware)
appoints the directors on the Board of Directors of Access Health, Inc., a
Delaware corporation ("Parent"), and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
the shares of capital stock of the Company beneficially owned by the
undersigned, which shares are listed on the final page of this Proxy (the
"Shares"), and any and all other shares or securities issued or issuable in
respect thereof on or after the date hereof, until such time as that certain
Agreement of Merger and Plan of Reorganization, which contemplates that the
Company and a wholly-owned subsidiary of Parent ("Merger Sub") will enter into
an Agreement of Merger, which Agreements (the "Merger Agreements") provide for
the merger (the "Merger") of Merger Sub with and into the Company, shall be
terminated in accordance with its terms or the Merger is effective. Pursuant
to the Merger, all outstanding capital stock of the Company will be converted
into Common Stock of Parent. Upon the execution hereof, all prior proxies
given by the undersigned with respect to the Shares and any and all other
shares or securities issued or issuable in respect thereof on or after the
date hereof are hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable (to the full extent permitted by Section 212 of
the General Corporation Law of the State of Delaware), is granted pursuant to
the Affiliate/Voting Agreement dated as of September 3, 1996 between Parent,
the Company and the undersigned stockholder, and is granted in consideration
of Parent entering into the Merger Agreements. The attorneys and proxies named
above will be empowered at any time prior to termination of the Merger
Agreements to exercise all voting and other rights (including, without
limitation, the power to execute and deliver written consents with respect to
the Shares) of the undersigned at every annual, special or adjourned meeting
of Company stockholders, and in every written consent in lieu of such a
meeting, or otherwise, in favor of approval of the Merger and the Merger
Agreement and any matter that could reasonably be expected to facilitate the
Merger (including without limitation the conversion, if reasonably necessary,
of any shares of Preferred Stock of the Company into Common Stock of the
Company immediately prior to or at the effective time of the Merger,
consistent with the provisions of the Company's Certificate of Incorporation
and with the requirements necessary to account for the Merger as a "pooling-
of-interests"), and against any proposal made in opposition to or competition
with the consummation of the Merger and against any merger, consolidation,
sale of assets, reorganization or recapitalization of the Company with any
party other than Parent and its affiliates and against any liquidation or
winding up of the Company.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to termination of the Merger
Agreements at every annual, special or adjourned meeting of the stockholders
of the Company and in every written consent in lieu of such meeting, in favor
of approval of the Merger and the Merger Agreements and any matter that could
reasonably be expected to facilitate the Merger (including without limitation
the conversion, if reasonably necessary, of any shares of Preferred Stock of
the Company into Common Stock of the Company immediately prior to or at the
effective time of the Merger, consistent with the provisions of the Company's
Certificate of Incorporation and with the requirements necessary to account
for the Merger as a "pooling-of-interests"), and against any merger,
consolidation, sale of assets, reorganization or recapitalization of the
Company with any party other than Parent and its affiliates, and against any
liquidation or winding up of the Company, and may not exercise this proxy on
any other matter. The undersigned stockholder may vote the Shares on all other
matters.
A-A-1-7
<PAGE>
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable to the full extent permitted by Section 212 of the
General Corporation Law of the State of Delaware.
Dated: September 3, 1996
Signature of Stockholder: ____________________
Print Name of Stockholder: ___________________
Shares beneficially owned:
_______ shares of Company Common Stock
_______ shares of Company Common Stock
issuable upon exercise of outstanding
options and warrants
_______ shares of Company Preferred Stock
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
A-A-1-8
<PAGE>
EXHIBIT A-2
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is made and entered into as of
September 3, 1996, by and among Access Health, Inc., a Delaware corporation
("Parent"), Informed Access Systems, Inc., a Delaware corporation (the
"Company"), and the undersigned stockholder who may be deemed an affiliate
("Affiliate") of the Company. Capitalized terms used but not otherwise defined
herein shall have the meanings ascribed to them in the Reorganization
Agreement (as defined below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Reorganization (the "Reorganization Agreement") which
contemplates that the Company and a wholly-owned subsidiary of Parent ("Merger
Sub") will enter into an Agreement of Merger, which Agreements (collectively,
the "Merger Agreements") provide for the merger (the "Merger") of Merger Sub
with and into the Company. Pursuant to the Merger, all outstanding capital
stock of the Company will be converted into Common Stock of Parent.
B. Affiliate is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
number of shares of the outstanding Company capital stock as is indicated on
the final page of this Agreement, which shares shall be exchanged for shares
of Common Stock of Parent as a result of the Merger (for purposes of this
Agreement "Shares" means shares of Company capital stock and the shares of
Common Stock of Parent issued in exchange therefor as a result of the Merger).
C. Affiliate understands that, since the Merger will be accounted for using
the "pooling of interests" method and the Affiliate may be deemed to be an
"affiliate" of the Company (within the meaning of Securities and Exchange
Commission ("SEC") Rule 145), the Shares may only be disposed of in conformity
with the limitations described herein. Affiliate has been informed that the
treatment of the Merger as a pooling of interests for accounting purposes, and
as a tax-free reorganization under applicable provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), is dependent upon the accuracy
of certain of the representations and warranties and the compliance with
certain of the agreements set forth herein. Affiliate further understands that
the representations, warranties and agreements set forth herein will be relied
upon by Parent, the Company and their respective counsel and independent
auditors.
NOW THEREFORE, the parties agree as follows:
1. Agreement to Retain Shares.
(a) Transfer and Encumbrance. Affiliate agrees not to transfer, sell,
exchange, pledge or otherwise dispose of or encumber (except as may be
specifically required by court order) the Shares or any New Shares, as defined
in Section 1(b) below, or to make any offer or agreement relating thereto, at
any time from the date of this Agreement until the Expiration Date. As used
herein, the term "Expiration Date" shall mean the date Parent shall have
published (in accordance with applicable "pooling of interests" accounting
rules) the combined financial results of Parent and the Company for a period
of at least 30 days of combined operations of Parent and the Company.
(b) New Shares. Affiliate agrees that any shares of capital stock of the
Company that Affiliate purchases or with respect to which Affiliate otherwise
acquires beneficial ownership after the date of this Agreement and prior to
the Expiration Date ("New Shares") shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted Shares.
A-A-2-1
<PAGE>
2. Tax Treatment: Rule 145. Affiliate understands and agrees that it is
intended that the Merger qualify as a "reorganization" under Section 368 of
the Code. Affiliate further understands and agrees that Affiliate may be
deemed to be an "affiliate" of the Company within the meaning of Rule 145
("Rule 145) promulgated by the SEC under the Securities Act of 1933, as
amended (the "Securities Act"), although nothing contained herein should be
construed as an admission of such fact.
3. Reliance Upon Representations, Warranties and Covenants. Affiliate has
been informed that the treatment of the Merger as a reorganization for federal
income tax purposes requires that a sufficient number of former stockholders
of the Company maintain a meaningful continuing equity ownership interest in
Parent after the Merger. Affiliate understands that the representations,
warranties and covenants of Affiliate set forth herein will be relied upon by
Parent, the Company and their respective counsel and accounting firms.
4. Representations, Warranties and Covenants of Affiliate. Affiliate
represents, warrants and covenants as follows:
(a) Affiliate has full power and authority to execute this Agreement, to
make the representations, warranties and covenants herein contained and to
perform Affiliate's obligations hereunder.
(b) Set forth below the signatures below is the number of shares of Company
capital stock owned by Affiliate, including all Company capital stock as to
which Affiliate has sole or shared voting or investment power and all rights,
options and warrants to acquire Company capital stock owned or held by
Affiliate.
(c) Except as may be specifically required by court order, Affiliate will
not sell, transfer, exchange, pledge or otherwise dispose of, or make any
offer or agreement relating to any of the foregoing with respect to, any
shares of Parent Common Stock that Affiliate may acquire in connection with
the Merger, or any securities that may be paid as a dividend or otherwise
distributed thereon or with respect thereto or issued or delivered in exchange
or substitution therefor (all such shares and other securities of Parent are
sometimes collectively referred to as "Restricted Securities"), or any option,
right or other interest with respect to any Restricted Securities, unless: (i)
such transaction is permitted pursuant to Rule 145(d) under the Securities
Act; (ii) counsel representing Affiliate, which counsel is reasonably
satisfactory to Parent, shall have advised Parent in a written opinion letter
satisfactory to Parent and Parent's legal counsel, and upon which Parent and
its legal counsel may rely, that no registration under the Securities Act
would be required in connection with the proposed sale, transfer or other
disposition; (iii) a registration statement under the Securities Act covering
the Parent Common Stock proposed to be sold, transferred or otherwise disposed
of, describing the manner and terms of the proposed sale, transfer or other
dispositions, and containing a current prospectus, shall have been filed with
the SEC and made effective under the Securities Act; or (iv) an authorized
representative of the SEC shall have rendered written advice to Affiliate
(sought by Affiliate or counsel to Affiliate, with a copy thereof and all
other related communications delivered to Parent) to the effect that the SEC
would take no action, or that the staff of the SEC would not recommend that
the SEC take any action, with respect to the proposed disposition if
consummated.
(d) Affiliate has, and as of the Effective Time of the Merger will have, no
present plan or intent to engage in a sale, exchange, transfer, pledge,
disposition or any other transaction that results in a reduction in the risk
of ownership (collectively, a "Sale") with respect to more than 45% of the
shares of Parent Common Stock to be acquired by the undersigned Affiliate upon
consummation of the Merger. Affiliate is not aware of, or participating in,
any present plan or intention (a "Plan") on the part of the Company
stockholders to engage in Sales of shares of Parent Common Stock to be issued
in the Merger such that the aggregate fair market value, as of the Effective
Time of the Merger, of the shares subject to such Sales would exceed forty-
five percent (45%) of the aggregate fair market value of all shares of
outstanding Company capital stock immediately prior to the Merger. For
purposes of the preceding sentence, shares of Company capital stock (i) which
are exchanged for cash in lieu of fractional shares of Parent Common Stock or
(ii) with respect to which a pre-Merger Sale occurs in a Related Transaction
(as defined below), shall be considered to be shares of Company capital stock
that are exchanged for Parent Common Stock in the Merger and then disposed of
pursuant to a Plan. A Sale of Parent Common Stock shall be considered to have
occurred pursuant to a Plan if, among other things, such Sale
A-A-2-2
<PAGE>
occurs in a Related Transaction. For purposes of this Section 4(d), a "Related
Transaction" shall mean a transaction that is in contemplation of, or related
or pursuant to, the Merger or the Merger Agreements. If any of Affiliate's
representations in this subsection (d) cease to be true at any time prior to
the Effective Time of the Merger, Affiliate will deliver to each of the
Company and Parent, prior to the Effective Time of the Merger, a written
statement to that effect, signed by Affiliate.
5. Rules 144 and 145; Pooling.
(a) From and after the Effective Time of the Merger and for so long as is
necessary in order to permit Affiliate to sell the Parent Common Stock held by
Affiliate pursuant to Rule 145 and, to the extent applicable, Rule 144 under
the Securities Act, Parent will use its best efforts to file on a timely basis
all reports required to be filed by it pursuant to Section 13 of the
Securities Exchange Act of 1934, as amended, referred to in paragraph (c)(l)
of Rule 144 under the Securities Act (or, if applicable, Parent will use its
best efforts to make publicly available the information regarding itself
referred to in paragraph (c)(2) of Rule 144), in order to permit Affiliate to
sell the Parent Common Stock held by it pursuant to the terms and conditions
of Rule 145 and the applicable provisions of Rule 144.
(b) Parent agrees that, to the extent that any "affiliate" of Parent within
the meaning of Rule 145 makes use of any "de minimis" exceptions to the
pooling of interest requirements, Affiliate shall be entitled to rely upon
such exceptions to the same extent and in the same manner.
6. Limited Resales. Affiliate understands that, in addition to the
restrictions imposed under Section 4 of this Agreement, the provisions of Rule
145 currently limit Affiliate's public resales of Restricted Securities, in
the manner set forth in subsections (a), (b) and (c) below:
(a) Unless and until the restriction "Cut-off" provisions of Rule 145(d)(2)
or Rule 145(d)(3) set forth below become available, public resales of
Restricted Securities may only be made by Affiliate in compliance with the
requirements of Rule 145(d)(1). Rule 145(d)(1) permits such resales only: (i)
while Parent meets the public information requirements of Rule 144(c); (ii) in
broker's transactions or in transactions with a market maker; and (iii) where
the aggregate number of Restricted Securities sold at any time together with
all sales of restricted Parent Common Stock sold for Affiliate's account
during the preceding three-month period does not exceed the greater of (A) one
percent (1%) of the Parent Common Stock outstanding or (B) the average weekly
volume of trading in Parent Common Stock on all national securities exchanges,
as reported through the automated quotation system of a registered securities
association, during the four (4) calendar weeks preceding the date of receipt
of the order to execute the sale.
(b) Affiliate may make unrestricted sales of Restricted Securities pursuant
to Rule 145(d)(2) if: (i) Affiliate has beneficially owned (within the meaning
of Rule 144(d) under the Securities Act) the Restricted Securities for at
least two (2) years after the Effective Time of the Merger; (ii) Affiliate is
not an affiliate of Parent; and (iii) Parent meets the public information
requirements of Rule 144(c).
(c) Affiliate may make unrestricted resales of Restricted Securities
pursuant to Rule 145(d)(3) if Affiliate has beneficially owned (within the
meaning of Rule 144(d) under the Securities Act) the Restricted Securities for
at least three (3) years and is not, and has not been for at least three (3)
months, an affiliate of Parent.
(d) Parent acknowledges that the provisions of Section 4(c) of this
Agreement will be satisfied as to any sale by the undersigned of the
Restricted Securities pursuant to Rule 145(d), by a broker's letter and a
letter from the undersigned with respect to that sale stating that each of the
above-described requirements of Rule 145(d)(1) has been met or is inapplicable
by virtue of Rule 145(d)(2) or Rule 145(d)(3) (as such Rules may be in effect
at such time); provided, however, that Parent has no reasonable basis to
believe that such sales were not made in compliance with such provisions of
Rule 145(d).
A-A-2-3
<PAGE>
7. Legends. Affiliate also understands and agrees that stop transfer
instructions will be given to Parent's transfer agent with respect to
certificates evidencing the Restricted Securities and that there will be
placed on the certificate evidencing the Restricted Securities legends stating
in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED,
SOLD, PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AND THE
OTHER CONDITIONS SPECIFIED IN THAT CERTAIN AFFILIATE AGREEMENT DATED AS OF
SEPTEMBER 3, 1996 AMONG ACCESS HEALTH, INC., INFORMED ACCESS SYSTEMS, INC.
AND THE STOCKHOLDER, A COPY OF WHICH AFFILIATE AGREEMENT MAY BE INSPECTED
BY THE HOLDER OF THIS CERTIFICATE AT THE PRINCIPAL OFFICES OF NAME."
After the Expiration Date, Parent agrees to remove the above legend, and
replace such legend with the following legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED, SOLD,
PLEDGED, EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED."
Parent agrees to remove promptly such stop transfer instructions and legend
upon full compliance with this Agreement by the undersigned, including,
without limitation, a sale or transfer or Parent Common Stock permitted under
Section 4(c) above.
8. Termination. This Agreement shall be terminated and shall be of no
further force and effect in the event the termination of the Reorganization
Agreement pursuant to Article VIII of the Reorganization Agreement.
9. Partnership Distributions. Any other provisions of this Agreement
notwithstanding, if the undersigned Affiliate is organized as a partnership,
the Company and Parent hereby agree that such partnership shall be permitted
to make a distribution to its partners of shares of Company capital stock (if
made prior to the effectiveness of the Merger) or of shares of Parent capital
stock received in the Merger so long as the undersigned Affiliate and its
partnership distributees provide assurances, acceptable to Parent and the
Company in their reasonable discretion, that such distributions (i) are
permissible under Rule 145, (ii) will not prevent the Merger from being
treated as a tax-free reorganization for federal income tax purposes, or (iii)
will not prevent the Merger from being accounted for as a pooling of
interests.
10. Miscellaneous.
(a) Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(b) Binding Agreement. This Agreement will inure to the benefit of and be
binding upon and enforceable against the parties and their successors and
assigns, including administrators, executors, representatives, heirs, legatees
and devisees of Affiliate and pledgees holding Restricted Securities as
collateral.
(c) Waiver. No waiver by any party hereto of any condition or of any breach
of any provision of this Agreement shall be effective unless in writing and
signed by each party hereto.
(d) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
Delaware without giving effect to any choice or conflict of law provision or
rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.
A-A-2-4
<PAGE>
(e) Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results
in a final judgment.
(f) Effect of Headings. The Section headings herein are for convenience only
and shall not affect the construction or interpretation of this Agreement.
(g) Third Party Reliance. Counsel to and independent auditors for the
parties shall be entitled to rely upon this Affiliate Agreement.
* * *
IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to be
duly executed on the day and year first above written.
PARENT AFFILIATE
By: _________________________________ By: _________________________________
Name: _______________________________ Affiliate's Address for Notice:
Title: ______________________________ _____________________________________
_____________________________________
COMPANY _____________________________________
By: _________________________________ Shares beneficially owned:
Name: _______________________________
______shares of Company Common Stock
Title: ______________________________
______shares of Company Common Stock
issuable upon exercise of
outstanding options and warrant
______shares of Company Preferred
Stock
[SIGNATURE PAGE TO AFFILIATE AGREEMENT]
A-A-2-5
<PAGE>
EXHIBIT B
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "AGREEMENT") is made and entered into as of
September 3, 1996, by and among Access Health, Inc. a Delaware corporation
("PARENT"), Informed Access Systems, Inc., a Delaware corporation (the
"COMPANY"), and the undersigned affiliate ("AFFILIATE") of Parent. Capitalized
terms used but not otherwise defined herein shall have the meanings ascribed
to them in the Reorganization Agreement (as defined below).
RECITALS
A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Reorganization (the "REORGANIZATION AGREEMENT") which
contemplates that the Company and a wholly-owned subsidiary of Parent ("MERGER
SUB") will enter into an Agreement of Merger, which Agreements (collectively,
the "MERGER AGREEMENTS") provide for the merger (the "MERGER") of Merger Sub
with and into the Company. Pursuant to the Merger, all outstanding capital
stock of the Company will be converted into Common Stock of Parent.
B. Affiliate is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of such
number of shares of the outstanding Parent capital stock as is indicated on
the final page of this Agreement (the "SHARES").
C. Affiliate understands that, since the Merger will be accounted for using
the "pooling of interests" method and Affiliate is an "affiliate" of Parent
(within the meaning of Securities and Exchange Commission ("SEC") Rule 145),
the Shares may only be disposed of in conformity with the limitations
described herein. Affiliate has been informed that the treatment of the Merger
as a pooling of interests for accounting purposes is dependent upon the
accuracy of certain of the representations and warranties and the compliance
with certain of the agreements set forth herein. Affiliate further understands
that the representations, warranties and agreements set forth herein will be
relied upon by Parent, the Company and their respective counsel and
independent auditors.
NOW, THEREFORE, the parties agree as follows:
1. Agreement to Retain Shares.
(a) Transfer and Encumbrance. Affiliate agrees not to transfer, sell,
exchange, pledge or otherwise dispose of or encumber (except as may be
specifically required by court order) the Shares or any New Shares (as defined
in Section 1(b) below) or to make any offer or agreement relating thereto, at
any time from the date of this Agreement until the Expiration Date. As used
herein, the term "EXPIRATION DATE" shall mean the date Parent shall have
published (in accordance with applicable "pooling of interests" accounting
rules) the combined financial results of Parent and the Company for a period
of at least 30 days of combined operations of Parent and the Company.
(b) New Shares. Affiliate agrees that any shares of capital stock of Parent
that Affiliate purchases or with respect to which Affiliate otherwise acquires
beneficial ownership after the date of this Agreement and prior to the
Expiration Date ("NEW SHARES") shall be subject to the terms and conditions of
this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of Parent
called with respect to any of the following, and at every adjournment thereof,
and on every action or approval by written consent of the stockholders of
Parent with respect to any of the following, Affiliate shall vote the Shares
and any New Shares: (i) in favor of approval of the Merger Agreements and the
Merger and any matter that could reasonably be
A-B-1
<PAGE>
expected to facilitate the Merger; and (ii) against approval of any proposal
made in opposition to or competition with consummation of the Merger and
against any merger, consolidation, sale of assets, reorganization or
recapitalization, with any party other than with the Company (each of the
foregoing is hereinafter referred to as an "OPPOSING PROPOSAL"). Stockholder
agrees not to take any actions contrary to Stockholder's obligations under
this Agreement.
3. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Affiliate agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "PROXY"), which shall be irrevocable to the extent permitted by
Section 212 of the General Corporation Law of the State of Delaware, with
respect to the total number of shares of capital stock of Parent beneficially
owned (as such term is defined in Rule 13d-3 under the Exchange Act) by
Affiliate set forth therein.
4. Rule 145. Affiiate understands and agrees that Affiliate may be deemed to
be an "affiliate" of Parent within the meaning of Rule 145 ("RULE 145")
promulgated by the SEC under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), although nothing contained herein should be construed as an
admission of such fact.
5. Representations, Warranties and Covenants of Affiliate. Affiliate
represents, warrants and covenants as follows:
(a) Affiliate has full power and authority to execute this Agreement, to
make the representations, warranties and covenants herein contained and to
perform Affiliate's obligations hereunder.
(b) Set forth below the signatures below is the number of shares of Parent
capital stock owned by Affiliate, including all Parent capital stock as to
which Affiliate has sole or shared voting or investment power and all rights,
options and warrants to acquire Parent capital stock owned or held by
Affiliate.
(c) Affiliate will not, and will not permit any entity under Affiliate's
control to: (i) solicit proxies or become a "participant" in a "solicitation"
(as such terms are defined in Regulation 14A under the Exchange Act) with
respect to an Opposing Proposal or otherwise encourage or assist any party in
taking or planning any action that would compete with, restrain or otherwise
serve to interfere with or inhibit the timely consummation of the Merger in
accordance with the terms of the Merger Agreements; (ii) initiate a
stockholders' vote or action by consent of Parent stockholders with respect to
an Opposing Proposal; or (iii) become a member of a "group" (as such term is
used in Section 13(d) of the Exchange Act) with respect to any voting
securities of Parent with respect to an Opposing Proposal.
6. Termination. This Agreement shall be terminated and shall be of no
further force and effect in the event the termination of the Reorganization
Agreement pursuant to Article VIII of the Reorganization Agreement.
7. Miscellaneous.
(a) Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(b) Binding Agreement. This Agreement will inure to the benefit of and be
binding upon and enforceable against the parties and their successors and
assigns, including administrators, executors, representatives, heirs, legatees
and devisees of Affiliate.
(c) Waiver. No waiver by any party hereto of any condition or of any breach
of any provision of this Agreement shall be effective unless in writing and
signed by each party hereto.
(d) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
California, without giving effect to any choice or conflict of law provision
or rule (whether of the State of California or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the
State of California.
A-B-2
<PAGE>
(e) Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results
in a final judgment.
(f) Effect of Headings. The Section headings herein are for convenience only
and shall not affect the construction or interpretation of this Agreement.
(g) Third Party Reliance. Counsel to and independent auditors for the
parties shall be entitled to rely upon this Affiliate Agreement.
* * *
IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to be
duly executed on the day and year first above written.
PARENT AFFILIATE
By: _________________________________ By: _________________________________
Name: _______________________________ Affiliate's Address for Notice:
Title: ______________________________ _____________________________________
_____________________________________
COMPANY _____________________________________
By: _________________________________ Shares beneficially owned:
Name: _______________________________ shares of Parent Common Stock
Title: ______________________________
shares of Parent Common Stock
issuable upon exercise of
outstanding options and
warrants
[SIGNATURE PAGE TO AFFILIATE AGREEMENT]
A-B-3
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of Access Health, Inc., a Delaware corporation
("PARENT") hereby irrevocably (to the full extent permitted by Section 212 of
the General Corporation Law of the State of Delaware) appoints the directors
on the Board of Directors of Parent, and each of them, as the sole and
exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to the full extent of the undersigned's
rights with respect to the shares of capital stock of Parent beneficially
owned by the undersigned, which shares are listed on the final page of this
Proxy (the "SHARES"), and any and all other shares or securities issued or
issuable in respect thereof on or after the date hereof, until such time as
that certain Agreement of Merger and Plan of Reorganization (which
contemplates that the Company and a wholly-owned subsidiary of Parent ("MERGER
SUB") will enter into an Agreement of Merger, which Agreements (collectively,
the "MERGER AGREEMENTS") provide for the merger (the "MERGER") of Merger Sub
with and into the Company) shall be terminated in accordance with its terms or
the Merger is effective. Pursuant to the Merger, all outstanding capital stock
of the Company will be converted into Common Stock of Parent. Upon the
execution hereof, all prior proxies given by the undersigned with respect to
the Shares and any and all other shares or securities issued or issuable in
respect thereof on or after the date hereof are hereby revoked and no
subsequent proxies will be given.
This proxy is irrevocable (to the full extent permitted by Section 212 of
the General Corporation Law of the State of Delaware), is granted pursuant to
the Affiliate Agreement dated as of September 3, 1996 by and among Parent, the
Company and the undersigned stockholder (the "AFFILIATE AGREEMENT"), and is
granted in consideration of Parent entering into the Merger Agreements. The
attorneys and proxies named above will be empowered at any time prior to
termination of the Merger Agreements to exercise all voting and other rights
(including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of the undersigned at every annual,
special or adjourned meeting of Parent stockholders, and in every written
consent in lieu of such a meeting, or otherwise, in favor of approval of the
Merger and the Merger Agreements and any matter that could reasonably be
expected to facilitate the Merger, and against any proposal made in opposition
to or competition with the consummation of the Merger and against any merger,
consolidation, sale of assets, reorganization or recapitalization of Parent
with any party other than the Company.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to termination of the Merger
Agreements at every annual, special or adjourned meeting of the stockholders
of Parent and in every written consent in lieu of such meeting, in favor of
approval of the Merger and the Merger Agreements and any matter that could
reasonably be expected to facilitate the Merger, and against any merger,
consolidation, sale of assets, reorganization or recapitalization of Parent
with any party other than the Company, and may not exercise this proxy on any
other matter. The undersigned stockholder may vote the Shares on all other
matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable to the full extent permitted by Section 212 of the
General Corporation Law of the State of Delaware.
Dated: September 3, 1996
Signature of Stockholder:_________________
Print Name of Stockholder:________________
Shares beneficially owned:
__ shares of Parent Common Stock
shares of Parent Common Stock issuable
upon exercise of outstanding
options and, warrants
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
A-B-4
<PAGE>
EXHIBIT C
EMPLOYMENT AGREEMENT
THIS AGREEMENT, by and between (the "Executive") and Access
Health, Inc., a Delaware corporation (the "Company"), shall become effective
as of the effective date (the "Effective Date") of the merger contemplated by
that certain Agreement and Plan of Reorganization dated as of September 3,
1996, among the Company, Informed Access Systems, Inc. ("Informed Access") and
Access Acquisition Corp., a Delaware corporation and wholly-owned subsidiary
of the Company (the "Merger Agreement").
In consideration of the mutual covenants herein contained, and in
consideration of the employment of Executive by the Company, the parties agree
as follows:
1. Duties and Scope of Employment.
(a) Position. The Company agrees to employ the Executive under the terms of
this Agreement in the positions of . Executive will report to
.
(b) Obligations. During the term of this Agreement, the Executive shall
devote Executive's full business efforts and time to the Company. The
foregoing, however, shall not preclude the Executive from engaging in
appropriate civic, charitable or religious activities or from devoting a
reasonable amount of time to private investments or from serving on the boards
of directors of other entities, as long as such activities and service do not
interfere or conflict with Executive's responsibilities to the Company and do
not represent business conflicts with the Company's business.
(c) Company Policies. Executive shall comply with all of the Company's rules
and regulations applicable to the executives of the Company and with all of
the Company's policies applicable to other similarly situated executives
established by the Company's management and Board of Directors.
2. Base Compensation. Beginning on the Effective Date, the Executive shall
be paid a base salary (the "Base Compensation") of $ annually,
payable bi-weekly. Such Base Compensation will be adjusted to $
("Target Base Compensation") upon the earlier to occur of (i) such time as the
Company has achieved earnings per share of at least $ for the quarter
ended , $ for the quarter ended , $ for
the quarter ended , or (ii) the first anniversary of the date hereof.
Thereafter, the Base Compensation shall be subject to review annually for
increases by the Board of Directors in its sole discretion in connection with
the annual review of salary and benefits for the Company's management.
3. Definitions. As used herein, the following definitions shall apply:
(a) "Cause" shall mean the termination of employment of Executive shall have
taken place as a result of (i) Executive's continued failure to substantially
perform Executive's principal duties and responsibilities (other than as a
result of Disability or death) after thirty (30) days written notice from the
Company specifying the nature of Executive's failure and demanding that such
failure be remedied; (ii) Executive's material and continuing breach of his
obligations to the Company set forth in this Agreement, the Confidentiality
Agreement (as defined herein), the Non-Competition Agreement (as defined
herein) or any written policy of the Company applicable to all officers after
thirty (30) days written notice from the Company specifying the nature of
Executive's breach and demanding that such breach be remedied (unless such
breach by its nature cannot be cured, in which case notice and an opportunity
to cure shall not be required); (iii) Executive's being convicted of a felony;
or (iv) act or acts of dishonesty undertaken by Executive and intended to
result in substantial gain or personal enrichment of Executive at the expense
of the Company.
(b) "Constructive Termination" shall mean a termination of employment due to
any of the following unless agreed to by Executive or unless such change is an
Approved Change: (i) a reduction in Executive's salary or benefits (except in
connection with a decrease to be applied equally to all officers of the
Company because
A-C-1
<PAGE>
the Company's performance has decreased, and excluding the substitution of
substantially equivalent compensation and benefits); (ii) a material
diminution of Executive's responsibilities (e.g., title, primary duties,
resources); (iii) relocation of Executive to a location more than 50 miles
from his current location (except to Boulder, Colorado); (iv) failure of a
successor to assume and perform under this Agreement; and (v) failure of the
Company to operate the Informed Access division substantially in accordance
with the charter set forth in Exhibit I (The Informed Access Charter) to the
Merger Agreement. "Approved Change" means a change approved by Joe Tallman in
his capacity as President of the Informed Access operating entity, or his
successor by reason of his death, disability, termination for cause or
resignation. If any of the events set forth above shall occur, Executive shall
give prompt written notice to the Company and shall have sixty (60) days from
the notice or ninety (90) days from the event, whichever is earlier, to
exercise his rights to terminate for Constructive Termination or such right
shall be deemed waived as to such event, but not as to any future event.
(c) "Disability" shall mean that the Executive, at the time notice is given,
has been unable to perform Executive's duties under this Agreement for a
period of not less than ninety (90) days consecutively as the result of
Executive's incapacity due to physical or mental illness. In the event that
the Executive resumes the performance of substantially all of Executive's
duties hereunder within 90 days of the commencement of leave before the
termination of employment under Section 6(b)(iii) becomes effective, the
notice of termination shall automatically be deemed to have been revoked. This
paragraph will be enforced in compliance with the Americans with Disabilities
Act.
4. Executive Benefits.
(a) General. During the term of Executive's employment under this Agreement,
the Executive shall be entitled to participate in the Company Management
Incentive Plan up to [30%] of Base Compensation. Awards under such Plan will
range from % to % based upon Executive's performance. In addition, at
the time of Executive's first bonus payment following the increase in Base
Compensation pursuant to Section 2, Executive will be eligible to receive an
additional bonus equal to the difference between Target Base Compensation and
Base Compensation during the period from the inception of this Agreement
through the Effective Date of the increase in Base Compensation. Performance
goals will be established within 3 months of the date hereof and annually
thereafter consistent with Company's and Informed Access's business strategy.
Executive also shall be entitled to participate in pension plans, savings or
profit-sharing plans, deferred compensation plans, supplemental retirement or
excess-benefit plans, stock option, incentive or other bonus plans, life,
disability, health, accident and other insurance programs, paid time off
(which will accrue for the Executive at a rate of hours a pay period
beginning on the effective date of this Agreement, or not less than 20 days a
year) and similar plans or programs made available to executives of the
Company, subject in each case to the generally applicable terms and conditions
of the plan or program and the decision of the Board of Directors or
administrators of such plan.
(b) Employment Credit. Executive will be fully credited for his years of
employment by Informed Access as though he had been employed by the Company
for all such time for purposes of determining his eligibility for and the
extent of benefits available from the Company.
(c) Stock Awards. The Executive has been granted stock options (the
"Options") to purchase shares of Common Stock of the Company, effective
as of the Effective Date pursuant to Stock Option Agreements in the form of
EXHIBIT A, which shall be incentive stock options to the maximum extent
permitted by the Internal Revenue Code and subject to approval of the
Incentive Plan Amendment as defined in the Merger Agreement. The Options shall
be exercisable cumulatively to the extent of one-fifth of the total number of
shares subject to the Options one year from the Effective Date set forth above
and an additional one-fifth of the total shares subject to the Options at the
end of each one-year period thereafter. Executive will be eligible to receive
additional grants in the sole discretion of the Company's Board of Directors
on the same basis as Company's other executives.
Notwithstanding the foregoing, in the event of (i) a reorganization or
merger of the Company with or into any other corporation which will result in
the Company's stockholders immediately prior to such transaction not
A-C-2
<PAGE>
holding, as a result of such transaction, at least 50% of the voting power of
the surviving or continuing entity; (ii) a sale of all or substantially all of
the assets of the corporation which will result in the Company's stockholders
immediately prior to such sale not holding, as a result of such sale, at least
50% of the voting power of the purchasing entity; (iii) a transaction or
series of related transactions which result in more than 50% of the voting
power of the Company being controlled by a single holder; or (iv) a change in
the majority of the Company's Board of Directors not approved by at least two-
thirds of Company's directors in office prior to such change (any of the
foregoing, a "Change of Control"), the Options shall be come fully
exercisable.
5. Business Expenses and Travel. During the term of Executive's employment
under this Agreement, Executive shall be authorized to incur necessary and
reasonable travel, entertainment and other business expenses in connection
with his duties hereunder. The Company shall reimburse Executive for such
expenses upon presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Company's generally applicable
policies.
6. Term of Employment.
(a) Basic Rule. The Company agrees to continue Executive's employment, and
Executive agrees to remain in the employ of the Company, during the term of
this Agreement pursuant to the provisions of this Agreement.
(b) Termination by the Company. The Company may terminate Executive's
employment, with Thirty (30) days advance notice in writing, only for Cause or
as a result of Death or Disability.
(i) Termination Without Cause. If the Company terminates Executive's
employment during the term of this Agreement for any reason whatsoever,
including a Constructive Termination, and other than voluntary termination
of employment or Termination for Cause, the provisions of Section 7(a)
shall apply.
(ii) Termination for Cause. If the Company terminates Executive's
employment for Cause during the term of this Agreement, the provisions of
Section 7(b) shall apply.
(iii) Termination on Death or Disability. If the Company terminates
Executive's employment as a result of Executive's Death or Disability, the
provisions of Section 7(c) shall apply.
(c) Voluntary Termination by the Executive. The Executive may terminate
Executive's employment voluntarily by giving the Company thirty (30) days
advance notice in writing, at which time the provisions of Section 7(b) shall
apply. However, if the Executive terminates Executive's employment pursuant to
this Section 6(c) as a result of the occurrence of any of the events set forth
in the definition of a Constructive Termination, the provisions of Section
7(a) shall apply, provided the Executive has provided written notice to the
Company reasonably specifying the reasons why one of such events in the
definition of a Constructive Termination has occurred and the Company has not
cured such event within twenty (20) days after receipt of such notice.
(d) Waiver of Notice. Any waiver of notice shall be valid only if it is made
in writing and expressly refers to the applicable notice requirement in this
Section 6.
7. Payments Upon Termination of Employment.
(a) Payments Upon Termination Pursuant to Section 6(b)(i) and Constructive
Termination. If, during the term of this Agreement, the Executive's employment
is terminated by the Company pursuant to Section 6(b)(i) or voluntarily by the
Executive under Section 6(c) as a result of a Constructive Termination, the
Executive shall be entitled to receive the following:
(i) Severance Payment. The Company shall continue to pay to the Executive
his Base Compensation for the greater of (x) the remainder of the Initial
Term or Renewal Term, as the case may be, or (y) [twelve (12) months]
following the Termination Date (the "Severance Period"); provided, however,
that if the termination occurs following a Change of Control, the Severance
Period shall be twenty-four (24) months. Such Base Compensation amount
shall be determined with reference to the Base Compensation in effect
A-C-3
<PAGE>
for the month in which the date of employment termination occurs; provided,
that if the termination occurs prior to the effectiveness of the increase
in Base Compensation contemplated by Section 2, Target Base Compensation
shall be used to calculate the Severance Payment. Payment of the Severance
Payment shall be terminated if Executive materially breaches the terms of
the Non-Competition Agreement attached as EXHIBIT B hereto (the "Non-
Competition Agreement"), and fails to cure such breach within 30 days of
the Company's notice.
(ii) Stock Options. All stock options will become immediately vested and
remain exercisable for the remainder of the applicable option term.
Executive acknowledges that incentive stock option treatment under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), will not
be available unless such options are exercised within the time prescribed
in the Code.
(iii) Method of Payment. The Severance Payment shall be made in bi-weekly
payments during the Severance Period; provided, that if the termination
occurs following a Change of Control the severance payment shall be paid in
a lump sum within three (3) days after such termination.
(iv) Health and Welfare Benefits. The Company shall continue to provide
health and welfare benefits for the duration of the Severance Period. Such
benefits will be discontinued to the extent that Executive receives similar
benefits in connection with new employment. Executive will also be entitled
to such payments and benefits as may be provided under applicable benefit
plans and programs of the Company.
(v) Payment in Lieu of Contract Damages. The Severance Payment shall be
in lieu of any further payments to the Executive and any further accrual of
benefits with respect to periods subsequent to the date of the employment
termination.
(vi) No Duty to Mitigate. The Executive shall not be required to mitigate
the amount of any payment contemplated by this Section 7(a) (whether by
seeking new employment or in any other manner).
(b) Termination By Company for Cause or Voluntary Termination. If the
Executive's employment is terminated pursuant to Section 6(b)(ii) or
voluntarily (other than a Constructive Termination) pursuant to Section 6(c),
no compensation or payments will be paid or provided to Executive for the
periods following the date when such a termination of employment is effective.
Notwithstanding the preceding sentence, Executive's rights under the benefit
plans and option agreements of the Company shall be determined under the
provisions of those plans and agreements, provided Executive shall have three
(3) months from the date of termination of employment in which to exercise any
non-qualified stock option and three (3) months from the date of termination
of employment to exercise any incentive stock option in each case to the
extent such options are exercisable as of the date of termination.
(c) Termination on Death or Disability. If Executive's employment is
terminated because of Executive's death or Disability (as defined in Section
3(c) herein), then no payments shall be owed under this Agreement and
Executive shall receive severance and disability payments as provided in the
Company's standard benefit plans. Executive's stock options shall be
exercisable as provided in such agreements.
8. Proprietary Information. The Executive agrees to comply fully with the
Company's policies relating to non-disclosure of the Company's trade secrets
and proprietary information and processes, as set out in the Confidentiality
Agreement set out as EXHIBIT C hereto (the "Confidentiality Agreement").
9. Successors.
(a) Company's Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume this Agreement and agree expressly to perform this Agreement in
the same manner and to the same extent as the Company would be required to
perform it in the absence of a succession. For all purposes under this
Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by this Agreement or
by operation of law.
A-C-4
<PAGE>
(b) Executive's Successors. This Agreement and all rights of the Executive
hereunder shall inure to the benefit of, and be enforceable by, Executive's
personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees.
10. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or five days after being mailed by first class mail,
return receipt requested and postage prepaid. In the case of the Executive,
mailed notices shall be addressed to Executive at the home address which
Executive most recently communicated to the Company in writing. In the case of
the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its Chief Executive
Officer.
11. Termination of Agreement. This Agreement shall be for an initial term of
[twenty-four (24)] months following the Effective Date (the "Initial Term"),
and will automatically renew for successive twelve (12) month terms (each a
"Renewal Term") unless Company or Executive gives written notice of
termination to the other at least three (3) months before the expiration of
the Initial Term or Renewal Term, as the case may be.
12. Miscellaneous Provisions.
(a) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and an officer or a director of the
Company authorized by the Board of Directors. No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
(b) Whole Agreement. No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not
expressly set forth in this Agreement have been made or entered into by either
party with respect to the subject matter hereof. This Agreement supersedes and
replaces any and all previous agreements between the Executive and Informed
Access regarding compensation or terms of employment. The Executive hereby
represents that Informed Access has satisfied in full any compensation or
other employment obligations due Executive under any written or oral
employment agreements by and between the Executive and Informed Access. This
Agreement shall supersede the provisions regarding acceleration of vesting
provided in any stock option agreements.
(c) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(d) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(e) Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Sacramento
County, California, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction.
(f) No Assignment of Benefits. The rights of any person to payments or
benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or
other creditor's process, and any action in violation of this subsection (f)
shall be void.
(g) Limitation of Remedies. If the Executive's employment terminates for any
reason, the Executive shall not be entitled to any payments, benefits,
damages, awards or compensation other than as provided by this Agreement.
(h) Employment Taxes. All payments made pursuant to this Agreement will be
subject to withholding of applicable taxes.
A-C-5
<PAGE>
(i) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together will constitute
one and the same instrument.
(j) Representation by Counsel. Executive represents that Executive has had
the opportunity to seek independent legal counsel in connection with entering
into the Agreement.
(k) Attorney's fees. In any action or arbitration brought under this
Agreement, the prevailing party shall be entitled to his attorneys' fees and
costs.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year
first above written.
ACCESS HEALTH, INC.
_____________________________________ By: _________________________________
[EXECUTIVE]
Print Name: _________________________
Title: ______________________________
A-C-6
<PAGE>
EXHIBIT D
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "Agreement") is made as of September ,
1996 by and among Access Health, Inc., a Delaware corporation ("Parent"),
Informed Access Systems, Inc., a Delaware Corporation (the "Company") and
("Promisor").
RECITALS
WHEREAS, Parent has made and entered into an Agreement and Plan of
Reorganization dated September 3, 1996 (the "Acquisition") between Parent,
Access Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Parent (the "Merger Sub"), and the Company whereby Parent is to acquire the
Company through the statutory merger of Merger Sub with and into the Company.
WHEREAS, Promisor is an officer, director and significant stockholder of the
Company and will receive Common Stock of Parent as a result of the
Acquisition; and
WHEREAS, part of the consideration for the Acquisition is that Promisor be
bound by the terms of this Agreement and the execution and delivery of this
Agreement is a condition to the closing of the Acquisition.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Covenant Not to Compete or Solicit.
a. Noncompetition. Promisor acknowledges that, as a result of the
Acquisition Agreement, he will sell his entire equity interest in the Company
and the associated goodwill thereof to Parent. Promisor agrees that after
consummation of the Acquisition Agreement, the Company and Parent would be
irreparably injured if Promisor were to enter into any business activity in
competition with the Restricted Business in a Restricted Territory (as
hereinafter defined). Accordingly, in order to induce Parent to consummate the
Acquisition Agreement, Promisor agrees that during the Effective Period (as
hereinafter defined), he will not directly or indirectly engage in (whether as
an employee, consultant, proprietor, partner, director or otherwise), or have
any ownership interest in, or participate in the financing, operation,
management or control of, any person, firm, corporation or business that
engages in, a Restricted Business in a Restricted Territory (as defined
herein) whether such engagement or ownership interest shall be for profit or
not. The parties agree that ownership by Promisor of no more than five percent
(5%) of the outstanding voting stock of a publicly traded corporation shall
not constitute a violation of this provision.
b. No Solicitation. During the Effective Period, Promisor shall not:
i. solicit, encourage or take any other action which is intended to
induce any employee of Parent or the Company to terminate his employment
with Parent or the Company; or
ii. interfere in any manner with the contractual or employment
relationship between Parent or the Company and their respective employees.
c. Worldwide Market. The parties acknowledge that the market for the
products of the Business is worldwide and accordingly, in order to secure to
Parent the benefits of the Acquisition, the parties agree that the provisions
of this Section 1 shall apply in the Restricted Territory.
A-D-1
<PAGE>
d. Severability. The parties intend that the covenants contained in the
preceding paragraphs shall be construed as a series of separate covenants, one
for each county, city, state and foreign country of the Restricted Territory.
Except for geographic coverage, each such separate covenant shall be deemed
identical in terms of the covenant contained in the preceding paragraphs. If,
in any judicial proceeding, a court shall refuse to enforce any of the
separate covenants (or any part thereof) deemed included in said paragraphs,
then such unenforceable covenant (or such part) shall be deemed eliminated
from this Agreement for the purpose of those proceedings to the extent
necessary to permit the remaining separate covenants (or portions thereof) to
be enforced. In the event, but only in the event, that this noncompetition
agreement is deemed by a court of competent jurisdiction to be unenforceable
by injunction or otherwise in any respect, the court is hereby expressly
authorized and requested to partially enforce the terms hereof by injunction
and otherwise to the maximum extent reasonable.
2. Certain Definitions. For purposes of this Agreement, the following terms
have the meanings set forth below.
a. "Effective Date" shall mean the closing date of the Acquisition.
b. "Effective Period" shall commence on the closing date of the Acquisition
and shall continue for two (2) years.
c. "Restricted Business" shall mean the business of the development,
marketing and distribution of health information products and services which
are the same as, similar to or competitive with any such products and services
and any other business which the Company is engaged in or has under
development at the Effective Date of this Agreement.
d. "Restricted Territory" shall mean each of the counties, cities and states
of the United States and each of the foreign countries worldwide.
3. Injunctive Relief. Each of the parties acknowledges that (i) the
covenants and the restrictions contained in this Agreement are necessary,
fundamental, and required for the protection of Parent and the Company and to
preserve for Parent the benefits of the Acquisition; (ii) such covenants
relate to matters which are of a special, unique, and extraordinary character
that gives each of such covenants a special, unique, and extraordinary value;
and (iii) a breach of any of such covenants or any other provision of this
Agreement will result in irreparable harm and damages to Parent and the
Company which cannot be adequately compensated by a monetary award.
Accordingly, it is expressly agreed that in addition to all other remedies
available at law or in equity, Parent and the Company shall be entitled to the
immediate remedy of a temporary restraining order, preliminary injunction, or
such other form of injunctive or equitable relief as may be used by any court
of competent jurisdiction to restrain or enjoin any of the parties hereto from
breaching any such covenant or provision or to specifically enforce the
provisions hereof.
4. Successors and Assigns. This Agreement and the respective rights and
obligations of the parties hereunder shall be binding upon, inure to the
benefit of, and be enforceable by the parties hereto and their successors,
heirs, assigns, and legal and personal representatives.
5. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
a. if to Parent or the Company, to:
Access Health, Inc.
11020 White Rock Road
Rancho Cordova, California 95670
Attention: Thomas E. Gardner
Facsimile No.: (916) 852-3890
A-D-2
<PAGE>
with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Barry E. Taylor Esq.
Facsimile No.: (415) 493-6811
b. if to Promisor, to:
_________________________
_________________________
_________________________
with a copy to:
_________________________
_________________________
_________________________
6. Governing Law. This Agreement shall be interpreted, construed, and
enforced in accordance with the internal laws, and not the law of conflicts,
of the State of California applicable to agreements made and to be performed
in such state. The parties hereto agree that all actions and proceedings
relating directly or indirectly hereto shall be litigated in any state court
or federal court located in Denver, Colorado and the parties hereto hereby
expressly consent to the exclusive jurisdiction and venue of any such court
and consent to the service of process of any such court in any such action or
proceeding by certified or registered mailing of the summons and complaint
therein directed to the parties at their respective addresses set forth
herein. Promisor agrees that a judgment in such courts shall be enforceable in
any other jurisdiction where Promisor may reside or be located.
7. Attorneys' Fees and Costs. In the event of any action at law or in equity
between the parties hereto to enforce any of the provisions hereof, the
unsuccessful party or parties to such litigation shall pay to the successful
party or parties all costs and expenses, including reasonable attorneys' fees,
incurred therein by such successful party or parties, and if such successful
party or parties shall recover judgment in any such action or proceeding, such
costs, expenses, and attorneys' fees may be included in and as part of such
judgment. The successful party shall be party who is entitled to recover his
costs of suit, whether or not the suit proceeds to final judgment. If no costs
are awarded, the successful party shall be determined by the court.
8. Amendment and Waiver. This Agreement may be amended only by the written
agreement of all the parties hereto. The failure of any party at any time or
times to require the performance of any provision hereof shall in no manner
waive the right at a later time to enforce the same. No waiver by either party
of any condition, or of any breach of any term, covenant representation, or
warranty contained in this Agreement in any one or more instances, shall be
deemed to be or construed as, a further or continuing waiver of any such
condition or breach, or a waiver of any other condition, or other breach of
any other term, covenant, representation or warranty.
9. Counterparts. This Agreement may be executed in one or more counterparts
by the parties hereto. All counterparts shall be construed together and shall
constitute one covenant.
10. Entire Agreement. This Agreement and any other documents delivered
pursuant hereto constitute the full and entire understanding and Agreement of
the parties and supersedes all previous communications, representations,
understandings and agreements, whether written or oral, between the parties
with regard to the subject hereof and thereof.
A-D-3
<PAGE>
IN WITNESS WHEREOF, Parent, the Company and Promisor have caused this
Agreement to be duly signed as of the date first written above.
ACCESS HEALTH, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
INFORMED ACCESS SYSTEMS, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
PROMISOR
By: _________________________________
Name: _______________________________
Title: ______________________________
A-D-4
<PAGE>
EXHIBIT E
----------------
ACCESS HEALTH, INC.
REGISTRATION RIGHTS AGREEMENT
NOVEMBER , 1996
----------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
SECTION 1--REGISTRATION RIGHTS.......................................... A-E-1
1.1 Definitions.................................................... A-E-1
1.2 Restrictive Legend............................................. A-E-2
1.3 Requested Registration......................................... A-E-2
1.4 Piggyback Registration......................................... A-E-3
1.5 Expenses of Registration....................................... A-E-4
1.6 Obligations of the Company..................................... A-E-4
1.7 Furnish Information............................................ A-E-5
1.8 Delay of Registration.......................................... A-E-5
1.9 Indemnification................................................ A-E-5
1.10 "Market Stand-Off" Agreement................................... A-E-7
1.11 Transfer of Registration Rights................................ A-E-8
1.12 Termination of Rights.......................................... A-E-8
1.13 Rule 144 Reporting............................................. A-E-8
SECTION 2--MISCELLANEOUS................................................ A-E-8
2.1 Waivers and Amendments......................................... A-E-8
2.2 Governing Law.................................................. A-E-8
2.3 Successors and Assigns......................................... A-E-8
2.4 Entire Agreement............................................... A-E-9
2.5 Notices........................................................ A-E-9
2.6 Severability................................................... A-E-9
2.7 Titles and Subtitles........................................... A-E-9
2.8 Counterparts................................................... A-E-9
</TABLE>
A-E-1
<PAGE>
ACCESS HEALTH, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of November , 1996,
by and among ACCESS HEALTH, INC., a Delaware corporation (the "Company"), and
the persons named in Schedule A hereto (the "Stockholders").
RECITALS
WHEREAS, the Stockholders acquired shares of Common Stock of the Company
pursuant to an Agreement and Plan of Reorganization by and among the Company,
Access Acquisition Corp. ("Sub") and Informed Access, Inc. ("Informed Access")
dated September 3, 1996 (the "Merger Agreement") in connection with the merger
of Sub with and into Informed Access. Pursuant to Section 5.22 of the Merger
Agreement, the Company agreed to provide the Stockholders certain registration
rights as provided herein.
WHEREAS, as an inducement for Informed Access to enter into the Merger
Agreement, the Company desires to grant the registration rights to the
Stockholders as contained herein;
NOW, THEREFORE, in consideration of the mutual premises and covenants
hereinafter set forth, the Company and the Stockholders agree as follows:
SECTION 1
REGISTRATION RIGHTS
1.1 Definitions. As used in this Agreement, the following terms shall have
the following meanings:
(a) "SEC" shall mean the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar Federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(c) "Expiration Date" shall mean the date the Company has published (in
accordance with applicable pooling of interest accounting rules) the combined
financial results of the Company and Informed Access for a period of at least
thirty (30) days of combined operations of the Company and Informed Access.
(d) "Holder" shall mean any holder of outstanding Registrable Securities
which have not been sold to the public or anyone who holds outstanding
Registrable Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance with Section 1.13 hereof.
(e) "Register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement, and compliance with applicable
state securities laws of such states in which Holders notify the Company of
their intention to offer Registrable Securities.
(f) "Registrable Securities" shall mean all of the following to the extent
the same have not been sold to the public (i) any and all shares of Common
Stock of the Company issued pursuant to the Merger Agreement and held by a
Holder, (ii) stock issued in respect of stock referred to in (i) above in any
reorganization, or (iii) stock issued in respect of the stock referred to in
(i) and (ii) as a result of a stock split, stock dividend, recapitalization or
combination.
A-E-2
<PAGE>
(g) "Registration Expenses" shall mean all expenses incurred in connection
with a registration hereunder, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
accountants for the Company, blue sky fees and expenses and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company, which shall be paid in
any event by the Company).
(h) "Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar Federal statute and the rules and regulations thereunder, all as
the same shall be in effect at the time.
(i) "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for the Holders.
1.2 Restrictive Legend.
(a) Each certificate representing Registrable Securities held by any
affiliate listed on Schedule 5.12 of the Merger Agreement shall be stamped or
otherwise imprinted with a legend as provided in the Affiliate Agreement as
defined in the Merger Agreement.
(b) The Company agrees to remove promptly stop transfer instructions and the
legend provided in Section 1.2(a) above when (i) such proposed sale, transfer
or other distribution is permitted pursuant to Rule 145(d) under the
Securities Act; (ii) counsel representing Holder, which counsel is reasonably
satisfactory to the Company, shall have advised the Company in a written
opinion letter satisfactory to the Company and Company's legal counsel, and
upon which the Company and its legal counsel may rely, that no registration
under the Securities Act would be required in connection with the proposed
sale, transfer or other disposition; (iii) a registration statement under the
Securities Act covering the Registrable Securities proposed to be sold,
transferred or otherwise disposed of, describing the manner and terms of the
proposed sale, transfer or other dispositions, and containing a current
prospectus, shall have been filed with the SEC and made effective under the
Securities Act; (iv) an authorized representative of the SEC shall have
rendered written advice to Holder (sought by Holder or counsel to Holder, with
a copy thereof and all other related communications delivered to the Company)
to the effect that the SEC would take no action, or that the staff of the SEC
would not recommend that the SEC take any action, with respect to the proposed
disposition if consummated; or (v) when the Holder of Registrable Securities
is no longer subject to the restrictions in Rule 145 under Rule 145(d)(2) or
(3).
(c) Each Holder consents to the Company making a notation on its records and
giving instructions to any transfer agent of the Registrable Securities in
order to implement the restrictions on transfer established in this Agreement.
1.3 Requested Registration.
(a) At any time after the Expiration Date, in case the Company shall receive
a written request from a Holder or Holders that the Company effect any
registration with respect to Registrable Securities if the anticipated
aggregate offering price, net of underwriting discounts and commissions, would
exceed $10,000,000, the Company shall:
(i) promptly give written notice of the proposed registration to all
other Holders; and
(ii) as soon as practicable use its best efforts to register (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualifications under applicable blue sky or other
state Securities Laws, and appropriate compliance with federal government
requirements) the sale and distribution of the Registrable Securities as
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders as are specified in a
written request given within ten (10) days after receipt of such written
notice from the Company; provided that the Company shall not be obligated
to file a registration statement pursuant to this section:
A-E-3
<PAGE>
(A) within one hundred twenty (120) days after the
effectiveness of the registration statement relating to a
registration effected pursuant to this Section 1.3(a) or Section
1.4(a);
(B) in any particular state in which the Company would be
required to execute a general consent to service of process in
effecting such registration;
(C) in any registration having an aggregate sales price
(before deduction of underwriting discounts and commissions) of
less than $10,000,000; or
(D) after the Company has effected three such registrations
pursuant to this Section 1.3(a) and such registrations have been
declared or ordered effective; provided, however, that any
registration request which is subsequently withdrawn shall not
be deemed to be a registration under this subsection (D) if the
Holders requesting such registration shall have reimbursed the
Company for all Registration Expenses related to such withdrawn
registration.
Subject to the foregoing clauses (A) through (D), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as is practicable after receipt of the request or requests
of the Holders; provided, however, that (i) if the Company shall furnish to
such Holders a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors it would be detrimental
to the Company and its stockholders for such registration statement to be
filed within such period, then the Company may defer the filing of such
registration statement for a period of not more than sixty (60) days, provided
that the Company may not exercise such sixty (60) day hold off more than once
during any one hundred and twenty (120) day period, or (ii) if at the time of
such request the Company determines it desires to register shares for the
account of the Company, then the Company can so notify the Holders who shall
then have rights to participate in such registration statement as provided in
Section 1.4.
(b) The Holders agree to distribute the Registrable Securities covered by
their request by means of an underwriting, using an underwriter or
underwriters selected by the Holders and reasonably acceptable to the Company.
The right of any Holder to registration pursuant to Section 1.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. The Company shall (together with all Holders
distributing their Registrable Securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting. Notwithstanding any other
provision of this Section 1.3, if the managing underwriter advises the
participating Holders in writing that marketing factors so as to not
materially adversely impact the market price of the Company's Common Stock
require a limitation of the number of shares to be underwritten (an
"Underwriter's Cutback"), the Company shall so advise all participating
Holders, and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
participating Holders thereof in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders. If any
Holder disapproves of the terms of the underwriting, he may elect to withdraw
therefrom by written notice to the Company and the managing underwriter. If,
by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other Holders may be included in such
registration (up to the limit imposed by the underwriters) the Company shall
offer to all Holders who have included Registrable Securities in the
registration the right to include additional Registrable Securities in the
same proportion used in determining the limitation as set forth above. Any
Registrable Securities which are excluded from the underwriting by reason of
the underwriter's marketing limitation or withdrawn from such underwriting
shall be withdrawn from such registration and shall remain subject to the
lockup agreement in Section 1.10.
1.4 Piggyback Registration.
(a) If at any time or from time to time, the Company shall determine to
register any of its securities, for its own account or the account of any of
its stockholders, other than a registration relating solely to employee
benefit plans, a registration statement related to the offering of convertible
debt securities of the Company, a registration
A-E-4
<PAGE>
relating solely to a Securities Act Rule 145 transaction, or a registration on
any form (other than Form S-1, S-2 or S-3, or their successor forms) which
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities, the Company will:
(i) give to each Holder written notice thereof as soon as
practicable prior to filing the registration statement; and
(ii) include in such registration and in any underwriting involved
therein, all the Registrable Securities specified in a written request
or requests, made within ten (10) days after receipt of such written
notice from the Company, by any Holder or Holders, except as set forth
in Subsection (b) below.
(b) If the registration is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Subsection 1.4(a)(i). In such event the right of any
Holder to registration pursuant to Section 1.4 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Section 1.4, if the managing underwriter determines that marketing factors so
as to not materially adversely impact the market price of the Company's Common
Stock require a limitation of the number of shares to be underwritten, the
managing underwriter may limit the number of Registrable Securities to be
included in the registration and underwriting on behalf of the Holders on a
pro rata basis to not less than thirty-five percent (35%) of total number of
shares to be included in the registration. In such event, the Company shall so
advise all Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the registration and
underwriting shall be allocated among the Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by each
of the Holders seeking to register shares under this Section 1.4. If any
Holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. If, by the withdrawal of such Registrable Securities a greater
number of Registrable Securities held by other Holders may be included in such
registration (up to the limit imposed by the underwriters) the Company shall
offer to all Holders who have included Registrable Securities in the
registration the right to include additional Registrable Securities in the
same proportion used in determining the limitation as set forth above. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration and shall remain subject to the lockup
agreement in Section 1.10.
1.5 Expenses of Registration. All Registration Expenses and Selling Expenses
incurred in connection with any registration, qualification or compliance
pursuant to Section 1.3 shall be borne by the Holders of the securities so
registered pro rata on the basis of the number of their shares so registered,
and such Holders shall be obligated prior to any such registration to pay to
the Company by check or wire transfer $100,000 as an advance of such
Registration Expenses and to pay the remainder of such expenses at closing of
the public offering. The Company shall return to the Holders any amount of
such advance which is not necessary to reimburse the Company for the
Registration Expenses. All Registration Expenses incurred in connection with
any registration, qualification or compliance pursuant to Section 1.4 shall be
borne by the Company and all Selling Expenses shall be borne by the Holders of
the securities so registered pro rata on the basis of the number of their
shares so registered.
1.6 Obligations of the Company. Whenever required to effect the registration
of any Registrable Securities under this Agreement, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and keep such registration
statement effective until the distribution is completed, but not longer than
ninety (90) days after the effective date thereof (excluding any days in which
the Company requires the Holders to cease sales of shares as provided below);
provided, however, that the Company may by written notice require that the
Holders immediately cease sales of
A-E-5
<PAGE>
shares (for a period not to exceed sixty (60) days) pursuant to such
Registration Statement at any time that (i) the Company becomes engaged in
business activity or negotiation which is not disclosed in the Registration
Statement (or the prospectus included therein) which the Company reasonably
believes must be disclosed therein under applicable law and which the Company
desires to keep confidential for business purposes, (ii) the Company
determines that a particular disclosure so determined to be required to be
disclosed therein would be premature or would adversely affect the Company or
its business or prospects, or (iii) the registration statement can no longer
be used under the existing rules and regulations promulgated under the
Securities Act. The Company shall not be required to disclose to the Holders
which of the reasons specified in clauses (i), (ii) or (iii) above are the
basis for requiring a suspension of sales hereunder.
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Securities Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such number of copies of a prospectus, including
a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by
them that are included in such registration.
(d) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided,
however, that the Company shall not be required in connection therewith or as
a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) Enter into and perform its obligations under an underwriting agreement,
in usual and customary form, with the managing underwriter(s) of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Furnish, at the request of any Holder registering Registrable
Securities, on the date that such Registrable Securities are delivered to the
underwriters for sale, (i) an opinion, dated as of such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering addressed to the underwriters, and (ii) a "comfort" letter dated as
of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering addressed to the underwriters.
1.7 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 1.3 or 1.4
that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the
intended method of disposition of such securities as shall be required to
timely effect the registration of Registrable Securities.
1.8 Delay of Registration. No Holder shall have any right to obtain or seek
an injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation
or implementation of this Agreement.
1.9 Indemnification. In the event any Registrable Securities are included in
a registration statement under Sections 1.3. or 1.4:
A-E-6
<PAGE>
(a) By the Company. To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Exchange Act against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"):
(i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which made, not
misleading, or
(iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any federal or state securities law
or any rule or regulation promulgated under the Securities Act, the
Exchange Act or any federal or state securities law in connection with
the offering covered by such registration statement;
and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending
any such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this subsection 1.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder,
partner, officer, director, underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter (as defined in the Securities Act) and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such underwriter or
other Holder within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, underwriter or
other such Holder, partner or director, officer or controlling person of such
underwriter or other Holder may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or other Holder, partner, officer, director or controlling
person of such other Holder or underwriter in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this subsection 1.9(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the written consent
of the Holder, which consent shall not be unreasonably withheld; and provided
further, that the total amounts payable in indemnity by a Holder under this
subsection 1.9(b) in respect of any Violation shall not exceed the net
proceeds received by such Holder in the registered offering out of which such
Violation arises.
A-E-7
<PAGE>
(c) Notice. Promptly after receipt by an indemnified party under Section 1.9
of notice of the commencement of any action (including, without limitation,
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under Section 1.9,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
shall have the right to retain its own counsel, with the fees and expenses to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate due
to actual or potential conflict of interests between such indemnified party
and any other party represented by such counsel in such proceeding, and
provided further, that the indemnifying party shall not be required to pay for
more than one separate counsel for all indemnified parties. The failure to
deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if materially prejudicial to its ability
to defend such action, shall relieve such indemnifying party of any liability
to the indemnified party under Section 1.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under Section 1.9.
(d) Contribution. In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
Holder exercising rights under this Agreement, or any controlling person of
any such Holder, makes a claim for indemnification pursuant to Section 1.9 but
it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that Section 1.9 provides for
indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under Section
1.9; then, and in each such case, the Company and such Holder will contribute
to the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate
to reflect the relative fault of the indemnifying party or parties on the one
hand and the indemnified party on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
indemnifying party or parties on the one hand or the indemnified party on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission; provided,
however, that, in any such case, (A) no such Holder will be required to
contribute any amount in excess of the net proceeds received by such holder
from all such Registrable Securities offered and sold by such Holder pursuant
to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
(e) Survival. The obligations of the Company and Holders under Section 1.9
shall survive the completion of any offering of Registrable Securities in a
registration statement.
1.10 "Market Stand-Off" Agreement. Each Holder who gives notice to the
Company of such Holder's desire to participate in any registration under
Section 1.3 or 1.4 hereof hereby agrees that it shall not, to the extent
requested by the Company or the managing underwriter, sell or otherwise
transfer or dispose of any Registrable Securities or other shares of stock of
the Company then owned by such Holder (other than to donees, affiliates or
partners of the Holder who agree to be similarly bound) for the period from
the filing of the registration statement until up to ninety (90) days
following the date of the final prospectus in connection with the registration
statement.
A-E-8
<PAGE>
In order to enforce the foregoing covenant, the Company shall have the right
to place restrictive legends on the certificates representing the shares
subject to this Section 1.10 and to impose stop transfer instructions with
respect to the Registrable Securities of such Holders until the end of such
period. The provisions of this Section 1.10 shall be binding upon any
transferee of any Registrable Securities.
1.11 Transfer of Registration Rights. The rights to cause the Company to
register securities granted Holders under Sections 1.3 and 1.4 may be assigned
to any constituent partner of a Holder, where such Holder is a partnership, or
to any parent or subsidiary corporation or any officer, director or principal
stockholder thereof, where such Holder is a corporation, provided that (i)
such transfer may otherwise be effected in accordance with the applicable
securities laws, and (ii) the Company is given written notice of such
assignment prior to such assignment.
1.12 Termination of Rights. The rights granted pursuant to this Agreement
(a) shall terminate as to any Holder when the aggregate number of Registrable
Securities which such Holder holds (together with other Holders whose sales
may be aggregated) could all be sold in a public sale in compliance with Rule
144 under the Securities Act using the 1% volume limitation contained in Rule
144(e)(1)(i), and (b) shall not be exercisable by any Holder if at the time of
the request for or notice of registration under Section 1.3 and 1.4 such
Holder could sell (together with other Holders whose sales may be aggregated)
in a three (3) month period all Registrable Securities then held by such
Holder in compliance with Rule 144 using the Company's average weekly trading
volume calculation at such time.
1.13 Rule 144 Reporting. With a view to make available the benefits of Rule
144 the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to the Holder forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144, and
provide a copy of the most recent annual or quarterly report of the Company,
and such other reports and documents of the Company as a Holder may reasonably
request in availing itself of Rule 144.
SECTION 2
MISCELLANEOUS
2.1 Waivers and Amendments. The rights and obligations of the Company and
the rights and obligations of a Holder under this Agreement may be waived
(either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely) or
amended, only with the written consent of such Holder.
2.2 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California as such laws are applied to contracts made
and to be fully performed entirely within that state between residents of that
state. All disputes arising out of this Agreement shall be subject to the
exclusive jurisdiction and venue of the California State courts of Sacramento
County, California, (or, if there is exclusive federal jurisdiction, the
United States District Court for the Northern District of California) and the
parties consent to the personal and exclusive jurisdiction and venue of these
courts.
2.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties
hereto.
A-E-9
<PAGE>
2.4 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.5 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first class, postage
prepaid, addressed (a) if to a Holder, at such Holder's address set forth in
Schedule A hereto, or at such other address as such Holder shall have
furnished to the Company in writing, or (b) if to the Company, at its
principal executive offices (Attention: Chief Financial Officer) or at such
other address as the Company shall have furnished to the Holders in writing.
Notices shall be effective upon mailing.
2.6 Severability. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
2.7 Titles and Subtitles. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.
2.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
constitute one instrument.
The foregoing Registration Rights Agreement is hereby executed as of the
date first above written.
"COMPANY"
ACCESS HEALTH, INC.
a Delaware corporation
By:
----------------------------
Thomas E. Gardner
President and Chief Executive
Officer
STOCKHOLDER
-------------------------------
(Print Name)
-------------------------------
(Signature of Holder or
Authorized Signatory)
-------------------------------
(Print Name and Title of
Authorized Signatory if
Applicable)
A-E-10
<PAGE>
REGISTRATION RIGHTS AGREEMENT
SCHEDULE A
[Identify each Informed Access Stockholder who will receive Registration
Rights]
A-E-11
<PAGE>
EXHIBIT F
INTERIM LINE OF CREDIT FROM ACCESS HEALTH, INC. TO INFORMED ACCESS SYSTEMS,
INC.
SUMMARY OF PROPOSED TERMS
<TABLE>
<C> <S>
AMOUNT: $2 million
FORM: Line of Credit (the "Line of Credit") to be drawn upon
at the discretion of Informed Access Systems, Inc.
("Informed Access") until: (1) the closing of the
Merger, (2) a termination of the Merger Agreement by
Informed Access or (3) 60 days following the
termination of the Merger Agreement by Access Health,
Inc. ("Access Health"). Thereafter, advances to
Informed Access will be at the discretion of Access
Health.
TERM: The earlier of (1) 12 months from the closing date for
the Line of Credit and (2) six months after the
termination of the Merger Agreement.
In the event a termination fee is payable by Access
Health to Informed Access, a portion of the proceeds
will be used to retire in full any outstanding balances
under the Line of Credit and the Line of Credit will be
terminated.
INTEREST RATE: Prime +1.50%. Rate will increase to 20% beginning in
the month following termination of the Merger
Agreements by Informed Access.
INTEREST PAYMENT: Monthly
PRINCIPAL REPAYMENT: Upon maturity
COLLATERAL: First security interest in all tangible assets,
excluding equipment covered under capital lease
agreements.
TIME OF CLOSING: By , 1996
CONDITIONS OF CLOSING: 1. Execution of the definitive Merger Agreement and the
Merger Agreement shall not have been terminated.
2. Preparation of definitive documentation
</TABLE>
A-F-1
<PAGE>
EXHIBIT G
FORM OF OPINION OF WILSON SONSINI GOODRICH & ROSATI, P.C.
, 1996
Informed Access Systems, Inc.
310 Interlocken Parkway
Broomfield, Colorado 80021
Ladies and Gentlemen:
We have acted as counsel to Access Health, Inc., a Delaware corporation
("Parent"), in connection with the merger (the "Merger") of Access Acquisition
Corp., a Delaware corporation ("Merger Sub") and a wholly owned subsidiary of
Parent, with and into Informed Access Systems, Inc., a Delaware corporation
(the "Company"), pursuant to the Agreement and Plan of Reorganization among
Parent, Merger Sub and the Company dated as of September 3, 1996 (the "Merger
Agreement"). This opinion is furnished to you pursuant to Section 6.2(d) of
the Merger Agreement. Unless otherwise defined herein, the capitalized terms
used in this opinion have the meaning given to them in the Merger Agreement.
We have acted as counsel for Parent and Merger Sub in connection with the
negotiation of the Merger Agreement and the effectuation of the Merger. As
such counsel, we have made such legal and factual examinations and inquiries
as we have deemed advisable or necessary for the purposes of rendering this
opinion. In addition, we have examined originals or copies of documents,
corporate records and other writings which we consider relevant for the
purposes of this opinion. In such examination, we have assumed the genuineness
of all signatures on original documents, the conformity to original documents
of all copies submitted to us and the due execution and delivery of all
documents by any party other than Parent and Merger Sub where due execution
and delivery are a prerequisite to the effectiveness thereof.
As used in this opinion, the expression "to our knowledge" or "known to us"
with reference to matters of fact means that, after an examination of
documents made available to us by Parent and Merger Sub, and after inquiries
of officers of Parent and Merger Sub, but without any further independent
factual investigation, we find no reason to believe that the opinions
expressed herein are factually incorrect. Further, the expression "to our
knowledge" with reference to matters of fact refers to the current actual
knowledge of the attorneys of this firm who have worked on matters for Parent
and Merger Sub solely in co nnection with the Merger Agreement and the
transactions contemplated thereby. Except to the extent expressly set forth
herein or as we otherwise believe to be necessary to our opinion, we have not
undertaken any independent investigation to determine the existence or absence
of any fact, and no inference as to our knowledge of the existence or absence
of any fact should be drawn from our representation of Parent and Merger Sub
or the rendering of the opinion set forth below.
For purposes of this opinion, we are assuming that you have all requisite
power and authority, and have taken any and all necessary corporate action, to
execute and deliver the Merger Agreement and we assume that the
representations and warranties made by you in the Merger Agreement and
pursuant thereto are true and correct.
The opinions hereinafter expressed are subject to the following
qualifications:
A. We express no opinion as to the effect of rules of law governing specific
performance, injunctive relief or other equitable remedies (regardless of
whether any such remedy is considered in a proceeding at law or in equity);
A-G-1
<PAGE>
B. We express no opinion as to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium and other similar federal or state laws
affecting the rights of creditors generally;
C. We express no opinion as to compliance or non-compliance with the anti-
fraud provisions of state and federal laws, rules and regulations concerning
the issuance of securities.
D. We express no opinion as to the enforceability of any of the agreements
attached as exhibits to the Merger Agreement;
E. We are members of the Bar of the State of California and we are not
expressing any opinion as to any matter relating to laws of any jurisdiction
other than the laws of the United States of America and the laws of the States
of California and Delaware.
Based upon and subject to the foregoing, and as except as set forth in the
Merger Agreement, we are of the opinion that:
1. Parent and Merger Sub have all requisite corporate power and authority to
enter into the Merger Agreement and to consummate the transactions
contemplated thereby. The vote required of Parent's stockholders under the
rules of the Nasdaq National Market to duly approve the Merger and the Merger
Agreement is that number of shares as would constitute a majority of the total
votes cast on the proposal to approve the Merger in person or by proxy at a
special meeting of Parent's stockholders duly held under Delaware law. The
execution and delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub. The Board of Directors
and Stockholders of each of Parent and Merger Sub have approved the Merger and
the Merger Agreement. The Merger Agreement has been duly executed and
delivered by Parent and Merger Sub and constitutes the valid and binding
obligations of Parent and Merger Sub, enforceable against Parent and Merger
Sub in accordance with its terms (except as enforcement hereof may be limited
by (i) bankruptcy, insolvency, reorganization, moratorium and similar laws,
both state and federal, affecting the enforcement of creditors' rights or
remedies in general as from time to time effect or (ii) the exercise by courts
of equity powers).
2. The issuance of the shares (the "Shares") of Parent Common Stock to be
issued and delivered to the stockholders of Parent in exchange for shares of
Company Common Stock, will, when issued in accordance with the terms of the
Merger Agreement, be validly issued, fully paid and nonassessable and free of
liens, encumbrances or preemptive or similar rights contained in the
Certificate of Incorporation or Bylaws of Parent; provided, however, that the
Shares may be subject to restriction on transfer under state and/or federal
securities laws. The shares of Parent Common Stock which will be issuable upon
exercise of the Company Options to be assumed by Parent in accordance with the
Merger Agreement have been duly reserved and authorized for issuance upon
exercise of such options and, when issued in accordance with the respective
terms of such options, such shares will be duly authorized and validly issued,
fully paid and nonassessable. Assuming the Company Options to be assumed by
Parent in the Merger were valid and binding obligations of the Company prior
to the assumption thereof and assuming the consummation of the Merger will not
cancel or invalidate such options in accordance with their respective terms,
such options will represent valid and binding obligations of Parent when
assumed by Parent in accordance with terms of the Merger Agreement.
4. To our knowledge, immediately prior to the Effective Time of the Merger,
the authorized stock of Parent consisted of 30,000,000 shares of Common Stock,
of which 12,576,674 shares were issued and outstanding. To our knowledge,
immediately prior to the Effective Time of the Merger, the authorized capital
stock of the Merger Sub consisted of 1,000 shares of Common Stock, all of
which issued and outstanding and held by Parent. All such shares have been
duly authorized, and all such issued and outstanding shares have been validly
issued, fully paid and nonassessable and were not subject to preemptive rights
created by statute or the Certificate of Incorporation or Bylaws of Parent.
A-G-2
<PAGE>
5. The execution and delivery of the Merger Agreement by Parent and the
consummation of the transactions contemplated thereby does not conflict with,
or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a Conflict with: (i) any provision of
the Certificate of Incorporation or Bylaws of Parent; or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument that is included
or incorporated by reference as an exhibit to Parent's registration statement
on Form S-4 relating to the Shares.
6. To our knowledge, no consent, waiver, approval, order or authorization
of, or registration, declaration or filing with any court, administrative
agency or commission or other Government Entity or any third party (so as not
to trigger any Conflict), is required by or with respect to Parent in
connection with the execution and delivery of the Merger Agreement or the
consummation of the transactions contemplated thereby, except for the filing
of the Certificate of Merger with the Delaware Secretary of State.
7. To our knowledge, except for a legal action by the former employer of a
newly hired employee of Parent as disclosed to the Company, there is no
action, suit or proceeding of any nature pending or threatened against the
Parent, its properties or any of its officers or directors, in their
respective capacities as such which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement or which would have a Material Adverse Effect
on Parent.
This opinion is solely for your benefit and is not to be made available to
or relied upon by any other person without our express prior written consent.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
A-G-3
<PAGE>
EXHIBIT H
FORM OF OPINION OF COOLEY GODWARD LLP
, 1996
Access Health, Inc.
11020 White Rock Road
Rancho Cordova, CA 95670
Ladies and Gentlemen:
We have acted as counsel for Informed Access Systems, Inc., a Delaware
corporation (the "Company"), in connection with the merger (the "Merger") of
Access Acquisition Corp. ("Merger Sub"), a Delaware corporation and a wholly-
owned subsidiary of Access Health, Inc., a Delaware corporation ("Parent"),
with and into the Company pursuant to the Agreement and Plan of Merger dated
as of September 3, 1996 among Parent, Merger Sub and the Company (the "Merger
Agreement"). We are rendering this opinion pursuant to Section 6.3(d) of the
Merger Agreement. Except as otherwise defined herein, capitalized terms used
but not defined herein have the respective meanings given to them in the
Merger Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Merger Agreement by the various parties and originals or
copies certified to our satisfaction, of such records, documents,
certificates, opinions, memoranda and other instruments as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below.
Where we render an opinion "to our knowledge" or concerning an item "known to
us" or our opinion otherwise refers to knowledge, it is based solely upon (i)
an inquiry of attorneys within this firm who perform legal services for the
Company, (ii) receipt of a certificate executed by an officer of the Company
covering such matters, and (iii) such other investigation, if any, that we
specifically set forth herein.
In rendering this opinion, we have assumed: the genuineness and authenticity
of all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and
delivery by the Company of the Merger Agreement), where authorization,
execution and delivery are prerequisites to the effectiveness of such
documents. We have also assumed: that all individuals executing and delivering
documents had the legal capacity to so execute and deliver; that you have
received all documents you were to receive under the Merger Agreement; that
the Merger Agreement is an obligation binding upon you; that you have filed
any required California franchise or income tax returns and have paid any
required California franchise or income taxes; and that there are no extrinsic
agreements or understandings among the parties to the Merger Agreement that
would modify or interpret the terms of the Merger Agreement or the respective
rights or obligations of the parties thereunder.
Our opinion is expressed only with respect to the federal laws of the United
States of America, the laws of the State of California and the Delaware
General Corporation Law. We express no opinion as to whether the laws of any
particular jurisdiction apply, and no opinion to the extent that the laws of
any jurisdiction other than those identified above are applicable to the
subject matter hereof. We are not rendering any opinion as to compliance with
any anti-fraud law, rule or regulation relating to securities, or to the sale
or issuance thereof.
With respect to our opinion in paragraph 2 below, we have examined and
relied upon a certificate executed by an officer of the Company to the effect
that the consideration for all outstanding shares of capital stock of the
Company was received by the Company in accordance with the provisions of the
applicable Board of Directors resolutions and any plan or agreement relating
to the issuance of such shares, and we have undertaken no independent
verification with respect thereto.
A-H-1
<PAGE>
With respect to our opinion in clause (c) of paragraph 6 below with respect
to material agreements, we have relied solely upon (i) inquiries of officers
of the Company, (ii) a list supplied to us by the Company, a copy of which has
been provided to your counsel, of material agreements to which the Company is
a party or by which it is bound and which the Company has represented to us
constitute all such agreements that are material to the Company, and (iii) an
examination of the agreements on the aforementioned list; we have made no
further investigation.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company and the Company's subsidiary are corporations duly
organized, validly existing and in good standing under the laws of the
States of Delaware and Texas, respectively.
2. To our knowledge, immediately prior to the Effective Time of the
Merger: (a) the authorized capital stock of the Company consisted of:
6,892,165 shares of authorized Common Stock, of which 1,139,125 shares were
issued and outstanding; 1,635,000 shares of authorized Series A Preferred
Stock, all of which shares were issued and outstanding; 1,431,356 shares of
Series B Preferred Stock, of which 1,413,688 shares were issued and
outstanding; and 1,716,684 shares of Series C Preferred Stock, of which
1,579,373 shares were issued and outstanding; and (b) all of such issued
and outstanding shares had been duly authorized, validly issued, fully paid
and non-assessable and were not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of the Company or any
agreement to which the Company is a party or by which it is bound.
3. Except as described in the Company Schedules delivered pursuant to the
Merger Agreement or as provided for in the Company's Certificate of
Incorporation, to our knowledge, immediately prior to the Effective Time of
the Merger: (a) there were no options, warrants, calls, rights, commitments
or agreements of any character, written or oral, to which the Company is a
party or by which it is bound obligating the Company to issue, delivery,
sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company;
and (b) there were no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Company is a
party or by which it is bound obligating the Company to grant, extend,
accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement.
4. Except as set forth on Schedule 2.3 of the Company Schedules delivered
pursuant to the Merger Agreement, the Company does not have and has never
had any subsidiaries or companies controlled by the Company and does not
otherwise own and has never otherwise owned any shares of capital stock or
any interest in, or controlled, directly or indirectly, any other
corporation, partnership, association, joint venture or other business
entity. The Company owns all of the outstanding capital stock of the
subsidiary listed on such Schedule 2.3, free and clear of any claims, liens
or encumbrances, and no options, warrants or other rights to acquire shares
of capital stock of the subsidiary are outstanding.
5. The Company has all requisite corporate power and authority to enter
into the Merger Agreement and to consummate the transactions contemplated
thereby. The execution and delivery of the Merger Agreement and the
consummation of the transactions contemplated thereby have been duly
authorized by all necessary corporate action on the part of the Company and
its stockholders. The Merger Agreement has been duly executed and delivered
by the Company and constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms (except as enforcement
thereof may be limited by (i) bankruptcy, insolvency, Merger, moratorium
and similar laws, both state and Federal, affecting the enforcement of
creditors' rights or remedies in general as from time-to-time in effect, or
(ii) the exercise by courts of equity powers).
6. The execution and delivery of the Merger Agreement by the Company and
the consummation of the transactions contemplated thereby does not conflict
with, or result in any violation of, or default under
A-H-2
<PAGE>
(with or without notice or lapse of time, or both), or give rise to a
Conflict with: (i) any provision of the Certificate of Incorporation or
Bylaws of the Company; or (ii) any mortgage, indenture, lease, contract or
other agreement or instrument known to us, the violation of which would
have a Material Adverse Effect on the Company.
7. To our knowledge, no consent, waiver, approval, order or authorization
of, or registration, declaration or filing with any court, administrative
agency or commission or other Governmental Entity or any third party (so as
not to trigger any Conflict), is required by or with respect to the Company
in connection with the execution and delivery of the Merger Agreement or
the consummation of the transactions contemplated thereby, except for the
filing of the Certificate of Merger with the Delaware Secretary of State.
8. To our knowledge, except as set forth in the Company's Schedules, (i)
there is no action, suit or proceeding of any nature pending or threatened
against the Company, its properties or any of its officers or directors, in
their respective capacities as such; (ii) there is no investigation pending
or threatened against the Company, its properties, any of its officers or
directors by or before any Governmental Entity; and (iii) no Governmental
Entity has since January 1, 1993, challenged or questioned the legal right
of the Company to manufacture, offer or sell any of its products or
services in the present manner or style thereof.
This opinion is intended solely for your benefit and is not to be made
available to or be relied upon by any other person, firm, or entity without
our prior written consent.
Sincerely,
Cooley Goodward LLP
By: _________________________________
James C.T. Linfield
A-H-3
<PAGE>
EXHIBIT I
INFORMED ACCESS SYSTEMS, INC. CHARTER
1. Access Health, Inc. ("Access Health") will be the world's most
diversified health care information company, with individual subsidiaries
focusing on membership products in personal health management, medical
management, media programming, database research and international markets.
2. Informed Access Systems, Inc. ("IAS") will remain a separate operating
entity as a division of Access Health. Joseph P. Tallman will remain as
president with the required corporate organization to pursue IAS' charter. The
existing management team and structure will remain and be modified as
appropriate and mutually agreed to by IAS and Access Health.
3. IAS will be responsible for all sales, account management, marketing,
product development (including related systems and clinical development), and
call center operations within the medical management/managed care market. The
managed care market includes health plans, publicly traded HMO's, large
physician groups, independent practice associations, hospitals and government
agencies for Medicaid and Medicare. As such, IAS will retain management of its
existing managed care clients, assume management of future clients of the
combined company who require or desire medical management/directed care
products, services or approaches, and assume management of Access Health's
existing managed care clients who require or desire medical
management/directed care products, services or approaches.
4. It is anticipated that many of the products developed by IAS will be
useful in the consumer, employer and international markets of the combined
company. Accordingly, IAS will be included in the development strategy for
pursuing these markets.
5. It is understood that it is in the best interests of the combined
companies and all stockholders to leverage assets and expertise across Access
Health and IAS to maximize operating performance and valuation. The management
of Access Health and IAS will apply this principle according to their best
judgment in executing the charter of IAS.
- --------
This charter document is not intended to modify other legal obligations in
this definitive Merger Agreement or create any right of enforcement beyond
those included in the definitive Merger Agreement and Employment Contracts.
A-I-1
<PAGE>
ANNEX B
September 3, 1996
Board of Directors
Access Health, Inc.
11020 White Rock Road
Rancho Cordova, CA 95670
Ladies and Gentlemen:
We understand that Access Health, Inc., a Delaware corporation ("Buyer"),
and Informed Access Systems, Inc., a Delaware corporation ("Seller"), propose
to enter into an Agreement and Plan of Reorganization dated September 3, 1996
(the "Merger Agreement"), pursuant to which a wholly-owned subsidiary of Buyer
will be merged with and into Seller, which will be the surviving entity and
which will become a wholly-owned subsidiary of Buyer (the "Merger"). Pursuant
to the Merger, as more fully described in the Merger Agreement and as further
described to us by management of Buyer, we understand that each outstanding
share of the common stock, $.001 par value per share ("Seller Common Stock"),
of Seller and each outstanding share of redeemable convertible preferred
stock, $.001 par value per share ("Seller Preferred Stock"), of Seller (the
Seller Common Stock and Seller Preferred Stock are referred to herein
collectively as the "Seller Capital Stock") will be converted into and
exchangeable for a fraction of a share of the common stock, $.001 par value
per share ("Buyer Common Stock"), of Buyer equal to a fraction the numerator
of which is 5,375,000 and the denominator of which is the total number of
shares of Seller Capital Stock outstanding plus the total number of shares of
Seller Capital Stock issuable upon the exercise of all outstanding warrants
and options to purchase shares of Seller Capital Stock, subject to certain
adjustments (the "Consideration"). The terms and conditions of the Merger are
set forth in more detail in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be paid by Buyer pursuant to the Merger is fair to Buyer from
a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain financial and other data with respect to Seller and Buyer, including
the consolidated financial statements for recent years and interim periods to
June 30, 1996 and certain other relevant financial and operating data relating
to Seller and Buyer made available to us from published sources and from the
internal records of Seller and Buyer; (ii) reviewed and discussed with
representatives of the management of Seller and Buyer certain forward-looking
information of a business and financial nature furnished to us by them,
including stand-alone and pro forma financial forecasts and other information
relating to Seller, Buyer and the combined companies following the Merger, and
information relating to certain strategic and operational benefits anticipated
by Buyer's management to result from the Merger, (iii) reviewed the Merger
Agreement; (iv) reviewed certain publicly available information concerning the
trading of, and the trading market for, Buyer Common Stock; (v) compared
Seller and Buyer from a financial point of view; (vi) compared Seller and
Buyer from a financial point of view with certain other companies in the
healthcare information services industry which we deemed to be relevant; (vii)
considered the financial terms, to the extent publicly available, of selected
recent business combinations of companies in the healthcare information
services industry; (viii) made inquiries regarding and discussed the Merger
and the Merger Agreement and other matters related thereto with Buyer's
counsel; and (ix) performed such other analyses and examinations as we have
deemed appropriate.
In connection with our review, we have relied upon the accuracy and
completeness of the foregoing information and have not assumed any obligation
independently to verify such information. With respect to the financial
forecasts for Seller, Buyer and the pro forma combined companies provided to
us by the management of Seller and Buyer, upon their advice and with your
consent we have assumed for purposes of our opinion that the forecasts
(including assumptions regarding cost reductions and other operating
synergies) have been reasonably prepared on bases reflecting the best
available estimates and judgments of their respective
B-1
<PAGE>
management at the time of preparation as to the future financial performance
of Seller, Buyer and the pro forma combined companies and that they provide a
reasonable basis upon which we can form our opinion. We have also assumed that
there have been no material changes in Seller's or Buyer's assets, financial
condition, results of operations, business or prospects since the respective
dates of their last financial statements made available to us. We have relied
on advice of counsel to Seller and Buyer as to all legal matters with respect
to Seller and Buyer, the Merger and the Merger Agreement. In rendering our
opinion, we have expressed no view with respect to, nor have we considered,
the tax consequences of the Merger to any person or entity and we have assumed
that the Merger will be recorded as a pooling of interests under generally
accepted accounting principles. We have assumed that the Merger will be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act of 1933 (the "Securities Act"), the
Securities Exchange Act of 1934 and all other applicable federal and state
statutes, rules and regulations. In addition, we have not assumed
responsibility for making an independent evaluation, appraisal or physical
inspection of any of the assets or liabilities (contingent or otherwise) of
Seller or Buyer, nor have we been furnished with any such appraisals. Finally,
our opinion is based on economic, monetary and market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
Accordingly, although subsequent developments may affect this opinion, we have
not assumed any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Buyer of any of
the conditions to its obligations thereunder.
We have acted as financial advisor to Buyer in connection with the Merger
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the
Merger. In the ordinary course of our business, we actively trade the equity
securities of Buyer for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also acted as an underwriter in connection with offerings of
securities of Buyer and performed various investment banking services for
Buyer.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be paid by Buyer pursuant to the
Merger is fair to Buyer from a financial point of view, as of the date hereof.
This opinion is directed to the Board of Directors of Buyer in its
consideration of the Merger and is not a recommendation to any stockholder as
to how such stockholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Consideration to Buyer
and does not address any other aspect of the Merger. This opinion may not be
used or referred to by Buyer, or quoted or disclosed to any person in any
manner, without our prior written consent. In furnishing this opinion, we do
not admit that we are experts within the meaning of the term "experts" as used
in the Securities Act and the rules and regulations promulgated thereunder,
nor do we admit that this opinion constitutes a report or valuation within the
meaning of Section 11 of the Securities Act.
Very truly yours,
/s/ Montgomery Securities
------------------------------------------
MONTGOMERY SECURITIES
B-2
<PAGE>
ANNEX C
DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of a merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market systems security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 holders; and further provided that
no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did no require for
its approval the vote of the holders of the surviving corporation as
provided in (1) subsections (f) or (g) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
C-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) and (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or 253
of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be
sent by certified or registered mail, return receipt requested, addressed
to the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of the notice, demand in writing from the
surviving or resulting corporation the appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register
C-2
<PAGE>
in Chancery in which the petition was filed a duly verified list containing
the names and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their shares have not
been reached by the surviving or resulting corporation. If the petition shall
be filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by one or more
publications at least one week before the day of the hearing, in a newspaper
of general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so make to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of
C-3
<PAGE>
this section, or if such stockholder shall deliver to the surviving or
resulting corporation a written withdrawal of his demand for an appraisal and
an acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e) of
this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 79, L.
'95, eff. 7-1-95.)
C-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of the Registrant's directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by Section 102(b)(7) of the General Corporation Law of Delaware (the
"Delaware Law") and (ii) require the Registrant to indemnify its directors and
officers to the fullest extent permitted by Section 145 of the Delaware Law,
including circumstances in which indemnification is otherwise discretionary.
Pursuant to Section 145 of the Delaware Law, a corporation generally has the
power to indemnify its present and former directors, officers, employees and
agents against expenses incurred by them in connection with any suit to which
they are, or are threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. The Registrant believes that
these provisions are necessary to attract and retain qualified persons as
directors and officers. These provisions do not eliminate liability for breach
of the director's duty of loyalty to the Registrant and its stockholders, for
acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law, for any transaction from which the director derived
an improper personal benefit, or for any willful or negligent payment of any
unlawful dividend or any unlawful stock purchase agreement or redemption.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against
expenses, judgments, fines, settlements and other amounts incurred (including
expenses of a derivative action) in connection with any proceeding, whether
actual or threatened, to which any such person may be made a party by reason
of the fact that such person is or was a director or an executive officer of
the Registrant or any of its affiliated enterprises, provided such person
acted in good faith and in a manner such person reasonably believed to be in
or not opposed to the best interests of the Registrant and, with respect to
any criminal proceeding, had no reasonable cause to believe this conduct was
unlawful. The indemnification agreements also set forth certain procedures
that will apply in the event of a claim for indemnification thereunder.
The Merger Agreement provides that commencing with the effectiveness of the
Merger, the Registrant will cause Informed Access, to the fullest extent
permitted under applicable law, to indemnify, defend and hold harmless each
current or former officer or director of Informed Access or person who served
at the request of Informed Access as an officer or director of another entity
against and from any losses, claims, damages, expenses (including reasonable
attorney's fees and costs), liabilities, or judgments, and any amounts that
are paid in settlement of any proceeding, that are based on, or that arise out
of, the fact that such person is or was an officer or director of Informed
Access or is or was serving at the request of Informed Access as an officer or
director of another entity. In addition, the Merger Agreement provides that
the Registrant will use reasonable efforts to assist in the defense of any
matter asserted in any claim, action, suit, proceeding or investigation
against such person where such person is entitled to indemnification under
applicable law. The Registrant is entitled to participate at its own expense
in and assume the defense of any proceeding for which indemnification is
sought and the Registrant may settle such proceeding with the consent of such
person subject to certain conditions. Notwithstanding the foregoing, the
Registrant will not be liable for any settlement effected without its written
consent and will not be liable for the fees and expenses of more than one
counsel for all persons entitled to indemnity in connection with a proceeding
except to the extent two or more such persons have a conflict of interest in
the outcome of such proceeding. In addition, the Merger Agreement provides
that the Registrant will cause Informed Access to continue in full force
provisions in Informed Access' Certificate of Incorporation and Bylaws in
effect on the date of the Merger Agreement. The indemnity obligations of the
Registrant will survive the consummation of the Merger for a period of six
years to the extent a claim for indemnification is made during such period,
and in the event the Registrant transfers all or substantial portion of its
properties or assets to any other person or entity, such successor or assignee
must assume such indemnification obligations of the Registrant.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S> <C>
2.1 Conformed Agreement and Plan of Reorganization by and among the
Registrant, Access Acquisition Corp. and Informed Access Systems,
Inc. (filed herewith as Annex A)
3.1 Restated Certificate of Incorporation.............................. (A)
3.2 Amendment to Restated Certificate of Incorporation................. (F)
3.3 Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective immediately upon the closing of the
Merger
3.4 Amended and Restated Bylaws........................................ (A)
4.1 Specimen Stock Certificate......................................... (A)
5.1 Opinion of Wilson Sonsini Goodrich & Rosati (regarding legality of
securities being registered)
8.1 Form of opinion of Wilson Sonsini Goodrich & Rosati (regarding tax
matters)
8.2 Form of opinion of Cooley Godward LLP (regarding tax matters)
10.1 Registrant's 1989 Incentive Stock Plan............................. (I)
10.1A Form of Registrant's 1989 Incentive Stock Plan, in the form to be
effective immediately upon the closing of the Merger
10.2 Registrant's 1991 Employee Stock Purchase Plan, as amended......... (G)
10.3 Registrant's 1995 Director Option Plan............................. (F)
10.4 Lease dated April 10, 1991 for Registrant's office equipment at
11020 White Rock Road, Rancho Cordova, California and 104 Wilmot
Road, Deerfield, Illinois.......................................... (A)
10.5 Lease dated June 15, 1992 for Registrant's facilities at 11020
White Rock Road, Rancho Cordova, California........................ (B)
10.6 Form of Note and Security Agreement for Registrant's office
equipment at 11020 White Rock Road, Rancho Cordova, California..... (B)
10.7 Lease dated February 19, 1992 for Registrant's office equipment at
11020 White Rock Road, Rancho Cordova, California and 104 Wilmot
Road, Deerfield, Illinois.......................................... (B)
10.8 Sale and Installation Agreement dated November 16, 1990 between
Registrant and Aspect Telecommunications Corporation............... (A)
10.9 Lease dated May 5, 1992 for Registrant's office equipment located
at 11020 White Rock Road, Rancho Cordova, California and 104 Wilmot
Road, Deerfield, Illinois.......................................... (B)
10.10 Form of Director and Officer Indemnification Agreement............. (A)
10.11 Equipment Financing Agreement for Registrant's office and computer
equipment at 11020 White Rock Road, Rancho Cordova, California and
3060 Salt Creek Lane, Arlington Heights, Illinois.................. (C)
10.12 First Amendment to Lease dated August 6, 1993 for Registrant's
facility at 11020 White Rock Road, Rancho Cordova, California...... (E)
10.13 Lease dated August 13, 1993 for Registrant's facility at 3060 Salt
Creek Lane, Arlington Heights, Illinois............................ (E)
10.14 Lease dated November 1, 1993 for Registrant's facility at 2510 W.
Dunlap Drive, Phoenix, Arizona..................................... (E)
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S> <C>
10.15 Employment Agreement with Jeremy J. Nobel, M.D................... (F)
10.16+ Amended and Restated Agreement of Limited Partnership of AHN
Partners, L.P.................................................... (H)
10.17+ Admission Agreement dated April 15, 1996......................... (H)
10.18+ Partnership Interest Option Agreement dated April 15, 1996....... (H)
10.19 Line of Credit Note dated May 7, 1996............................ (H)
11.1 Statement re: Computation of Per Share Earnings (regarding
Registrant)
11.2 Statement re: Computation of Pro Forma Per Share Earnings
(regarding Informed Access)
21.1 Listing of Subsidiaries of Registrant............................ (A)
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Wilson Sonsini Goodrich & Rosati, PC (included in
Exhibit 5.1)
23.4 Consent of Cooley Godward LLP
24.1 Power of Attorney (See page II-5)
99.1 Form of Access Health, Inc. Proxy card
99.2 Form of Informed Access Systems, Inc. Written Consent
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested for portions of this document.
(A) Incorporated by reference to Registrant's Form S-1 Registration Statement
(No. 33-44604).
(B) Incorporated by reference to Registrant's Form 10-K for the year ended
September 30, 1992.
(C) Incorporated by reference to Registrant's Form 10-Q for the quarter ended
March 31, 1993.
(D) Incorporated by reference to Registrant's Form 10-Q for the quarter ended
June 30, 1993.
(E) Incorporated by reference to Registrant's Form 10-K for the year ended
September 30, 1993.
(F) Incorporated by reference to Registrant's Form 10-K/A for the year ended
September 30, 1995.
(G) Incorporated by reference to Registrant's Form 10-Q for the quarter ended
December 31, 1995.
(H) Incorporated by reference to Registrant's Form 10-Q for the quarter ended
June 30, 1996.
(I) Incorporated by reference to Registrant's Form S-8 Registration Statement
(No. 333-04662).
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements, management's discussion and analysis or notes thereto.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(2) Insofar as the indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(3) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Rancho Cordova, State
of California, on the 10th day of October, 1996.
Access Health, Inc.
By: /s/ Thomas E. Gardner
----------------------------------
THOMAS E. GARDNER
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severally, Thomas E.
Gardner and John V. Crisan, and each of them acting individually, as his
attorney-in-fact, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney to any
and all amendments to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Kenneth B. Plumlee Chairman of the Board October 10,
- --------------------------------- 1996
KENNETH B. PLUMLEE
/s/ Thomas E. Gardner President, Chief October 10,
- --------------------------------- Executive Officer and 1996
THOMAS E. GARDNER Director (Principal
Executive Officer)
/s/ John V. Crisan Senior Vice President October 10,
- --------------------------------- and Chief Financial 1996
JOHN V. CRISAN Officer (Principal
Financial and
Accounting Officer)
/s/ Richard C. Miller Executive Vice October 10,
- --------------------------------- President, Secretary 1996
RICHARD C. MILLER and Director
/s/ John R. Durant, M.D. Director October 10,
- --------------------------------- 1996
JOHN R. DURANT, M.D.
/s/ Alice H. Lusk Director October 10,
- --------------------------------- 1996
ALICE H. LUSK
/s/ Brent T. Rider Director October 10,
- --------------------------------- 1996
BRENT T. RIDER
/s/ Edward K. Rygiel Director October 10,
- --------------------------------- 1996
EDWARD K. RYGIEL
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
2.1 Conformed Agreement and Plan of Reorganization by and among the
Registrant, Access Acquisition Corp. and Informed Access Systems,
Inc. (filed herewith as Annex A)
3.1 Restated Certificate of Incorporation............................ (A)
3.2 Amendment to Restated Certificate of Incorporation............... (F)
3.3 Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be effective immediately upon the closing of the
Merger
3.4 Amended and Restated Bylaws...................................... (A)
4.1 Specimen Stock Certificate....................................... (A)
5.1 Opinion of Wilson Sonsini Goodrich & Rosati (regarding legality
of securities being registered)
8.1 Form of opinion of Wilson Sonsini Goodrich & Rosati (regarding
tax matters)
8.2 Form of opinion of Cooley Godward LLP (regarding tax matters)
10.1 Registrant's 1989 Incentive Stock Plan........................... (I)
10.1A Form of Registrant's 1989 Incentive Stock Plan, in the form to be
effective immediately upon the closing of the Merger
10.2 Registrant's 1991 Employee Stock Purchase Plan, as amended....... (G)
10.3 Registrant's 1995 Director Option Plan........................... (F)
10.4 Lease dated April 10, 1991 for Registrant's office equipment at
11020 White Rock Road, Rancho Cordova, California and 104 Wilmot
Road, Deerfield, Illinois........................................ (A)
10.5 Lease dated June 15, 1992 for Registrant's facilities at 11020
White Rock Road, Rancho Cordova, California...................... (B)
10.6 Form of Note and Security Agreement for Registrant's office
equipment at 11020 White Rock Road, Rancho Cordova, California... (B)
10.7 Lease dated February 19, 1992 for Registrant's office equipment
at 11020 White Rock Road, Rancho Cordova, California and 104
Wilmot Road, Deerfield, Illinois................................. (B)
10.8 Sale and Installation Agreement dated November 16, 1990 between
Registrant and Aspect Telecommunications Corporation............. (A)
10.9 Lease dated May 5, 1992 for Registrant's office equipment located
at 11020 White Rock Road, Rancho Cordova, California and 104
Wilmot Road, Deerfield, Illinois................................. (B)
10.10 Form of Director and Officer Indemnification Agreement........... (A)
10.11 Equipment Financing Agreement for Registrant's office and
computer equipment at 11020 White Rock Road, Rancho Cordova,
California and 3060 Salt Creek Lane, Arlington Heights,
Illinois......................................................... (C)
10.12 First Amendment to Lease dated August 6, 1993 for Registrant's
facility at 11020 White Rock Road, Rancho Cordova, California.... (E)
10.13 Lease dated August 13, 1993 for Registrant's facility at 3060
Salt Creek Lane, Arlington Heights, Illinois..................... (E)
10.14 Lease dated November 1, 1993 for Registrant's facility at 2510 W.
Dunlap Drive, Phoenix, Arizona................................... (E)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.15 Employment Agreement with Jeremy J. Nobel, M.D.................. (F)
10.16+ Amended and Restated Agreement of Limited Partnership of AHN
Partners, L.P................................................... (H)
10.17+ Admission Agreement dated April 15, 1996........................ (H)
10.18+ Partnership Interest Option Agreement dated April 15, 1996...... (H)
10.19 Line of Credit Note dated May 7, 1996........................... (H)
11.1 Statement re: Computation of Per Share Earnings (regarding
Registrant)
11.2 Statement re: Computation of Pro Forma Per Share Earnings
(regarding Informed Access)
21.1 Listing of Subsidiaries of Registrant........................... (A)
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Wilson Sonsini Goodrich & Rosati, PC (included in
Exhibit 5.1)
23.4 Consent of Cooley Godward LLP
24.1 Power of Attorney (See page II-5)
99.1 Form of Access Health, Inc. Proxy card
99.2 Form of Informed Access Systems, Inc. Written Consent
</TABLE>
- --------
* To be filed by amendment.
+ Confidential treatment requested for portions of this document.
(A) Incorporated by reference to Registrant's Form S-1 Registration Statement
(No. 33-44604).
(B) Incorporated by reference to Registrant's Form 10-K for the year ended
September 30, 1992.
(C) Incorporated by reference to Registrant's Form 10-Q for the quarter ended
March 31, 1993.
(D) Incorporated by reference to Registrant's Form 10-Q for the quarter ended
June 30, 1993.
(E) Incorporated by reference to Registrant's Form 10-K for the year ended
September 30, 1993.
(F) Incorporated by reference to Registrant's Form 10-K/A for the year ended
September 30, 1995.
(G) Incorporated by reference to Registrant's Form 10-Q for the quarter ended
December 31, 1995.
(H) Incorporated by reference to Registrant's Form 10-Q for the quarter ended
June 30, 1996.
(I) Incorporated by reference to Registrant's Form S-8 Registration Statement
(No. 333-04662).
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements, management's discussion and analysis or notes thereto.
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ACCESS HEALTH, INC.
Access Health, Inc., a Delaware corporation, hereby certifies that:
1. The name of the Corporation is Access Health, Inc. The original
Certificate of Incorporation was filed with the office of the Secretary of State
of the State of Delaware on July 6, 1990. The name under which the Corporation
was originally incorporated was "Access Health Marketing, Inc."
2. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate Incorporation of
the Corporation.
3. This Amended and Restated Certificate of Incorporation has been duly
approved and adopted by the Board of Directors and the stockholders of the
Corporation in accordance with Sections 242 and 245 of the Delaware General
Corporation Law.
4. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, the Certificate of Incorporation of this Corporation, as
heretofore amended and supplemented, is hereby amended and restated to read in
its entirety as follows:
"I
The name of the Corporation is Access Health, Inc. ("the Corporation").
II
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle, zip code 19801. The name of its registered agent at such
address is The Corporation Trust Company.
III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
IV
This Corporation is authorized to issue two classes of shares, designated
"Common Stock", $.001 par value, and "Preferred Stock", $.001 par value. The
total number of shares which this Corporation is authorized to issue is
80,000,000. The number of shares of Preferred Stock which this Corporation is
authorized to issue is 5,000,000. The number of shares of Common Stock which
this Corporation is authorized to issue is 75,000,000.
<PAGE>
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is expressly granted, to the fullest extent permitted by
law, the authority to fix, alter, or rescind by resolution or resolutions the
rights, preferences, qualifications, limitations and restrictions of any
unissued series of Preferred Stock including, without limitation, the power to
specify the number of shares of any series. Within the limits and restrictions
stated in any resolution or resolutions of the Board of Directors originally
fixing or specifying the number of shares constituting any series of Preferred
Stock, the Board of Directors is expressly granted the authority to increase or
decrease (but not below the shares of any such series outstanding) the number of
shares of any series subsequent to the issuance of shares in the series. In case
the number of shares of Preferred Stock of any series shall be so decreased, the
shares of Preferred Stock constituting such decrease shall resume the status of
authorized but unissued shares with the series, rights, preferences,
qualifications, limitations and restrictions to be determined by the Board of
Directors. The number of authorized shares of Preferred Stock may be increased
or decreased (but not below the number of shares thereof then outstanding in
addition to any shares of any series of Preferred Stock reserved for issuance
under any option granted by the Corporation) by the affirmative vote of the
holders of a majority of the outstanding shares of the Common Stock, and by the
affirmative vote of the holders of a majority of the outstanding shares of the
Preferred Stock.
V
The Corporation is to have perpetual existence.
VI
Elections of directors need not be by written ballot unless a stockholder
demands election by written ballot at the meeting and before voting begins.
VII
Vacancies occurring on the Board of Directors for any reason may be filled
by vote of a majority of the remaining members of the Board of Directors,
although less than a quorum, at a meeting of the Board of Directors. A Person so
elected by the Board of Directors to fill a vacancy shall hold office until
the next succeeding annual meeting of stockholders of the Corporation and until
his or her successor shall have been duly elected and qualified.
VIII
The number of directors which constitute the whole Board of Directors of
the Corporation shall be designated in the Bylaws of the Corporation.
IX
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
-2-
<PAGE>
X
To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Tenth Article, nor the adoption
of any provision of this amended Restated Certificate of Incorporation
inconsistent with this Tenth Article, shall eliminate or reduce the effect of
this Tenth Article in respect of any matter occurring, or any cause of action,
suit or claim that, but for this Tenth Article, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.
XI
At the election of directors of the Corporation, each holder of stock of
any class of series shall be entitled to as many votes as shall equal the number
of votes which (except for such provision as to cumulative voting) he would be
entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected by him, and he may
cast all of such votes for a single director or may distribute them as he may
see fit, so long as the name of the candidate for director shall have been
placed in nomination prior to the voting and the stockholder, or any other
holder of the same class or series of stock, has given notice at the meeting
prior to the voting of the intention to cumulate votes.
XII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
XIII
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
XIV
The Corporation reserves the right to amend, alter, change or repeal any
provisions contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation."
-3-
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been signed this ___ day of ____________,1996.
ACCESS HEALTH, INC.
By:_________________________________
Thomas E. Gardner, President
ATTEST:
_________________________________
Richard C. Miller, Secretary
-4-
<PAGE>
EXHIBIT 5.1
-----------
October 11, 1996
Access Health, Inc.
11020 White Rock Road
Rancho Cordova, CA 95670
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4, filed by you with
the Securities and Exchange Commission (the "Commission") on October 11, 1996
(the "Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of 5,375,000 shares of your Common Stock
(the "Shares"). As your counsel in connection with this transaction, we have
examined the proceedings taken and are familiar with the proceedings proposed to
be taken by you in connection with the sales and issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement, will be legally and validly
issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the proxy statement/prospectus and consent
solicitation statement constituting a part thereof, and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE>
EXHIBIT 8.1
October __, 1996
Access Health, Inc.
11020 White Rock Road
Rancho Cordova, California 95670
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 6.1(d) of the
Agreement and Plan of Reorganization dated as of September 3, 1996 (the
"Reorganization Agreement"), by and among Access Health, Inc., a Delaware
corporation ("Parent"), Access Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Informed Access Systems,
Inc., a Delaware corporation (the "Company"). Pursuant to the terms of the
Reorganization Agreement, Merger Sub will merge with and into the Company (the
"Merger"), and the Company will become a wholly-owned subsidiary of Parent.
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Reorganization Agreement. All section references,
unless otherwise indicated, are to the Internal Revenue Code of 1986, as amended
(the "Code").
We have acted as legal counsel to Parent in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined (or will
examine on or prior to the Effective Time of the Merger) and are relying (or
will rely) upon (without any independent investigation or review thereof) the
truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all schedules and exhibits thereto):
1. The Reorganization Agreement (including Exhibits);
2. Representations made to us by Parent and Merger Sub in an Officer's
Certificate reproduced as Exhibit A hereto;
3. Representations made to us by the Company in an Officer's Certificate
reproduced as Exhibit B hereto;
4. "Affiliate Agreements" delivered by certain shareholders of the
Company;
5. The proxy statement/prospectus of Parent and the consent solicitation
statement of the Company (the "Registration Statement"); and
<PAGE>
Access Health, Inc.
October __, 1996
Page 2
7. Such other instruments and documents related to the formation,
organization and operation of Parent, the Company and Merger Sub or to the
consummation of the Merger and the transactions contemplated thereby as we have
deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time of the Merger) due execution and delivery of
all documents where due execution and delivery are prerequisites to
effectiveness thereof;
2. The Merger will be consummated pursuant to the Reorganization Agreement
and will be effective under the laws of the state of Delaware;
3. Any statement made in any of the documents referred to herein,"to the
best of the knowledge" of any person or party is correct without such
qualification;
4. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us are true and correct in
all material respects and no actions have been (or will be) taken which are
inconsistent with such representations;
5. The opinion of counsel, received by the Company from Cooley Godward LLP
in satisfaction of Section 6.1(d) of the Reorganization Agreement has been
delivered and has not been withdrawn; and
6. The shareholders of the Company do not, and will not on or before the
Effective Time, have an existing plan or intent to dispose of an amount of
Parent stock to be received in the Merger (or to dispose of Company capital
stock in anticipation of the Merger) such that the shareholders of the Company
will not receive and retain a meaningful continuing equity ownership in Parent
that is sufficient to satisfy the continuity of interest requirement as
specified in Treasury Regulation Section 1.368-1(b) and as interpreted in
certain Internal Revenue Service rulings and federal judicial decisions.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that:
(a) For federal income tax purposes, the Merger will qualify as a
"reorganization" as defined in Section 368(a) of the Code; and
(b) The discussion entitled "Certain Federal Income Tax Considerations" in
the Registration Statement under the heading "Approval of the Merger and Related
Transactions"
<PAGE>
Access Health, Inc.
October __, 1996
Page 3
insofar as it relates to statements of law or legal conclusions is correct in
all material respects.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures. Our
opinion is not binding upon the Internal Revenue Service or the courts, and
there is no assurance that the Internal Revenue Service will not successfully
assert a contrary position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of
any new developments in the application or interpretation of the federal income
tax laws.
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger).
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement or to any transaction whatsoever,
including the Merger, if all the transactions described in the Reorganization
Agreement are not consummated in accordance with the terms of such
Reorganization Agreement and without waiver or breach of any material provision
thereof or if all of the representations, warranties, statements and assumptions
upon which we relied are not true and accurate at all relevant times. In the
event any one of the statements, representations, warranties or assumptions upon
which we have relied to issue this opinion is incorrect, our opinion might be
adversely affected and may not be relied upon.
This opinion has been delivered to you for the purpose of being included as
an exhibit to the Registration Statement and satisfying the conditions set forth
in Section 6.1(d) of the Reorganization Agreement. It may not be relied upon
for any other purpose or by any other person or entity, and may not be made
available to any other person or entity without our prior written consent. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Certain Federal Income
Tax Considerations."
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 8.2
[LETTERHEAD APPEARS HERE]
,1996
- --------------------
Informed Access Systems, Inc.
310 Interlocken Parkway, Suite A
Broomfield, CO
Ladies and Gentlemen:
This opinion is being delivered to you in accordance with Section 6.1(d) of the
Agreement and Plan of Reorganization dated as of September 3, 1996 (the
"Reorganization Agreement") by and among Access Health, Inc., a Delaware
corporation ("Parent"), Access Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"), and Informed Access Systems,
Inc., a Delaware corporation (the "Company"). Pursuant to the terms of the
Reorganization Agreement, Merger Sub is merging into the Company and the Company
will become a wholly-owned subsidiary of Parent.
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters dated as of
____________________, 1996 delivered to us by Parent, Merger Sub and the Company
containing certain representations of Parent, Merger Sub and the Company (the
"Tax Representation Letters");
(c) Affiliate Agreements and Affiliate/Voting Agreements executed as
of September 3, 1996 by certain stockholders of the Company (the "Affiliate
Agreements"); and
(d) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related to
the consummation of the Merger
<PAGE>
Informed Access Systems, Inc.
_____________, 1996
Page 2
and the other transactions contemplated by the Reorganization Agreement as we
have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
1. Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Date) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
2. All representations, warranties and statements made or agreed to
by Parent, Merger Sub and the Company, their managements, employees, officers,
directors and stockholders in connection with the Merger, including, but not
limited to, those set forth in the Reorganization Agreement (including the
exhibits thereto), the Tax Representation Letters and the Affiliates Agreements
are true and accurate at all relevant times;
3. All covenants contained in the Reorganization Agreement (including
exhibits thereto), the Tax Representation Letters and the Affiliate Agreements
are performed without waiver or breach of any material provision thereof;
4. There is no plan or intention on the part of the stockholders of
the Company to engage in a sale, exchange, transfer, distribution, pledge, or
other disposition or any transaction which results in a reduction of risk of
ownership, or a direct or indirect disposition of shares of Parent Common Stock
to be received in the Merger that would reduce the Company's stockholders'
ownership of Parent Common Stock to a number of shares having an aggregate fair
market value, as of the Effective Time, of less than fifty percent (50%) of the
aggregate fair market value of all of the Company Common Stock and Preferred
Stock ("Company Capital Stock") outstanding immediately prior to the Effective
Time. (For purposes of the preceding sentence, shares of Company Capital Stock
pursuant to which stockholders of the Company exercise dissenters' rights in the
Merger, or which are exchanged for cash in lieu of fractional shares of Parent
Common Stock or are sold, redeemed or disposed of in a transaction that is in
contemplation of or related to the Merger, shall be considered shares of the
Company Capital Stock held by stockholders of the Company immediately prior to
the Merger which are exchanged for shares of Parent Common Stock in the Merger
and then disposed of pursuant to a plan);
5. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
<PAGE>
Informed Access Systems, Inc.
_____________, 1996
Page 3
6. The opinion, dated ____________________, 1996, from Wilson,
Sonsini, Goodrich & Rosati, P.C. to Parent in satisfaction of Section 6.1(d) of
the Reorganization Agreement has been delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that, for federal income tax purposes, the Merger will be a reorganization
within the meaning of Section 368(a)(1) of the Code.
In addition, we have reviewed the discussion contained in the Proxy Statement
Prospectus and Consent Solicitation Statement pursuant to a Registration
Statement on Form S-4 filed with the Securities and Exchange Commission (the
"Registration Statement") under "Approval of the Merger and Related Transactions
- -- Certain Federal Income Tax Considerations" (the "Tax Discussion"), and we
believe that, subject to the qualifications and limitations contained in the Tax
Discussion, the matters stated in the Tax Discussion, to the extent that they
represent matters of law or legal conclusions, are fairly presented.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as described
in the Reorganization Agreement, or as to any other transaction whatsoever,
including the Merger, if all of the transactions described in the Reorganization
Agreement are not consummated in accordance with the terms of the Reorganization
Agreement and without waiver of any material provision thereof. To the extent
that any of the representations, warranties, statements and assumptions material
to our opinion and upon which we have relied are not accurate and complete in
all material respects at all relevant times, our opinion would be adversely
affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other Governmental Body.
The conclusions are based on the Code, existing judicial decisions,
administration regulations and published rulings. No assurance can be given
that future legislative, judicial or administrative changes or interpretations
would not
<PAGE>
Informed Access Systems, Inc.
_____________, 1996
Page 4
adversely affect the accuracy of the conclusions stated herein. Nevertheless,
by rendering this opinion, we undertake no responsibility to advise you of any
new developments in the application or interpretation of the federal income tax
laws.
This opinion has been delivered to you solely for the purposes set forth in
Section 6.1(d) of the Reorganization Agreement and may not be relied upon or
utilized for any other purpose or by any other Person and may not be distributed
or otherwise made available to any other Person without our prior written
consent. However, we consent to the inclusion of this opinion as an Exhibit to
the Registration Statement, and to the reference to this firm in the Tax
Discussion.
Sincerely,
Cooley Godward LLP
Webb B. Morrow III
WBM:ekh
<PAGE>
EXHIBIT 10.1A
ACCESS HEALTH, INC.
1989 INCENTIVE STOCK PLAN
(as amended and restated effective November, 1996)
1. Purposes of the Plan. The purposes of this Incentive Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to the Employees and Consultants
of the Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Administrator and as
reflected in the terms of the written option agreement. The Administrator may
also grant Stock Purchase Rights under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
-----
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" shall mean a Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" shall mean the Common Stock of the Company.
------------
(f) "Company" shall mean Access Health Marketing, Inc., a Delaware
-------
corporation.
(g) "Consultant" shall mean any person who is engaged by the Company or
----------
any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, and any director of the Company whether compensated
for such services or not; provided that for purposes of eligibility for new
Options and Stock Purchase Rights, the term Consultant shall not include
directors who are not compensated for their services or are paid only a
director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" shall mean the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Board; provided that such leave is for a period
of not
<PAGE>
more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(i) "Employee" shall mean any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(j) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422A of the Code.
(k) "Nonstatutory Stock Option" shall mean an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(l) "Option" shall mean a stock option granted pursuant to the Plan.
------
(m) "Optioned Stock" shall mean the Common Stock subject to an Option.
--------------
(n) "Optionee" shall mean an Employee or Consultant who receives an
--------
Option.
(o) "Parent" shall mean a "parent corporation", whether now or
------
hereafter existing, as defined in Section 425(e) of the Code.
(p) "Plan" shall mean this 1989 Incentive Stock Plan.
----
(q) "Purchaser" shall mean any person who has purchased Shares pursuant
---------
to an Option or who has purchased, or has the right to purchase, Shares pursuant
to a Stock Purchase Right under the Plan.
(r) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 12 of the Plan.
(s) "Stock Purchase Right" shall mean a right, other than an Option, to
--------------------
purchase Common Stock pursuant to the Plan.
(t) "Subsidiary" shall mean a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 425(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 3,550,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
-2-
<PAGE>
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. To the extent allowable under applicable law and
regulations, Shares issued under the Plan and later repurchased by the Company
shall become available for future grant or sale under the Plan.
4. Administration of the Plan.
--------------------------
(a) Composition of Administrator.
----------------------------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3
------------------------------
promulgated under the Exchange Act or any successor rule thereto, as in effect
at the time that discretion is being exercised with respect to the Plan ("Rule
16b-3") and by the legal requirements relating to the administration of
incentive stock option plans, if any, of Delaware corporate and securities laws
and the Internal revenue Code of 1986, as amended, (collectively, the
"Applicable Laws"), the Plan may (but need not) be administered by different
bodies with respect to Directors, Officers who are not Directors, and Employees
who are neither Directors nor Officers.
(ii) Administration With Respect to Directors and Officers
-----------------------------------------------------
Subject to Section 16(b). With respect to Option or Stock Purchase Right grants
- ------------------------
made to Employees who are also Officers or Directors subject to Section 16(b) of
the Exchange Act, the Plan shall be administered by (A) the Board, if the Board
may administer the Plan in compliance with the rules governing a plan intended
to qualify as a discretionary plan under Rule 16b-3, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted to comply with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the rules governing a plan intended to qualify as a discretionary
plan under Rule 16b-3.
(iii) Administration With Respect to Other Persons. With respect
--------------------------------------------
to Option or Stock Purchase Right grants made to Employees or Consultants who
are neither Directors nor Officers of the Company, the Plan shall be
administered by (A) the Board or (B) a Committee designated by the Board, which
Committee shall be constituted to satisfy Applicable Laws. Once appointed, such
Committee shall serve in its designated capacity until otherwise directed by the
Board. The Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Applicable Laws.
-3-
<PAGE>
(b) Powers of the Administrator. Subject to the provisions of the Plan,
---------------------------
the Administrator shall have the authority, in its discretion: (i) to grant
Incentive Stock Options, Nonstatutory Stock Options and Stock Purchase Rights;
(ii) to determine, upon review of relevant information and in accordance with
Section 8(b) of the Plan, the fair market value of the Common Stock; (iii) to
determine the exercise price per Share of Options or Stock Purchase Rights to be
granted, which exercise price shall be determined in accordance with Section
8(a) of the Plan; (iv) to determine the Employees or Consultants to whom, and
the time or times at which, Options or Stock Purchase Rights shall be granted
and the number of shares to be represented by each Option or Stock Purchase
Right; (v) to interpret the Plan; (vi) to prescribe, amend and rescind rules and
regulations relating to the Plan; (vii) to determine the terms and provisions of
each Option or Stock Purchase Right granted (which need not be identical) and,
with the consent of the holder thereof, modify or amend each Option or Stock
Purchase Right; (viii) to accelerate or defer (with the consent of the Optionee)
the exercise date of any Option consistent with the provisions of Section 5 of
the Plan; (ix) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option or Stock Purchase Right
previously granted by the Administrator; and (x) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees, Purchasers and any other holders of any Options or Stock Purchase
Rights granted under the Plan.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be granted
only to Employees or Consultants. Incentive Stock Options may be granted only
to Employees. An Employee or Consultant who has been granted an Option(s) or
Stock Purchase Right(s) may, if he is otherwise eligible, be granted an
additional Option(s) or Stock Purchase Right(s).
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate fair market
value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Options shall be taken into account
in the order in which they were granted, and the fair market value of the Shares
shall be determined as of the time the Option with respect to such Shares is
granted.
(d) The Plan shall not confer upon any Optionee or Purchaser any right
with respect to continuation of employment or consulting relationship with the
Company, nor shall it
-4-
<PAGE>
interfere in any way with his right or the Company's right to terminate his
employment or consulting relationship at any time, with or without cause.
(e) The following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than the number of
Shares reserved for issuance under the Plan pursuant to Section 3.
(ii) The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 12.
(iii) If an Option or Stock Purchase Right is cancelled (other than
in connection with a transaction described in Section 12), the cancelled Option
or Stock Purchase Right will be counted against the limit set forth in Section
5(e)(i). For this purpose, if the exercise price of an Option or Stock Purchase
Right is reduced, the transaction will be treated as a cancellation of the
Option or Stock Purchase Right and the grant of a new Option or Stock Purchase
Right.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Incentive Stock Option shall be ten
--------------
(10) years from the date of grant thereof or such shorter term as may be
provided in the Incentive Stock Option Agreement or Nonstatutory Stock Option
Agreement. However, in the case of an Option granted to an Optionee who, at the
time the Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Incentive Stock
Option Agreement or Nonstatutory Stock Option Agreement.
8. Exercise Price and Consideration.
--------------------------------
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option or Stock Purchase Right shall be such price as is
determined by the Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of
-5-
<PAGE>
all classes of stock of the Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the fair market value per Share on
the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the fair market value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option or Stock Purchase Right
granted to any person, the per Share exercise price shall be such price as is
determined by the Administrator.
For purposes of this Section 8(a), in the event that an Option is amended to
reduce the exercise price, the date of grant of such Option shall thereafter be
considered to be the date of such amendment.
(b) The fair market value shall be determined by the Administrator in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices (or the closing price per share if the Common Stock is listed on
the National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System) of the Common Stock for the date of grant, as reported
in The Wall Street Journal (or, if not so reported, as otherwise reported by the
-----------------------
NASDAQ System) or, in the event the Common Stock is listed on a stock exchange,
the fair market value per Share shall be the closing price on such exchange on
the date of grant of the Option or Stock Purchase Right, as reported in The Wall
--------
Street Journal.
- --------------
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option or Stock Purchase Right, including the method of payment,
shall be determined by the Administrator and may consist entirely of cash,
check, promissory note, other Shares of Common Stock which (i) either have been
owned by the Optionee or Purchaser for more than six (6) months on the date of
surrender or were not acquired, directly or indirectly, from the Company, and
(ii) have a fair market value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option or Stock Purchase Right
shall be exercised, delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option or Stock Purchase
Right and delivery to the Company of the sale or loan proceeds required to pay
the exercise price, or any combination of such methods of payment, or any
combination of such methods of payment, or such other consideration and method
of payment for the issuance of Shares to the extent permitted under applicable
laws.
9. Exercise of Option.
------------------
(a) Procedure for Exercise: Rights as a Stockholder. Any option granted
-----------------------------------------------
hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan.
-6-
<PAGE>
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwith standing the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. In
the event that the exercise of an Option is treated in part as the exercise of
an Incentive Stock Option and in part as the exercise of a Nonstatutory Stock
Option pursuant to Section 5(b), the Company shall issue a separate stock
Certificate evidencing the Shares treated as acquired upon exercise of an
Incentive Stock Option and a separate stock certificate evidencing the Shares
treated as acquired upon exercise of a Nonstatutory Stock Option, and shall
identify each such certificate accordingly in its stock transfer records. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Except as provided in Section 3 of the Plan, exercise of an Option
in any manner shall result in a decrease in the number of Shares which
thereafter may be available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Status as an Employee or Consultant. In the event of
--------------------------------------------------
termination of an Optionee's Continuous Status as an Employee or Consultant (as
the case may be), such Optionee may, but only within thirty (30) days (or such
other period of time, not exceeding three (3) months in the case of an Incentive
Stock Option or twelve (12) months in the case of a Nonstatutory Stock Option,
as is determined by the Administrator, with such determination in the case of an
Incentive Stock Option being made at the time of grant of the Option) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement), exercise his
Option to the extent that he was entitled to exercise it at the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of such termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Code), he may, but only within six (6) months
(or such other period of time not exceeding (12) months as is determined
-7-
<PAGE>
by the Administrator, with such determination in the case of an Incentive Stock
Option being made at the time of grant of the Option) from the date of such
termination (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), exercise his Option to the
extent that he was entitled to exercise it at the date of such termination. To
the extent that he was not entitled to exercise the Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section 9(b)
-----------------
above, in the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death an
Employee or Consultant of the Company and who shall have been in Continuous
Status as an Employee or Consultant since the date of grant of the Option, the
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the date of expiration of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent of the right to exercise that would have
accrued had the Optionee continued living and remained in Continuous Status as
an Employee or Consultant twelve (12) months after the date of death; or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option) after the termination of Continuous Status as an Employee
or Consultant, the Option may be exercised, at any time within twelve (12)
months following the date of death following the date of death (but in no event
later than the date of expiration of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.
10. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. After the Administrator determines that it
------------------
will offer an Employee or Consultant the right to purchase Shares under the
Plan, it shall advise the offeree in writing of the terms, conditions and
restrictions relating to the offer, including the number of Shares that such
person shall be entitled to purchase, and the time within which such person must
accept such offer, which shall in no event exceed sixty (60) days from the date
upon which the Administrator made the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator.
(b) Issuance of Shares. Forthwith after payment therefore, the Shares
------------------
purchased shall be duly issued; provided, however, that the Administrator may
require that the Purchaser make adequate provision for any Federal and State
withholding obligations of the Company as a condition
-8-
<PAGE>
to such purchase. Such withholding may be accomplished by the withholding of
Shares having an aggregate fair market value at least equal to the amount
required to be withheld.
(c) Purchase Agreement and Repurchase Option. Unless the Administrator
----------------------------------------
determines otherwise, and subject to this Plan, a Restricted Stock Purchase
Agreement shall govern the purchase of Shares pursuant to a Stock Purchase Right
and shall grant the Company a repurchase option exercisable upon the voluntary
or involuntary termination of the Purchaser's employment with the Company for
any reason (including death or disability). The purchase price for Shares
repurchased pursuant to the Restricted Stock Purchase Agreement shall be the
original price paid by the Purchaser and may be paid by cancellation of any
indebtedness of the Purchaser to the Company. The repurchase option shall lapse
at such a rate as the Administrator may determine.
(d) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator.
(e) Rights as a Stockholder. A Stock Purchase Right shall be deemed to
-----------------------
have been exercised when full payment for the Shares to be purchased thereunder
has been received by the Company. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or to receive dividends or any other rights as a stockholder shall exist
with respect to the Shares, notwithstanding the exercise of a Stock Purchase
Right. The Company shall issue (or cause to be issued) such stock certificate
promptly upon exercise of the Stock Purchase Right. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the
Stock Purchase Right is exercised, except as provided in Section 12 of the Plan.
(f) Shares Available Under the Plan. Exercise of a Stock Purchase
-------------------------------
Right in any manner shall result in a decrease in the number of Shares that
thereafter shall be available, both for purposes of the Plan and for sale under
the Stock Purchase Right provisions, by the number of Shares as to which the
Stock Purchase Right is exercised. Shares repurchased by the Company pursuant to
Section 10(c) hereof shall be available for reissuance under the Plan.
11. Non-Transferability of Options and Stock Purchase Rights. Options may
--------------------------------------------------------
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. Stock
Purchase Rights are not transferable.
12. Adjustments Upon Changes in Capitalization or Merger. Subject to any
----------------------------------------------------
required action by the stockholders of the Company, the number of shares of
Common Stock covered by each outstanding Option and Stock Purchase Right, and
the number of shares of Common Stock which have been authorized for issuance
under the Plan but as to which no Options or Stock Purchase Rights have yet been
granted or which have been returned to the Plan pursuant to Section 3, as well
as the price per
-9-
<PAGE>
share of Common Stock covered by each such outstanding Option or Stock Purchase
Right, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
In the event of the proposed dissolution or liquidation of the
Company, the Option will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board, and give each Optionee the right to
exercise his Option as to all or any part of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, the Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless such
successor corporation does not agree to assume the Option or to substitute an
equivalent option, in which case the Board shall, in lieu of such assumption or
substitution, provide for the Optionee to have the right to exercise the Option
as to all of the Optioned Stock, including Shares as to which the Option would
not otherwise be exercisable. If the Board makes an Option fully exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify the Optionee that the Option shall be fully exercisable
for a period of fifteen (15) days from the date of such notice, and the Option
will terminate upon the expiration of such period.
13. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option. Notice of the determination shall be given to each
Employee or Consultant to whom an Option is so granted within a reasonable time
after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate
-------------------------
the Plan from time to time in such respects as the Board may deem advisable.
(b) Stockholder Approval. The Company shall obtain stockholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 of the Exchange Act or with Section 422 of the Code (or any
successor statute or rule or other applicable law, rule or
-10-
<PAGE>
regulation, including the requirements of any exchange or quotation system on
which the Common Stock is listed or quoted). Such stockholder approval, if
required, shall be obtained in such a manner and to such a degree as is required
by the applicable law, rule or regulation.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee or Purchaser and the Board, which
agreement must be in writing and signed by the Optionee or Purchaser and the
Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase
Right, the Company may require the person exercising such Option or Stock
Purchase Right to represent and warrant at the time of any such exercise that
the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the Company's
counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or
sell such Shares as to which such requisite authority shall not have been
obtained.
17. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Administrator shall approve.
18. Stockholder Approval.
--------------------
(a) Continuance of the Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months before or after the date
the Plan is adopted.
(b) If and in the event that the Company registers any class of
equity securities pursuant to Section 12 of the Exchange Act, any required
approval of the stockholders of the
-11-
<PAGE>
Company obtained after such registration shall be solicited substantially in
accordance with Section 14(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
(c) If any required approval by the stockholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in Section 18(b) hereof, then the Company shall, at or prior to the
first annual meeting of stockholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the
Plan substantially the same information which would be required (if proxies to
be voted with respect to approval or disapproval of the Plan or amendment were
then being solicited) by the rules and regulations in effect under Section 14(a)
of the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and
exchange Commission four copies of the written information referred to in
subsection (i) hereof not later than the date on which such information is first
sent or given to stockholders.
19. Information to Optionees. The Company shall provide to each Optionee,
------------------------
during the period for which such Optionee has one or more Options outstanding,
copies of all annual reports and other information which are provided to all
stockholders of the Company. The Company shall not be required to provide such
information if the issuance of Options under the Plan is limited to key
employees whose duties in connection with the Company assure their access to
equivalent information.
-12-
<PAGE>
EXHIBIT 11.1
ACCESS HEALTH, INC
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
---------------------------- -----------------
1993 1994 1995 1995 1996
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PRIMARY:
Weighted averages common
shares outstanding........... 9,030 9,456 10,079 10,041 11,804
Common equivalent shares from
stock options using the trea-
sury stock method (using av-
erage market price).......... 485 -- 1,066 1,107 1,340
-------- --------- -------- -------- --------
Shares used in per share cal-
culations.................... 9,515 9,456 11,145 11,148 13,144
Net income (loss)............. $ 1,274 ($2,296) $ 1,540 $ 452 $ 5,612
======== ========= ======== ======== ========
Net income (loss) per share... $ 0.13 ($0.24) $ 0.14 $ 0.04 $ 0.43
======== ========= ======== ======== ========
FULLY DILUTED:
Weighted average common share
outstanding.................. 9,030 9,456 10,079 10,041 11,804
Common equivalent shares from
stock options using the trea-
sury stock method (using
year-end market price, if
higher than average market
price)....................... 585 -- 1,293 1,199 1,531
-------- --------- -------- -------- --------
Shares used in per share cal-
culations.................... 9,615 9,456 11,372 11,240 13,335
Net income (loss)............. $ 1,274 ($2,296) $ 1,540 $ 452 $ 5,612
-------- --------- -------- -------- --------
Net income (loss) per share... $ 0.13 ($0.24) $ 0.14 $ 0.04 $ 0.42
======== ========= ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 11.2
INFORMED ACCESS
STATEMENT RE: COMPUTATION OF PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding..... 648,958 909,375 930,167 913,125 1,134,042
Assumed conversion of
preferred stock from
original data of issu-
ance(1)................ 1,362,500 2,695,266 4,188,218 3,808,375 4,568,061
--------- ----------- ----------- ----------- -----------
Total................. 2,011,458 3,604,641 5,118,385 4,721,500 5,702,103
========= =========== =========== =========== ===========
Net loss................ $(912,091) $(2,381,240) $(3,744,827) $(2,065,605) $(1,920,986)
========= =========== =========== =========== ===========
Pro forma net loss per
share.................. $ (0.45) $ (0.66) $ (0.73) $ (0.44) $ (0.34)
========= =========== =========== =========== ===========
</TABLE>
- --------
(1) Reflects the conversion of the Informed Access Preferred Stock into
Informed Access Common Stock on an "as if converted basis" from the time of
issuance.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 27, 1995 (except for Note 10 as to which
the date is February 15, 1996) in the Registration Statement (Form S-4) of
Access Health, Inc. for the registration of 5,375,000 shares of its common
stock.
Ernst & Young LLP
Sacramento, California
October 9, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the use of our
report (and to all references to our firm) included in or made a part of the
Registration Statement on File No. 333- .
Arthur Andersen LLP
Denver, Colorado
October 11, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF COOLEY GODWARD LLP
Reference is made to the form of opinion of this firm regarding certain tax
matters, which opinion is filed as Exhibit 8.2 to this registration statement.
We hereby consent to the filing of such form of opinion as an exhibit to
this registration statement and to the references to this firm in the
discussion of tax matters contained in the registration statement.
Cooley Godward LLP
/s/ Webb B. Morrow III
_____________________________________
WEBB B. MORROW III
Dated: October 11, 1996
<PAGE>
EXHIBIT 99.1
- --------------------------------------------------------------------------------
PROXY [FORM OF PROXY]
ACCESS HEALTH, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS
The undersigned Stockholder of ACCESS HEALTH, INC., a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders Proxy Statement/Prospectus of Access Health, Inc., each dated
October __, 1996, and hereby appoints Thomas E. Gardner and John V. Crisan, and
each of them, proxies and attorneys-in-fact, with full power to each of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the Special Meeting of Stockholders of ACCESS HEALTH, INC., to be
held on November __, 1996, at 9:00 a.m. at ACCESS HEALTH's, INC.'s corporate
headquarters at 11020 White Rock Road, Rancho Cordova, California 95670, and at
any adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matters set forth on the reverse side hereof:
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE PROVIDED.
(Continued and to be signed on reverse side)
<PAGE>
PLEASE MARK VOTE IN SQUARE IN THE FOLLOWING MANNER USING DARK INK ONLY [_]
THE ACCESS HEALTH, INC. BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR PROPOSAL 1, 2 AND 3
<TABLE>
<S> <C> <C>
1. PROPOSAL TO APPROVE THE For Against Abstain THIS PROXY WILL BE VOTED AS
ISSUANCE OF SHARES OF DIRECTED OR, IF NO DIRECTION IS
ACCESS HEALTH, INC. COMMON [_] [_] [_] INDICATED, WILL BE VOTED "FOR" THE
STOCK PURSUANT TO THE PROPOSAL LISTED, AND AS SAID
AGREEMENT AND PLAN OF PROXIES DEEM ADVISABLE ON SUCH
REORGANIZATION DATED AS OF OTHER MATTERS AS MAY COME BEFORE
SEPTEMBER 3, 1996 (THE THE MEETING, INCLUDING, AMONG
"MERGER AGREEMENT") BY AND OTHER THINGS, CONSIDERATION OF ANY
AMONG ACCESS HEALTH, INC., MOTION MADE FOR ADJOURNMENT OF THE
A NEWLY-FORMED WHOLLY-OWNED MEETING (INCLUDING WITHOUT
SUBSIDIARY OF ACCESS HEALTH, LIMITATION FOR PURPOSES OF
INC. ("SUB") AND INFORMED SOLICITING ADDITIONAL VOTES TO
ACCESS SYSTEMS, INC. A APPROVE THE ISSUANCE OF ACCESS
DELAWARE CORPORATION, HEALTH, INC. COMMON STOCK PURSUANT
PROVIDING FOR SUB TO BE TO THE MERGER AGREEMENT).
MERGED WITH AND INTO INFORMED
ACCESS SYSTEMS, INC. WITH
INFORMED ACCESS SYSTEMS, INC.
BEING THE SURVIVING
CORPORATION AND BECOMING A Please sign exactly as name
WHOLLY-OWNED SUBSIDIARY OF appears on Proxy
ACCESS HEALTH, INC. Dated: _____________________________
2. PROPOSAL TO RATIFY AND For Against Abstain ____________________________________
APPROVE AN AMENDMENT TO Signature
ACCESS HEALTH'S CERTIFICATE [_] [_] [_]
OF INCORPORATION INCREASING ____________________________________
THE AUTHORIZED NUMBER OF (Signatures if held jointly)
SHARES OF ACCESS HEALTH,
INC. COMMON STOCK FROM
30,000,000 TO 75,000,000.
3. PROPOSAL TO RATIFY AND For Against Abstain -----------------------------------
APPROVE AN AMENDMENT TO THE (Title)
ACCESS HEALTH, INC. 1989 [_] [_] [_]
INCENTIVE STOCK PLAN TO
INCREASE THE NUMBER OF
SHARES AVAILABLE FOR
OPTIONS UNDER THE PLAN BY
1,000,000 SHARES.
_______________________________________________________________ Note: When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee, guardian or
corporate officer or partner,
please give full title as such. If
a corporation, please sign in
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
_______________________________________________________________ person.
</TABLE>
<PAGE>
EXHIBIT 99.2
INFORMED ACCESS SYSTEMS, INC.
CONSENT OF STOCKHOLDERS TO AUTHORIZATION AND APPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION AND APPROVAL OF PAYMENTS OF BONUSES TO AND THE ACCELERATION OF
OPTIONS HELD BY CERTAIN OFFICERS OF INFORMED ACCESS SYSTEMS, INC.
The undersigned stockholder of Informed Access Systems, Inc., a Delaware
corporation ("Informed Access"), with respect to all of the shares of common
stock, $.001 par value ("Informed Access Common Stock"), and preferred stock,
$.001 par value ("Informed Access Preferred Stock"), of Informed Access of
which the undersigned was the record holder at the close of business on
October 15, 1996 (the "Record Date"), hereby authorizes and approves, by
consent in writing without a meeting, pursuant to Section 228 of the Delaware
General Corporation Law, as amended (the "DGCL"), the following:
(i) the Agreement and Plan of Reorganization dated September 3, 1996 (the
"Merger Agreement") entered into by and among Informed Access, Access
Health, Inc., a Delaware corporation ("Access Health"), and a newly-formed,
wholly-owned subsidiary of Access Health, Access Acquisition Corp., a
Delaware corporation ("Merger Sub"), pursuant to which Informed Access
would be acquired by Access Health by means of a merger of Merger Sub with
and into Informed Access, with Informed Access being the surviving
corporation and becoming a wholly-owned subsidiary of Access Health (the
"Merger").
(ii) the establishment of an escrow fund pursuant to which claims for
indemnification may be made by Access Health following consummation of the
Merger (the "Escrow Fund"), all as more fully described in the accompanying
Proxy Statement/Prospectus and Consent Solicitation Statement dated October
, 1996. Approval of the foregoing matters shall constitute approval of all
of the matters related to the Merger described herein and in such Proxy
Statement/Prospectus and Consent Solicitation Statement.
In addition, the undersigned hereby:
(a) consents to the establishment of the Escrow Fund and indemnification
of Access Health provided for in Article VII of the Merger Agreement (the
"Escrow Provisions"); and
(b) designates, constitutes and appoints Kinney L. Johnson, a director
and stockholder of Informed Access, to be the undersigned's agent and
attorney-in-fact to act as the securityholder agent (the "Securityholder
Agent") under the Escrow Provisions, with all the rights, powers, authority
and duties of the Securityholders' Agent as described therein; and
(c) agrees that the Securityholder Agent, or any of his affiliates or
successors, will not be liable to the undersigned for any act done or
omitted to be done under the Escrow Provisions as Securityholder Agent
while acting in good faith and in the exercise of reasonable judgment as
described therein; and
(d) agrees to severally indemnify the Securityholder Agent and hold the
Securityholder Agent harmless against any loss, liability or expense
incurred without negligence or bad faith on the part of the Securityholder
Agent and arising out of or in connection with the acceptance or
administration of the Securityholder Agent's duties under the Escrow
Provisions, including the reasonable fees and expenses of any legal counsel
retained by the Securityholder Agent; and
(e) acknowledges having read the Merger Agreement, including the Escrow
Provisions, and agrees to be bound by and approves the Escrow Provisions as
if the undersigned were a party to the Merger Agreement, and further agrees
that the Securityholder Agent may separately rely upon and enforce against
the undersigned the provisions of this Consent and the Escrow Provisions.
The undersigned acknowledges and agrees that the undersigned's maximum
liability for any matter pursuant to the Escrow Provisions and otherwise in
connection with the Merger is limited to the undersigned's pro rata share of
any liability pursuant to the Escrow Provisions, up to a maximum of the value
of 2.5% of the shares of Access Health common stock, $.001 par value ("Access
Health Common Stock") issued to the undersigned in
1
<PAGE>
the Merger in exchange for shares of Informed Access Common Stock or Informed
Access Preferred Stock held by the undersigned (but excluding 64,500 shares of
Access Health Common Stock to be distributed from the Escrow Fund following
the Merger to Informed Access' financial advisors in payment of fees owed by
Informed Access to such advisors) on the effective date of the Merger (the
"Effective Date").
(iii) (A) the full vesting of all outstanding stock options under
Informed Access' stock option plan immediately prior to the Effective Time
and (B) the payment of performance bonuses in the aggregate amount of $1.5
million to Ms. Snowden and Messrs. Tallman, Wolcott and Johnson so that the
accelerated vesting of options and the payment of the Bonuses will not
constitute "excess parachute payments" within the meaning of the Internal
Revenue Code of 1986, as amended, subject to a non-deductible 20% excise
tax, all as more fully described in the accompanying Proxy
Statement/Prospectus and Consent Solicitation Statement, including under
the caption "Approval of Option and Bonus Proposal" therein.
By execution hereof, the undersigned acknowledges receipt of the
accompanying Proxy Statement/ Prospectus and Consent Solicitation Statement
dated October , 1996 and acknowledges and agrees that as a result of signing
this Consent the undersigned hereby waives and loses any right to dissent from
the proposed Merger and obtain payment for the undersigned's shares of
Informed Access Common Stock or Informed Access Preferred Stock pursuant to
Section 262 of the DGCL, a copy of which is included as Annex C to the Proxy
Statement/Prospectus and Consent Solicitation Statement.
Effective upon the consummation of the Merger and as a result of the
execution of this Consent, the undersigned hereby waives any rights or claims
(known or unknown) the undersigned may have against Informed Access, Access
Health or any of their respective officers, directors, shareholders,
affiliates, successors, or assigns, as a result of the acquisition or
ownership of shares of Informed Access Common Stock, Informed Access Preferred
Stock, or any options or warrants to purchase Informed Access Common Stock or
Informed Access Preferred Stock, except for such rights or claims as are
expressly set forth in the Reorganization Agreement.
This Consent is one of several consents, identical in form to this Consent,
that are being signed by holders of record on the Record Date of issued and
outstanding shares Informed Access Common Stock and Informed Access Preferred
Stock, all of which Consents taken together are intended to constitute action
by stockholders of Informed Access by consent in writing without a meeting
pursuant to Section 228 of the DGCL.
Signature of Stockholder: ______________________
Print name of Stockholder: _____________________
Shares beneficially owned:
_____________ shares of Common Stock
_____________ shares of Series A Preferred Stock
_____________ shares of Series B Preferred Stock
_____________ shares of Series C Preferred Stock
Date: ,1996
2
