<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1997 or
-------------
[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from __________ to__________
Commission File Number : 0-19758
Access Health, Inc.
(Exact name of registrant as specified in its charter)
Delaware 68-0163589
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11020 White Rock Road, Rancho Cordova, California 95670
(Address of principal executive offices) (Zip code)
(916) 851-4000
(Registrant's telephone number, including area code)
Access Health Marketing, Inc.
(Former name)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
Number of shares of Common Stock Outstanding at July 31, 1997: 18,041,405 shares
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Access Health, Inc.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets - September 30, 1996
and June 30, 1997........................................... 4
Condensed consolidated statements of operations - three months
and nine months ended June 30, 1996 and 1997................. 5
Condensed consolidated statements of cash flows - nine months
ended June 30, 1996 and 1997................................ 6
Notes to condensed consolidated financial statements.......... 7
Item 2. Management's discussion and analysis of financial
condition and results of operations....................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 15
SIGNATURE........................................................ 16
2
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PART 1. FINANCIAL INFORMATION
3
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Access Health, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share and share amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1996 1997
------------- ------------
<S> <C> <C>
Assets:
Current assets:
Cash and equivalents.................................. $26,533 $ 34,848
Available-for-sale securities......................... 14,126 14,128
Accounts and licenses receivable, net of
allowance for doubtful accounts of $884
($750 at September 30, 1996)......................... 12,944 12,206
Income taxes receivable............................... 1,917 1,917
Prepaid expenses...................................... 2,009 2,315
Other current assets.................................. 1,073 1,032
-------- --------
Total current assets................................ 58,602 66,446
Property and equipment, net........................... 16,512 16,251
Purchased intangibles, net of accumulated
amortization of $4,765 ($4,327 at
September 30, 1996).................................. 3,478 3,040
Note receivable from AHN.............................. - 5,000
Investment in AHN..................................... 5,000 5,000
Other assets.......................................... 700 442
-------- --------
$84,292 $ 96,179
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable...................................... $ 4,314 $ 3,482
Accrued payroll and related expenses.................. 3,413 3,953
Accrued integration and restructuring costs........... - 2,901
Other accrued expenses................................ 4,980 5,161
Notes payable to related parties...................... 1,500 1,243
Current portion of long-term debt..................... 599 641
Deferred revenues..................................... 4,500 5,035
-------- --------
Total current liabilities.......................... 19,306 22,416
Long-term debt.............................................. 1,344 839
Commitments and contingencies
Mandatorily redeemable convertible preferred
stock, $.001 par value, aggregate liquidation
and redemption preference of $10,995 at
September 30, 1996; 3,859,196 shares
authorized, 3,734,151 shares
issued and outstanding as of
September 30, 1996 (none at June 30, 1997)............ 10,995 -
Stockholders' equity:
Preferred stock, $.001 par value-5,000,000
shares authorized, no shares issued and
outstanding.......................................... - -
Common stock, $.001 par value-75,000,000
shares authorized, 17,994,445 shares
issued and outstanding (13,684,927 at
September 30, 1996).................................. 14 18
Additional paid-in capital............................ 58,182 72,965
Deferred stock compensation........................... (443) -
Accumulated deficit................................... (5,106) (59)
-------- --------
Total stockholders' equity........................... 52,647 72,924
-------- --------
$84,292 $ 96,179
======== ========
</TABLE>
See accompanying notes.
4
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Access Health, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
------------------------------------------ ----------------------------------------
1996 1997 1996 1997
------------------ --------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Personal health management services.. $17,199 $23,909 $42,780 $68,326
Licensing and support services....... 2,776 2,576 8,252 7,901
------------------ --------------------- ----------------- ---------------------
Total revenues................... 19,975 26,485 51,032 76,227
Costs and expenses:
Cost of revenues:
Personal health management
services........................ 9,486 12,795 24,786 35,377
Licensing and support services... 1,484 591 4,089 2,620
Product and other development........ 1,858 1,932 4,205 6,329
Sales and marketing.................. 2,391 2,270 6,625 6,516
General and administrative........... 2,247 2,080 5,864 6,638
Transaction costs.................... - - - 6,345
Integration and restructuring costs.. - - - 6,961
------------------ --------------------- ------------------ ---------------------
Total costs and expenses......... 17,466 19,668 45,569 70,786
------------------ --------------------- ------------------ ---------------------
Income from operations.................. 2,509 6,817 5,463 5,441
Other income............................ 385 520 1,111 1,235
------------------ --------------------- ------------------ ---------------------
Income before income taxes.............. 2,894 7,337 6,574 6,676
Provision for income taxes.............. 2,451 1,761 5,567 1,629
------------------ --------------------- ------------------ ---------------------
Net income.............................. $ 443 $ 5,576 $ 1,007 $5,047
================== ===================== ================== =====================
Net income per share.................... $0.02 $ 0.29 $0.06 $ 0.27
================== ===================== ================== =====================
Shares used in per share calculations... 18,949 19,018 18,115 18,973
================== ===================== ================= =====================
</TABLE>
See accompanying notes.
5
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Access Health, Inc.
Condensed Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Equivalents
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
June 30,
---------------------------------------
1996 1997
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................. $ 1,007 $ 5,047
Adjustments to reconcile net income
to net cash provided by operations:
Allowance for doubtful accounts ............ 178 134
Depreciation and amortization............... 2,766 4,638
Deferred stock compensation................. -- 443
Common stock issued for services
rendered................................... -- 2,233
Common stock issued in consideration
for discharge of obligation................ 50 --
Deferred income taxes....................... 2,520 --
Changes in:
Accounts receivable........................ (3,975) 604
Prepaid expenses and other current
assets.................................... (1,078) (265)
Accounts payable........................... 1,511 (832)
Accrued payroll and related expenses....... 1,207 540
Accrued integration and restructuring costs -- 2,901
Other accrued expenses..................... 3,958 181
Notes payable to related parties........... -- (257)
Deferred revenues.......................... 358 535
--------------- ----------------
Net cash provided by operating
activities............................... 8,502 15,902
Cash flows from investing activities:
Purchase of available-for-sale
securities, net............................. (5,196) (2)
Purchase of property and equipment........... (8,555) (3,939)
Note receivable from AHN..................... (5,000) (5,000)
Decrease in other assets..................... 809 258
--------------- ----------------
Net cash used by investing
activities............................... (17,942) (8,683)
--------------- ----------------
Cash flows from financing activities:
Payment of long-term debt.................... (875) (463)
Proceeds from note payable................... 680 --
Sale of common stock......................... 30,787 1,559
--------------- ----------------
Net cash provided by financing
activities............................... 30,592 1,096
--------------- ----------------
Net increase in cash and equivalents.......... 21,152 8,315
Elimination of IAS and CRS net cash
activity for the three months ended
December 31, 1995............................ 446 --
Cash and equivalents at beginning of
period....................................... 9,815 26,533
--------------- ----------------
Cash and equivalents at end of period......... $ 31,413 $ 34,848
=============== ================
</TABLE>
See accompanying notes.
6
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Access Health, Inc.
Notes to Condensed Consolidated Financial Statements
June 30, 1997
(Unaudited)
Note 1: Summary of Significant Accounting Policies
Interim Financial Statements
In the opinion of management the unaudited interim financial statements
reflect all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the Company's consolidated financial position at
June 30, 1997, consolidated results of operations for the three and nine month
periods ended June 30, 1996 and 1997 and cash flows for the nine month periods
ended June 30, 1996 and 1997. Results for the period ended June 30, 1997 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
Revenue Recognition
Revenues include personal health management services, which
consist of program membership, member communications and teleservicing fees
from the Company's Personal Health Advisor, FirstHelp and ASK-A-NURSE
contracts with managed care organizations, self-insured employers and
hospitals. Commercial revenues also include licensing and support services
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 and FirstHelp 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. Teleservicing fees are recognized in accordance with contract terms
on the basis of per-call fees or fees based on phone counselor staffing.
License revenues from ASK-A-NURSE, Cancer HELPLINK and FirstHelp are recognized
ratably over the term of the contract.
Support revenues are comprised of ASK-A-NURSE and Cancer HELPLINK support
revenue, LIFE MATCH software support revenue and direct marketing fees.
Revenue from 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.
Product and Other Development Costs
Product and other development costs are expensed as incurred and consist
primarily of salaries, supplies and contract services related to the
development of the Company's products and services.
Integration and Restructuring Costs
Related to the mergers of Informed Access Systems, Inc. ("Informed Access") and
Clinical Reference Systems, Ltd. ("CRS"), these costs were recorded in the first
quarter of fiscal 1997 and included approximately $2,950,000 for severance and
related expenses, approximately $1,475,000 for elimination of redundant
technology, approximately $700,000 for discontinuation of facilities and
approximately $800,000 for disposal of assets.
The Company expects to incur a one-time charge of between $2.0 million and $3.0
million during the fourth quarter of fiscal 1997 related to the move of
corporate headquarters to Broomfield, Colorado from Rancho Cordova, California.
Reclassifications
Certain reclassifications have been made to amounts reported for the prior
periods to conform with the June 30, 1997 presentation.
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 warrants has been included in the computation, to
the extent dilutive, using the treasury stock method. Common Stock issuable upon
the conversion of mandatorily redeemable convertible preferred stock has been
included in the computation to the extent dilutive, using the if-converted
method. Mandatorily redeemable convertible preferred stock was converted into
common stock in November 1996 in connection with the merger of Access Health and
Informed Access (Note 3).
Note 2: New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share", which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in an increase
in primary earnings per share for the three months ended June 30, 1996 and
June 30, 1997 of $0.003 and $0.016 per share, respectively, and for the nine
months ended June 30, 1996 and June 30, 1997 of $0.005 and $0.017 per share,
respectively.
Note 3: Business Combinations
During November 1996, the Company consummated business combinations with
Informed Access which included the exchange of 5,375,000 shares of Access Health
common stock (including 4,778,317 shares issued to Informed Access shareholders
and 596,683 shares reserved for future grant to Informed Access option holders)
and CRS, which included the exchange of 170,000 shares of Access Health common
stock. These business combinations were accounted for as pooling-of-interests,
and accordingly, the historical financial statements of the Company have been
restated to include the consolidated financial statements of Access Health,
Informed Access and CRS for all periods presented.
In connection with the business combinations, the Company incurred direct
transaction costs of approximately $6.3 million which were charged to
operations in the three months ended December 31, 1996.
The table below sets forth the combined revenues and net income (loss) for
the quarters ended December 31, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
ACCESS HEALTH INFORMED ACCESS CRS
------------------------ ------------------------ -----------------------
PRE-MERGER POST-MERGER PRE-MERGER POST-MERGER PRE-MERGER POST-MERGER ADJUSTMENT COMBINED
---------- ----------- ---------- ----------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarter ended December 31,
1995:
Revenues............... $12,005 $ -- $ 1,453 $ -- $ 361 $ -- $ -- $ 13,819
Net income (loss)...... 1,384 -- (913) -- 74 -- (320) 225
Quarter ended December 31,
1996:
Revenues............... $12,681 $ 6,123 $ 3,433 $ 1,916 $ 230 $ 258 $ -- $ 24,641
Net income (loss)...... 2,387 (4,914) 44 (3,423) 19 (125) -- (6,012)
</TABLE>
The adjustments to the combined results of operations included in the table
above reflect the realization of the Informed Access net operating loss
carryover to the extent of Access Health deferred income tax liabilities which
will reverse in periods subsequent to the merger.
Note 4: Note Receivable From AHN
During January 1997 the Company purchased an 8% Convertible Subordinated
Debenture from America's Health Network, L.P. (AHN). The debenture matures on
December 31, 2001 and is unsecured. The debenture is subordinated to all other
debt owed by AHN. Interest accrues at 8% annually and is only payable under
certain conditions as described in the agreement. The debenture is convertible
into partnership interest at the option of the holder.
The Company is a limited partner in AHN. AHN is not yet profitable and
projections indicate additional losses will need to be funded during current
development stages. To date, AHN has not been successful at securing additional
funding. The Company's $5.0 million investment in AHN and $5.0 million
receivable from AHN are subject to the risk of a write-down or a complete
write-off if AHN is unsuccessful at raising additional capital at reasonable
terms.
Note 5: Notes Payable to Related Parties
Notes payable to related parties arising from bonuses are comprised of notes
payable to members of management, who are also stockholders of the Company,
and are payable in installments in March 1997 and September 1997.
Note 6: Long-Term Debt
In May 1996, the Company signed a revolving credit agreement (the "Credit
Agreement") with a bank under which the Company could borrow up to $3 million.
The Credit Agreement expired on May 1, 1997.
The Company also has a term facility agreement (the "Term Agreement") whereby
through December 1996 the Company could borrow, in one or more borrowings, an
amount not to exceed $2 million in the aggregate, subject to certain conditions
set forth in the Term Agreement. This commitment is in the form of a $680,000
note payable facility and a $1,320,000 capital lease facility. At June 30,
1997, cumulative borrowings under the note payable facility and capital lease
facility aggregated $1,190,547. Borrowings under the Term Agreement are secured
by certain of the Company's equipment, with an aggregate carrying value of
approximately $1,200,000 at June 30, 1997. Amounts payable under the Term
Agreement bear interest at 14.48%, are due at varying dates through September
1999, and require monthly payments of principal and interest totaling
approximately $52,000. Amounts due under the note payable facility of the Term
Agreement are $180,000, $197,000 and $214,000 in fiscal 1997, 1998 and 1999,
respectively.
In connection with the Term Agreement, the Company issued warrants to the
lender in October 1995 and May 1996. Under the terms of the warrants, the
lender may acquire a number of shares of Series C preferred stock based on
specified formulas set forth in the warrant agreements. The warrants are
exercisable for ten years after the date of issuance or five years after the
date an initial public offering is completed by Informed Access, whichever is
longer. The value attributable to these warrants was not material. The warrants
were converted into warrants to purchase common stock as a result of the
merger with Access Health (Note 3).
Note 7: Income Taxes
The Company's net operating loss carryforwards of approximately $11 million as
of September 30, 1996 expire between 2007 and 2011 for both federal and state
purposes. The Company also has approximately $161,000 of Research & Development
tax credits available which expire between 2007 and 2011. Certain provisions of
the Internal Revenue Code of 1980, as amended, may limit the net operating loss
carryforwards and tax credits available for use in any given year if certain
events occur.
Note 8: Commitments
Operating Leases
The Company leases its offices under the terms of operating leases. Annual
minimum rental payments for fiscal 1997, 1998, 1999, 2000, 2001 and thereafter
are $2,552,000, $2,347,000, $1,735,000, $1,448,000, $1,394,000 and $118,000,
respectively. Rental expenses are recorded on a straight-line basis over the
respective lease terms.
Note 9: Mandatorily Redeemable Convertible Preferred Stock
Informed Access was authorized to issue shares of mandatorily redeemable
preferred stock from time to time in one or more series of designations, rights,
preferences and limitations established by its board of directors. Each share
of mandatorily redeemable preferred stock was converted into one share of common
stock of Access Health upon completion of the merger.
In July 1996, Informed Access issued a warrant to a customer to purchase 64,548
shares of Series C mandatorily redeemable preferred stock at $15.49 per share.
The warrants became exercisable in November 1996. The warrants were converted
into warrants to purchase common stock of Access Health as a result of the
merger.
Note 10: Stockholders' Equity
Common Stock
During May and July 1996 certain options were granted with exercise prices below
the applicable fair market value (as determined by an independent appraisal) on
the date of grant, resulting in deferred stock compensation of approximately
$476,000. The deferred stock compensation was to be amortized into expense
ratably over the four year vesting term of the related options; however, because
such options became 100% vested as a result of the merger in November 1996, the
unamortized balance of deferred stock compensation was recorded as an expense in
the quarter ended December 31, 1996.
Employee Stock Options
Informed Access option holders became Access Health option holders upon
completion of the merger in November 1996 (See Note 3). As of December 31, 1996,
36,093 shares of common stock have been purchased through the exercise of
options by former Informed Access option holders and options to purchase 560,500
shares of common stock remain outstanding and are all exercisable.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations may contain certain forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
the results anticipated in these forward-looking statements as a result of
certain factors set forth hereunder and in the Company's Annual Report as filed
on Form 10-K.
General. The Company completed mergers with Informed Access Systems, Inc.
- -------
("Informed Access") and Clinical Reference Systems, LTD ("CRS") during November
1996. Both transactions were accounted for as pooling-of-interests and,
accordingly, Management's Discussion of Financial Condition and Results of
Operations refers to the historical financial statements of the Company that
have been restated to include the consolidated financial statements of Access
Health, Informed Access and CRS, and the combined results of operations and
financial position of all three companies for the periods presented.
During July 1997 the Company announced plans to move corporate headquarters to
Broomfield, Colorado from Rancho Cordova, California.
Results of Operations
- ---------------------
Revenues. Revenues consist of revenues from personal health management
- --------
services, which consist of program membership, member communications and
teleservicing fees from the Company's Personal Health Advisor, First Help and
ASK-A-NURSE contracts with managed care organizations, physician organizations,
self insured employers and hospitals, and licensing and support services related
to the Company's ASK-A-NURSE, Cancer HelpLink, FirstHelp, Access Care Management
System, LIFE MATCH products and patient education modules. Revenues increased
32.6% from $20.0 million during the three months ended June 30, 1996 to $26.5
million during the three months ended June 30, 1997 and increased 49.4% from
$51.0 million during the nine months ended June 30, 1996 to $ 76.2 million for
the nine months ended June 30, 1997.
Revenues from personal health management services increased from $17.2 million
during the third quarter of fiscal 1996 to $23.9 million during the third
quarter of fiscal 1997 and from $42.8 million during the first nine months of
fiscal 1996 to $68.3 million during the first nine months of fiscal 1997 because
the number of members enrolled under the Company's Personal Health Advisor (PHA)
contracts increased during these periods. As of June 30, 1997, approximately
20.0 million members were enrolled in PHA compared to approximately 11.8 million
members enrolled as of June 30, 1996. Revenue from PHA contracts is recognized
ratably in accordance with contract terms on the basis of per-member fees.
Revenues from licensing and support services decreased from $2.8 million during
the third quarter of fiscal 1996 to $2.6 million during the third quarter of
fiscal 1997 and from $8.3 million for the first nine months of fiscal 1996 to
$7.9 million during the first nine months of fiscal 1997 due to the
discontinuation of several ASK-A-NURSE contracts.
Cost of revenues. The cost of personal health management services revenues
- ----------------
includes the costs of operating the Company's services centers, on-going client
consultation and charges for providing PHA member communications services. The
gross margins for personal health management services were 44.8% during the
third quarter of fiscal 1996 and 46.5% during the third quarter of fiscal 1997
and 42.1% during the first nine months of fiscal 1996 compared to 48.2% during
the first nine months of fiscal 1997. Gross margin for personal health
management services improved during the three and nine months periods ended June
30, 1997 compared to the prior year due to economies of scale resulting from
growth in PHA enrollment. The Company believes it is operating near targeted
gross margin levels for personal health management services*.
The cost of licensing and support services revenues includes the costs of
license implementations, on-going client consultation, annual users'
conferences, advertising materials, and other support services for
8
<PAGE>
FirstHelp, ASK-A-NURSE, Cancer HELPLINK, Access Care Management System ("ACMS"),
LIFE MATCH and CRS patient education modules licensees. The gross margin
percentages for licensing and support services increased from 46.5% during the
third quarter of fiscal 1996 to 77.1% during the third quarter of fiscal 1997
and from 50.4% for the first nine months of fiscal 1996 to 66.8% for the first
nine months of fiscal 1997. Licensing and support services gross margin
increases are due to changes in product licensing mix and increased efficiency
resulting from organizational adjustments. While gross margins can fluctuate,
the Company believes it is operating near targeted gross margin levels for
licensing and support services*.
Product and other development expenses. Product development expenses totaled
- --------------------------------------
$1.9 million, or 9.3% of revenues, during the third quarter of fiscal 1996 and
$1.9, or 7.3% of revenues, during the third quarter of fiscal 1997 and were $4.2
million, or 8.2% of revenues, for the first nine months of fiscal 1996 compared
to $6.3 million, or 8.3% of revenues, during the first nine months of fiscal
1997. These expenses relate to the Company's continuing efforts to develop new
products to meet the needs of consumers beyond triage and health information for
general populations. The Company expects that product and other development
expenses will increase during fiscal 1997 and could continue to increase as a
percentage of revenues*.
Sales and marketing expenses. Sales and marketing expenses were $2.4 million,
- ----------------------------
or 12.0% of revenues, and $2.3 million, or 8.6% of revenues, during the third
quarter of fiscal 1996 and 1997, respectively, and were $6.6 million, or 13.0%
of revenues, and $6.5 million, or 8.5% of revenues, during the first nine
months of fiscal 1996 and 1997, respectively. Third quarter sales and
marketing expenses decreased from fiscal 1996 to fiscal 1997 as a result of
the integration of the sales teams of Access Health and Informed Access and
because certain marketing expenses in fiscal 1996 were not repeated in fiscal
1997. Sales and marketing expenses may increase in fiscal 1997 as the Company
continues to pursue its strategy of building brand awareness for its personal
health management*.
General and administrative expenses. General and administrative expenses were
- -----------------------------------
$2.2 million, or 11.2% of revenues, and $2.1 million, or 7.9% of revenues,
during the third quarter of fiscal 1996 and 1997, respectively, and totaled $5.9
million, or 11.5% of revenues and $6.6 million, or 8.7% of revenues, during the
first nine months of fiscal 1996 and 1997, respectively. The increase from the
first nine months of fiscal 1996 to the first nine months of fiscal 1997
reflects additional infrastructure investment made by two growing companies
which was mitigated by efficiencies achieved as a result of the merger with
Informed Access as evidenced in the decline from the third quarter of fiscal
1996 to the third quarter of fiscal 1997.
Transaction costs. Transaction costs were charges recorded in the first quarter
- -----------------
of fiscal 1997 associated directly with the merger of the Company with Informed
Access and CRS and included professional fees of approximately $5.2 million.
Integration and restructuring costs. Related to the mergers with Informed
- -----------------------------------
Access and CRS, these costs were recorded during the first quarter of fiscal
1997 and included approximately $3.0 million for severance and related expenses,
approximately $1.5 million for elimination of redundant technology and
approximately $1.5 million for discontinuation of facilities and disposal of
assets. The Company expects to incur a one-time charge of between $2.0 million
and $3.0 million during the fourth quarter of fiscal 1997 related to the move of
corporate headquarters to Broomfield, Colorado from Rancho Cordova, California*.
Income from operations. Operating income increased from $2.5 million during the
- ----------------------
third quarter of fiscal 1996 to $6.8 million during the third quarter of fiscal
1997 due to factors and trends described in preceding paragraphs. Operating
income decreased from $5.5 million during the first nine months of fiscal 1996
to $5.4 million during the first nine months of fiscal 1997 as a result of the
merger-related charges recorded during the first quarter of fiscal 1997 and
described in the preceding two paragraphs.
9
<PAGE>
Other income. The Company generates interest and other income from cash
- ------------
balances and available-for-sale securities which is partially offset by interest
expense on long-term debt. Other income increased from $385,000 to $520,000 in
the third quarter of fiscal 1996 and 1997, respectively, and from $1.1 million
to $1.2 million during the first nine months of fiscal 1996 and 1997,
respectively, primarily as a result of increases in invested cash and available-
for-sale securities balances.
Effects of inflation and changing prices. Inflation and changing prices have
- ----------------------------------------
not had a material effect on the Company's operations and, at current levels,
are not expected to in future years*.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1997, the Company held cash and equivalents and available-for-
sale securities totaling $49.0 million which increased from a balance of $40.7
million as of September 30, 1996. Cash provided by operations during the first
nine months of fiscal 1997 was $16.0 million compared with $8.5 million for the
first nine months of fiscal 1996.
During January 1997, the Company purchased a $5.0 million debenture issued by
America's Health Network, L. P. ("AHN"), a 24-hour, 7 day a week cable
television channel devoted to consumer health care information. The Company is a
limited partner in AHN. AHN is not yet profitable and projections indicate
additional losses will need to be funded during current development stages. To
date, AHN has not been successful at securing additional funding. The Company's
$5 million investment in AHN and $5.0 million receivable from AHN are subject to
the risk of a write-down or a complete write-off if AHN is unsuccessful at
raising additional capital at reasonable terms.
During the first nine months of fiscal 1997 the Company purchased $3.9 million
of property and equipment. The Company expects to purchase additional capital
equipment during the remaining quarter of fiscal 1997 to expand its call centers
and systems capacity.
The Company believes its current capital resources are adequate to fund cash
needs for anticipated operating levels for at least the next twelve months*. The
Company also may use capital resources in connection with business expansion
that may include the acquisition of complementary product lines or businesses
during fiscal 1997 or beyond*.
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will meet
the Company's current expectations. Investors are strongly encouraged to review
the section entitled "Risk Factors That May Affect Future Operating
Performance."
Risk Factors That May Affect Future Operating Performance
- ---------------------------------------------------------
Ability to Secure Additional Contracts and Expand and Retain Existing Contracts.
The Company's ability to increase revenues and profitability is largely
dependent on the Company's ability to secure additional contracts and to retain
and expand existing contracts. In addition, the Company's revenues are affected
by the timing of member enrollment under new contracts. The Company could be
adversely affected by the termination or non-renewal of any of the Company's
contracts, or by renegotiation of the terms of contracts, particularly if the
affected contracts cover a large number of members or represent a significant
portion of the Company's health systems services revenue. In the past, the
Company has renegotiated contracts prior to expiration resulting in reductions
in the number of members and/or revenue per member rates. Any factors adversely
affecting the market for the Company's products, including factors outside of
the Company's control, such as adverse publicity or government regulatory
action, would have a material adverse effect on the Company.
Dependence on Principal Customers. The Company's PHA contracts cover members
ranging from approximately 3,000 members to 2.2 million members per contract and
include one contract for 2.2 million members, one contract for 1.9 million
members, two contracts for 1.7 million members, two contracts for 1.5 million
members and one contract for 1.3 million members. In the three months ended June
30, 1997, the Company's three largest customers accounted for approximately
8.1%, 7.8%, and 7.4% of the Company's total revenues and the Company's top five
customers, in the aggregate, accounted for approximately 34.7% of the Company's
total revenues. After an initial term of approximately one to four years,
contracts generally can be terminated upon 60 to 180 days notice to the Company.
Two of the three largest contracts are up for renewal in fiscal 1998. The
Company's contracts could also be subject to early termination by its customers
if the Company were not in compliance with any applicable government regulation.
The termination, non-renewal or renegotiation of any of such agreements could
have a material adverse effect on the Company's operating results. See
"Government Regulation."
Uncertainty of Future Operating Results. During fiscal 1994 the Company incurred
significant expenses related to the start-up of its PHA and including the hiring
and training of personnel and the expansion of infrastructure and sales and
marketing programs. Because revenues from PHA and FirstHelp products were not
sufficient to cover these start-up expenses, operating losses were sustained in
fiscal 1994 and 1995. The Company returned to profitability in 1996 as
additional members were enrolled in PHA and FirstHelp. There can be no assurance
that the Company's revenues and profitability will continue to increase during
fiscal 1997 and beyond. The Company may incur significantly increased sales,
marketing and promotional expenses in the future, and may devote additional
resources to the further development of PHA or other new products. To the extent
that the Company incurs increased expenses, the Company's operating results will
be adversely affected unless revenues and operating margins increase
sufficiently to offset such expenditures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Competition. The market for the Company's products and services is highly and
increasingly competitive. There are a number of competitors that offer products
or services that compete with some or all of those offered by the Company.
Existing and potential clients may also evaluate the Company's products or
services against
10
<PAGE>
internally developed programs. Increased competition could result in pricing
pressure and margin erosion. In its existing business and as the Company 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 the Company. There can be no
assurance that the Company will continue to compete successfully. While the
Company cannot predict the effect of future competition, increased competition
would adversely impact the Company's revenues and rate of growth and operating
results, particularly if the Company encountered price competition.
Changing Health Care Market and New Product Development. 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. As a result, the health care industry has become increasingly
dominated by managed health care plans, causing cost containment pressure to
rise. To address these changes, the Company shifted its business focus in 1993
to payors from providers and developed its personal health management services.
There is no assurance that the Company's existing products and services will
achieve continued success or that its new products and services will succeed.
There also can be no assurance that continued industry change will not adversely
affect the Company's ability to compete. Continued change may cause the Company
to incur significant product development and marketing expenses. The Company's
future success will depend on the Company's ability to adapt to the changing
needs of the health care industry.
Call Center Operations. The Company maintains member service and data
centers ("call centers") in Rancho Cordova, California; Chicago, Illinois;
Broomfield, Colorado; and Phoenix, Arizona. The Company's operations depend on
the adequate functioning of the computer and telephone systems in its call
centers. Although the Company 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 the Company's systems for a significant period of time. Any significant
damage to the Company's facilities or an equipment failure could have a material
adverse effect on the Company's results of operations.
Management of Growth. The Company has experienced rapid growth in recent years.
Continued rapid growth may place a significant strain on the Company's
management, telecommunications systems, operational infrastructure, working
capital and financial and management control systems. In order for the Company
to manage its client base 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 the Company's business, results of
operation and financial condition. Further, there can be no assurance that the
Company'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 the Company's business, financial condition and results of
operations.
Acquisition-Related Risks. The Company has grown in part through mergers and
acquisitions. The process of integrating an acquired company's business into the
Company's operations may result in unforeseen operating difficulties and
expenditures and may absorb significant management attention that would
otherwise be available for the ongoing development of the Company's business.
Moreover, there can be no assurance that the anticipated benefits of an
acquisition will be realized. The Company intends to evaluate acquisitions of
complementary product lines and businesses as part of its business strategy.
Future acquisitions by the Company may result in potentially dilutive issuances
of equity securities, the use of the Company's cash resources, the incurrence of
debt and increased goodwill, and contingent liabilities and amortization
expenses related to goodwill and other intangible assets, which could materially
adversely affect the Company's operating results and financial condition. In
addition, acquisitions involve numerous risks, including difficulties in the
assimilation of the operations and the products of the acquired companies, in
managing diverse geographic operations, the diversion of management's attention
from other business concerns, risks of entering markets in which the Company has
no or limited direct prior experience and the potential loss of key employees of
the acquired company. The inability of the Company's management to respond to
changing business conditions
11
<PAGE>
effectively, including the changes associated with its acquired businesses and
product lines, could have a material adverse effect on the Company's results of
operations.
Uncertainties Relating to Integration of Operations. The Company consummated
the acquisitions of Informed Access Systems, Inc. and Clinical Reference
Systems, Ltd. in November 1996 with the expectation that the mergers will result
in beneficial synergies for the combined companies. Achieving the anticipated
benefits of the mergers will depend in part upon whether the integration of the
two companies' businesses with the Company 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 with Access Health 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 with Access Health. 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 with Access Health could have a material adverse effect on
Access Health's business and future operating results. For example, the process
could: (i) interrupt Access Health's business resulting in lower revenues or
slower revenue growth and/or increased operating expenses or inability to obtain
synergies; (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 with Access Health could have a material adverse effect on Access
Health's business, results of operations and financial condition.
Key Employees and Management of Change. The Company's success depends on a
limited number of key management employees, none of whom is subject to post-
employment non-competition restrictions other than certain officers. The loss
of the services of one or more of these employees could have a material adverse
effect on the Company. The Company believes that its continued success also will
depend in large part on its ability to attract and retain highly-skilled
management, marketing, sales and nursing personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel as necessary. Furthermore,
the Company's ability to manage change and growth successfully will require the
Company to continue to improve its management expertise as well as its financial
systems and controls.
Volatility of Stock Price. The Company believes that factors such as
announcements of developments related to the Company's business, including the
signing or loss of a major contract, changes in market analyst estimates and
recommendations for the Company's Common Stock, changes in government regulation
and general conditions in the health care industry and the economy could cause
the price of the Company's Common Stock to fluctuate, perhaps substantially. In
addition, in recent years stock prices have experienced significant price
fluctuations.
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 the Company's and its clients' businesses in use of the
Company'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
12
<PAGE>
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 the Company's activities, including without
limitation teleservicing activities which use California, Illinois, Arizona and
Colorado 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 the Company's health service customers when
operating the Company's programs. The Company has not been made, nor is it aware
that any of its clients with respect to operation of the Company'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 the Company that are provided on a per-member, per-month basis.
The Company 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, the Company, its employees
and/or its clients could be required to obtain additional licenses or
registrations, to modify or curtail the operation of the Company's programs, to
modify the method of payment for the Company'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. The
Company's programs do not meet the requirements of the safe harbor for referral
services. A number of states in which the Company 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 the Company or the use of its products and services were to be
found in violation of such statutes, the Company or its clients could be
required to modify or curtail the operation of the Company's programs, or to pay
fines or incur other penalties, and the Company'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 the Company 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 the Company or the use of its products
and services. Any government investigative or enforcement actions with respect
to the Company 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 the Company.
13
<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, the Company 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. The Company 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, the Company
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 the Company's algorithms, protocols and
guidelines prior to program implementation and do not modify them without
medical approval. To date, the Company 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 the Company. 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
the Company.
Intellectual Property. The Company regards its software, clinical nursing
assessment protocols and marketing and program operation materials as
proprietary and attempts to protect its intellectual property with patents,
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 the Company's products or to
obtain and use information that the Company regards as proprietary. Not all of
the Company's technology is patented and existing copyright laws afford only
limited practical protection. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States, which could be a factor if the Company expands into
markets outside the United States.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
2.1 (B) Conformed Agreement and Plan of Reorganization by and among the Registrant, Access
Acquisition Corp. and Informed Access Systems, Inc. dated as of September 3, 1996
3.1 (C) Amended and Restated Certificate of Incorporation
3.2 (C) Amended and Restated Bylaws
3.3 (D) Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of Access Health, Inc. filed on March 13,1997.
4.1 (C) Specimen Stock Certificate
4.2 (A) Registration Rights Agreement dated June 26, 1990 between Registrant and certain parties
named therein
4.3 (C) Shareholder's Representation Statement and Registration Rights Agreement dated as of
November 25, 1996 between Registrant and various investors
4.4 (C) Registration Rights Agreement dated November 18, 1996
4.5 (D) Form of Preferred Shares Rights Agreement, dated as of March 12, 1997 between the
Company and The First National Bank of Boston, including exhibits
10.26 (E) AHN Partners, L.P. 8% Convertible Subordinated Debenture due 2001
10.27 (E) Form of Change of Control/Severance Agreement for all Named Executive Officers
10.28 Amendment to Employment Agreement dated April 30, 1997 between Registrant and Kenneth B. Plumlee
10.29 Amendment to Stock Option Agreements dated April 30, 1997 between Registrant and Kenneth B. Plumlee
10.30 Separation Agreement and Mutual Release dated April 30, 1997 between Registrant and Thomas E. Gardner
27 Financial Data Schedule.
</TABLE>
(A) Incorporated by reference to Registrant's Form S-1 Registration No.
33-44604.
(B) Incorporated by reference to Registrant's Registration Statement on
Form S-4 (No. 333-13931).
(C) Incorporated by reference to Registrant's Form 10-K for the year
ended September 30, 1996.
(D) Incorporated by reference to Registrant's Registration Statement on
Form 8-A filed on March 13, 1997 (No. 000-19758).
(E) Incorporated by reference to Registrant's Form 10-Q for the quarter
ended March 31, 1997.
b) Reports on Form 8-K. No reports on Form 8-K were filed during
the current quarter.
15
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACCESS HEALTH, INC.
Date: August 13, 1997 /s/ Timothy H. Connor
--------------------
Timothy H. Connor
Senior Vice President and Chief
Financial Officer (principal financial
officer of Registrant)
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
2.1 (B) Conformed Agreement and Plan of Reorganization by and among the Registrant, Access
Acquisition Corp. and Informed Access Systems, Inc. dated as of September 3, 1996
3.1 (C) Amended and Restated Certificate of Incorporation
3.2 (C) Amended and Restated Bylaws
3.3 (D) Certificate of Designation of Rights, Preferences and Privileges of Series A
Participating Preferred Stock of Access Health, Inc. filed on March 13,1997.
4.1 (C) Specimen Stock Certificate
4.2 (A) Registration Rights Agreement dated June 26, 1990 between Registrant and certain parties
named therein
4.3 (C) Shareholder's Representation Statement and Registration Rights Agreement dated as of
November 25, 1996 between Registrant and various investors
4.4 (C) Registration Rights Agreement dated November 18, 1996
4.5 (D) Form of Preferred Shares Rights Agreement, dated as of March 12, 1997 between the
Company and The First National Bank of Boston, including exhibits
10.26 (E) AHN Partners, L.P. 8% Convertible Subordinated Debenture due 2001
10.27 (E) Form of Change of Control/Severance Agreement for all Named Executive Officers
10.28 Amendment to Employment Agreement dated April 30, 1997 between Registrant and Kenneth B. Plumlee
10.29 Amendment to Stock Option Agreements dated April 30, 1997 between Registrant and Kenneth B. Plumlee
10.30 Separation Agreement and Mutual Release dated April 30, 1997 between Registrant and Thomas E. Gardner
27 Financial Data Schedule
</TABLE>
(A) Incorporated by reference to Registrant's Form S-1 Registration No.
33-44604.
(B) Incorporated by reference to Registrant's Registration Statement on
Form S-4 (No. 333-13931).
(C) Incorporated by reference to Registrant's Form 10-K for the year
ended September 30, 1996.
(D) Incorporated by reference to Registrant's Registration Statement on
Form 8-A filed on March 13, 1997 (No. 000-19758).
(E) Incorporated by reference to REgistrant's Form 10-Q for the quarter
ended March 31, 1997.
<PAGE>
EXHIBIT 10.28
AMENDMENT TO
EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is entered into
effective as of April 30, 1997, by and between Access Health, Inc. (the
"Company"), and Kenneth B. Plumlee ("Employee").
RECITALS
--------
WHEREAS, Employee is currently employed by the Company as Chairman of its
Board of Directors pursuant to an Employment Agreement (the "Employment
Agreement") effective as of December 1, 1996, and the Parties desire to amend
the Employment Agreement as hereinafter stated.
NOW, THEREFORE, in consideration of the mutual promises made herein and in
the Employment Agreement, the Company and Employee (collectively referred to as
the "Parties") hereby agree as follows:
1. Termination of Services. Employee and the Board of Directors of the
-----------------------
Company mutually agreed Employee shall be relieved of any further
responsibility to provide the services specified in Paragraph 3 of the
Employment Agreement and to serve as its Chairman as of April 5, 1997. There is
no further obligation on the part of the Company or its Board of Directors to
have Employee act as the Chairman of the Board of Directors, and there is no
further obligation on the part of Employee to serve as the Chairman of the Board
of Directors subsequent to the March 1997 Stockholders Meeting. Whether or not
Employee continues to act as the Chairman of the Board of Directors of the
Company will have no effect on his rights or obligations, nor on the Company's
rights or obligations, under the Employment Agreement or under this Amendment.
2. Payment. Employee and the Chief Executive Officer of the Company have
-------
mutually agreed to revise employee's services under Paragraph 3 of the
Employment Agreement as specified above so that the only services expected of
Employee hereafter will be as a member of the Company's Board of Directors for
so long as he shall continue to serve thereon. The Company will promptly pay to
Employee the sum of two hundred twnety seven thousand eight hundred sixty five
Dollars ($227,865) in lieu of all salary and benefits, including insurance and
car allowance, which would have been received by Employee from the Company for
the period May 1, 1997 through the remainder of the Employment Period as
defined in the Employment Agreement.
<PAGE>
3. 1995 Option. The Parties acknowledge and confirm to each other that
-----------
12,000 of the 60,000 shares in the Option granted on May 23, 1995 to purchase
60,000 shares of the Company's common stock (the "1995 Option") are vested and
exercisable by Employee, 12,000 shares will become vested and exercisable on
May 23, 1997, another 12,000 shares will become vested and exercisable on May
23, 1998, another 12,000 shares will become vested and exercisable on May 23,
1999, and the final 12,000 shares will become vested and exercisable on May
23, 2000. The Parties agree the 1995 Option is amended hereby to provide that
the 12,000 shares which were to become vested and exercisable on May 23, 1998,
and the 12,000 shares which were to become vested and exercisable on May 23,
1999 and the 12,000 shares which were to become vested and exercisable on May
23, 2000 shall now be vested and exercisable. As a result of this Amendment,
48,000 of the 60,000 shares in the 1995 Option are now vested and exercisable,
and the final 12,000 shares will become exercisable on May 23, 1997. In
addition, the Parties agree the 1995 Option is further amended hereby to
provide that Employee shall have the right to exercise the 1995 Option and to
purchase any of the 36,000 shares accelerated hereby, pursuant to the terms of
that Option at any time from now through the 12-month period following the
latter of (i) September 30, 1998 or (ii) the date Employee no longer serves on
the Company's Board of Directors.
4. Life Insurance. The Company shall transfer to Employee ownership of
--------------
the key man term insurance on his life, provided any additional cost in so doing
is borne by Employee.
5. Non-Competition. Employee agrees in consideration of this Agreement
---------------
that Section 8 of the Employment Agreement shall be amended to read "until
September 30, 1998," and, accordingly, the provisions of such Section shall be
applicable to Employee until such date whether or not Employee continues to
serve as a director of the Company.
6. No Other Changes. Except as expressly amended hereby, the Employment
----------------
Agreement shall remain in full force and effect.
7. No Representations. Each party represents that it or he has had the
------------------
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Amendment. Neither party has
relied upon any representations or statements made by the other party hereto not
specifically set forth in this Amendment.
8. Entire Agreement. The Employment Agreement, as amended hereby,
----------------
represents the entire agreement and understanding between the Company and
Employee concerning Employee's separation from the Company and supersedes and
replaces any and all prior agreements and understandings concerning Employee's
relationship with the Company and his compensation by the Company.
9. No Oral Modification. The Employment Agreement and this Amendment may
--------------------
only be amended in writing signed by Employee and an officer of the Company.
10. Governing Law. This Amendment shall be governed by the laws of the
-------------
State of California, without reference to its choice of law principles.
-2-
<PAGE>
11. Counterparts. This Amendment may be executed in counterparts, and
------------
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
IN WITNESS WHEREOF, the Parties have executed this Amendment to Employment
Agreement as of the date set forth above.
ACCESS HEALTH, INC.
by /s/ Julie A. Brooks
____________________________________________
Julie A. Brooks
Senior Vice-President and General Counsel
/s/ Kenneth B. PlumLee
______________________________________________
KENNETH B. PLUMLEE
-3-
<PAGE>
EXHIBIT 10.29
AMENDMENT TO
STOCK OPTION AGREEMENTS
This Amendment to Stock Option Agreements is entered into effective as of
April 30, 1997, by and between Access Health, Inc. (the "Company"), and Kenneth
B. Plumlee ("Optionee").
RECITALS
--------
WHEREAS, Optionee has heretofore been granted four different options by the
Company to purchase specified numbers of shares of its common stock (the
"Options"), said Options being evinced by four different Stock Option
Agreements, and the Parties desire to amend certain of the Stock Option
Agreements as hereinafter stated.
WHEREAS, Optionee has refrained from exercising any of the Options in such a
manner as would have provided to him certain tax benefits to the detriment of
the Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
made herein, the Company and Optionee (collectively referred to as the
"Parties") hereby agree as follows:
1. Options Held. The Parties confirm that Optionee holds the following four
------------
Options:
An Option granted on January 29, 1993, to purchase 37,321
shares of the Company's common stock at an exercise price
of $4.167 per share (the "1993 Option");
An Option granted on March 22, 1994, to purchase 37,321
shares of the Company's common stock at an exercise price
of $8.833 per share (the "1994 Option");
An Option granted on May 23, 1995, to purchase 60,000
shares of the Company's common stock at an exercise price
of $10.420 per share (the "1995 Option"); and
An Option granted on March 27, 1996, to purchase 112,500
shares of the Company's common stock at an exercise price
of $39.313 per share (the "1996 Option"), which option
Employee has exchanged effective on the date hereof for a
new option to purchase 112,500 shares of the Company's
common stock at an exercise price of $14.395 per share
(the closing price on May 1, 1997) which option shall
become exercisable as to 10,227 shares at the end of each
month beginning on May 31 with a final vesting of 10,230
shares on the earlier of March 31, 1998, or the date of
the 1998 annual meeting of stockholders (the "1997
Option").
2. Current Status. The Parties acknowledge and confirm to each other that
--------------
all of the Options listed in Paragraph 1 above remain outstanding as of this
date, and that upon Optionee's exercise of any of the Options, the Options will
be treated as "non-qualified" Options under applicable tax laws and regulations.
3. 1993 and 1994 Options. The Parties acknowledge and confirm to each other
---------------------
that the 1993 Option and the 1994 Option are fully vested and all the shares
thereunder are subject to being purchased by Optionee at this time.
4. 1995 Option. The Parties acknowledge and confirm to each other that
-----------
48,000 of the 60,000 shares in the 1995 Option are now vested and exercisable,
and the final 12,000 shares will become exercisable on May 23, 1997.
<PAGE>
5. Further Vesting. Those portions of any of the Options not yet vested and
---------------
exercisable shall continue to vest and become exercisable for so long as, and
only for so long as, Optionee continues to serve as a director of the Company as
provided in Paragraph 4(c) of that certain Employment Agreement between Optionee
and the Company dated December 1, 1996, except as the Options may be accelerated
hereafter as provided in Paragraph 4(d) of that Employment Agreement.
6. Exercise Periods. The Parties hereby agree that Paragraph 4(e) of that
----------------
certain Employment Agreement between Optionee and the Company dated December 1,
1996 relating to the extension of exercise periods is hereby deleted ab initio
and shall be null and void and of no force or effect as though it had never been
written. Instead, the parties agree that the following shall be the exercise
periods for the Options.
(a) 1993 and 1994 Options. Subject to Paragraph 7 below, Optionee shall
---------------------
have the right to exercise the 1993 and 1994 Options and to purchase any of the
shares covered thereby pursuant to the terms of those Options at any time from
now through the 90-day period following the date Optionee no longer serves on
the Company's Board of Directors.
(b) 1995 Option (1). Subject to Paragraph 7 below, Optionee shall have
---------------
the right to exercise the 1995 Option and to purchase any of the 12,000 shares
covered thereby, which were already vested as of the date hereof, pursuant to
the terms of that Option at any time from now through the 90-day period
following the date Optionee no longer serves on the Company's Board of
Directors.
(c) 1995 Option (2). Subject to Paragraph 7 below, Optionee shall have
---------------
the right to exercise the 1995 Option and to purchase any of the 36,000 shares
covered thereby, the vesting of which were accelerated pursuant to an Amendment
dated April 30, 1997 to that certain Employment Agreement between Optionee and
the Company dated December 1, 1996, pursuant to the terms of that Option at any
time from now through the 12-month period following the latter of (i) September
30, 1998 or (ii) the date Optionee no longer serves on the Company's Board of
Directors.
(d) 1995 Option (3). Subject to Paragraph 7 below, Optionee shall have
---------------
the right to exercise the 1995 Option and to purchase any of the 12,000 shares
covered thereby, which will become vested on May 23, 1997, pursuant to the terms
of that Option at any time from the date they become vested through the 90-day
period following the date Optionee no longer serves on the Company's Board of
Directors.
(e) 1997 Option. Subject to Paragraph 7 below, Optionee shall have the
-----------
right to exercise the 1997 Option and to purchase any of the shares covered
thereby pursuant to the terms of that Option at any time from the dates those
shares become vested through the 12-month period following the latter of (i)
September 30, 1998 or (ii) the date Optionee no longer serves on the Company's
Board of Directors.
7. Term/Expiration Date. The Parties acknowledge and confirm to each other
--------------------
that each of the Stock Option Agreements specifies a "Term/Expiration Date"
seven years following the date of grant of the Option specified in the
particular Stock Option Agreement, after which Term/Expiration Date, Optionee
will have no further right to exercise the Option covered by that Stock Option
Agreement.
8. No Other Changes. Except as expressly amended hereby, the Agreement
----------------
shall remain in full force and effect.
9. No Representations. Each of the Parties represents that it or he has had
------------------
the opportunity to consult with an attorney, and has carefully read and
understands the scope and effect of the provisions of this Amendment. Neither
Party has relied upon any representations or statements made by the other Party
hereto not specifically set forth in this Amendment.
-2-
<PAGE>
10. No Oral Modification. The Stock Option Agreements and this Amendment may
--------------------
only be amended in writing signed by Optionee and an officer of the Company.
11. Governing Law. This Amendment shall be governed by the laws of the State
-------------
of California, without reference to its choice of law principles.
12. Counterparts. This Amendment may be executed in counterparts, and each
------------
counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
IN WITNESS WHEREOF, the Parties have executed this Amendment to Stock Option
Agreements as of the date set forth above.
ACCESS HEALTH, INC.
by /s/ Julie A. Brooks
____________________________________________
Julie A. Brooks
Senior Vice-President and General Counsel
/s/ Kenneth B. Plumlee
______________________________________________
KENNETH B. PLUMLEE
-3-
<PAGE>
EXHIBIT 10.30
SEPARATION AGREEMENT AND MUTUAL RELEASE
This Separation Agreement and Mutual Release ("Agreement") is entered into
as of April 30, 1997 (the "Effective Date") by and between Access Health, Inc.,
a Delaware corporation (the "Company"), and Thomas E. Gardner ("Executive").
RECITALS
--------
1. Executive is currently employed by the Company as its President and
Chief Executive Officer and Chief Operating Officer and also serves as a member
of the Board of Directors;
2. Executive has decided to resign from all executive positions and as a
director of the Company and the Company agrees to accept such resignation. The
Company and Executive have further mutually agreed to terminate their employment
relationship and to release each other from any claims arising from or related
to the employment relationship;
3. Executive and the Company entered into an Employment Agreement dated
December 1, 1996 (the "Prior Agreement"). The parties agree that, for purposes
of the Prior Agreement, the termination of Executive's employment shall be
treated as a termination by the Company without Cause (as defined in the Prior
Agreement). In connection with the termination of their employment
relationship, and to assure an orderly transition, the parties desire to enter
into this Agreement with respect to Executive's separation from the Company.
The Agreement will terminate and supersede the Prior Agreement in all respects
except as otherwise specifically provided or incorporated by reference herein;
to the extent a particular provision of the Prior Agreement is incorporated into
this Agreement, any defined terms referenced in such provision shall also be
incorporated herein.
NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Executive (collectively referred to as the "Parties") hereby agree
as follows:
1. Resignation. Executive hereby resigns from all executive positions
-----------
with the Company including as President and Chief Executive Officer and Chief
Operating Officer of the Company and also as a director on the Effective Date.
The Executive's employment with the Company shall otherwise be treated as
continuing through April 30, 1997.
2. Consideration. In consideration of Executive's past services to the
-------------
Company, and in consideration for Executive's promises and covenants herein, and
in light of the terms of the Prior Agreement, the Company shall pay Executive,
subject to Section 3 herein, as follows:
(a) Salary. The Company will pay Executive on the Effective Date all
------
salary earned through the Effective Date plus salary through April 30, 1997,
less applicable withholding.
(b) Bonus. Executive shall receive on the Effective Date a bonus
-----
equal to the pro rata annual incentive award through April 30, 1997, for
fiscal year 1997 based on the on-plan target bonus, which the Parties agree
shall be $105,000.
<PAGE>
(c) Separation Payment. Executive shall also receive on the Effective
------------------
Date a payment equal to 125% of the sum of (i) his annualized base salary of
$300,000 and (ii) Executive's on-plan target bonus award for fiscal year 1997 of
$180,000, which payment the Parties agree shall be in the aggregate $600,000.
(d) Business Expenses. The Company shall reimburse Executive for all
-----------------
business expenses incurred in connection with carrying out the business of the
Company promptly upon receiving backup documentation in reasonable detail
documenting such expenses.
(e) Benefits. Executive shall be entitled to accrued vacation in the
--------
amount of twenty (20) days which the Company shall pay to Executive on the
Effective Date in the form of a lump sum payment of $23,170. Executive shall
also be entitled to continued coverage, through April 30, 1999 (the "Continued
Coverage Period"), under each Employee Welfare Benefit Plan (as defined in the
Prior Agreement) of the Company in which he was participating as of March 31,
1997, at no increased cost to Executive, provided that the Company's obligations
under this Section 2(e) shall be reduced to the extent Executive receives
similar coverage and benefits under the plans of a subsequent employer.
Executive shall promptly provide the Company with notice and information
reasonably requested by the Company concerning such plans. If Executive or any
member of his family is precluded from continuing full participation in any
benefit under any Employee Welfare Benefit Plan as provided in this Section
2(e), then (as provided in Section 9(h) of the Prior Agreement) the Company
shall provide the after-tax economic equivalent of any benefit forgone. The
economic equivalent of any benefit foregone shall be deemed to be no less than
the total cost to the Executive of obtaining such benefit on an individual
basis. Payment of such after-tax economic equivalent shall be made quarterly in
advance, without discount. After the Continued Coverage Period, the Company
shall make reasonable good faith efforts to secure from its insurance carrier
for Executive and his family continued health insurance coverage until April 30,
2001 to the same extent and at rates similar to those offered to the Company's
employees provided (i) Executive shall bear the entire cost of such coverage,
(ii) the Company shall not be obligated to add Executive or otherwise include
him as part of any of the Company's health plans with such carrier, and (iii)
the Company will not be otherwise obligated to provide or assist Executive
obtain health care benefits if the Company's carrier declines coverage of
Executive.
(f) Lease Payments. The Company shall continue to make prompt payments
--------------
through August 31, 1997 of all lease payments on the property at 3400 Adams
Road, Sacramento, California, where Executive resides, and Executive may reside
there until August 31, 1997; provided, upon the date Executive relocates from
Sacramento, California Executive shall assign all rights to the lease of such
house to the Company.
(g) Stock Option Grants. No stock options shall be granted to
-------------------
Executive for fiscal year 1997 performance.
(h) Restricted Stock. The 2,000 shares of restricted stock granted to
----------------
Executive as of May 30, 1996, shall become fully vested, fully transferable, and
fully nonforfeitable as of the Effective Date.
-2-
<PAGE>
(i) Stock Options. Section 6(b), Exhibit B and Exhibit C of the Prior
------------- --------- ---------
Agreement shall survive any termination of the Prior Agreement, and shall remain
in full force and effect, with the following modifications. As to the option
granted on November 18, 1996 to acquire 250,000 shares of Common Stock,
Executive shall have until April 30, 1999 (the "Option Termination Date") to
exercise 100,000 shares, and on the Option Termination Date such option shall
terminate as to 150,000 shares as well as to any unexercised vested shares
subject to such option. As to the option granted on May 30, 1996 to acquire
230,000 shares of Common Stock, Executive shall have until the Option
Termination Date to exercise 92,000 shares, and on the Option Termination Date
such option shall terminate as to 138,000 shares as well as to any unexercised
vested shares subject to such option.
(j) Indemnification. The Indemnification Agreement between the
---------------
Parties, dated as of December 1, 1996 and appended as Exhibit A to this
---------
Agreement, shall remain in full force and effect.
(k) Tax Gross-Up. The Company shall promptly provide any payment
------------
required under Section 8(b)(iii) of the Prior Agreement with respect to
expenses incurred prior to the Effective Date.
(l) Out Placement. The Company shall reimburse Executive for
-------------
reasonable out-of-pocket expenses incurred as out-placement expenses incurred
prior to April 30, 1998 (including, without limitation, secretarial
assistance, phone and fax charges, unreimbursed travel expenses, and
transition counseling, but specifically excluding office space expense) for up
to $10,000 promptly upon presentation of reasonably acceptable documentation.
(m) No Mitigation; Limited Offset. As provided in Section 9(i) of the
-----------------------------
Prior Agreement, Executive shall be under no obligation to seek other employment
and there shall be no offset against amounts due Executive under this Agreement
on account of (i) any remuneration or other benefit attributable to any
subsequent employment that he may obtain except as specifically provided in this
Section 2 or (ii) any claims the Company, or its affiliates, may have against
Executive.
(n) Nature of Payments. Any amounts due under this Section 2 are in
------------------
the nature of severance payments considered to be reasonable by the Company
and are not in the nature of a penalty.
3. Forfeiture of Benefits upon Breach. In the event that Executive
----------------------------------
breaches Section 4 of this Agreement (i) all obligations of the Company to make
any payments or provide any benefits under Sections 2(b), 2(c), 2(e), 2(f) and
2(l) shall immediately terminate and Executive shall promptly repay, net of all
taxes paid or payable, any amounts he may have received under these Sections and
(ii) any portion of any stock option that became exercisable solely pursuant to
Section 2(i) hereof shall be forfeited, and in the event that Executive shall
already have exercised any portion of any such stock option that became
exercisable solely pursuant to Section 2(i) hereof, he shall return the Common
Stock of the Company that he acquired on exercise of such stock option, provided
that in lieu of delivering Common Stock pursuant to subsection (ii) hereof,
Executive may deliver cash equal to the current market value (based on the
closing price on the last trading day preceding the date of return) of any such
Common Stock not returned, less sufficient Common Stock of the Company and/or
cash to make him whole (on an after-tax basis) for the cost of acquiring such
Common Stock and for any taxes paid or payable in connection with (A) acquiring
such Common Stock and (B) any subsequent sale or other
-3-
<PAGE>
disposition of any portion of such Common Stock occurring before the return of
such Common Stock and/or cash pursuant to this Section 3.
4. Noncompetition. For a period of twelve (12) months following the
--------------
Effective Date, Executive shall be subject to the terms of Section 11(a) of the
Prior Agreement which is expressly incorporated by reference into this
Agreement.
5. Non-Solicitation. For a period of twelve (12) months following the
----------------
Effective Date, Executive shall not intentionally or knowingly allow others
under his direction to solicit or encourage, directly or indirectly, any then
current Company employee to terminate his or her employment with the Company for
the purpose of working as an officer, director, employee, consultant or in any
other capacity for either Executive or any of his employers. For purposes of
the above, an employer of Executive's will be deemed to include (i) any parent,
subsidiary or other affiliate of such an employer or (ii) any person or company
for which Executive provides consulting services or for which he acts in the
capacity of director or for which he acts in any other capacity.
6. Confidentiality. Executive acknowledges that during the course of his
---------------
employment he has had access to a wide range of sensitive, non-public
information concerning the Company, its future business and product plans, its
marketing strategies and its sales organization. Executive acknowledges that
the Proprietary Information and Business Agreement dated December 19, 1996 (the
"Confidentiality Agreement") that he signed in connection with his employment
and that is appended to this Agreement as Exhibit B, shall accordingly remain
---------
in full force and effect, except that Executive may retain, after review by the
Company, personal Rolodexes, personal files and the like following the
termination of his employment to the extent that the Company does not reasonably
and promptly object, provided such materials shall continue to be subject to the
Confidentiality Agreement. To the extent Executive provides the Company
services, if any, after the Effective Date, Executive shall remain subject to
the Confidentiality Agreement.
7. Payment of Salary. Executive acknowledges and represents that, upon
-----------------
full performance of its obligations under this Agreement, the Company will have
paid or made all salary, bonuses, equity grants and any and all other
compensation or benefits due to Executive as of the Effective Date.
8. Release of Claims. The Parties acknowledge and agree that this
-----------------
Agreement represents settlement in full of all obligations and claims arising
out of or relating to Executive's employment by the Company and the termination
of such employment as provided in this Agreement. Executive and the Company, on
behalf of themselves, and their respective heirs, executors, officers,
directors, employees, investors, shareholders, administrators, predecessor and
successor corporations, and assigns, hereby fully and forever release each other
and their respective heirs, executors, officers, directors, employees,
investors, shareholders, administrators, predecessor and successor corporations,
and assigns, of and from any claim, duty, obligation or cause of action relating
to any matters of any kind, whether presently known or unknown, suspected or
unsuspected, that any of them may possess arising from any omissions, acts or
facts that have occurred up until and including the Effective Date including,
without limitation,
-4-
<PAGE>
(a) any and all claims relating to or arising from Executive's
employment by (or services for) the Company, his employment relationship with
the Company and the termination of that relationship;
(b) any and all claims for wrongful discharge of employment; breach of
contract, both express and implied; breach of a covenant of good faith and fair
dealing, both express and implied; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage; and
defamation;
(c) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act of 1990, and the
California Fair Employment and Housing Act;
(d) any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination;
(e) any claims arising out of or related to the Prior Agreement (to
the extent that the Prior Agreement is superseded by this Agreement),
including without limitation, any rights relating to notice of termination as
provided pursuant to Section 9(g) of the Prior Agreement;
(f) any and all claims for attorneys' fees and costs;
(g) all claims arising out of or relating to Executive's conduct as an
employee, officer, director, agent or representative of the Company; and
(h) all claims arising out of or relating to duties owed by
Executive to the Company or to any of its directors, officers, employees,
agents, affiliates, stockholders, lenders, investors, predecessor or successor
corporations, assigns, attorneys, accountants or other representatives.
The Company and Executive agree that the release set forth in this section shall
be and remain in effect in all respects as a complete general release as to the
matters released. This release does not extend to any obligations arising
under, incurred under, or preserved by this Agreement.
9. Acknowledgment of Waiver of Claims under ADEA. Executive acknowledges
---------------------------------------------
that he is waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and
release is knowing and voluntary. Executive and the Company agree that this
waiver and release does not apply to any rights or claims that may arise under
ADEA after the Effective Date. Executive acknowledges that the consideration
given for this waiver and release is in addition to anything of value to which
Executive was already entitled. Executive further acknowledges that he has been
advised by this writing that (a) he should consult with an attorney prior to
-----
executing this Agreement; (b) he has at least twenty-one (21) days within which
to consider this Agreement; (c) he has at least seven (7) days following the
execution of this Agreement by the Parties to revoke the Agreement; and (d)
this Agreement shall not be effective until the revocation period has expired.
-5-
<PAGE>
10. Civil Code Section 1542. The Parties represent that they are not
-----------------------
aware of any claim by either of them other than the claims that are released by
this Agreement. Executive and the Company acknowledge that they have been
advised by legal counsel and are familiar with the provisions of California
Civil Code Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Executive and the Company, being aware of said Code section, agree to
expressly waive any rights they may have thereunder, as well as under any other
statute or common law principles of similar effect.
11. Communications. Communications by the Company and its officers,
--------------
directors, employees, stockholders, and successors concerning Executive's
termination of employment with the Company will be based upon the statement
agreed upon by the Parties which is attached hereto as Exhibit C. All
---------
communications by the Company and its officers, directors, employees,
stockholders, and successors concerning Executive in response to reference
checks will be based upon the response agreed upon by the Parties which is
attached hereto as Exhibit D.
---------
12. Fees and Expenses. Each of the Parties hereto shall bear their own
-----------------
fees and expenses, including attorneys fees, incurred in connection with the
negotiation of this Agreement or otherwise arising out of, or by reason of, this
Agreement.
13. Taxes. All payments to be made by the Company to Executive under this
-----
Agreement will be subject to reduction to the extent necessary in order to
comply with applicable Federal, state and local tax withholding requirements.
14. Confidentiality. The Parties hereto each agree to use their best
---------------
efforts to maintain in confidence the existence of this Agreement, the contents
and terms of this Agreement, and the consideration for this Agreement, except
where disclosure of the terms of this Agreement is otherwise required by law and
except for disclosure in confidence to financial, tax, and legal advisors and
disclosure by Executive in confidence to prospective employers.
15. Disparagement. Each Party agrees to refrain from any disparagement,
-------------
criticism, defamation, and slander of the other Party, and from tortious
interference with the contracts and relationships of the other Party.
16. No Representations. Each Party represents that it or he has had the
------------------
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Agreement. Neither Party has
relied upon any representations or statements made by the other Party hereto
which are not specifically set forth in this Agreement.
-6-
<PAGE>
17. Entire Agreement. This Agreement and those portions of the Prior
----------------
Agreement preserved by this Agreement represent the entire agreement and
understanding between the Company and Executive concerning Executive's
separation from the Company, and supersede and replace any and all prior
agreements and understandings concerning Executive's relationship with the
Company and his compensation by the Company, including without limitation, the
Prior Agreement, except as otherwise provided in this Agreement.
18. Assignability; Binding Nature. This Agreement shall be binding upon
-----------------------------
and inure to the benefit of the Parties and their respective successors and
assigns. No rights or obligations of the Company under this Agreement may be
assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company, provided that the assignee or
transferee is the successor to all or substantially all of the assets of the
Company and such assignee or transferee expressly assumes all the liabilities,
obligations and duties of the Company, as contained in this Agreement. In
connection with any transfer or assignment of its rights, duties, or obligations
under this Agreement, the Company shall take whatever action it legally can to
cause such assignee or transferee to expressly assume the labilities,
obligations and duties of the Company hereunder. The Company shall, in any
event, remain as unconditional guarantor of prompt payment and prompt
satisfaction of all such liabilities, obligations and duties. No rights,
obligations or duties of the Executive under this Agreement may be assigned or
transferred, other than his rights to compensation and benefits, which may be
transferred only by will or operation of law, except as provided in Section 23
below.
19. Representations. The Company represents and warrants that it is fully
---------------
authorized and empowered by action of the Board to enter into this Agreement and
that the performance of its obligations under this Agreement will not violate
any law, regulation or order of any agreement between it and any other person.
The Executive represents and warrants that he is not subject to any agreement or
obligation that conflicts with or would be breached by the provisions of this
Agreement.
20. Amendment or Waiver. No provision in this Agreement may be amended
-------------------
unless such amendment is set forth in a writing signed by the Parties. No
waiver by either Party of any breach of any condition or provision contained in
this Agreement shall be deemed a waiver of a similar or dissimilar condition or
provision at the same or any prior or subsequent time. To be effective, any
waiver must be set forth in writing and signed by the waiving Party.
21. Severability. In the event that any provision or portion of this
------------
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remainder of this Agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by law
so as to achieve the purposes of this Agreement.
22. Survivorship. Except as otherwise expressly set forth in this
------------
Agreement, the respective rights and obligations of the Parties hereunder shall
survive the termination of Executive's employment. This Agreement itself (as
distinguished from the Executive's employment) may not be terminated by either
Party.
-7-
<PAGE>
23. Beneficiaries/References. The Executive shall be entitled, to the
------------------------
extent permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit hereunder following the
Executives's death, by giving written notice to the Company. In the event of
the Executive's death or a judicial determination of his incompetence,
references in this Agreement to the Executive shall be deemed, where
appropriate, to refer to his beneficiary, estate or other legal representative.
24. Resolution of Disputes. Any claim arising out of or relating to this
----------------------
Agreement (or any amendment thereof), any provision of the Prior Agreement
incorporated into this Agreement or out of Executive's employment by, or
services for, the Company shall, at the election of either Party, be resolved by
confidential arbitration, to be held in Sacramento County, California, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitrator(s) shall explain the reasons and basis of his
(their) award in detail and in writing, and judgment upon the award may be
entered in any court having jurisdiction thereof. Each Party shall bear their
own respective costs and expenses relating to resolving any such claim. Pending
the final and conclusive resolution of any such claim, the Company shall
continue prompt payment of all amounts due the Executive under this Agreement
(or any amendment thereof) and prompt provision of all benefits to which the
Executive or his successors and assigns are entitled.
25. Notices. Any notice, consent, demand, request, or other communication
-------
given to a Party in connection with this Agreement shall be in writing and shall
be deemed to have been given (a) when delivered personally to the Party
specified or (b), provided that reasonable steps are take to assure that the
communication is actually received by the Party specified, five business days
after being sent by certified or registered mail, postage prepaid, return
receipt requested, duly addressed to the Party concerned at the address
indicated below or to such changed address as such Party may subsequently give
notice of:
If to the Company:
Access Health, Inc.
11020 White Rock Road
Rancho Cordova, California 95670
Attention: General Counsel
With a copy sent by the same means to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Barry E. Taylor, Esq.
-8-
<PAGE>
If to the Executive:
Thomas E. Gardner
3400 Adams Road
Sacramento, California 95864
With a copy sent by the same means to:
Law Offices of Joseph E. Bachelder
780 Third Avenue
New York, New York 10017
26. Headings. The headings of the Sections contained in this Agreement
--------
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
27. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of California, without reference to its choice of law principles.
28. Counterparts. This Agreement may be executed in counterparts, and
------------
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
29. Voluntary Execution of Agreement. This Agreement is executed
--------------------------------
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. The Parties
acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation, negotiation, and
execution of this Agreement by legal counsel of their own choice or that they
have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this Agreement and
of the releases it contains;
(d) They are fully aware of the legal and binding effect of this
Agreement.
[The remainder of this page left intentionally blank]
-9-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
ACCESS HEALTH, INC.
Dated: April __, 1997 By: /s/JULIE A. BROOKS
------------------
Dated: April __, 1997 /s/THOMAS E. GARDNER
--------------------
Thomas E. Gardner
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from FY 1997 Q3
unaudited financial statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 34,848
<SECURITIES> 14,128
<RECEIVABLES> 13,090
<ALLOWANCES> 884
<INVENTORY> 0
<CURRENT-ASSETS> 66,446
<PP&E> 27,533
<DEPRECIATION> 11,282
<TOTAL-ASSETS> 96,179
<CURRENT-LIABILITIES> 22,416
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 72,906
<TOTAL-LIABILITY-AND-EQUITY> 96,179
<SALES> 76,227
<TOTAL-REVENUES> 76,227
<CGS> 37,997
<TOTAL-COSTS> 37,997
<OTHER-EXPENSES> 32,789
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,235)
<INCOME-PRETAX> 6,676
<INCOME-TAX> 1,629
<INCOME-CONTINUING> 5,047
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,047
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
