<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 March 31, 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 April 30, 1997: 17,880,495
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 March 31, 1997......................................... 4
Condensed consolidated statements of operations - three months
and six months ended March 31, 1996 and 1997............... 5
Condensed consolidated statements of cash flows - six months
ended March 31, 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 2. Changes in Securities.................................. 15
Item 4. Submission of Matters to a Vote of Security Holders.... 15
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, March 31,
1996 1997
------------- ------------
<S> <C> <C>
Assets:
Current assets:
Cash and equivalents.................................. $26,533 $ 32,304
Available-for-sale securities......................... 14,126 11,730
Accounts and licenses receivable, net of
allowance for doubtful accounts of $772
($750 at September 30, 1996)......................... 12,944 10,253
Income taxes receivable............................... 1,917 1,917
Prepaid expenses...................................... 2,009 1,890
Other current assets.................................. 1,073 996
-------- --------
Total current assets................................ 58,602 59,090
Property and equipment, net........................... 16,512 16,430
Purchased intangibles, net of accumulated
amortization of $4,620 ($4,327 at
September 30, 1996).................................. 3,478 3,185
Note receivable from AHN.............................. - 5,000
Investment in AHN..................................... 5,000 5,000
Other assets.......................................... 700 750
-------- --------
$84,292 $ 89,455
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable...................................... $ 4,314 $ 3,534
Accrued payroll and related expenses.................. 3,413 3,199
Accrued integration and restructuring costs........... - 5,469
Other accrued expenses................................ 4,980 2,654
Notes payable to related parties...................... 1,500 1,294
Current portion of long-term debt..................... 599 627
Deferred revenues..................................... 4,500 4,487
-------- --------
Total current liabilities.......................... 19,306 21,264
Long-term debt.............................................. 1,344 1,005
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 March 31, 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, 17,868,325 shares
issued and outstanding (13,684,927 at
September 30, 1996).................................. 14 18
Additional paid-in capital............................ 58,182 72,804
Deferred stock compensation........................... (443) -
Accumulated deficit................................... (5,106) (5,636)
-------- --------
Total stockholders' equity........................... 52,647 67,186
-------- --------
$84,292 $ 89,455
======== ========
</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 Six months ended
March 31, March 31,
------------------------------------------ ----------------------------------------
1996 1997 1996 1997
------------------ --------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Personal health management services.. $14,300 $22,545 $25,581 $44,417
Licensing and support services....... 2,938 2,556 5,476 5,325
------------------ --------------------- ----------------- ---------------------
Total revenues................... 17,238 25,101 31,057 49,742
Costs and expenses:
Cost of revenues:
Personal health management
services........................ 8,348 11,542 15,300 22,582
Licensing and support services... 1,448 901 2,605 2,029
Product and other development........ 1,219 2,041 2,347 4,397
Sales and marketing.................. 2,446 1,908 4,234 4,246
General and administrative........... 2,049 2,191 3,617 4,558
Transaction costs.................... - - - 6,345
Integration and restructuring costs.. - - - 6,961
------------------ --------------------- ------------------ ---------------------
Total costs and expenses......... 15,510 18,583 28,103 51,118
------------------ --------------------- ------------------ ---------------------
Income (loss) from operations........... 1,728 6,518 2,954 (1,376)
Other income............................ 484 336 726 715
------------------ --------------------- ------------------ ---------------------
Income (loss) before income taxes....... 2,212 6,854 3,680 (661)
Provision (credit) for income taxes..... 1,873 1,371 3,116 (132)
------------------ --------------------- ------------------ ---------------------
Net income (loss)....................... $ 339 $ 5,483 $ 564 $(529)
================== ===================== ================== =====================
Net income (loss) per share............. $0.02 $ 0.29 $0.03 $ (0.03)
================== ===================== ================== =====================
Shares used in per share calculations... 18,605 18,610 17,699 17,719
================== ===================== ================= =====================
</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>
Six months ended
March 31,
---------------------------------------
1996 1997
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $ 564 $(529)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Allowance for doubtful accounts ............ (81) 22
Depreciation and amortization............... 1,698 3,091
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....................... 943 --
Changes in:
Accounts receivable........................ (1,677) 2,669
Prepaid expenses and other current
assets.................................... (334) 196
Accounts payable........................... 73 (780)
Accrued payroll and related expenses....... 150 (214)
Accrued integration and restructuring costs - 5,469
Other accrued expenses..................... 2,264 (2,326)
Notes payable to related parties........... -- (206)
Deferred revenues.......................... 368 (13)
--------------- ----------------
Net cash provided by operating
activities............................... 4,018 10,055
Cash flows from investing activities:
Purchase of available-for-sale
securities, net............................. (469) 2,396
Purchase of property and equipment........... (6,278) (2,716)
Note receivable from AHN..................... -- (5,000)
(Increase) decrease in other assets.......... 511 (50)
--------------- ----------------
Net cash used by investing
activities............................... (6,236) (5,370)
--------------- ----------------
Cash flows from financing activities:
Payment of long-term debt.................... (774) (311)
Proceeds from note payable................... 680 --
Sale of common stock......................... 30,380 1,397
--------------- ----------------
Net cash provided by financing
activities............................... 30,286 1,086
--------------- ----------------
Net increase in cash and equivalents.......... 28,068 5,771
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......... $ 38,329 $ 32,304
=============== ================
</TABLE>
See accompanying notes.
6
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Access Health, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 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
March 31, 1997, consolidated results of operations for the three and six month
periods ended March 31, 1996 and 1997 and cash flows for the six month periods
ended March 31, 1996 and 1997. Results for the period ended March 31, 1997 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
Revenue Recognition
Commercial revenues include personal health management services, which
consist of program membership, 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.
Reclassifications
Certain reclassifications have been made to amounts reported for the prior
periods to conform with the March 31, 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 2).
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 March 31, 1996 and
March 31, 1997 of $0.002 and $0.012 per share, respectively, and for the six
months ended March 31, 1996 and March 31, 1997 of $0.003 and $0.000 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.
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 March 31,
1997, cumulative borrowings under the note payable facility and capital lease
facility aggregated $1,306,000. 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 March 31, 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 2).
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 2). 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.
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, 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 from $17.2 million
during the three months ended March 31, 1996 to $25.1 million during the three
months ended March 31, 1997 and increased from $31.1 million during the six
months ended March 31, 1996 to $49.7 million for the six months ended March 31,
1997.
Revenues from personal health management services increased from $14.3 million
during the second quarter of fiscal 1996 to $22.5 million during the second
quarter of fiscal 1997 and from $25.6 million during the first six months of
fiscal 1996 to $44.4 million during the first six months of fiscal 1997 because
the number of members enrolled under the Company's Personal Health Advisor (PHA)
and FirstHelp contracts increased during these periods. As of March 31, 1997,
approximately 17.9 million members were enrolled in PHA compared to
approximately 9.8 million members enrolled as of March 31, 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 $2.9 million during
the second quarter of fiscal 1996 to $2.6 million during the second quarter of
fiscal 1997 and from $5.5 million for the first six months of fiscal 1996 to
$5.3 million during the first six months of fiscal 1997 due to the
termination of several ASK-A-NURSE contracts. The Company expects revenues
from licensing and support services to remain at approximately the same level as
in the second quarter of fiscal 1997.*
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 41.6% during the
second quarter of fiscal 1996 and 48.8% during the second quarter of fiscal 1997
and 40.2% during the first six months of fiscal 1996 compared to 49.2% during
the first six months of fiscal 1997. Gross margin for personal health management
services improved during the three and six months periods ended March 31, 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 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 50.7% during the second quarter of
fiscal 1996 to 64.7% during the second
8
<PAGE>
quarter of fiscal 1997 and from 52.4% for the first six months of fiscal 1996 to
61.9% for the first six months of fiscal 1997. Licensing and support services
gross margin increases are due to 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
- --------------------------------------
$1.2 million, or 7.1% of revenues, during the second quarter of fiscal 1996 and
$2.0, or 8.1% of revenues, during the second quarter of fiscal 1997 and were
$2.3 million, or 7.6% of revenues, for the first six months of fiscal 1996
compared to $4.4 million, or 8.8% of revenues, during the first six 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 14.2% of revenues, and $1.9 million, or 7.6% of revenues, during the second
quarter of fiscal 1996 and 1997, respectively, and were $4.2 million, or 13.6%
of revenues, and $4.2 million, or 8.5% of revenues, during the first half of
fiscal 1996 and 1997, respectively. Second 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 marking 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 personal health management and increasing market
penetration.
General and administrative expenses. General and administrative expenses were
- -----------------------------------
$2.1 million, or 11.9% of revenues, and $2.2 million, or 8.7% of revenues,
during the second quarter of fiscal 1996 and 1997, respectively, and totaled
$3.6 million, or 11.6% of revenues and $4.6 million, or 9.2% of revenues, during
the first half of fiscal 1996 and 1997, respectively. The increase from fiscal
1996 to fiscal 1997 reflects additional infrastructure investment necessary to
manage a larger and rapidly growing company and professional fees related to
evaluating and negotiating strategic investment opportunities.
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 severence 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.
Income (loss) from operations. Operating income increased from $1.7 million
- -----------------------------
during the second quarter of fiscal 1996 to $6.5 million during the second
quarter of fiscal 1997 due to factors and trends described in preceding
paragraphs. Operating income decreased from income of $3.0 million during the
first half of fiscal 1996 to a loss of $(1.4) million during the first half 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.
Other income. The Company generates interest and other income from cash
- ------------
balances and available-for-sale securities which are partially offset by
interest expense on long-term debt. Other income decreased from $484,000 to
$336,000 in the second quarter of fiscal 1996 and 1997, respectively, and from
$726,000 to $715,000 during the first half of fiscal 1996 and 1997,
respectively, primarily as a result of increases in interest expense on
increased long-term debt acquired by Informed Access during the third quarter of
fiscal 1996.
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.*
9
<PAGE>
Liquidity and Capital Resources
- -------------------------------
As of March 31, 1997, the Company held cash and equivalents and available-for-
sale securities totaling $44.0 million which increased from a balance of $40.7
million as of September 30, 1996. Cash provided by operations during the first
half of fiscal 1997 was $10.1 million compared with $4.0 million for the first
half of fiscal 1996.
During January 1997, the Company purchased a $5.0 million debenture issued by
America's Health Network, L. P. ("AHN"), a new 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 that
additional losses will need to be funded during current development stages.
AHN's success in meeting its goals is dependent on its ability to obtain
additional financing. The Company's $5 million investment in AHN and $5 million
receivable from AHN are subject to the risk of a write-down or a complete
write-off if AHN is unsuccessful. Such a write-down, should it occur, would
result in a charge against earnings.
Gross accounts receivable decreased $2.7 million during the first half of fiscal
1997 primarily as result of increased focus on collection efforts.
During the first six months of fiscal 1997 $2.7 million of property and
equipment were purchased. The Company expects to purchase additional capital
equipment during the remaining two quarters 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 June 1995, the
Company renegotiated a PHA contract which reduced the number of members and
during fiscal 1995 renegotiated two health systems services contracts. 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 2.0 million
members, one contract for 1.6 million members, one contract for 1.3 million
members and one contract for 1.0 million members. In fiscal 1996, the Company's
three largest customers accounted for approximately 14.5%, 10.3%, and 10.0% of
the Company's total revenues and the Company's top five customers, in the
aggregate, accounted for approximately 48.5% 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 1997, and the third 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 during fiscal 1997, 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. After completion of the merger with Informed Access,
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 substantial 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 recently
consummated the acquisition of Informed Access Systems, Inc. and Clinical
Reference Systems, Ltd. 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 2. CHANGES IN SECURITIES
On March 13, 1997, the Company filed a Registration Statement on Form 8-A
with the Securities and Exchange Commission in order to register share purchase
rights issuable in accordance with the terms of the Preferred Shares Rights
Agreement (the "Rights Agreement") between the Company and The First National
Bank of Boston, as rights agent. Pursuant to the Rights Agreement, the
Company's Board of Directors declared a dividend of one right (a "Right") to
purchase one one-thousandth (1/1000th) share of the Company's Series A
Participating Preferred Stock ("Series A Preferred") for each outstanding share
of Common Stock $.001 par value ("Common Shares"), of the Company. Each Right
entitles the registered holder to purchase from the Company one one-thousandth
(1/1000th) of a share of Series A Preferred at an exercise price of $150.00 (the
"Purchase Price"), subject to adjustment. Each Right will become exercisable
following the tenth (10th) day (or such later date as may be determined by a
majority of the Company's Board of Directors) after a person or group announces
the acquisition of 20% or more of the Company's Common Shares or announces
commencement of a tender offer, the consummation of which would result in
ownership by the person or group of 20% or more of the outstanding Common
Shares. The Company will be entitled to redeem the Rights at $0.001 per Right
at any time on or before the tenth (10th) day following acquisition by a person
or group of 20% or more of the Company's Common Shares, or such later date as
determined by a majority of the directors continuing in office. If, prior to
the redemption of the Rights, a person or group acquires 20% or more of the
Company's Common Shares, each Right not owned by a holder of 20% or more of the
Common Shares will entitle its holder to purchase, at the Right's then current
exercise price, that number of Common Shares of the Company (or, in certain
circumstances as determined by the Board, cash, other property or other
securities) having a market value at the time of twice the Right's exercise
price. If, after the tenth (10th) day following acquisition by a person or group
of 20% or more of the Company's Common Shares, the Company sells more than 50%
of its assets or earning power or is acquired in a merger or other business
combination transaction, the acquiring person must assume the obligations under
the Rights and the Rights will become exercisable to acquire Common Stock of the
acquiring person for that number of shares of Common Stock of the acquiring
person having a current market value of twice the exercise price of the Right.
At any time after an event triggering exercisability of the Rights at the
discounted price and prior to the acquisition by the acquiring person of 50% or
more of the outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than those owned by the acquiring person or its
affiliates) for Common Shares of the Company at an exchange ratio of one Common
Share per Right. For additional information relating to the Rights Agreement,
please see the Registration Statement on Form 8-A filed by the Company on March
13, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The annual meeting of stockholders was held on March 26, 1997 to
elect directors and ratify independent auditors.
b) The following directors were elected at the meeting to serve a one
year term:
Kenneth B. Plumlee
Thomas E. Gardner
Richard C. Miller
Joseph P. Tallman
John R. Durant, M.D.
Kinney L. Johnson
Alice H. Lusk
Brent T. Rider
Edward K. Rygiel
Frank Washington
c) The matters voted upon at the meeting and the results of the voting
with respect to those matters were as follows:
For Withheld
---------- -----------
1) Election of Directors:
Kenneth B. Plumlee 13,486,426 94,608
Thomas E. Gardner 13,485,261 95,773
Richard C. Miller 13,485,611 95,423
Joseph P. Tallman 13,484,437 96,597
John R. Durant, M.D. 13,520,976 60,058
Kinney L. Johnson 13,526,307 54,727
Alice H. Lusk 13,525,606 55,428
Brent T. Rider 13,526,206 54,828
Edward K. Rygiel 13,526,306 54,728
Frank Washington 13,484,411 96,623
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
---------- ------- ------- ---------
<S> <C> <C> <C> <C>
3) Ratification of Ernst &
Young LLP as the Company's
independent auditors for
fiscal year 1997. 13,542,248 32,108 6,678 0
</TABLE>
The foregoing matters are described in detail in the Registrant's definitive
proxy statement dated February 21, 1997 for the Annual Meeting of Stockholders
held on March 26, 1997.
d) Not applicable.
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 AHN Partners, L.P. 8% Convertible Subordinated Debenture due 2001
10.27 Form of Change of Control/Severance Agreement for all named Executive Officers
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).
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: May 12, 1997 /s/ John V. Crisan
--------------------
John V. Crisan
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 AHN Partners, L.P. 8% Convertible Subordinated Debenture due 2001
10.27 Form of Change of Control/Severance Agreement for all named Executive Officers
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).
<PAGE>
EXHIBIT 10.26
THIS DEBENTURE, AND THE PARTNERSHIP INTEREST INTO WHICH IT IS
CONVERTIBLE, HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE LAWS OF
ANY STATE AND MAY NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED UNLESS
IT IS REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT.
AHN PARTNERS, L.P.
(a Delaware limited partnership)
8% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2001
No. 1 $5,000,000.00
January 17, 1997
AHN PARTNERS, L.P., a limited partnership duly formed and existing under
the laws of the State of Delaware (the "Company"), for value received, hereby
promises to pay to ACCESS HEALTH, INC., a Delaware corporation, or assigns, the
principal sum of Five Million Dollars ($5,000,000.00) on December 31, 2001 and,
subject to the provisions of Section 2, to pay interest thereon, from the date
hereof, annually in arrears on April 15 in each year (each an "Interest Payment
Date"), commencing April 15, 1997, at the rate of 8% per annum, until the
principal hereof is paid. Interest hereon shall be calculated on the basis of a
360-day year comprised of twelve 30-day months. Such payments (including
premium, if any) shall be made in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts to the bank account of the Holder designated in writing
by the Holder. Certain capitalized terms used in this Debenture without
definition shall have the respective meanings accorded them in Section 1(d).
All references herein to Sections shall, unless otherwise stated, be to Sections
of this Debenture.
1. General.
-------
2.
1 This Debenture is one of a duly authorized issue of Debentures of
the Company designated as its 8% Convertible Subordinated Debentures due 2001
(herein called the "Debentures"), limited in aggregate principal amount to
$5,000,000.
2 The Debentures are direct and unsecured obligations of the
Company, subordinated as set forth in Section 7. There are no restrictions
herein on other indebtedness or securities which may be incurred or issued by
the Company.
<PAGE>
(c) The Company has reserved for issuance to the Holder upon the
conversion of this Debenture a Post Recoupment Percentage Interest equal to 4%,
as of the date of this Debenture (the "Reserved Post Recoupment Percentage
Interest"). If and to the extent that at any time after the date of this
Debenture the Company makes available additional Post Recoupment Percentage
Interests in the Partnership such that the Post Recoupment Percentage Interests
of the Partners are reduced as a consequence thereof, the Reserved Post
Recoupment Percentage Interest of the Holder available upon conversion of this
Debenture shall be proportionally reduced.
(d) As used in the Debentures, the following terms shall have the
following meanings:
"Change in Control" shall mean an event upon the occurrence of
which (i) any "person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Exchange Act), other than the Company, any "person"
who on December 1, 1996 was a partner of the Company or a manager or
officer of the Company's general partner, or Entity which is owned,
directly or indirectly, by the partners of the Company in substantially
the same proportions as their ownership of Common Securities, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 30% of the then outstanding Common Securities
of the Company, (ii) the Company approves a merger or consolidation of the
Company with any other Entity, other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving Entity outstanding immediately
after such merger or consolidation, or (iii) the Company approves a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company or all or substantially all of the Company's
assets.
"Common Securities" shall mean the outstanding Partnership
Interests (as defined in the Partnership Agreement) of the Company held by
the Limited Partners of the Partnership from time to time; provided, that
--------
if and to the extent the Company shall convert or be converted into, shall
merge or otherwise combine or consolidate with, a corporation and the
terms of such transaction provide that no such Partnership Interests shall
remain outstanding after such transaction, then all references to Common
Securities shall be to the shares of such corporation which are not
limited to a fixed sum or percentage of par value or stated value in
respect of the rights of the holders thereof to participate in dividends
and in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the issuer of such securities.
"Entity" shall mean any person other than a natural person, trust
or estate, including, without limitation, corporations, partnerships,
joint ventures, limited liability companies and unincorporated
associations.
-2-
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Holder" shall mean the holder of this Debenture.
"Holder Redemption Date" shall mean the date which is 30 days
after any of the Redemption Events described in Section 3(c).
"Net Profits" shall have the meaning given it in the Partnership
Agreement.
"Partners" and "Limited Partners" shall have the respective
meanings given them in the Partnership Agreement.
"Partnership Agreement" shall mean the Company's Amended and
Restated Partnership Agreement, dated as of April 3, 1996, as amended or
amended and restated from time to time after the date hereof.
"Post Recoupment Percentage Interest" shall have the meaning
given it in the Partnership Agreement.
"Preferred Partner's Annual Preference Amount" shall have the
meaning given it in the Partnership Agreement.
1 Interest. Notwithstanding any other provision of this Debenture to
--------
the contrary, interest shall accrue while this Debenture is outstanding, but no
interest shall be due and payable to the Holder, except to the extent that the
Company has Net Profits and then only to the extent that the Holder would have
received and been paid its Preferred Partner's Annual Preference Amount
(calculated on the assumption that average daily balance of the Holder's
Preferred Partner's Unrecovered Preferred Capital Amount shall equal the
outstanding principal balance of this Debenture) had the Holder converted this
Debenture immediately prior to the distribution of the Preferred Partners'
Preferred amounts to all Partners entitled thereto.
2 Redemption.
----------
1 The Debentures are subject to redemption on or after December 31,
1997 in full at the election of the Company, at the following redemption prices
(expressed as percentages of the principal amount) if redeemed during the 12-
month period beginning January 1 of the years indicated:
Redemption
Year Price
---- -------------
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<PAGE>
1998 115%
1999 114%
2000 113%
2001 112%
and thereafter at a redemption price equal to 100% of the principal amount, in
each case together with accrued interest to the date fixed for redemption.
2 The Debentures are subject to redemption at any time during the
180 days after a Change in Control of the Company has occurred at a redemption
price equal to 100% of the unpaid principal amount hereof, together with accrued
interest; provided, that not more than 90 nor less than five days prior to the
--------
occurrence of such Change in Control, the Company has notified the Holder of the
imminence of such Change in Control; provided, further, that no such notice
-------- -------
shall be required if the Holder has a representative on the management committee
of the Partnership.
3 Each Debenture is subject to redemption in whole at the option of
the Holder thereof on any Holder Redemption Date at a redemption price equal to
100% of the unpaid principal amount thereof, together with accrued interest, if
a Redemption Event shall occur or shall have occurred. For purposes hereof a
"Redemption Event" shall have occurred if (i) the Company's Common Securities
(or other equity securities into which Debentures are then convertible) are
listed for trading on a United States national securities exchange or approved
for trading on an established automated over-the-counter trading market in the
United States or (ii) the Company shall convert or be converted into, shall
merge or otherwise combine or consolidate with, a corporation and the terms of
such transaction provide that no such Partnership Interests shall remain
outstanding after such transaction.
4 Notwithstanding the fact that a Debenture or a portion thereof is
called for redemption by the Company, each Holder desiring to exercise the
option for redemption set forth in Section 3(c) shall, as a condition to such
redemption, on or before the close of business on the fifth day prior to the
Holder Redemption Date, surrender the Debenture to be redeemed in whole or in
part together with the redemption notice hereon duly executed and otherwise
comply with the provisions of Section 3(e). A Holder of a Debenture who has
tendered a redemption notice (i) will be entitled to revoke its election by
delivering a written notice of such revocation together with the Holder's non-
transferable receipt for such Debenture to the office or agency of the Company
designated as the place for the payment of the Debentures to be so redeemed on
or before the Holder Redemption Date and (ii) will retain such Holder's right to
convert its Debentures into Common Securities of the Company on or before the
Holder Redemption Date.
5 Notices relating to the redemption of Debentures, whether at the
option of the Company or the Holder thereof shall specify: the date fixed for
redemption or the Holder Redemption Date, as the case may be; the redemption
price; the place or places of payment; that payment will be made upon
presentation and surrender of the Debentures to be redeemed, that
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<PAGE>
interest accrued to the date fixed for redemption (unless the redemption date
is an interest payment date) will be paid as specified in said notice; and
that on and after said date interest thereon will cease to accrue. In the case
of a redemption by the Company at the option of the Holder of a Debenture, the
notices given by the Company informing the Holder of such Holder's entitlement
to redeem shall also specify that the Holder electing redemption will be
entitled to revoke its election by delivering a written notice of such
revocation. In the case of a redemption in part at the option of the Company,
the notice shall specify the aggregate principal amount of Debentures to be
redeemed and the aggregate principal amount of Debentures outstanding after
such partial redemption. In the case of a redemption in whole or in part by
the Company, notices shall specify the date the conversion privilege expires
in accordance with Section 4(a). Such notices shall also state that the
conditions precedent, if any, to such redemption have occurred.
6 If (i) notice of redemption has been duly given with respect to
Debentures to be redeemed at the option of the Company, or (ii) notice of
redemption has been duly given by the Holder of a Debenture to be redeemed, the
Debentures so to be redeemed shall become due and payable on the applicable
redemption date specified in such notice and upon presentation and surrender of
the Debentures at the place or places specified in the notice given by the
Company with respect to such redemption, the Debentures shall be paid and
redeemed by the Company, at the places and in the manner herein specified and at
the redemption price together with accrued interest, if any, to the redemption
date and the only right of a Holder of such Debentures shall be to receive
payment of the redemption price together with accrued interest (unless the
redemption date is an interest payment date) to the redemption date as
aforesaid. If monies for the redemption of the Debentures are not made
available for payment until after the Holder Redemption Date, the Debentures
shall not cease to bear interest until such monies have been so made available.
3 Conversion.
----------
1 A Holder is entitled, at its option, at any time on or after the
close of business on January 1, 1998, or in case a Debenture is called for
redemption by the Company, or the Holder elects to have such Debenture redeemed
by the Company pursuant to Section 3(c), then in respect of such Debenture until
and including, but (unless the Company defaults in making the payment due upon
redemption) not after, the close of business on the date that is 5 days (or if
such day is a non-business day as described in Section 10 in New York City, then
the next business day) preceding the date fixed for redemption, to convert such
Debenture into the Reserved Post Recoupment Percentage Interest at a price equal
to an outstanding aggregate unpaid principal amount of Debentures held by such
Holder by surrender of the Debenture, or in the case of a Debenture submitted
for redemption pursuant to Section 3(c), satisfactory evidence of such
submission, together with the conversion notice hereon duly executed at the
office of the Company. Upon any such conversion, the Company will establish a
capital account for the Holder in the amount of the aggregate unpaid principal
amount of the Debenture converted by the Holder and including all unpaid and
accrued interest, and the amount of the aggregate principal amount of the
Debenture converted by the Holder shall thereupon become the Holder's Preferred
Partner's Preferred Capital Amount under the Partnership Agreement and the
amount of the unpaid and
-5-
<PAGE>
accrued interest on the Debenture converted by the Holder, if any, shall
thereupon be included as the Preferred Partner's Aggregate Preference Amount
in the determination of the Holder's Preferred Partner's Unrecovered Preferred
Capital Amount going forward in the Partnership. Notwithstanding the preceding
sentence of this Section 4(a) and the first sentence of Section 4(b), at its
sole option upon any such conversion, the Company may establish for the Holder
a Preferred Partner's Unrecovered Preferred Capital Amount equal to the
outstanding principal balance of this Debenture together with unpaid and
accrued interest in lieu of paying interest thereon.
2 In the case of a conversion of any Debenture after the close of
business on any Interest Payment Date, the Holder of such Debenture shall be
entitled to receive accrued interest from the immediately preceding Interest
Payment Date until the date of conversion within two business days after
presentment for conversion.
3 (i) In case the Company shall make or pay to the Partners any
distribution of cash, securities or other assets owned by the Partnership other
than (A) pursuant to Section 6.1.1 of the Partnership Agreement or (B) in
connection with the total liquidation, dissolution or winding up of the Company,
then and in each such case, upon conversion of this Debenture, the Holder shall
be entitled to receive, in addition to the Post Recoupment Percentage Interest
to be received by the Holder upon conversion of this Debenture, the amount of
cash, securities or assets the Holder would have been entitled to received as a
partner holding the Post Recoupment Percentage Interest to be received by the
Holder upon conversion of this Debenture if the Holder had converted this
Debenture immediately prior to each distribution of such cash, assets or
securities, together with interest at the rate of 8% per annum on any cash to
which such Holder is entitled to receive pursuant to the foregoing from the date
of distribution to the date of conversion and any income earned on the assets or
securities distributed to which such Holder is entitled from the date of
distribution to the date of conversion. At the time of any such distribution,
the Company shall either (x) deposit the assets or securities payable to the
Holder pursuant hereto in trust for the Holder with instructions as to the
investment of such property and any proceeds therefrom so as to protect the
value of such property for the Holder, or (y) distribute to the Holder the
assets or securities to which they would be entitled upon exercise and upon any
such distribution pursuant to the foregoing clause (x) of this Section 4(c)(i)
shall not apply to such event. Such election by the Company shall be made by
the Company giving written notice thereof to the Holder of this Debenture.
1 In case the Company shall reclassify its outstanding
Partnership Interests, issue any reclassified Partnership Interests or amend the
Partnership Agreement so as to reclassify its outstanding Partnership Interests
(including any reclassification in connection with any merger or consolidation
in which the Company is the continuing Entity), then the Post Recoupment
Percentage Interest to be received by the Holder upon conversion of this
Debenture shall be reclassified such that the Holder shall thereafter be
entitled to receive the Post Recoupment Percentage Interest that such Holder
would have owned or been entitled to receive after the happening of any of the
events described above, had such Holder converted this Debenture immediately
prior to the happening of any such event.
-6-
<PAGE>
4 In case of any consolidation with, or merger of the Company into,
any Entity, or in case of any merger of another Entity into the Company (other
than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding securities of the Company), or in case
of any sale or transfer of all or substantially all of the assets of the
Company, the Entity formed by such consolidation or resulting from such merger
or which acquires such assets, as the case may be, shall execute and deliver to
the Holder a written undertaking that the Holder of each Debenture shall have
the right during the period such Debenture shall be convertible as specified in
Section 4(a) to convert such Debenture only into the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
sale or transfer by a holder of the number of shares of Common Securities of the
Company into which such Debenture might have been converted immediately prior to
such con solidation, merger, sale or transfer. Such amendment shall provide for
adjustments which, for events subsequent to the effective date of such
amendment, shall be as nearly equivalent as may be practicable to the
adjustments provided for herein. The provisions of this Section 4(d) shall
similarly apply to successive consolidations, mergers, sales or transfers.
4 Events of Default. If any of the following events ("Events of
-----------------
Default") shall occur and be continuing:
1 the Company shall fail to pay when due the principal or
premium, if any, on any of the Debentures whether at maturity or
upon redemption or otherwise; or
2 the Company shall fail duly to perform or observe any other
term, covenant or agreement contained in any of the Debentures for a
period of 60 days after the date on which written notice of such
failure, requiring the Company to remedy the same, shall first have
been given to the Company by the Holders of at least 25% in
aggregate principal amount of the Debentures at the time
outstanding; provided, that if the Company shall within the
--------
aforesaid period of 60 days commence legal action in a court of
competent jurisdiction seeking a determination that the Company had
not failed to duly perform or observe the term or terms, covenant or
covenants or agreement or agreements specified in the aforesaid
notice, such failure shall not be an Event of Default unless the
same continues for a period of 10 days after the date of any final
determination to the effect that the Company had failed to duly
perform or observe one or more of such terms, covenants or
agreements; or
3 a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or for
any substantial part of the
-7-
<PAGE>
property of it or ordering the winding-up or liquidation of the
affairs of it and such decree or order shall remain unstayed and
in effect for a period of 20 consecutive days; or
4 the Company shall commence a voluntary case or proceeding
under any applicable bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect, or shall consent to the
entry of an order for relief in an involuntary case under any such
law, or shall consent to the appointment of or taking possession by
a receiver, liquidator, assignee, trustee, custodian, sequestrator
(or similar official) of the Company or for any substantial part of
its property, or shall make any general assignment for the benefit
of creditors, or shall admit in writing its inability to pay its
debts as they become due or shall take any corporate action in
furtherance of any of the foregoing; or
5 an event of default, as defined in any indenture or instrument
evidencing or under which the Company shall have outstanding at
least $5,000,000 in aggregate principal amount of indebtedness for
borrowed money, shall happen and be continuing and such default
shall involve the failure to pay the principal of such indebtedness
(or any part thereof), when due and payable after the expiration of
any applicable grace period with respect thereto, and such
indebtedness shall have been accelerated so that the same shall be
or become due and payable prior to the date on which the same would
otherwise have become due and payable, and failure to pay shall not
have been cured by the Company within 30 days after such failure or
such acceleration shall not be rescinded or annulled within 30 days
after notice thereof shall have first been given to the Company;
provided, that if such event of default under such indenture or
--------
instrument shall be remedied or cured by the Company or waived by
the holders of such indebtedness, then the Event of Default
hereunder by reason thereof shall be deemed likewise to have been
thereupon remedied, cured or waived without further action upon the
part of any of the Holders of Debentures;
then the Holder of this Debenture may, at such Holder's option, declare the
principal of this Debenture, together with accrued interest, to be due and
payable immediately by written notice to the Company, and if any such Event of
Default shall continue at the time of receipt of such written notice, the
principal of this Debenture and the accrued interest shall become immediately
due and payable. Upon payment of such amount of principal and interest, all of
the Company's obligations in respect of payment of principal of and interest on
this Debenture shall terminate. Interest on overdue principal and interest
shall accrue from the date on which such principal and interest were due and
payable to the date such principal and interest are paid or duly provided for,
at the rate borne by the Debentures (to the extent payment of such interest
shall be legally enforceable).
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<PAGE>
5 Merger, Consolidation, Sale, Conveyance or Assumption.
-----------------------------------------------------
1 The Company will not merge or consolidate with, or sell or convey
all or substantially all of its assets to, any other Entity, unless (i) either
(A) the Company shall be the surviving Entity in the case of a merger or (B) the
surviving, resulting or transferee Entity shall expressly assume the due and
punctual payment of all the Debentures, according to their tenor, and the due
and punctual performance of all of the covenants and obligations of the Company
under the Debentures by supplemental agreement reasonably satisfactory to the
Holder, and (ii) the Company or such successor Entity, as the case may be, shall
not, immediately after such merger, consolidation, sale or conveyance, be in
default in the performance of any covenants or obligations of the Company under
the Debentures.
2 Upon any merger, consolidation, sale, conveyance or assumption as
provided in Section 6(a), the successor or assuming Entity shall succeed to and
be substituted for, and may exercise every right and power of and be subject to
all the obligations of, the Company under the Debentures, with the same effect
as if such successor or assuming Entity had been named as the Company therein
and herein and the Company shall be released from its liability as obligor under
the Debentures; provided, that any successor or assuming Entity shall have the
--------
right to redeem the Debentures pursuant to Section 3(c) only as a result of
circumstances which occur subsequent to such merger, consolidation, sale,
conveyance or assumption and as a result of which the Company would have had
such right if the Company had remained the obligor on the Debentures.
6 Agreement of Subordination of Debentures.
----------------------------------------
1 The Company, for itself, its successors and assigns, covenants
and agrees, and each Holder of Debentures by its acceptance thereof, likewise
covenants and agrees, that the payment of the principal of (and premium, if any)
and interest on each and all of the Debentures and coupons is hereby expressly
subordinated, to the extent and in the manner hereinafter set forth in Section
7, in right of payment to the prior payment in full of all Senior Indebtedness
of the Company. As used in the Debenture, "Senior Indebtedness of the Company"
shall mean the principal of (and premium, if any) and interest on the following
whether outstanding at the date hereof or hereafter incurred or created:
(i) any indebtedness of the Company (excluding the Debentures
and indebtedness ranking pari passu with the Debentures, but
---- -----
including guarantees given by the Company) for money borrowed,
whether or not evidenced by debentures, notes or similar
instruments, issued, incurred or assumed by the Company and
whether outstanding on the date of this Debenture or thereafter
created or incurred; and
(ii) renewals, extensions, refundings, amendments and
modifications of any such indebtedness or of the instruments
creating or evidencing such
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<PAGE>
indebtedness,
unless by the terms of the instrument creating or evidencing such indebtedness
or such renewal, extension, refunding, amendment or modification, it is provided
that such indebtedness or indebtedness as so modified or amended, or such
renewals, extensions or refundings, are not superior in right of payment to the
Debentures.
2 (i) In the event of any insolvency or bankruptcy proceedings, or
any receivership, liquidation, reorganization or other similar proceedings in
connection therewith, relative to the Company or to its creditors, in their
capacity as such creditors, or to its property, or in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy, or in the event of
any assignment for the benefit of creditors of the Company or any marshalling of
assets of the Company, then the holders of Senior Indebtedness of the Company
shall first be entitled to receive payment in full of the principal of (and
premium, if any) and interest, including interest thereon accruing after the
commencement of any such proceeding, on all Senior Indebtedness of the Company
before the Holders of any Debentures or coupons shall be entitled to receive any
payment on account of the principal of (or premium, if any) or interest on the
Debentures, and to that end the holders of Senior Indebtedness of the Company
shall be entitled to receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash, property or securities,
which may be payable or deliverable in any such proceedings in respect of the
Debentures, other than securities of the Company as reorganized or readjusted or
securities of the Company or any other Entity provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at least to
the extent provided in this Section 7 with respect to the Debentures, to the
payment of all Senior Indebtedness of the Company; provided, that the rights of
--------
the holders of Senior Indebtedness of the Company are not altered by such
reorganization or readjustment. For the purposes of this Section 7 no
consolidation, merger, conveyance or transfer made pursuant to the provisions of
Section 6, and no termination of the Company which is followed, pursuant to the
terms of the Partnership Agreement, by an election of the Partners required
thereby not to wind up or terminate the business of the Company, shall be deemed
to be a liquidation, reorganization, dissolution or other winding up of the
Company.
1 If under the circumstances set forth in paragraph (i) of this
Section 7(b), and notwithstanding the provisions thereof, any payment or
distribution of assets of the Company of any kind, whether in cash, property or
securities (other than securities of the Company as reorganized or readjusted or
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinated, at least to
the extent provided in this Section 7 with respect to the Debentures, to the
payment of all Senior Indebtedness of the Company; provided, that the rights of
--------
the holders of Senior Indebtedness of the Company are not altered by such
reorganization or readjustment), shall be received by the Holders of the
Debentures before the principal of (and
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<PAGE>
premium, if any) and interest on all Senior Indebtedness of the Company is
paid in full, such payment or distribution shall be paid over to the holders
of Senior Indebtedness of the Company ratably, for application to the payment
of the principal of (and premium, if any) and interest on all Senior
Indebtedness of the Company remaining unpaid until all the principal of (and
premium, if any) and interest on Senior Indebtedness of the Company shall have
been paid in full, after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness of the Company.
2 Upon any distribution of assets of the Company referred to in
this Section, the Holders of the Debentures shall be entitled to rely upon any
final order or decree of a court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
and the Holders of the Debentures shall be entitled to rely upon a certificate
of the liquidating trustee or agent or other person making any distribution to
the Holders of Debentures for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Indebtedness of
the Company and other indebtedness of the Company, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Section.
3 (i) Upon the maturity of any Senior Indebtedness of the Company
by lapse of time, acceleration or otherwise, all principal thereof (and premium,
if any) and interest due thereon, including interest thereon accruing after the
commencement of any proceeding of the type referred to in paragraph (i) of
Section 7(b), shall first be paid in full, or such payment duly provided for in
cash, before any payment, directly or indirectly, is made on account of the
principal of (or premium, if any) or interest on the Debentures.
1 Upon the happening of an event of default with respect to any
Senior Indebtedness of the Company, as defined therein or in the instrument
under which it is outstanding, permitting the holders to accelerate the maturity
thereof, then, unless and until such event of default shall have been cured or
waived or shall have ceased to exist, no payment shall be made by the Company,
directly or indirectly, on account of the principal of (or premium, if any) or
interest on the Debentures.
4 In case cash, securities or other property otherwise payable or
deliverable to the Holders of the Debentures and coupons shall have been
applied, pursuant to Sections 7(b) or 7(c), to the payment of Senior
Indebtedness of the Company, then, upon the payment in full of the principal of
(and premium, if any) and interest on all Senior Indebtedness of the Company,
the Holders of the Debentures and coupons shall be subrogated to any rights of
any holders of Senior Indebtedness of the Company to receive any further payment
or distributions applicable to Senior Indebtedness of the Company until the
principal of (and premium, if any) and interest on the Debentures shall have
been paid in full, and such payments or distributions received by the Holders of
the Debentures, by reason of such subrogation, of cash, securities or other
property which otherwise would be paid or distributed to the holders of Senior
Indebtedness of the Company shall, as between the Company and its creditors
other than the holders of Senior Indebtedness of the Company, on the one hand,
and the Holders of the Debentures, on the other hand, be deemed to be a payment
by the Company on account of Senior Indebtedness of the Company and not on
account of the Debentures.
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<PAGE>
5 No present or future holder of any Senior Indebtedness of the
Company shall be prejudiced in any way in the right to enforce the subordination
of the Debentures by any act or failure to act on the part of the Company. The
provisions of this Section are solely for the purpose of defining the relative
rights of the holders of Senior Indebtedness of the Company, on the one hand,
and the Holders of the Debentures, on the other hand, against the Company and
its assets, and nothing contained in this Section shall impair, as between the
Company and the Holder of any Debenture, the obligation of the Company, which is
unconditional and absolute, to pay to the Holder thereof the principal thereof
(and the premium, if any) and interest thereon as and when the same shall become
due and payable in accordance with the terms thereof, or prevent the Holder of
any Debenture, upon default hereunder or under such Debenture, from exercising
all rights, powers and remedies otherwise provided herein or therein or by
applicable law, all subject to the rights of the holders of Senior Indebtedness
of the Company under this Section to receive cash, property or securities
otherwise payable or deliverable to the Holders of the Debentures.
6 Nothing contained in this Section or in any of the Debentures
shall prevent at any time, except under the conditions described in Sections
7(b) and (c) or during the pendency of any dissolution, winding up, liquidation
or reorganization proceedings therein referred to, the Company from making
payments at any time of principal of (or premium, if any) on the Debentures.
Nothing contained in this Section shall prevent conversion of any of the
Debentures.
7 Replacement, Transfer and Exchange of Debentures.
------------------------------------------------
1 In case any Debenture shall at any time become mutilated,
destroyed, stolen or lost and such Debenture or evidence of the loss, theft or
destruction thereof shall be delivered to the Company, a new Debenture of like
tenor and date with appropriate interest coupons, if any, will be issued by the
Company in exchange for the Debenture so mutilated, or in lieu of the Debenture
so destroyed, stolen or lost, but, in the case of a destroyed, stolen or lost
Debenture only upon receipt of evidence satisfactory to the Company that such
Debenture was destroyed, stolen or lost, and, if required by the Company, upon
receipt also of indemnity satisfactory to the Company. All expenses and
reasonable charges associated with procuring such indemnity and with the
preparation, authentication and delivery of a new Debenture shall be borne by
the owner of the Debenture so mutilated, destroyed, stolen or lost.
2 The costs and expenses of effecting any exchange or registration
of transfer pursuant to the foregoing provisions, except for the expenses of
delivery by other than regular mail (if any) and except, if the Company shall so
require, the payment of a sum sufficient to cover any tax or other governmental
charge or insurance charges that may be imposed in relation thereto, will be
borne by the Company.
8 Modifications and Amendments.
----------------------------
1 Without the consent of any Holders of the Debentures,
modifications of or
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<PAGE>
amendments to the Debentures may be made for any of the following purposes:
1 to evidence the succession of another Entity to the Company
and the assumption by any such successor of the covenants of the
Company in the Debentures; and
2 to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions
arising under this Debenture; provided, that such action pursuant to
--------
this clause (ii) shall not adversely affect the interests of any
Holder of the Debentures.
2 Modifications and amendments to these Debentures may be made, and
future compliance with or past default by the Company under any of the
provisions hereof may be waived, with the consent of the Holders of at least a
majority in aggregate principal amount of the Debentures at the time
outstanding; provided, that no such modification, amendment or waiver may,
--------
without the consent of the Holder of each such Debenture affected thereby:
1 waive a default in the payment of the principal of, premium,
if any, or interest on any Debenture;
2 change the stated maturity of the principal or premium, if
any, on, or any installment of interest on, any Debenture, or reduce
the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof or change the coin or
currency in which any Debenture or any premium or the interest
thereon is payable, or adversely affect the right to redeem
(pursuant to Section 3(c)) or convert any Debentures as provided in
Section 4 or modify the provisions of the Debentures with respect to
subordination of the Debentures in a manner adverse to the Holders;
3 reduce the percentage in principal amount of the outstanding
Debentures the consent of whose Holders is required for any
amendment or modification of the terms and conditions of the
Debentures or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of the Debentures or
certain defaults hereunder and thereunder and their consequences)
provided for herein; or
4 modify any of the provisions of this Section 9(b), except to
increase any such percentage or to provide that certain other
provisions of the Debentures cannot be modified or waived without
the consent of the Holder of each outstanding Debenture affected
thereby.
It shall not be necessary for any act of Holders under this Section to approve
the particular form of
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<PAGE>
any proposed amendment, modification or waiver, but it shall be sufficient if
such act shall approve the substance thereof. Any modifications, amendments or
waivers to the terms and conditions of the Debentures made in compliance
herewith will be conclusive and binding on all Holders, whether or not they
have given such consent and on all future Holders of Debentures. Any
instrument given by or on behalf of any Holder in connection with any consent
to any such modification, amendment or waiver will be irrevocable once given
and will be conclusive and binding on all subsequent Holders of such
Debenture.
9 Non-Business Days. In any case where the date of maturity of the
-----------------
principal of, premium, if any, or interest on the Debentures or the date fixed
for redemption of any Debenture shall be at any place of payment a Saturday,
Sunday, a legal holiday or a day on which banking institutions are authorized or
obligated by law to close, then payment of principal, premium, if any, or
interest need not be made on such date at such place but may be made on the next
succeeding day at such place of payment which is not a Saturday, Sunday, a legal
holiday or a day on which banking institutions are authorized or obligated by
law to close, with the same force and effect as if made on the date of maturity
or the date fixed for redemption, and no interest shall accrue for the period
after such date.
10 Notices. All notices sent hereunder shall be in writing. If sent to
-------
the Company, such notices shall be addressed to the Company at its address in
the Partnership Agreement. If sent to the Holder, such notices shall be
addressed to the Holder at its address in the Partnership Agreement or at such
other address as the Holder shall advise the Company in writing. Any notice
shall be deemed to have been duly given if personally delivered or sent by
United States mails or by facsimile confirmed by letter and will be deemed
given, unless earlier received: (a) if sent by certified mail, return receipt
requested, or by first-class mail, three business days after being deposited in
the United States mail, postage prepaid; (b) if sent by United States Express
mail, one business day after being deposited in the United States mail, postage
prepaid; (c) if sent by facsimile transmission, on the date sent provided
confirmatory notice is sent on the same day by first-class mail, postage
prepaid; (d) if delivered by hand, on the date of receipt; or (e) if sent by
overnight courier, one business day after being deposited with such courier,
delivery charges prepaid.
11 Consent to Jurisdiction. The Company agrees that any legal suit,
-----------------------
action or proceeding arising out of or relating to the Debentures may be
instituted in a state, city or federal court in the State of California. To the
extent permitted by law, the Company irrevocably waives trial by jury and any
objection which it may now or hereafter have to the venue of any suit, action or
proceeding, arising out of or relating to the Debentures brought in the State of
California and to the extent permitted by law hereby further irrevocably waives
any claim that any such suit, action or proceeding brought in the State of
California has been brought in an inconvenient forum. If any agent appointed by
the Company refuses to accept service, the Company agrees that service upon it
by certified mail, return receipt requested, sent to the address specified by
the Company in the Partnership Agreement, shall constitute sufficient notice.
Nothing herein shall affect the right to serve process in any other manner
permitted by law or shall limit the right of the Holder to bring
-14-
<PAGE>
proceeding against the Company in the courts of any other jurisdiction.
12 Governing Law. The Debentures shall be governed by and construed in
-------------
accordance with the internal laws of the State of California without giving
effect to conflicts of laws principles.
13 Descriptive Headings. The descriptive headings appearing in this
--------------------
Debenture are for convenience of reference only and shall not alter, limit or
define the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed in its corporate name by a duly authorized officer.
Dated: January 17, 1997
AHN PARTNERS, L.P.
By: America's Health Network, L.L.C.
(General Partner)
By: /s/ Webster F. Golinkin
_____________________________________________
Name: Webster F. Golinkin
___________________________________________
Title: Executive Manager
__________________________________________
-15-
<PAGE>
CONVERSION NOTICE
The undersigned holder of this Debenture hereby irrevocably exercises the
option to convert this Debenture, into the Post Recoupment Percentage Interest
of AHN Partners, L.P. specified in this Debenture in accordance with the terms
of this Debenture, and directs that such interests, together with a check in
payment for any fractional share ____ accrued interest from the immediately
preceding interest payment date be delivered to the undersigned unless a
different name has been indicated below. If shares or Debentures are to be
registered in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Dated:
_______________
_______________________________________________
Signature
<PAGE>
REDEMPTION NOTICE
The undersigned holder of this Debenture hereby requests and instructs the
Company to redeem this Debenture in accordance with the terms of Section 3(__)
of this Debenture, and directs that a check in payment of the redemption amount
be delivered to and any Debentures representing any unredeemed principal amount
hereof, be delivered to the undersigned. The undersigned understands that this
request can be revoked by delivering written notice to the Company on or before
the Holder Redemption Date, together with the undersigned's non-transferable
receipt for such Debenture.
Dated:
_______________
_______________________________________________
Signature
<PAGE>
EXHIBIT 10.27
The following "Change of Control/Severance Agreement" was executed by all named
officers except Kenneth B. Plumlee, Thomas E. Gardner and Richard C. Miller.
FORM OF CHANGE OF CONTROL/SEVERANCE AGREEMENT
---------------------------------------------
This Severance Agreement (the "Agreement") is made and entered into
effective as of __, 1997 (the "Effective Date"), by and between
(the "Executive") and Access Health, Inc., a Delaware corporation whose offices
are located at 11020 White Rock Road, Rancho Cordova, California 95670 (the
"Company").
In consideration of the mutual covenants herein contained, and in
consideration of the employment of Executive by the Company, the parties agree
as follows:
I. Duties and Scope of Employment.
------------------------------
A. Position. The Company agrees to employ the Executive under the terms
--------
of this Agreement in the position of . Executive will report to
.
B. Obligations. During the term of this Agreement, the Executive shall
-----------
devote Executive's full business efforts and time to the Company. The
foregoing, however, shall not preclude the Executive from engaging in
appropriate civic, charitable or religious activities or from devoting a
reasonable amount of time to private investments or from serving on the boards
of directors of other entities, as long as such activities and service do not
interfere or conflict with Executive's responsibilities to the Company and do
not represent business conflicts with the Company's business.
C. Company Policies. Executive shall comply with all of the Company's
----------------
rules and regulations applicable to the executives of the Company and with all
of the Company's policies applicable to other similarly situated executives
established by the Company's management and Board of Directors.
D. Base Compensation. Beginning on the Effective Date, the Executive
-----------------
shall be paid a base salary (the initial "Base Compensation") of $
annually, payable bi-weekly. The Base Compensation shall be subject to review
annually for increases by the Board of Directors in its sole discretion in
connection with the annual review of salary and benefits for the Company's
management. (The term "Base Compensation" as used for purposes of Section VI
shall include the Initial Base Compensation together with any approved increased
then in effect.)
II. Definitions. As used herein, the following definitions shall apply:
-----------
A. "Affiliate" of a person or entity shall mean another person or entity
---------
that directly or indirectly controls, is controlled by, or is under common
control with the person or entity specified.
B. "Cause" shall mean the termination of employment of Executive shall
-----
have taken place as a result of (i) Executive's continued failure to
substantially perform Executive's principal duties and responsibilities (other
than as a result of Disability or death) after thirty (30) days
1
<PAGE>
written notice from the Company specifying the nature of Executive's failure
and demanding that such failure be remedied; (ii) Executive's material and
continuing breach of his obligations to the Company set forth in this
Agreement, the Confidentiality Agreement (as defined herein), the Non-
Competition Agreement (as defined herein) or any written policy of the Company
applicable to all officers after thirty (30) days written notice from the
Company specifying the nature of Executive's breach and demanding that such
breach be remedied (unless such breach by its nature cannot be cured, in which
case notice and an opportunity to cure shall not be required); (iii)
Executive's being convicted of a felony; or (iv) act or acts of dishonesty
undertaken by Executive and intended to result in substantial gain or personal
enrichment of Executive at the expense of the Company.
C. "Change in Control" shall mean: (i) a reorganization or merger of the
-----------------
Company with or into any other corporation which will result in the Company's
stockholders immediately prior to such transaction not holding, as a result of
such transaction, at least 50% of the voting power of the surviving or
continuing entity; (ii) a sale of all or substantially all of the assets of the
corporation which will result in the Company's stockholders immediately prior to
such sale not holding, as a result of such sale, at least 50% of the voting
power of the purchasing entity; (iii) a transaction or series of related
transactions which result in more than 50% of the voting power of the Company
being controlled by a single holder; (iv) a change in the majority of the
Company's Board of Directors not approved by at least two-thirds of the
Company's directors in office prior to such change; (v) the adoption of any plan
of liquidation providing for the distribution of all or substantially all of its
assets; or (vi) any "person," as that term is currently used in Section 3(a)(9)
and 13(d) of the Securities Exchange Act, becomes a "beneficial owner," as that
term is currently used in Rule 13d-3 promulgated under that Act, of 45% or more
of the voting stock of the Company.
D. "Constructive Termination" shall mean a termination of employment due
------------------------
to any of the following unless agreed to by Executive: (i) a reduction in
Executive's salary or benefits excluding the substitution of substantially
equivalent compensation and benefits; (ii) a material diminution of Executive's
responsibilities (e.g., title, primary duties, resources); (iii) relocation of
Executive to a location more than 25 miles from his current location; and (iv)
failure of a successor to assume and perform under this Agreement. If any of
the events set forth above shall occur, Executive shall give prompt written
notice to the Company and shall have sixty (60) days from the notice or ninety
(90) days from the event, whichever is earlier, to exercise his rights to
terminate for Constructive Termination or such right shall be deemed waived as
to such event, but not as to any future event.
E. "Disability" shall mean that the Executive, at the time notice is
----------
given, has been unable to perform Executive's duties under this Agreement for a
period of not less than ninety (90) days consecutively as the result of
Executive's incapacity due to physical or mental illness. In the event that the
Executive resumes the performance of substantially all of Executive's duties
hereunder within 90 days of the commencement of leave before the termination of
employment under Section V(b)(iii) becomes effective, the notice of termination
shall automatically be deemed to have been revoked. This paragraph will be
enforced in compliance with the Americans with Disabilities Act.
2
<PAGE>
III. Executive Benefits.
------------------
A. General. During the term of Executive's employment under this
-------
Agreement, the Executive shall be entitled to participate in the Company
Management Incentive Plan up to 40% of Base Compensation. Awards under such
Plan will range from 0% to 40% based upon Executive's performance. Executive
also shall be entitled to participate in pension plans, savings or profit-
sharing plans, deferred compensation plans, supplemental retirement or excess-
benefit plans, stock option, incentive or other bonus plans, life, disability,
health, accident and other insurance programs, paid time off (which will accrue
for the Executive at a rate of 7.70 hours a pay period beginning on the
effective date of this Agreement, or not less than 25 days a year) and similar
plans or programs made available to executives of the Company, subject in each
case to the generally applicable terms and conditions of the plan or program and
the decision of the Board of Directors or administrators of such plan.
B. Stock Awards. The Executive has been granted stock options to
------------
purchase shares of the Company's Common Stock. Executive will be eligible to
receive additional stock option grants in the sole discretion of the Company's
Board of Directors on the same basis as Company's other executives. In the
event of a Change of Control, as defined herein or the Employee Stock Option
Plan, with the lowest Change of Control shareholder controlling for the purpose,
all such stock options held by Executive to purchase shares of the Company's
Common Stock shall become fully exercisable.
IV. Business Expenses and Travel. During the term of Executive's employment
----------------------------
under this Agreement, Executive shall be authorized to incur necessary and
reasonable travel, entertainment and other business expenses in connection with
his duties hereunder. The Company shall reimburse Executive for such expenses
upon presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Company's generally applicable
policies.
V. Term of Employment.
------------------
A. Basic Rule. The Company agrees to continue Executive's employment,
----------
and Executive agrees to remain in the employ of the Company, during the term of
this Agreement pursuant to the provisions of this Agreement.
B. Termination by the Company. The Company may terminate Executive's
--------------------------
employment, with thirty (30) days advance notice in writing, only for Cause or
as a result of death or Disability.
1. Termination Without Cause. If the Company terminates Executive's
-------------------------
employment during the term of this Agreement for any reason whatsoever,
including a Constructive Termination, and other than voluntary termination of
employment or Termination for Cause, the provisions of Section VI(a) shall
apply.
2. Termination for Cause. If the Company terminates Executive's
---------------------
employment for Cause during the term of this Agreement, the provisions of
Section VI(b) shall apply.
3
<PAGE>
3. Termination on Death or Disability. If the Company terminates
----------------------------------
Executive's employment as a result of Executive's death or Disability, the
provisions of Section VI(c) shall apply.
C. Voluntary Termination by the Executive. The Executive may terminate
--------------------------------------
Executive's employment voluntarily by giving the Company thirty (30) days
advance notice in writing, at which time the provisions of Section VI(b) shall
apply. However, if the Executive terminates Executive's employment pursuant to
this Section V(c) as a result of the occurrence of any of the events set forth
in the definition of a Constructive Termination, the provisions of Section VI(a)
shall apply, provided the Executive has provided written notice to the Company
reasonably specifying the reasons why one of such events in the definition of a
Constructive Termination has occurred and the Company has not cured such event
within twenty (20) days after receipt of such notice.
D. Waiver of Notice. Any waiver of notice shall be valid only if it is
----------------
made in writing and expressly refers to the applicable notice requirement in
this Section V.
VI. Payments Upon Termination of Employment.
---------------------------------------
A. Payments Upon Termination Pursuant to Section V(b)(i) and Constructive
----------------------------------------------------------------------
Termination. If, during the term of this Agreement, the Executive's employment
- -----------
is terminated by the Company pursuant to Section V(b)(i) or voluntarily by the
Executive under Section V(c) as a result of a Constructive Termination, the
Executive shall be entitled to receive the following:
1. Severance Payment. The Company shall continue to pay to the
-----------------
Executive his Base Compensation for the greater of (X) the remainder of the
"Initial Term" or "Renewal Term," as the case may be as those terms are defined
in Paragraph 10, or (Y) twelve (12) months following the Termination Date, (the
"Severance Period") plus any amounts to which Executive is entitled under then
current Company policies; provided, however, that if the termination occurs
following a Change of Control, the Severance Period shall be twenty-four (24)
months and such severance payment shall be paid in a lump sum. Such Base
Compensation amount shall be determined with reference to the Base Compensation
in effect for the month in which the date of employment termination occurs.
Payment of the Severance Payment shall be terminated if Executive materially
breaches the terms of the Non-Competition Agreement attached as EXHIBIT B hereto
(the "Non-Competition Agreement"), and fails to cure such breach within 30 days
of the Company's notice.
2. Stock Options. All stock options will become immediately vested
-------------
and remain exercisable for the remainder of the applicable option term.
Executive acknowledges that incentive stock option treatment under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), will not be
available unless such options are exercised within the time prescribed in the
Code.
3. Method of Payment. The Severance Payment shall be made in bi-
-----------------
weekly payments during the Severance Period; provided, that if the termination
occurs following a
4
<PAGE>
Change of Control the severance payment shall be paid in a lump sum within
three (3) days after such termination.
4. Health and Welfare Benefits. The Company shall continue to
---------------------------
provide health and welfare benefits for the duration of the Severance Period.
Such benefits will be discontinued to the extent that Executive receives similar
benefits in connection with new employment. Executive will also be entitled to
such payments and benefits as may be provided under applicable benefit plans and
programs of the Company.
5. Payment in Lieu of Contract Damages. The Severance Payment shall
-----------------------------------
be in lieu of any further payments to the Executive and any further accrual of
benefits with respect to periods subsequent to the date of the employment
termination.
6. No Duty to Mitigate. The Executive shall not be required to
-------------------
mitigate the amount of any payment contemplated by this Section VI(a) (whether
by seeking new employment or in any other manner).
B. Termination By Company for Cause or Voluntary Termination. If the
---------------------------------------------------------
Executive's employment is terminated pursuant to Section V(b)(ii) or voluntarily
(other than a Constructive Termination) pursuant to Section V(c), no
compensation or payments will be paid or provided to Executive for the periods
following the date when such a termination of employment is effective.
Notwithstanding the preceding sentence, Executive's rights under the benefit
plans and option agreements of the Company shall be determined under the
provisions of those plans and agreements, provided Executive shall have three
(3) months from the date of termination of employment in which to exercise any
non-qualified stock option and three (3) months from the date of termination of
employment to exercise any incentive stock option in each case to the extent
such options are exercisable as of the date of termination.
C. Termination on Death or Disability
----------------------------------
1. Termination Due to Death. If the Executive's employment is
------------------------
terminated due to his death, his estate or his beneficiaries (as the case may
be) shall be promptly entitled to:
(a) Base Compensation, at his then current rate, through the date
of his death;
(b) a pro rata annual incentive award for the year in which his
death occurs, payable in a lump sum promptly upon his death;
(c) the continued right to exercise any vested stock option
outstanding on the date of his death for 12 months after that date;
(d) the balance of any incentive awards earned (but not yet
paid);
(e) any other amounts earned, accrued or owing to the Executive
but not yet paid;
5
<PAGE>
(f) other or additional benefits in accordance with applicable
plans and programs of the Company.
2. Termination Due to Disability. If the Executive's employment is
-----------------------------
terminated due to his Disability, he shall be promptly entitled to the
following:
(a) Base Compensation, at his then current rate, through the date
of termination;
(b) all disability benefits under any plan or program of the
Company;
(c) a pro-rata annual incentive award for the year in which
termination due to Disability occurs, payable in a lump sum promptly upon
termination;
(d) the continued right to exercise any vested stock option
outstanding on the date of termination for 12 months after that date;
(e) the balance of any incentive awards earned (but not yet
paid);
(f) any amounts earned, accrued or owing to the Executive but not
yet paid;
(g) continued coverage, for 24 months after the date of
termination, under each employee benefit plan of the Company in which he was
participating on the date of termination, with no reduction in benefits and no
increase in cost to the Executive; and
(h) other or additional benefits in accordance with applicable
plans and programs of the Company.
D. Code Section 280G Payments. Anything in this Agreement to the
--------------------------
contrary, if the aggregate of the amounts due the Executive under this Agreement
and any other plan or program of the Company constitutes a "Parachute Payment,"
as such term is defined in Section 280G of the internal Revenue Code of 1986
(the "Code"), and the amount of the Parachute Payment, reduced by all Federal,
state and local taxes applicable thereto, including the excise tax imposed
pursuant to Section 4999 of the Code, is less than the amount the Executive
would receive, after taxes, if he were paid only three times his Base Amount as
defined in Section 280G(b)(3) of the Code less $1.00, then the payments to be
made to the Executive under this Agreement which are contingent on a Change in
Control shall be reduced to an amount which, when added to the aggregate of all
other payments to the Executive which are contingent on a Change in Control,
will make the total amount of such payments equal to three times his Base amount
less $1,00. The determinations to be made with respect to this paragraph shall
be made by the public accounting firm that is retained by the Company as of the
date immediately prior to the Change in Control (the "Accounting Firm") which
shall provide detailed supporting calculations both to the Company and the
Executive within fifteen (15) business days of being requested to do so by the
Company or the Executive. In the event that the Accounting Firm is serving as
accountant or
6
<PAGE>
auditor for the individual, entity or group effecting the Change in Control,
the Executive shall appoint another nationally recognized public accounting
firm to make the determinations required hereunder
7
<PAGE>
(which accounting firm shall then be referred to as the Accounting Firm
hereunder). All fees and expenses of the Accounting Firm shall be borne solely
by the Company. The Executive shall be responsible for payment of any excise
tax imposed under Section 4999 of the Code on any Parachute Payment as described
in this Section.
VII. Proprietary Information. The Executive agrees to comply fully with the
-----------------------
Company's policies relating to non-disclosure of the Company's trade secrets and
proprietary information and processes, as set out in the Confidentiality
Agreement set out as EXHIBIT C hereto (the "Confidentiality Agreement").
VIII. Successors.
----------
A. Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's
business and/or assets shall assume this Agreement and agree expressly to
perform this Agreement in the same manner and to the same extent as the
Company would be required to perform it in the absence of a succession. For
all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business and/or assets which executes and delivers
the assumption agreement described in this subsection (a) or which becomes
bound by this Agreement or by operation of law.
B. Executive's Successors. This Agreement and all rights of the
----------------------
Executive hereunder shall inure to the benefit of, and be enforceable by,
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
IX. Notice. Notices and all other communications contemplated by this
------
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or five days after being mailed by first class mail, return
receipt requested and postage prepaid. In the case of the Executive, mailed
notices shall be addressed to Executive at the home address which Executive most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Chief Executive Officer.
X. Term of Agreement. The term of this Agreement shall be for an initial
-----------------
term which shall be from the Effective Date until November 19, 1998, (the
"Initial Term") and will automatically renew for successive twelve (12) month
terms (each a "Renewal Term").
XI. Miscellaneous Provisions.
------------------------
A. Waiver. No provision of this Agreement shall be modified, waived or
------
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Executive and an officer or a director of the Company
authorized by the Board of Directors. No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.
8
<PAGE>
B. Whole Agreement. No agreements, representations or understandings
---------------
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof. This Agreement supersedes and replaces any
and all previous agreements between the Executive regarding compensation or
terms of employment. This Agreement shall supersede the provisions regarding
acceleration of vesting provided in any stock option agreements.
C. Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
D. Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
E. Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
Sacramento County, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
F. No Assignment of Benefits. The rights of any person to payments or
-------------------------
benefits under this Agreement shall not be made subject to option or assignment,
either by voluntary or involuntary assignment or by operation of law, including
(without limitation) bankruptcy, garnishment, attachment or other creditor's
process, and any action in violation of this subsection (f) shall be void.
G. Limitation of Remedies. If the Executive's employment terminates for
----------------------
any reason, the Executive shall not be entitled to any payments, benefits,
damages, awards or compensation other than as provided by this Agreement.
H. Employment Taxes. All payments made pursuant to this Agreement will
----------------
be subject to withholding of applicable taxes.
I. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together will constitute one
and the same instrument.
J. Representation by Counsel. Executive represents that Executive has
-------------------------
had the opportunity to seek independent legal counsel in connection with
entering into the Agreement.
K. Attorney's fees. In any action or arbitration brought under this
---------------
Agreement, the prevailing party shall be entitled to his attorneys' fees and
costs.
9
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
ACCESS HEALTH, INC.
- ------------------------------------
By:
---------------------------------
[Executive]
Print Name:
-------------------------
Title:
------------------------------
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FY 1997 Q2
UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 32,304
<SECURITIES> 11,730
<RECEIVABLES> 11,025
<ALLOWANCES> 756
<INVENTORY> 0
<CURRENT-ASSETS> 59,090
<PP&E> 26,311
<DEPRECIATION> 9,881
<TOTAL-ASSETS> 89,455
<CURRENT-LIABILITIES> 21,264
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 67,168
<TOTAL-LIABILITY-AND-EQUITY> 89,455
<SALES> 49,742
<TOTAL-REVENUES> 49,742
<CGS> 24,611
<TOTAL-COSTS> 24,611
<OTHER-EXPENSES> 26,507
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (715)
<INCOME-PRETAX> (661)
<INCOME-TAX> (132)
<INCOME-CONTINUING> (529)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (529)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
