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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: September 30, 1997 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-19758
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ACCESS HEALTH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 68-0163589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
310 INTERLOCKEN PARKWAY, SUITE A, BROOMFIELD, CO 80021
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (303) 466-9500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.001
par value
(TITLE OF CLASS)
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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 / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of voting stock held by non-affiliates of the
registrant as of November 30, 1997 was approximately $350,528,780 based upon the
last sales price reported for such date on the NASDAQ National Market System.
For purposes of this disclosure, shares of Common Stock held by persons who hold
more than 5% of the outstanding shares of Common Stock and shares held by
officers and directors of the registrant, have been excluded in that such
persons may be deemed to be affiliates. This determination is not necessarily
conclusive.
At November 30, 1997, registrant had outstanding 18,555,147 shares of Common
Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated by
reference to the definitive proxy statement for the annual meeting of
stockholders of the Company which will be filed no later than 120 days after
September 30, 1997.
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TABLE OF CONTENTS
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PART I
Item 1. Business....................................................................... 4
Item 2. Properties..................................................................... 14
Item 3. Legal Proceedings.............................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............................ 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......... 15
Item 6. Selected Financial Data........................................................ 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................... 26
Item 8. Financial Statements and Supplementary Data.................................... 27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................... 47
PART III
Item 10. Directors and Executive Officers of the Registrant............................. 48
Item 11. Executive Compensation......................................................... 48
Item 12. Security Ownership of Certain Beneficial Owners and Management................. 48
Item 13. Certain Relationships and Related Transactions................................. 48
PART IV
Item 14. Financial Statement Schedules, Reports on Form 8-K and Exhibits................ 49
SIGNATURES.................................................................................... 53
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PART I
ITEM 1. BUSINESS
THE BUSINESS SECTION CONTAINS 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 IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
OVERVIEW
Access Health, Inc. ("Access Health" or the "Company") is a leading provider
of care management products and services to the health care industry. The
Company provides its services primarily through four telephonic care centers,
which are staffed by registered nurses and other health care professionals. The
Company's primary clients include health maintenance organizations ("HMO's"),
preferred provider organizations ("PPO's"), indemnity insurers, integrated
delivery systems, government agencies, self-insured employers and physician
groups. The Company's objective is to measurably improve the delivery of health
care through dynamically integrated programs that help individuals effectively
manage their health needs. Its products and services are designed to help reform
an inefficient health care system in ways that benefit health care payers,
providers and individuals.
CORPORATE HISTORY
The Company was founded in 1987 and until 1993 primarily provided consumer
health care information products and services designed to help hospitals and
other health care providers market their services. Beginning in 1993, the
Company changed its focus to developing, marketing and delivering personal
health management products and services to health plans and payors, which were
primarily designed as a value added member benefit to help attract and retain
members. At the same time, the Company altered its business model to price its
products and services predominantly on a recurring per-member per-month fee
basis rather than on a non-recurring basis. The Company enjoyed significant
growth of its personal health management business through mid 1996, at which
point customer demand for care management products, which provided demonstrable
cost savings, began to intensify. At the time, healthcare service providers were
experiencing increased price competition and rising medical costs, resulting in
unprecedented high medical loss ratios and lower profitability. In November
1996, the Company merged with Informed Access Systems, Inc. ("Informed Access"),
a developer of leading-edge clinical assessment tools and care management
programs. With this merger, the Company significantly expanded its suite of care
management products and substantially enhanced its ability to provide its
customers a demonstrable return on investment. Also in November 1996, the
Company acquired Clinical Reference Systems, Ltd. ("CRS"), which develops health
information and patient education software programs. The Company's care
management business has grown dramatically; the number of enrolled members has
increased to approximately 23 million in November 1997 from over 14 million at
the end of fiscal 1996.
INDUSTRY BACKGROUND
The rate of health care spending increases in the United States continues to
exceed gross domestic product ("GDP") growth. The Congressional Budge Office
expects national health expenditures to reach 13.7% of GDP or slightly more than
$1.1 trillion in 1997. Containment of health care costs has become a national
priority. As a result, cost-conscious managed health care programs have
increasingly influenced the health care system. These managed care programs have
traditionally reduced the cost of healthcare by restricting access to care
(through financial management techniques such as pre-authorization, pre-
certification, and concurrent and retrospective review programs to manage
members' use), pushing cost
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risk down to providers and reducing administrative expenses. While these
techniques have been moderately successful in controlling costs, there is
increasing evidence that their returns are diminishing. Because the approach to
managing care has largely been to restrict supply, a number of inefficiencies
continue to persist, which have contributed to escalating health care costs.
These include:
- LACK OF ACCESS AND INAPPROPRIATE USE OF HEALTH CARE RESOURCES. Individuals
who lack timely access to health care and to reliable health care
information may delay needed treatment, self-treat inappropriately or seek
unnecessary care, all of which can lead to poor health outcomes and higher
costs. For example, studies indicate that up to 55% of all emergency room
visits may be inappropriate.
- LACK OF PREVENTIVE CARE AND EARLY INTERVENTION. Appropriate preventive
care and early intervention can dramatically influence health and well
being and is cost-effective. Preventive care and timely intervention both
depend on an individual's access to information.
- INSUFFICIENT CHRONIC CONDITION MANAGEMENT. In managing chronic conditions
today, there exists a significant gap between nationally accepted disease
management guidelines and the actual day-to-day patient practices. This
gap results in less than optimal patient care and unnecessary medical
costs and other related costs, including missed work days. Approximately
70% of overall health care costs incurred today are chronic-condition
related.
Care management programs have been developed in response to these problems.
These programs generally include telephone-based health counseling services to
help individuals optimize their use of the health care system. These services
increase members' involvement in managing their own health and empower them to
make better-informed decisions. The information they receive provides member the
opportunity to obtain proper care and to avoid unnecessary care, reduce health
care costs, improve health outcomes and increase satisfaction with their health
care plans.
STRATEGY
The Company seeks to measurably improve the quality and costs of care people
receive by becoming an integral part of health care delivery. The Company's goal
is to further integrate its services with its customers' delivery of care,
resulting in increased utilization of the Company's products and services across
an increasing number of members. It seeks to accomplish these goals through the
following business strategies:
- BUILD ENROLLMENT THROUGH DEMONSTRATED RESULTS. Access Health seeks to
continue building market share through rapid enrollment growth. The
Company is focused on building enrollment through increased member
penetration within existing accounts and contracting with new client
sponsors. The Company believes that its sales and marketing strategy (see
"Sales, Marketing and Support") coupled with its ability to provide a
compelling return on investment for customers in the form of reduced
health care costs, increased member satisfaction and improved quality of
care will be the primary drivers for continued rapid enrollment growth.
- INCREASE REVENUE PER MEMBER THROUGH NEW PRODUCTS AND SERVICES. The
Company's average revenue per member derived from its care management
products today is a small fraction of the national averages spent
per-member per-month for health care services. Because Access Health's
care management products are utilization-based, the Company seeks to
significantly expand the average revenue per member it receives per
enrolled member by increasing adoption of its higher utilization, advanced
care management and condition management products.
- EXTEND CAPABILITIES THROUGH STRATEGIC PARTNERSHIPS. In addition to the
Company's internal product development and process improvement efforts,
the Company continues to actively evaluate possible new business models
and strategic relationships and acquisitions to further expand its product
capabilities and membership base.
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PRODUCTS AND SERVICES
The Personal Health Advisor-Registered Trademark- ("PHA") product line
features a core set of care management products and services that provide
members with consistent clinical assessment and guidance about the use of health
care services for both acute and chronic conditions and to help guide these
individuals to the most appropriate point of care within a managed care network.
Managed care providers and insurers use PHA to facilitate easier access to the
plan network by members, reduce operating costs by reducing inefficient use of
network resources and improve the quality of care for plan members. PHA products
are used by managed care organizations in a variety of applications including
use as the primary "gateway" to a plan network, as an emergency room
pre-certification tool, a health care management tool for individuals with
chronic conditions, or solely as a health care information service for plan
members. PHA also provides extensive reporting, which enables managed care
organizations to more efficiently configure their service delivery network.
The foundation of the PHA product line is the Company's proprietary Clinical
Decision Architecture ("CDA"). The CDA provides the structure surrounding the
Company's patented process for the consistent assessment of a patient's
condition, the arrival at an appropriate care recommendation, and the linking of
a patient with a provider who has the requisite clinical expertise to care for
the condition or symptom set identified. CDA primarily utilizes four information
databases, including a database of over 550 proprietary risk-sorting clinical
algorithms, a detailed provider information database, a health care information
database that includes extensive self-care instructions and a database of health
plan members and rules pertinent to the plan structure.
The PHA care management programs are designed to address the needs for both
acute and chronic care management. The PHA programs offer customers a flexible
solution, allowing virtually any combination of product components to meet a
customer's unique needs. Each of the products can also be offered in a
stand-alone environment. Most importantly, when a sponsor chooses multiple
products to offer its members, the components are integrated seamlessly using
the CDA's common delivery platform and information warehouse. In doing so, a
person-based, custom care management program is created for each member that is
delivered through a single point of access.
ACUTE CARE MANAGEMENT PROGRAMS
FIRSTHELP-TM-. The FirstHelp-TM- patient assessment system is the acute
care cornerstone for all of the PHA services. The FirstHelp-TM- patient
assessment system is a clinically advanced, proprietary process for assessing a
caller's symptoms, integrating a providers' recommendations and providing
consistent care recommendations. The FirstHelp-TM- system provides the basis for
the Company's 24-hour-a-day telephone triage services provided for health plan
members, and assists health plans and providers in reducing emergency room and
physician office visits for conditions which can safely be treated in less
intensive settings. A key component of the Company's CDA, the FirstHelp-TM-
system consists of over 550 risk-sorting clinical algorithms, including modules
for pediatrics, adults, women, seniors, and mental health. The algorithms employ
a series of predetermined questions in a set order-- a proprietary technique
designed to mimic physician assessment. With this system, nurses can effectively
guide callers to the most appropriate level of care. High physician concordance
(more than 93%) with FirstHelp-TM- assessment recommendations means that advice
given in an acute episode will likely mirror that of the patient's own
physician. When a condition will not benefit from a provider visit, callers are
given self-care instructions and are offered a follow-up call to check progress.
Physicians benefit by receiving fewer after-hours calls and handling more
appropriate office visits.
ER ACCESS-SM-. The ER Access-SM- program is designed to measurably reduce
unnecessary ER utilization and associated costs while concurrently educating
members and improving member satisfaction. The program utilizes the
FirstHelp-TM- patient assessment algorithms, which allow Access Health's care
center nurses to assess the urgency of a patient's need for medical care and the
level and timing of the
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intervention needed. Care center nurses are able to perform symptomatic
assessments on members who were planning to go to the ER, and in many cases will
recommend a lower and less costly level of care. ER Access-SM- offers the added
benefit of relieving the primary care physician from direct involvement in
approving or denying emergency care.
OPEN ACCESS. For health plans looking to offer alternatives to the primary
care "gatekeeper" referral process, the Company has developed an "intelligent
gateway" to care. With its Open Access program in place and available to members
24 hours a day, 7 days a week, Access Health's nurses can assess patient needs
and match patients with appropriate providers based on health plan rules.
Through the FirstHelp-TM- patient assessment algorithms and the capabilities of
the CDA, members are guided to providers who have indicated a specific focus on
the clinical conditions identified. Open Access provides an effective means of
matching patient needs with an appropriate provider when a specialty referral
can be predicted.
PROVIDER PROFILER-SM-. Provider Profiler-SM- is a PC-based software tool is
designed to collect extensive, important information about a provider's
background and current practice for use in patient-provider matching. Once it is
determined that a caller's symptoms require a provider evaluation, this
information can be linked to a provider who can best manage the symptom set, who
is located in the caller's area, and whose office hours accommodate the urgency
of the evaluation. The system is also designed to support provider credentialing
activities in accordance with NCQA standards, and can function as an electronic
provider directory to help members identify and select a physician quickly.
DISEASE AND CONDITION MANAGEMENT PROGRAMS
ASTHMA CARE MANAGEMENT AND DIABETES CARE MANAGEMENT PROGRAMS. Access Health
has developed disease management programs designed to proactively assist
patients with the longitudinal management of chronic conditions in accordance
with physician prescribed regimens. The goals of the programs are to improve the
quality of life for patients with chronic conditions by reducing the risk of
complications and to help contain health care costs by reducing the need for
extensive use of health care services. Patients enrolled in the disease
management program receive regular calls from specialized Access Health nurses
who monitor the patient's condition and the patient's compliance with a
treatment regimen. The enrolled patients also receive information to educate
them on how to effectively manage their chronic condition.
9 MONTHS & BEYOND-SM- MATERNITY MANAGEMENT PROGRAM. 9 Months & Beyond-SM-
is the PHA program for expectant mothers designed to support physician and
health plan goals using comprehensive telephone-based maternal education,
monitoring and counseling - throughout pregnancy and after delivery. The program
regularly monitors each member's level of risk for experiencing preterm labor,
delivering a low birth weight baby, and/or delivering via cesarean section. This
information drives an intervention program that includes both general education
and personalized counseling aimed at reducing the member's risk for any of these
outcomes as well as the costs usually associated with these outcomes.
FIRST WARNING. First Warning is a case management alert system designed to
alert a health plan's internal case management function whenever a caller is
identified as having a certain high risk or potentially high-cost condition.
Examples include the presence or diagnosis of a chronic condition such as
arthritis, diabetes, or low back pain or the presence of symptoms of early
labor. The First Warning system is designed as an adjunct to other PHA
components; however, it also serves as a mechanism for enrolling eligible
patients in one or more of the PHA disease/condition management programs.
ADDITIONAL PRODUCTS AND SERVICES
FIRST WELCOME-SM-. Access Health is introducing a new member contact
program, called First Welcome-SM-, to assist managed care organizations in
introducing new members to a health plan, selecting primary care providers for
them, and conducting a preliminary evaluation of these members' medical
conditions and potential health care needs. The program is designed to identify
and initiate appropriate
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interventions within the structure of the plan, including the ability to enroll
members in Access Health's disease/condition management programs.
RIGHT CALL MEMBER COMMUNICATIONS SERVICES. Right Call member communication
services are tailored to meet specific sponsor needs. These services consist of
the development, execution and fulfillment of membership enrollment materials,
such as membership kits, newsletters and other mailings, on-going communication
programs designed to facilitate appropriate use of PHA programs, and fulfillment
of member requests for literature for specific health care topics.
AUDIOHEALTH LIBRARY-REGISTERED TRADEMARK-. Customers have access via
touch-tone or rotary telephone to the PHA audiotext self-care library. The
AudioHealth Library-Registered Trademark- is a sophisticated database of
pre-recorded information on over 500 health topics, including information on
specific conditions and self-care and prevention information. After reviewing
information in the AudioHealth Library-Registered Trademark-, the customer can
elect to speak directly with an Access Health nurse.
PREVENTIVE CARE REMINDER SYSTEM. Access Health developed the Preventive
Care Reminder System in response to the growing needs of its clients to meet
NCQA preventive care standards, to ensure favorable performance in satisfying
HEDIS measures of quality, and to improve compliance with basic preventive care
recommendations of national organizations including the U.S. Preventive Services
Task Force and the American Academy of Pediatrics. The service is provided as an
adjunct to other PHA services as a delivery system for personalized reminders to
members about recommended preventive measures, such as mammograms and pap
smears. The Preventive Care Reminder System improves health care by boosting
compliance with preventive care standards.
PHA ONLINE. PHA Online is an interactive and proactive service that offers
PHA members highly personalized health information and online activities based
on their needs and interests. It can be easily configured to work in conjunction
with a health plan's objectives - including member recruitment, development and
services, and open enrollment campaigns. The PHA Online service is anchored by
an Internet website (WWW.PHA-ONLINE.COM) that encourages members to continually
interact with the service.
LICENSING AND SUPPORT SERVICES.
The Company also licenses PHA acute care products to customers who offer the
services through their own care centers. These products are licensed with a
recurring license revenue stream tied to utilization and/or the size of the
population served. The Company also offers other products under a variety of
licensing formulas. These other products are listed below.
ACCESS CARE MANAGEMENT SYSTEM-SM-. The Access Care Management
System-SM-("ACMS"), introduced in 1994, is utilized by those organizations
seeking to provide in-house care management services. ACMS is an integrated
package of software, clinical guidelines and care management functions that
enables hospitals, physician groups, integrated health care delivery systems and
health plans to offer care management services directly to patients and member
groups through the sponsoring organization's own telephone call center. ACMS
customers pay the Company on a per-member per-month basis and in return receive
technical support and software and clinical database upgrades.
ASK-A-NURSE-REGISTERED TRADEMARK-. The ASK-A-NURSE-Registered Trademark-
family of products is licensed to hospitals and other health care systems,
enabling them to provide health care information and referral services. The
ASK-A- NURSE-Registered Trademark- product family was introduced in 1987 and is
currently licensed to more than 50 clients representing over 130 participating
hospitals in the United States.
CANCER HELPLINK-REGISTERED TRADEMARK- SYSTEM. The Cancer
HELPLINK-Registered Trademark- product is a specialized information and referral
system staffed by Access Health nurses experienced in cancer care and trained in
the extensive information needs of cancer patients, their families and others
concerned about cancer. The Cancer HELPLINK system, introduced in 1989, provides
needed information to patients diagnosed with cancer
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and refers callers who have cancer symptoms to appropriate physicians and
diagnostic and treatment services. The Company's cancer products are currently
licensed to more than 17 clients representing over 20 hospitals.
HEALTHSELECT. The Company sells and supports the HealthSelect software
products, which are designed to support health care information and referral
programs. These products enable participating hospitals to match individuals'
health care needs with physicians and hospital services and to manage referral,
medical information and reporting functions. In addition, these software
products allow hospitals to manage membership programs, scripted outbound call
programs and other database management activities. More than 120 hospitals have
licensed HealthSelect software.
PRODUCT DEVELOPMENT
The Company's growth and future success largely depend upon its ability to
develop new products for the health care industry and to continue to enhance its
existing care management products. Additional care management applications that
are in various stages of development and planned for general release in 1998
include disease management programs for cardiac conditions, pulmonary conditions
in addition to asthma, hypertension, and depression. Also in the design and
development phase are programs to assist health plan customers in utilization
review and utilization management, as well as a program to assist customers in
identifying workers' compensation episodes. General and ongoing development
initiatives include:
- ALGORITHMS. The Company regularly evaluates and enhances its FirstHelp-TM-
clinical algorithms based upon advances in medicine and upon its own
internal continuous quality improvement initiatives.
- TECHNOLOGY INFRASTRUCTURE. The Company continues to enhance its
infrastructure by installing new hardware and software systems to improve
capability, ease of use and scalability. The Company is in the process of
completing a common technology platform whereby all care centers will use
a common hardware, software and voice technology platform. This integrated
platform is scheduled to be rolled out to its existing customers during
calendar 1998.
- CUSTOMIZED PRODUCTS. The Company customizes products for specific market
segments such as those with special literacy or foreign language needs.
- ELECTRONIC DELIVERY SYSTEMS. The Company has developed and continues to
expand its capabilities to use on-line communications and other electronic
media to deliver the Company's products and services.
PRINCIPAL CUSTOMERS
The Company markets its products and services to managed care organizations,
government agencies, self-insured employers, hospitals, integrated hospital
organizations, physician groups, and independent physician associations.
Enrolled members of the Company are those for whom the Company receives
revenues. As of November 30, 1997, the Company had contracts with customers
representing approximately 23 million members enrolled in PHA. Also as of this
date, the Company had commitments for approximately 3 million new members to be
enrolled in its care management programs in future quarters. Some of the
commitments included in this backlog figure are subject to final contract
execution. Certain of the Company's contracts specify a guaranteed enrollment
rate for members and the Company receives revenues for such amounts even if the
customer has not yet identified all the particular members. After initial terms
of approximately one to four years, contracts generally can be terminated upon
60 to 360 days notice. No single client accounted for more than 10% of the
Company's annual revenues in fiscal 1997.
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The Company's ACMS, ASK-A-NURSE-Registered Trademark- and Cancer
HELPLINK-Registered Trademark- products are currently licensed to more than 80
clients. Examples of the Company's principal customers for these product lines
include Florida Hospital in Orlando, Riverside Health Systems and Emory
University Systems of Health Care in Atlanta.
SALES, MARKETING AND SUPPORT
Access Health sells its products and services exclusively through its direct
sales and account management force. The Company employs a combined sales and
account team strategy, dedicating two high level sales representatives with
two-to-three account managers to each of six distinct national geographic
regions. These teams are incented to add new clients and grow new business with
existing accounts through the addition of new members, higher utilization of
existing products and adoption of new products. The Company is primarily focused
on selling the Company's products and services to managed care organizations,
self-insured employers, commercial insurers, government entities, and hospitals
and health care systems.
The Company also employs a client services department to assist in its
on-going relationships with clients through the use of client service teams that
include implementation, clinical and technical support representatives. These
teams work closely with new and existing clients to implement custom tailored
programs, coordinate member communication programs, ensure client satisfaction,
and evaluate program effectiveness.
The Company's marketing strategy also includes building brand awareness and
brand identity for its Personal Health Advisor, ASK-A-NURSE and Cancer HELPLINK
products.
COMPETITION
The market for the Company's products and services is highly competitive.
The Company's competition includes independent companies as well as divisions of
large managed care organizations. The Company also faces competition from
potential customers who may elect to develop their own personal care management
solutions, and the Company expects to face competition from new entrants to the
market. The Company believes that it competes favorably on the basis of price
and value, operational capabilities, clinical content of its proprietary
clinical algorithms, ability to rapidly enroll new members and performance with
respect to cost savings, superior outcomes and member satisfaction. To the
extent the Company offers new products or services or offers its existing
products and services in new markets, it expects to face increased competition
from competitors which may have substantially greater financial, marketing or
technical resources than the Company, as well as from industry consolidations
that create larger competitors offering new products and services.
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, including the provision of health care
services, teleservicing, health care referral programs, health maintenance
organizations and other similar plans. These statutes and regulations in many
cases predate the development of telephone-based health care information and
other interstate transmission and communication of medical information and
services. The language of certain of these statutes and regulations governing
the provision of health care services, including, without limitation, the
practice of nursing and the practice of medicine, could be construed by
regulatory authorities to apply to certain of the Company's teleservicing
activities, which use California, Illinois, Arizona and Colorado registered
nurses to provide care 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. In
addition, the language of the statutes and
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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. If
regulators seek to apply any of the foregoing statutory and regulatory
requirements to the Company or to others operating in a manner substantially
similar to the Company, then 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
was the subject of increasing governmental and regulatory focus in recent past
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 impose penalties
and 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 penalties. 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. Some of the Company's programs involve payment for referral services
and meet most, but not all, of 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 federal healthcare programs, including 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.
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 algorithms
11
<PAGE>
and 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 care 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.
While the Company maintains professional liability insurance, there can be
no assurance that claims in excess of the Company's insurance coverage will not
arise or that all claims would be covered by such insurance. In addition,
although the Company has not experienced difficulty in obtaining insurance
coverage in the past, the Company may seek increased insurance coverage as its
business grows. There can be no assurance that the Company will be able to
maintain existing insurance coverage or obtain increased coverage on acceptable
terms or at all.
INTELLECTUAL PROPERTY
The Company regards its software, clinical decision architecture ("CDA"),
algorithms, clinical nursing assessment protocols and marketing and program
operation materials as proprietary and takes action to protect its intellectual
property with patents, copyrights, trademarks, trade secret laws and
restrictions on disclosure, copying and transferring title. The Company has been
issued patents in the United States that cover a number of inventions, including
the structure, use and process of its CDA and clinical database and certain
capabilities of the provider profiler product. There can be no assurance that
competitors, some of which have substantial resources and have made substantial
investments in competing technologies, will not seek to apply for and obtain
patents that will prevent, limit or interfere with the Company's ability to
make, use or sell its products either in the United States or in international
markets. Litigation or regulatory proceedings, which could result in substantial
cost and uncertainty to the Company may also be necessary to enforce the
Company's intellectual property rights, including patents, or to determine the
scope and validity of other parties' proprietary rights. It is also possible
that the Company may need to acquire licenses to, or contest the validity of,
issued or pending patents of third parties relating to the Company's technology.
There can be no assurance that any of such licenses would be made available to
the Company on acceptable terms, if at all, or that the Company, if it were to
contest the validity of any issued or pending patents, would prevail. In
addition, the Company could incur substantial costs in defending itself in suits
brought against the Company on its patents or in bringing suits against third
parties to enforce the Company's proprietary rights including patents. The
Company also relies on copyright, trademarks, trade secret laws and restrictions
on disclosure, copying and transferring title. Despite the Company's
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. 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.
EMPLOYEES
As of September 30, 1997, the Company had 692 full-time and 187 part-time
employees, including 481 registered nurses. None of the Company's employees are
covered by a collective bargaining agreement, and the Company believes that its
relations with its employees are good.
12
<PAGE>
PHYSICIAN ADVISORS
The Company's medical affairs are directed by Barry W. Wolcott, M.D., Senior
Vice President and Chief Medical Officer, board certified in internal medicine.
He is supported by Jeremy J. Nobel, M.D., Senior Vice President for Medical
Affairs, board certified in internal medicine, Marcella L. Thiel, M.D., Vice
President and Medical Director, board certified in family practice, Steve
Silverstein, M.D., Vice President of Algorithm Development, board certified in
internal medicine and emergency medicine, David Suttle, M.D., Medical Director
of Care Center Operations, board certified in pediatrics with a specialty in
adolescent medicine, Maury Gloster, M.D., board certified in internal medicine
and endocrinology, and Rufus S. Howe, R.N., M.N., F.N.P., Vice President,
Disease Management. In addition, the Company has entered into consulting
arrangements with other physicians who are recognized clinical experts. These
physician consultants assist the Company with setting direction and strategy for
clinical activities, developing and assuring the quality of Company algorithms
and clinical nursing assessment protocols, responding to new and emerging
medical information, developing new clinical applications, and providing
consulting services to client medical directors. The Company's medical advisors
are as follows:
Charles A. Coltman, Jr., M.D., Member of the Cancer HELPLINK Physician
Advisory Council. Dr. Coltman is Professor of Medicine at the University of
Texas Health Science Center and the Director of the San Antonio Cancer
Institute. He is President and CEO of the Cancer and Research Center, Chairman
of the Southwest Oncology Group, the largest cancer clinical trials group in the
U.S., and has received numerous citations for his research in cancer control and
the treatment of leukemias, lymphomas, and Hodgkin's Disease.
W. David Dawdy, M.D., serves as a pediatric consultant for Access Health and
is a practicing pediatrician. In addition, he is a Clinical Assistant Professor
of Pediatrics of Ohio State University and serves as the Pediatric Director of
the University ASK-A-NURSE program. He is active in numerous local and state
organizations and committees involved with education for medical residents.
Robert W. Derlet, M.D., Medical Advisor for the Clinical Assessment Systems
and Clinical Outcomes for ASK-A-NURSE and Personal Health Advisor. Dr. Derlet is
an Associate Clinical Professor and Chief of Emergency Medicine at the
University of California at Davis Medical Center. He is board-certified in
emergency medicine and internal medicine. Dr. Derlet has conducted research and
authored several publications dealing with re-directing emergency department
patients to more appropriate levels of care within the health care delivery
system.
G. Denman Hammond, M.D., Cancer HELPLINK National Medical Director and
Chairman of the Cancer HELPLINK Physician Advisory Council. Dr. Hammond is
Associate Vice President for Health Affairs and Professor of Pediatrics at the
University of Southern California. He is Chairman of the National Cancer
Institute-sponsored Children's Cancer Study Group and a leading authority on the
blood disorders and cancers of infants and children. Dr. Hammond has authored or
co-authored over 200 scientific manuscripts, books and book chapters.
The Company's medical advisors receive an annual retainer and consult with
the Company on a periodic basis. Dr. Dawdy and Dr. Derlet typically devote
approximately one to four days per month to Company matters, and the other
medical advisors typically devote approximately one day per quarter to the
Company's matters. Dr. Gloster receives an hourly consulting as opposed to an
annual retainer.
Calvin J. Hobel, M.D., member of the 9 Months and Beyond Physician's
Advisory Panel. Dr. Hobel is Professor of Obstetrics, Gynecology and Pediatrics
at the UCLA School of Medicine and is also co-director of NIH Perinatal Training
Program at the Harbor-UCLA School of Medical Center. Dr. Hobel is board
certified in obstetrics and gynecology with a specialty in maternal-fetal
medicine.
13
<PAGE>
ITEM 2. PROPERTIES
The Company's corporate offices are located in Broomfield, Colorado in a
33,000 square foot facility pursuant to a lease which expires in June 1998 with
an option to extend to June 1999. The Company also leases a 20,825 square foot
facility in Boulder, Colorado in a lease which expires in December 1999. The
Company currently occupies 11,571 square feet of this building and has subleased
the rest to a third party. In the first half of 1998, the Company will move into
two leased buildings in Broomfield, Colorado and sublet its existing Boulder
facility. The first of the two facilities will house the Colorado call center in
21,500 square feet, with an option to lease another 20,000 square feet. That
lease expires November, 2012. The second building will be the Company's
headquarters and corporate offices, and will consist of 70,000 square feet. That
lease expires in February 2013. The Company's largest call center facility is
located in Rancho Cordova, California, and comprises 53,892 square feet subject
to a lease that expires in November 2001, and 17,441 square feet subject to a
lease that expires in March 1999, respectively. In addition, the Company has
lease agreements for operational facilities in three other cities, of which one
is for an 8,374 square foot call center facility in Arlington Heights, Illinois
and expires in September 1998, one is for a 14,671 square foot call center
facility in Phoenix, Arizona and expires in September 2001. The Company believes
that its facilities are adequate for its business as presently operated.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "ACCS". The following table sets forth, for the periods indicated, the
range of the low and high sales prices for the Company's Common Stock as
reported on the Nasdaq National Market beginning in fiscal year 1995.
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
Fiscal 1996*:
First Quarter............................................................................... $30 21/64 $13 53/64
Second Quarter.............................................................................. 44 27 1/2
Third Quarter............................................................................... 65 1/2 38 3/4
Fourth Quarter.............................................................................. 59 1/4 38
Fiscal 1997:
First Quarter............................................................................... 56 1/4 30 1/2
Second Quarter.............................................................................. 45 1/4 13 1/2
Third Quarter............................................................................... 25 5/8 11 1/2
Fourth Quarter.............................................................................. 35 1/8 23
Fiscal 1998:
First Quarter (through December 9, 1997).................................................... 40 3/4 29 1/2
</TABLE>
- ------------------------
* The prices shown prior to February 29, 1996 have been adjusted to reflect a
three-for-two stock split effected in the form of a stock dividend as of
that date.
As of December 9, 1997, there were approximately 655 holders of record of
the Common Stock. On December 9, 1997, the last reported sale price on the
Nasdaq National Market for the Common Stock was $32.00.
The Company has not declared or paid any cash dividends on its Common Stock.
The Company presently intends to retain earnings for use in its business and
therefore does not anticipate paying cash dividends in the foreseeable future.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The selected consolidated financial data at September 30, 1996 and 1997 and
for the years ended September 30, 1995, 1996 and 1997 have been derived from the
audited consolidated financial statements and should be read in conjunction with
such consolidated financial statements and notes thereto, which are included
herein. The consolidated financial data at September 30, 1993, 1994 and 1995 and
for the years ended September 30, 1993 and 1994 have been derived from audited
consolidated financial statements not included herein. The selected consolidated
financial data below reflects the combined results of operations of Informed
Access Systems, Inc., Clinical Reference Systems, Inc. and the Company.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Care management services................................ $ 585 $ 9,544 $ 26,484 $ 61,178 $ 93,729
Licensing and support services.......................... 16,581 8,047 9,526 10,925 10,598
--------- --------- --------- --------- ----------
Total commercial revenues........................... 17,213 17,591 36,010 72,103 104,327
Development program with related party.................. 2,197 2,274 -- -- --
--------- --------- --------- --------- ----------
Total revenues...................................... 19,410 19,865 36,010 72,103 104,327
Costs and expenses:
Cost of revenues:
Care management services.............................. 450 10,324 19,374 34,653 49,237
Licensing and support services........................ 9,471 3,179 4,961 5,349 3,244
Product and other development........................... 2,074 2,309 3,298 6,545 7,922
Development program..................................... 2,455 2,541 -- -- --
Sales and marketing..................................... 2,756 4,650 5,487 9,468 8,907
General and administrative.............................. 2,050 3,263 4,540 10,391 8,614
Transaction costs....................................... -- -- -- -- 6,345
Integration and restructuring........................... -- -- -- -- 9,661
--------- --------- --------- --------- ----------
Total costs and expenses............................ 19,256 26,266 37,660 66,406 93,930
--------- --------- --------- --------- ----------
Income (loss) from operations............................. 154 (6,401) (1,650) 5,697 10,397
Non-operating income (expense):
Impairment loss on interests in AHN..................... -- -- -- -- (10,000)
Interest and other income............................... 661 657 877 1,633 2,182
Interest expense........................................ (273) (175) (150) (186) (324)
--------- --------- --------- --------- ----------
Income (loss) before income taxes......................... 495 (5,919) (923) 7,144 2,255
Provision (credit) for income taxes..................... 724 (1,352) (242) 6,050 (2,363)
--------- --------- --------- --------- ----------
Net income (loss)......................................... $ (229) $ (4,567) $ (681) $ 1,094 $ 4,618
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Net income (loss) per share (1)........................... $ (0.02) $ (0.44) $ (0.06) $ 0.06 $ 0.24
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Shares used in per share calculations (1)................. 10,259 10,360 11,000 18,502 19,360
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............................................ $ 25,178 $ 27,980 $ 37,082 $ 84,292 $ 102,654
Working capital......................................... 11,802 9,827 13,869 39,296 60,586
Long-term debt.......................................... 1,039 725 531 1,344 678
Mandatorily redeemable convertible preferred stock...... 1,635 3,635 10,635 10,995 --
Stockholders' equity.................................... 16,512 16,012 16,393 52,647 80,336
</TABLE>
- ------------------------
(1) Shares used in per share calculations have been adjusted for three-for-two
stock split.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINS 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 SUCH DIFFERENCES IN FUTURE OPERATING PERFORMANCE
COULD BE MATERIAL.
GENERAL
The Company is a leading provider of care management products and services
to the health care industry. The Company was founded in 1987 and until 1993
primarily provided consumer health care information products and services
designed to help hospitals and other health care providers market their
services. Beginning in 1993, the Company changed its focus to developing and
marketing personal health and care management products and services to health
plans and payors.
During November 1996, the Company completed mergers with Informed Access
Systems ("Informed Access"), in exchange for 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 Clinical Reference Systems, Ltd. ("CRS"), in exchange for 170,000 issued
shares of Access Health Common Stock. Both transactions were accounted for as
pooling-of-interests.
Informed Access was founded in 1992 and was a leading provider of care
management products and services to the health care industry. Informed Access'
primary clients were major managed health care organizations including health
maintenance organizations (HMO's), preferred provider organizations (PPO's),
indemnity insurers, integrated delivery systems and physician groups. CRS
develops and markets patient education software products that enable health care
providers to produce easy-to-read handouts on a variety of medical and drug
topics. The following discussion includes the results of operations of Informed
Access and CRS.
CARE MANAGEMENT SERVICES. The Company's Personal Health Advisor-Registered
Trademark- ("PHA") product line is a suite of care management services which
generate recurring revenues through a fee structure that is based on utilization
of PHA services, subject typically to a minimum per-member per-month fee. Care
management revenues are generated principally from the Company's PHA contracts.
Managed care organizations, health plans and large self-insured employers
contract for use of PHA services by their members or employees in order to
reduce unnecessary health care utilization, improve member satisfaction, lower
health care costs and improve quality of care. The Company also earns fees for
providing member communications services to its customers.
LICENSING AND SUPPORT SERVICES. The Company also licenses certain of its
acute care products and other products and services to hospitals and other
health care providers. Those products include First Help-TM-, the
ASK-A-NURSE-Registered Trademark- family of products, CANCER HELPLINK-Registered
Trademark-, Access Care Management System-SM- ("ACMS") and HealthSelect. The
Company's revenues from these products include license fees, as well as on-going
fees for program support, teleservices, and direct marketing activities.
17
<PAGE>
The following shows the components of the Company's consolidated statements
of operations as a percentage of total revenues:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Care management services............................................... 73.5% 84.8% 89.8%
Licensing and support services......................................... 26.5 15.2 10.2
--------- --------- ---------
Total revenues....................................................... 100.0% 100.0% 100.0%
Costs and expenses:
Cost of revenues:
Care management services............................................. 53.8 48.1 47.2
Licensing and support services....................................... 13.8 7.4 3.1
Product and other development.......................................... 9.2 9.1 7.6
Sales and marketing.................................................... 15.2 13.1 8.5
General and administrative............................................. 12.6 14.4 8.3
Transaction costs...................................................... -- -- 6.1
Integration and restructuring.......................................... -- -- 9.3
--------- --------- ---------
Total costs and expenses............................................. 104.6% 92.1% 90.0%
--------- --------- ---------
Income (loss) from operations............................................ (4.6) 7.9 10.0
Impairment loss on interests in AHN...................................... -- -- (9.6)
Interest and other income, net........................................... 2.0 2.0 1.8
--------- --------- ---------
Income (loss) before income taxes........................................ (2.6) 9.9 2.2
Provision (credit) for income taxes...................................... (0.7) 8.4 (2.2)
--------- --------- ---------
Net income (loss)........................................................ (1.9)% 1.5% 4.4%
--------- --------- ---------
--------- --------- ---------
Gross margins by product line:
Care management services............................................... 26.8% 43.4% 47.5%
Licensing and support services......................................... 47.9% 51.0% 69.4%
</TABLE>
RESULTS OF OPERATIONS
REVENUES. Revenues are comprised of revenues from care management services
and revenues from licensing and support services. Revenues increased 100.0% from
$36.0 million in fiscal 1995 to $72.1 million in fiscal 1996 and 44.7% to $104.3
million in fiscal 1997.
Revenues from care management services increased 131.0% from $26.5 million
in fiscal 1995 to $61.2 million in fiscal 1996 and 53.2% to $93.7 million in
fiscal 1997 because of an increase in members enrolled under the Company's care
management contracts. As of September 30, 1997, approximately 22.3 million
members were enrolled, an increase of 54.9% compared to approximately 14.4
million enrolled as of September 30, 1996. 4.3 million were enrolled as of
September 30, 1995. Revenue from care management contracts are recognized
ratably on a per-member per-month basis commencing upon the enrollment of
members.
Revenues from licensing and support services increased 14.7% from $9.5
million in fiscal 1995 to $10.9 million in fiscal 1996 and decreased 3.0% to
$10.6 million in fiscal 1997. Licensing and support services revenues include
licensing, implementation, program support and teleservicing fees associated
with the Company's FirstHelp-TM-, ASK-A-NURSE-Registered Trademark-, CANCER
HELPLINK-Registered Trademark-, ACMS and HealthSelect licensed products.
Revenues from patient education software sales are also included. The Company
expects that licensing and software support revenues will remain constant or
increase moderately in terms of absolute
18
<PAGE>
dollars while at the same time decline as a percentage of total revenues due to
revenue growth from other products and services.
COST OF REVENUES. The cost of care management services revenues includes
the costs of operating the Company's care centers, on-going client consultation
and charges for providing care management member communications services. The
gross margin percentages for care management services were 26.8%, 43.3% and
47.5% for fiscal 1995, 1996 and 1997, respectively. Gross margins for care
management services improved from 1995 to 1996 and 1997 because economies of
scale and operating efficiencies were achieved by virtue of the growth in care
management enrollments, as previously discussed.
The cost of licensing and support services revenues includes the costs of
licensing implementations, call processing, on-going client consultation, annual
users' conferences, advertising materials, and other support services for First
Help-TM-, ASK-A-NURSE-Registered Trademark-, CANCER HELPLINK-Registered
Trademark-, ACMS and HealthSelect licensees. It also includes costs associated
with publishing and distributing patient education software to healthcare
providers. The gross margin percentages for licensing and support services were
47.9%, 51.0% and 69.4% for fiscal 1995, 1996 and 1997, respectively. Year to
year fluctuations in gross margins are the result of changes in the mix of
product and services sales with varying margins. The increase from fiscal 1996
to fiscal 1997 is due to the replacement of lower margin ASK-A-NURSE-Registered
Trademark- business with higher margin FirstHelp-TM- licensing and patient
education software sales.
PRODUCT AND OTHER DEVELOPMENT EXPENSES. Product and other development
expenses increased 98.5% from $3.3 million in 1995 to $6.5 million in 1996 and
21.0% to $7.9 million in fiscal 1997. These costs relate to enhancements of the
Company's care center systems and clinical applications, and the development of
other products and services intended to serve selected markets. Beginning in
fiscal 1996, product development also included costs associated with the
development of new disease management products and PHA OnLine. The Company
expects product and other development expenses to remain relatively constant in
fiscal 1998 as it continues to make investments in care management and disease
management products and services.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist of
expenses related to both the care management and license and support services
products. These expenses increased 72.6% from $5.5 million in 1995 to $9.5
million in 1996 and decreased 5.9% to $8.9 million in 1997. Sales and marketing
expenses as a percentage of revenues were 15.2%, 13.1% and 8.5% in fiscal 1995,
1996 and 1997, respectively. Increased sales and marketing expenses from fiscal
1995 to fiscal 1996 reflected higher levels of lead generation activity,
expansion of the sales team and increased sales commissions related to the
increase in revenues. The decrease in sales and marketing expenses from fiscal
1996 to fiscal 1997 was the result of synergies achieved by the post-merger
consolidation of sales and marketing activities. Sales and marketing expenses
declined as a percentage of revenues from fiscal 1995 to fiscal 1996 and fiscal
1997 due to the growth in care management services revenues previously
discussed.
Sales and marketing expenses will likely increase in fiscal 1998 in terms of
absolute dollars as the Company pursues its strategy of selling and servicing an
expanding suite of care management and disease management products and may
increase as a percentage of revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 128.9% from $4.5 million in 1995 to $10.4 million in 1996 and
decreased 17.1% to $8.6 million in 1997. As a percentage of revenue, general and
administrative expenses were 12.6%, 14.4% and 8.3% in 1995, 1996 and 1997,
respectively. The expense increase from 1995 to 1996 reflects increased expenses
for management information systems and additional finance, human resources and
executive level personnel. The decline from fiscal 1996 to fiscal 1997 was the
result of synergies achieved by the post-merger consolidation of redundant
general and administrative activities.
TRANSACTION COSTS AND INTEGRATION AND RESTRUCTURING COSTS. Transaction
costs of $6.3 million reflect charges associated directly with the merger of the
Company with Informed Access and CRS and included
19
<PAGE>
professional fees of approximately $5.2 million. Also related to the mergers
were integration and restructuring costs recorded in the first and fourth
quarters of fiscal 1997, which included approximately $6.3 million for severance
and related expenses, approximately $400,000 for elimination of redundant
technology, approximately $1.2 million for discontinuation of facilities,
approximately $900,000 for disposal of assets and approximately $900,000 for
relocation and other costs.
INCOME (LOSS) FROM OPERATIONS. Operating income (loss) increased from a
loss of $1.7 million in fiscal 1995 to income of $5.7 million in fiscal 1996 and
$10.4 million in fiscal 1997. Excluding one time non-recurring transactions,
integration and restructuring costs, operating income was $26.4 million in
fiscal 1997. The loss from operations in fiscal 1995 can be attributed to losses
incurred by Informed Access prior to the merger, which, while still in its
formative stage, made significant investments in developing a sophisticated
clinical approach to providing care management services. The change to
profitability in fiscal 1996 and further increases in profitability in fiscal
1997 are due to economies of scale associated with increased enrollments and
revenues combined with synergies achieved by combining operating companies.
NON-OPERATING INCOME (EXPENSE). The Company generates net interest income
primarily from cash balances and investments. Interest and other income
increased from $877,000 in fiscal 1995 to $1.6 million in fiscal 1996 and to
$2.2 million in fiscal 1997. The increases are primarily due to increasing cash
and short-term investment balances resulting from positive cash flow from
operations. The increase in fiscal 1996 was due to additional capital raised in
December 1995 by the Company's secondary public offering of its common stock.
Interest expense of $150,000, $186,000, and $324,000 in fiscal 1995, 1996, and
1997, respectively, is associated with long-term leases for office equipment and
certain other short term indebtedness including notes payable to related
parties.
The loss on interests in America's Health Network ("AHN") recorded in the
fourth quarter of fiscal 1997 was a result of the Company's determination that
its equity investment in and note receivable from AHN were impaired.
INCOME TAXES. The Company recorded an income tax benefit of $242,000 in
1995, an income tax provision of $6.1 million in fiscal 1996, and an income tax
benefit of $2.4 million in fiscal 1997, respectively. The NOL carryforward
associated with pre-merger operating losses of Informed Access exceeded fiscal
1997 pretax income. The resulting future tax benefit was recognized in fiscal
1997 because of the likelihood that it will be utilized against anticipated
future earnings.
EFFECTS OF INFLATION AND CHANGING PRICES. Inflation and changing prices
have not had a material effect on the Company's operations and, at current
levels, are not expected to in future years.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations through the sale of equity securities,
cash flow from operations and incurrence of debt. Cash provided by operations
increased 102.2% from $4.6 million for fiscal 1995 to $9.1 million for fiscal
1996 and 130.8% to $21.0 million for fiscal 1997. The Company raised net
proceeds of $29.5 million from a public offering of Common Stock in the first
quarter of fiscal 1996. As of September 30, 1997 the Company held cash and
equivalents and available-for-sale securities totaling $58.0 million.
Accounts and licenses receivable increased 89.7% from $6.8 million in fiscal
1995 to $12.9 million in fiscal 1996 primarily as a result of increased revenue
from PHA contracts. Accounts and licenses receivable decreased 3.1% to $12.5
million in fiscal 1997 due to a reduction in payment cycle.
In fiscal 1995, 1996 and 1997 the Company used cash and equivalents to
invest in short-term investments. In fiscal 1995 and 1996 the Company made
significant additions to property and equipment to expand its call center
operations. During April 1996, the Company invested $5.0 million in AHN. In
exchange, the Company received a limited partnership interest in AHN. In January
1997, the Company
20
<PAGE>
elected to invest an additional $5 million in AHN in the form of a convertible
debenture. As discussed above, the Company recorded a $10.0 million charge to
operations relating to AHN in the fourth quarter of fiscal 1997.
The Company's long-term debt and capital lease obligations together have
been reduced to a total of $1.3 million as of September 30, 1997.
The Company expects to spend approximately $7.5 million to purchase capital
equipment and computer software in fiscal 1998 to expand its call centers and
corporate headquarters in Broomfield, CO. The Company could increase its
expenditures for call center expansion in fiscal 1998 depending on the timing
and extent of increases in member enrollment.
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 1998 or beyond.
IMPACT OF THE YEAR 2000 ON COMPUTER SYSTEMS
The Company's computer systems and infrastructure have been expanded and
enhanced during the past two years. As part of that development, the
architectural design has taken into account the Year 2000 issue. As a result,
management believes that the Year 2000 issue will be resolved in a timely
fashion and will not materially affect future financial results, or cause
reported financial information to be inaccurate.
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 care management
contracts and to retain and expand existing 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 licensing and support services revenue. The Company has
renegotiated various care management contracts which have reduced the number of
members or the per-member per-month fee. Any factors adversely affecting the
market for the care management or the licensing and support services 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. A significant portion of the Company's
revenues are generated by a limited number of customers. The Company's PHA
contracts range from approximately 800 members to 3.0 million members per
contract. The five largest single customer enrollments in PHA total 3.0 million,
2.4 million, 1.9 million, 1.5 million and 1.5 million members. In fiscal 1997,
the Company's three largest customers accounted for approximately 8.0%, 7.8%,
and 6.9% of the Company's total revenues and the Company's top five customers,
in the aggregate, accounted for approximately 33.4% of the Company's total
revenues. After an initial term of approximately one to four years, contracts
generally can be terminated upon 60 to 360 days notice to the Company. Three of
the five largest contracts are up for renewal in 1998. The Company's contracts
could 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. The Company's quarterly operating
results may fluctuate significantly in the future as a result of a variety of
factors, many of which are outside the Company's control. There can be no
assurance that the Company's revenues and profitability will increase during
fiscal 1998 and beyond. The Company's revenues may be materially adversely
affected by the termination or
21
<PAGE>
non-renewal of the Company's contracts or by the renegotiation of the terms of
such contracts. The Company may incur significantly increased sales, marketing
and promotional expenses during fiscal 1998, and may devote additional resources
to the further development of care management, disease management 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
competitive and the Company expects that competition will intensify in the
future. 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 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 have substantially greater financial, marketing and
technical resources than the Company. In particular, several smaller competitors
have recently been acquired or are expected to be acquired by companies with
substantially greater financial, marketing and technical resources than the
Company, and this could lead to increased competition. There can be no assurance
that the Company will continue to compete successfully.
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.
CARE CENTER OPERATIONS. The Company maintains member service and data
centers ("care 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 business, financial condition and results of
operations.
The successful operation of the Company's care centers is based on a
networked information system. The information system provides care center nurses
and health care counselors with access to care management applications and a
database of information including member information, plan, rules, physician
information and clinical algorithms and guidelines. The Company is in the
process of developing a new information system which combines certain aspects of
the different systems developed by Access Health and Informed Access. Failure to
successfully develop and implement this new information system could delay
revenues or increase operating costs and could have a material adverse effect on
the Company. The ability to continue to develop, implement and support the
Company's information systems is dependent on its ability to employ and retain
experienced technical personnel. If the Company is unable to hire and retain
required technical personnel or is required to pay compensation at significantly
higher
22
<PAGE>
levels to attract and retain technical personnel it could have a material
adverse effect on the Company's financial results.
LIMITATIONS ON PROTECTION OF PROPRIETARY RIGHTS. The Company regards its
software, clinical algorithms and nursing assessment tools, clinical operational
expertise and marketing and program operation materials as proprietary and takes
action to protect its intellectual property with patents, copyrights,
trademarks, trade secret laws and restrictions on disclosure, copying and
transferring title. Despite the Company's 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. There can be
no assurance that competitors, some of which have substantial resources and have
made substantial investments in competing technologies, will not seek to apply
for and obtain patents that will prevent, limit or interfere with the Company's
ability to market its products and services either in the United States or in
international markets. Access Health could incur substantial costs in defending
itself in suits against the Company or its proprietary rights or in bringing
suits against those parties to enforce Access Health's proprietary rights. The
Company has been issued patents on its clinical algorithms in the United States
and has filed for patent protection is some foreign countries. There is no
assurance that such patents will not be challenged or invalidated. 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
depending upon into which countries outside the United States the Company
expands.
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. The difficulties of
managing growth may be increased by the necessity of coordinating geographically
separated organizations. In order for the Company to manage its client base
successfully, management will be required to anticipate the changing demands of
the Company's growing operations and to adopt systems and procedures
accordingly. Failure to effectively implement or maintain such systems and
controls could adversely affect the Company's business, results of operation and
financial condition. Further, there can be no assurance that the Company's
current information systems, telecommunications systems and operational
infrastructure will be adequate for its future needs, or that Access Health will
be successful in implementing new systems. Failure to upgrade its information
systems, telecommunications systems and operational infrastructure or unexpected
difficulties encountered with these systems during expansion could adversely
affect the Company's business, financial condition and results of operations.
ACQUISITION-RELATED RISKS. The Company has grown in part through mergers
and acquisitions. The Company intends to evaluate acquisitions of product lines
and businesses as part of its business strategy. 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. Future acquisitions
by the Company could result in potentially dilutive issuances of equity
securities, the incurrence of debt 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
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 effectively, including the changes associated with
its acquired businesses and product lines, could have a material adverse effect
on the Company's business, financial condition and results of operations.
23
<PAGE>
KEY EMPLOYEES AND MANAGEMENT OF CHANGE. The Company's success depends on a
limited number of key management employees, most of whom are subject to
post-employment non-competition restrictions. 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, technology,
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 market for the Company's stock is highly
volatile. The trading price of Access Health's common stock is subject to wide
fluctuations in response to a variety of factors including the signing or loss
of a major contract, changes in market analyst estimates and recommendations for
the Company's common stock, fluctuations in operating results, the failure of
operating results to meet market analysts' estimates, changes in government
regulation and general conditions in the health care industry and the economy
any of which 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, which have particularly affected the
market price for the securities of health care companies and which often have
been unrelated to the operating performance of these companies.
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
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 care 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. 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
24
<PAGE>
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 and its business, financial conditions and results of
operations.
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 clinical algorithms and 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
clinical 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.
25
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
27
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Access Health, Inc.
We have audited the accompanying consolidated balance sheets of Access
Health, Inc. as of September 30, 1996 and 1997, and the related consolidated
statements of operations, mandatorily redeemable convertible preferred stock and
stockholders' equity, and cash flows for the three years in the period ended
September 30, 1997. Our audits also included the financial statement schedule
listed in the Index at Item 14(a)2. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. In November 1996,
the Company completed a merger with Informed Access Systems, Inc. ("Informed
Access") in a transaction that was accounted for as a pooling-of-interests. We
did not audit the 1995 financial statements of Informed Access, a wholly-owned
subsidiary, which statements reflect aggregate revenues constituting
approximately 8% of the related consolidated financial statements total for
1995. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
Informed Access is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Access Health, Inc. at
September 30, 1996 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1997, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Sacramento, California
October 27, 1997
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Informed Access Systems, Inc.
We have audited the accompanying consolidated balance sheet of INFORMED
ACCESS SYSTEMS, INC. (a Delaware corporation) and subsidiary as of December 31,
1995, and the related consolidated statements of operations, mandatorily
redeemable convertible preferred stock and stockholders' deficit and cash flows
for the year then ended, not presented separately herein. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financials statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, not presented
separately herein, present fairly, in all material aspects, the financial
position of Informed Access Systems, Inc. and subsidiary as of December 31,
1995, and the results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 12, 1996
29
<PAGE>
ACCESS HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and equivalents....................................................................... $ 26,533 $ 15,991
Available-for-sale securities.............................................................. 14,126 41,969
Accounts and licenses receivable, net of allowance for doubtful accounts of $768
($750 at September 30, 1996)............................................................. 12,944 12,453
Deferred income taxes...................................................................... -- 5,012
Income taxes receivable.................................................................... 1,917 3,231
Prepaid expenses........................................................................... 2,009 2,122
Other current assets....................................................................... 1,073 1,448
--------- ---------
Total current assets..................................................................... 58,602 82,226
Property and equipment, net.................................................................. 16,512 16,150
Purchased intangible assets, net of accumulated amortization of $4,911
($4,327 at September 30, 1996)............................................................. 3,478 2,894
Investment in AHN............................................................................ 5,000 --
Deferred income taxes........................................................................ -- 1,042
Other assets................................................................................. 700 342
--------- ---------
$ 84,292 $ 102,654
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................... $ 4,314 $ 3,634
Accrued payroll and related expenses....................................................... 3,413 3,664
Accrued integration and restructuring costs................................................ -- 3,109
Other accrued expenses..................................................................... 4,980 4,360
Notes payable to related parties........................................................... 1,500 1,264
Current portion of long-term debt.......................................................... 180 198
Current portion of capital lease obligations............................................... 419 457
Deferred revenue........................................................................... 4,500 4,954
--------- ---------
Total current liabilities................................................................ 19,306 21,640
Capital lease obligations.................................................................... 933 481
Long-term debt............................................................................... 411 197
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 September 30,
1997)...................................................................................... 10,995 --
Stockholders' equity:
Preferred stock, $.001 par value--5,000,000 shares authorized, no shares issued and
outstanding.............................................................................. -- --
Common stock, $.001 par value--75,000,000 shares authorized, 18,246,159 shares issued and
outstanding (13,684,927 at September 30, 1996)........................................... 14 18
Additional paid-in capital................................................................. 58,182 80,806
Deferred stock compensation................................................................ (443) --
Accumulated deficit........................................................................ (5,106) (488)
--------- ---------
Total stockholders' equity............................................................... 52,647 80,336
--------- ---------
$ 84,292 $ 102,654
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
30
<PAGE>
ACCESS HEALTH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Care management services....................................................... $ 26,484 $ 61,178 $ 93,729
Licensing and support services................................................. 9,526 10,925 10,598
--------- --------- ---------
Total revenues............................................................... 36,010 72,103 104,327
Costs and expenses:
Cost of revenues:
Care management services..................................................... 19,374 34,653 49,237
Licensing and support services............................................... 4,961 5,349 3,244
Product and other development.................................................. 3,298 6,545 7,922
Sales and marketing............................................................ 5,487 9,468 8,907
General and administrative..................................................... 4,540 10,391 8,614
Transaction costs.............................................................. -- -- 6,345
Integration and restructuring.................................................. -- -- 9,661
--------- --------- ---------
Total costs and expenses..................................................... 37,660 66,406 93,930
--------- --------- ---------
Income (loss) from operations.................................................... (1,650) 5,697 10,397
Non-operating income (expenses):
Impairment loss on interests in AHN............................................ -- -- (10,000)
Interest and other income...................................................... 877 1,633 2,182
Interest expense............................................................... (150) (186) (324)
--------- --------- ---------
Income (loss) before income taxes................................................ (923) 7,144 2,255
Provision (credit) for income taxes.............................................. (242) 6,050 (2,363)
--------- --------- ---------
Net income (loss)................................................................ $ (681) $ 1,094 $ 4,618
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share...................................................... $ (0.06) $ 0.06 $ 0.24
--------- --------- ---------
--------- --------- ---------
Shares used in per share calculations............................................ 11,000 18,502 19,360
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
31
<PAGE>
ACCESS HEALTH, INC.
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MANDATORILY REDEEMABLE STOCKHOLDERS' EQUITY
-------------------------------------------------------------------
CONVERTIBLE PREFERRED
STOCK COMMON STOCK ADDITIONAL
---------------------- ---------------------- PAID-IN DEFERRED STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
----------- --------- ----------- --------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994.......... 2,459,834 $ 3,635 10,901,554 $ 11 $ 22,327 $ -- $ (6,317)
Sale of common stock............... -- -- 263,813 -- 671 -- --
Repayment of stockholder note
receivable....................... -- -- -- -- -- --
Income tax benefit from exercise of
stock options.................... -- -- -- 350 -- --
Sale of mandatorily redeemable
convertible preferred stock and
related issuance costs........... 1,047,394 5,980 -- -- -- -- (41)
Issuance of mandatorily redeemable
convertible preferred stock for
conversion of notes payable and
accrued interest................. 178,512 1,020 -- -- -- -- --
Issuance of common stock........... -- -- 127,483 -- 73 -- --
Net loss........................... -- -- -- -- -- -- (681)
----------- --------- ----------- --------- ----------- ----- -------------
BALANCE, SEPTEMBER 30, 1995.......... 3,685,740 10,635 11,292,850 11 23,421 -- (7,039)
Sale of common stock in secondary
public offering.................. -- -- 1,500,000 2 29,503 -- --
Sale of common stock upon exercise
of warrants and options.......... -- -- 1,049,413 1 2,291 -- --
Income tax benefit from exercise of
stock options.................... -- -- -- -- 2,491 -- --
Sale of mandatorily redeemable
convertible preferred stock...... 48,411 360 -- -- -- -- --
Deferred stock compensation........ -- -- -- -- 476 (476) --
Amortization of deferred stock
compensation..................... -- -- -- -- -- 33 --
Elimination of IAS and CRS net
activity for the three months
ended December 31, 1995.......... -- -- (157,336) -- -- -- 839
Net income......................... -- -- -- -- -- -- 1,094
----------- --------- ----------- --------- ----------- ----- -------------
BALANCE, SEPTEMBER 30, 1996.......... 3,734,151 10,995 13,684,927 14 58,182 (443) (5,106)
Conversion of mandatorily
redeemable convertible preferred
stock into common stock.......... (3,734,151) (10,995) 3,734,151 3 10,992 -- --
Stock compensation costs related to
accelerated vesting of stock
options.......................... -- -- -- -- 1,886 -- --
Amortization of deferred stock
compensation..................... -- -- -- -- -- 443 --
Sale of common stock upon exercise
of warrants and options.......... -- -- 762,581 1 3,803 -- --
Shares issued for services in
connection with acquisition...... -- -- 64,500 -- 2,233 -- --
Income tax benefit from exercise of
stock options.................... -- -- -- -- 3,710 -- --
Net income......................... -- -- -- -- -- -- 4,618
----------- --------- ----------- --------- ----------- ----- -------------
BALANCE, SEPTEMBER 30, 1997.......... -- $ -- 18,246,159 $ 18 $ 80,806 $ -- $ (488)
----------- --------- ----------- --------- ----------- ----- -------------
----------- --------- ----------- --------- ----------- ----- -------------
<CAPTION>
STOCKHOLDER
NOTES
RECEIVABLE TOTAL
--------------- ---------
<S> <C> <C>
BALANCE, SEPTEMBER 30, 1994.......... $ (9) $ 16,012
Sale of common stock............... -- 671
Repayment of stockholder note
receivable....................... 9 9
Income tax benefit from exercise of
stock options.................... -- 350
Sale of mandatorily redeemable
convertible preferred stock and
related issuance costs........... -- (41)
Issuance of mandatorily redeemable
convertible preferred stock for
conversion of notes payable and
accrued interest................. -- --
Issuance of common stock........... -- 73
Net loss........................... -- (681)
--- ---------
BALANCE, SEPTEMBER 30, 1995.......... -- 16,393
Sale of common stock in secondary
public offering.................. -- 29,505
Sale of common stock upon exercise
of warrants and options.......... -- 2,292
Income tax benefit from exercise of
stock options.................... -- 2,491
Sale of mandatorily redeemable
convertible preferred stock...... -- --
Deferred stock compensation........ -- --
Amortization of deferred stock
compensation..................... -- 33
Elimination of IAS and CRS net
activity for the three months
ended December 31, 1995.......... -- 839
Net income......................... -- 1,094
--- ---------
BALANCE, SEPTEMBER 30, 1996.......... -- 52,647
Conversion of mandatorily
redeemable convertible preferred
stock into common stock.......... -- 10,995
Stock compensation costs related to
accelerated vesting of stock
options.......................... -- 1,886
Amortization of deferred stock
compensation..................... -- 443
Sale of common stock upon exercise
of warrants and options.......... -- 3,804
Shares issued for services in
connection with acquisition...... -- 2,233
Income tax benefit from exercise of
stock options.................... -- 3,710
Net income......................... -- 4,618
--- ---------
BALANCE, SEPTEMBER 30, 1997.......... $ -- $ 80,336
--- ---------
--- ---------
</TABLE>
See accompanying notes.
32
<PAGE>
ACCESS HEALTH, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................. $ (681) $ 1,094 $ 4,618
Adjustments to reconcile net income (loss) to net cash provided by operations:
Provision for doubtful accounts............................................. 285 210 18
Depreciation and amortization............................................... 2,181 4,228 6,310
Impairment loss on interests in AHN......................................... -- -- 10,000
Deferred stock compensation................................................. -- 33 443
Accelerated vesting of stock options........................................ -- -- 1,886
Common stock issued for services............................................ -- -- 2,233
Notes payable to related parties............................................ -- 1,500 --
Deferred income taxes....................................................... (183) 348 (6,054)
Changes in:
Accounts and licenses receivable.......................................... (1,532) (6,002) 473
Income taxes receivable................................................... 1,530 658 (1,314)
Prepaid expenses and other current assets................................. (140) (1,699) (488)
Accounts payable.......................................................... 1,115 1,844 (680)
Accrued payroll and related expenses...................................... 1,395 1,517 251
Accrued integration and restucturing costs................................ -- -- 3,109
Other accrued expenses.................................................... 369 3,717 620
Deferred revenue.......................................................... 237 1,660 (454)
--------- ---------- ----------
Net cash provided by operating activities............................... 4,576 9,108 20,971
--------- ---------- ----------
Cash flows from investing activities:
Purchases of available-for-sale securities.................................... (6,919) (33,259) (73,206)
Maturities of available-for-sale securities................................... 4,256 24,305 45,363
Purchase of property and equipment............................................ (5,163) (11,063) (5,696)
Investments in and notes receivable from AHN.................................. -- (5,000) (5,000)
(Increase) decrease in other assets........................................... (76) 387 358
--------- ---------- ----------
Net cash used by investing activities................................... (7,902) (24,630) (38,181)
--------- ---------- ----------
Cash flows from financing activities:
Payment oflong-term debt and capital leases................................... (441) (1,043) (610)
Payment of stockholder note receivable........................................ 9 -- --
Notes payable to related parties.............................................. -- -- (236)
Sale of mandatorily redeemable convertible preferred stock.................... 5,980 360 --
Proceeds from note payable.................................................... -- 680 --
Sale of common stock............................................................ 671 31,797 3,804
Income tax benefit from exercise of common stock.............................. -- -- 3,710
--------- ---------- ----------
Net cash provided by financing activities............................... 6,219 31,794 6,668
--------- ---------- ----------
Net increase (decrease) in cash and equivalents................................. 2,893 16,272 (10,542)
Elimination of Informed Access and CRS net cash activity for the three months
ended December 31, 1995....................................................... -- 446 --
Cash and equivalents at beginning of year....................................... 6,922 9,815 26,533
--------- ---------- ----------
Cash and equivalents at end of year............................................. $ 9,815 $ 26,533 $ 15,991
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
See accompanying notes.
33
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION, BUSINESS AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Access Health, Inc. and its wholly-owned subsidiaries. The consolidated entity
is referred to herein as the Company. All intercompany accounts and transactions
have been eliminated in consolidation. As more fully described in Note 2, during
November 1996, the Company entered into business combinations within Informed
Access Systems, Inc., ("Informed Access") and Clinical Reference Systems, Ltd.,
("CRS"). The business combinations have been accounted for as
poolings-of-interests and the historical consolidated financial statements of
the Company for all dates and periods prior to the business combinations have
been restated to include the financial positions, results of operations and cash
flows of Informed Access and CRS.
The Company develops, markets and supports care management programs which
help managed care organizations, self-insured employers and hospitals manage
consumer demand for health care services.
REVENUE RECOGNITION
Revenues include care management services, which consist of program
membership, member communications and teleservicing fees from the Company's
Personal Health Advisor-Registered Trademark-, FirstHelp-TM- and ASK-A-
NURSE-Registered Trademark- contracts with managed care organizations,
self-insured employers and hospitals. Revenues also include licensing and
support services related to the Company's ASK-A-NURSE-Registered Trademark-,
Cancer HELPLINK-Registered Trademark-, FirstHelp-TM-, Access Care Management
System-SM-, and HealthSelect and patient education software products.
Program membership fees from Personal Health Advisor-Registered Trademark-
and FirstHelp-TM- 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-Registered Trademark-, Cancer
HELPLINK-Registered Trademark-, FirstHelp-TM- and ACMS-SM- are recognized
ratably over the term of the contract. During fiscal 1995, revenues from
ASK-A-NURSE-Registered Trademark- and Cancer HELPLINK-Registered Trademark- were
recognized when implementation services were substantially complete based on
present value of contract installments, discounted at the prime rate (which
ranged from 6% to 9% for the periods presented), plus 3%, that are billable more
than one year after the license grant date. HealthSelect and patient education
software revenue is recognized upon delivery of the software.
Support revenues are comprised of 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.
CASH EQUIVALENTS AND AVAILABLE-FOR-SALE SECURITIES
The Company invests its excess cash in high quality money market instruments
and certain other investments. The Company considers highly liquid investments
with maturities of three months or less to
34
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
be cash equivalents. Available-for-sale securities are recorded at amounts which
approximated fair value as of September 30, 1996 and 1997 and are available to
fund current operations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of office furniture
and equipment, computer equipment, leasehold improvements and computer software
for internal use. Depreciation and amortization of furniture and equipment,
computer equipment and leasehold improvements are provided on the straight line
basis over the useful lives of the respective assets or the lease term if
shorter, which range from two to ten years. Computer software consists of the
direct cost of internally-developed software and purchased software and is being
amortized on the straight-line basis over an estimated useful life of four
years.
PURCHASED INTANGIBLE ASSETS
Purchased intangible assets consist primarily of product rights and are
being amortized on the straight-line basis over three to ten years.
INTERESTS IN AHN
In April 1996, the Company invested $5.0 million in America's Health
Network, L. P. ("AHN"), a new 24-hour 7 days a week cable television channel
devoted to consumer healthcare information. The Company is a limited partner in
AHN. In 1996 the investment in AHN was accounted for using the cost method.
During January 1997 the Company purchased an 8% Convertible Subordinated
Debenture from AHN in the face amount of $5.0 million. The debenture, which
matures on December 31, 2001, is unsecured and 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 interests at the option of the holder. Based on events that occurred
during fiscal 1997, the Company determined the equity investment and the
subordinated debenture to be impaired. Accordingly, they were written off in the
fourth quarter of fiscal 1997.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
During fiscal 1997, sales to each of the Company's three largest customers
were $8,348,000, $8,180,000 and $7,157,000, respectively. During fiscal 1996,
sales to each of the Company's three largest customers were $10,446,000,
$7,472,000 and $7,184,000, respectively.
The Company's accounts and licenses receivable are primarily with companies
in the health care and insurance industries. The Company provides for
uncollectible accounts and licenses receivable and such amounts have been
recorded in accordance with the Company's estimates.
STOCK SPLIT
On February 15, 1996, the Company effected a three-for-two common stock
split. All references in the accompanying financial statements to the number of
common shares and per-share amounts have been retroactively restated to reflect
the stock split.
35
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME (LOSS) PER SHARE
The Company's net income (loss) per share is based upon the weighted average
number of shares of common stock outstanding. Common stock issuable upon the
exercise of stock options and stock warrants has been included in the
computation, to the extent dilutive, using the treasury stock method.
INCOME TAXES
Deferred income tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and laws that
are scheduled to be in effect when the differences are expected to reverse.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and equivalents,
available-for-sale securities, and long-term debt. The carrying values of cash
and equivalents and available-for-sale securities approximate fair value. The
fair value of long-term debt is estimated based on current rates available for
similar debt with similar maturities and securities, and at September 30, 1996
and 1997, approximates the carrying value.
STOCK ISSUED TO EMPLOYEES
As permitted under the provisions of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" ("SFAS 123"), the Company has elected
to account for stock-based compensation using the intrinsic value method
prescribed by Accounting Principles Board's Opinion No. 25 "Accounting for Stock
Issued to Employees" ("APB 25"). Under the intrinsic value method, compensation
cost is the excess, if any, of the quoted market price or fair value of the
stock at the grant date or other measurement date over the amount an employee
must pay to acquire the stock.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates may affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts reported as of and for
the years ended September 30, 1995 and 1996 to conform with the September 30,
1997 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share," which is
required to be adopted on December 31, 1997. At
36
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
that time, the Company will be required to change the method currently used to
compute net income (loss) per share and to restate all prior periods. Under the
new requirements for calculating primary net income (loss) per share, the
dilutive effect of stock options will be excluded. The impact of adopting the
new pronouncement is expected to result in an increase in basic net income
(loss) per share for the years ended September 30, 1996 and 1997 of $.007 and
$.022 per share, respectively.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130
In June 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
is required to be adopted for fiscal years beginning after December 15, 1997.
This statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
This statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income to be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company expects to
adopt Statement No. 130 in the first quarter of fiscal 1999.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131
In June 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for fiscal years beginning after
December 15, 1997. The statement requires that a public company report financial
and descriptive information about its reportable operating segments using the
management approach. The Company expects to adopt Statement No. 131 in the first
quarter of fiscal 1999.
NOTE 2: BUSINESS COMBINATIONS
During November 1996, the Company completed mergers with Informed Access in
exchange for 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, in exchange for 170,000
issued 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 dates and
periods presented.
The consolidated statements of operations and accompanying notes of the
Company for the fiscal year ended September 30, 1995 include the operations of
Informed Access and CRS for the calendar year ended December 31, 1995. The
consolidated statement of operations and accompanying notes of the Company for
the fiscal year ended September 30, 1996 include the operations of Informed
Access and CRS for the twelve months ended September 30, 1996. Accordingly, the
Company's accumulated deficit has been adjusted for the effect of utilizing
differing fiscal year ends for these periods. The combined revenues and net
income (loss) of Informed Access and CRS for the three months ended December 31,
1995 were $1,800,000 and $(128,000), respectively. Subsequent to the business
combinations, the fiscal year-ends of Informed Access and CRS have been changed
from December 31 to September 30 to conform to the fiscal year end of Access
Health.
37
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 2: BUSINESS COMBINATIONS (CONTINUED)
The table below sets for the combined revenues and net income (loss) for the
years ended September 30, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
ACCESS HEALTH INFORMED ACCESS CRS ADJUSTMENT COMBINED
------------- --------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1995
Revenues.............................. $ 31,553 $ 2,957 $ 1,500 -- $ 36,010
Net income (loss)..................... 1,540 (3,745) 226 $ 1,298 (681)
1996
Revenues.............................. $ 62,073 $ 8,668 $ 1,362 -- $ 72,103
Net income (loss)..................... 8,125 (6,007) (391) $ (633) 1,094
</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.
Integration and restructuring costs related to the mergers of Informed
Access and CRS were recorded in the first and fourth quarters of fiscal 1997 and
included approximately $6,250,000 for severance and related expenses,
approximately $400,000 for elimination of redundant technology, approximately
$1,200,000 for discontinuation of facilities, approximately $900,000 for
disposal of assets and approximately $900,000 for relocation and other costs. As
of September 30, 1997, the Company has paid approximately $6,400,000 of these
costs and expenses.
NOTE 3: AVAILABLE-FOR-SALE SECURITIES
The following is a summary of available-for-sale securities as of September
30, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
U.S. government and municipal debt securities.................................... $ 23,789 $ 8,237
Corporate debt securities........................................................ 6,451 7,968
Corporate and municipal bond funds............................................... 9,526 28,131
---------- ---------
Total available-for-sale securities.............................................. 39,766 44,336
Less: amounts included in cash and equivalents................................... (25,640) (2,367)
---------- ---------
$ 14,126 $ 41,969
---------- ---------
---------- ---------
</TABLE>
Realized and unrealized gains and losses on available-for-sale securities
were immaterial as of and for the years ended September 30, 1996 and 1997.
38
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 3: AVAILABLE-FOR-SALE SECURITIES (CONTINUED)
The carrying value of available-for-sale securities at September 30, 1997,
by contractual maturity, are shown below (in thousands).
<TABLE>
<S> <C>
Less than 1 year........................................................... $ 20,764
1 to 5 years............................................................... 5,116
5 to 10 years.............................................................. 0
After 10 years............................................................. 18,456
---------
Total available-for-sale securities........................................ $ 44,336
---------
---------
</TABLE>
NOTE 4: PROPERTY AND EQUIPMENT
As of September 30, 1996 and 1997, property and equipment consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ----------
<S> <C> <C>
Computer equipment............................................................... $ 16,349 $ 19,961
Office furniture and equipment................................................... 3,804 4,577
Computer software................................................................ 2,295 2,970
Leasehold improvements........................................................... 1,384 1,450
--------- ----------
23,832 28,958
Less: accumulated depreciation................................................... (7,320) (12,808)
--------- ----------
$ 16,512 $ 16,150
--------- ----------
--------- ----------
</TABLE>
NOTE 5: NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties are comprised of notes payable arising from
bonuses to members of management who are also stockholders of the Company, and
are due January 1998.
NOTE 6: LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The Company 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 $2.0 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
September 30, 1997, cumulative borrowings under the note payable facility and
capital lease facility aggregated $395,000 and $676,000, respectively (at
September 30, 1996, borrowings under the note payable facility and capital lease
facility were $591,000 and $953,000, respectively). Borrowings under the Term
Agreement are secured by certain of the Company's equipment with a net book
value of approximately $1,200,000 at September 30, 1997.
Amounts payable under the Term Agreement bear interest at 14.48%, are due at
varying dates through September 1999, and require monthly payments of principal
and interest totaling approximately
39
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 6: LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
$52,000. Amounts due under the note payable facility of the Term Agreement are
$198,000 and $197,000 in fiscal 1998 and 1999, respectively.
In connection with the Term Agreement, the Company issued warrants to the
lender in October 1995 and May 1996. The warrants were converted into warrants
to purchase common stock as a result of the merger (Note 2). The warrants were
converted into 8,638 shares of common stock in 1997.
The Company has other capital leases outstanding aggregating $262,000 at
September 30, 1997 ($399,000 at September 30, 1996).
The following is a schedule of future minimum lease payments under all
capital leases, together with the present value of net minimum lease payments,
as of September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------------------------------------------------------------------------------------------
<S> <C>
1998........................................................................................... $ 556
1999........................................................................................... 474
2000........................................................................................... 36
---------
1,066
Less: amount representing interest and taxes................................................... (128)
---------
Present value of future minimum lease payments............................................ 938
Less: current portion.......................................................................... (457)
---------
Capital lease obligations, long-term...................................................... $ 481
---------
---------
</TABLE>
Interest paid during the years ended September 30, 1995, 1996 and 1997 was
$150,000, $170,000 and $295,000, respectively.
NOTE 7: INCOME TAXES
The provision (credit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current.................................................................. $ 40 $ 4,459 $ 2,523
Deferred (prepaid)....................................................... (259) -- (4,878)
--------- --------- ---------
Total federal.......................................................... (219) 4,459 2,355
State:
Current.................................................................. 6 1,591 1,168
Deferred (prepaid)....................................................... (29) -- (1,176)
--------- --------- ---------
Total state............................................................ (23) 1,591 (8)
--------- --------- ---------
Provision (credit) for income taxes........................................ $ (242) $ 6,050 $ (2,363)
--------- --------- ---------
--------- --------- ---------
</TABLE>
40
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 7: INCOME TAXES (CONTINUED)
The income tax provisions differ from the amount computed by applying the
federal statutory income tax rate to income (loss) before income taxes. A
reconciliation to the statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30,
--------------------
1995 1996 1997
---- ---- ------
<S> <C> <C> <C>
Statutory federal income tax rate........................................ (34%) 35% 35%
State income taxes, net of federal benefit............................... (2) 15 (1)
Tax exempt interest income............................................... -- (2) (5)
Transaction costs........................................................ -- -- 51
Amortization............................................................. -- -- (8)
Utilization of net operating loss........................................ -- -- (177)
Unconsolidated operating loss with no current benefit.................... 9 37 --
Other.................................................................... 1 -- --
---- ---- ------
Effective income tax rate................................................ (26%) 85% (105)%
---- ---- ------
---- ---- ------
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities at September 30, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Deferred income tax liabilities:
Depreciation and amortization.................................................... $ 1,080 $ 964
Prepaid expenses................................................................. 2,354 2,933
--------- ---------
Total deferred income tax liabilities.............................................. 3,434 3,897
Deferred income tax assets:
Research and development credit.................................................. 161 161
Amortization..................................................................... 954 1,016
Vacation accrual................................................................. 297 430
Accrued expenses................................................................. 784 1,548
State income taxes............................................................... 386 243
Receivable allowances and reserves............................................... 288 3,353
Investment loss.................................................................. -- 3,183
Net operating loss............................................................... 4,243 371
Other............................................................................ 60 17
--------- ---------
Total deferred income tax assets................................................... 7,173 10,322
Less: valuation allowance.......................................................... (3,739) (371)
--------- ---------
Net deferred income tax asset...................................................... $ -- $ 6,054
---------
---------
Current portion.................................................................... 5,012
Long term portion.................................................................. 1,042
---------
$ 6,054
---------
---------
</TABLE>
41
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 7: INCOME TAXES (CONTINUED)
Income tax payments were $50,000, $4,908,900 and $1,199,000 for the years
ended September 30, 1995, 1996 and 1997, respectively. The Company received
income tax refunds totaling $1,629,658 during the year ended September 30, 1995.
During 1997, the Company liquidated one of its subsidiaries, resulting in
the ability to utilize the net operating loss and reduce the valuation allowance
by $3,368,000. The Company has a state net operating loss carry forward of
approximately $6,700,000 which expires between 2007 and 2011. The Company also
has approximately $161,000 of federal research and development credits which
expire between 2007 and 2011.
Realization of the Company's net deferred tax assets is dependent upon the
Company generating sufficient taxable income in future years in appropriate tax
jurisdiction to obtain benefit from the reversal of temporary differences and
from tax credit carryforwards. The amount of deferred tax assets considered
realizable is subject to adjustment in future periods if estimates of future
taxable income are reduced.
NOTE 8: COMMITMENTS
OPERATING LEASES
The Company leases its offices under the terms of operating leases that
expire between September 1998 and December 2012. Annual minimum rental payments
for fiscal 1998, 1999, 2000, 2001, 2002 and thereafter are $3,032,000,
$2,920,000 $2,695,000, $2,641,000, $1,597,000 and $17,381,000, respectively.
Rental expenses are recorded on a straight-line basis over the respective lease
terms and were $1,549,000, $1,883,000 and $2,521,000 for the years ended
September 30, 1995, 1996 and 1997, respectively.
NOTE 9: STOCKHOLDERS' EQUITY
COMMON STOCK
In December 1995, the Company completed a secondary public offering of its
common stock. A total of approximately 4.8 million shares were sold at $21.33
per share of which 1.5 million shares were sold by the Company and approximately
3.3 million shares were sold by certain of the Company's original Access Health,
Inc. venture capital stockholders. Net proceeds to the Company from the offering
were approximately $29.5 million.
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. As of
September 30, 1996, 3,734,151 aggregate shares of Series A, B, and C mandatorily
redeemable preferred stock were issued and outstanding. Each share of
mandatorily redeemable preferred stock was converted into one share of common
stock upon completion of the merger (Note 2).
STOCK OPTIONS
At September 30, 1997, the Company has four stock-based compensation plans,
which are described below. The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employee" (APB
25) and related Interpretations in accounting for its employee stock
42
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
options because, as discussed below, the alternative fair value accounting
provided for under FASB Statement No. 123, "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options.
EMPLOYEE OPTIONS
The Company established an employee common stock option plan in 1989 (the
"1989 Plan") under which incentive stock options, nonqualified stock options,
and restricted common stock may be issued or sold to employees and consultants.
As of September 30, 1997 a total of 3,550,000 shares of common stock have been
reserved for issuance under these plans, of which 127,647 shares remained
available for the granting of options at September 30, 1997.
Incentive stock options generally become exercisable at the rate of twenty
percent per year commencing on the first anniversary of the date of grant. As of
September 30, 1996 and 1997, options to purchase 330,221 shares at exercise
prices ranging from $0.167 to $12.42 per share and 677,129 shares at exercise
prices ranging from $0.333 to $39.00 per share, respectively, were exercisable.
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 with Informed
Access in November 1996, the unamortized balance of deferred stock compensation
was recorded as an expense in the quarter ended December 31, 1996.
On November 18, 1996, 739,500 options under the Informed Access employee
stock option plan converted to 596,593 Access Health Options. As of September
30, 1997, 297,055 shares were outstanding and 291,693 were exercisable at prices
ranging from $0.18 to $14.375 per share.
DIRECTOR OPTIONS
The Company established a director common stock participation plan in 1995
(the "1995 Director Stock Option Plan") under which nonqualified stock options
may be granted to directors. As of September 30, 1997, a total of 150,000 shares
of common stock have been reserved for issuance under this plan, of which 93,750
shares remained available for the granting of options at September 30, 1997. As
of September 30, 1997, options to purchase 56,250 shares were granted and 32,812
shares were exercisable at prices ranging from $10.25 to $54.25 per share.
SUPPLEMENTAL PLAN
The Company established a Supplemental Plan in fiscal 1997 (the
"Supplemental Plan") under which nonqualified stock options may be granted to
employees and consultants. As of September 30, 1997, a total of 1,000,000 shares
of common stock have been reserved for issuance under this Plan, of which
706,058 had been granted, 153,154 were cancelled and 447,096 were available for
grant. As of September 30, 1997, 5,000 were exercisable at prices ranging from
$14.375 to $33.125 per share.
43
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
STOCK PURCHASE PLAN
The Company established a stock purchase plan in 1991 (the "1991 Plan")
under which most employees of the Company may participate. A total of 825,000
shares of the Company's common stock have been reserved for issuance under the
1991 Plan. The 1991 Plan is administered by a committee appointed by the Board
of Directors. Employees can elect to have from 1% to 10% of their monthly gross
salary deducted during each offering period and applied to the purchase of
stock. The purchase price is an amount equal to 85% of the lower fair market
values of a share of common stock of the Company as of the beginning or end of
each six-month offering period. During the years ended September 30, 1995, 1996
and 1997, the Company sold 48,548 shares of common stock for $468,710, 41,659
shares of common stock for $753,146 and 42,272 shares of common stock for
$990,239, respectively. For purposes of calculating the pro forma disclosures
required by SAFS 123, the fair value of the employee's purchase rights was
estimated using the Black-Scholes option pricing model with the following
assumptions for the years ended September 30, 1996 and 1997: dividend yield of
0; expected life of 6 months; expected volatility of .722; and risk-free
interest rate of 5.70% for both periods. The weighted-average fair value of
those purchase rights granted during the years ended September 30, 1996 and
1997, was $7.61 and $12.33, respectively.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 PRO FORMA DISCLOSURES
Pro forma information regarding net income (loss) and net income (loss) per
share is required by SFAS 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to October 1, 1995 under the fair value method of SFAS 123.
The fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions for fiscal
1996 and 1997: risk-free interest rate range of 5.70% to 6.05%; a dividend yield
of 0%; volatility factors of the expected market price of the Company's common
stock of .722; and an average expected life of the option of 3.3 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period. The Company's pro forma
information, which includes the stock option plans and the employee stock
purchase plan follows (in thousands except for per share information):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER
30,
---------------------
1996 1997
---------- ---------
<S> <C> <C>
Net income as reported............................................................ $ 1,094 $ 4,618
Net loss pro forma................................................................ (18,346) (4,150)
Net income per share as reported.................................................. 0.06 0.24
Net loss per share pro forma...................................................... (1.10) (0.23)
</TABLE>
44
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
Because SFAS 123 is applicable only to options granted subsequent to October
1, 1995, its pro forma effect will not be fully reflected until 2000.
A summary of the Company's stock option activity, and related information
for the years ended September 30, 1995, 1996 and 1997 follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Balance, September 30, 1994............................................. 1,331,596
Options granted....................................................... 523,929
Options exercised..................................................... (192,632)
Options cancelled..................................................... (102,194)
-----------
Balance, September 30, 1995............................................. 1,560,699
Options granted....................................................... 1,823,699 $ 22.19
Options exercised..................................................... (510,869) 2.53
Options cancelled..................................................... (290,884) 21.41
-----------
Balance, September 30, 1996............................................. 2,582,645
Options granted....................................................... 2,995,314 22.60
Options exercised..................................................... (659,730) 4.06
Options cancelled..................................................... (1,488,070) 30.96
-----------
Balance, September 30, 1997............................................. 3,430,157
-----------
-----------
</TABLE>
The weighted-average exercise price of options granted in 1996 and 1997 with
option prices equal to the fair market value of the Company's stock on the grant
date was $22.19 and $22.61 respectively, and the weighted average grant date
fair value of these options was $32.30 and $22.61 respectively.
The following summarized information related to options outstanding and
options exercisable at September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
RANGE OF OPTIONS REMAINING CONTRACTUAL OPTIONS
EXERCISE PRICES OUTSTANDING LIFE (IN YEARS) EXERCISABLE
- ------------------------------------------------------ ----------- ------------------------- ----------
<S> <C> <C> <C>
$ 0.18 - $ 4.16....................................... 405,993 6.98 380,176
$ 4.33 - $14.12....................................... 345,556 4.73 204,989
$14.37 - $14.37....................................... 1,509,487 9.45 59,135
$15.33 - $17.83....................................... 435,260 8.04 279,060
$18.66 - $29.45....................................... 61,362 9.02 15,674
$30.00 - $30.00....................................... 450,000 9.53 5,000
$33.12 - $34.62....................................... 115,000 9.13 53,750
$39.00 - $39.00....................................... 500 8.72 100
$50.62 - $50.62....................................... 92,000 3.60 46,000
$54.25 - $54.25....................................... 15,000 8.83 8,750
----------- ----------
3,430,157 1,052,634
----------- ----------
----------- ----------
</TABLE>
45
<PAGE>
ACCESS HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
COMMON STOCK WARRANTS AND OPTIONS
In October 1988, nonqualified stock options to purchase 98,974 shares of
Series A Preferred Stock at $0.46 per share, which converted to common stock
options on February 28, 1992, were granted to a former director. As of September
30, 1997, 96,617 shares of common stock have been issued pursuant to this
option.
Nonqualified stock options to purchase 22,500 shares of common stock at
prices ranging from $4.167 to $6.667 per share were granted in fiscal 1993 to
certain consultants of the Company. The options become exercisable in equal
installments over a five-year period commencing on the first anniversary of the
date of grant; as of September 30, 1997, 15,000 shares of common stock have been
purchased pursuant to these options and 3,000 of the remaining 7,500 shares are
exercisable.
In May 1996, the Company granted 2,000 shares of restricted stock to an
officer. The Company retained the right to repurchase, at the market price on
the date of grant ($50.625 per share), all of the shares if the officer left the
Company during the first year after the grant date and half of the shares if the
officer left the Company during the second year after the grant date. That
officer left the Company April 1, 1997, and all shares were vested pursuant to
agreement with such officer.
During 1996, the Company granted nonqualified stock options to purchase
230,000 shares of common stock at $50.625 per share to an officer. That officer
left the Company April 1, 1997. Of such options, 92,000 become exercisable in
equal installments over a two-year period commencing on the first anniversary of
the date of grant. As of September 30, 1997, 46,000 shares are exercisable. The
remainder have been cancelled.
During 1997, the Company granted nonqualified stock options to purchase
33,000 shares of common stock at $14.375 per share to an officer. The options
will become exercisable in equal installments over a five-year period commencing
on the first anniversary of the date of grant. As of September 30, 1997, none of
the shares are exercisable.
46
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
47
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information regarding Directors and Executive
Officers appearing under the heading "Election of Directors" in the Registrant's
proxy statement for the annual meeting of stockholders to be held on February
25, 1998, which information is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information regarding executive compensation
appearing under the heading "Executive Compensation and Other Matters" in the
Registrant's proxy statement for the annual meeting of stockholders to be held
on February 25, 1998, which information is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information regarding security ownership appearing
under the heading "Record Date and Principal Share Ownership" in the
Registrant's proxy statement for the annual meeting of stockholders to be held
on February 25, 1998, which information is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
48
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
1. The financial statements as set forth under Item 8 of this report on
Form 10K are included.
2. FINANCIAL STATEMENT SCHEDULES. The following consolidated financial
statement schedules of Access Health, Inc. for each of the three years ended
September 30, 1997 are filed as part of this Report and should be read in
conjunction with the consolidated financial statements:
<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
- ---------------------------------------------------------------------------------------------- -------------
<S> <C>
Schedule II Valuation and Qualifying Accounts................................................. 55
</TABLE>
Schedules not listed above have been omitted because they are not applicable
or are not required to be set forth therein is included in the consolidated
financial statements or notes thereto.
(b) REPORTS ON FORM 8-K
On November 27, 1996, the Company filed a report on Form 8-K which disclosed
its acquisition on November 18, 1996 of Informed Access Systems, Inc., a
Delaware corporation ("Informed Access"). The Company acquired Informed Access
pursuant to a merger (the "Merger") of Access Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of the Company, with and into Informed
Access, following the approval of the Merger at a special meeting of the
Company's stockholders on November 18, 1996. At the effective time of the
Merger, Informed Access became a wholly-owned subsidiary of the Company. The
terms of the Merger are described in the Form 8-K.
On January 31, 1997, the Company filed a Form 8-K/A that amended a Form 8
dated November 18, 1996 and filed on November 27, 1996 describing the Company's
the Company's acquisition of Informed Access Systems. The Form 8-K/A filed
financial information reflecting unaudited pro forma condensed financial
statements that assumed a business combination between Access Health and
Informed Access Systems.
On February 7, 1997, the Company filed a Form 8-K relating to the completion
of its acquisition of Informed Access Systems and Clinical Reference Systems,
including audited supplemental financial statements.
(c) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<S> <C>
2.1(J) 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
2.2(M) Conformed Agreement and Plan of Reorganization by and among the Registrant, CRS and Access Colorado,
Inc. dated as of September 5, 1996
3.1(M) Amended and Restated Certificate of Incorporation
3.2(M) Amended and Bylaw Amendments
3.3(Q) 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(M) Specimen Stock Certificate
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<S> <C>
4.2(A) Registration Rights Agreement dated November 25, 1996 between Registrant and certain parties named
therein
4.3(M) Shareholder's Representation Statement and Registration Rights Agreement dates as of November 25,
1996 between Registrant and various investors
4.4(M) Registration Rights Agreement dated November 18, 1996
4.5(Q) Form of Preferred Shares Rights Agreement, dated as of March 12, 1997 between the Company and the
First National Bank of Boston, including exhibits
10.1(N) Registrant's 1989 Incentive Stock Plan (as amended)
10.2(H) Registrant's 1991 Employee Stock Purchase Plan (as amended)
10.3(A) Lease dated April 10, 1991 for Registrant's office equipment at 11020 White Rock Road, Rancho
Cordova, California and 104 Wilmot Road, Deerfield, Illinois
10.4(B) Lease dated June 15, 1992 for Registrant's facilities at 11020 White Rock Road, Rancho Cordova,
California
10.5(B) Form of Note and Security Agreement for Registrant's office equipment at 11020 White Rock Road,
Rancho Cordova, California
10.6(B) Lease dated February 19, 1992 for Registrant's office equipment at 11020 White Rock Road, Rancho
Cordova, California and 104 Wilmot Road, Deerfield, Illinois
10.7(A) Sale and Installation Agreement dated November 16, 1990 between Registrant and Aspect
Telecommunications Corporation
10.8(B) Lease dated May 5, 1992 for Registrant's office equipment at 11020 White Rock Road, Rancho Cordova,
California and 104 Wilmot Road, Deerfield, Illinois
10.9(M) Form of Director and Officer Indemnification Agreement
10.10(C) Equipment Financing Agreement for Registrant's office and computer equipment at 11020 White Rock
Road, Rancho Cordova, California and 3060 Salt Creek Lane, Arlington Heights, Illinois
10.11(E) First Amendment to Lease dated August 6, 1993 for Registrant's facility at 11020 White Rock Road,
Rancho Cordova, California
10.12(E) Lease dated August 13, 1993 for Registrant's facility at 3060 Salt Creek Lane, Arlington Heights,
Illinois
10.13(E) Lease dated November 1, 1993 for Registrant's facility at 2510 W. Dunlap Drive, Phoenix, Arizona
10.14(D) Instruments Defining the Rights of Security Holders-- Warrants for the Purchase of Common Stock
10.15(D) Instruments Defining the Rights of Security Holders--Registration Rights
10.16(D) Common Stock Purchase Option Agreement
10.17(H) Registrant's 1995 Director Option Plan
10.18(L) Registrant's 1996 Supplemental Stock Plan
10.19(G) Employment Agreement with Jeremy J. Nobel, M.D.
10.20(I)+ Amended and Restated Agreement of Limited Partnership of AHN
10.21(I)+ Admission Agreement dated April 15, 1996
10.22(I)+ Partnership Interest Option Agreement dated April 15, 1996
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<S> <C>
10.23(I) Line of Credit Note dated May 7, 1996
10.24(M) Employment Agreement with Thomas E. Gardner dated December 1, 1996
10.25(N) Employment Agreement with Joseph P. Tallman dated November 18, 1996
10.26(O) AHN Partners, L.P., 8% Convertible Subordinated Debenture due 2001
10.27(O) Form of Change of Control/Severance Agreement for all named Executive Officers
10.28(P) Amendment to Employment Agreement dated April 30, 1997 between Registrant and Kenneth B. Plumlee
10.29(P) Amendment to Stock Option Agreement dated April 30, 1997 between Registrant and Kenneth B. Plumlee
10.30(P) Separation Agreement and Mutual Release dated April 30, 1997 between Registrant and Thomas E.
Gardner
10.31 Employment Agreement dated December 1, 1996 between Registrant and Kenneth B. Plumlee
10.32 Severance Agreement dated July 1, 1997 between Registrant and Kipp Johnson
10.33 Consulting Agreement dated July 1, 1997 between Registrant and John V. Crisan
10.34 Employment Agreement dated November 18, 1996 between Registrant Timothy H. Connor
10.35 Lease Agreement dated March 3, 1997 for Registrant's facility at 329 and 335 Interlocken Parkway,
Broomfield, Colorado
10.36 Second Amended and Restated Agreement of Limited Partnership of AHN Partners, L.P., dated November
1, 1997
11.1 Statement re: Computation of Per Share Earnings
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants
</TABLE>
- ------------------------
(A) Incorporated by reference to Registrant's Form S-1 Registration No.
33-44604.
(B) Incorporated by reference to Registrant's Form 10K for the year ended
September 30, 1992.
(C) Incorporated by reference to Registrant's Form 10Q for the quarter ended
March 31, 1993.
(D) Incorporated by reference to Registrant's Form 10Q for the quarter ended
June 30, 1993.
(E) Incorporated by reference to Registrant's Form 10K for the year ended
September 30, 1993.
(F) Incorporated by reference to Registrant's Form 10K for the year ended
September 30, 1995.
(G) Incorporated by reference to Registrant's Form 10K/A for the year ended
September 30, 1995.
(H) Incorporated by reference to Registrant's Form 10Q for the quarter ended
December 31, 1995.
(I) Incorporated by reference to Registrant's Form 10Q for the quarter ended
June 30, 1996.
(J) Incorporated by reference to Registrant's Registration Statement on Form S-4
(No. 333-13931).
(K) Incorporated by reference to Registrant's Registration Statement on Form S-8
(No. 333-04662).
(L) Incorporated by reference to Registrant's Registration Statement on Form S-8
(No. 333-18163).
(M) Incorporated by reference to Registrant's Form 10K for the year ended
September 30, 1996.
51
<PAGE>
(N) Incorporated by reference to Registrant's Form 10Q for the quarter ended
December 31, 1996.
(O) Incorporated by reference to Registrant's Form 10Q for the quarter ended
March 31, 1997.
(P) Incorporated by reference to Registrant's Form 10Q for the quarter ended
June 30, 1997.
(Q) Incorporated by reference to Registrant's Registration Statement on Form 8-A
filed on March 13, 1997 (No. 000-19758).
+ Confidential treatment sought for portions of document.
52
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Broomfield, State of
Colorado, on the 19th day of December, 1997.
ACCESS HEALTH, INC.
By: /s/ Joseph P. Tallman
-----------------------------------------
Joseph P. Tallman
President, Chief Executive Officer and
Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph P. Tallman and Timothy H. Connor, and each
of them, his attorneys-in-fact, and agents, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Report on Form 10-K, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and conforming all that said
attorneys-in-fact and agents of any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
53
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ Joseph P. Tallman
- ------------------------------ President, Chief Executive December 12, 1997
Joseph P. Tallman Officer and Director
/s/ Timothy H. Connor
- ------------------------------ Senior Vice President and December 12, 1997
Timothy H. Connor Chief Financial Officer
/s/ John V. Crisan Senior Vice President and
- ------------------------------ Chief Accounting Officer December 12, 1997
John V. Crisan and Treasurer
/s/ John R. Durant
- ------------------------------ Director December 12, 1997
John R. Durant
/s/ Kinney L. Johnson
- ------------------------------ Director December 12, 1997
Kinney L. Johnson
/s/ Alice H. Lusk
- ------------------------------ Director December 12, 1997
Alice H. Lusk
/s/ Richard C. Miller
- ------------------------------ Director December 12, 1997
Richard C. Miller
/s/ Kenneth B. Plumlee
- ------------------------------ Director December 12, 1997
Kenneth B. Plumlee
/s/ Edward K. Rygiel
- ------------------------------ Director December 12 1997
Edward K. Rygiel
/s/ Frank G. Washington
- ------------------------------ Director December 12, 1997
Frank G. Washington
54
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ACCESS HEALTH, INC.
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------- --------- ---------------------- ----------- ---------
ADDITIONS
----------------------
(1) (2)
BALANCE CHARGED CHARGED TO
AT TO COSTS OTHER BALANCE
BEGINNING AND ACCOUNTS DEDUCTIONS AT END OF
DESCRIPTION OF PERIOD EXPENSES -DESCRIBE -DESCRIBE PERIOD
- ------------------------------------- --------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1995:
Deducted from asset account:
Allowance for doubtful
accounts....................... $ 269,000 $ 177,000 $ 130,000(b) $ 28,000(a) $ 548,000
Year ended September 30, 1996:
Deducted from asset account:
Allowance for doubtful
accounts....................... $ 548,000 $ 331,000 $ 120,000(b) $ 249,000(a) $ 750,000
Year ended September 30, 1997
Deducted from asset account:
Allowance for doubtful
accounts....................... $ 750,000 $ 153,000 $ 120,000(b) $ 255,000(a) $ 768,000
</TABLE>
- ------------------------
(a) Represent accounts written off
(b) Represent additions charged to revenues related to estimated enrollee usage
adjustments
55
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into effective as of
December 1, 1996 (the "Effective Date") by and between Access Health, Inc. (the
"Company"), and Kenneth B. Plumlee ("Employee").
RECITALS
WHEREAS, Employee is currently employed by the Company as the Chairman of
the Board of Directors, and the parties desire to enter into this agreement with
respect to the Employee's transition from full-time to part-time employment with
the Company.
NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Employee (collectively referred to as the "Parties") hereby agree as
follows:
1. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "CHANGE IN CONTROL" shall mean the occurrence of any of the
following events:
(i) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or 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) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the stockholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets, except a sale to an entity of which at least fifty percent
(50%) of the total voting power represented by the voting securities of such
entity are held by stockholders of the Company at the time of such sale.
(ii) The acquisition by any Person as Beneficial Owner (as such
terms are defined in the Securities Exchange Act of 1934, as amended), directly
or indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities.
(iii) A majority of the Board of Directors of the Company in
office at the beginning of any thirty-six (36) month period (x) is replaced
during the course of such thirty-six (36) month period (other than by voluntary
resignation of individual directors in the ordinary course of business) and
(y) such replacement was not initiated by the Board of Directors of the Company
as constituted at the beginning of such thirty-six (36) month period and as
changed during such period to add directors approved by the incumbent Board of
Directors.
<PAGE>
(b) "DISABILITY" shall mean that the Employee, at the time notice is
given, has been unable to perform his duties under this Agreement for a period
of not less than ninety (90) days consecutively as the result of his incapacity
due to physical or mental illness.
(c) "CAUSE" shall mean the termination of employment of Employee
shall have taken place as a result of (i) Employee's continued failure to
substantially perform his principal duties (other than as a result of
Disability) after thirty (30) days' written notice from the Company specifying
the nature of Employee's failure and demanding that such failure be remedied;
(ii) Employee's material and continuing breach of his obligations to the Company
set forth in this Agreement or the Confidentiality Agreement (as defined herein)
after thirty (30) days' written notice from the Company specifying the nature of
Employee'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) Employee's being convicted of a felony or (iv) act
or acts of dishonesty undertaken by Employee and intended to result in
substantial gain or personal enrichment of Employee at the expense of the
Company.
2. EMPLOYMENT PERIOD. The period commencing on December 1, 1996, and
ending on September 30, 1998 (herein the "Employment Period").
3. POSITION AND RESPONSIBILITIES. During the Employment Period, the
Company shall employ Employee on a part-time basis to perform such services as
described herein; provided, however, the Company shall not require Employee to
perform services for more than one-half of the business days in any one month
during the Employment Period. During the Employment Period, Employee shall be
employed in the capacity of Chairman of the Board of Directors. Employee's
responsibilities shall include: (i) managing the Board of Directors agenda and
meetings; (ii) working with the Chief Executive Officer on the Company's
long-term strategy, strategic relationships, new product developments and
investor relations; and (iii) such other duties and responsibilities as shall be
mutually agreed to by Employee and the Chief Executive Officer. Throughout the
Employment Period, the Company shall use its best efforts, without extraordinary
expense, to have Employee re-elected to serve on the Company's Board of
Directors. Employee and the Chief Executive Officer of the Company may mutually
agree to change Employee's capacity and/or responsibilities during the
Employment Period without thereby terminating or otherwise amending this
Agreement.
4. STOCK OPTIONS. The Company will provide the following in connection
with Employee's outstanding stock options:
(a) CONTINUED VESTING. During the Employment Period, all unvested
options of Employee shall continue to vest as if Employee were a full-time
employee.
(b) VESTING UPON CONTINUED SERVICE. After the expiration of the
Employment Period, all unvested options of Employee shall continue to vest for
so long as Employee continues to serve the Company as a member of the Board of
Directors.
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(c) VOLUNTARY TERMINATION. Vesting of all unvested options of
Employee shall terminate if Employee (x) voluntarily terminates this Agreement
or (y) voluntarily discontinues service to the Company as a member of the Board
of Directors.
(d) ACCELERATED VESTING. All unvested options of Employee shall
immediately become vested upon the following conditions: (i) if Employee is
terminated without Cause; (ii) if Employee is not re-elected as a director of
the Company by the stockholders of the Company; (iii) in the event of a Change
In Control; (iv) in the event of death or Disability of Employee or (v) if
Employee and the Chief Executive Officer of the Company mutually agree to
terminate Employee's services under this Agreement or as a member of the Board
of Directors prior to the expiration of the Employment Period.
(e) EXTENSION OF EXERCISE PERIOD. Notwithstanding the provisions
specified in any option agreement held by Employee or any Plan under which
options may have been granted to him, Employee shall continue to have the right
to exercise any vested options held by him through the twelve (12) month period
following the later of (i) the end of the Employment Period or (ii) the date
Employee first no longer serves as a member of the Company's Board of Directors;
provided, however, in no event shall Employee be entitled to exercise an option
beyond the "Term/Expiration Date" specified in the particular option agreement.
5. BASE COMPENSATION, DEFERRED COMPENSATION AND BENEFITS DURING THE
EMPLOYMENT PERIOD.
(a) BASE COMPENSATION. Employee shall be paid a salary during the
Employment Period at the annual rate of $150,000 payable bi-monthly.
(b) DEFERRED COMPENSATION. The Company shall provide to Employee a
deferred compensation benefit in the aggregate amount of $680,000 which shall be
payable within thirty (30) days of the effective date of this Agreement.
(c) BENEFITS. During the Employment Period, Employee shall be
entitled to receive all executive benefits currently provided to senior
management of the Company including, but not limited to, medical, dental,
accidental death, dismemberment and long-term disability insurance, life
insurance and car allowance. Employee's COBRA benefit period shall begin at the
end of the Employment Period.
(d) SEVERANCE PAYMENT. Employee shall receive a payment equal to the
amount of salary that would be due to Employee under this Agreement for the
remaining Employment Period (i) if Employee is terminated without Cause; (ii) if
Employee is not re-elected as a director of the Company by the stockholders of
the Company; (iii) in the event of a Change In Control; (iv) in the event of
death or Disability of Employee or (v) if Employee and the Chief Executive
Officer of the Company mutually agree to terminate Employee's services under
this Agreement or as a member of the Board of Directors prior to the expiration
of the Employment Period. The severance payment shall be payable within
ten (10) days after the foregoing event.
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6. CONFIDENTIALITY. Employee acknowledges that during the course of his
employment he has had and will have access to a wide range of extremely
sensitive, non-public information concerning the Company, its future business
and product plans, its marketing strategies and its sales organization.
Employee acknowledges that all of this information is covered by the
Confidentiality/Proprietary Information Agreement that he signed in connection
with his employment which is attached hereto as EXHIBIT A. Employee further
agrees that the Confidentiality/Proprietary Information Agreement will govern
his treatment of the information to which Employee has been privy during the
full course of his employment by the Company, and/or its subsidiaries.
7. PAYMENT OF SALARY. Employee acknowledges and represents that except
as otherwise expressly provided herein, the Company has paid or made all salary,
bonuses, equity grants and any and all other compensation or benefits due to
Employee as of the Effective Date.
8. NON-COMPETITION. During the Employment Period, Employee shall not
provide services, whether for compensation or otherwise, as an officer,
director, employee, consultant or in any other capacity to any person or company
that competes, directly or indirectly, in the field of health care targeted by
the Company's products, projects or services. In this regard, Employee
acknowledges that the business of the Company is national and international in
nature. Employee also acknowledges that this period of time, scope of business
and geographic extent are reasonably necessary to protect the legitimate
business interests of the Company. In the event Employee breaches this Section,
Employee agrees that all obligations of the Company to pay salary and benefits
during the Employment Period and to accelerate options as provided in Section 4
herein shall immediately terminate and Employee shall repay any amounts paid to
Employee after the date Employee breached this Section.
9. NON-SOLICITATION. During the Employment Period, Employee will not
directly or indirectly solicit or encourage any then current Company employee to
terminate his or her employment with the Company for the purpose of working as
an officer, director, employee, consultant or in any other capacity for either
himself or any of his employers. For purposes of the above, an employer of
Employee's will be deemed to include (i) any parent, subsidiary or other
affiliate of such an employer or (ii) any person or company for which Employee
provides consulting services or for which he acts in the capacity of director or
for which he acts in any other capacity.
10. ATTORNEYS FEES. The Company will reimburse Employee for up to $5,000
in reasonable attorneys fees and expenses incurred by Employee in negotiating
this Agreement or otherwise in connection with this Agreement after it has been
executed by both parties.
11. PROMISSORY NOTE. The Company hereby forgives that certain promissory
note between the Company and the Employee, dated ___________ in connection with
certain of the Employee's relocation expenses.
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12. TAXES. All payments to be made by the Company to Employee under this
Agreement will be subject to applicable tax withholding. The Company shall
continue to provide tax planning services to Employee during the Employment
Period.
13. CONFIDENTIALITY. The Parties hereto each agree to use their best
efforts to maintain in confidence the existence of this Agreement, the contents
and terms of this Agreement, and the consideration for this Agreement.
14. DISPARAGEMENT. Each party agrees to refrain from any disparagement,
criticism, defamation, slander of the other, or tortious interference with the
contracts and relationships of the other.
15. NO REPRESENTATIONS. Each party represents that it or he has had the
opportunity to consult with an attorney, and has carefully read and understands
the scope and effect of the provisions of this Agreement. Neither party has
relied upon any representations or statements made by the other party hereto
which are not specifically set forth in this Agreement.
16. ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding between the Company and Employee concerning Employee's continued
services after the Effective Date and subsequent separation from the Company,
and supersedes and replaces any and all prior agreements and understandings
concerning Employee's relationship with the Company and his compensation by the
Company.
17. NO ORAL MODIFICATION. This Agreement may only be amended in writing
signed by Employee and an officer of the Company.
18. NO TERMINATION BY THE COMPANY. The Company may not terminate this
Agreement prior to the expiration of the Part-Time Employment Period.
19. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California, without reference to its choice of law principles.
20. COUNTERPARTS. This Agreement may be executed in counterparts, and
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
[The remainder of this page left intentionally blank]
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IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
ACCESS HEALTH, INC.
Dated as of: December 1, 1996 By:
------------------------------------
Thomas E. Gardner
President
Dated as of: December 1, 1996 ----------------------------------------
Kenneth B. Plumlee
Chairman of the Board
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AMENDMENT TO SEVERANCE AGREEMENT AND RELEASE OF CLAIMS
This Amendment to Severance Agreement and Release of Claims ("Amendment")
is made and entered into as of July 1, 1997, by and between Kipp Johnson
(hereinafter "Executive") and Access Health, Inc., a Delaware corporation
(hereinafter "Company"). The Company and Executive are sometimes referred to
individually as "Party" or collectively as "the Parties."
WHEREAS, on January 28, 1997, the Parties entered into an agreement
entitled "Severance Agreement" (hereafter "Severance Agreement"), a true and
correct copy of which is attached hereto as Exhibit A and incorporated herein as
if set forth in full;
WHEREAS, a dispute has arisen between the Parties as to the interpretation
and application of the Severance Agreement upon termination of Executive's
employment;
WHEREAS, the Parties disagree as to whether the Severance Agreement
reflects the terms of severance that were approved by the Board of Directors of
the Company; and
WHEREAS, the Parties desire by the Amendment to resolve their differences
and effectuate the orderly and amicable termination of Executive's employment;
NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Executive agree to modify, alter and clarify the terms of the
Severance Agreement, as follows:
1. EFFECT ON AMENDMENT. This Amendment is intended by the Parties to
modify, alter and clarify certain recitals, terms and conditions of the
Severance Agreement attached hereto as Exhibit A. To the extent that the
recitals, terms and conditions of this Amendment conflict with, contravene or
are inconsistent with the recitals, terms and conditions of the Severance
Agreement, the recitals, terms and conditions of this Amendment shall be
controlling and shall supersede and replace such inconsistent, contravening or
inconsistent recitals, terms and conditions of the Severance Agreement. In all
other respects, and except as specifically modified, altered or clarified by
this Amendment, the Parties hereby reaffirm and agree to be bound by the
recitals, terms and conditions of the Severance Agreement.
2. TERMINATION OF EMPLOYMENT. Executive's employment with the Company
shall terminate as of July 1, 1997 (hereafter "Termination Date"). Thereafter
and until August 1,1997, Executive shall provide telephonic assistance as
reasonably requested by the Company in the transition of Executive's
responsibilities to other employees of the Company. It is expressly agreed that
Executive shall not be required to keep office hours during this transition
period, but
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will make himself reasonably available by telephone to answer questions or
provide advice. Except as specifically described herein, Executive shall have
no obligation or responsibility to provide any services, consultation, business
efforts, time or work of any sort to or on behalf of Company from and after the
Termination Date.
3. CONSIDERATION. In consideration for Executive's willingness to
execute this Amendment, perform the obligations created hereby, and to
specifically enter into the Covenant Not to Compete or Solicit set forth herein,
the Company agrees to the following:
(a) SALARY CONTINUATION. The Company shall continue to pay to the
Executive his base compensation as in effect July 1, 1997, for the period
beginning July 1, 1997, through November 18, 1998 (the "Severance Period"), in
equal bi-weekly payments minus ordinary and required statutory deductions during
the Severance Period. The Executive hereby waives any right to payments with
respect to bonuses that become payable after the Termination Date.
(b) STOCK OPTIONS. As of the Termination Date, all stock options set
forth on Exhibit B attached hereto and by this reference incorporated herein
shall vest and become fully exercisable to the extent set forth thereon.
Executive shall have 150 days following the Termination Date to exercise any
stock option to the extent so vested and exercisable. Any stock option of
Executive not exercised by the end of such period shall be automatically
canceled. No other stock options shall be accelerated or otherwise vested.
(c) EMPLOYEE STOCK PURCHASE PLAN. Executive's termination of
employment with the Company shall be a termination for purposes of the Employee
Stock Purchase Plan (the "ESPP") of the Company. Executive's accumulated
contributions to the ESPP through the Termination Date shall be refunded to the
Executive pursuant to the terms of the ESPP as soon as practicable.
(d) HEALTH INSURANCE. The Company shall continue to provide
Company-paid health insurance coverage to Executive during the Severance Period
at the level of such coverage as of the Termination Date. Such coverage shall be
discontinued to the extent that Executive receives equivalent coverage in
connection with new employment during the Severance Period.
4. ATTORNEY'S FEES. The Company shall reimburse the Executive for up to
$2,500.00 in reasonable attorney's fees incurred in connection with the
execution of this Amendment, such reimbursement to be made in accordance with
Company's normal payment schedule following receipt by Company of valid invoices
that comply with the Company's written billing requirements for its outside
counsel.
5. NO DUTY TO MITIGATE. The Executive shall not be required to mitigate
the amount of any payment contemplated by this Amendment (whether by seeking new
employment or in any other manner).
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6. DEATH OF EXECUTIVE. In the event Executive dies during the Severance
Period, all amounts payable hereunder shall be paid to the Executive's estate or
to such person as shall have the right to receive such payments by will or the
laws of descent and distribution.
7. MUTUAL RELEASE OF CLAIMS. Except as otherwise specifically provided
in this Amendment, the Parties agree that the consideration set forth in this
Amendment represents settlement in full of all outstanding obligations owed to
Executive by the Company and of all of his claims and disputes against the
Company, and the Parties agree further that in consideration of the mutual
promises and obligations set forth herein, they each, on behalf of themselves
and their respective heirs, family members, executors, employees, officers,
directors, board members, successors and assigns, hereby fully, unconditionally
and forever release and discharge the other and their respective heirs, family,
board members, executors, officers, directors, investors, shareholders,
administrators, affiliates, divisions, subsidiaries, predecessor and successor
corporations, and assigns, from, and agree not to sue concerning, any claim,
duty, obligation or cause of action relating to any matter of any kind, whether
presently known or unknown, suspected or unsuspected, that any of them may
possess arising from any omissions, acts or facts that have occurred up until
and including the execution date of this Amendment including, without
limitation:
(a) any and all claims relating to or arising from Executive's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to or arising from Executive's right
to purchase, or actual purchase of shares of stock of the Company, including,
without limitation, any claims for fraud, misrepresentation, breach of fiduciary
duty, breach of duty under applicable state corporate law, and securities fraud
under any state or federal law;
(c) any and all claims for wrongful discharge of employment; breach
of contract, both express and implied; breach of a covenant of good faith and
fair dealing, both express and implied; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage; libel
or defamation; negligence; personal injury; assault; battery; invasion of
privacy; false imprisonment; and conversion;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act of 1967, the Americans with Disabilities Act of 1990, the Family and Medical
Leave Act, and the Fair Labor Standards Act;
(e) any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination;
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(f) any and all claims for attorneys' fees and costs; and
(g) any and all claims arising out of any act or omission by
Executive, whether negligent or intentional, which occurred during the course
and scope of Executive's employment with Company.
The Parties further agree that the release set forth in this section shall be
and remain in effect in all respects as a complete general release as to the
matters released. This release does not extend to any obligations incurred
under this Amendment.
8. ACKNOWLEDGMENT OF WAIVER OF CLAIMS UNDER ADEA. Executive acknowledges
that he is waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and
release is knowing and voluntary. Executive and the Company agree that this
waiver and release does not apply to any rights or claims that may arise under
ADEA after the Effective Date of this Amendment. Executive acknowledges that
the consideration given for this waiver and release is in addition to anything
of value to which Executive was already entitled. Executive further
acknowledges that he has been advised by this writing that (a) he should consult
with an attorney PRIOR to executing this Amendment; (b) he has at least
twenty-one (21) days within which to consider this Amendment; (c) he has at
least seven (7) days following the execution of this Amendment by the parties to
revoke the Amendment; and (d) this Amendment shall not be effective until the
revocation period has expired.
9. CONFIDENTIAL INFORMATION. Executive agrees to continue to maintain
the confidentiality of all confidential and proprietary information of the
Company for as long as it remains confidential and proprietary information, and
shall continue to comply with the terms and conditions of any and all
confidentiality agreements between Executive and the Company, including
specifically that Confidentiality Agreement attached as Exhibit C to the
Severance Agreement and by this reference incorporated herein. The terms of
such Confidentiality Agreement shall survive the date of termination of this
Amendment.
10. COVENANT NOT TO COMPETE OR SOLICIT. For purposes of this Amendment,
the "Company's Business" is defined as "providing symptom-based triage and/or
assessment that results in provider selection, patient channeling and/or patient
advice, as well as condition and/or disease management services, delivered via
an inbound or outbound telephone call center system to sponsored members of
health benefit plans provided by risk-bearing insurance companies, provider
groups, network managers, self-insured organizations, government organizations
and/or employers within the Company's "Service Area," which is defined to
include the U.S.A., Canada, South Africa, Portugal, Brazil, Argentina, the
United Kingdom, Germany, France, Switzerland, Norway, Sweden, Denmark, the
Netherlands, Belgium, Luxembourg, New Zealand, Italy, Spain, Austria and
Australia. In consideration for the fulfillment and performance of the promises
and obligations of the Company as set forth in Paragraph 3 herein, for the
period beginning on the Termination Date and ending on November 18, 1998 (the
"Non-Compete
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Period"), Executive shall not (without express written waiver), directly or
indirectly, engage in the following conduct within the Service Area:
(a) Actively, directly or indirectly, recruit or solicit, attempt to
recruit or solicit, or assist any other person or entity in recruiting or
soliciting for hire any person who was an employee of Company within the
six-month period prior to such actual or attempted recruitment or solicitation.
(b) Render services as a sole proprietor, agent, consultant,
contractor, employee, officer, director, stockholder or partner, for free or for
consideration, on Executive's own behalf or on behalf of any other person or
entity, consulting, employment or other services to any person or entity if such
services rendered by Executive are in any way related to the Company's Business
as defined in this Section 10, or if such services are intended to help any
person or entity enter into or expand into the Company's Business or improve
their competitive position in Company's Business.
(c) Accept employment with or render consulting or other services as
an agent, consultant, contractor, employee, officer, director, stockholder or
partner for free or consideration, on Executive's behalf or on behalf of any
other person or entity, to any person or entity which was or is a competitor or
prospective competitor of Company. Company acknowledges that a complete listing
of all such competitors or prospective competitors is attached hereto as Exhibit
C and incorporated herein by this reference.
(d) Participate in the solicitation of Company's employees,
customers, or suppliers to breach, modify or terminate any agreement(s) or
relationship(s) that they may have with Company.
(e) Participate voluntarily with any person or entity that is
involved in (i) a negotiation with Company involving a contract or services to
be rendered by Company or (ii) a potential or existing business or legal dispute
with Company including but not limited to litigation, except as may be required
by law.
11. REMEDIES.
(a) In the event of any breach of the covenants set forth in Section
10 above, as found by an arbitrator pursuant to the arbitration process set
forth in Section 12 below, Executive agrees that he shall return to the Company
the after-tax value of all salary continuation payments made to the Executive
hereunder from the Termination Date, and, as applicable, either (i) resell to
the Company at his original purchase price all shares of common stock of the
Company purchased by Executive upon exercise of accelerated options on or after
the Termination Date or (ii) forfeit to the Company the proceeds from any sale
of such shares above his original purchase
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price. In addition, any unexercised options then held by the Executive shall
be automatically canceled.
(b) Executive agrees that it would be impossible or inadequate to
measure and calculate the Company's damages from any breach of the covenants set
forth in Section 10. Accordingly, Executive agrees that if he is found by an
arbitrator pursuant to the arbitration process set forth in Section 12 below to
have breached any provision of Section 10, the Company will have available, in
addition to the damages set forth in paragraph (a) above and any other right or
remedy otherwise available, the right to obtain an injunction from the
arbitrator and from a subsequent court of competent jurisdiction restraining
such breach or threatened breach and to specific performance of any such
provision of this Amendment. Executive further agrees that no bond or other
security shall be required in obtaining such equitable relief, nor will proof of
actual damages be required for such equitable relief. Executive hereby
expressly consents to the issuance of such injunction and to the ordering of
such specific performance.
(c) The parties agree that in the event the Company believes
Executive has breached the Covenant Not to Compete or Solicit set forth in
Section 10 above, the Company will give the Executive notice of such breach
within thirty (30) days of the date Company first has actual knowledge of
Executive's alleged breach. Executive shall have thirty (30) days from receipt
of such notice to cure such alleged breach. If such breach is not cured to
Company's satisfaction within such thirty (30) day period or if Executive
disagrees with Company's conclusion that a breach has occurred, and the parties
cannot satisfactorily agree to a solution, either party may begin the
arbitration process set forth in Section 12 of this Amendment upon five (5) days
written notice to the other party.
12. ARBITRATION AND GOVERNING LAW.
(a) The Parties agree that any dispute or controversy arising out of,
relating to, or in connection with this Amendment or the Severance Agreement,
the interpretation, validity, construction, performance, breach, meaning,
application, effect, enforceability, or termination thereof, or any of the
matters herein released shall be settled by binding arbitration to be held in
Denver, Colorado in accordance with the National Rules for the Resolution of
Employment Disputes then in effect of the American Arbitration Association (the
"Rules"). The arbitrator shall be chosen in accordance with paragraph 12(d)
below. The arbitrator may grant injunctions or other relief in such dispute or
controversy.
(b) The arbitrator(s) shall apply Colorado law to the merits of any
dispute or claim, without reference to conflicts of law rules. The arbitration
proceedings shall be governed by federal arbitration law and by the Rules,
without reference to state arbitration law. Executive hereby consents to the
personal jurisdiction of the state and federal courts located in Colorado for
any action or proceeding arising from or relating to this Amendment or relating
to any arbitration in which the Parties are participants.
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(c) The arbitrator shall have the discretion to award reasonable
costs to the prevailing party, provided however, that each party shall bear
their own attorney's fees and an equal share of the arbitrator(s)' fees in said
proceedings.
(d) The parties shall agree upon an arbitrator to hear and determine
the matter. If the parties are unable to agree on a single arbitrator within
ten (10) days following service of a demand for arbitration by a Party, each
side to the dispute shall, within ten (10) days thereafter, select one
arbitrator, the two arbitrators selected shall, within ten (10) days following
their selection, select a third arbitrator, and the three arbitrators so
selected will then hear and finally determine the matter, except that the
parties can agree that the third arbitrator so chosen may alone hear and
determine the matter. Should any party or arbitrator fail to make the
arbitrator selections within the times specified herein, a complying Party or
arbitrator may immediately ask the Presiding Judge of the Superior Court in the
County of Denver, Colorado to select the arbitrator(s) without notice to the
non-complying Party or arbitrator and the non-complying Party shall accept the
arbitrator(s) so selected without objection. Except upon the agreement in
writing of all sides to the dispute, the arbitration hearing shall be commenced
not later than sixty (60) days from the date of service of a demand for
arbitration and shall be completed not later than ninety (90) days from the date
of service of a demand for arbitration. The arbitration proceedings shall be
conducted in the County of Denver, Colorado. Discovery may be conducted in the
same manner as if the matter were a civil action pending before a court of
competent jurisdiction in Denver, Colorado. Any disputes concerning discovery
will be submitted to the arbitrator(s) for final resolution. The award rendered
by the arbitrator(s) shall be final, conclusive and binding upon all parties and
may be entered as a judgment in any court of competent jurisdiction. There
shall be no right to appeal from any such award or judgment.
(e) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION 12, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AMENDMENT,
EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN
CONNECTION WITH THIS AMENDMENT, THE INTERPRETATION, VALIDITY, CONSTRUCTION,
PERFORMANCE, BREACH OR TERMINATION THEREOF, OR ANY OF THE MATTERS HEREIN TO
BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF
EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES
RELATING TO ALL ASPECTS OF THIS SEVERANCE AGREEMENT AND RELEASE OF ALL CLAIMS.
13. NON-DISPARAGEMENT. The Parties agree to refrain from any
disparagement, defamation, slander of the other, or tortious interference with
the contracts and relationships of the other. Executive acknowledges that it is
Company's policy to give only dates of employment when asked for references by
prospective employers.
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14. TAX CONSEQUENCES. All payments made pursuant to the Amendment shall
be subject to applicable withholding taxes.
15. NO ADMISSION OF LIABILITY. No action taken by the Parties hereto, or
either of them, either previously or in connection with this Amendment shall be
deemed or construed to be (a) an admission, directly or by implication of the
truth or falsity of any claims heretofore made or that the Company has violated
any law, rule, regulation, or contractual right, duty or obligation owed
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to Executive or (b) an acknowledgment or admission by either party of any fault
or liability whatsoever to the other party or to any third party. It is agreed
that the fact of this settlement cannot be used by any Party or any other person
to demonstrate or suggest an admission on the part of the Company.
16. AUTHORITY. The Company represents and warrants that the undersigned
has the authority to act on behalf of the Company and to bind the Company and
all who may claim through it to the terms and conditions of this Amendment.
Executive represents and warrants that he has the capacity to act on his own
behalf and on behalf of all who might claim through him to bind them to the
terms and conditions of this Amendment. Each Party warrants and represents that
there are no liens or claims of lien or assignments in law or equity or
otherwise of or against any of the claims or causes of action released herein.
17. NO REPRESENTATIONS. Each Party represents that it has carefully read
and understands the scope and effect of the provisions of this Amendment. The
Parties agree that they do not rely and have not relied upon any representations
or statements made by any other party hereto which are not specifically set
forth in this Amendment.
18. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Amendment shall continue in full force and effect without said
provision.
19. ENTIRE AMENDMENT. This Amendment between Executive and the Company
represents the entire amendment and understanding between the Parties as to the
subject matter herein and supersedes and replaces any and all prior agreements
and understandings, whether written or oral, including without limitation the
Severance Agreement.
20. NO ORAL MODIFICATION. This Amendment may only be amended in writing
signed by all Parties.
21. COUNTERPARTS. This Amendment may be executed in counterparts, and
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
22. EFFECTIVE DATE. This Amendment is effective seven (7) days after it
has been signed by the Parties.
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23. SURVIVAL OF CONFIDENTIALITY AGREEMENT. Executive acknowledges that he
is in possession of Proprietary Information as defined in the Confidentiality
Agreement attached as Exhibit C to the Severance Agreement. Executive agrees
that his obligation not to use or disclose to anyone such Proprietary
Information shall survive the terms of this Amendment.
24. VOLUNTARY EXECUTION OF AMENDMENT. This Amendment is executed
voluntarily and without any duress or undue influence on the part or behalf of
any Parties hereto, with the full intent of releasing all claims. Executive
acknowledges that:
(a) he has read this Amendment;
(b) he has had the opportunity to consult legal counsel of his own
choice to the fullest extent he deems appropriate and necessary;
(c) he understands the terms and consequences of this Amendment and
of the releases it contains; and
(d) he is fully aware of the legal and binding effect of this
Amendment.
IN WITNESS WHEREOF, the Company and Executive voluntarily agree to and have
executed this Amendment as of the date first set forth above.
EXECUTIVE: ACCESS HEALTH, INC.:
By:
- ----------------------------------- ------------------------------------
Kipp Johnson Joseph P. Tallman
Its: Chief Executive Officer
Date: Date:
------------------------------ -----------------------------------
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EMPLOYMENT/CONSULTING AGREEMENT
This Employment/Consulting Agreement ("Agreement") is made and entered into
effective as of July 1, 1997, by and between John V. Crisan (the "Executive")
and Access Health, Inc., a Delaware corporation (the "Company"). The Company
and Executive are sometimes collectively referred to as "the Parties."
WHEREAS, the Parties entered into a certain severance agreement as of
January 28, 1997, (the "Prior Severance Agreement") attached hereto as
Exhibit A.
WHEREAS, the Parties have agreed to exchange this Agreement for the Prior
Severance Agreement.
NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Executive agree as follows:
1. DUTIES AND SCOPE OF EMPLOYMENT/CONSULTANCY.
(a) POSITION. The Company agrees to employ the Executive under the
terms of this Agreement in the position of Senior Vice President, Treasurer and
Chief Accounting Officer; provided, however, that beginning on the Transition
Date (defined below), Executive's status shall change to consultant to the
Company.
(b) OBLIGATIONS. Beginning July 1, 1997, and continuing until May 1,
1998 (the "Transition Date"), the Executive shall devote his 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 services do not interfere or conflict with Executive's responsibilities to
the Company and do not represent business conflicts with the Company's business.
Beginning on the Transition Date, the Executive shall be a consultant to
the Company. For the remaining Term of this Agreement (as defined below), as a
consultant Executive shall be available on an as-needed basis for up to forty
(40) hours per month (including travel time). If more time is required, then
such additional services shall be provided according to mutually agreed-upon
terms.
(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 (the
"Board").
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(d) BASE COMPENSATION. The Executive shall be paid a base salary
(the "Initial Base Compensation") of $152,250 annually, payable bi-weekly. The
Base Compensation shall be subject to review annually for increases by the Board
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 6 shall include the Initial Base Compensation together
with any approved increase then in effect.)
2. 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/consultancy of
Executive shall have taken place as a result of (i) Executive's continued
failure to substantially perform Executive's principal duties and
responsibilities during the period from the Effective Date of this Agreement to
the Transition Date (other than as a result of Disability or death) after thirty
(30) days written notice from the Company specifying the nature of Executive's
failure and demanding that such failure be remedied; (ii) Executive's material
and continuing breach of his obligations to the Company set forth in this
Agreement, the Confidentiality Agreement (as defined herein), any
non-competition agreement between the Parties 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 Board
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/ consultancy 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;
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(ii) relocation of Executive to a location more than 25 miles from his current
location; (iii) failure of a successor to assume and perform under this
Agreement or (iv) termination as a result of Disability. If any of the events
set forth in (i) through (iii) 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/consultancy becomes effective, any notice of termination shall
automatically be deemed to have been revoked. This paragraph will be enforced
in compliance with the Americans with Disabilities Act.
3. EXECUTIVE BENEFITS.
(a) GENERAL. During the Term of this Agreement, the Executive shall
be entitled to participate in the Company Management Incentive Plan up to 30% of
Base Compensation. Awards under such Plan will range from 0% to 30% 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 as set forth on Exhibit B attached
hereto and by this reference incorporated herein. Executive will be eligible to
receive additional stock option grants in the sole discretion of the Company's
Compensation Committee on the same basis as Company's other executives. In the
event of a Change of Control prior to June 30, 1999, as defined herein or in 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 vested and
exercisable. In addition, options to purchase 21,450 shares granted prior to
November, 1996, with vesting dates after May, 1999, shall become fully vested
and exercisable as of July 1, 1997.
4. BUSINESS EXPENSES AND TRAVEL. During the Term of Executive's
employment/consultancy under this Agreement, Executive shall be authorized to
incur necessary and reasonable travel, temporary living, entertainment and other
business expenses in connection with his duties hereunder. The Company shall
reimburse Executive for such expenses upon
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presentation of an itemized account and appropriate supporting documentation,
all in accordance with the Company's generally applicable policies.
5. TERM OF EMPLOYMENT/CONSULTANCY.
(a) BASIC RULE. The Company agrees to continue Executive's
employment/consultancy, and Executive agrees to remain an employee of or
consultant to the Company, as applicable, 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/consultancy, with thirty (30) days advance notice in
writing, only for Cause or as a result of Disability.
(i) TERMINATION WITHOUT CAUSE INCLUDING CONSTRUCTIVE
TERMINATION AND TERMINATION AS A RESULT OF DISABILITY. If the Company
terminates Executive's employment/ consultancy during the Term of this Agreement
for any reason whatsoever, including a Constructive Termination and termination
as a result of Disability and other than voluntary termination of
employment/consultancy or Termination for Cause, the provisions of Section 6 (a)
shall apply.
(ii) TERMINATION FOR CAUSE. If the Company terminates
Executive's employment/consultancy for Cause during the Term of this Agreement,
the provisions of Section 6(b) shall apply.
(iii) TERMINATION ON DEATH. If the Company terminates
Executive's employment/consultancy as a result of Executive's death, the
provisions of Section 6(c) shall apply.
(c) VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may
terminate Executive's employment/consultancy voluntarily by giving the Company
thirty (30) days advance notice in writing, at which time the provisions of
Section 6(b) shall apply. However, if the Executive terminates Executive's
employment/consultancy pursuant to this Section 5(c) as a result of the
occurrence of any of the events set forth in the definition of a Constructive
Termination, such termination shall for all purposes of this Agreement be deemed
a termination by the Company without Cause and the provisions of Section 6(a)
shall apply; provided, if applicable, 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. 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 5.
6. PAYMENTS UPON TERMINATION OF EMPLOYMENT/CONSULTANCY.
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(a) PAYMENTS UPON TERMINATION PURSUANT TO SECTION 5(b)(i). If the
Executive's employment/consultancy is terminated by the Company pursuant to
Section 5(b)(i), the Executive shall be entitled to receive the following:
(i) SEVERANCE PAYMENT. The Company shall continue to pay
to the Executive his Base Compensation (the "Severance Payment") for the
remainder of the Term (the "Severance Period"), plus any amounts to which
Executive is entitled under then current Company policies. Such Base
Compensation amount shall be determined with reference to the Base Compensation
in effect for the month in which the date of employment/consultancy termination
occurs.
(ii) STOCK OPTIONS. All stock options shall continue to
vest according to their respective terms through the end of the Term, and shall
remain exercisable for one year following the end of the 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. Any
stock option not exercised by the end of such period shall be automatically
cancelled. Except as accelerated pursuant to a Change of Control as provided in
Section 3(b), the vesting of Executive's stock options shall not be accelerated.
(iii) METHOD OF PAYMENT. The Severance Payment shall be
made in bi-weekly payments during the Severance Period.
(iv) HEALTH AND WELFARE BENEFITS. The Company shall
continue to provide health and welfare benefits for the duration of the
Severance Period. Such benefits will be discontinued to the extent that
Executive receives similar benefits in connection with new employment.
Executive will also be entitled to such payments and benefits as may be provided
under applicable benefit plans and programs of the Company.
(v) PAYMENT IN LIEU OF CONTRACT DAMAGES. The Severance
Payment shall be in lieu of any further payments to the Executive and any
further accrual of benefits with respect to periods subsequent to the date of
the employment/consultancy termination.
(vi) DEATH DURING THE SEVERANCE PERIOD. In the event
Executive dies during the Severance Period, his estate or beneficiaries (as the
case may be) shall be paid the benefits set forth in this Section 6(a).
(vii) NO DUTY TO MITIGATE. The Executive shall not be
required to mitigate the amount of any payment contemplated by this Section 6(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/consultancy is terminated pursuant to
Section 5(b)(ii), or voluntarily (other
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than upon a Constructive Termination) pursuant to Section 5(c), no compensation
or payments will be paid or provided to Executive for the periods following the
date when such a termination of employment/consultancy 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/consultancy in which to
exercise any non-qualified stock option and three (3) months from the date of
termination of employment/consultancy 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. If the Executive's employment/consultancy
terminates due to his death, the Executive's estate or beneficiaries (as the
case may be) shall be promptly entitled to:
(A) Base Compensation, at his then current rate, through
the end of the Term;
(B) a pro-rata annual incentive award for the year in such
termination occurs, payable in a lump sum promptly thereafter;
(C) acceleration of vesting of options as set forth on
Exhibit B attached hereto;
(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 other amounts earned, accrued or owing to the
Executive but not yet paid;
(G) other or additional benefits in accordance with
applicable plans and programs of the Company.
(d) CHANGE OF CONTROL TERMINATION. Upon a Change of Control prior to
the Transition Date, the Executive's employment shall automatically terminate
and the Executive shall be entitled to receive the following:
(i) SEVERANCE PAYMENT. The Company shall continue to pay to
the Executive his Base Compensation for twenty-four (24) months (the "Severance
Payment"), plus any amounts to which Executive is entitled under then current
Company policies. Such Base Compensation amount shall be determined with
reference to the Base Compensation in effect for the month in which the date of
employment/consultancy termination occurs.
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(ii) METHOD OF PAYMENT. The Severance Payment shall be made in
bi-weekly payments during the 24-month period.
(iii) HEALTH AND WELFARE BENEFITS. The Company shall continue
to provide health and welfare benefits for the 24-month 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.
(iv) 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 Change of Control.
(v) DEATH. In the event Executive dies during the twenty-four
(24) month period following a Change of Control, his estate or beneficiaries (as
the case may be) shall be paid the benefits set forth in this Section.
(vi) NO DUTY TO MITIGATE. The Executive shall not be required
to mitigate the amount of any payment contemplated by this Section 6(d) (whether
by seeking new employment or in any other manner).
7. 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 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 (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.
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8. PROPRIETARY INFORMATION. The Executive agrees to comply fully with
the Company's policies relating to non-disclosure of the Company's trade secrets
and proprietary information and processes, as set out in the Confidentiality
Agreement set out as Exhibit C hereto (the "Confidentiality Agreement").
9. SUCCESSORS.
(a) COMPANY 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.
10. NOTICE. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or five days after being mailed by first class mail, return
receipt requested and postage prepaid. In the case of the Executive, mailed
notices shall be addressed to Executive at the home address which Executive most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Chief Executive Officer.
11. TERM OF AGREEMENT. The term of this Agreement (the "Term") shall be
from the Effective Date until June 30, 1999.
12. MISCELLANEOUS PROVISIONS.
(a) WAIVER. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and an officer or a director of the Company
authorized by the Board of Directors. No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.
(b) WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes and replaces any and all previous agreements, including but not
limited
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to the Severance Agreement entered into by the Parties as of January 28, 1997,
regarding Executive's compensation or terms of employment or consultancy. 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
Colorado.
(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
Denver County, Colorado, 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/consultancy 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.
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.
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ACCESS HEALTH, INC. JOHN V. CRISAN
By:
------------------------------- -----------------------------------
Print Name:
-----------------------
Title:
----------------------------
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EXHIBIT B
---------
SCHEDULE OF OPTIONS
Options Accelerated
Date of Exercise Outstanding Vested As Upon Death
Grant Price Options Of 1-Jul-97 (With Vesting Dates)
- ------- -------- -------------- ----------- ----------------------
(As of 1-Jul-97) (See Note A) 7/1/97 - after
5/18/99 5/18/99
Apr-94 $ 6.67 31,500 10,500 21,000 -
Jan-95 $10.25 7,800 3,900 3,900 -
Oct-95 $17.83 30,000 18,000 12,000 -
Oct-95 $17.83 15,000 7,500 7,500 -
May-97 $14.38 20,000 (B) 0 8,000 12,000
May-97 $14.38 30,000 (C) 0 12,000 18,000
TOTAL 134,300 39,900 64,400 30,000
Notes:
(A) Includes the options referred to in Paragraph 3(b) which provides that
options to purchase 21,450 shares granted prior to November, 1996,
with vesting dates after May, 1999, shall become fully vested and
exercisable as of July 1, 1997.
(B) November, 1996, grant reissued as of May 1, 1997.
(C) Additional options granted as of May 1, 1997.
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EMPLOYMENT AGREEMENT
THIS AGREEMENT, by and between Timothy H. Connor (the "Executive") and
Access Health, Inc., a Delaware corporation (the "Company"), shall become
effective as of the effective date (the "Effective Date") of the merger
contemplated by that certain Agreement and Plan of Reorganization dated as of
September 3, 1996, among the Company, Informed Access Systems, Inc. ("Informed
Access") and Access Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of the Company (the "Merger Agreement").
In consideration of the mutual covenants herein contained, and in
consideration of the employment of Executive by the Company, the parties agree
as follows:
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITION. The Company agrees to employ the Executive under the
terms of this Agreement in the position of Chief Financial Officer and Vice
President, Finance and Administration, Informed Access. Executive will report
to Joseph P. Tallman.
(b) OBLIGATIONS. During the term of this Agreement, the Executive
shall devote Executive's full business efforts and time to the Company. The
foregoing, however, shall not preclude the Executive from engaging in
appropriate civic, charitable or religious activities or from devoting a
reasonable amount of time to private investments or from serving on the boards
of directors of other entities, as long as such activities and service do not
interfere or conflict with Executive's responsibilities to the Company and do
not represent business conflicts with the Company's business.
(c) COMPANY POLICIES. Executive shall comply with all of the
Company's rules and regulations applicable to the executives of the Company and
with all of the Company's policies applicable to other similarly situated
executives established by the Company's management and Board of Directors.
2. BASE COMPENSATION. Beginning on the Effective Date, the Executive
shall be paid a base salary (the "Base Compensation") of $100,000 annually,
payable bi-weekly. Such Base Compensation will be adjusted to $140,000 ("Target
Base Compensation") upon the earlier to occur of (i) such time as the Company
has achieved earnings per share of at least $0.22 for the quarter ended March
31, 1997, $0.26 for the quarter ended June 30, 1997, $0.33 for the quarter ended
September 30, 1997, or (ii) the first anniversary of the date hereof.
Thereafter, the Base Compensation shall be subject to review annually for
increases by the Board of Directors in its sole discretion in connection with
the annual review of salary and benefits for the Company's management.
3. DEFINITIONS. As used herein, the following definitions shall apply:
<PAGE>
(a) "CAUSE" shall mean the termination of employment of Executive
shall have taken place as a result of (i) Executive's continued failure to
substantially perform Executive's principal duties and responsibilities (other
than as a result of Disability or death) after thirty (30) days written notice
from the Company specifying the nature of Executive's failure and demanding that
such failure be remedied; (ii) Executive's material and continuing breach of his
obligations to the Company set forth in this Agreement, the Confidentiality
Agreement (as defined herein), the Non-Competition Agreement (as defined herein)
or any written policy of the Company applicable to all officers after thirty
(30) days written notice from the Company specifying the nature of Executive's
breach and demanding that such breach be remedied (unless such breach by its
nature cannot be cured, in which case notice and an opportunity to cure shall
not be required); (iii) Executive's being convicted of a felony; or (iv) act or
acts of dishonesty undertaken by Executive and intended to result in substantial
gain or personal enrichment of Executive at the expense of the Company.
(b) "CONSTRUCTIVE TERMINATION" shall mean a termination of employment
due to any of the following unless agreed to by Executive or unless such change
is an Approved Change: (i) a reduction in Executive's salary or benefits (except
in connection with a decrease to be applied equally to all officers of the
Company because the Company's performance has decreased, and excluding the
substitution of substantially equivalent compensation and benefits); (ii) a
material diminution of Executive's responsibilities (e.g., title, primary
duties, resources); (iii) relocation of Executive to a location more than 50
miles from his current location (except to Boulder, Colorado); (iv) failure of a
successor to assume and perform under this Agreement; and (v) failure of the
Company to operate the Informed Access division substantially in accordance with
the charter set forth in Exhibit I (The Informed Access Charter) to the Merger
Agreement. "Approved Change" means a change approved by Joe Tallman in his
capacity as President of the Informed Access operating entity, or his successor
by reason of his death, disability, termination for cause or resignation. If
any of the events set forth above shall occur, Executive shall give prompt
written notice to the Company and shall have sixty (60) days from the notice or
ninety (90) days from the event, whichever is earlier, to exercise his rights to
terminate for Constructive Termination or such right shall be deemed waived as
to such event, but not as to any future event.
(c) "DISABILITY" shall mean that the Executive, at the time notice is
given, has been unable to perform Executive's duties under this Agreement for a
period of not less than ninety (90) days consecutively as the result of
Executive's incapacity due to physical or mental illness. In the event that the
Executive resumes the performance of substantially all of Executive's duties
hereunder within 90 days of the commencement of leave before the termination of
employment under Section 6(b)(iii) becomes effective, the notice of termination
shall automatically be deemed to have been revoked. This paragraph will be
enforced in compliance with the Americans with Disabilities Act.
4. EXECUTIVE BENEFITS.
(a) GENERAL. During the term of Executive's employment under this
Agreement, the Executive shall be entitled to participate in the Company
Management Incentive Plan up to 30% of Base Compensation. Awards under such
Plan will range from 0% to 30% based upon Executive's
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performance. In addition, at the time of Executive's first bonus payment
following the increase in Base Compensation pursuant to Section 2, Executive
will be eligible to receive an additional bonus equal to the difference between
Target Base Compensation and Base Compensation during the period from the
inception of this Agreement through the Effective Date of the increase in Base
Compensation. Performance goals will be established within 3 months of the date
hereof and annually thereafter consistent with Company's and Informed Access's
business strategy. Executive also shall be entitled to participate in pension
plans, savings or profit-sharing plans, deferred compensation plans,
supplemental retirement or excess-benefit plans, stock option, incentive or
other bonus plans, life, disability, health, accident and other insurance
programs, paid time off (which will accrue for the Executive at a rate of 6.16
hours a pay period beginning on the effective date of this Agreement, or not
less than 20 days a year) and similar plans or programs made available to
executives of the Company, subject in each case to the generally applicable
terms and conditions of the plan or program and the decision of the Board of
Directors or administrators of such plan.
(b) EMPLOYMENT CREDIT. Executive will be fully credited for his
years of employment by Informed Access as though he had been employed by the
Company for all such time for purposes of determining his eligibility for and
the extent of benefits available from the Company.
(c) STOCK AWARDS. The Executive has been granted stock options (the
"Options") to purchase 25,000 shares of Common Stock of the Company, effective
as of the Effective Date pursuant to Stock Option Agreements in the forms
attached hereto as Exhibits A-1 and A-2, which shall be incentive stock options
to the maximum extent permitted by the Internal Revenue Code and subject to
approval of the Incentive Plan Amendment as defined in the Merger Agreement.
The Options shall be exercisable cumulatively to the extent of one-fifth of the
total number of shares subject to the Options one year from the Effective Date
set forth above and an additional one-fifth of the total shares subject to the
Options at the end of each one-year period thereafter. Executive will be
eligible to receive additional grants in the sole discretion of the Company's
Board of Directors on the same basis as Company's other executives.
Notwithstanding the foregoing, in the event of (i) a
reorganization or merger of the Company with or into any other corporation which
will result in the Company's stockholders immediately prior to such transaction
not holding, as a result of such transaction, at least 50% of the voting power
of the surviving or continuing entity; (ii) a sale of all or substantially all
of the assets of the corporation which will result in the Company's stockholders
immediately prior to such sale not holding, as a result of such sale, at least
50% of the voting power of the purchasing entity; (iii) a transaction or series
of related transactions which result in more than 50% of the voting power of
the Company being controlled by a single holder; or (iv) a change in the
majority of the Company's Board of Directors not approved by at least two-thirds
of Company's directors in office prior to such change (any of the foregoing, a
"Change of Control"), the Options shall be come fully exercisable.
5. BUSINESS EXPENSES AND TRAVEL. During the term of Executive's
employment under this Agreement, Executive shall be authorized to incur
necessary and reasonable travel, entertainment and other business expenses in
connection with his duties hereunder. The Company shall reimburse
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Executive for such expenses upon presentation of an itemized account and
appropriate supporting documentation, all in accordance with the Company's
generally applicable policies.
6. TERM OF EMPLOYMENT.
(a) BASIC RULE. The Company agrees to continue Executive's
employment, and Executive agrees to remain in the employ of the Company, during
the term of this Agreement pursuant to the provisions of this Agreement.
(b) TERMINATION BY THE COMPANY. The Company may terminate
Executive's employment, with Thirty (30) days advance notice in writing, only
for Cause or as a result of Death or Disability.
(i) TERMINATION WITHOUT CAUSE. If the Company terminates
Executive's employment during the term of this Agreement for any reason
whatsoever, including a Constructive Termination, and other than voluntary
termination of employment or Termination for Cause, the provisions of
Section 7(a) shall apply.
(ii) TERMINATION FOR CAUSE. If the Company terminates
Executive's employment for Cause during the term of this Agreement, the
provisions of Section 7(b) shall apply.
(iii) TERMINATION ON DEATH OR DISABILITY. If the Company
terminates Executive's employment as a result of Executive's Death or
Disability, the provisions of Section 7(c) shall apply.
(c) VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may
terminate Executive's employment voluntarily by giving the Company thirty (30)
days advance notice in writing, at which time the provisions of Section 7(b)
shall apply. However, if the Executive terminates Executive's employment
pursuant to this Section 6(c) as a result of the occurrence of any of the events
set forth in the definition of a Constructive Termination, the provisions of
Section 7(a) shall apply, provided the Executive has provided written notice to
the Company reasonably specifying the reasons why one of such events in the
definition of a Constructive Termination has occurred and the Company has not
cured such event within twenty (20) days after receipt of such notice.
(d) WAIVER OF NOTICE. Any waiver of notice shall be valid only if it
is made in writing and expressly refers to the applicable notice requirement in
this Section 6.
7. PAYMENTS UPON TERMINATION OF EMPLOYMENT.
(a) PAYMENTS UPON TERMINATION PURSUANT TO SECTION 6(b)(i) AND
CONSTRUCTIVE TERMINATION. If, during the term of this Agreement, the
Executive's employment is terminated by the Company pursuant to Section 6(b)(i)
or voluntarily by the Executive under Section 6(c) as a result of a Constructive
Termination, the Executive shall be entitled to receive the following:
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(i) SEVERANCE PAYMENT. The Company shall continue to pay to
the Executive his Base Compensation for the remainder of the Term (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. 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; provided, that if the termination occurs prior to the
effectiveness of the increase in Base Compensation contemplated by Section 2,
Target Base Compensation shall be used to calculate the Severance Payment.
Payment of the Severance Payment shall be terminated if Executive materially
breaches the terms of the Non-Competition Agreement attached as EXHIBIT B hereto
(the "Non-Competition Agreement"), and fails to cure such breach within 30 days
of the Company's notice.
(ii) STOCK OPTIONS. All stock options will become immediately
vested and remain exercisable for the remainder of the applicable option term.
Executive acknowledges that incentive stock option treatment under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), will not be
available unless such options are exercised within the time prescribed in the
Code.
(iii) METHOD OF PAYMENT. The Severance Payment shall be made in
bi-weekly payments during the Severance Period; provided, that if the
termination occurs following a Change of Control the severance payment shall be
paid in a lump sum within three (3) days after such termination.
(iv) HEALTH AND WELFARE BENEFITS. The Company shall continue
to provide health and welfare benefits for the duration of the Severance Period.
Such benefits will be discontinued to the extent that Executive receives similar
benefits in connection with new employment. Executive will also be entitled to
such payments and benefits as may be provided under applicable benefit plans and
programs of the Company.
(v) PAYMENT IN LIEU OF CONTRACT DAMAGES. The Severance Payment
shall be in lieu of any further payments to the Executive and any further
accrual of benefits with respect to periods subsequent to the date of the
employment termination.
(vi) NO DUTY TO MITIGATE. The Executive shall not be required
to mitigate the amount of any payment contemplated by this Section 7(a) (whether
by seeking new employment or in any other manner).
(b) TERMINATION BY COMPANY FOR CAUSE OR VOLUNTARY TERMINATION. If
the Executive's employment is terminated pursuant to Section 6(b)(ii) or
voluntarily (other than a Constructive Termination) pursuant to Section 6(c), no
compensation or payments will be paid or provided to Executive for the periods
following the date when such a termination of employment is effective.
Notwithstanding the preceding sentence, Executive's rights under the benefit
plans and option agreements of the Company shall be determined under the
provisions of those plans and agreements, provided Executive shall have three
(3) months from the date of termination of employment in which
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to exercise any non-qualified stock option and three (3) months from the date of
termination of employment to exercise any incentive stock option in each case to
the extent such options are exercisable as of the date of termination.
(c) TERMINATION ON DEATH OR DISABILITY. If Executive's employment is
terminated because of Executive's death or Disability (as defined in
Section 3(c) herein), then no payments shall be owed under this Agreement and
Executive shall receive severance and disability payments as provided in the
Company's standard benefit plans. Executive's stock options shall be
exercisable as provided in such agreements.
8. PROPRIETARY INFORMATION. The Executive agrees to comply fully with
the Company's policies relating to non-disclosure of the Company's trade secrets
and proprietary information and processes, as set out in the Confidentiality
Agreement set out as EXHIBIT C hereto (the "Confidentiality Agreement").
9. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. Any successor to the Company (whether
direct or indirect and whether by purchase, lease, merger, consolidation,
liquidation or otherwise) to all or substantially all of the Company's business
and/or assets shall assume this Agreement and agree expressly to perform this
Agreement in the same manner and to the same extent as the Company would be
required to perform it in the absence of a succession. For all purposes under
this Agreement, the term "Company" shall include any successor to the Company's
business and/or assets which executes and delivers the assumption agreement
described in this subsection (a) or which becomes bound by this Agreement or by
operation of law.
(b) EXECUTIVE'S SUCCESSORS. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of, and be enforceable by,
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. NOTICE. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or five days after being mailed by first class mail, return
receipt requested and postage prepaid. In the case of the Executive, mailed
notices shall be addressed to Executive at the home address which Executive most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Chief Executive Officer.
11. TERMINATION OF AGREEMENT. This Agreement shall be for a term of
twenty-four (24) months following the Effective Date (the "Term").
12. MISCELLANEOUS PROVISIONS.
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(a) WAIVER. No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and an officer or a director of the Company
authorized by the Board of Directors. No waiver by either party of any breach
of, or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.
(b) WHOLE AGREEMENT. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes and replaces any and all previous agreements between the Executive
and Informed Access regarding compensation or terms of employment. The
Executive hereby represents that Informed Access has satisfied in full any
compensation or other employment obligations due Executive under any written or
oral employment agreements by and between the Executive and Informed Access.
This Agreement shall supersede the provisions regarding acceleration of vesting
provided in any stock option agreements.
(c) CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(d) SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.
(e) ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Sacramento County, California, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.
(f) NO ASSIGNMENT OF BENEFITS. The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) LIMITATION OF REMEDIES. If the Executive's employment terminates
for any reason, the Executive shall not be entitled to any payments, benefits,
damages, awards or compensation other than as provided by this Agreement.
(h) EMPLOYMENT TAXES. All payments made pursuant to this Agreement
will be subject to withholding of applicable taxes.
(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.
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(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.
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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.
/s/ Timothy H. Connor By: /s/ Thomas E. Gardner
- ---------------------------------- ----------------------------------
[EXECUTIVE]
Thomas E. Gardner
-----------------------
Print Name:
Title: Chief Executive Officer
-------------------------
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LEASE AGREEMENT
BROOMFIELD, COLORADO
BETWEEN
PANATTONI-CATLIN VENTURE,
A CALIFORNIA GENERAL PARTNERSHIP
AND
ACCESS HEALTH, INC.,
A DELAWARE CORPORATION
MARCH 3, 1997
<PAGE>
TABLE OF CONTENTS PLACEHOLDER - DO NOT DELETE!
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LEASE AGREEMENT
BROOMFIELD, COLORADO
BASIC LEASE INFORMATION
Defined Terms:
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LEASE DATE: March 3, 1997
LANDLORD: Panattoni-Catlin Venture, a California
general partnership
3620 Fair Oaks Boulevard, Suite 150
Sacramento, California 95864
TENANT: Access Health, Inc., a Delaware
corporation
310 Interlocken Business Park
Broomfield, Colorado 80021
(Following the occupancy of the 335 Premises)
335 Interlocken Business Park
Broomfield, Colorado 80021
PREMISES: The "PREMISES" referred to in this Lease are located at
(i) 329 Interlocken Parkway, Suite A, Broomfield, Colorado
("329 PREMISES"), and (ii) 335 Interlocken Parkway, Suite
A, Broomfield, Colorado ("335 PREMISES"). The 329
Premises and the 325 Premises are collectively referred to
as the "PREMISES", and are generally described in
EXHIBIT A attached hereto, which is a Preliminary Site
Plan (as hereinafter defined), with a final Site Plan to
be attached when available. As set forth on the
Preliminary Site Plan, the 329 Premises contains
approximately 21,500 rentable square footage, and the 335
Premises contains approximately 70,000 rentable square
feet.
INITIAL TERM: The term of this Lease shall be fifteen (15) years,
beginning on the Commencement Date (as hereinafter
defined).
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BASE RENT: The initial annual Base Rent is Nineteen and 27/100ths
Dollars ($19.27) per rentable square foot of the Premises,
which amount is allocated Fourteen and 95/100ths Dollars
($14.95) to rental obligation ("NNN PORTION") and the
remaining Four and 32/100ths Dollars ($4.32) is allocated
to Operating Expenses. Every twenty (20) month period
following the Commencement Date, the Base Rent shall be
increased by four percent (4.00%) of the NNN Portion in
effect for the pervious twenty (20) month period.
TENANT'S USE: General office and 24-hour per day, 7 day a week call
center use, and no other use without Landlord's prior
written consent.
SECURITY DEPOSIT: None.
BROKER FOR TENANT: Not applicable.
BROKER FOR LANDLORD: Not applicable.
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LEASE AGREEMENT
This Lease is made and entered into by the Landlord and Tenant referred to
in the Basic Lease Information. The Basic Lease Information attached to this
Lease as page 1 is hereby incorporated into this Lease by this reference.
1. BUILDING IMPROVEMENTS:
a. SITE PLAN AND PRELIMINARY PLANS: Prior to the Lease Date,
Landlord and Tenant have agreed upon a conceptual site plan and elevations
("SITE PLAN") for the buildings ("BUILDINGS") in which the 329 Premises and the
335 Premises are to be located, a copy of which is attached hereto as EXHIBIT B.
The Premises, the balance of the Buildings, the common areas, and parking
facilities are collectively referred to as the "PROJECT". Following the Lease
Date, Landlord shall cause its engineer ("ENGINEER") to prepare and deliver to
Tenant a set of draft preliminary plans and specifications ("PRELIMINARY
PLANS"), based upon the Site Plan and the general construction specifications
("BUILDINGS SPECIFICATIONS") attached hereto as EXHIBIT C, setting forth the
description of (i) the shell of the Buildings, and (ii) the space plan of the
Premises and the improvements to be constructed therein, which shall include a
description of the materials to be used therein, and the electrical, mechanical
and HVAC systems, except as provided below, to be installed within the
Buildings. The improvements described in subsection (i) are referred to as the
"BUILDINGS SHELL," and in subsection (ii) are referred to as the "TENANT
IMPROVEMENTS", which are generally described in EXHIBIT D attached hereto.
Tenant shall approve or disapprove of the Preliminary Plans
within twenty (20) business days following Tenant's receipt of such documents by
providing Landlord with written notice ("OBJECTION NOTICE") of such
determination within such time period. The failure of Tenant to provide such
notice, and the subsequent failure of Tenant to respond within five (5) business
days following receipt of a second written notice from Landlord, shall be deemed
Tenant's approval of the Preliminary Plans. In the event that Tenant
disapproves of the Preliminary Plans as provided herein, Landlord and Tenant
shall use their good faith efforts and due diligence to resolve the matters set
forth in the Objection Notice to the reasonable satisfaction of Landlord and
Tenant; provided, however, if Landlord and Tenant have not resolved such matters
within twenty (20) days following Landlord's receipt of the Objection Notice,
such disputed matter shall be submitted to a mediator, reasonably acceptable to
Landlord and Tenant, who shall render a determination of such matter within five
(5) days following such appointment, which determination shall be binding upon
Landlord and Tenant. Upon Landlord and Tenant reaching agreement upon the
Preliminary
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Plans, such document shall be referred to as the "APPROVED PRELIMINARY PLANS."
b. BUILDINGS SHELL/TENANT IMPROVEMENTS: The Buildings Shell and the
construction thereof by Landlord, at Landlord's cost and expense, shall include
the cost of site improvements, plans, construction drawings, requisite fees and
permits relating to the Buildings Shell. The Tenant Improvements, subject to
the Allowance and the Above-Allowance Amount (as such terms are hereunder
defined), which shall be constructed by Landlord, shall include the cost of
space planning, construction drawings and requisite permits for the Tenant
Improvements. The actual Buildings Shell and Tenant Improvements shall be set
forth in the Approved Final Plans (as hereinafter defined). All furniture and
modular partitions, phone and data cabling are the sole responsibility of Tenant
and are not considered Tenant Improvements. The Tenant Improvements shall
include a security system which is reasonably acceptable to Landlord and Tenant.
c. ALLOWANCE: Landlord agrees to pay the amount of twenty-two and
50/100ths Dollars ($22.50) per rentable square foot of the Premises
("ALLOWANCE") for the obtaining of materials, designing work, construction and
installation of the Tenant Improvements. Tenant shall have the right to cause
Landlord to modify the Preliminary Plans, as they relate to the Tenant
Improvements, up to three (3) times by delivery of an Objection Notice to
Landlord, in which case, to the extent required, Landlord shall obtain a revised
construction bid from the contractor selected for such construction. The bid
amount agreed upon pursuant to this Section shall be referred to as the "FINAL
TENANT IMPROVEMENT COST", which cost shall be acceptable to both Landlord and
Tenant. To the extent that the Final Tenant Improvement Cost is in excess of
the Allowance ("ABOVE-ALLOWANCE AMOUNT"), such amount shall be paid by Landlord.
To the extent that Landlord's actual cost relating to the construction of the
Tenant Improvements is less than the Allowance, Landlord shall credit the amount
of such savings against the first payment of Base Rent due following the
Commencement Date. Change orders requested by Tenant following agreement upon
the Final Tenant Improvement Cost which increase such cost above the Allowance
shall be at Tenant's cost (all change orders shall be approved by Landlord).
d. FINAL PLANS: Within sixty (60) days following agreement upon the
Approved Preliminary Plans and the Final Tenant Improvement Cost, Landlord shall
prepare and deliver to Tenant final plans and specifications ("FINAL PLANS")
substantially in conformity with the Approved Preliminary Plans. Within
fifteen (15) business days after delivery of the Final Plans, Tenant shall give
written notice of any changes necessary to bring the Final Plans into
substantial conformity with the Approved Preliminary Plans, and Tenant shall not
object to any
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logical refinement of the Approved Preliminary Plans or any newly arising
applicable governmental laws or regulations. Failure of Tenant to deliver to
Landlord written notice of such changes within the fifteen (15) business day
period, shall be deemed approval of the Final Plans. Upon approval of the Final
Plans, both parties shall endorse their approval on the Final Plans as may be
necessary for filing such documents with the appropriate governmental entity for
approval, which shall be the responsibility of Landlord. Upon obtaining the
appropriate approvals of the Final Plan from the applicable governmental entity,
such document shall be referred to as the "APPROVED FINAL PLANS."
e. COMMENCEMENT OF CONSTRUCTION: Promptly upon (i) obtaining the
Approved Final Plans, and following Landlord obtaining all requisite permits and
authorizations, Landlord shall commence construction of the building shell and
improvements described therein, which are collectively referred to as the
"BUILDINGS IMPROVEMENTS," and diligently prosecute such construction to
completion. Landlord, using Landlord's good faith efforts and due diligence,
shall cause the (i) 329 Premises to be Ready for Occupancy (as hereinafter
defined), excepting Punch List Items (as hereinafter defined), on or before
November 15, 1997 ("329 COMPLETION DEADLINE"), and (ii) 335 Premises to be Ready
for Occupancy, excepting Punch List Items, on or before January 1, 1998 ("335
COMPLETION DEADLINE"). Each Completion Deadline shall be adjusted, on a day to
day basis, as a result of any delays that result from Tenant failing to meet its
obligations at the times required by this Lease.
f. COMPLETION AND DELIVERY: Each Premises shall be ready for
occupancy ("READY FOR OCCUPANCY") when (i) construction of the Buildings
Improvements is substantially completed in accordance with the Approved Final
Plans, (ii) Landlord has obtained for the Premises any permits (temporary or
final) that are legally required for Tenant's Use (business licenses for
Tenant's operations shall be the obligation of Tenant), (iii) any and all
parking areas to be constructed by Landlord, as set forth in the Approved Final
Plans, relating to the Premises have been completed, (iv) any and all
landscaping, sidewalks and other outdoor common area improvements in the
Approved Final Plans have been completed, and (v) any all utility hook-ups
necessary for the use of the Buildings are in place and are fully operational;
provided, however, in no event shall Tenant be required to take possession of
(i) the 329 Premises prior to the 329 Completion Deadline, and (ii) the 329
Premises or the 335 Premises prior to the 335 Completion Deadline. Landlord
shall use its good faith efforts to give Tenant thirty (30) days prior written
notice ("PRE-OCCUPANCY NOTICE") of the date when each Premises will be Ready for
Occupancy.
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g. EARLY ENTRY: Tenant may, following its receipt of the
Pre-Occupancy Notice, at Tenant's sole risk, enter the Premises ("EARLY ENTRY")
and install trade fixtures, equipment and other tenant improvements in the
Premises; provided, however, that (i) Tenant's early entry shall not
unreasonably interfere with construction of the Buildings Improvements; and (ii)
all provisions of this Lease, excepting the payment of Base Rent, shall apply
during such entrance. Landlord shall be responsible for all utility costs at
the Premises prior to the Commencement Date.
h. COMPLETION DEADLINE: The parties agree that if either of the
Premises is not Ready for Occupancy by the applicable Completion Deadline, plus
any delays caused by Tenant or Force Majeure Events (as hereinafter defined),
this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant
for any loss or damage resulting therefrom, and the expiration date of the Term
of this Lease shall be extended for such delay; but in such event, Tenant shall
not be liable for rent until the Commencement Date for such Premises; provided,
however, if such delays were caused or attributable to Tenant, Rent shall
commence as of the scheduled Completion Deadline. For the purpose of this
Lease, the Completion Deadline shall be automatically extended for any delays
beyond the reasonable control of Landlord, such as acts of God, fire,
earthquake, acts of a public enemy, riot, insurrection, unavailability of
materials, governmental restrictions on the sale of materials or supplies or on
the transportation of such materials or supplies, strike directly affecting
construction or transportation of materials or supplies, shortages of materials
or labor resulting from government controls, or weather conditions
(collectively, "FORCE MAJEURE EVENT"). Notwithstanding the foregoing, (i)
excepting delays caused by Tenant or Force Majeure Events, in the event that
each Premises is not Ready for Occupancy prior to each respective Completion
Deadline, for each day of delay until such Premises is Ready for Occupancy,
Tenant shall be entitled to one (1) day of Base Rent-free possession of such
Premises, as applicable, and (ii) excepting delays caused by Tenant, in the
event that 335 Premises is not Ready for Occupancy prior to June 30, 1998, for a
period of fifteen (15) days thereafter, Tenant shall have the right to terminate
this Lease by providing written notice of such election to Landlord.
i. MEASUREMENT OF PREMISES AND BUILDINGS: The total rentable and
usable square footage ("SQUARE FOOTAGE") of the Buildings and Premises as shown
on the Approved Final Plans, as amended by notations reflecting the actual
construction of the Buildings, shall be binding and conclusive on Landlord and
Tenant. Such measurement shall be consistent with BOMA standards, ANSI/BOMA
Z65.1, 1996. If the rentable square footage of the Premises is different than
that set forth in the Basic Lease Information, as determined by the preceding
sentence,
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Landlord and Tenant, shall execute a written amendment to modify the Basic Lease
Information, as well as other modifications due to such change.
j. REPRESENTATIVES: Landlord hereby appoints Tim Gagnier as
Landlord's representative to act for Landlord in all matters covered by Section
1. Tenant hereby appoints Mike Modiz as Tenant's representative to act for
Tenant in all matters covered by this Agreement. All inquiries, requests,
instructions, authorizations and other communications with respect to the
matters covered by this Section 1 shall be related to Landlord's representative
or Tenant's representative, as the case may be. Either Landlord or Tenant may
change its representative at any time by written notice to the other.
k. CONDITION OF CONSTRUCTION: As of the Commencement Date, Landlord
represents and warrants that the Buildings and the Tenant Improvements, to the
extent that such were constructed by or caused to be constructed by Landlord,
are in compliance with all applicable laws, statutes and ordinances, which
includes ADA (as hereinafter defined), and shall be in good working order and
repair.
2. PREMISES: This Lease shall be effective as of the date of execution
hereof by Landlord and Tenant. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord upon the terms and conditions contained herein the
Premises.
3. PROJECT COMMON AREAS: The term "PROJECT COMMON AREAS" shall refer to
all areas and facilities outside the Premises and within the Project that are
provided and designated by Landlord from time to time for the general
nonexclusive use of Landlord, Tenant, and of other lessees in the Project and
their respective employees, suppliers, shippers, customers, and invitees.
Landlord hereby grants to Tenant, during the term of this Lease, the
nonexclusive right to use, in common with others entitled to such use, the
Project Common Areas as they exist from time to time, subject to any rules,
regulations, and restrictions governing the use of the Project as from time to
time made or amended by Landlord. Under no circumstances shall the right
granted herein to use the Project Common Areas be deemed to include the right to
store any property in the Project Common Areas. Provided that Landlord, using
its reasonable efforts, does not unreasonably interfere with Tenant's use of the
Premises, Landlord reserves the right at any time and from time to time, to:
(i) make alterations in or additions to the Project and to the Project Common
Areas which are approved (not be unreasonably withheld) by Tenant;
(ii) temporarily close any portion of the Project Common Areas for maintenance
purposes which are approved (not to be unreasonably withheld) by Tenant; and
(iii) promulgate reasonable and nondiscriminatory rules and regulations
governing the use of the Project Common Areas.
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4. ACCEPTANCE OF PREMISES: Excepting Punch List Items, if any, Tenant's
taking possession of the Premises shall constitute Tenant's acknowledgment that
the Premises are in good condition and constructed in accordance with the
provisions of this Lease and that Tenant agrees to accept the same in its
condition existing as of the date of such entry, excepting latent defects, which
shall remain the responsibility of Landlord, except that if Tenant takes early
possession of either Premises as provided in Section 1(g), such early possession
shall not constitute "taking possession" or acceptance of such Premises
thereunder. Furthermore, Tenant's acceptance of each such Premises shall not
constitute acceptance of possession to the other Premises. Within thirty (30)
days after the Tenant takes possession of each Premises, Tenant shall deliver to
Landlord a list of items ("PUNCH LIST ITEMS") that Tenant reasonably deems that
Landlord complete or correct in order for the Premises to be reasonably
acceptable. Following Landlord's receipt of the Punch List Items, Landlord
shall complete and/or correct such items set forth on the Punch List Items using
its good faith efforts and due diligence within thirty (30) days following
Landlord's receipt of such document. If Tenant does not deliver the Punch List
Items to Landlord within such time period, Tenant shall be deemed to have
accepted the condition of the Premises. Landlord shall use its reasonable
efforts to not unreasonably interfere with Tenant's use of the Premises as a
result of such repair work.
5. TERM: This Lease shall be effective as of the date of execution
hereof by Landlord and Tenant. The Initial Term of this Lease shall commence on
the date that the 329 Premises is Ready for Occupancy, which shall not be prior
to the 329 Completion Deadline ("COMMENCEMENT DATE"), and shall expire on the
last day of the one hundred eightieth (180th) full month following the
Commencement Date ("EXPIRATION DATE"), unless earlier terminated in accordance
with the provisions of this Agreement. The time period between the Commencement
Date and the Expiration Date shall be referred to as the "INITIAL TERM."
6. RENT:
a. BASE RENT: Tenant shall pay to Landlord the monthly Base Rent
without deduction, setoff, prior notice, or demand, except as provided in this
Lease, in advance on or before the first (1st) day of each month, commencing on
the Commencement Date, and continuing during the Initial Term. Base Rent for
the first month, or portion of it, shall be paid upon execution of this Lease,
which amount shall be prorated at the rate of one thirtieth (1/30) of the Base
Rent per day for any partial month. All rent shall be paid to Landlord at the
address to which notices to Landlord are given.
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b. LATE CHARGE: If Tenant fails to make any payment of Base Rent
when due, or other appropriate charges, within thirty (30) days after receipt of
an invoice (which describes in reasonable detail the basis for such requested
payment) from Landlord, and such default is not cured within ten (10) days
following such due date, Landlord and Tenant agree that it would be
impracticable or extremely difficult to fix the actual damage to Landlord
resulting from nonpayment and the collection efforts of Landlord necessitated
thereby. Therefore, Landlord and Tenant estimate that such damage shall be two
and one-half percent (2.50%) of the amount in default, and Tenant shall pay as
additional rent, that sum, in addition to all other sums owing. Acceptance of
any late charge shall not constitute a waiver of Tenant's default with respect
to the overdue amount, or prevent Landlord from exercising any of the other
rights and remedies available to Landlord.
7. SECURITY DEPOSIT: [Intentionally Deleted].
8. OPERATING EXPENSES:
(a) For the purpose of this Section 8(a) and this Lease, the
following terms are defined as follows:
(1) "BASE YEAR" shall mean the 1998 calendar year.
(2) "LEASE YEAR" shall mean each calendar year after the Base
Year.
(3) "TENANT'S PROPORTIONATE SHARE" of the total rentable area of
the Premises as compared to the total rentable square footage of the Buildings.
(4) "OPERATING EXPENSES" shall mean all costs and expenses paid
or incurred by or on behalf of Landlord (whether directly or through independent
contractors) in connection with the operation, repair, replacement and
maintenance of the Buildings, the Project, and the Project Common Areas,
including the following costs by way of illustration, but not limitation:
(i) payments under service contracts with independent contractors for operating
(including providing security services, if any), maintaining, repairing or
cleaning the Project or any portion thereof or any fixtures or equipment
therein; (ii) all costs for electricity, water, gas, steam, sewer and other
utility services to the Project Common Areas, including any taxes on any such
utilities (Tenant shall be responsible for Utility Services (as hereinafter
defined) pursuant to Section 13); (iii) repairs and replacements which are
appropriate to the continued operation of the Buildings as a first-class office
building; (iv) cost of landscaping in, on or about the Project; (v) expenses
incurred in connection with the operation of the Project, such as premiums for
such insurance as Landlord
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is required to obtain pursuant to this Lease or may, in its discretion, from
time to time carry (including, without limitation, liability insurance, fire and
casualty insurance, rental interruption insurance, flood and earthquake
insurance, and any other insurance) (collectively, "INSURANCE"), (vi) reasonable
fees payable to a property management company (which may be owned or controlled
by Landlord or Landlord's principals) for the management of a first-class office
building; (vii) the cost of capital improvements made by Landlord in order
(i) to conform to any changes in laws, rules, regulations or requirements of any
governmental authority having jurisdiction, provided that such expense, if a
capital expenditure as determined by generally accepted accounting procedures,
shall be amortized over such expenditure's useful life, and only such amortized
portion shall be included in Operating Expenses, or (ii) to effect a labor
saving, energy saving or other economy, which cost shall be included in
Operating Expenses for the Lease Year in which such improvement was made not in
excess of the savings resulting from such expenditure; (viii) real property
taxes and assessments (collectively, "REAL PROPERTY TAXES"), which shall
include, but not be limited to, any and all taxes, assessments, water and sewer
charges and other similar governmental charges levied on or attributable to the
Project, including the Buildings, or their operation, ordinary and
extraordinary, substantive and additional, unforeseen as well as foreseen,
present and future, of any kind and nature whatsoever, including, without
limitation, (i) real property taxes or assessments (including from owners
associations) levied or assessed against the Project, or (ii) any tax measured
by gross rentals received from the leasing of the Premises pursuant to this
Lease, excluding any net income, franchise, capital stock, estate or inheritance
taxes imposed by the state or federal government or their agencies, branches or
departments; and (ix) all other reasonable or necessary expenses paid in
connection with the operation, maintenance, repair, replacement and cleaning of
the Project.
The Operating Expenses that vary with occupancy and which
are controllable by Landlord ("VARYING OPERATING EXPENSES") (which do not
include, among others, Real Property Taxes and Insurance) and that are
attributable to any Lease Year in which less than ninety-five percent (95%) of
the rentable area of the Buildings is occupied by tenants will be adjusted by
Landlord to the amount that Landlord reasonably believes they would have been if
ninety-five percent (95%) of the rentable area of the Buildings had been
occupied for the purpose of determining Operating Expenses for the Base Year.
Subject to the preceding paragraph, in no event shall
Varying Operating Expenses for any given Lease Year be increased by in excess of
five percent (5.00%), per annum, above the Varying Operating Expenses for the
previous Lease Year.
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(4) During the term of this Lease, Landlord shall use its
commercially reasonable efforts to operate the Project as required by this
Lease, keeping Operating Expenses consistent with Operating Expenses generally
incurred by similarly situated landlords of real estate projects similar to this
Project. Landlord acknowledges that the Premises is intended to be utilized by
Tenant's business operations in a twenty-four (24) hour basis, seven (7) days a
week.
(5) Tenant's Proportionate Share of Operating Expenses shall be
payable by Tenant to Landlord as follows:
(i) Beginning with the Lease Year following the Base Year
and for each Lease Year thereafter, Tenant shall pay Landlord an amount equal to
Tenant's Proportionate Share of the Operating Expenses incurred by Landlord in
the Lease Year which exceeds the total amount of Operating Expenses payable by
Landlord for the Base Year. This excess is referred to as the "EXCESS
EXPENSES."
(ii) To provide for current payments of Excess Expenses,
Tenant shall, at Landlord's request, pay as additional rent during each Lease
Year, an amount equal to Tenant's Proportionate Share of the Excess Expenses
payable during such Lease Year, as estimated and modified by Landlord from time
to time, but not in excess of once per Lease Year. Such payments shall be made
in monthly installments, commencing on the first day of the month following the
month in which Landlord notifies Tenant of the amount it is to pay hereunder and
continuing until the first day of the month following the month in which
Landlord gives Tenant a new notice of estimated Excess Expenses. It is the
intention hereunder to estimate from time to time the amount of the Excess
Expenses for each Lease Year, including the Lease Year immediately following the
Base Year, and Tenant's Proportionate Share thereof, and then to make an
adjustment in the following year based on the actual Excess Expenses incurred
for that Lease Year.
(iii) On or before March 1 of each Lease Year after the
first Lease Year (or as soon thereafter as is practical), Landlord shall deliver
to Tenant a statement ("EXPENSE STATEMENT") setting forth Tenant's Proportionate
Share of the Excess Expenses for the preceding Lease Year; provided, however,
that the failure of Landlord to supply such statement shall not constitute a
waiver of Landlord's rights to collect for such Excess Expenses if such
statement is delivered by April 1 of such year. If Tenant's Proportionate Share
of the actual Excess Expenses for the previous Lease Year exceeds the total of
the estimated monthly payments made by Tenant for such year, Tenant shall pay
Landlord the amount of the deficiency within thirty (30) days of the receipt of
the statement. If such total exceeds Tenant's Proportionate Share of the actual
Excess Expenses for such Lease Year, then Landlord shall credit against Tenant's
next
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ensuing monthly installment(s) of Excess Expense an amount equal to the
difference until the credit is exhausted. If a credit is due from Landlord on
the Expiration Date, Landlord shall pay Tenant the amount of the credit within
thirty (30) days following the determination of such amount. The obligations of
Tenant and Landlord to make payments required under this Section 8 shall survive
the Expiration Date. Tenant's Proportionate Share of Excess Expenses in any
Lease Year having less than 365 days shall be appropriately prorated.
(6) For a period of one (1) year after receipt of the Expenses
Statement, Tenant shall be entitled, upon ten (10) days prior written notice and
during normal business hours, at the office of the Buildings' property manager
or such other place as Landlord shall designate, to inspect and examine those
books and records of Landlord relating to the determination of Excess Expenses
for the immediately preceding Lease Year. Failure of Tenant to request such
inspection within such one (1) year period shall render such Expenses Statement
conclusive and binding on Tenant. If, after inspection and examination of such
books and records, Tenant disputes the amounts of the Excess Expenses charged by
Landlord, Tenant may, by written notice to Landlord, request an independent
audit of such books and records. The independent audit of the books and records
shall be conducted by a certified public accountant ("CPA") acceptable to both
Landlord and Tenant. If, within thirty (30) days after Landlord's receipt of
Tenant's notice requesting an audit, Landlord and Tenant are unable to agree on
the CPA to conduct such audit, then Landlord may designate a nationally
recognized accounting firm not then employed by Landlord or Tenant to conduct
such audit. The audit shall be limited to the determination of the amount of
Excess Expenses for the subject Lease Year. If the audit discloses that the
amount of Excess Expenses billed to Tenant was incorrect, the appropriate party
shall pay to the other party the deficiency or overpayment, as applicable. All
costs and expenses of the audit shall be paid by Tenant unless the audit shows
that Landlord overstated Excess Expenses for the subject Lease Year by more than
five percent (5.00%), in which case Landlord shall pay all costs and expenses of
the audit and any amounts owing from Landlord shall accrue interest at fifteen
(15.00%) per annum until paid in full. Tenant and the CPA shall keep any
information gained from such audit confidential and shall not disclose it to any
other party. The exercise by Tenant of the audit rights hereunder shall not
relieve Tenant of its obligation to timely pay all sums due hereunder,
including, without limitation, the disputed Excess Expenses.
9. USE; LIMITATION ON USE:
a. USE: Tenant shall use the Premises for the Tenant's Use and for
no other use or purpose, without the prior written consent of Landlord, which
shall not be unreasonably withheld. Tenant shall comply with all the
requirements of all
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easements, cross easements, joint maintenance obligations and similar matters
applicable to the Premises which are in effect or may become effective with any
governmental agency or private party. Landlord represents and warrants that no
such matters, to the extent imposed by Landlord, shall have an adverse effect in
any material respect on the use of the Premises and associated parking, ingress
and egress, for general office purposes. Tenant shall be responsible for
obtaining all appropriate operating licenses necessary for the Tenant's Use.
b. LIMITATIONS ON USE: Tenant's Use of the Premises shall be in
accordance with the following:
(1) Tenant shall not do, bring, or keep anything in or about the
Premises that will cause a cancellation of any insurance covering the Premises,
or any part thereof or any of its contents. If the rate of any insurance
carried by Landlord is increased as a result of Tenant's use beyond such use
which is permitted hereunder, Tenant shall pay the Landlord within ten (10) days
before the date Landlord is obligated to pay a premium on the insurance, or
within ten (10) days after Landlord delivers to Tenant a certified statement
from Landlord's insurance carrier stating that the rate increase was caused
solely by an activity on the Premises as permitted in this Lease, whichever date
is later, the sum equal to the difference between the original premium and the
increased premium.
(2) Following the Commencement Date, and subject to Landlord's
representations set forth in Sections 1 and 3, Tenant shall not use the Premises
or permit anything to be done in or about the Premises which will in any way
conflict with any law, statute, zoning restriction, ordinance or governmental
law or rule, regulation, or requirement of any duly constituted public
authorities now in force or which may hereafter be enacted or promulgated, or
subject Landlord to any liability for injury to any person or property by reason
of any business operation being conducted in or about the Premises. To the
extent required due to Tenant's specific use of the Premises, as opposed to
compliance required by all tenants of the Project, Tenant shall, at its sole
cost and expense, promptly comply with all laws, statutes, ordinances, and
governmental rules, regulations, including, but not limited to, the Americans
with Disabilities Act ("ADA") of 1990 (42 U.S.C. 12101 ET SEQ.), any amendment
thereto or regulations promulgated thereunder, or state or local ordinances or
codes enacted pursuant thereto; or requirements of any board or fire insurance
underwriters or other similar bodies, now or hereafter constituted, relating to
or affecting the condition, use, or occupancy of the Premises (collectively,
"APPLICABLE LAWS"), excluding structural changes not related to or affected by
Tenant's improvements or acts, which shall be the responsibility of Landlord.
The final judgment of any court of competent jurisdiction or the admission of
Tenant in any action against Tenant, whether Landlord be a party thereto or not,
that
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Tenant has violated any law, statute, ordinance, or governmental rule,
regulation, or requirement, shall be conclusive of that fact as between Landlord
and Tenant.
(3) Tenant shall not use the Premises in any manner that will
constitute waste, nuisance, or unreasonable annoyance (including, without
limitation, the use of loudspeakers or sound or light apparatus that can be
heard or seen outside the Premises) to owners or occupants of adjacent
properties, provided, however, that Landlord specifically recognizes Tenant's
need to have and agrees to provide 24-hour lighting sufficiently bright for the
safety of Tenant's employees working during such 24-hour period. Tenant shall
not use the Premises for the preparation, manufacture, or mixing of anything
that might emit any odor or objectionable noises or lights onto adjacent
properties.
(4) Tenant shall not do anything on the Premises that will cause
damage to the Premises. No machinery, apparatus, or other appliance shall be
used or operated in or on the Premises that will in any manner injure, vibrate,
or shake the Premises, excepting reasonable office equipment used in conjunction
with general use (e.g. copy machines, phone systems, computers, office apparatus
and similar machines).
(5) Tenant shall not store, use or permit to be used in or about
the Premises any Hazardous Materials (as hereinafter defined), other than is
permitted in this Lease and office supplies and typical cleaning materials
containing Hazardous Materials which are customarily for general office use.
Tenant shall comply, at its expense, with all federal, state and local statues
or regulations concerning Hazardous Materials.
10. MAINTENANCE:
(a) Tenant shall, at Tenant's sole cost and expense, maintain the
Premises, in good, clean and first-class condition and repair. Without limiting
the generality of the foregoing, Tenant shall be solely responsible for
maintaining and repairing all fixtures, electrical lighting, ceilings and
flooring coverings, windows, doors, plate glass, skylights, and interior walls
within the Premises to the extent caused by actions, which includes negligent
acts, of Tenant, its agents, employees and contractors and invitees. Landlord
acknowledges that Tenant shall have no obligation to repair or maintain any
areas of the Project outside of the Premises, unless such repair or maintenance
is required due to acts of Tenant, its agents, employees, contractors and
subcontractors. Excepting maintenance, repairs or replacements required due to
the negligence or willful misconduct of Landlord, its agents, employees,
contractors and subcontractors, Tenant acknowledges that Landlord shall have no
obligation to maintain, repair or replace any telecommunications or computer
cabling or wiring
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which is located in the Premises or which exclusively serves the Premises.
Landlord shall have no obligation to alter, remodel, improve, repair, decorate
or paint the Premises except as specifically set forth in this Lease. Except as
permitted by this Lease, Tenant shall not make any repairs to the Buildings or
to the mechanical, electrical or heating, ventilating or air conditioning
systems of the Premises or the Buildings, unless such repairs are previously
approved in writing by Landlord.
(b) Landlord shall be responsible for maintaining and repairing all
structural portions and latent defects of the Buildings, and shall maintain the
roof, sidewalls, and foundations of the Buildings in good, clean and safe
condition and repair. Landlord shall be entitled to approve the sealing of any
roof penetrations caused by Tenant Improvements. Landlord shall also maintain
all landscaping, driveways, parking lots, fences, signs, sidewalks and the
Project Common Areas. Landlord shall be responsible for maintenance and repair
of all plumbing, heating, electrical, air conditioning and ventilation systems
and shall provide janitorial services in the Premises. Except as otherwise
provided in this Lease, Landlord shall have no liability to Tenant, nor shall
Tenant's obligations under this Lease be reduced or abated in any manner
whatsoever by reason of any inconvenience, annoyance, interruption or injury to
business arising from Landlord making any repairs or changes which Landlord is
required or permitted by this Lease or by any other tenants' lease or required
by law to make in or to any portion of the Buildings or the Premises. Landlord
shall use reasonable efforts to minimize any interference with Tenant's business
at the Premises. If Tenant fails to maintain the Premises in good order,
condition and repair, Landlord may give Tenant thirty (30) days' written notice
to do such acts as are reasonably required to so maintain the Premises. If
Tenant fails to promptly commence such work within such time period and
diligently prosecute it to completion, then Landlord shall have the right to do
such acts and expend such funds at the expense of Tenant as are reasonably
required to perform such work. Any amount so expended by Landlord shall be paid
by Tenant promptly after demand with interest at ten percent (10.00%) per annum,
from the date of such work, but not to exceed the maximum amount then allowed by
law. Landlord shall have no liability to Tenant for any damage, inconvenience,
or interference with the use of the Premises by Tenant as the result of
performing any such work.
(c) Notwithstanding any other provisions of this Lease to the
contrary, upon receipt of written notice (the "FIRST REPAIR NOTICE") from Tenant
that a repair is required pursuant to Section 10(b), above, Landlord shall cause
such repair to be made within a reasonable period of time given the
circumstances but in no event later than thirty (30) days after it receives the
First Repair Notice; provided, however, that if the repair is of such a nature
that it cannot be completed within thirty (30) days, then such longer time as
reasonably necessary. If Landlord
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fails to make the repair within the said time period, Tenant may give an
additional notice (the "SECOND REPAIR NOTICE") to Landlord. If Landlord fails
to commence thereafter such repair with ten (10) days after receipt of the
Second Repair Notice and thereafter diligently pursues said repair to
completion, Tenant may perform such repair. Notwithstanding the foregoing, in
the event of an emergency, if Landlord fails to make necessary repairs
immediately after receipt of the First Repair Notice, Tenant may make such
repairs without providing Landlord with the Second Repair Notice. All repairs
performed by Tenant pursuant to this Section 10(c) shall be made by a qualified
licensed contractor(s) with sufficient expertise in such matters and in
accordance with all applicable laws, statutes and ordinances. Landlord shall
reimburse Tenant for Tenant's actual costs incurred within ten (10) days after
Landlord's receipt of a written demand from Tenant, which demand shall include
supporting invoices. If Landlord disputes the need for such repair, Landlord
shall deliver written notice of such disagreement to Tenant within ten (10) days
after its receipt of the First Repair Notice. Notwithstanding such dispute,
Tenant may cause such repair to be completed pending resolution of such dispute.
The dispute shall be resolved by a mutually acceptable mediator, which
determination shall be binding upon Landlord and Tenant; provided, however, that
if the parties cannot agree on an engineer, then the dispute shall be resolved
by arbitration pursuant to the commercial arbitration rules then in effect for
the American Arbitration Association. The losing party shall pay the costs of
the engineer or arbitrator, whichever is applicable. If Landlord is obligated to
reimburse Tenant for the repair and fails to do so as provided in this
Section 10(c), Tenant may offset such reimbursement amount against the next Rent
payment(s) due from Tenant to Landlord pursuant to this Lease.
(d) Landlord acknowledges that Tenant's business operations are
intended to operate on a twenty-four (24) hour basis and that certain of the
repairs required by Landlord in Section 10(b) (collectively, "LANDLORD REPAIRS")
may have to be made on an expedited basis due to a material disruption of
Tenant's business operations caused by such condition, which condition shall be
referred to as an "EMERGENCY CONDITION." In this regard, in the event an
Emergency Condition relating to a Landlord Repair exists, Tenant shall deliver
to Landlord, by facsimile, a written notice ("EMERGENCY NOTICE") describing such
Emergency Condition. The Emergency Notice shall, in ten (10) point bold typed
across the top, stating "AN EMERGENCY SITUATION EXISTS AT THE PREMISES REQUIRING
YOUR IMMEDIATE ATTENTION." In the event that Landlord fails to commence repair
of the Emergency Condition within ten (10) hours (if such situation occurs
during non-business hours, Tenant shall utilize Landlord's paging system, the
procedure for which shall be provided to Tenant prior to the Commencement Date),
Tenant, using licensed contractors which are qualified to perform such tasks in
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compliance with Applicable Laws, shall have the right to make the Landlord
Repairs; provided, however, such repairs shall be limited to the temporary
remediation of such Emergency Condition and Landlord shall thereafter be
responsible for the full repair of such condition. Landlord shall reimburse
Tenant's actual expenses incurred in making such temporary remediation repairs
within fifteen (15) days following Landlord's receipt of written demand and
supporting invoices. If such repayment is not made within such fifteen (15) day
period, such amount shall accrue interest at the rate of fifteen percent
(15.00%) per annum until paid in full.
11. ALTERATIONS:
a. LANDLORD CONSENT REQUIRED: Tenant shall not make any alterations
to the Premises without Landlord's prior written consent, which shall not be
unreasonably withheld. Notwithstanding the foregoing, Tenant shall be entitled
to make nonstructural internal modifications to the Buildings, which do not
effect the base electrical or mechanical systems of the Buildings, without the
prior written consent of Landlord, which are not in excess of Fifty Thousand and
No/100ths Dollars ($50,000.00) during any year within the Initial Term, or
Extended Term, as applicable. Any alterations made shall comply with Applicable
Law and shall remain on and be surrendered with the Premises on expiration or
termination of the Initial Term or Extended Term, if applicable, except that
Landlord can elect at the time Tenant seeks Landlord's approval of the
alterations, to require Tenant to remove any alterations that Tenant has made to
the Premises. If Landlord so elects, Tenant, at its cost, shall restore the
Premises to the condition designated by Landlord in its election, before the
last day of the Initial Term or Extended Term, if applicable, or within thirty
(30) days after notice of election is given, whichever is later.
b. NOTICE: If Tenant makes any alterations to the Premises as
provided in this Section, the alterations shall not be commenced until ten (10)
days after Landlord has received written notice from Tenant stating the date the
installation of the alterations is to commence so that Landlord can post and
record an appropriate notice of nonresponsibility.
c. TRADE FIXTURES: Tenant may install fixtures, machinery or other
equipment. Except for items belonging to Landlord, Tenant may remove any of
such trade fixtures or equipment upon the termination of this Lease; provided
that Tenant is not in default under the terms and conditions of this Lease.
12. MECHANIC'S LIEN:
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a. TENANT PAYS CONSTRUCTION COSTS: Tenant shall pay all costs for
construction done by it or caused to be done by it on the Premises which
construction is beyond the scope of construction to be performed by Landlord
pursuant to Section 1. Tenant shall keep the Premises free and clear of all
mechanics' liens resulting from construction done by or for Tenant.
b. LIEN RELEASE BOND: Tenant shall have the right to contest the
correctness or the validity of any such lien, if immediately on demand by
Landlord, Tenant procures and records a lien release bond issued by a
corporation authorized to issue surety bonds in Colorado in an amount equal to
the lien.
13. UTILITIES AND SERVICES:
Tenant shall make all arrangements for and pay for all utilities and
services furnished to or used by it at the Premises, including, without
limitation, gas, electricity, water, and telephone service, and for all
connection charges (collectively, "UTILITY SERVICES"). Landlord shall not be
liable for any failure or interruption of any utility service being furnished to
the Premises, and no such failure or interruption shall entitle Tenant to
terminate this Lease. The cost of Utility Services shall not be included by
Landlord in Operating Expenses, which expenses shall be paid by Tenant directly
to the utility provider.
14. INDEMNITY, EXCULPATION AND INSURANCE:
a. WAIVER OF LIABILITY: Landlord shall not be liable to Tenant and
Tenant hereby waives all claims against Landlord, its partners, officers,
trustees, affiliates, directors, shareholders, employees, contractors, agents
and representatives (collectively, "AFFILIATES") for any injury or damage to any
person or property occurring or incurred in connection with or in any way
relating to the Premises from any cause, excepting events caused by the
negligence or misconduct of Landlord, its agents, employees or contractors.
Tenant agrees that in no case shall Landlord ever be responsible or liable on
any theory for any injury to Tenant's business, loss of profits, loss of income
or any other form of consequential damage. Tenant shall give prompt notice to
Landlord in the event of (a) the occurrence of a fire or accident in the
Premises, or (b) the discovery of any defect therein or in the fixtures or
equipment thereof. Notwithstanding any other provision of this Lease to the
contrary, Tenant waives any claims based on damage or injury resulting from
Landlord's failure to police or provide security for the Premises.
b. INDEMNIFICATION:
(i) Tenant shall indemnify, defend (with legal counsel selected
by Landlord and consented to by Tenant), protect
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and hold Landlord and the Premises harmless from and against any and all claims,
suits, judgments, losses, costs, obligations, damages, expenses, interest and
liabilities, including, without limitation, reasonable attorneys' fees,
resulting from Tenant's use of the Premises, or for any injury or damage to any
person or property whatsoever arising out of or in connection with this Lease,
the Premises or Tenant's activities in the Premises, when such injury or damage
has been caused in whole or in part by the act, negligence, fault or omission of
Tenant, its agents, servants, contractors, employees, representatives, licenses,
patrons or invitees. Nothing contained in this Section 14 shall obligate Tenant
to indemnify Landlord against Landlord's own negligence or misconduct. The
provisions of this Section 14 shall survive the expiration or earlier
termination of this Lease.
(ii) Landlord shall indemnify, defend (with legal counsel
selected by and consented to by Landlord), protect and hold Tenant harmless from
and against any and all claims, suits, judgments, losses, costs, obligations,
damages, expenses, interest and liabilities, including, without limitation,
reasonable attorneys' fees, resulting from the negligence of acts of Landlord,
its agents, employees and contractors. Nothing contained in this Section 14
shall obligate Landlord to indemnify Tenant against Tenant's own negligence or
misconduct. The provisions of this Section 14 shall survive the expiration or
earlier termination of this Lease.
c. PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE: Landlord and
Tenant, at their respective costs, shall each maintain public liability and
property damage insurance with a One Million and No/100ths Dollar
($1,000,000.00) public liability and property damage insurance policy, plus a
Five Million and No/100ths Dollars ($5,000,000.00) public liability and property
damage umbrella policy, insuring against all liability of Tenant and Landlord
and each of their authorized representatives arising out of and in connection
with Tenant's use or occupancy of the Premises. All public liability insurance
and property damage insurance shall insure performance by Tenant and Landlord of
their indemnity provisions of Section 12. Both parties shall be named as
additional insureds, and the policy shall contain cross-liability endorsements.
d. FIRE INSURANCE ON BUILDINGS AND OTHER IMPROVEMENTS: Landlord
shall maintain on the buildings and other improvements that are a part of the
Premises a policy of standard fire and extended coverage insurance, with
vandalism and malicious mischief endorsements, to the extent of full replacement
value, with a replacement cost endorsement. The insurance policy shall be
issued in the name of Landlord. The insurance policy shall provide that any
proceeds shall be made payable to Landlord.
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f. WAIVER OF SUBROGATION: The parties release each other, and their
respective authorized representatives, from any claims for damage to any person
or to the Premises and to the fixtures, personal property, Tenant's
improvements, and alterations of either Landlord or Tenant in or on the Premises
that are caused by or result from risks insured against under any insurance
policies carried or required to be carried pursuant to this Lease by the parties
and in force at the time of any such damage. Each party shall cause each
insurance policy obtained by it to provide that the insurance company waives all
right of recovery by way of subrogation against either party in connection with
any damage covered by any policy. Neither party shall be liable to the other
for any damage caused by fire or any of the risks insured against and actually
paid upon under any insurance policy required by this Lease.
g. OTHER INSURANCE MATTERS: All the insurance required under this
Lease shall:
(1) Be issued by insurance companies authorized to do business
in the State of Colorado, with a financial rating of at least an A + 3A status
as rated in the most recent edition of Best's Insurance Reports.
(2) Be issued as a primary policy.
(3) Contain an endorsement requiring thirty (30) days' written
notice from the insurance company to both parties and Landlord's lender before
cancellation or change in the coverage, scope, or amount of any policy.
(4) Each policy, or a certificate of the policy, together with
evidence of payment of premiums, shall be deposited with the other party at the
Commencement Date, and on renewal of the policy not less than thirty (30) days
before expiration of the term of the policy.
15. DESTRUCTION:
(a) During the term hereof, if the Premises or any part thereof shall
be damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. In case the Premises shall be so damaged by fire or other
casualty that substantial alteration or reconstruction of the Premises (which is
in excess of twenty percent (20.00%) of the Premises) shall be required if such
damage is not covered by insurance carried by Landlord, Landlord may, at its
option, terminate this Lease and the term and estate hereby granted by notifying
Tenant in writing of such termination within forty-five (45) days after the date
of such damage, in which event the Rent shall be abated as of the date of such
damage. If Landlord does not thus elect to terminate this Lease, Landlord shall,
within sixty (60) days after the date of such damage, commence to repair and
restore the Buildings and
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shall proceed with reasonable diligence to restore the Buildings (except that
Landlord shall not be responsible for delays outside its control) to
substantially the same condition in which it was immediately prior to the
happening of the casualty, except that Landlord shall not be required to
rebuild, repair or replace any part of Tenant's furniture and furnishings or
fixtures and equipment removable by Tenant under the provisions of this Lease,
but such work shall not exceed the scope of the work done by Landlord in
originally constructing the Buildings. Tenant shall not be entitled to any
compensation or damages from Landlord, and Landlord shall not be liable, for any
loss of the use of the whole or any part of the Premises, Tenant's personal
property, or any inconvenience or annoyance occasioned by such loss of use,
damage, repair, reconstruction or restoration, except that, subject to the
provisions of the next sentence, Landlord shall allow Tenant an abatement of
Rent on a square footage basis during the time and to the extent the Premises
are unfit or unavailable for occupancy. If the Premises are damaged by fire or
other casualty resulting from the negligence of Tenant or any of Tenant's
agents, employees, or invitees, and the cost thereof is not covered and funded
by insurance maintained by Landlord, Tenant shall be liable to Landlord for the
cost and expense of the repair and restoration of the Premises caused thereby to
the extent such cost and expense is not covered by insurance proceeds. Tenant
hereby specifically waives any and all rights it may have under any law,
statute, ordinance or regulation to terminate the Lease by reason of casualty or
damage to the Premises or Buildings, and the parties hereto specifically agree
that the Lease shall not automatically terminate by law upon destruction of the
Premises.
(b) In the event that Landlord elects to repair any damage to the
Premises and/or Buildings (if such damage prevents Tenant from using the
Premises pursuant to this Lease), Landlord shall deliver written notice to
Tenant indicating Landlord's good faith estimate of the number of days required
to repair such damage. If Landlord's estimate is in excess of one hundred
eighty (180) days (for a period of ten (10) days following receipt of such
notice, Tenant shall have the right, by delivery of written notice to Landlord,
to terminate this Lease, which termination shall be effective upon delivery of
such notice to Tenant by Landlord. The failure of Tenant to provide such
written notice within such time period, shall be deemed a waiver of Tenant's
right to terminate this Lease pursuant to the preceding sentence.
(c) If the Premises is damaged or destroyed during the last twelve
(12) months of the Term of the Lease, and the Premises cannot be fully repaired
or restored by Landlord within sixty (60) days after the date of damage or
destruction, either Landlord or Tenant may terminate this Lease upon written
notice to the other within thirty (30) days of the date of such damage, which
termination shall become effective upon the date of receipt of such notice.
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16. CONDEMNATION:
a. DEFINITIONS:
(1) "CONDEMNATION" means (a) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a condemnor and (b) a
voluntary sale or transfer by Landlord to any condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
(2) "DATE OF TAKING" means the date the condemnor has the right
to possession of the property being condemned.
(3) "AWARD" means all compensation, sums, or anything of value
awarded, paid, or received on a total or partial condemnation.
(4) "CONDEMNOR" means any public or quasi-public authority, or
private corporation or individual, having the power of condemnation.
b. PARTIES' RIGHTS AND OBLIGATIONS TO BE GOVERNED BY LEASE: If,
during the Initial Term or Extended Term, if applicable, there is any taking of
all or any part of the Premises or any interest in this Lease by condemnation,
the rights and obligations of the parties shall be determined pursuant to this
Section.
c. TOTAL TAKING: If the Premises are totally taken by condemnation,
this Lease shall terminate on the date of taking.
d. PARTIAL TAKING: If any portion of the Premises is taken by
condemnation, this Lease shall remain in effect; except that Landlord or Tenant
can elect to terminate this Lease if thirty percent (30.00%) or more of the
total square footage in either Buildings, or thirty percent (30.00%) of parking
for the Premises is taken, or if as a result of such condemnation, Tenant is
prevented from continuing Tenant's Use on the Premises due to applicable
ordinances of governmental entities or agencies having jurisdiction over the
Premises. If Tenant or Landlord elects to terminate this Lease, such exercise
must be given by written notice to the other party within thirty (30) days after
the nature and the extent of the taking have been finally determined. In such
event, such termination shall not be earlier than thirty (30) days nor later
than ninety (90) days after such election to terminate; except that this Lease
shall terminate on the date of taking if the date of taking falls on a date
before the date of termination as designated by Tenant. If either party does
not terminate this Lease within the thirty (30) day period, this Lease shall
continue in full force and effect, except that Base Rent shall be abated as
provided in this Section 15.
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(1) EFFECT ON RENT: If any portion of the Buildings or parking
is taken by condemnation and this Lease remains in full force and effect, on the
date of taking the Base Rent shall be reduced by an amount that is in the same
ratio to Base Rent as the total number of square feet in the Buildings taken, or
no longer usable due to loss of parking, bears to the total number of square
feet in the Buildings immediately before the date of taking.
(2) RESTORATION OF PREMISES: If there is a partial taking of
the Premises or parking and this Lease remains in full force and effect,
Landlord, at its cost, shall accomplish all necessary restoration.
(3) ABATEMENT OF RENT: Rent shall be abated or reduced during
the period from the date of taking until the completion of restoration, but all
other obligations of Tenant under this Lease shall remain in full force and
effect, except to the extent otherwise provided above. The abatement or
reduction of rent shall be based on the extent to which the restoration
unreasonably interferes with Tenant's use of the Buildings. To the extent any
parking is effected by a taking, Tenant shall be entitled to an abatement equal
to Ten and No/100ths Dollars ($10.00) per year per parking stall effected.
e. AWARD-DISTRIBUTION: The award shall belong to and be paid to
Landlord, except that Tenant shall receive directly from the condemning
authority an amount attributable to alterations made to the Premises by Tenant
in accordance with this Lease, which alterations Tenant has the right to remove
from the Premises pursuant to the provisions of this Lease but elects not to
remove; or, if Tenant elects to remove any such Tenant's improvements, an amount
not to exceed the fair market value of such alterations. Any award by the
condemnor specifically for the loss of Tenant's business shall belong to Tenant.
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17. ASSIGNMENT:
a. PROHIBITION AGAINST VOLUNTARY ASSIGNMENT, SUBLETTING, AND
ENCUMBERING: Tenant shall not assign or hypothecate this Lease or any interest
herein (by operation of law or otherwise) or sublet the Premises or any part
hereof, or permit the use of the Premises by any party other than Tenant without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld following Landlord's review of the items used in Section 16(1) below.
Notwithstanding the foregoing, Tenant may assign this Lease to any corporation
which controls, is controlled by or is under common control with Tenant, or to
any corporation resulting from merger or consolidation with Tenant, or to any
person or entity which acquires all of the assets as a going concern of the
business of Tenant that is being conducted on the Premises, without the prior
consent of Landlord, provided that (i) such assignment or sublease shall in no
way release Tenant form any liability under this Lease, and (ii) such assignee
has a net worth at least equal to Tenant's net worth at the Lease Date.
(1) PROCEDURE: In the event that Tenant should desire to sublet
the Premises or any part thereof, or assign this Lease, Tenant shall provide
Landlord with written notice of such desire at least thirty (30) days in advance
of the effective date of such subletting or assignment. Such notice shall
include (i) the name of the proposed subtenant or assignee; (ii) the nature of
business to be conducted by the proposed subtenant or assignee in the Premises;
(iii) the terms and conditions of the proposed assignment or sublease; and (iv)
the current financial statements of the proposed subtenant or assignee.
Landlord shall not unreasonably withhold its consent to a proposed subletting or
assignment, provided that (1) the proposed subtenant or assignee is engaged in a
business which, and the Premises shall be used in a manner which, is consistent
with the permissible use set forth in this Lease; (2) the proposed subtenant or
assignee is a reputable party of reasonable financial worth in light of the
responsibilities involved and Tenant shall have provided Landlord with
reasonable proof thereof; and (3) Tenant is not in material default hereunder at
the time it makes its request for such consent. No assignment of Tenant's
interest in this Lease shall relieve Tenant from its obligations pursuant to the
provisions of this Lease.
(2) PAYMENT OF ATTORNEYS' FEES: (Intentionally Deleted)
b. INVOLUNTARY ASSIGNMENT: No interest of Tenant in this Lease
shall be assignable by operation of law (including, without limitation, the
transfer of this Lease by testacy or intestacy). Each of the following acts
shall be considered an involuntary assignment:
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(1) BANKRUPTCY: If Tenant is or becomes bankrupt or insolvent,
makes an assignment for the benefit of creditors, or institutes a proceeding
under the Bankruptcy Act in which Tenant is the bankrupt party; or, if Tenant is
a partnership or consists of more than one person or entity, if any partner of
the partnership or other person or entity is or becomes bankrupt or insolvent,
or makes an assignment for the benefit of creditors;
(2) ATTACHMENT: If a writ of attachment or execution is levied
on this Lease; or
(3) RECEIVER: If, in any proceeding or action to which Tenant
is a party, a receiver is appointed with authority to take possession of the
Premises.
An involuntary assignment shall constitute a default by Tenant and Landlord
shall have the right to elect to terminate this Lease, in which case this Lease
shall not be treated as an asset of Tenant. If a writ of attachment or
execution is levied on this Lease, Tenant shall have twenty (20) days in which
to cause the attachment or execution to be removed. If any involuntary
proceeding in bankruptcy is brought against Tenant, or if a receiver is
appointed, Tenant shall have sixty (60) days in which to have the involuntary
proceeding dismissed or the receiver removed.
18. DEFAULT:
a. TENANT'S DEFAULT: The occurrence of any one or more of the
following events shall constitute a default and breach of this Lease by Tenant:
(1) The failure by Tenant to make any payment of Base Rent or
any other payment required to be made by Tenant hereunder as and when due, where
such failure shall continue for a period of five (5) business days after
Tenant's receipt of written notice.
(2) Tenant's failure to observe or perform any of the covenants,
conditions, or provisions of this Lease to be observed or performed by Tenant,
other than as described in subparagraph (b) above, where such failure shall
continue for a period of thirty (30) days after written notice thereof by
Landlord to Tenant; provided, however, that if the nature of Tenant's default is
such that more than twenty (20) days are reasonably required for its cure, then
Tenant shall not be deemed to be in default if Tenant commences such cure within
said thirty (30)-day period and thereafter diligently prosecutes such cure to
completion.
(3) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors,
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or the appointment of a trustee or a receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days, or the attachment, execution, or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged in thirty (30)
days.
(4) The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of any involuntary petition by Tenant's creditors, which
involuntary petition remains undischarged for a period of thirty (30) days. In
the event that under applicable law the trustee in bankruptcy or Tenant has the
right to affirm this Lease and perform the obligations of Tenant hereunder, such
trustee or Tenant shall, in such time period as may be permitted by the
bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder
outstanding as of the date of the affirmance of this Lease, and provide to
Landlord such adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligation under this Lease.
b. REMEDIES FOR TENANT'S DEFAULT: In the event of Tenant's default,
following the expiration of any applicable cure periods, Landlord may:
(1) Terminate Tenant's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Tenant within a
reasonable time shall immediately surrender possession of the Premises to
Landlord. In such event, Landlord shall be entitled to recover from Tenant:
(a) the amount of any unpaid rent which had been earned at
the time of such termination; plus
(b) the amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom (including, without limitation, the reasonable cost of
recovering possession of the Premises, reasonable expenses of reletting
including necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and real estate commissions actually paid and that portion of
the leasing commission paid by Landlord and applicable to the unexpired portion
of this Lease); plus
(c) such other amounts in addition to or in lieu of the
foregoing as may be permitted at such time by applicable Colorado law.
(2) Continue this Lease in full force and effect, and the Lease
will continue in effect, as long as Landlord does not terminate Tenant's right
to possession, and Landlord shall
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have the right to collect Rent when due. During the period Tenant is in
default, Landlord may enter the Premises and relet them, or any part of them, to
third parties for Tenant's account. Tenant shall be liable immediately to
Landlord for all costs Landlord reasonably incurs in reletting the Premises,
including, without limitation, brokers' commissions, expenses of remodeling the
Premises reasonably required by the reletting. Reletting can be for a period
shorter or longer than the remaining term of this Lease. Tenant shall pay to
Landlord the Rent due under this Lease on the dates the Rent is due, less the
rent Landlord receives from any reletting. In no event shall Tenant be entitled
to any excess rent received by Landlord. No act by Landlord allowed by this
paragraph shall terminate this Lease unless Landlord notifies Tenant in writing
that Landlord elects to terminate this Lease. After Tenant's default and for as
long as Landlord does not terminate Tenant's right to possession of the
Premises, if Tenant obtains Landlord's consent, Tenant shall have the right to
assign or sublet its interest in this Lease, but Tenant shall not be released
from liability.
(3) Cause a receiver to be appointed to collect Rent. Neither
the filing of a petition for the appointment of a receiver nor the appointment
itself shall constitute an election by Landlord to terminate the Lease.
(4) Cure the default at Tenant's cost. If Landlord at any time,
by reason of Tenant's default, reasonably pays any sum or does any act that
requires the payment of any sum, the sum paid by Landlord shall be due
immediately from Tenant to Landlord at the time the sum is paid, and if paid at
a later date shall bear interest at the lesser of ten percent (10.00%) per
annum, or the maximum rate an individual is permitted by law to charge from the
date the sum is paid by Landlord until Landlord is reimbursed by Tenant. The
sum, together with interest on it, shall be additional Rent.
(5) The foregoing remedies are not exclusive; they are
cumulative, in addition to any remedies now or later allowed by law, to any
equitable remedies Landlord may have, and to any remedies Landlord may have
under bankruptcy laws or laws affecting creditors' rights generally. The waiver
by Landlord of any breach of any term, covenant or condition of this Lease shall
not be deemed a waiver of such term, covenant or condition or of any subsequent
breach of the same or any other term, covenant or condition. Acceptance of Rent
by Landlord subsequent to any breach hereof shall not be deemed a waiver of any
proceeding breach other than a failure to pay the particular Rent so accepted,
regardless of Landlord's knowledge of any breach at the time of such acceptance
of Rent. Landlord shall not be deemed to have waived any term, covenant or
condition unless Landlord gives Tenant written notice of such waiver.
(6) Notwithstanding anything to the contrary contained elsewhere
in this Lease, Landlord shall use reasonable
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efforts to relet the Premises to mitigate its damages under this Section 17;
provided, however, that so long as Landlord uses such reasonable efforts,
Landlord shall in no way be responsible or liable for any failure to relet the
Premises, or any part thereof, or any failure to collect any rent due upon such
reletting; and Landlord shall not be required to spend its own funds, to give
the Premises priority over or equal priority with any other facilities owned by
Landlord or its affiliates or other space available for rent in the Buildings or
to compromise in any way the terms, uses or creditworthiness of a Tenant upon or
to which it would customarily lease space such as the Premises.
19. SUBORDINATION; ESTOPPEL:
a. SUBORDINATION: This Lease is and shall be subordinate to any
encumbrance now of record or recorded after the date of this Lease affecting the
Buildings, other improvements, and land of which the Premises are a part. Such
subordination is effective without any further act of Tenant. If any mortgagee,
trustee, or ground lessor shall elect to have this Lease and any options granted
hereby prior to the lien of its mortgage, deed of trust, or ground lease, and
shall give written notice thereof to Tenant, this Lease and such options shall
be deemed prior to such mortgage, deed of trust, or ground lease, whether this
Lease or such options are deeded prior or subsequent to the date of said
mortgage, deed of trust, or ground lease, or the date of recording thereof.
b. ATTORNMENT: In the event any proceedings are brought for
foreclosure, or in the event of a sale or exchange of the real property on which
the Buildings is located, or in the event of the exercise of the power of sale
under any mortgage or deed of trust made by Landlord covering the Premises,
Tenant shall attorn to the purchaser upon any such foreclosure and sale and
recognize such purchaser as the Landlord under this Lease. Tenant agrees to
execute any documents required to effectuate an attornment or to make this Lease
or any options granted herein prior to the lien of any mortgage, deed of trust,
or ground lease, as the case may be. If Tenant fails to execute and deliver any
such documents or instruments as required hereunder, Tenant irrevocably
constitutes and appoints Landlord as Tenant's special attorney-in-fact to
execute and deliver any such documents or instruments.
c. NONDISTURBANCE: Notwithstanding Section 19a, Landlord agrees
that Tenant's obligations to subordinate under this Section 19 to any existing
or future ground lease, mortgage, or deed of trust shall be conditioned upon
Tenant's receipt of a non-disturbance agreement from the holder of such
encumbrance (which party is referred to for the purposes of this Section as the
"SUPERIOR LIENOR"). Such non-disturbance agreement shall provide, at a minimum,
that Tenant's possession, and all other rights hereunder, of the Premises shall
not be interfered with
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following a foreclosure, provided Tenant is not in default beyond any applicable
cure periods. Landlord's obligation with respect to such a non-disturbance
agreement shall be limited to obtaining the non-disturbance agreement in such
form as the Superior Lienor generally provides in connection with its standard
commercial loans, however, Tenant shall have the right to negotiate, and
Landlord shall use its good faith efforts and due diligence in assisting Tenant
in the negotiation of, revisions to that non-disturbance directly with the
Superior Lienor. Tenant agrees to use its good faith efforts to reach agreement
with the Superior Lienor upon acceptable terms and conditions of a
non-disturbance agreement.
d. ESTOPPEL: Either party shall, within ten (10) days after written
notice from the other party, execute and deliver to requesting party, in
recordable form, a certificate stating that this Lease is unmodified and in full
force and effect, or in full force and effect as modified, and stating the
modifications. The certificate also shall state the amount of Base Rent, the
date to which the rent has been paid in advance, the amount of any security
deposit or prepaid rent and any other information reasonably requested by the
requesting party. Failure to deliver the certificate within the ten (10) days
shall be conclusive that this Lease is in full force and effect and has not been
modified except as may be represented by the party requesting the certificate.
20. SURRENDER OF PREMISES; HOLDING OVER:
a. SURRENDER OF PREMISES: On expiration or not more than
thirty (30) days after termination of the initial Term, Tenant shall surrender
to Landlord the Premises and all Tenant's improvements and alterations in good
condition (except for ordinary wear and tear), except for alterations that
Tenant has the right to remove or is obligated to remove as provided in this
Lease. Tenant shall remove all its personal property within the above stated
time. Tenant shall perform all restoration made necessary by removal of any
alterations or Tenant's personal property within the time periods stated in this
Section.
(1) Landlord can elect to retain or dispose of in any manner any
alterations or Tenant's personal property that Tenant does not remove from the
Premises on expiration or termination of the Initial Term or Extended Term, if
applicable, as allowed or required by this Lease by giving at least ten (10)
days' notice to Tenant. Title to any such alterations or Tenant's personal
property that Landlord elects to retain or dispose of on expiration of the ten
(10) day period shall vest in Landlord. Tenant waives all claims against
Landlord for any damage to Tenant resulting from Landlord's retention or
disposition of any such alterations or Tenant's personal property. Tenant shall
be liable to Landlord for Landlord's
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costs for storing, removing and disposing of any alterations or Tenant's
personal property.
b. HOLDING OVER: If Tenant remains in possession of the Premises
after expiration or termination of the Initial Term or Extended Term, if
applicable, or after the date in any notice given by Landlord to Tenant
terminating this Lease, such possession by Tenant shall be deemed to be a
month-to-month tenancy terminable on thirty (30) days notice given at any time
by either party. During any such month-to-month tenancy, Tenant shall pay an
amount equal to one hundred twenty-five percent (125.00%) of the rent required
by this Lease, prorated by the number of days of the month Tenant actually holds
over. Except as provided in this Section, all provisions of this Lease, except
those pertaining to term and option to extend, shall apply to the month-to-month
tenancy.
21. ENVIRONMENTAL PROVISIONS: Tenant shall indemnify, defend and hold
harmless Landlord, successors and assigns from and against any and all losses,
costs, claims, damages, liabilities and causes of action (including attorneys'
fees) directly or indirectly arising out of or in any way connected with the
presence, use, generation, manufacture, storage, disposal, transportation or
release of Hazardous Materials on, under or about the Premises by Tenant,
including the soils and groundwaters thereof, including, without limitation, the
cost of any required or necessary repair, clean-up, remediation or
detoxification of Hazardous Materials and the preparation of any closure,
remedial action or other required plans; provided, however, that Tenant shall be
under no obligation under this Section 20(a) with respect to any Hazardous
Materials that (i) were or under the Premises, including the soils and
groundwater thereof, prior to the Commencement Date, (ii) came upon or migrated
to the Premises, including the soils and groundwater thereof, from the land
adjacent to the Premises and not owned or controlled by Tenant, or (iii) results
from the acts or negligence of Landlord, its agents, employees, contractors or
subcontractors. For the purposes of this Lease, "HAZARDOUS MATERIALS" shall
mean any petroleum based product, flammable explosives, asbestos, urea
formaldehyde, contamination or polluting materials, substances or wastes or any
other substances presently or hereafter defined as "hazardous substances",
"hazardous materials", "hazardous waste", "toxic substances" or "toxic waste"
under any federal, state or local statute, ordinance, rule or regulation
relating to industrial hygiene or to the environmental conditions on, under or
about the Premises, including the soil or groundwater conditions thereof.
Tenant's obligations under the foregoing indemnity shall survive the termination
of this Lease. Landlord acknowledges that, as will be set forth in the Approved
Final Plans, Tenant shall store certain amounts of diesel fuel for operation of
generators, which storage shall comply with Applicable Laws.
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22. SIGNS: Tenant shall have the right to place its business sign on the
Premises and the monument signage at the front entry of the Premises, provided
such signage is in compliance with the applicable ordinances of all appropriate
governmental agencies, Tenant obtains the prior written approval of Landlord
regarding the sign, which approval shall not be unreasonably withheld, and that
such signage complies with the CC&Rs (as hereinafter defined). Tenant shall be
responsible for the cost of maintenance and repair of such signage during the
term of this Lease and the removal of such signage upon the expiration or
earlier termination of such term.
23. LANDLORD'S ENTRY ON PREMISES: Landlord and its authorized
representatives shall have the right to enter the Premises at all reasonable
times during business hours with reasonable advance notice for any of the
following purposes:
a. To determine whether the Premises are in good condition and
whether Tenant is complying with its obligations under this Lease;
b. To do any necessary maintenance or repair and to make any
restoration to the Premises that Landlord has the right or the obligation to
perform pursuant to the provisions of this Lease;
c. To serve, post, or keep posted any notices required or allowed
under the provisions of this Lease;
d. To post "for sale" signs at any time during the term, to post
"for rent" or "for lease" signs during the last three (3) months of the terms;
e. To show the Premises during reasonable business hours to
prospective brokers, agents, buyers, tenants, or persons interested in an
exchange or purchase, at any time during the Initial Term or Extended Term, if
applicable.
Landlord shall conduct its activities on the Premises as allowed in
this Article in a manner that will cause the least possible inconvenience,
annoyance, or disturbance to Tenant.
24. NOTICE: Any notice, demand, request, consent, approval, or
communication that either party desires or is required to give to the other
party or any other person shall be in writing and either served personally or
sent by certified mail, return receipt requested. Any notice, demand, request,
consent, approval, or communication that either party desires or is required to
give to the other party shall be addressed to the other party at the address set
forth in this Lease. Either party may change its address by notifying the other
party in writing of the change of address. Notice shall be deemed communicated
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within seventy-two (72) hours from the time of mailing if mailed as provided in
this Article.
25. RECORDATION; QUITCLAIM DEED: Upon the Commencement Date, Landlord and
Tenant shall enter into a Memorandum of this Lease and cause such document to be
recorded as an encumbrance against the Project. Tenant shall execute and
deliver to Landlord on the expiration or termination of this Lease, immediately
on Landlord's request, a quitclaim deed to the Premises, in recordable form,
designating Landlord as transferee.
26. SALE OR TRANSFER OF PREMISES: If Landlord sells or transfers all or
any portion of the Premises, Landlord, on consummation of the sale or transfer,
shall be released from any liability thereafter accruing under this Lease,
provided that the purchaser expressly assumes Landlord's obligations hereunder,
Landlord shall provide Tenant with written notice of such transfer.
27. ATTORNEYS' FEES: If Tenant or Landlord shall be in breach or default
under this Lease, such party (the "DEFAULTING PARTY") shall reimburse the other
party (the "NON-DEFAULTING PARTY") upon demand for any reasonable costs or
expenses that the Non-Defaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award to
the party in whose favor a judgment is entered, a reasonable sum as attorneys'
fees and costs. The losing party in such action shall pay such attorneys' fees
and costs.
28. FIRST RIGHT OF REFUSAL: At any time during the term of this Lease, in
the event that Landlord receives an offer to purchase the Premises upon terms
and conditions which Landlord is willing to accept, Landlord shall provide
Tenant with written notice of such offer and Tenant, for a period of ten (10)
days thereafter, shall have the right, but not the obligation, to purchase the
Premises ("FIRST RIGHT OF REFUSAL") upon the exact terms and conditions set
forth in such offer by delivery of written notice to Landlord within such ten
(10) day period. The failure of Tenant to respond to within such time period
shall be deemed Tenant's election NOT to exercise the First Right of Refusal.
If Tenant does not elect to exercise the First Right of Refusal, and such
transaction was not closed within one hundred twenty (120) days thereafter, all
subsequent offers to purchase the Premises which are acceptable to Landlord
shall be subject to the provisions of this Section. Notwithstanding the
foregoing, if Tenant is in default at the time of its exercise of the First
Right of Refusal, such exercise shall be null and void.
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29. PRIVATE OPTION TO EXPAND: At anytime during the first eighteen (18)
months following the Commencement Date, Tenant shall have the right to expand
the Premises ("OPTION TO EXPAND") to include the entire rentable square footage
("EXPANSION PREMISES") located on the second floor of the Building in which the
329 Premises is located, or any portion thereof, by providing Landlord with
written notice ("EXPANSION NOTICE") of such election on or before the expiration
of such eighteen (18) month period. If Tenant elects to lease less than all of
the Expansion Premises, the rentable area of such portion shall not be less than
five thousand (5,000) square feet, and the location and configuration of such
leased portion shall be reasonably acceptable to Landlord. Tenant shall be
entitled to multiple exercises of the Option to Expand subject to the
limitations of the preceding sentence. Upon agreement of the Approved Final
Plans, Landlord and Tenant shall attach to this Lease as an Exhibit a
description of the Expansion Premises, which Exhibit shall be initialed by both
parties. The failure of Tenant to deliver the Expansion Notice on or before the
expiration of such eighteen (18) month term shall be deemed Tenant's waiver of
its right to exercise the Option to Expand and Landlord shall be free to lease
to any third party the Expansion Space.
a. If Tenant elects to exercise its Option to Expand, the Expansion
Premises shall be deemed to be leased under all the terms and conditions of this
Lease and shall constitute a portion of the "Premises" for all purposes, and the
term of Tenant's lease of the Expansion Premises shall be coterminous with the
term of this Lease with respect to the original Premises. The date on which the
Expansion Premises is Ready for Occupancy pursuant to subparagraph (d) below, is
hereinafter referred as the "OCCUPANCY DATE." Landlord and Tenant shall execute
an amendment to this Lease evidencing the lease of the Expansion Premises.
b. The Base Rent for the Expansion Premises shall be the then
current Base Rent which Tenant is obligated to pay for the original Premises, on
a per square foot of rentable area basis, and shall be subject to increase at
the same times and in the same manner as Base Rent is adjusted pursuant to this
Lease. Tenant's obligation to pay Base Rent with regard to the Expansion
Premises shall commence on the Occupancy Date.
c. As a condition to Tenant's right to expand into the Expansion
Premises, Tenant shall not be in default under this Lease, beyond any applicable
cure period.
d. Landlord agrees to construct leasehold improvements to the
Expansion Premises subject to the limitations of this subsection. The maximum
amount of the allowance to be expended by Landlord shall be an amount equal to
the per square foot cost of the tenant improvements installed at the original
Premises by Landlord pursuant to this Lease. Prior to the
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commencement of such work by Landlord, Tenant and Landlord shall enter into a
work letter agreement which shall be in a form reasonably acceptable to Landlord
and Tenant.
e. As of the Occupancy Date, the Tenant's Proportionate Share used
for purposes of calculating Operating Expenses shall be increased in order to
reflect the addition of the Expansion Premises.
30. MISCELLANEOUS PROVISIONS:
a. CC&RS: Tenant agrees to comply with the provisions of any and all
covenants, conditions and restrictions (collectively, "CC&RS"), which encumber
the Premises as of the Lease Date, and any amendments, additions or
modifications thereto in which Tenant has been provided written notice of by
Landlord. The CC&Rs and any amendments, additions or modifications thereto
shall not adversely affect the Tenant's use of the Premises for general office
purposes.
b. TIME OF ESSENCE: Time is of the essence of each provision of this
Lease.
c. AUTHORITY: Each party represents that it has the authority to
enter into the transaction described herein.
d. SUCCESSORS: This Lease shall be binding on and inure to the
benefit of the parties and their successors.
e. REAL ESTATE BROKERS: Each party represents that it has not had
dealing with any real estate broker, finder, or other person, with respect to
this Lease in any manner, except as set forth in the Basic Lease Information.
Each party shall hold harmless the other party from all damages resulting from
any claims that may be asserted against the other party by any other broker,
finder, or other person, with whom the other party has or purportedly has dealt.
f. EXHIBITS: All exhibits referred to are attached to this Lease and
incorporated herein by reference.
g. COLORADO LAW: This Lease shall be construed and interpreted in
accordance with the laws of the State of Colorado.
h. WAIVER: The waiver by either party of any breach of any term,
covenant or condition herein contained shall not be deemed to be a waiver of any
subsequent breach of the same or any other term, covenant or condition herein
contained, nor shall any custom or practice which may grow up between the
parties in the administration of the terms hereof be deemed a waiver of, or in
any way affect, the right of either party to insist upon the performance by the
other party in strict accordance with said
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terms. The subsequent acceptance of rent hereunder by Landlord shall not be
deemed to be a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, other than the failure of Tenant to pay the particular
rent so accepted, regardless of Landlord's knowledge of such preceding breach at
the time of acceptance of such rent.
i. EXECUTION: Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or an option for lease,
and it is not effective as a lease or otherwise until execution and delivery by
both Landlord and Tenant.
j. PROVISIONS ARE COVENANTS AND CONDITIONS: All provisions, whether
covenants or conditions, on the part of Tenant and Landlord, shall be deemed to
be both covenants and conditions.
k. SINGULAR AND PLURAL: When required by the context of this Lease,
the singular shall include the plural.
l. JOINT AND SEVERAL OBLIGATIONS: "PARTY" shall mean Landlord and
Tenant; and if more than one person or entity is Landlord or Tenant, the
obligations imposed on that party shall be joint and several.
m. SEVERABILITY: The unenforceability, invalidity, or illegality of
any provision shall not render the other provisions unenforceable, invalid, or
illegal.
n. CAPTIONS: The captions of this Lease shall have no effect on its
interpretation.
o. NEGATION OF PARTNERSHIP: The parties shall not become or be
deemed partners or joint venturers with each other by reason of the provisions
of this Lease.
p. MORTGAGEE PROTECTION CLAUSE: Tenant agrees to give any mortgagees
and/or trust deed holders, by registered mail, a copy of any notice of default
served upon the Landlord, provided that prior to such notice Tenant has been
notified in writing (by way of notice of assignment of lease, or otherwise) of
the addresses of such mortgagees and/or trust deed holders. Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided for in this Lease, then the mortgagees and/or trust deed holders shall
have an additional thirty (30) days within which to cure such default, or if
such default cannot be cured within that time, then such additional time as may
be necessary, provided such mortgagees and/or trust deed holders commence such
cure within thirty (30) days and diligently pursue the remedies necessary to
cure such default (including, but not limited to, commencement of foreclosure
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proceedings, if necessary to effect such cure), in which event this Lease shall
not be terminated while such remedies are being so diligently pursued.
q. TENANT FINANCING: Tenant shall not mortgage or encumber the
leasehold estate created by this Lease without Landlord's prior consultation,
review and consent. Landlord may give or withhold such consent in Landlord's
reasonable discretion. Tenant acknowledges that fixtures and equipment
incorporated in or affixed to the Premises, to the extent paid for by the
Allowance, constitute real property improvements to be surrendered upon
termination of the Lease.
r. LIMITATION ON LIABILITY: In consideration of the benefits
accruing hereunder, Tenant and all successors and assigns covenant and agree
that, in the event of any actual or alleged failure, breach or default hereunder
by Landlord: (1) Tenant's sole and exclusive recourse shall be against
Landlord's interest in the Project and the income generated by the Project.
Tenant shall not have any right to satisfy any judgment which it may have
against Landlord from any other assets of Landlord; (2) No partner,
stockholder, director, officer, employee or beneficiary or trustee
(collectively, "Partner") of Landlord shall be sued or named as a party in any
suit or action (except as may be necessary to secure jurisdiction over
Landlord); (3) No service of process shall be made against any Partner of
Landlord (except as may be necessary to secure jurisdiction over Landlord);
(4) No Partner of Landlord shall be required to answer or otherwise plead to
any service of process; (5) No judgment will be taken against any Partner of
Landlord; (6) Any judgment taken against any Partner of Landlord may be vacated
and set aside at any time nunc pro tunc; (7) No writ of execution will ever be
levied against the assets of any Partner of Landlord; and (8) These covenants
and agreements are enforceable both by Landlord and also by any Partner of
Landlord.
s. MODIFICATION FOR LENDER: If, in connection with obtaining
construction, interim or permanent financing for the Buildings, the lender shall
request reasonable modifications in this Lease as a condition to such financing,
Tenant will not unreasonably withhold, delay or defer its consent thereto,
provided that such modifications do not increase the obligations of Tenant
hereunder or materially adversely affect the leasehold interest hereby created
or Tenant's rights hereunder.
t. ACCORD AND SATISFACTION; APPLICATION OF DELINQUENT PAYMENTS: No
payment by Tenant or receipt by Landlord of a lesser amount than the rent
payment herein stipulated shall be deemed to be other than on account of the
rent, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of
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<PAGE>
such rent or pursue any other remedy provided in this Lease. No endorsement on
any check nor any letter accompanying any check or payment of rent or partial
payment thereof, shall prevent Landlord from treating such payment as on account
of the earliest delinquent sum owed Landlord, and Tenant waives the benefit of
any contrary court decision or statute (including, without limitation, Civil
Code Section 1479).
u. NO CONSTRUCTION AGAINST DRAFTER: The provisions of this Lease
shall be construed in accordance with the fair meaning of the language used and
shall not be strictly construed against either party. If the parties delete any
provision appearing in the original draft of this Lease, this Lease will be
interpreted as if the deleted language were never a part of this Lease.
v. INDEPENDENT COVENANTS: Each covenant, agreement, obligation or
other provision of this Lease to be performed by Tenant is a separate and
independent covenant of Tenant, and not dependent on the performance of
Landlord's obligations hereunder.
w. ENTIRE AGREEMENT: The terms of this Lease are intended by the
parties as a final expression of their agreement with respect to such terms as
are included in this Lease and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Lease
constitutes the complete and exclusive statement of its terms and that no
extrinsic evidence whatsoever may be introduced in any judicial proceedings, if
any, involving this Lease.
y. CONSENTS: Except as expressly provided in this Lease, any
consent or approval requested under this Lease by either Tenant or Landlord
shall be granted or withheld in such party's reasonable discretion.
z. ASSIGNMENT BY LANDLORD: Landlord shall have the right to assign
its interest in this Lease to any limited liability company, partnership, or
corporation in which Carl D. Panattoni and Benjamin S. Catlin maintain a
controlling interest therein.
aa. LEASE REVIEW SUBCOMMITTEE: Notwithstanding anything to the
contrary contained in this Lease, Tenant's obligations hereunder are expressly
contingent upon obtaining its Lease Review Subcommittee's approval of the
transaction described herein by 5:00 p.m. M.S.T., Monday, March 17, 1997. In
the event Tenant is unable to obtain such approval by such time, this Lease
shall become null and void.
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LANDLORD: TENANT:
PANATTONI-CATLIN VENTURE, a ACCESS HEALTH, INC., a
California general partnership Delaware corporation
By: By:
-------------------------------- --------------------------------
Its: Its:
------------------------------- -------------------------------
Date: Date:
------------------------------ ------------------------------
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<PAGE>
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
AMONG
AHN PARTNERS, L.P.,
EACH OF THE PARTNERS OF THE COMPANY
AND
[NEW PARTNERS]
<PAGE>
TABLE OF CONTENTS
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PAGE NO.
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I. SECOND AMENDED AND RESTATED PARTNERSHIP AGREEMENT . . . . . . . . . 2
ARTICLE I
DEFINITIONS
1.1 Access. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Access Debenture. . . . . . . . . . . . . . . . . . . . . . 2
1.3 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Actively Participate/Active Participation . . . . . . . . . 2
1.5 Additional Partner. . . . . . . . . . . . . . . . . . . . . 2
1.6 Adjusted Capital Account Deficit. . . . . . . . . . . . . . 2
1.7 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 AHN LLC . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 AHN, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.11 AIHI. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.12 Allen & Company . . . . . . . . . . . . . . . . . . . . . . 3
1.13 Annual Business Plan. . . . . . . . . . . . . . . . . . . . 3
1.14 Assignee. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.15 Bankrupt Partner. . . . . . . . . . . . . . . . . . . . . . 3
1.16 Business Day. . . . . . . . . . . . . . . . . . . . . . . . 3
1.17 Capital Account . . . . . . . . . . . . . . . . . . . . . . 3
1.18 Capital Contribution. . . . . . . . . . . . . . . . . . . . 4
1.19 Carrying Value. . . . . . . . . . . . . . . . . . . . . . . 4
1.20 Channel . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.21 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.22 Company . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.23 Company Liability . . . . . . . . . . . . . . . . . . . . . 4
1.24 Company Minimum Gain. . . . . . . . . . . . . . . . . . . . 4
1.25 Company Nonrecourse Liability . . . . . . . . . . . . . . . 5
1.26 Company Property. . . . . . . . . . . . . . . . . . . . . . 5
1.27 Contingent Interest . . . . . . . . . . . . . . . . . . . . 5
1.28 Curative Allocation . . . . . . . . . . . . . . . . . . . . 5
1.29 Disassociation (Disassociate) . . . . . . . . . . . . . . . 5
1.30 Disposition (Dispose) . . . . . . . . . . . . . . . . . . . 5
1.31 Distribution. . . . . . . . . . . . . . . . . . . . . . . . 5
1.32 Economic Risk of Loss . . . . . . . . . . . . . . . . . . . 5
1.33 Effective Date. . . . . . . . . . . . . . . . . . . . . . . 5
1.34 Exchange Act. . . . . . . . . . . . . . . . . . . . . . . . 5
1.35 Fair Market Value . . . . . . . . . . . . . . . . . . . . . 5
(i)
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1.36 Fully-Diluted Basis . . . . . . . . . . . . . . . . . . . . 6
1.37 General Partners. . . . . . . . . . . . . . . . . . . . . . 6
1.38 Investment Agreement. . . . . . . . . . . . . . . . . . . . 6
1.39 Limited Partner's Aggregate Preference Amount . . . . . . . 6
1.40 Limited Partner's Annual Preference Amount. . . . . . . . . 6
1.41 Limited Partner's Preferred Capital Amount. . . . . . . . . 7
1.42 Limited Partner's Unrecovered Preferred Capital Amount. . . 7
1.43 Limited Partner's Untaxed Preference Amount . . . . . . . . 7
1.44 Limited Partners. . . . . . . . . . . . . . . . . . . . . . 7
1.45 Limited Partners' Recoupment. . . . . . . . . . . . . . . . 7
1.46 Liquidating Event . . . . . . . . . . . . . . . . . . . . . 7
1.47 Liquidation Year(s) . . . . . . . . . . . . . . . . . . . . 7
1.48 Managing General Partner. . . . . . . . . . . . . . . . . . 7
1.49 Majority Vote of the Partners . . . . . . . . . . . . . . . 7
1.50 NCCI. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.51 NCCI Purchase Agreement . . . . . . . . . . . . . . . . . . 8
1.52 Net Available Cash. . . . . . . . . . . . . . . . . . . . . 8
1.53 Net Loss. . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.54 Net Profits . . . . . . . . . . . . . . . . . . . . . . . . 8
1.55 [Reserved]. . . . . . . . . . . . . . . . . . . . . . . . . 8
1.56 Nonrecourse Deductions. . . . . . . . . . . . . . . . . . . 8
1.57 Nonrecourse Liabilities . . . . . . . . . . . . . . . . . . 9
1.58 Notification or Notice. . . . . . . . . . . . . . . . . . . 9
1.59 Organization. . . . . . . . . . . . . . . . . . . . . . . . 9
1.60 Outstanding . . . . . . . . . . . . . . . . . . . . . . . . 9
1.61 Partners. . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.62 Partner Minimum Gain. . . . . . . . . . . . . . . . . . . . 9
1.63 Partner Nonrecourse Liability . . . . . . . . . . . . . . . 9
1.64 Partnership Interest. . . . . . . . . . . . . . . . . . . . 10
1.65 Person. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.66 Proceeding. . . . . . . . . . . . . . . . . . . . . . . . . 10
1.67 Property. . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.68 Qualified Appraiser . . . . . . . . . . . . . . . . . . . . 10
1.69 Registration Expenses . . . . . . . . . . . . . . . . . . . 10
1.70 Regulations . . . . . . . . . . . . . . . . . . . . . . . . 10
1.71 Related Person. . . . . . . . . . . . . . . . . . . . . . . 10
1.72 Restricted Business Venture . . . . . . . . . . . . . . . . 11
1.73 Restricted Employee Options . . . . . . . . . . . . . . . . 11
1.74 Restricted Optionholder . . . . . . . . . . . . . . . . . . 11
(ii)
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(cont'd)
PAGE NO.
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1.75 Securities Act. . . . . . . . . . . . . . . . . . . . . . . 11
1.76 Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.77 Sharing Percentage. . . . . . . . . . . . . . . . . . . . . 11
1.78 Substitute Partner. . . . . . . . . . . . . . . . . . . . . 11
1.79 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . 11
1.80 Taxable Year. . . . . . . . . . . . . . . . . . . . . . . . 11
1.81 Taxing Jurisdiction . . . . . . . . . . . . . . . . . . . . 11
ARTICLE II
CONTINUATION OF THE COMPANY
2.1 Amendment and Restatement . . . . . . . . . . . . . . . . . 12
2.2 Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Registered Agent and Office . . . . . . . . . . . . . . . . 12
2.6 Principal Office. . . . . . . . . . . . . . . . . . . . . . 12
2.7 Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.8 Loans by Partners . . . . . . . . . . . . . . . . . . . . . 15
2.9 Power of Attorney . . . . . . . . . . . . . . . . . . . . . 16
2.10 Company Property. . . . . . . . . . . . . . . . . . . . . . 16
2.11 Certificate of Limited Partnership. . . . . . . . . . . . . 16
ARTICLE III
RIGHTS, POWERS AND DUTIES OF THE
PARTNERS AND THE COMPANY; MANAGEMENT
3.1 The Managing General Partner . . . . . . . . . . . . . . . . 17
3.1.1 Powers of the Managing General Partner . . . . . . . 17
3.1.2 Duties of the Managing General Partner . . . . . . . 19
3.1.3 Limitations on the Managing General Partner. . . . . 19
3.1.4 Authority to Bind. . . . . . . . . . . . . . . . . . 19
3.1.5 Management . . . . . . . . . . . . . . . . . . . . . 19
3.1.6 Action by the General Partners . . . . . . . . . . . 20
3.1.7 Conflicts of Interest. . . . . . . . . . . . . . . . 20
3.1.8 Fiduciary Duty . . . . . . . . . . . . . . . . . . . 20
3.1.9 Bank Accounts. . . . . . . . . . . . . . . . . . . . 20
3.2 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . 20
(iii)
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3.3 The Limited Partners . . . . . . . . . . . . . . . . . . . . 20
3.3.1 No Participation in Management, Etc. . . . . . . . . 20
3.3.2 Limitation of Liability. . . . . . . . . . . . . . . 21
3.3.3 No Authority to Bind, Etc. . . . . . . . . . . . . . 21
3.4 Affiliated Transactions. . . . . . . . . . . . . . . . . . . 21
3.5 Pre-Emptive Rights . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV
CONTRIBUTIONS AND CAPITAL ACCOUNTS
4.1 Contributions. . . . . . . . . . . . . . . . . . . . . . . . 21
4.2 Maintenance of Capital Accounts. . . . . . . . . . . . . . . 22
4.3 Distribution of Assets . . . . . . . . . . . . . . . . . . . 24
4.4 Disposition of Interest. . . . . . . . . . . . . . . . . . . 24
4.5 Compliance with Code Section 704(b). . . . . . . . . . . . . 24
4.6 Deficit Restoration. . . . . . . . . . . . . . . . . . . . . 24
ARTICLE V
ALLOCATIONS
5.1 Allocations of Net Profits and Net Losses. . . . . . . . . . 25
5.2 Special Allocations. . . . . . . . . . . . . . . . . . . . . 26
5.2.1 Minimum Gain Chargeback. . . . . . . . . . . . . . . 26
5.2.2 Partner Minimum Gain Chargeback. . . . . . . . . . . 27
5.2.3 Qualified Income Offset. . . . . . . . . . . . . . . 27
5.2.4 Nonrecourse Deductions . . . . . . . . . . . . . . . 27
5.2.5 Partner Nonrecourse Deductions Attributable To
Partner Nonrecourse Debt . . . . . . . . . . . 27
5.2.6 Section 754 Adjustment . . . . . . . . . . . . . . . 28
5.2.7 Material Items . . . . . . . . . . . . . . . . . . . 28
5.3 Curative Allocations . . . . . . . . . . . . . . . . . . . . 28
5.4 General . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.5 Tax Allocations; Code Section 704(c) . . . . . . . . . . . . 29
ARTICLE VI
DISTRIBUTIONS
6.1 Non-Liquidating Distributions. . . . . . . . . . . . . . . . 30
6.2 Limitations on Distributions . . . . . . . . . . . . . . . . 32
6.3 Withholding. . . . . . . . . . . . . . . . . . . . . . . . . 32
(iv)
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ARTICLE VII
BOOKS AND RECORDS, ACCOUNTING, ETC.
7.1 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.2 Accounting . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VIII
TAXES
8.1 Elections. . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.2 Tax Matters Partner. . . . . . . . . . . . . . . . . . . . . 33
8.3 Notification of Audit. . . . . . . . . . . . . . . . . . . . 33
8.4. Section 754 Election . . . . . . . . . . . . . . . . . . . . 33
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by the Company . . . . . . . . . . . . . . . 33
9.2 Indemnification by AHN LLC . . . . . . . . . . . . . . . . . 34
ARTICLE X
DISPOSITION OF PARTNERSHIP
INTERESTS; WITHDRAWALS
10.1 Disposition. . . . . . . . . . . . . . . . . . . . . . . . . 34
10.2 Approved Disposition . . . . . . . . . . . . . . . . . . . . 35
10.3 Dispositions Not in Compliance With This Article . . . . . . 35
10.4 Liability of a Withdrawn Partner . . . . . . . . . . . . . . 35
10.5 Disassociation . . . . . . . . . . . . . . . . . . . . . . . 36
10.6 Disassociating Partners. . . . . . . . . . . . . . . . . . . 36
ARTICLE XI
ADMISSION OF ASSIGNEES
AND ADDITIONAL PARTNERS
11.1 Rights of Assignees. . . . . . . . . . . . . . . . . . . . . 37
11.2 Admission of Substitute Partners . . . . . . . . . . . . . . 37
11.3 Admission of Additional Partners . . . . . . . . . . . . . . 38
11.4 Amendment of Agreement and Certificate of Limited
Partnership. . . . . . . . . . . . . . . . . . . . . . 38
(v)
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ARTICLE XII
RIGHTS TO PURCHASE CERTAIN
PARTNERSHIP INTERESTS
12.1 Right of First Refusal . . . . . . . . . . . . . . . . . . . 38
ARTICLE XIII
REGISTRATION RIGHTS, ETC.
13.1 Reorganization of Company. . . . . . . . . . . . . . . . . . 40
13.2 Registration Rights. . . . . . . . . . . . . . . . . . . . . 40
13.2.1 Registrations Upon Request . . . . . . . . . . . . . 40
13.2.2 Expenses . . . . . . . . . . . . . . . . . . . . . . 41
13.2.3 Priority in Demand Registrations . . . . . . . . . . 42
13.2.4 Underwritten Offering. . . . . . . . . . . . . . . . 42
13.3 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . 42
13.4 Other Registrations. . . . . . . . . . . . . . . . . . . . . 42
13.4.1 Right to Piggyback . . . . . . . . . . . . . . . . . 42
13.4.2 Piggyback Expenses . . . . . . . . . . . . . . . . . 43
13.4.3 Priority on Primary Registrations. . . . . . . . . . 43
13.4.4 Priority on Secondary Registrations. . . . . . . . . 43
13.5 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.6 Form S-3 Registration. . . . . . . . . . . . . . . . . . . . 44
13.7 Obligations of the Company . . . . . . . . . . . . . . . . . 45
ARTICLE XIV
DISSOLUTION AND WINDING UP
14.1 Liquidating Events . . . . . . . . . . . . . . . . . . . . . 45
14.2 Winding Up . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.3 Order of Distribution of Proceeds of Liquidation . . . . . . 46
ARTICLE XV
AMENDMENT
15.1 Amendments Generally . . . . . . . . . . . . . . . . . . . . 47
15.2 Amendments by Managing General Partner . . . . . . . . . . . 47
(vi)
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ARTICLE XVI
ARBITRATION
16.1 Arbitration Procedure. . . . . . . . . . . . . . . . . . . . 48
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 Rights of Creditors and Third Parties. . . . . . . . . . . . 48
17.2 Notification . . . . . . . . . . . . . . . . . . . . . . . . 48
17.3 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 49
17.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 49
17.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . 49
17.7 Terminology. . . . . . . . . . . . . . . . . . . . . . . . . 49
17.8 Binding Agreement. . . . . . . . . . . . . . . . . . . . . . 50
17.9 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 50
17.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 50
II. EFFECTIVENESS OF THIS AGREEMENT . . . . . . . . . . . . . . . . . 50
III. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 50
(vii)
<PAGE>
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
AHN PARTNERS, L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as
of November __, 1997 (the "Agreement"), among AHN PARTNERS, L.P. (the
"Partnership"), a Delaware limited partnership, EACH OF THE PARTNERS OF THE
PARTNERSHIP AS OF THE DATE OF THIS AGREEMENT (the "Partners"), and each of the
Persons listed as a "New Partner" (collectively, the "New Partners") on SCHEDULE
A-1, amending and restating the Company's Amended and Restated Agreement of
Limited Partnership, dated as of April 3, 1996 (the "Prior Partnership
Agreement"). Capitalized terms used in this Agreement without definition shall
have the respective meanings given them in Article I or elsewhere in this
Agreement.
W I T N E S S E T H:
WHEREAS, on or prior to the date of this Agreement, New Partners and the
Partnership have entered into the Investment Agreement (the "Investment
Agreement"), dated November __, 1997;
WHEREAS, pursuant to the Investment Agreement, the Partnership desires to
admit New Partners as Limited Partners in the Partnership on the terms and
conditions set forth therein and below in this Agreement; and
WHEREAS, the Partnership desires to obtain the consent of the Partners to
the admission of New Partners as new Limited Partners in the Partnership and to
the amendment of the terms and conditions of this Agreement required as
conditions thereto;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
and obligations hereinafter set forth, the parties hereto hereby agree that,
effective as provided in Section 17.1 the Partnership Agreement, as heretofore
amended and restated, shall be amended and restated in its entirety as follows:
I. SECOND AMENDED AND RESTATED PARTNERSHIP AGREEMENT
ARTICLE I
DEFINITIONS
For purposes of this Agreement (as defined below), unless the context
clearly indicates otherwise, the following terms shall have the following
meanings:
1.1 ACCESS. Access Health, Inc., a Delaware corporation.
1.2 ACCESS DEBENTURE. The Convertible Subordinated Debenture of the
Company to Access, dated
<PAGE>
January 17, 1997 and the Effective Date.
1.3 ACT. The Delaware Uniform Limited Partnership Act (Chapter 17 of
Title 6 of the Delaware Code), as amended from time to time, and any successor
statute.
1.4 ACTIVELY PARTICIPATE/ACTIVE PARTICIPATION. To participate with or
in or to become involved with or in any business, enterprise or activity,
including, without limitation, by owning or controlling (directly or
indirectly), or by acting as an executive officer, director, partner, employee
of or consultant to any such business, enterprise or activity; PROVIDED, that
Active Participation shall not include the ownership or control (direct or
indirect) of 5% or less of the issued and outstanding shares of capital stock of
a corporation or 5% or less of the outstanding interests in a partnership or
limited liability company.
1.5 ADDITIONAL PARTNER. Any Partner other than AHN LLC, the holder of
the Contingent Interest, National Call Center, Inc. ("NCCI"), any Reserved
Optionholder, New Partners or any Limited Partner (or any Substitute Partner of
any of the foregoing) who acquires a Partnership Interest directly from the
Company.
1.6 ADJUSTED CAPITAL ACCOUNT DEFICIT. With respect to any Partner, the
deficit balance, if any, in such Partner's Capital Account as of the end of the
relevant Taxable Year after giving effect to the following adjustments: (a)
increased by (i) the amount of any unpaid capital contributions, if any,
unconditionally agreed to be contributed by such Partner, (ii) an amount equal
to the sum of such Partner's allocable share of Company Minimum Gain and such
Partner's allocable share of Partner Minimum Gain, in each case as computed on
the last day of such fiscal year in accordance with applicable Regulations, and
(iii) the amount of Company liabilities allocable to such Partner under Code
Section 752 with respect to which such Partner bears the Economic Risk of Loss
to the extent such liabilities do not constitute Partner Nonrecourse
Liabilities, and (b) reduced by all reasonably expected adjustments, allocations
and distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of
the Regulations. This definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the
Regulations and shall be interpreted consistently therewith.
1.7 AFFILIATE. When used with reference to a specified Person, any
Person that, at the relevant time, directly or indirectly controls, is
controlled by, or is under common control with, the specified Person and, when
used with reference to a Person that is an individual, a direct family member of
such Person or a trust for the benefit of such family member. Without limiting
the foregoing, for purposes of this definition, ownership of 20% or more of the
outstanding voting securities or interests of any Person shall be deemed to be
"control" of that Person.
1.8 AGREEMENT. This Agreement, including all amendments hereto.
1.9 AHN LLC. America's Health Network, L.L.C., a Delaware limited
liability company.
1.10 AHN, INC. America's Health Network, Inc., a Delaware corporation.
1.11 AIHI. America's Interactive Health, Inc., a Delaware corporation.
1.12 ALLEN & COMPANY. Allen & Company Incorporated, a Delaware
corporation.
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1.13 ANNUAL BUSINESS PLAN. The business plan for the Company and its
operations for the year in question, including a capital and operating budget,
as approved by the Managing General Partner.
1.14 ASSIGNEE. A transferee of a Partnership Interest who has not been
admitted as a Substitute Partner. Except for the right to receive distributions
which would otherwise be made to the Partner who has assigned its Partnership
Interest, the Assignee shall have none of the rights of a Partner.
1.15 BANKRUPT PARTNER. A Partner who: (a) has become the subject of an
order for relief under the United States Bankruptcy Code or (b) has initiated,
either in an original proceeding or by way of answer in any state insolvency or
receivership proceeding, an action for liquidation arrangement, composition,
readjustment, dissolution or similar relief.
1.16 BUSINESS DAY. Any day other than Saturday, Sunday or any U.S.
national holiday.
1.17 CAPITAL ACCOUNT. The account maintained for a Partner or Assignee
determined in accordance with Section 4.2.
1.18 CAPITAL CONTRIBUTION. Any contribution of Property made or to be
made by or on behalf of a Partner, including, in the case of each Limited
Partner, the Initial Capital Contribution of such Limited Partner.
1.19 CARRYING VALUE. (a) With respect to Property contributed to the
Company, the fair market value of such Property reduced (but not below zero) by
all depreciation, amortization and cost recovery deductions charged to the
Partners' Capital Accounts in respect of such contributed Property, and (b) with
respect to any other Company Property, the adjusted basis of such Property for
federal income tax purposes, all as of the time of determination. The Carrying
Value of any Property shall be adjusted at the time of liquidation of the
Company and from time to time in accordance with Section 1.704-1(b)(2)(iv)(f) of
the Regulations.
1.20 CHANNEL. The television programming service that is devoted to
health, medicine and other related topics and the sale of related products,
which is owned and operated by the Company.
1.21 CODE. The Internal Revenue Code of 1986, as amended from time to
time, or corresponding provisions of any replacement or reenactment thereof.
1.22 COMPANY. AHN Partners, L.P., a limited partnership formed under the
Act, and any successor partnership.
1.23 COMPANY LIABILITY. Any enforceable debt or obligation for which the
Company is liable or which is secured by any Company Property.
1.24 COMPANY MINIMUM GAIN. An amount determined by first computing for
each Company Nonrecourse Liability any gain the Company would realize if it
disposed of the Company Property subject to that liability for no consideration
other than full satisfaction of the liability, and then aggregating the
separately computed
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gains. The amount of Company Minimum Gain includes such minimum gain arising
from a conversion, refinancing, or other change to a debt instrument, only to
the extent a Partner is allocated a share of that minimum gain. For any Taxable
Year, the net increase or decrease in Company Minimum Gain is determined by
comparing the Company Minimum Gain on the last day of the immediately preceding
Taxable Year with the Company Minimum Gain on the last day of the current
Taxable Year. Notwithstanding any provision to the contrary contained herein,
Company Minimum Gain and increases and decreases in Company Minimum Gain are
intended to be computed in accordance with Code Section 704 and the Regulations
issued thereunder, as the same may be issued and interpreted from time to time.
A Partner's share of Company Minimum Gain at the end of any Taxable Year equals:
the sum of Nonrecourse Deductions allocated to that Partner (and to that
Partner's predecessors in interest) up to that time and the Distributions made
to that Partner (and to that Partner's predecessors in interest) up to that time
of proceeds of a nonrecourse liability allocable to an increase in Company
Minimum Gain minus the sum of that Partner's (and that Partner's predecessors in
interest) aggregate share of net decreases in Company Minimum Gain plus
decreases resulting from revaluations of Company Property subject to one or more
Company Nonrecourse Liabilities.
1.25 COMPANY NONRECOURSE LIABILITY. A Company Liability to the extent
that no Partner or Related Person bears the economic risk of loss (as defined in
Section 1.752-2 of the Regulations) with respect to the liability.
1.26 COMPANY PROPERTY. Any Property owned by the Company.
1.27 CONTINGENT INTEREST. Such claim, if any, as may be asserted against
the Partnership in respect of a warrant referred to in a letter of intent, dated
August 14, 1997, between Howard Milstein and the Company. Notwithstanding any
provision of this Agreement, the inclusion of the definition of "Contingent
Interest" shall not be deemed an admission of the existence, extent or
enforceability of the Contingent Interest.
1.28 CURATIVE ALLOCATION. Any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 5.3.
1.29 DISASSOCIATION (DISASSOCIATE). Any action or event which causes a
Person to cease to be a Partner as described in Section 10.5.
1.30 DISPOSITION (DISPOSE). Any sale, assignment, transfer, exchange,
mortgage, pledge, grant, hypothecation, or other transfer, absolute or as
security or encumbrance (including dispositions by operation of law).
1.31 DISTRIBUTION. A distribution of Property by, or on behalf of, the
Company to a Partner as described in Article VI.
1.32 ECONOMIC RISK OF LOSS. As defined in Section 1.752-2 of the
Regulations.
1.33 EFFECTIVE DATE. The date of the Closing under the Investment
Agreement.
1.34 EXCHANGE ACT. The Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
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1.35 FAIR MARKET VALUE. The fair market value of any Partner's
Partnership Interest determined as follows: The Fair Market Value of any
Partnership Interest shall be determined as of the last day of the month
preceding the month in which the event resulting in a right to purchase a
Partnership Interest occurred (the "Valuation Date"). The Fair Market Value of
any Partnership Interest shall be determined by mutual agreement of the Managing
General Partner and the Partner (the "Affected Partner") whose Partnership
Interest has become subject to valuation on account of (a) a Disassociation
under Section 10.5 and 10.6 or (b) a reorganization that is subject to Section
13.1. Such determination shall be made by such mutual agreement reached within
20 days of the Valuation Date, failing which the Fair Market Value shall be
determined by a Qualified Appraiser selected by mutual agreement of the Managing
General Partner and the Affected Partner within 30 days after the Valuation
Date. If the Managing General Partner and such Affected Partner fail to agree
on the selection of a Qualified Appraiser during such period, then they shall
each designate a Qualified Appraiser within ten days after the 30-day period
following the Valuation Date and shall jointly instruct the two Qualified
Appraisers to appoint a third Qualified Appraiser within ten days after the
second Qualified Appraiser is appointed. Each Qualified Appraiser shall submit
a signed appraisal within 30 days after the appointment of the third Qualified
Appraiser, and the Fair Market Value shall be the average of the middle
appraisal and the appraisal closest to it. Any determination of Fair Market
Value hereunder shall not discount for a minority interest or the illiquidity of
a Partnership Interest. If either the Managing General Partner or the Affected
Partner fails to appoint a Qualified Appraiser, or if no agreement on the third
Qualified Appraiser is reached or if said three Qualified Appraisers have not
each submitted a signed appraisal, all within the applicable periods specified
above, the unresolved issue shall be determined by arbitration in accordance
with Article XVI. The cost of the Appraisal incurred with respect to the
determination of the Fair Market Value of the Partnership Interests shall be
paid (a) if a Disassociation has occurred, by the Disassociating Partner and (b)
if a reorganization under Section 13.1 has occurred, solely by the Company.
1.36 FULLY-DILUTED BASIS. With respect to Shares, all Shares that would
be Outstanding assuming the due exercise of any options and warrants and the due
conversion of all convertible securities and the payment of all amounts due in
connection therewith.
1.37 GENERAL PARTNERS. AHN LLC, AHN, Inc. and AIHI.
1.38 INVESTMENT AGREEMENT. As defined in the first recital above.
1.39 LIMITED PARTNER'S AGGREGATE PREFERENCE AMOUNT. With respect to each
Limited Partner, on any given date, an amount (but not less than zero) equal to
(a) the aggregate amount of the Limited Partner's Annual Preference Amounts
since the inception of the Company through such date, minus (b) the aggregate
amount of Distributions made to the Limited Partner under Section 6.1.1(a)(i)
since the inception of the Company.
1.40 LIMITED PARTNER'S ANNUAL PREFERENCE AMOUNT. With respect to each
Limited Partner, for each annual period an amount equal to (a) the average daily
balance of the Limited Partner's Unrecovered Preferred Capital Amount during
that annual period, multiplied by (b) 8% (prorated for any period consisting of
less than 365 days).
1.41 LIMITED PARTNER'S PREFERRED CAPITAL AMOUNT. With respect to each
Limited Partner, on any given date, an amount (but not less than zero) equal to
the aggregate Capital Contributions made by such Limited Partner (valued by
reference to the Carrying Value of such contribution as of the date on which
such contribution was
-5-
<PAGE>
made), minus any Distributions to such Limited Partner under Section
6.1.1(a)(ii). SCHEDULE A-2 to this Agreement sets forth the Limited Partner's
Preferred Capital Amounts of each Limited Partner, including New Partners, as of
September 30, 1997, pro forma for the consummation of the Closing under the
Investment Agreement.
1.42 LIMITED PARTNER'S UNRECOVERED PREFERRED CAPITAL AMOUNT. With
respect to each Limited Partner, on any given date, an amount (but not less than
zero) equal to (a) the Limited Partner's Preferred Capital Amount, plus (b) the
Limited Partner's Aggregate Preference Amount (determined without taking into
account the Limited Partner's Annual Preference Amount for the taxable period in
which such date falls). SCHEDULE A-2 to this Agreement sets forth the Limited
Partner's Unrecovered Preferred Capital Amounts of each Limited Partner,
including New Partners, as of September 30, 1997, pro forma for the consummation
of the Closing under the Investment Agreement.
1.43 LIMITED PARTNER'S UNTAXED PREFERENCE AMOUNT. With respect to each
Limited Partner, on any given date, an amount (but not less than zero) equal to
(a) the aggregate amount of the Limited Partner's Annual Preference Amounts
through such date, minus (b) the aggregate amount of Net Profits previously
allocated to such Limited Partner under Section 5.1.1(a).
1.44 LIMITED PARTNERS. Those Partners who are designated as Limited
Partners on SCHEDULE A-1, and any Substitute Partner thereof and any Additional
Partner, including New Partners pro forma for the consummation of the Closing
under the Investment Agreement.
1.45 LIMITED PARTNERS' RECOUPMENT. Such time as each of the aggregate
Limited Partners' Preferred Capital Amounts shall be zero.
1.46 LIQUIDATING EVENT. As defined in Section 14.1.
1.47 LIQUIDATION YEAR(S). The taxable year or years (or period thereof)
in which the Company Disposes of all or substantially all of the Company
Property and the other assets of the Company.
1.48 MANAGING GENERAL PARTNER. AHN, Inc.
1.49 MAJORITY VOTE OF THE PARTNERS. The affirmative vote of the Partners
that hold more than 50% of the Sharing Percentages.
1.50 NCCI. National Call Center, Inc., a wholly-owned subsidiary of Home
Shopping Network, Inc.
1.51 NCCI PURCHASE AGREEMENT. The Partnership Interest Purchase
Agreement dated January 31, 1996, between AHN LLC and NCCI.
1.52 NET AVAILABLE CASH. For each Taxable Year, an amount equal to the
sum of the following: (a) the cash receipts of the Company during such Taxable
Year, including receipts from the sale of assets, but excluding funds received
from borrowings and any Capital Contributions made to the Company during such
Taxable Year, and (b) liquidations of reserves during such Taxable Year in
excess of those reasonably required to pay for any working
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<PAGE>
capital needs, improvements, replacements or any other contingencies for which
the reserves were created, minus the sum of the following: (c) any reserves made
during that Taxable Year reasonably considered necessary by the Managing General
Partner for operating requirements, for the payment of debts and for other
contingencies, and (d) the cash expenditures of the Company during such Taxable
Year, including the repayment of debts.
1.53 NET LOSS. For any Taxable Period the excess, if any, of the
Company's items of loss and deduction for such Taxable Period over the Company's
items of income and gain for such Taxable Period. The items included in the
calculation of Net Loss shall be determined in accordance with Section 4.2.2 and
shall not include any items specially allocated under Section 5.2. If an item
of income, gain, loss or deduction that has been included in the initial
computation of Net Loss is subsequently subjected to a Regulatory Allocation or
a Curative Allocation, Net Profits or Net Loss, as the case may be, shall be
recomputed without regard to such item.
1.54 NET PROFITS. For any Taxable Period, the excess, if any, of the
Company's items of income and gain for such Taxable Period over the Company's
items of loss and deduction for such Taxable Period. The items included in the
calculation of Net Profits shall be determined in accordance with Section 4.3.2
and shall not include any items specially allocated under Section 5.2. If an
item of income, gain, loss or deduction that has been included in the initial
computation of Net Profits is subsequently subjected to a Regulatory Allocation
or a Curative Allocation, Net Profits or Net Loss, as the case may be, shall be
recomputed without regard to such item.
1.55 [RESERVED]
1.56 NONRECOURSE DEDUCTIONS. The meaning set forth in Section 1.704-2(b)
of the Regulations. The amount of Nonrecourse Deductions for a Taxable Year
equals the excess, if any, of the net increase in Company Minimum Gain during
that Taxable Year, over the aggregate amount of any Distributions during that
Taxable Year of proceeds of a Nonrecourse Liability that are allocable to an
increase in Company Minimum Gain, determined according to the provisions of
Section 1.704-2(c) of the Regulations.
1.57 NONRECOURSE LIABILITIES. Nonrecourse Liabilities include Company
Nonrecourse Liabilities and Partner Nonrecourse Liabilities.
1.58 NOTIFICATION OR NOTICE. A writing, containing the information
required by this Agreement to be communicated to a party, delivered in the
manner provided in Section 17.3.
1.59 ORGANIZATION. A Person other than a natural person, trust or
estate. Organization includes, without limitation, corporations (both
non-profit and other corporations), partnerships (both limited and general),
joint ventures, limited liability companies, and unincorporated associations,
but the term does not include joint tenancies and tenancies by the entirety.
1.60 OUTSTANDING. With respect to Shares, "Outstanding" shall refer to
those Shares that have been issued to the Partners.
1.61 PARTNERS. Those persons listed on SCHEDULE A-1 and each Additional
Partner and Substitute Partner.
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<PAGE>
1.62 PARTNER MINIMUM GAIN. An amount determined by first computing for
each Partner Nonrecourse Liability any gain the Company would realize if it
disposed of the Company Property subject to that liability for no consideration
other than full satisfaction of the liability, and then aggregating the
separately computed gains. The amount of Partner Minimum Gain includes such
minimum gain arising from a conversion, refinancing, or other change to a debt
instrument, only to the extent a Partner is allocated a share of that minimum
gain. For any Taxable Year, the net increase or decrease in Partner Minimum
Gain is determined by comparing the Partner Minimum Gain on the last day of the
immediately preceding Taxable Year with the Partner Minimum Gain on the last day
of the current Taxable Year. Notwithstanding any provision to the contrary
contained herein, Partner Minimum Gain and increases and decreases in Partner
Minimum Gain are intended to be computed in accordance with Code Section 704 and
the Regulations issued thereunder, as the same may be issued and interpreted
from time to time.
1.63 PARTNER NONRECOURSE LIABILITY. Any Company Liability to the extent
the liability is nonrecourse under state law, and on which a Partner or Related
Person bears the Economic Risk of Loss, because, for example, the Partner or
Related Person is a creditor or a guarantor.
1.64 PARTNERSHIP INTEREST. The rights of a Partner or, in the case of an
Assignee, the rights of the assigning Partner, in Distributions (liquidating or
otherwise) and allocations of the profits, losses, gains, deductions, and
credits of the Company.
1.65 PERSON. An individual, trust, estate, or any incorporated or
unincorporated Organization.
1.66 PROCEEDING. Any judicial or administrative trial, hearing or other
activity, civil, criminal or investigative, the result of which may be that a
court, arbitrator, or governmental agency may enter a judgment, order, decree,
or other determination which, if not appealed or reversed, would be binding upon
the Company, a Partner or other person subject to the jurisdiction of such
court, arbitrator, or governmental agency.
1.67 PROPERTY. Any property real or personal, tangible or intangible,
including money and any legal or equitable interest in such property, but
excluding services and promises to perform services in the future.
1.68 QUALIFIED APPRAISER. An appraiser having a national reputation
qualified to appraise cable television channels in the United States, or
interests therein, and reputable in his, her or its field, and who is not
affiliated with the Company, any Partner, or the assets of any of them or their
Affiliates.
1.69 REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with any registrations pursuant to Article XIII of
this Agreement, including, without limitation, (a) registration, filing and fees
of the National Association of Securities Dealers, Inc., (b) fees and expenses
of complying with securities or blue sky laws, (c) fees and expenses associated
with listing securities on an exchange or NASDAQ, (d) word processing,
duplicating and printing expenses, (e) messenger and delivery expenses, (f)
transfer agents', trustees', depositories', registrars', and fiscal agents'
fees, (g) fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits or
"cold comfort" letters, (h) reasonable fees and disbursements of any one counsel
retained by the Selling Partners, and (i) any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and
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commissions and transfer taxes, if any.
1.70 REGULATIONS. The permanent, temporary, proposed, or proposed and
temporary regulations of Department of the Treasury under the Code, as such
regulations may be changed from time to time.
1.71 RELATED PERSON. A person having a relationship to a Partner that is
described in Section 1.752-4(b) of the Regulations.
1.72 RESTRICTED BUSINESS VENTURE. A business venture competitive with
the business of the Company as it shall exist at the time in question.
1.73 RESTRICTED EMPLOYEE OPTIONS. Options to be granted from time to
time by the Managing General Partner to employees of the Partnership in the sole
discretion of the Managing General Partner.
1.74 RESTRICTED OPTIONHOLDER. The holder of any Restricted Employee
Options.
1.75 SECURITIES ACT. The Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
1.76 SHARES. The shares of the Partnership more fully defined in Section
2.7.
1.77 SHARING PERCENTAGE. As to any Partner or Assignee, and prior to the
exercise of the Contingent Interest or any of the Reserved Employee Options, the
fraction, the numerator of which is the number of Shares owned by such Partner
or Assignee and the denominator of which is the number of all Outstanding
Shares, or Outstanding Shares plus Shares issued upon the conversion of the
Access Debenture, as the case shall be. The total of all Sharing Percentages of
the Partnership shall be 100%. Notwithstanding the foregoing definition, from
and after any exercise of the Contingent Interest or any exercise of any
Reserved Employee Options, the Sharing Percentages shall be adjusted to account
for such dilution, and only such dilution, as is expressly permitted to occur
under the terms of Sections 2.7. SCHEDULE A-4 sets forth the initial Sharing
Percentages of the Partners as well as on a fully diluted basis assuming the
conversion of the Access Debenture.
1.78 SUBSTITUTE PARTNER. An Assignee who has been admitted to all of the
rights of a partner of the Partnership pursuant to Section 11.2 of this
Agreement.
1.79 TAX MATTERS PARTNER. The Person designated as such pursuant to
Section 8.2.
1.80 TAXABLE YEAR. The calendar year.
1.81 TAXING JURISDICTION. Any state, local or foreign government that
collects tax, interest or penalties, however designated, on any Partner's share
of the income, gain or distribution of the Company.
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ARTICLE II
CONTINUATION OF THE COMPANY
2.1 AMENDMENT AND RESTATEMENT. The Partners hereby execute this
Agreement for the purpose of amending and restating the Partnership Agreement as
heretofore in effect. The rights and liabilities of the Partners shall be as
provided in this Agreement and in the Act.
2.2 NAME. The business of the Company shall be conducted under the name
of the AHN Partners, L.P.
2.3 TERM. This Agreement shall be effective as of the Effective Date
and shall continue in full force and effect until December 31, 2021, unless the
Company is sooner dissolved by the happening of any Liquidating Event.
2.4 PURPOSE. The Company shall engage in the business of providing
television programming for the Channel, the sale of merchandise on and in
connection with the Channel, owning and operating the Channel and any related or
necessary business permitted by the Act or the laws of any jurisdiction in which
the Company may do business related thereto or in connection therewith. The
Company shall have the authority to do all things necessary or convenient to
accomplish its purpose and operate its business as described in this Section.
The Company shall exist only for the purpose specified in this Section of this
Article and may not conduct any other business without the unanimous consent of
the Partners.
2.5 REGISTERED AGENT AND OFFICE. The registered agent for the service
of process and the registered office shall be United Corporate Services, Inc.,
15 East North Street, Dover, Delaware 19901. If the registered agent ceases to
act as such for any reason or the registered office shall change, the Managing
General Partner shall promptly designate a replacement registered agent or file
a notice of change of address as the case may be.
2.6 PRINCIPAL OFFICE. The principal place of business of the Company
shall be located initially at 2500 Universal Studios Plaza, Orlando, Florida
32819, but other places of business may be selected from time to time by the
Managing General Partner. The Company may not move its principal office to a
jurisdiction other than Florida without the Unanimous Vote of the Committee.
The Company has qualified to do business under the name America's Health
Network.
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2.7 SHARES.
2.7.1 The equity of the Company shall be represented by a total of
1,000,000 Shares, which Shares shall be divided into 588,600 Series A Shares,
which may be held by New Partners and their respective Assignees; 117,438 Series
B Shares, which may be held by the persons that are Limited Partners immediately
prior to execution of this Agreement and their Assignees; 293,962 Series C
Shares, which may be held exclusively by AHN LLC and its Assignees (including
NCCI); 150,000 Series D Shares which may be held by the holder of the Contingent
Interest and its Assignees upon and after the due exercise of the Contingent
Interest; and 50,000 Series E Shares which may be held by persons that hold
Reserved Employee Options and their Assignees, from and after the due exercise
of any Reserved Employee Options. Except as otherwise provided in this
Agreement, each Share will be identical to each other Share. In addition to
such other rights as may be granted to the Partners under this Agreement, the
holder of any Shares shall be entitled to share pro rata in that percentage of
the profits, gains, losses, deductions and credits of the Company after Limited
Partners' Recoupment has occurred (as provided in Section 6.1.1), which equals
the Sharing Percentage of that holder determined in accordance with this
Agreement. Shares may be expressed in whole numbers or in fractions (rounded to
the nearest one-hundredth). Shares shall not be subject to any assessment or
right of payment in favor of the Company except as set forth in this Agreement
or under the Act. Shares will be deemed validly issued and outstanding when
issued in accordance with this Agreement, the Investment Agreement or such other
agreements as AHN may enter into from time to time in compliance with this
Agreement providing for the issuance and sale of additional Shares.
2.7.2 As of the Effective Date, after giving effect to the
consummation of the Closing under and as defined in the Investment Agreement,
the Outstanding Shares of the Company shall consist of 970,750 Shares, of which
588,600 shall be Series A Shares, 88,188 shall be Series B Shares and 293,962
shall be Series C Shares. The Shares respectively owned by each of the Partners
as of Effective Date are set forth on SCHEDULE A-2.
2.7.3 Except for additional Series A Shares issuable under the
Investment Agreement, the Company will not issue any Series A Shares in addition
to those Series A Shares Outstanding from time to time without the consent of
New Partners. Except for Series B Shares issuable upon conversion of the Access
Debenture, the Company will not issue any Series B Shares in addition to those
Series B Shares that are Outstanding as described in Section 2.7.2 without the
Majority Vote of the Partners. The Company will not issue any Series C Shares
in addition to those Series C Shares that are Outstanding without the consent of
AHN LLC; PROVIDED, that the General Partners and the Partners agree that NCCI
shall be issued such Series C Shares as it shall acquire upon the exercise, if
any, of its rights, under the NCCI Purchase Agreement. Except for Series D
Shares to be issued upon the exercise of the Contingent Interest, the Company
will not issue any Series D Shares without the consent of the holders of a
majority of the Series D Shares and the Majority Vote of the Partners. Except
for Series E Shares to be issued upon the exercise of the Contingent Interest,
the Company will not issue any Series E Shares without the consent of the
holders of a majority of the Series E Shares and the Majority Vote of the
Partners. All Shares that may be reacquired from time to time may be reissued
only, (i) in the case of Series A Shares, with the consent of the holders of a
majority of the Series A Shares, (ii) in the case of Series B Shares, with the
Majority Vote of the Partners, (iii) in the case of the Series C Shares, with
the prior written consent of the Managing General Partner, (iv) in the case of
the Series D Shares, with the prior written consent of the Managing General
Partner and (v) in the case of the Series E Shares, with the prior written
consent of the Managing General Partner.
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2.7.4 Any authorization of Shares in addition to those created by
Section 2.7.1 shall be made only by amendment of this Agreement pursuant to
Article XV and with the consent of the following Partners: (i) if the Company
proposes to increase the number of Series A Shares authorized by this Agreement,
with the consent of the holders of a majority of the Series A Shares; (ii) if
the Company proposes to increase the number of Series B Shares authorized by
this Agreement, with the vote of those Partners holding a Majority of the Series
B Shares that are Outstanding at the time; (iii) if the Company proposes to
increase the number of Series C Shares, Series D Shares or Series E Shares
authorized by this Agreement, in each case, with the prior written consent of
the Managing General Partner.
2.7.5 None of the 588,600 Series A Shares currently Outstanding
shall be subject to dilution upon the issuance of additional Series B Shares
upon the conversion of the Access Debenture or upon the issuance of Series D
Shares upon the due exercise of the Contingent Interest, but, notwithstanding
any other provision of this Agreement, shall be subject to proportionate and pro
rata dilution upon the issuance of Series E Shares upon the due exercise of any
Reserved Employee Options.
2.7.6 All of the 29,250 authorized but unissued Series B Shares
have been reserved for issuance upon the due conversion of the Access Debenture.
Any of the 88,188 Series B Shares currently Outstanding shall be subject to
proportionate and pro rata dilution upon the issuance of additional Series B
Shares upon the conversion of the Access Debenture, and any of the Series B
Shares currently Outstanding and any of the Series B Shares issued upon the
conversion of the Access Debenture shall be subject to proportionate and pro
rata dilution, upon the issuance of Series D Shares upon the due exercise of the
Contingent Interest in the manner set forth in Section 2.7.10, and upon the
issuance of Series E Shares upon the due exercise of any Reserved Employee
Options.
2.7.7 Any and all of the 293,962 Series C Shares currently
Outstanding shall be subject to proportionate and pro rata dilution upon the
issuance of additional Series B Shares upon the conversion of the Access
Debenture, upon the issuance of Series D Shares upon the due exercise of the
Contingent Interest in the manner provided in Section 2.7.10 and upon the
issuance of Series E Shares upon the due exercise of any Reserved Employee
Options.
2.7.8 All of the 150,000 authorized but unissued Series D Shares
have been reserved for issuance to the holder of the Contingent Interest (to the
extent the same shall be conclusively determined by a court with appropriate
jurisdiction or by agreement of the Company and the holder of the Contingent
Interest). Any Series D Shares so issued shall be subject to proportionate and
pro rata dilution upon the issuance of any Series E Shares upon the due exercise
of any Reserved Employee Options.
2.7.9 All of the 50,000 authorized but unissued Series E Shares
have been reserved for issuance upon the due exercise of the Reserved Employee
Options. Upon the due conversion of the Access Debenture, the amount of the
Company's debt obligation at the time represented thereby will be deemed a
Capital Contribution made to the company at the time of such conversion,
including the determination of the Limited Partner's Preferred Capital Amount of
Access. Upon the due exercise of the Contingent Interest or any Reserved
Employee Options, the amount of the exercise price (if any) paid thereupon by
the holder of the Contingent Interest or any Reserved Optionholder will be
deemed a Capital Contribution made to the Company at the time of such exercise,
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including the determination of the Limited Partner's Preferred Capital Amount of
the holder of the Contingent Interest or such Reserved Optionholder, as the case
shall be.
2.7.10 Upon the due exercise of the Contingent Interest and the
issuance of any Series D Shares pursuant to the terms thereof, the holders of
the Series B Shares, Series C Shares and Series E Shares (but not Series A
Shares) at the time Outstanding shall become subject to the dilution arising
therefrom by equitably allocating such dilution among the holders of such Shares
in proportion to their Sharing Percentages in the Partnership. For purposes of
this Section, the holders of the Class C Shares shall be deemed to be the
members of AHN LLC and the Percentage Interests in the Partnership of such
members shall be the product of (x) their respective membership interests in AHN
LLC (represented as a percentage), each calculated on a fully diluted basis,
after taking into account any rights of any third party to acquire either a
portion of AHN LLC's Sharing Percentage or to acquire a membership interest in
AHN LLC, and (y) the Sharing Percentage of AHN LLC in the Partnership.
2.7.11 All Series A Shares, Series B Shares, Series C Shares,
Series D Shares and Series E Shares outstanding or to become outstanding shall
be subject to proportionate pro rata dilution arising from future issuances of
Shares by the Partnership in exchange for equity investments as may be approved
by the Managing General Partner.
2.8 LOANS BY PARTNERS. No Partner shall make any loan or lend money to
the Company or advance monies on its behalf without the approval of the Managing
General Partner. Any such loan or advance shall be repayable on such terms and
conditions as shall be agreed upon by the Partner making such loan or advance
and the Managing General Partner. No Partner shall, without the consent of such
Partner, be required to make any loans or advances to the Company.
2.9 POWER OF ATTORNEY. Each Limited Partner does hereby constitute and
appoint the Managing General Partner as its true and lawful representative and
attorney-in-fact, in his name, place and stead, to make, execute, sign,
acknowledge, swear to and file:
(a) a Certificate of Limited Partnership of the Company and all
amendments thereto as may be required under the Act;
(b) any and all instruments, certificates, and other documents
which may be deemed necessary or desirable to effect the winding-up and
termination of the Company (including, but not limited to, a Certificate of
Cancellation of the Certificate of Limited Partnership) in accordance with the
terms of this Agreement; and
(c) such documents as may be appropriate to comply with the
requirements of law for the formation, qualification or operation of a limited
partnership in all of the counties, states and other jurisdictions where the
Company elects to do business, including any trade name affidavits and any other
notices, certificates, statements or other instruments required by any provision
of law governing the formation of the Company or the conduct of its business.
This power of attorney is coupled with an interest, is irrevocable, and shall
survive, and shall not be affected by, the
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subsequent adjudication of incompetency, bankruptcy or death of any of the
Limited Partners, and shall be binding upon any assignee thereof. Such
representatives and attorneys-in-fact shall not, however, have any right, power
or authority to amend or modify this Agreement when acting in such capacity.
2.10 COMPANY PROPERTY. The Company Property shall be held in the name of
the Company.
2.11 CERTIFICATE OF LIMITED PARTNERSHIP. To the extent that such action
is determined by the Managing General Partner to be reasonable and appropriate,
the Managing General Partner shall file amendments to and restatements of the
Certificate of Limited Partnership of the Company and do all things required to
maintain the Company as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
and each other state or the District of Columbia, and in any jurisdictions
outside the United States, in which the Company may elect to do business or own
any asset. The Certificate as filed shall contain no provision that is
inconsistent with this Agreement.
ARTICLE III
RIGHTS, POWERS AND DUTIES OF THE
PARTNERS AND THE COMPANY; MANAGEMENT
3.1 THE MANAGING GENERAL PARTNER.
3.1.1 POWERS OF THE MANAGING GENERAL PARTNER. All control of the
business of the Company, and all management powers in respect of the business
and affairs of the Company, shall be vested exclusively in the Managing General
Partner; PROVIDED, that the authority of the Managing General Partner may be
conditioned upon the approval of or consent of those Partners not interested in
an Affiliated transaction as described below in Section 3.4. Without limiting
the generality of the foregoing, and in furtherance of the purposes of the
Company, but subject to any specific limitations provided in this Agreement,
including, without limitation, Sections 3.1.3 and 3.4, the Managing General
Partner is hereby authorized to do any and all of the following:
(a) the conduct of the Company's business, the
establishment of Company offices and the exercise of the powers of the
Company within or without the State of Delaware;
(b) the purchase, receipt, lease or other acquisition,
ownership, holding, improvement, use and other dealing with, Company
Property, wherever located;
(c) the sale, conveyance, mortgage, pledge, lease,
exchange, and other disposition of Property;
(d) the entering into contracts and guaranties,
incurring of liabilities, borrowing money, issuance of notes, bonds and other
obligations, and the securing of any of its obligations by mortgage or pledge
of any of its property or income;
(e) the lending of money, investment and reinvestment of
the Company's funds, and
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receipt and holding of Property as security for repayment, including, without
limitation, the loaning of money to, and otherwise helping Partners, officers,
employees and agents;
(f) the institution, prosecution and defense of any
Proceeding in the Company's name;
(g) the appointment of employees and agents of the
Company, the defining of their duties and the establishment of their
compensation;
(h) the payment of pensions and establishment of option
plans (including the plan pursuant to which the Company may grant Reserved
Employee Options), pension plans, pension trusts, profit sharing plans and
benefit and incentive plans for all or any of the current or former Partners,
employees and agents of the Company;
(i) the making of donations to the public welfare or for
religious, charitable, scientific, literary or educational purposes;
(j) the payment of compensation or additional
compensation to any or all Partners and employees on account of services
previously rendered to the Company, whether or not an agreement to pay such
compensation was made before such services were rendered;
(k) the purchase of insurance on the life of any
employee for the benefit of the Company;
(l) the participation in partnership agreements, joint
ventures or other associations of any kind with any person or persons;
(m) the indemnification of Partners or any other Person;
PROVIDED, that the Managing General Partner shall not have the power to
indemnify, defend or hold itself harmless other than as provided in Section
9.1;
(n) the incurrence of any indebtedness, or the
prepayment, refinancing, recasting, increasing, modifying or extending of any
indebtedness;
(o) the selection of, or any change of, the accountants
or attorneys for the Company;
(p) the determination of, or any change to, the
Company's accounting methods as long as such accounting principles are
permitted by generally accepted accounting principles, as applied in the
United States;
(q) the sale, leasing, or licensing of any Company
Property (except for all or substantially all of the Company's assets) other
than in the ordinary course of the Company's business or other than as
contemplated by the Annual Business Plan;
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(r) the mortgaging, pledge, or encumbrance or granting
of a security interest in any Company Property;
(s) the payment of any incentive bonus (including
Reserved Employee Options) to any one or more employees of or consultants to
the Company;
(t) except as otherwise provided in Section 8.4, the
approval of annual financial statements and the annual consolidated federal
tax returns of the Company and any elections for federal, state and local tax
purposes;
(u) to enter into any agreement relating to the
Contingent Interest on behalf of the Partnership; and
(v) the issuance of any additional shares of any class
other than Series A Shares, Series B Shares, Series C Shares, Series D Shares
and Series E Shares for such consideration as the Managing General Partner
deems appropriate, as long as such shares dilute all existing shares pro rata
and PARI PASSU.
3.1.2 DUTIES OF THE MANAGING GENERAL PARTNER. The Managing
General Partner shall manage and control the business and affairs of the Company
in the manner the Managing General Partner deems appropriate and necessary in
order to carry out the purpose of the Company as set forth in Section 2.4.
3.1.3 LIMITATIONS ON THE MANAGING GENERAL PARTNER.
Notwithstanding anything in this Agreement to the contrary, the Managing General
Partner shall not:
(a) do any act in contravention of any applicable law or
regulation, or provision of this Agreement or of the Certificate of Limited
Partnership;
(b) possess Company Property or assign its rights in
specific Company Property for other than a Company purpose;
(c) take any action that would adversely affect the
status of the Company as a Delaware limited partnership under the Act or that
would adversely affect the limited partner status or the limited liability
status of a Limited Partner or subject a Limited Partner to (i) personal
liability for any obligation of the Partners or the Company under this
Agreement or (ii) liability as a general partner under any applicable laws;
(d) alter the purpose of the Company as set forth in
Section 2.4; or
(e) appropriate funds of the Company for the use of any
Person other than the Company.
3.1.4 AUTHORITY TO BIND. Only the Managing General Partner shall
have the authority to bind the Company.
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3.1.5 MANAGEMENT. The Managing General Partner shall use
commercially reasonable best efforts in its management of the Company.
3.1.6 ACTION BY THE GENERAL PARTNERS. Whenever any matter is
required to be approved by the General Partners under the Act, such matter shall
be considered approved or consented to upon the consent or other affirmative
action of the General Partners holding 50% of the Sharing Percentages owned by
all of the General Partners.
3.1.7 CONFLICTS OF INTEREST. Without the consent of the Partners,
the General Partners shall not be entitled to enter into transactions that may
be considered to be competitive with, or a business opportunity that may be
beneficial to, the Company. Without limiting the foregoing, the Managing
General Partner shall account to the Company and hold as trustee for it any
property, profit or benefit derived by the Managing General Partner without the
affirmative vote of the Partners other than the Managing General Partner in the
conduct and winding up of the Company business or from a use or appropriation by
the Managing General Partner of Company Property including information developed
exclusively for the Company and opportunities within the business of the Company
expressly offered to the Company. In the case of any conflict between the best
interests of the Managing General Partner and the best interests of the Company,
the Managing General Partner shall not act in a manner inconsistent with the
best interests of the Company or inconsistent with this Agreement.
3.1.8 FIDUCIARY DUTY. To the extent that, at law or in equity,
the Managing General Partner has duties (including fiduciary duties) and
liabilities to the Company or to any other Partner, the Managing General Partner
acting under this Agreement shall not be liable to the Company, or to any other
Partner, for its good faith reliance on the provisions of this Agreement. The
provisions of this Agreement, to the extent that they restrict the duties and
liabilities of the Managing General Partner otherwise existing at law or in
equity, are agreed by the parties hereto to replace such other duties and
liabilities of such Managing General Partner.
3.1.9 BANK ACCOUNTS. Funds of the Company shall be deposited in
an account or accounts of a type, in form and name in a bank or banks selected
by the Managing General Partner. Any person so designated by the Managing
General Partner, pursuant to the delegation of authority contained in this
Agreement, shall be authorized to sign checks, either singly or jointly, on
behalf of the Company.
3.2 [Reserved]
3.3 THE LIMITED PARTNERS.
3.3.1 NO PARTICIPATION IN MANAGEMENT, ETC. No Limited Partner
shall take part in the management or control of the Company's business or
affairs, transact any business in the Company's name or have the power to sign
documents for or otherwise bind the Company. The Managing General Partner shall
have the power to issue additional shares as provided in Section 3.1.1(v),
subject to Section 3.5, if in the best interest of the Partnership.
3.3.2 LIMITATION OF LIABILITY. Except as may otherwise be
provided by law or except as shall be agreed in writing by a Limited Partner, a
Limited Partner shall have no personal liability for any debts or other
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obligations of the Company.
3.3.3 NO AUTHORITY TO BIND, ETC. No Limited Partner shall take
any action as a Partner to bind the Company, and each shall indemnify the
Company for any costs or damages incurred by the Company as a result of any such
unauthorized action by it.
3.4 AFFILIATED TRANSACTIONS. Neither the Managing General Partner nor
any Affiliate of the Managing General Partner shall enter into, or materially
modify or waive any material rights under, any contract with the Partnership
without the prior written approval or consent of the holders of a majority in
Sharing Percentage of those Partners that are not interested in the transaction.
3.5 PRE-EMPTIVE RIGHTS. From time to time the Managing General Partner
may determine that additional Capital Contributions in cash are required for the
business of the Partnership. The Managing General Partner shall offer first to
each of the Partners (including itself) the opportunity to contribute their pro
rata share (based on such Partners' Sharing Percentages) of such additional
Capital Contributions on such terms and conditions applicable to all Partners as
the Managing General Partner may prescribe. If any Partner declines to
contribute its pro rata share of any additional Capital Contributions, then the
Company shall make successive offers to the Partners that have subscribed to
make further Capital Contributions in accordance with their pro rata shares
(based on such Partners' Sharing Percentages) until either (i) the full amount
of such additional Capital Contributions have all been made or (ii) all of the
Partners have declined to make any further Capital Contributions. To the extent
the Partners do not satisfy or provide such additional Capital Contributions,
the Managing General Partner may solicit contributions from third parties who
are not Partners without any prior approval of any of the Partners. The
foregoing provisions of this Section shall, however, apply to any transaction by
the Company in which the Company sells Partnership Interests for cash.
ARTICLE IV
CONTRIBUTIONS AND CAPITAL ACCOUNTS
4.1 CONTRIBUTIONS.
4.1.1 After giving effect to the investment referred to in the
Investment Agreement, the respective Capital Contribution of each Partner made
from January 28, 1996 to the Effective Date shall be as set forth on
SCHEDULE A-2.
4.1.2 No interest shall accrue on any Capital Contribution, and no
Partner shall have the right to withdraw or be repaid any Capital Contribution
except as provided in this Agreement.
4.1.3 Except as provided in the Investment Agreement, no Partner
shall be required to make any additional Capital Contributions to the capital of
the Company.
4.1.4 The Partners acknowledge that Access holds the Access
Debenture, which Debentures permit Access to convert such debentures
respectively into the Series B Shares provided therein, were such
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conversions to occur as of the date of this Agreement. The Partners consent to
the sale of such Series B Shares to Access or the holder or holders of the
Access Debenture upon the due conversion of each or both of the Debentures, in
accordance with terms thereof.
4.1.5 The Partners acknowledge that there may be a Contingent
Interest (to the extent the same shall be conclusively determined by a court
with appropriate jurisdiction or by agreement of the Partnership and the holder
of the Contingent Interest) to acquire certain Series D Shares.
4.2 MAINTENANCE OF CAPITAL ACCOUNTS.
4.2.1 The Company shall establish and maintain Capital Accounts
for each Partner and Assignee in the books of the Company in accordance with
Section 1.704-1(b)(2)(iv) of the Regulations. Each Partner's Capital Account
shall be increased by (a) the amount of any cash contributed by the Partner to
the capital of the Company, (b) the fair market value of any property
contributed, as determined by the Company and the contributing Partner at arm's
length at the time of contribution, such determination to be acceptable to all
of the Partners (net of liabilities assumed by the Company or subject to which
the company takes such Property, within the meaning of Code Section 752), and
(c) the Partner's share of Net Profits and of any separately allocated items of
income or gain except adjustments required by the Code (including any gain and
income from unrealized income with respect to accounts receivable allocated to
the Partner to reflect the difference between the book value and tax basis of
assets contributed by the Partner). Each Partner's Capital Account shall be
decreased by (i) the amount of any cash distributed to the Partner from the
capital of the Company, (ii) the fair market value of any property distributed
to the Partner, as determined by the Company and the contributing Partner at
arm's length at the time of distribution, such determination to be acceptable to
all of the Partners (net of liabilities of the Company assumed by the Partner or
subject to which the Partner takes such Property within the meaning of Code
Section 752), and (iii) the Partner's share of Net Losses and of any separately
allocated items of deduction or loss (including any loss or deduction allocated
to the Partner to reflect the difference between the book value and tax basis of
assets contributed by the Partner).
4.2.2 For purposes of computing the amount of any item of income,
gain, loss or deduction to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of any such item shall be the same
as its determination, recognition and reclassification for federal income tax
purposes (including, without limitation, any method of depreciation, cost
recovery or amortization used for that purpose); PROVIDED, that:
(a) Except as otherwise provided in Section 1.704-1(b)(2)(iv)(m)
of the Regulations, the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Code Section 754
which may be made by the Company and, as to those items described in Code
Sections 705(a)(1)(B) or 705(a)(2)(B), without regard to the fact that such
items are not includable in gross income or are neither currently deductible nor
capitalized for federal income tax purposes;
(b) Any income, gain or loss attributable to the taxable
Disposition of any Company Property shall be determined as if the adjusted basis
of such property as of such date of Disposition were equal in amount to the
Company's Carrying Value with respect to such Property as of such date; and
(c) In accordance with the requirements of Code Section 704(b),
any deductions for
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depreciation, cost recovery or amortization attributable to any contributed
Property shall be determined as if the adjusted tax basis of such Property on
the date it was acquired by the Company were equal to the fair market value of
such Property. Upon an adjustment to the Carrying Value of any Company Property
subject to depreciation, cost recovery or amortization, any further deductions
for such depreciation, cost recovery or amortization attributable to such
Property shall be determined (i) as if the adjusted tax basis of such Property
were equal to the Carrying Value of such Property immediately following such
adjustment and (ii) using a rate of depreciation, cost recovery or amortization
derived from the same method and useful life (or, if applicable, the remaining
useful life) as if applied for federal income tax purposes; PROVIDED, that if
the asset has a zero adjusted basis for federal income tax purposes,
depreciation, cost recovery or amortization deductions shall be determined using
any reasonable method that the Tax Matters Partner may adopt.
4.3 DISTRIBUTION OF ASSETS. If the Company at any time distributes any
of its assets in kind to any Partner, the Capital Account of each Partner shall
be adjusted to account for that Partner's allocable share (as determined under
Article V) of the Net Profits or Net Losses that would have been realized by the
Company had it sold the assets that were distributed at their respective fair
market value immediately prior to their distribution.
4.4 DISPOSITION OF INTEREST. In the event of a Disposition of some or
all of a Partner's Interest in the Company, the Capital Account of the Disposing
Partner shall become the Capital Account of the Assignee, to the extent it
relates to the portion of the Interest Disposed of.
4.5 COMPLIANCE WITH CODE SECTION 704(B). The provisions of this Article
IV as they relate to the maintenance of Capital Accounts are intended to cause
the allocations of profits, losses, income, gain and credit pursuant to Article
V to have substantial economic effect under the Regulations under Code Section
704(b), in light of the Distributions made pursuant to Articles VI and VIII and
the Capital Contributions made pursuant to this Article IV. Notwithstanding
anything to the contrary, this Agreement shall not be construed as creating a
deficit restoration obligation or otherwise as personally obligating any Partner
to make a Capital Contribution in excess of the Initial Contribution.
4.6 DEFICIT RESTORATION.
4.6.1 Upon the liquidation of the Company, if there is a deficit
in the General Partners's Capital Account (after Capital Accounts have been
adjusted as provided in this Agreement for all taxable years including the
Liquidation Year), the General Partners (meaning for this purpose the General
Partners at the time and not any predecessor) shall contribute the amount of
such deficit to the Company before the end of the Liquidation Year (or, if
later, within 90 days after the date of such liquidation) or by such earlier
date as may be required to complete the liquidation in accordance with a duly
adopted plan of liquidation. Amounts thus contributed shall be distributed to
or among the creditors and Partners in accordance with the provisions of Section
14.3 for distribution of Company Property on dissolution, winding up, and
liquidation. Notwithstanding anything to the contrary contained herein, in no
event shall the aggregate amount the General Partners is required to contribute
to the Company pursuant to this Section 4.7.1 exceed the aggregate for all
taxable years of the product of (a) the aggregate amount of Net Losses allocated
to the General Partners in any taxable year pursuant to Section 5.1.2(a) times
(b) the Combined Marginal Rate (as hereinafter defined) for the taxable year
immediately preceding the year of allocation.
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4.6.2 Upon the liquidation of the Company, if the Company has
withheld or paid tax with respect to any Partner in accordance with applicable
law by reason of other than a Distribution to such Partner, such Partner
(meaning for this purpose any successor to Partner) shall contribute the amount
of such withheld tax to the Company to the extent subsequent Distributions
(including any distribution anticipated to be paid pursuant to Section 14.3.3)
have not been sufficient to allow the Company to recoup such taxes pursuant to
Section 6.3. Amounts thus contributed shall be distributed to or among the
creditors and other Partners in accordance with the provisions of Section 14.3
for distribution of Company Property on dissolution, winding up and liquidation.
ARTICLE V
ALLOCATIONS
5.1 ALLOCATIONS OF NET PROFITS AND NET LOSSES. For purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, the Company's items of income, gain, loss and deduction
(computed in accordance with Section 4.2.2) shall be allocated among the
Partners for each Taxable Year other than any Liquidation Year (or portion
thereof) as provided herein:
5.1.1 After giving effect to the special allocations set forth in
Section 5.2, Net Profits for each taxable period and all items of income and
gain taken into account in computing Net Profits for such taxable period shall
be allocated to the Partners in the following order and priority:
(a) first, pro rata and PARI PASSU among the Limited Partners
(including New Partners) to the extent of and in proportion to such Limited
Partners' Untaxed Preference Amounts;
(b) second, to the General Partners in accordance with their
respective Capital Contributions in an amount equal to the excess of Net Losses
previously allocated to the General Partners under Section 5.1.2(f) over
aggregate Net Profits previously allocated to the General Partners in accordance
with their respective Capital Contributions under this Section 5.1.1(b);
(c) third, to the Limited Partners (including New Partners) in
accordance with their respective Capital Contributions; but only (x) until the
aggregate amount of Net Profits allocated to the Limited Partners (including New
Partners) under this Section 5.1.1(c) equals the aggregate Capital Contributions
of such Limited Partners, and (y) to the extent such amounts when so allocated
would not cause any Limited Partner's Capital Account balance to exceed such
Partner's Limited Partner's Unrecovered Preferred Capital Amount (determined by
including the Limited Partners' Annual Preference Amounts for the current
taxable period);
(d) fourth, to the General Partners in accordance with their
respective Capital Contributions in an amount equal to the excess of the General
Partners' aggregate Capital Contributions over the aggregate Net Profits
previously allocated to the General Partners under this Section 5.1.1(d); and
(e) fifth, to all the Partners, pro rata and PARI PASSU
according to their respective Sharing Percentages.
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5.1.2 After giving effect to the special allocations set forth in
Section 5.2, Net Loss for each taxable period and all items of loss and
deduction taken into account in computing Net Loss for such taxable period shall
be allocated to the Partners in the following order and priority:
(a) first, to the Partners in proportion to the aggregate Net
Profits previously allocated to the Partners under Section 5.1.1(e), in an
amount equal to the excess of aggregate Net Profits previously allocated to the
Partners under Section 5.1.1(e) over aggregate Net Losses previously allocated
to the Partners under this Section 5.1.2(a);
(b) second, to the General Partners, but only (x) until the
aggregate amount of Net Losses allocated to the General Partners under this
Section 5.1.2(b) equals the General Partners' Capital Contributions, and (y) to
the extent such amount when so allocated would not cause AHN LLC to have an
Adjusted Capital Account Deficit;
(c) third, to the Limited Partners (including New Partners) in
accordance with their respective Capital Contributions; but only (x) until the
aggregate amount of Net Losses allocated to the Limited Partners under this
Section 5.1.2(c) equals the aggregate Capital Contributions of the Limited
Partners, and (y) to the extent such amount when so allocated would not cause
any Limited Partner to have Adjusted Capital Account Deficit. This Section
5.1.2(c) shall continue to be applied, MUTATIS MUTANDIS, until the allocation of
Net Losses hereunder would cause each of the Limited Partners (including New
Partners) to have an Adjusted Capital Account Deficit; and
(d) fourth, to each Partner in proportion to their respective
Sharing Percentages, but only to the extent that Net Losses can be allocated to
the Limited Partners under this Section 5.1.2(d) without resulting in an
Adjusted Capital Account Deficit for any Limited Partner; and
(e) fifth, to the General Partners in accordance with their
respective Capital Contributions.
5.2 SPECIAL ALLOCATIONS. The following special allocations shall be
made in the order required by the Regulations:
5.2.1 MINIMUM GAIN CHARGEBACK. If there is a net decrease in
Company Minimum Gain during any Taxable Year (other than a decrease attributable
to a "book up" in the value of the Company's assets, a decrease offset by an
increase in Partner Minimum Gain, and any other decrease for which a Company
Minimum Gain chargeback is not required under Section 1.704-2(f) of the
Regulations), each Partner shall be specially allocated items of Company income
and gain for such year (and, if necessary, subsequent years) in an amount equal
to such Partner's share of the net decrease in Company Minimum Gain, determined
in accordance with Section 1.704-2(g)(2) of the Regulations. The items to be so
allocated shall be determined in accordance with Section 1.704-2(j)(2) of the
Regulations. This Section 5.2.1 is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(f) of the Regulations and shall be
interpreted consistently therewith.
5.2.2 PARTNER MINIMUM GAIN CHARGEBACK. If there is a net decrease
in Partner Minimum Gain during any Taxable Year (other than a decrease
attributable to a "book up" in the value of the Company's
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assets, a decrease offset by an increase in Company Minimum Gain, and any other
decrease for which a Partner Minimum Gain chargeback is not required under
Section 1.704-2(i)(4) of the Regulations) then, after the allocations set forth
in Section 5.2.1, each Partner shall be specially allocated items of Company
income and gain for such year (and, if necessary, subsequent years) in an amount
equal to such Partner's share of the net decrease in Partner Minimum Gain
determined in accordance with Section 1.704-2(i)(3) of the Regulations. The
items to be so allocated shall be determined in accordance with Section
1.704-2(j)(2) of the Regulations. This Section 5.2.2 is intended to comply with
the minimum gain chargeback requirement in Section 1.704-2(i)(4) of the
Regulations and shall be interpreted consistently therewith.
5.2.3 QUALIFIED INCOME OFFSET. If, at any time during any Taxable
Year any Partner (other than the General Partners) unexpectedly receives any
adjustments, allocations or distributions described in Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, and if such adjustment,
allocation or distribution would cause an Adjusted Capital Account Deficit for
such Partner as of the end of such Taxable Year, then items of Company income
and gain shall be specially allocated to such Partner in an amount and manner
sufficient to eliminate (to the extent required by the foregoing Regulations)
such Adjusted Capital Account Deficit as quickly as possible; PROVIDED, that an
allocation pursuant to this Section 5.2.3 shall be made only if and to the
extent that such Partner would have an Adjusted Capital Account Deficit after
all other allocations provided for have been tentatively made as if this Section
5.2.3 were not in this Agreement.
5.2.4 NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any
Taxable Year or other period shall be specially allocated to the Partners in
accordance with their respective Sharing Percentages.
5.2.5 PARTNER NONRECOURSE DEDUCTIONS ATTRIBUTABLE TO PARTNER
NONRECOURSE DEBT. Any Partner Nonrecourse Deductions for any Taxable Year or
other period shall be specially allocated to the Partner who bears the Economic
Risk of Loss with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with Section 1.704-2 of
the Regulations.
5.2.6 SECTION 754 ADJUSTMENT. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Section 1.704-1(b)(2)(iv)(m) of the
Treasury Regulations, to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
5.2.7 MATERIAL ITEMS. Any provisions of this Agreement to the
contrary notwithstanding, at all times during the existence of the Company, the
aggregate interest of the General Partners in each material item of income,
gain, loss, deduction or credit shall equal at least one percent (1.0%) of each
such material item.
5.3 CURATIVE ALLOCATIONS. The allocations set forth in Section 5.2 (the
"Regulatory Allocations") are intended to comply with certain requirements of
Section 1.704-1(b) and -2 of the Regulations. Notwithstanding any other
provisions of this Article V (other than the Regulatory Allocations), the
Regulatory Allocations shall be taken into account in allocating other Net
Profits, Net Losses, and items of income, gain, loss, deduction and
Code Section 705(a)(2)(B)
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expenditures among the Partners so that, to the extent possible, the net amount
of such allocations of other Net Profits, Net Losses, and other items and the
Regulatory Allocations to each Partner shall be equal to the net amount that
would have been allocated to each such Partner if the Regulatory Allocations had
not occurred. For purposes of applying the foregoing sentence: (a) Nonrecourse
Deductions shall not be taken into account prior to the Taxable Year during
which there is a net decrease in Company Minimum Gain, and then only to the
extent the Managing General Partner determines that it is necessary to avoid any
potential economic distortions caused by such net decrease in Company Minimum
Gain; (b) Partner Nonrecourse Deductions shall not be taken into account prior
to the Taxable Year during which there is a net decrease in Partner Minimum
Gain, and then only to the extent the Managing General Partner determines that
it is necessary to avoid any potential economic distortions caused by such net
decrease in Partner Minimum Gain; (c) allocations pursuant to this Section shall
be deferred with respect to allocations pursuant to Section 5.2.3 to the extent
the Managing General Partner reasonably determines that such allocations are
likely to be offset by subsequent allocations pursuant to Section 5.2.1; (d)
allocations pursuant to this Section shall be deferred with respect to
allocations pursuant to Section 5.2.4 to the extent the Managing General Partner
reasonably determines that such allocations are likely to be offset by
subsequent allocations pursuant to Section 5.2.2; and (e) allocations pursuant
to this Section shall only be made with respect to allocations pursuant to
Section 5.2.5 to the extent the Managing General Partner reasonably determines
that such allocations will otherwise be inconsistent with the economic
arrangement among the parties to the Agreement.
5.4 GENERAL.
5.4.1 Except as otherwise provided in this Agreement, all items of
Company income, gain, loss, deduction and any other allocations not otherwise
provided for shall be divided among the Partners in the same proportions as they
share Net Profits or Net Losses, as the case may be, for the year.
5.4.2 For purposes of determining the Net Profits, Net Losses or
any other items allocable to any period, Net Profits, Net Losses or any such
other items shall be determined on a daily, monthly, or other basis, as
determined by the Managing General Partner using any permissible method under
Code Section 706 and the Regulations thereunder.
5.4.3 Solely for purposes of determining a Partner's proportionate
share of the "excess nonrecourse liabilities" of the Company within the meaning
of Section 1.752-3(a)(3) of the Regulations, the Partners' interests in Company
profits shall be allocated among the Partners pro rata in proportion to their
relative Capital Contributions.
5.4.4 To the extent permitted by Sections 1.704-2(h)(3) and
1.704-2(i)(6) of the Regulations, the Managing General Partner shall endeavor
not to treat Distributions of Net Available Cash as having been made from the
proceeds of a Nonrecourse Liability or a Partner Nonrecourse Debt.
5.4.5 The Managing General Partner shall have reasonable
discretion, with respect to each Taxable Year, to request a waiver from the
Commissioner of the Internal Revenue Service of the minimum gain chargeback
requirement pursuant to Sections 1.704-2(f)(4) or 1.704-2(i)(4) of the
Regulations, if the application of such chargeback would cause a permanent
distortion of the economic arrangement of the Partners.
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5.5 TAX ALLOCATIONS; CODE SECTION 704(C).
5.5.1 Except as otherwise provided for herein, for federal, state
and local income tax purposes (a) each item of income, gain, loss and deduction
shall be allocated among the Partners in the same manner as its correlative item
of "book" income, gain, loss or deduction is allocated pursuant to Sections 5.1,
5.2 and 5.3, and (b) each tax credit shall be allocated to the Partners in the
same manner as the receipt or expenditure giving rise to such credit is so
allocated.
5.5.2 In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax purposes, be
allocated among the Partners so as to take account of any variation between the
adjusted basis of such property to the Company for federal income tax purposes
and its fair market value on the date of such contribution.
5.5.3 If the gross asset value of any Company asset is adjusted,
subsequent allocations of income, gain, loss and deduction with respect to such
asset shall take account of any variation between the adjusted basis of such
asset for federal income tax purposes and its gross asset value in the same
manner as under Code Section 704(c) and the Regulations hereunder.
5.5.4 Any elections or other decisions relating to such
allocations shall be made by the Managing General Partner in any manner that
reasonably reflects the purpose and intention of this Agreement. Allocations
pursuant to this Section 5.5 are solely for purposes of federal, state and local
taxes and shall not affect, or in any way be taken into account in computing,
any Partner's Capital Account or share of Net Profits, Net Losses, other items
or distributions pursuant to any provision of this Agreement.
5.5.5 The Managing General Partner shall have the discretion
(exercisable only with the Majority Vote of the Partners) to provide only
Partners recognizing gain on Partnership distributions covered by Code Section
734 with the federal income tax benefits attributable to any increased basis in
Partnership property resulting from any election under Code Section 754.
ARTICLE VI
DISTRIBUTIONS
6.1 NON-LIQUIDATING DISTRIBUTIONS.
6.1.1 Except as otherwise provided in this Agreement, required by
law, or prohibited by any other agreement to which the Company is a party, the
Company shall distribute Net Available Cash within 120 days after the end of
each Taxable Year as follows:
(a) FIRST, pro rata and PARI PASSU among the following:
(i) to the Limited Partners (including New Partners) an amount
equal to the Limited Partners' Aggregate Preference Amounts in proportion
to their respective Limited Partners' Aggregate
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Preference Amounts;
(ii) to the Limited Partners (including New Partners) an amount
equal to the Limited Partners' Preferred Capital Amounts, pro rata in
proportion to each such Limited Partners' Preferred Capital Amounts; and
(iii) to Access in payment of the Access Debenture, to the
extent that any amounts are then due and payable under the Access
Debenture, but only if and to the extent that Access has not converted the
Access Debenture;
(b) SECOND, after Recoupment has occurred, to all Partners
(other than the Limited Partners (including New Partners)) pro rata in
proportion to the Carrying Value of all such Partners' Capital Contributions
determined at the time of contribution until the aggregate amount distributed to
such other Partners under this Section 6.1.1(b) equals the Carrying Value of
such Partners' Capital Contributions determined at the time of contribution;
PROVIDED, that no Partner shall receive any amount under this Section 6.1.1(b)
in excess of the Carrying Value of such Partner's Capital Contribution
determined at the time of contribution; and
(c) THIRD, then to all of the Partners, pro rata and PARI PASSU
according to their respective Sharing Percentages.
6.1.2 Notwithstanding the above, to the extent of Net Available Cash
and no less than three Business Days prior to April 15 of each year the Company
shall make a tax distribution to the Partners in an amount equal to the amount
by which the "Tax Liability" (as defined below) for the preceding Taxable Year
exceeds the Distributions made to the Partners with respect to the preceding
Taxable Year pursuant to this Section 6.1.2; PROVIDED, that distributions made
to a Partner pursuant to this Section 6.1.2 shall be treated as advances of
distributions otherwise required under Section 6.1.1, with the result that
distributions otherwise required to be made to a Partner under Section 6.1.1
shall be reduced by the aggregate amount of distributions made pursuant to this
Section 6.1.1.
"Tax liability" shall mean the product of (A) Net Profits for the preceding
taxable year allocated to the Partners under Section 5.1.1(e), times (B) the
Combined Marginal Rate (as hereinafter defined) for such preceding taxable year.
The "Combined Marginal Rate" shall mean 51% for any taxable year. If the
Company has insufficient funds to make the tax distributions pursuant to this
Section 6.1.2 at the time required by this Section 6.1.2, such tax distributions
shall be made to the Partners within a reasonable period of time after such
funds become available.
6.1.3 From time to time the Managing General Partner shall
determine in its reasonable judgment to what extent, if any, Net Available Cash
may be distributed after considering the current and anticipated needs of the
Company, including, without limitation, needs for operating expenses, debt
service, acquisitions, reserves and mandatory Distributions, if any. To the
extent such excess exists, the Managing General Partner may make Distributions
to the Partners in proportion to their respective Sharing Percentages subject to
the provisions of Section 6.2.
6.2 LIMITATIONS ON DISTRIBUTIONS. No Distribution shall be declared and
paid to a Partner unless, (a)
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after the Distribution is made, the assets of the Company are in excess of all
liabilities of the Company and (b) such Distribution would not cause such
Partner to have an Adjusted Capital Account Deficit as of the end of the Taxable
Year in which such Distribution would be made, taking into account all
allocations (other than those pursuant to Section 5.2.3) which would be made to
such Partner during such Taxable Year, calculated without reference to any other
amounts to be contributed or returned or required to be returned to the Company.
6.3 WITHHOLDING. If the Managing General Partner is required to
withhold or pay tax with respect to a Partner in accordance with applicable law,
the amount of the Distribution to such Partner with respect to which such tax
was required to be withheld (or, in the case of a tax required to be paid with
respect to a Partner other than by reason of a Distribution to such Partner,
subsequent distributions to such Partner) shall be reduced by the amount of such
tax withheld or paid.
ARTICLE VII
BOOKS AND RECORDS, ACCOUNTING, ETC.
7.1 REPORTS. The Managing General Partner shall prepare or cause to be
prepared all tax returns and statements, if any, which must be filed on behalf
of the Company with any taxing authority, and shall make timely filing thereof
within the statutory due date of such returns (including all applicable
extensions). The Managing General Partner shall deliver to each Partner: (a)
within 90 days of the end of each Taxable Year, sufficient financial information
concerning the results of the Company's operations as is necessary for such
Partner to file its own federal and state income tax returns for the preceding
year (including Internal Revenue Service Form 1065, Schedule K-1 and a copy of
the Company's balance sheet, a statement of Partners' Capital Accounts and a
statement of income and surplus, certified to by the Company's independent firm
of public accountants); (b) within 45 days after the end of each fiscal quarter,
an unaudited balance sheet of the Company at the end of such quarter and an
unaudited statement of income of the Company for the quarter then ended,
together with a summary discussion of the performance of the Company for that
quarter; (c) within 15 days after the end of each month, an unaudited balance
sheet of the Company at the end of such month and an unaudited statement of
income of the Company for the month then ended; and (d) such other information
or reports as the Partners may reasonably request from time to time (including
copies of the Company's state and local income tax returns).
7.2 ACCOUNTING.
7.2.1 The books of account of the Company, together with an
executed copy of the Certificate of Limited Partnership, and any amendments
thereto, shall be kept and maintained at all times at the place or places
selected by the Managing General Partner. The books of account shall be
maintained in accordance with generally accepted accounting principles,
consistently applied, and shall show all items of income and expense.
7.2.2 Each Partner shall have the right at all reasonable times
during usual business hours to audit, examine and make copies of or extracts
from the books of account of the Company. Such right may be exercised through
any agent or employee of such Partner designated by it or by an independent
public accountant designated by such Partner. Each Partner shall bear its own
expenses incurred in any examination made for such Partner's account.
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ARTICLE VIII
TAXES
8.1 ELECTIONS. The Managing General Partner shall make any tax
elections for the Company allowed under the Code or the tax laws of any state or
other jurisdiction having taxing jurisdiction over the Company.
8.2 TAX MATTERS PARTNER. The Managing General Partner shall be
designated as the Tax Matters Partner of the Company pursuant to Code Section
6231(a)(7). The Managing General Partner shall take such action as may be
necessary to cause each other Partner to become a notice partner within the
meaning of Code Section 6223.
8.3 NOTIFICATION OF AUDIT. The Managing General Partner shall give
prompt Notification to each Partner upon receipt of advice that the Internal
Revenue Service intends to examine or audit any income tax returns of the
Company.
8.4. SECTION 754 ELECTION. If a Distribution of Company property as
described in Code Section 734 occurs, or if a transfer of a Partnership Interest
as described in Code Section 743 occurs, upon the written request of the Partner
either receiving such Distribution or making such transfer or of the transferee,
and with the consent of the Tax Matters Partner (which consent shall not be
unreasonably withheld), the Company shall elect pursuant to Code Section 754 to
adjust the basis of Company properties.
ARTICLE IX
INDEMNIFICATION
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9.1 INDEMNIFICATION BY THE COMPANY. Neither any General Partners nor
any Affiliate, officer, director, controlling person, partner, employee or
shareholder of a General Partners or its Affiliates acting in a partner capacity
or as an agent for the Partnership within the scope of its duties ("Indemnified
Persons") shall be liable, responsible or accountable in damages or otherwise to
any of the other Partners or any third party for any loss or damage incurred by
reason of any act or omission performed or omitted by it in good faith on behalf
of the Company and in a manner reasonably believed by it to be within the scope
of the respective authority granted to it by this Agreement and in the best
interests of the Company; PROVIDED, that such Indemnified Person was not guilty
of bad faith, willful misconduct, gross negligence or fraud. The Company shall
indemnify, save harmless and (unless the Indemnified Person elects otherwise)
defend each Indemnified Person from any loss, claim, damage, liability or
expense (including legal fees and expenses) incurred by such Indemnified Person
or any such designee by reason of any such act or omission; PROVIDED, that such
Indemnified Person was not guilty of bad faith, willful misconduct, gross
negligence or fraud and, FURTHER, PROVIDED, that the satisfaction of any
indemnification, any saving harmless and any defense shall be from and limited
to Company assets and no Partner shall have any personal liability on account
hereof. The Company may maintain insurance, at its expense, to protect any
Person against any expense, liability or loss, to the extent that the Company
would have the power to indemnify such Person under the laws of the State of
Delaware. In addition, the Company shall indemnify and save harmless and
(unless the Indemnified Person elects otherwise) defend each Indemnified Person
from any loss, claim, damage, liability or expense (including legal fees and
expenses) incurred by such Indemnified Person by reason of any third party claim
relating to the Company or arising out of any act or omission by the Company,
any other Partner, or any employee, officer, director or partner thereof,
relating to the Company; PROVIDED, that such Indemnified Person was not guilty
of bad faith, willful misconduct, gross negligence or fraud; and FURTHER,
PROVIDED, that (i) the satisfaction of any indemnification, any saving harmless
and any defense shall be from and limited to Company Property, and no Partner
shall have any personal liability on account hereof.
9.2 INDEMNIFICATION BY AHN LLC. AHN LLC shall indemnify, save harmless
and defend the Partnership and each Limited Partner from and against any breach
of any of its representations and warranties made in the Investment Agreement.
ARTICLE X
DISPOSITION OF PARTNERSHIP
INTERESTS; WITHDRAWALS
10.1 DISPOSITION. Any Partner or Assignee may Dispose of all or a
portion of the Partner's or Assignee's Partnership Interest only upon compliance
with this Article X and Article XII, if applicable. Except as set forth in
Section 10.2, no Partnership Interest (and, with regard to Section 10.1.5, no
other interest in or relating to the Partnership) shall be Disposed of:
10.1.1 if such Disposition, alone or when combined with other
transactions, would result in a termination of the Company within the meaning of
Code Section 708;
10.1.2 without an opinion of counsel satisfactory to the Managing
General Partner that such Disposition is subject to an effective registration
under, or exempt from the registration requirements of, the
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applicable state and federal securities laws;
10.1.3 unless and until the Company receives from the Assignee the
information and agreements that the Managing General Partner may reasonably
require including but not limited to any taxpayer identification number;
10.1.4 unless the Partner disposing of his Partnership Interest
obtains the prior written consent of a Majority Vote of the Partners (not
including the Disposing Partner);
10.1.5 unless in compliance with Section 13.2.1 or 13.4.1, if such
Disposition could result in the Company being classified as a publicly traded
partnership within the meaning of Code Section 7704 or otherwise taxable as a
corporation for federal income tax purposes.
10.2 APPROVED DISPOSITION. The Partners acknowledge that AHN LLC has
granted NCCI the right to acquire 10% of the Partnership Interest held by AHN
LLC on terms and conditions set forth in the NCCI Purchase Agreement. Upon any
full or partial exercise of its rights under the NCCI Purchase Agreement, NCCI
will become a Substitute Partner and a Limited Partner in the Partnership, and a
holder of Series C Shares, subject to the rights and obligations of this
Agreement without any requirement of compliance with Section 10.1.4, but with
full compliance with Sections 10.1.1, 10.1.2, 10.1.3 and 10.1.5. NCCI has
become a party to this Agreement subject to its acquisition of a Partnership
Interest from AHN LLC. Neither the Partnership nor any Partner (other than AHN
LLC) shall have any obligation to NCCI with respect to its acquisition of a
Partnership Interest in the NCCI Purchase Agreement.
10.3 DISPOSITIONS NOT IN COMPLIANCE WITH THIS ARTICLE. Any attempted
Disposition of a Partnership Interest, or any part thereof, not in compliance
with this Article is null and void AB INITIO.
10.4 LIABILITY OF A WITHDRAWN PARTNER. Any Partner who voluntarily or
involuntarily for any reason withdraws or resigns or is removed or Disposes of
its Partnership Interest shall remain liable for obligations and liabilities
incurred by it as a Partner prior to the time such withdrawal, resignation or
Disposition becomes effective, but it shall be free of any obligation or
liability incurred on account of the activities of the Company from and after
the time such withdrawal, resignation, removal or Disposition becomes effective.
10.5 DISASSOCIATION. Any Person shall cease to be a Partner upon the
happening of any of the following events:
10.5.1 the withdrawal of a Partner with the consent of a Majority
Vote of the Partners (not including the withdrawing Partner);
10.5.2 any Partner becomes a Bankrupt Partner;
10.5.3 in the case of any Partner who is a natural person, the
death of that Partner or the entry of an order by a court of competent
jurisdiction adjudicating that Partner incompetent to manage that Partner's
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personal estate;
10.5.4 in the case of any Partner who is acting as a Partner by
virtue of being a trustee of a trust, the termination of the trust (but not
merely the substitution of a new trustee);
10.5.5 in the case of any Partner that is a separate Organization
other than a corporation, the dissolution and commencement of winding up of the
separate Organization;
10.5.6 in the case of any Partner that is a corporation, the filing
of a certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; PROVIDED, that in no event shall the merger of any
Partner, whether or not such Partner survives such merger, result in a
Disassociation of such Partner; or
10.5.7 in the case of any Partner that is an estate, the
distribution by the fiduciary of the estate's entire interest in the Company.
10.6 DISASSOCIATING PARTNERS. If any Partner Disassociates prior to the
expiration of the Term, then:
10.6.1 if the Disassociation causes a dissolution and winding up of
the Company under Article XIV, the Disassociating Partner shall be entitled to
participate in the winding up of the Company to the same extent as any other
Partner except that any Distributions to which the Partner would have been
entitled shall be reduced by the damages sustained by the Company as a result of
the dissolution and winding up; and
10.6.2 if the Disassociation does not cause a dissolution and
winding up of the Company under Article XIV, the Disassociating Partner (or its
successors, assigns or personal representative, as the case shall be) shall be
treated as an Assignee; PROVIDED, that at the option of the Managing General
Partner, the Company shall have the right to repurchase such Disassociating
Partner's Partnership Interest for an amount equal to the Fair Market Value of
the Partner's Partnership Interest in the Company, to be paid over five years
from the date of disassociation. The Fair Market Value of the Partner's
Partnership Interest shall be reduced by any damages sustained by the Company as
a result of the Partner's Disassociation.
ARTICLE XI
ADMISSION OF ASSIGNEES
AND ADDITIONAL PARTNERS
11.1 RIGHTS OF ASSIGNEES. The Assignee of a Partnership Interest has no
right to vote, participate in the management of the business and affairs of the
Company or to become a Partner. The Assignee is entitled only to receive the
Distributions and to be allocated the Net Profits and Net Losses attributable
the Partnership Interest assigned to the Assignee.
11.2 ADMISSION OF SUBSTITUTE PARTNERS. Notwithstanding that the
Disposition to an Assignee has been made in compliance with Section 10.1 or
Section 12.1, an Assignee of a Partnership Interest shall be admitted as a
Substitute Partner and admitted to all the rights of the Partner who initially
assigned the Partnership Interest
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only with approval by the Managing General Partner and the Majority Vote of the
Partners; PROVIDED, that (i) neither the acquisition by NCCI of a Partnership
Interest pursuant to the NCCI Purchase Agreement nor the due exercise of the
Contingent Interest (to the extent the same shall be conclusively determined by
a court with appropriate jurisdiction or by agreement of the Partnership and the
holder of the Contingent Interest) shall require any approval or consent of any
Partner to constitute NCCI or the holder of the Contingent Interest, as the case
shall be, a Substitute Partner; (ii) upon NCCI's acquisition of a Partnership
Interest pursuant to the NCCI Purchase Agreement, NCCI will become a Limited
Partner and (iii) upon the due exercise of the Contingent Interest (to the
extent the same shall be conclusively determined by a court with appropriate
jurisdiction or by agreement of the Partnership and the holder of the Contingent
Interest), the holder of the Contingent Interest will become a Limited Partner.
The Partners may grant or withhold the approval of such admission in their sole
and absolute discretion. If so admitted, the Substitute Partner (including,
without limitation, NCCI and the holder of the Contingent Interest) shall
execute an instrument by which it shall become a party to this Agreement and,
upon such execution, shall have all the rights and powers and is subject to all
the restrictions and liabilities of the Partners originally assigning the
Partnership Interest. The admission of a Substitute Partner shall not release
the Partner originally assigning the Partnership Interest from any liability to
the Company that may exist prior to the approval.
11.3 ADMISSION OF ADDITIONAL PARTNERS. No Additional Partners may be
admitted except as expressly provided in this Agreement.
11.4 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP. For
admission to the Company of any Partner, the Managing General Partner shall take
all steps necessary and appropriate under the Act to amend the records of the
Company and, if necessary, to prepare as soon as practical an amendment of this
Agreement (including an amendment of SCHEDULES A-1 OR A-2) and, if required by
law, shall prepare and file an amendment to the Certificate of Limited
Partnership.
ARTICLE XII
RIGHTS TO PURCHASE CERTAIN
PARTNERSHIP INTERESTS
12.1 RIGHT OF FIRST REFUSAL.
12.1.1 Except for the Disposition of a portion of AHN LLC's
Partnership Interest pursuant to the NCCI Purchase Agreement, whenever any
Partner (the "Offering Partner") shall desire to Dispose of any of its
Partnership Interest to a third party and intends to solicit a bona fide written
offer from any Person to purchase, for a specified price payable in cash or
otherwise and on specified terms and conditions, such Partner's Partnership
Interest in the Company (whether such offer is initiated by such Person or by
such Partner), then prior to soliciting such offer to purchase such Partnership
Interest, the Offering Partner shall deliver to the other Partners a letter (the
"Offer Letter") signed by the Offering Partner setting forth the following
information:
(a) the prospective purchase price of the Partnership Interest
and the other material terms and conditions for such sale, including the
identity of the third party to whom the Offering Partner intends to solicit an
offer;
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(b) the Offering Partner's offer (irrevocable by its terms for
20 days following receipt) to sell to the other Partners all (but not less than
all) of its Partnership Interest to such other Partners for such purchase price
(allocated pro rata among the Partners proposing to purchase such Partnership
Interest (each, a "Purchaser") based on their respective Sharing Percentages)
and on such other terms and conditions (the "Offer); and
(c) closing arrangements and a closing date (not less than 20
nor more than 40 days following the date of such letter) for any purchase and
sale that may be effected by Purchasers pursuant to this Section 12.1.1.
12.1.2 If any of the other Partners (or the Company, pursuant to
Section 12.1.3) shall have accepted such Offer, the closing of the purchase and
sale pursuant to such acceptance shall take place upon the terms and subject to
the conditions as set forth in the Offer Letter pursuant to Section 12.1.1(c).
If the other Partners (or the Company pursuant to Section 12.1.3) fail to accept
the Offer within such 20 day period or fail to consummate the closing of the
purchase of the Partnership Interest covered by the Offer within the time period
set forth therein, then the Offering Partner may sell to the third party or
parties identified in the Offer Letter all (but not less than all) of the
Partnership Interest covered by such Offer, for a purchase price not less than
the purchase price set forth in the Offer letter and on terms and conditions
(taken as a whole) no more favorable than those set forth in the Offer Letter.
If such sale has not been completed within 90 days after the expiration of such
40-day period (unless the Offering Partner is acting in good faith to sell its
Partnership Interest, in which case such 90 day period will be extended to 120
days), the Partnership Interest covered by such Offer may not thereafter be sold
by the Offering Partner unless the procedures set forth in Section 12.1.1 shall
have again been complied with.
12.1.3 If the other Partners do not elect to purchase the
Partnership Interest covered by the Offer in its entirety then the Offering
Partner shall, within 10 days following the date of the Offer, notify the
Company of such Offer and make available to it the right to purchase the portion
of the Partnership Interest covered by the Offer which is not being purchased by
the other Partners. Notwithstanding the foregoing, in no event shall the
Purchasers or the Company be entitled to purchase the Partnership Interest
pursuant to this Section 12.1 unless all of the Partnership Interest covered by
the Offer is purchased. Any purchases made by the Company hereunder shall be
made in accordance with Section 12.1.1.
12.1.4 The closing of the sale of any Partnership Interest pursuant
to Section 12.1.2 or 12.1.3 shall occur at a place mutually convenient to the
parties. At the closing, any Partner selling pursuant to Section 12.1.1 (the
"Selling Partner") shall deliver to the appropriate Purchaser such instruments
and documents as shall be necessary or appropriate to transfer the Partnership
Interest being transferred by the Selling Partner and to evidence the withdrawal
of any Selling Partner from the Company, in the event the Selling Partner is
transferring all of its Partnership Interest, and the Purchaser shall purchase
the Partnership Interest and shall deliver the purchase price to the Selling
Partner by wire transfer of funds or by bank cashier's or certified check, as
determined by the Purchaser in its sole discretion. At the closing, each
Selling Partner shall agree to indemnify and hold the Purchaser harmless from
and against any and all liens and encumbrances on the Partnership Interest to be
transferred which were incurred or created while such interests were held by
such Selling Partner.
12.1.5 The following are conditions precedent to the Purchaser's
obligation to close on the
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purchase of the Partnership Interest transferred pursuant to Section 12.1.2 or
12.1.3 (unless such conditions are waived by the party benefited thereby):
(a) all material consents necessary to effect such transaction
have been obtained; and
(b) the consummation of the purchase shall not be subject to any
injunction or restraining order.
ARTICLE XIII
REGISTRATION RIGHTS, ETC.
13.1 REORGANIZATION OF COMPANY. Upon the vote by the holders of a
majority of the Outstanding Series A Shares to exercise registration right
provided in Section 13.2.1, the Managing General Partner shall transfer all or
substantially all of the assets of the Company to a corporation or other entity
("Newco") in anticipation of an initial public offering of some or all of the
capital stock or other equity interests of Newco (an "IPO"), and each Partner
(including any Partners that holds Series A Shares, Series B Shares, Series C
Shares, Series D Shares or Series E Shares) shall take such steps to effect the
IPO as may be requested by the Managing General Partner, including, without
limitation, consenting to and/or voting in favor of any necessary or desirable
recapitalization, reorganization or exchange (collectively, a "Reorganization")
and exchanging such Partner's interests in the Company to Newco in connection
with any such Reorganization for capital stock or other equity interests of
Newco; PROVIDED, that no Partner shall be required to take any action or omit to
take any action to the extent such action or omission violates applicable law;
and, PROVIDED, further, that in no event will any transaction contemplated
hereby materially disadvantage the economic position hereunder of any Limited
Partner prior to such Reorganization (it being understood that taxation as a
stockholder of a corporation shall not be deemed a disadvantage). In connection
with any Reorganization, each Partner shall receive a share of the aggregate
consideration received as part of the Reorganization equal in amount to the
amount such Partner would receive as a Distribution if all assets of the Company
as of the end of the month immediately preceding such Reorganization were sold
for cash equal to their Fair Market Value, and all Company liabilities were
satisfied to the extent required by their terms, and the net assets of the
Company were distributed in full to the Partners pursuant to Section 6.1.1.
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13.2 REGISTRATION RIGHTS.
13.2.1 REGISTRATIONS UPON REQUEST. Upon the vote of the holders of
a majority of the Outstanding Series A Shares, the Managing General Partner
shall effect the registration under the Securities Act of the Series A Shares
held by such holders, or any security into which such Shares may have been
converted pursuant to Section 13.1. Upon any such request, the Managing General
Partner will promptly, but in any event within 15 Business Days, give written
notice of such request to all holders of the Series A Shares and all holders of
the Series B Shares or (in each case) any security into which Shares have been
converted pursuant to Section 13.1 (all such Series A Shares, Series B Shares
and such securities are referred to in this Article XIII as the "Securities").
Thereupon, the Managing General Partner will use its best efforts to effect the
prompt registration under the Securities Act of all Securities which the
Managing General Partner has been requested to register by the holders thereof
by written request given to the Managing General Partner within 20 Business Days
after the giving of such written notice by the Managing General Partner.
(Notwithstanding the foregoing, but subject to the rights of holders of
Securities under this Section 13.2.1, if the Managing General Partner determines
in its good faith judgment that the disclosures that would be required to be
made by the Company in connection with such registration would be materially
harmful to the Company because of transactions then being considered by, or
other events then concerning the Company, the Company may defer the filing (but
not the preparation) of the registration statement which is required to effect
any registration pursuant to this Section 13.2 for a reasonable period of time,
but not in excess of 90 days (or any longer period consented to by a Majority in
Interest of the Series A Partners); PROVIDED, that (i) at all times the Company
is in good faith using all reasonable efforts to cause such registration
statement to be filed as soon as practicable; and, (ii) such period shall end on
such earlier date as may be consented to by the underwriters of such
underwritten public offering. Notwithstanding the foregoing,
(a) The Company shall not be obligated to file and cause to
become effective more than one registration statement in which Securities are
registered under the Securities Act pursuant to this Section 13.2 and
effectively sold thereunder.
(b) The Company shall not be obligated to effect any
registration statement pursuant to this Section 13.2 unless the aggregate gross
public offering price of all Securities to be sold pursuant to such registration
shall be at least $15,000,000; PROVIDED, that if at the time of any request made
pursuant to this Section 13.2.1 the Company shall be an entity registered under
the Exchange Act, then the Company shall not be obligated to effect any
registration statement pursuant to this Section 13.2 unless the gross public
offering price of all Securities to be sold pursuant to such registration shall
be at least $5,000,000, unless the Company shall be eligible to file a
registration statement on Form S-3, in which case such minimum shall not apply.
13.2.2 EXPENSES. The Company will pay all of the Registration
Expenses in connection with such registration requested in Section 13.2.1;
PROVIDED, that the Partners selling Securities (the "Registering Partners") in
such registration shall pay all Registration Expenses to the extent required to
be paid by a seller under applicable law. For purposes of Section 13.2.1 and
this Section 13.2.2, a registration shall not be deemed effective if (a) a
registration statement for such registration is not declared effective within 90
days of the date such registration statement is first filed with the Securities
and Exchange Commission (the "Commission") (or such later date as may be
expressly agreed to in writing by the Registering Partners), (b) within 180 days
after such registration statement has become effective, such registration is
interfered with by any stop order, injunction or other order or requirement
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of the Commission or other governmental agency or court for any reason;
PROVIDED, that such delay, stop order, injunction, order or requirement is not
due to the fault of the Registering Partners or (c) the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied (other than conditions to be
satisfied by the Registering Partners).
13.2.3 PRIORITY IN DEMAND REGISTRATIONS. If a registration
pursuant to Section 13.2.1 involves an underwritten offering, and the managing
underwriter (or, in the case of an offering which is not underwritten, an
investment banker) shall advise the Company in writing (with a copy to each
Registering Partner) that, in its opinion, the number of securities requested
and otherwise proposed to be included in such registration exceeds the number
that can reasonably be sold in such offering without materially and adversely
affecting the offering price or otherwise materially and adversely affecting
such offering, the Company will include in such registration (but only to the
extent of the number of securities that the Company is so advised can reasonably
be sold in such offering), FIRST, the Securities of the Partners holding Series
A Shares (or any security into which Series A Shares have been converted
pursuant to Section 13.1) requested to be included in such registration, pro
rata, among such Partners on the basis of the number of Securities owned by such
Partners but only to an amount which in no event shall be less than 25% of the
Securities as to which registration has been requested; SECOND, the Securities
of the Partners holding Series B Shares (or any security into which Series B
Shares have been converted pursuant to Section 13.1) requested to be included in
such registration, pro rata, among such Partners on the basis of the number of
Securities owned by such Partners; and THIRD, the Securities, if any, being sold
by the Company.
13.2.4 UNDERWRITTEN OFFERING. If requested by the underwriters for
any underwritten offering by Registering Partners pursuant to a registration
requested under Section 13.2.1, the Company shall enter into an underwriting
agreement with the underwriters for such offering, such agreement to be
reasonably satisfactory in substance and form to the Company, the Registering
Partners and the underwriters and to contain such representations and warranties
by the Company and such other terms and provisions as are customarily contained
in agreements of this type, including, without limitation, indemnities of the
kind customarily provided between a company and a selling stockholder.
13.3 [Reserved]
13.4 OTHER REGISTRATIONS.
13.4.1 RIGHT TO PIGGYBACK. Whenever the Company or Newco proposes
to register any securities under the Securities Act for its own account or for
the account of others, each Partner will have the right to have included in such
registration all of its Securities subject to the provisions of this Article
XIII. The Company or Newco, as the case may be, shall give prompt notification
to all Partners that hold Series A Shares and Series B Shares of its intention
to effect such a registration at least 45 days prior to the filing of said
registration statement and will include in such registration all Securities with
respect to which the Company or Newco has received written requests for
inclusion therein within 15 days after the receipt of the Company's
Notification.
13.4.2 PIGGYBACK EXPENSES. The expenses of the Partners (other
than underwriters' discount or brokers' commissions incurred to sell any
Securities for the account of any Partner) incurred in connection with any
Registration pursuant to Section 13.4.1 shall be paid by the Company or Newco,
as the case may be.
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13.4.3 PRIORITY ON PRIMARY REGISTRATIONS. If the Company is
registering any of its securities for the Company's own account and Partners
have subsequently requested inclusion of their Securities pursuant to the
exercise of Piggyback Registration rights, and the managing underwriters advise
the Company in writing that in their opinion the number of securities requested
to be included in such registration exceeds the number which can be sold in such
offering, the Company will allocate securities to be included in such
registration in the following order: (a) FIRST, the securities the Company
proposes to register, and (b) SECOND, provided that no securities the Company
proposes to register have been excluded from such registration, the Securities
of the Partners requested to be included pursuant to Piggyback Registration
rights in proportion, as nearly as practicable, to the respective amounts of
Securities entitled to inclusion in such registration held by such participating
Partners; PROVIDED, that the right of the underwriters to exclude from such
registration the Securities of the Partners requested to be included pursuant to
Piggyback Registration rights shall be limited so that the number of such
Partner's Securities included in any such registration is not reduced below
twenty-five percent (25%) of the total of all securities included in the
registration (such minimum amount of Securities to be allocated among the
participating Partners in proportion, as nearly as practicable, to the
respective amounts of Securities entitled to inclusion in such registration held
by such participating Partners) except for an IPO from which all Securities of
the Partners may be excluded.
13.4.4 PRIORITY ON SECONDARY REGISTRATIONS. If pursuant to a
registration demand under Section 13.2.1 exercised prior to notification of a
registration of Securities for the Company's own account, or if the Company is
registering Securities for the account of any Person and any Partners have
requested inclusion of their Securities pursuant to the exercise of Piggyback
Registration rights, and the managing underwriters advise the Company in writing
that in their opinion the number of Securities requested to be included in such
registration exceeds the number which can be sold in such offering, the Company
will allocate those Securities to be included in such registration in the
following order: (a) FIRST, the Securities of the Partners requested to be
included pursuant to Piggyback Registration rights in proportion, as nearly as
practicable, to the respective amounts of Securities entitled to inclusion in
such registration held by such participating Partners and (b) SECOND, any other
securities requested to be included in such registration.
13.5 [Reserved]
13.6 FORM S-3 REGISTRATION. In case the Company shall receive from one
or more Partners a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Securities owned by such Partners, provided the
number of Securities requested to be sold would have an aggregate price to the
public of at least $1,000,000, then the Company will:
(a) Promptly give written notice of the proposed registration
and the Partner's request therefor, and any related qualification or compliance,
to all other holders of Securities; and
(b) As soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of the Partner's
Securities as are specified in such request together with all or such portion of
the Securities of any Partner or Partners joining in such request as are
specified in a written request received by the Company within 15 days after
written notice from the Company is given under Section 13.6(a); PROVIDED, that
the Company shall not be
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obligated to effect any such registration, qualification or compliance pursuant
to this Section 13.6:
(i) if Form S-3 is not available to the Company for such
offering by the Partners;
(ii) if the Company shall furnish to the Partners a certificate
signed by the President or Chief Executive Officer of the Company stating
that in the good faith judgment of the Board of Directors of the Company,
it would be seriously detrimental to the Company and its stockholders for
such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3
registration statement no more than once during any twelve-month period for
a period of not more than 90 days after receipt of the request of the
holders under this Section 13.7;
(iii) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or
compliance; or
(iv) if the Company has filed a registration statement on Form
S-3 relating to Securities in the six months preceding the request of the
Partners.
Subject to the foregoing, the Company shall file a Form S-3 registration
statement covering the Securities and other securities so requested to be
registered pursuant to this Section 13.6 as soon as practicable after receipt of
the request of the Partners for such registration.
13.7 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Securities under this Agreement, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration
statement with respect to such Securities and use its best efforts to cause such
registration statement to become effective, and keep such registration statement
effective until the distribution is
completed, but not more than 180 days for a Form S-1 or Form SB-2 Registration
Statement or more than 120 days for a Form S-3 Registration Statement;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Partners such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Securities
owned by them that are included in such registration; and
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the
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Partners, PROVIDED, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
ARTICLE XIV
DISSOLUTION AND WINDING UP
14.1 LIQUIDATING EVENTS. Notwithstanding any provisions of the Act, the
Company shall not be dissolved prior to the occurrence of a Liquidating Event.
The Company shall dissolve and commence winding up and liquidating upon the
first to occur of any of the following events (each, a "Liquidating Event"):
(a) the close of business on December 31, 2021;
(b) the sale of all or substantially all of the Company's
Property;
(c) the happening of an event that makes it impossible or
unlawful for the Company to carry on its business; or
(d) the occurrence of any event that results in dissolution
under the Act.
Notwithstanding the provisions of this Section, upon a Liquidating Event, the
business of the Company may be reconstituted and continued by the agreement of
the remaining Partners holding at least a majority of the capital interests and
a majority of the profit interests in the Company. From and after any such vote
to dissolve, wind up and liquidate, no Partner shall have any subsequent
liability for any additional Capital Contribution.
14.2 WINDING UP. Except as otherwise provided in this Section 14.2, upon
the happening of a Liquidating Event, the Company shall conduct no business nor
engage in any activity that is not necessary or appropriate to winding up its
business and liquidating, and shall proceed promptly to wind up its affairs in
an orderly manner, to liquidate its assets, to satisfy the claims of its
creditors and Partners, and to distribute its remaining assets to its Partners.
The Managing General Partner shall be responsible for supervising the winding up
and liquidation and shall dispose of the Company's property as promptly as is
consistent with obtaining its fair market value. In the discretion of the
Managing General Partner, a pro rata portion of the amounts that otherwise would
be distributed to the Partners or winding up may be (a) withheld to provide a
reasonable reserve for unknown or contingent liabilities of the Company; or (b)
distributed to a trust created for the benefit of the Partners for purposes of
liquidating Company assets, collecting amounts owed to the Company, or paying
contingent or unknown liabilities of the Company. Any amounts so withheld or
distributed to a trust shall be distributed to the Partners from time to time as
the Managing General Partner deems it to be practicable in the same proportions
such amounts would have been distributed to the Partners had they not been
withheld or distributed to such a trust. Notwithstanding anything to the
contrary in Article V, (i) at the end of the day immediately prior to the date
of any Distribution of the proceeds of the disposition of the Company Property
and the other assets of the Company pursuant to Section 14.3, the books of the
Company shall close and the Company's items of income, gain, loss and deduction
for the period ending on such day shall be allocated among the Partners in the
manner provided in clause (ii) of this sentence and (ii) for any Liquidation
Year, the Company's items of income, gain, loss and deduction shall be allocated
among the Partners in a
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manner such that each Partner's Capital Account shall equal the amount such
Partner would receive as a Distribution if all assets of the Company as of such
day were sold for cash equal to the Carrying Value thereof for federal income
tax purposes, and all Company liabilities were satisfied to the extent required
by their terms, and the net assets of the Company were distributed in full to
the Partners pursuant to Section 6.1.1, all as of such day, computed after the
distributions pursuant to Section 6.1 have been made for the period ending on
such day and taking into account any required reduction in a Distribution
pursuant to Section 6.1.2 or Section 6.3.
14.3 ORDER OF DISTRIBUTION OF PROCEEDS OF LIQUIDATION. The proceeds of
the disposition of the Company Property and the other assets of the Company
shall be distributed in the following order of priority:
(a) FIRST, to creditors, including Partners who are creditors
(other than in respect of the Access Debenture), to the extent permitted by law,
in satisfaction of Company Liabilities;
(b) SECOND, until Limited Partners Recoupment occurs and to each
of the Limited Partners to the extent of any positive balance in their
respective Capital Accounts;
(c) THIRD, pro rata and PARI PASSU to the repayment in full of
principal and unpaid and accrued interest on the Access Debenture, if at the
time not converted;
(d) FOURTH, to the General Partners to the extent of any
positive balances in their respective Capital Accounts; and
(e) FIFTH, to all Partners, pro rata and PARI PASSU in
accordance with their respective Sharing Percentages.
Liquidation proceeds shall be paid 90 days after the date of liquidation. Such
distributions shall be in cash or Property (which need not be distributed
proportionately) or partly in both, as determined by the Managing General
Partner and shall be made only with the unanimous consent of the Partners or the
consent of the Partner receiving the same.
ARTICLE XV
AMENDMENT
15.1 AMENDMENTS GENERALLY. Subject to this Agreement and the Schedules
hereto may be amended only if approved by a Majority Vote of the Partners;
PROVIDED, that this Agreement and the Schedules hereto may not be amended in any
way which materially and adversely affects any Partner's economic or governance
rights or in a manner which discriminates against any Partner without the
consent of such Partner. Notwithstanding the foregoing, the Managing General
Partner shall have the right to amend SCHEDULE A-2 or SCHEDULE A-4 from time to
time to reflect any Disposition of one or more Partnership Interests that has or
have otherwise been effected in compliance with the applicable provisions of
this Agreement.
15.2 AMENDMENTS BY MANAGING GENERAL PARTNER. Notwithstanding Section
15.1, this Agreement
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<PAGE>
may be amended from time to time by the Managing General Partner as permitted by
Section 2.9 and also to cure any ambiguity or correct or supplement any
provisions of this Agreement that may be inconsistent with any other provisions
of this Agreement, or correct any printing or clerical errors or omissions;
PROVIDED, that, such amendment is not adverse to the interest of any Partner.
ARTICLE XVI
ARBITRATION
16.1 ARBITRATION PROCEDURE. In the event of any dispute or controversy
arising out of or in connection with this Agreement, or the breach of this
Agreement, including any as to its validity or enforceability (a "Dispute"),
any Partner may notify the other Partners of such Dispute (the "Dispute Notice")
and the Partners shall use commercially reasonable efforts to attempt to resolve
such Dispute in good faith keeping in mind the expense of an arbitration
proceeding in accordance with this Article XVI. If the Partners cannot agree
within 30 days after the delivery of the Dispute Notice, such dispute shall be
resolved by a panel composed of three arbitrators (the "Panel") one of whom
shall be selected by the Managing General Partner and one of whom shall be
selected by the Partner affected by the Dispute, each of such two to be selected
within 15 days from the expiration of the foregoing 30-day period. The two
arbitrators so selected shall promptly name the third arbitrator comprising the
Panel. The Managing General Partner and the Partner affected by the Dispute
shall jointly instruct the Panel in writing to reach a decision with regard to
the Dispute within 20 days following the appointment of the Panel. The
arbitration proceeding shall take place in New York City unless otherwise
directed by the Panel. The Panel's written decision shall be final and binding
on the Company and all of the Partners. Judgment upon any award rendered may be
entered in any federal or state court having jurisdiction. The costs of any
such arbitration shall be borne equally by the parties involved and each shall
bear its own attorneys' fees and costs, unless the Panel deems such allocation
of costs to be inequitable, in which event the Panel may allocate the costs of
arbitration and related attorneys' fees and expenses among the parties involved
or the Company as it determines to be equitable under the circumstances.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 RIGHTS OF CREDITORS AND THIRD PARTIES. This Agreement is entered
into among the Company and the Partners for the exclusive benefit of the
Company, its Partners, and their permissible successors and assignees. This
Agreement is expressly not intended for the benefit of any creditor of the
Company or any other Person, other than the Partners and their permissible
successors and assigns in accordance with the provisions of this Agreement.
Except and only to the extent provided by applicable statute, no such creditor
or third party shall have any rights under this Agreement or any agreement
between the Company and any Partner with respect to any Capital Contribution or
otherwise.
17.2 NOTIFICATION. Any Notification to the Company shall be at the
address of the Company as set forth in Section 2.6. Any Notification to a
Partner shall be at the address of such Partner set forth on SCHEDULE A-1 or
such other mailing address of which such Partner shall give Notification to the
Managing General Partner. Any Notification shall be deemed to have been duly
given if personally delivered or sent by United States mails or by
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<PAGE>
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.
17.3 GOVERNING LAW. This Agreement and the obligations of the Partners
hereunder shall be interpreted, construed and enforced in accordance with the
internal laws of the State of Delaware without regard to the principles of
conflicts of laws.
17.4 ENTIRE AGREEMENT. This Agreement, the Investment Agreement and the
Management Agreement contain the entire agreement among the parties hereto
relative to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto. No variations, modifications, or changes
herein or hereof or therein or thereof shall be binding upon any party hereto
except as expressly provided herein or therein.
17.5 WAIVER. No consent or waiver, express or implied, by any Partner to
or of any breach or default by any other Partner in the performance by such
other Partner of its obligations hereunder shall be deemed or construed to be a
consent or waiver to or of any other breach or default in the performance by
such other Partner of the same or any other obligation of such Partner
hereunder. Failure on the part of any Partner to complain of any act or failure
to act of any other Partner or to declare any other Partner in default,
irrespective of how long such failure continues, shall not constitute a waiver
by such Partner of its rights hereunder.
17.6 SEVERABILITY. If any provision of this Agreement or the application
thereof to any Person or circumstances shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other Persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
17.7 TERMINOLOGY. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders; the singular shall include the plural, and vice versa. Titles of
Articles and Sections are for convenience of reference only, and neither limit
nor amplify the provisions of the Agreement itself, and all references herein to
Articles, Sections or subdivisions thereof shall refer to corresponding
Articles, Sections or subdivisions thereof of this Agreement unless specific
reference is made to such Articles, Sections or subdivisions of another document
or instrument. The word "including" shall mean "including without limitation."
17.8 BINDING AGREEMENT. Subject to the restrictions on transfers and
encumbrances set forth herein, this Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, administrators,
successors and assigns.
17.9 CONFIDENTIALITY. Except as required by law, including without
limitation, the rules and regulations of the Securities and Exchange Commission
or of any self-regulatory organization, and except for disclosures to attorneys,
advisors, accountants and other agents who are bound by obligations of
confidentiality to the Company,
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<PAGE>
each Partner will hold all non-public information furnished to it relating to
the Company in confidence and will not disclose such non-public information to
any third party nor use the same for any purpose without the prior written
consent of the Managing General Partner. Prior to making any disclosure of any
non-public information, any Partner will give the Managing General Partner
reasonable notice of such disclosure and the reasons therefor.
17.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all the parties have not signed the
same counterpart.
II. EFFECTIVENESS OF THIS AGREEMENT
This Agreement shall become effective only upon the consummation of the
Closing under and as defined in the Investment Agreement and upon the further
execution of this Agreement by New Partners.
III. MISCELLANEOUS
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Delaware without reference to such State's principles of
choice of law.
This Agreement constitutes the entire agreement among the parties
pertaining to the subject matter of this Agreement and supersedes all prior and
contemporaneous agreements and understandings of the parties in connection
herewith, including the Prior Partnership Agreement.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which taken together shall
constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
GENERAL PARTNERS:
AMERICA'S HEALTH NETWORK, L.L.C.
By:
-----------------------------------------
Name:
------------------------
Title:
-----------------------
AMERICA'S HEALTH NETWORK, INC.
By:
-----------------------------------------
Name:
------------------------
Title:
-----------------------
AMERICA'S INTERACTIVE HEALTH, INC.
By:
-----------------------------------------
Name:
------------------------
Title:
-----------------------
LIMITED PARTNERS:
ACCESS HEALTH, INC.
By:
-----------------------------------------
Name:
------------------------
Title:
-----------------------
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<PAGE>
ALLEN & COMPANY INCORPORATED
By:
-----------------------------------------
Name:
------------------------
Title:
-----------------------
MEDICAL INNOVATION FUND II, A
LIMITED PARTNERSHIP
By:
-----------------------------------------
Name:
------------------------
Title:
-----------------------
AMANDEX LIMITED
By:
-----------------------------------------
Name:
------------------------
Title:
-----------------------
SC FUNDAMENTAL VALUE FUND, L.P.
By: SC Fundamental Inc.,
Its General Partner
By:
-----------------------------------------
Name: Neil H. Koffler
-------------------------
Title: Treasurer
------------------------
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<PAGE>
SC FUNDAMENTAL VALUE BVI, LTD.
By: SC-BVI Partners,
Its Investment Advisor
By: SC Fundamental BVI Inc.,
Its Managing General Partner
By:
-----------------------------------------
Name: Neil H. Koffler
-------------------------
Title: Treasurer
------------------------
--------------------------------------------
Paul William Hobby
RICHARD L. SCOTT REVOCABLE TRUST,
Dated December 14, 1993
By:
-----------------------------------------
Name: Richard L. Scott
----------------------------
Title: Trustee
---------------------------
FRANCES ANNETTE SCOTT REVOCABLE
TRUST, Dated December 14, 1993
By:
-----------------------------------------
Name: Frances Annette Scott
----------------------------
Title: Trustee
---------------------------
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<PAGE>
THE RICHARD L. AND F. ANNETTE SCOTT
FAMILY PARTNERSHIP
By:
-----------------------------------------
Name:
-------------------------------
Title:
------------------------------
- -----------------------------------------------
David T. Vandewater
- -----------------------------------------------
Todd B. Richter
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<PAGE>
SCHEDULE A-1
GENERAL PARTNERS
America's Health Network, L.L.C.
2500 Universal Studios Plaza
Orlando, Florida 32819
AHN Media, Inc.
Vandewater Corp.
LIMITED PARTNERS
<TABLE>
<CAPTION>
<S> <C>
Access Health, Inc. SC Fundamental Value Fund, L.P.
11020 White Rock Road c/o Siegler, Collery & Co.
Rancho Cordova, California 95670 712 Fifth Avenue, 19th Floor
New York, New York 10019
Allen & Company Incorporated ID# 13-3563962
711 Fifth Avenue
New York, New York 10022
ID# 13-617976 SC Fundamental Value BVI, Ltd.
Citco Fund Services
Medical Innovation Fund II, A Limited Partnership Corporate Center
c/o Medical Innovation Partners P.O. Box 31106SMB
9900 Bren Road East, Suite 421 West Bay Road
Minnetonka, Minnesota 55343-9667 Grand Cayman
ID# 41-1736834 Cayman Island
Amandex Limited Paul William Hobby
Oak Walk 2131 San Felipe
St. Peter Houston, Texas 77019
Jersey JE3 7EF SSN# ###-##-####
Channel Islands
</TABLE>
<PAGE>
SCHEDULE A-1
(CONT'D)
NEW PARTNERS
Richard L. Scott Revocable Trust
c/o
Frances Annette Scott Revocable Trust
c/o
The Richard L. and F. Annette Scott
Family Partnership
c/o
David T. Vandewater
Todd B. Richter
<PAGE>
SCHEDULE A-2
SHARES OWNED; CAPITAL CONTRIBUTION
Outstanding Shares as Capital
of the Effective Date Contribution
General Partners --------------------- ------------
- ----------------
AHN LLC 293,962 Series C $ 9,600,018
AHN, Inc. 212 Series A 9,000
AIHI 24 Series A 1,000
Limited Partners
- ----------------
Access Health, Inc. 36,745 Series B 5,000,000
Allen & Company Incorporated 20,210 Series B 2,750,000
Medical Innovation Fund II, 14,698 Series B 2,000,000
a Limited Partnership
Amandex Limited 7,349 Series B 1,000,000
SC Fundamental Value Fund, L.P. 3,675 Series B 500,000
SC Fundamental Value BVI, Ltd. 3,675 Series B 500,000
Paul William Hobby 1,836 Series B 250,000
Total Series B 88,188 Series B
Richard L. Scott Revocable Trust 130,320 Series A 5,529,625
Frances Annette Scott Revocable Trust 260,639 Series A 11,059,250
The Richard L. and F. Annette Scott 130,320 Series A 5,529,625
Family Partnership
<PAGE>
SCHEDULE A-2
(CONT'D)
SHARES OWNED; CAPITAL CONTRIBUTION
Outstanding Shares as Capital
of the Effective Date Contribution
--------------------- ------------
Limited Partners
- ----------------
David T. Vandewater 58,836 Series A 2,496,500
Todd B. Richter 8,249 Series A 350,000
Total Shares Outstanding 970,750
Reserved for future issuance
- ----------------------------
Holder of Contingent Interest 150,000 Series D
Reserved Optionholders 50,000 Series E
<PAGE>
SCHEDULE A-3
LIMITED PARTNERS' DATA
as of September 30, 1997
<TABLE>
<CAPTION>
Limited Partner's Preferred Limited Partner's Unrecovered
Limited Partner Capital Amount Preferred Capital Amount*
- --------------- --------------------------- -----------------------------
<S> <C> <C>
New Partners $25,000,000 $25,000,000
Access Health, Inc. 5,000,000 5,598,836
Allen & Company 2,750,000 3,079,360
Paul William Hobby 250,000 279,942
SC Fundamental Value BVI, Ltd. 500,000 559,884
SC Fundamental Value Fund, L.P. 500,000 559,884
Amandex Limited 1,000,000 1,119,767
Medical Innovation Fund II, A 2,000,000 2,239,534
Limited Partnership
Allen & Company Incorporated 2,750,000 3,079,360
</TABLE>
- -----------------
* Preferred Capital Amount calculated at 8% of Capital contributed from April
18, 1996 (date money funded into escrow) to June 30, 1997 except for New
Partners.
<PAGE>
SCHEDULE A-4
SHARING PERCENTAGES
Outstanding as of
the Effective Date Fully Diluted Basis*
General Partners ------------------ --------------------
- ----------------
AHN LLC 30.2819% 29.3962%
AHN, Inc. 0.0218% 0.0212%
AIHI 0.0025% 0.0024%
Limited Partners
- ----------------
Access Health, Inc. 3.7852% 6.5995%
Allen & Company Incorporated 2.0819% 2.0210%
Medical Innovation Fund II, 1.5141% 1.4698%
a Limited Partnership
Amandex Limited 0.7669% 0.7389%
SC Fundamental Value Fund, L.P. 0.3786% 0.3675%
SC Fundamental Value BVI, Ltd. 0.3786% 0.3675%
Paul William Hobby 0.1892% 0.1837%
Richard L. Scott Revocable Trust 13.4247% 13.0320%
Frances Annette Scott Revocable Trust 26.8492% 26.0639%
The Richard L. and F. Annette Scott 13.4247% 13.0320%
Family Partnership
David T. Vandewater 6.0609% 5.8836%
Todd B. Richter 0.8498% 0.8249%
- ----------------
*Giving effect to conversion of the Access Debentures.
<PAGE>
EXHIBIT 11.1
ACCESS HEALTH, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
PRIMARY:
Weighted average common shares outstanding..................................... 11,000 16,747 17,854
Common equivalent shares from stock options using the treasury stock method
(using average market price)................................................. -- 1,755 1,506
--------- --------- ---------
Shares used in per share calculations (1)...................................... 11,000 18,502 19,360
--------- --------- ---------
--------- --------- ---------
Net income (loss).............................................................. $ (681) $ 1,094 $ 4,618
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share (1)................................................ $ (0.06) $ 0.06 $ 0.24
--------- --------- ---------
--------- --------- ---------
FULLY DILUTED:
Weighted average common shares outstanding..................................... 11,000 16,747 17,854
Common equivalent shares from stock options using the treasury stock method
(using year-end market price, if higher than average market price)........... -- 2,005 1,652
--------- --------- ---------
Shares used in per share calculations (1)...................................... 11,000 18,752 19,506
--------- --------- ---------
--------- --------- ---------
Net income (loss).............................................................. $ (681) $ 1,094 $ 4,618
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share (1)................................................ $ (0.06) $ 0.06 $ 0.24
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Shares used in per share calculations have been adjusted for three-for-two
stock split
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
listed below of our report dated October 27, 1997, with respect to the
consolidated financial statements and schedule of Access Health, Inc. included
in this annual report (Form 10-K) for the year ended September 30, 1997:
Form S-3 (No. 333-21423)
Form S-4 (No. 333-1393)
Form S-8 (No. 333-18163), pertaining to the 1989 Incentive Stock Plan, the
Supplemental Stock Plan, and the Informed Access Systems, Inc. Stock Option
Plan.
Form S-8 (No. 333-24561), pertaining to Access Health, Inc. Non-Qualified
Stock Option Agreements.
ERNST & YOUNG LLP
Sacramento, California
December 15, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the reference to our
report dated March 12, 1996, on the consolidated financial statements of
Informed Access Systems, Inc. as of and for the year ended December 31, 1995, by
Ernst & Young LLP, whose report dated October 27, 1997, is incorporated by
reference in the following Registration Statements: Form S-8 (No. 333-24561)
filed on April 4, 1997; Form S-4 (No. 333-1393) filed on October 11, 1996; Form
S-8 (No. 333-18163) filed on December 18, 1996 and Form S-3 (No. 333-21423)
filed on February 10, 1997.
Arthur Andersen LLP
Denver, Colorado,
December 15, 1997.
