<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1996 or
-----------------
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from __________ to__________
Commission File Number : 0-19758
Access Health, Inc.
(Exact name of registrant as specified in its charter)
Delaware 68-0163589
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11020 White Rock Road, Rancho Cordova, California 95670
(Address of principal executive offices) (Zip code)
(916) 851-4000
(Registrant's telephone number, including area code)
Access Health Marketing, Inc.
(Former name)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
Number of shares of Common Stock Outstanding at January 31, 1997: 17,823,323
shares
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Access Health, Inc.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets - September 30, 1996
and December 31, 1996...................................... 4
Condensed consolidated statements of operations - three months
ended December 31, 1995 and 1996........................... 5
Condensed consolidated statements of cash flows - three months
ended December 31, 1995 and 1996........................... 6
Notes to condensed consolidated financial statements......... 7
Item 2. Management's discussion and analysis of financial
condition and results of operations....................... 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities.................................. 15
Item 4. Submission of Matters to a Vote of Securities Holders.. 15
Item 6. Exhibits and Reports on Form 8-K....................... 16
SIGNATURE........................................................ 17
2
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PART 1. FINANCIAL INFORMATION
3
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Access Health, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share and share amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1996
------------- ------------
<S> <C> <C>
Assets:
Current assets:
Cash and equivalents.................................. $26,533 $ 25,372
Available-for-sale securities......................... 14,126 16,933
Accounts and licenses receivable, net of
allowance for doubtful accounts of $756
($750 at September 30, 1996)......................... 12,944 12,372
Income taxes receivable............................... 1,917 1,917
Prepaid expenses...................................... 2,009 1,211
Other current assets.................................. 1,073 1,439
-------- --------
Total current assets................................ 58,602 59,244
Property and equipment, net........................... 16,512 16,445
Purchased intangibles, net of accumulated
amortization of $4,475 ($4,327 at
September 30, 1996).................................. 3,478 3,330
Investment in AHN..................................... 5,000 5,000
Other assets.......................................... 700 855
-------- --------
$84,292 $ 84,874
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable...................................... $ 4,314 $ 3,767
Accrued payroll and related expenses.................. 3,413 3,243
Accrued integration and restructuring costs........... - 6,186
Other accrued expenses................................ 4,980 3,587
Notes payable to related parties...................... 1,500 2,015
Current portion of long-term debt..................... 599 637
Deferred revenues..................................... 4,500 3,605
-------- --------
Total current liabilities.......................... 19,306 23,040
Long-term debt.............................................. 1,344 1,190
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 December 31, 1996)........ 10,995 -
Stockholders' equity:
Preferred stock, $.001 par value-5,000,000
shares authorized, no shares issued and
outstanding.......................................... - -
Common stock, $.001 par value-75,000,000
shares authorized, 17,609,942 shares
issued and outstanding (13,684,927 at
September 30, 1996).................................. 14 18
Additional paid-in capital............................ 58,182 71,744
Deferred stock compensation........................... (443) -
Retained earnings..................................... (5,106) (11,118)
-------- --------
Total stockholders' equity........................... 52,647 60,644
======== ========
$84,292 $ 84,874
======== ========
</TABLE>
See accompanying notes.
4
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Access Health, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
------------------------------------------
1995 1996
------------------ ---------------------
<S> <C> <C>
Revenues:
Personal health management services.. $11,281 $21,872
Licensing and support services....... 2,538 2,769
------------------ ---------------------
Total revenues................... 13,819 24,641
Costs and expenses:
Cost of revenues:
Personal health management
services........................ 6,952 11,040
Licensing and support services... 1,157 1,128
Product and other development........ 1,128 2,356
Sales and marketing.................. 1,788 2,338
General and administrative........... 1,568 2,367
Transaction costs.................... - 6,345
Integration and restructuring costs.. - 6,961
------------------ ---------------------
Total costs and expenses......... 12,593 32,535
------------------ ---------------------
Income (loss) from operations........... 1,226 (7,894)
Other income............................ 242 379
------------------ ---------------------
Income (loss) before income taxes....... 1,468 (7,515)
Provision (credit) for income taxes..... 1,243 (1,503)
------------------ ---------------------
Net income (loss)....................... $ 225 $(6,012)
================== =====================
Net income (loss) per share............. $0.01 $ (0.34)
================== =====================
Shares used in per share calculations... 16,792 17,570
================== =====================
</TABLE>
See accompanying notes.
5
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Access Health, Inc.
Condensed Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Equivalents
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
---------------------------------------
1995 1996
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $ 225 ($ 6,012)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Allowance for doubtful accounts ............ 103 6
Depreciation and amortization............... 729 1,338
Deferred stock compensation................. -- 443
Common stock issued for services
rendered................................... -- 2,233
Common stock issued in consideration
for discharge of obligation................ 50 --
Changes in:
Accounts receivable........................ (1,677) 566
Prepaid expenses and other current
assets.................................... (445) 432
Accounts payable........................... 322 (547)
Accrued payroll and related expenses....... (109) (170)
Accrued integration and restructuring costs - 6,186
Other accrued expenses..................... 2,537 (1,393)
Notes payable to related parties........... -- 515
Deferred revenues.......................... 183 (895)
--------------- ----------------
Net cash provided by operating
activities............................... 1,918 2,702
Cash flows from investing activities:
Purchase of available-for-sale
securities, net............................. (479) (2,807)
Purchase of property and equipment........... (1,929) (1,123)
(Increase) decrease in other assets.......... (5) (155)
--------------- ----------------
Net cash used by investing
activities............................... (2,413) (4,085)
--------------- ----------------
Cash flows from financing activities:
Payment of long-term debt.................... (698) (116)
Sale of common stock......................... 29,577 338
--------------- ----------------
Net cash provided by financing
activities............................... 28,879 222
--------------- ----------------
Net increase in cash and equivalents.......... 28,384 (1,161)
Cash and equivalents at beginning of
period....................................... 10,261 26,533
--------------- ----------------
Cash and equivalents at end of period......... $ 38,645 $ 25,372
=============== ================
</TABLE>
See accompanying notes.
6
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Access Health, Inc.
Notes to Condensed Consolidated Financial Statements
December 31, 1996
(Unaudited)
Note 1: Summary of Significant Accounting Policies
Interim Financial Statements
In the opinion of management the unaudited interim financial statements reflect
all adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the Company's consolidated financial position at December 31,
1996, consolidated results of operations for the three month periods ended
December 31, 1995 and 1996 and cash flows for the three month periods ended
December 31, 1995 and 1996. Results for the period ended December 31, 1996 are
not necessarily indicative of the results to be expected for the entire fiscal
year.
Revenue Recognition
Commercial revenues include personal health management services, which
consist of program membership, member communications and teleservicing fees
from the Company's Personal Health Advisor, FirstHelp and ASK-A-NURSE
contracts with managed care organizations, self-insured employers and
hospitals. Commercial revenues also include licensing and support services
related to the Company's ASK-A-NURSE, Cancer HELPLINK, Access Care Management
System, and LIFE MATCH products.
Program membership fees from Personal Health Advisor and FirstHelp contracts
are recognized ratably in accordance with contract terms on the basis of per-
member fees. Member communications fees are recognized upon the delivery of
services. Teleservicing fees are recognized in accordance with contract terms
on the basis of per-call fees or fees based on phone counselor staffing.
License revenues from ASK-A-NURSE, Cancer HELPLINK and FirstHelp are recognized
ratably over the term of the contract.
Support revenues are comprised of ASK-A-NURSE and Cancer HELPLINK support
revenue, LIFE MATCH software support revenue and direct marketing fees.
Revenue from support contracts and software maintenance contracts is deferred
when billed and recognized ratably over the contract term. Direct marketing
fees are recognized upon the delivery of services.
Product and Other Development Costs
Product and other development costs are expensed as incurred and consist
primarily of salaries, supplies and contract services related to the
development of the Company's products and services.
Integration and Restructuring Costs
Related to the mergers of Informed Access Systems, Inc. ("Informed Access") and
Clinical Reference Systems, Ltd. ("CRS"), these costs were recorded in the first
quarter of fiscal 1997 and included approximately $2,950,000 for severance and
related expenses, approximately $1,475,000 for elimination of redundant
technology, approximately $700,000 for discontinuation of facilities and
approximately $800,000 for disposal of assets.
Reclassifications
Certain reclassifications have been made to amounts reported for the prior
periods to conform with the December 31, 1996 presentation.
Net Income (Loss) Per Share
The Company's net income (loss) per share is based upon the weighted average
number of shares of common stock outstanding. Common stock issuable upon the
exercise of stock options and warrants has been included in the computation, to
the extent dilutive, using the treasury stock method. Common Stock issuable upon
the conversion of mandatorily redeemable convertible preferred stock has been
included in the computation to the extent dilutive, using the if-converted
method. Mandatorily redeemable convertible preferred stock was converted into
common stock in November 1996 in connection with the merger of Access Health and
Informed Access (Note 2).
Note 2: Business Combinations
During November 1996, the Company consummated business combinations with
Informed Access which included the exchange of 5,375,000 shares of Access Health
common stock (including 4,778,317 shares issued to Informed Access shareholders
and 596,683 shares reserved for future grant to Informed Access option holders)
and CRS, which included the exchange of 170,000 shares of Access Health common
stock. These business combinations were accounted for as pooling-of-interests,
and accordingly, the historical financial statements of the Company have been
restated to include the consolidated financial statements of Access Health,
Informed Access and CRS for all periods presented.
In connection with the business combinations, the Company incurred direct
transaction costs of approximately $6.3 million which were charged to
operations in the three months ended December 31, 1996.
The table below sets forth the combined revenues and net income (loss) for
the quarters ended December 31, 1995 and 1996 (in thousands):
<TABLE>
<CAPTION>
ACCESS HEALTH INFORMED ACCESS CRS
------------------------ ------------------------ -----------------------
PRE-MERGER POST-MERGER PRE-MERGER POST-MERGER PRE-MERGER POST-MERGER ADJUSTMENT COMBINED
---------- ----------- ---------- ----------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarter ended December 31,
1995:
Revenues............... $12,005 $ -- $ 1,453 $ -- $ 361 $ -- $ -- $ 13,819
Net income (loss)...... 1,384 -- (913) -- 74 -- (320) 225
Quarter ended December 31,
1996:
Revenues............... $12,681 $ 6,123 $ 3,433 $ 1,916 $ 230 $ 258 $ -- $ 24,641
Net income (loss)...... 2,387 (4,914) 44 (3,423) 19 (125) -- (6,012)
</TABLE>
The adjustments to the combined results of operations included in the table
above reflect the realization of the Informed Access net operating loss
carryover to the extent of Access Health deferred income tax liabilities which
will reverse in periods subsequent to the merger.
Note 3: Notes Payable to Related Parties
Notes payable to related parties arising from bonuses are comprised of notes
payable to members of management, who are also stockholders of the Company,
and are payable in installments in March 1997 and September 1997.
Note 4: Long-Term Debt
In May 1996, the Company signed a revolving credit agreement (the "Credit
Agreement") with a bank under which the Company may borrow up to $3 million
for qualifying equipment purchases. Interest on borrowings under the Credit
Agreement accrues at the bank's prime rate plus 0.50% (aggregating 8.75% as of
September 30, 1996) and is payable monthly. The Credit Agreement expires on
May 1, 1997, at which time any outstanding balance will be due and payable.
The Credit Agreement contains restrictive financial covenants which require
the Company to maintain specified levels of tangible net worth and maintain
specified minimum debt and earnings before interest and local taxes ratios.
Borrowings under the Credit Agreement would be unsecured. The Company has no
balances outstanding under the Credit Agreement at December 31, 1996.
The Company also has a term facility agreement (the "Term Agreement") whereby
the Company may borrow, in one or more borrowings, an amount not to exceed $2
million in the aggregate, subject to certain conditions set forth in the Term
Agreement. This commitment is in the form of a $680,000 note payable facility
and a $1,320,000 capital lease facility. At December 31, 1996, cumulative
borrowings under the note payable facility and capital lease facility aggregated
$1,455,000. Borrowings under the Term Agreement are secured by certain of the
Company's equipment, with an aggregate carrying value of approximately
$1,450,000 at December 31, 1996. The total remaining commitment under the Term
Agreement is approximately $124,000 as of December 31, 1996. Amounts payable
under the Term Agreement bear interest at 14.48%, are due at varying dates
through September 1999, and require monthly payments of principal and interest
totaling approximately $52,000. Amounts due under the note payable facility of
the Term Agreement are $180,000, $197,000 and $214,000 in fiscal 1997, 1998 and
1999, respectively.
In connection with the Term Agreement, the Company issued warrants to the
lender in October 1995 and May 1996. Under the terms of the warrants, the
lender may acquire a number of shares of Series C preferred stock based on
specified formulas set forth in the warrant agreements. The warrants are
exercisable for ten years after the date of issuance or five years after the
date an initial public offering is completed by Informed Access, whichever is
longer. The value attributable to these warrants was not material. The warrants
were converted into warrants to purchase common stock as a result of the
merger with Access Health (Note 2).
Note 5: Income Taxes
The Company's net operating loss carryforwards of approximately $11 million as
of September 30, 1996 expire between 2007 and 2011 for both federal and state
purposes. The Company also has approximately $161,000 of Research & Development
tax credits available which expire between 2007 and 2011. Certain provisions of
the Internal Revenue Code of 1980, as amended, may limit the net operating loss
carryforwards and tax credits available for use in any given year if certain
events occur.
Note 6: Commitments
Operating Leases
The Company leases its offices under the terms of operating leases. Annual
minimum rental payments for fiscal 1997, 1998, 1999, 2000, 2001 and thereafter
are $2,552,000, $2,347,000, $1,735,000, $1,448,000, $1,394,000 and $118,000,
respectively. Rental expenses are recorded on a straight-line basis over the
respective lease terms.
Note 7: Mandatorily Redeemable Convertible Preferred Stock
Informed Access was authorized to issue shares of mandatorily redeemable
preferred stock from time to time in one or more series of designations, rights,
preferences and limitations established by its board of directors. Each share
of mandatorily redeemable preferred stock was converted into one share of common
stock of Access Health upon completion of the merger.
In July 1996, Informed Access issued a warrant to a customer to purchase 64,548
shares of Series C mandatorily redeemable preferred stock at $15.49 per share.
The warrants became exercisable in November 1996. The warrants were converted
into warrants to purchase common stock of Access Health as a result of the
merger.
Note 8: Stockholders' Equity
Common Stock
During May and July 1996 certain options were granted with exercise prices below
the applicable fair market value (as determined by an independent appraisal) on
the date of grant, resulting in deferred stock compensation of approximately
$476,000. The deferred stock compensation was to be amortized into expense
ratably over the four year vesting term of the related options; however, because
such options became 100% vested as a result of the merger in November 1996, the
unamortized balance of deferred stock compensation was recorded as an expense in
the quarter ended December 31, 1996.
Employee Stock Options
Informed Access option holders became Access Health option holders upon
completion of the merger in November 1996 (See Note 2). As of December 31, 1996,
36,093 shares of common stock have been purchased through the exercise of
options by former Informed Access option holders and options to purchase 560,500
shares of common stock remain outstanding and are all exercisable.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 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 IN THE COMPANY'S ANNUAL REPORT AS FILED ON FORM
10-K.
General. The Company completed mergers with Informed Access Systems, Inc.
("Informed Access") and Clinical Reference Systems, LTD ("CRS") during November
1996. Both transactions were accounted for as pooling-of-interests and,
accordingly, Management's Discussion and Analysis of Financial Condition and
Results of Operations refers to the historical financial statements of the
Company that have been restated to include the consolidated financial statements
of Access Health, Informed Access and CRS, and the combined results of
operations and financial position of all three companies for the periods
presented.
Results of Operations
- ---------------------
Revenues. Revenues consist of revenues from personal health management
services, which consist of program membership, member communications and
teleservicing fees from the Company's Personal Health Advisor, First Help and
ASK-A-NURSE Contracts with managed care organizations, self-insured employers
and hospitals, and licensing and support services related to the Company's
ASK-A-NURSE, Cancer HelpLink, FirstHelp, Access Care Management System, LIFE
MATCH products and patient education modules. Revenues increased from $13.8
million during the three months ended December 31, 1995 to $24.6 million during
the three months ended December 31, 1996.
Revenues from personal health management services increased from $11.3 million
during the first quarter of fiscal 1996 to $21.9 million during the first
quarter of fiscal 1997 because the number of members enrolled under the
Company's contracts increased during these periods. As of December 31, 1996,
approximately 16.5 million members were enrolled compared to approximately 6.7
million members enrolled as of December 31, 1995. Revenue from the Company's
contracts is recognized ratably in accordance with contract terms on the basis
of per-member fees.
Revenues from licensing and support services increased from $2.5 million during
the first quarter of fiscal 1995 to $2.8 million during the first quarter of
fiscal 1996. Licensing and support services revenues include licensing
implementations and program support activities for FirstHelp, the ASK-A-NURSE(R)
family of products, Cancer HelpLink(R), Access Care Management System(R)
("ACMS"), the LIFE MATCH(R) family of products and the CRS patient education
modules. The Company expects licensing and support services revenue to remain at
approximately the same level as in fiscal 1996 or decline during fiscal 1997 due
to changes taking place in the market*.
Cost of revenues. The cost of personal health management services revenues
includes the costs of operating the Company's services centers, on-going client
consultation and charges for providing PHA member communications services. The
gross margins for personal health management services were 38.4% during the
first quarter of fiscal 1996 and 49.5% during the first quarter of fiscal 1997.
Gross margins for personal health management services improved during the three
month period ended December 31, 1996 compared to the prior period due to
economies of scale resulting from growth in enrollment, as previously discussed.
The cost of licensing and support services revenues includes the costs of
license implementations, on-going client consultation, annual users'
conferences, advertising materials, and other support services for FirstHelp,
ASK-A-NURSE, Cancer HelpLink, Access Care Management System ("ACMS"), LIFE
MATCH and the CRS patient education modules licensees. The gross margin
percentages for licensing and support services increased from 54.4% during the
first quarter of fiscal 1996 to 59.3% during the first quarter of fiscal 1997
because of quarter to quarter fluctuations in licensing revenue.
Product and other development expenses. Product and other development expenses
totaled $1.1 million, or 8.2% of revenues, during the first quarter of fiscal
1996 and $2.4 million, or 9.6% of revenues, during the
8
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first quarter of fiscal 1997. Increases in product development expenses relate
to the Company's continuation of new product development efforts to meet
consumer needs beyond triage and health care information for general
populations. The Company expects that product and other development expenses
will increase in fiscal 1997 as the Company continues to make investments in
personal health management products and could also increase as a percentage of
revenues*.
Sales and marketing expenses. Sales and marketing expenses were $1.8 million,
or 12.9% of revenues, and $2.3 million, or 9.5% of revenues, during the first
quarter of fiscal 1996 and 1997, respectively. Sales and marketing expenses
increased as a result of the strengthening of the marketing and advertising
program and the addition of sales resources to focus on the employer market.
Sales and marketing expenses declined as a percentage of revenues due to the
growth in personal health management services revenues as previously discussed.
Sales and marketing expenses may increase in fiscal 1997 as the Company
continues to pursue its strategy of building brand awareness for its personal
health management products*.
General and administrative expenses. General and administrative expenses were
$1.6 million, or 11.3% of revenues, and $2.4 million, or 9.6% of revenues,
during the first quarter of fiscal 1996 and 1997, respectively. The increase
from fiscal 1996 to fiscal 1997 reflects stepped costs associated with building
the infrastructure necessary to manage a larger and rapidly growing company.
Transaction costs. Transaction costs were charges recorded in the first quarter
of fiscal 1997 associated directly with the merger of the Company with Informed
Access and included professional fees of approximately $5,150,000.
Integration and restructuring costs. Related to the mergers of Informed Access
and CRS, these costs were recorded in the first quarter of fiscal 1997 and
included approximately $2,950,000 for severance and related expenses,
approximately $1,475,000 for elimination of redundant technology and
approximately $1,500,000 for discontinuation of facilities and disposal of
assets.
Income (Loss) from operations. Operating income decreased from $1.2 million
during the first quarter of fiscal 1996 to a loss of $7.9 million during the
first quarter of fiscal 1997 due to the $13.3 million incurred for transaction,
integration and restructuring costs related to the mergers with Informed
Access and CRS.
Other income. The Company generates interest and other income from cash
balances and available-for-sale securities. Other income increased
from $242,000 to $379,000 in the first quarter of fiscal 1996 and 1997,
respectively, because the secondary stock offering completed near the end of the
first quarter of fiscal 1996 increased cash available for investments.
Effects of inflation and changing prices. Inflation and changing prices have
not had a material effect on the Company's operations and, at current levels,
are not expected to in future years*.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1996, the Company held cash and equivalents and available-
for-sale securities totaling $42.3 million compared to a balance of $40.7
million as of September 30, 1996. Cash provided by operations during the first
three months of fiscal 1997 was $2.7 million compared with $1.9 million for the
first three months of fiscal 1996.
During January 1997, the Company invested an additional $5.0 million in the form
of a debenture in America's Health Network, L. P. ("AHN"), a new 24-hour, 7 day
a week cable television channel devoted to consumer health care information. The
Company has invested a total of $10 million in both debt and equity in AHN.
9
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The Company believes its current capital resources are adequate to fund cash
needs for anticipated operating levels for at least the next twelve months*. The
Company also may use capital resources in connection with business expansion
that may include the acquisition of complementary product lines or businesses
during fiscal 1997 or beyond*.
- ------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will meet
the Company's current expectations. Investors are strongly encouraged to review
the section entitled "Risk Factors That May Affect Future Operating
Performance."
Risk Factors That May Affect Future Operating Performance
- ---------------------------------------------------------
Ability to Secure Additional Contracts and Expand and Retain Existing Contracts.
The Company's ability to increase revenues and profitability is largely
dependent on the Company's ability to secure additional contracts and to retain
and expand existing contracts. In addition, the Company's revenues are affected
by the timing of member enrollment under new contracts. The Company could be
adversely affected by the termination or non-renewal of any of the Company's
contracts, or by renegotiation of the terms of contracts, particularly if the
affected contracts cover a large number of members or represent a significant
portion of the Company's health systems services revenue. In June 1995, the
Company renegotiated a PHA contract which reduced the number of members and
during fiscal 1995 renegotiated two health systems services contracts. Any
factors adversely affecting the market for the Company's products, including
factors outside of the Company's control, such as adverse publicity or
government regulatory action, would have a material adverse effect on the
Company.
Dependence on Principal Customers. The Company's PHA contracts cover members
ranging from approximately 3,000 members to 2.2 million members per contract and
include one contract for 2.2 million members, one contract for 2.0 million
members, one contract for 1.6 million members, one contract for 1.3 million
members and one contract for 1.0 million members. In fiscal 1996, the Company's
three largest customers accounted for approximately 14.5%, 10.3%, and 10.0% of
the Company's total revenues and the Company's top five customers, in the
aggregate, accounted for approximately 48.5% of the Company's total revenues.
After an initial term of approximately one to four years, contracts generally
can be terminated upon 60 to 180 days notice to the Company. Two of the three
largest contracts are up for renewal in fiscal 1997, and the third in fiscal
1998. The Company's contracts could also be subject to early termination by its
customers if the Company were not in compliance with any applicable government
regulation. The termination, non-renewal or renegotiation of any of such
agreements could have a material adverse effect on the Company's operating
results. See "Government Regulation."
Uncertainty of Future Operating Results. During fiscal 1994 the Company incurred
significant expenses related to the start-up of its PHA and including the hiring
and training of personnel and the expansion of infrastructure and sales and
marketing programs. Because revenues from PHA and FirstHelp products were not
sufficient to cover these start-up expenses, operating losses were sustained in
fiscal 1994 and 1995. The Company returned to profitability in 1996 as
additional members were enrolled in PHA and FirstHelp. There can be no assurance
that the Company's revenues and profitability will continue to increase during
fiscal 1997 and beyond. The Company may incur significantly increased sales,
marketing and promotional expenses during fiscal 1997, and may devote additional
resources to the further development of PHA or other new products. To the extent
that the Company incurs increased expenses, the Company's operating results will
be adversely affected unless revenues and operating margins increase
sufficiently to offset such expenditures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Competition. The market for the Company's products and services is highly and
increasingly competitive. There are a number of competitors that offer products
or services that compete with some or all of those offered by the Company.
Existing and potential clients may also evaluate the Company's products or
services against
10
<PAGE>
internally developed programs. Increased competition could result in pricing
pressure and margin erosion. In its existing business and as the Company offers
new products or services, or enters new markets, it may face increased
competition from competitors, some of which may have substantially greater
financial, marketing and technical resources than the Company. There can be no
assurance that the Company will continue to compete successfully. While the
Company cannot predict the effect of future competition, increased competition
would adversely impact the Company's revenues and rate of growth and operating
results, particularly if the Company encountered price competition.
Changing Health Care Market and New Product Development. The health care
industry has undergone significant changes in recent years, and changes are
expected to continue. Containing health care costs has become a national
priority. As a result, the health care industry has become increasingly
dominated by managed health care plans, causing cost containment pressure to
rise. To address these changes, the Company shifted its business focus in 1993
to payors from providers and developed its personal health management services.
There is no assurance that the Company's existing products and services will
achieve continued success or that its new products and services will succeed.
There also can be no assurance that continued industry change will not adversely
affect the Company's ability to compete. Continued change may cause the Company
to incur significant product development and marketing expenses. The Company's
future success will depend on the Company's ability to adapt to the changing
needs of the health care industry.
Call Center Operations. After completion of the merger with Informed Access,
the Company maintains member service and data centers ("call centers") in Rancho
Cordova, California; Chicago, Illinois; Broomfield, Colorado; and Phoenix,
Arizona. The Company's operations depend on the adequate functioning of the
computer and telephone systems in its call centers. Although the Company has
taken precautions to provide for power, computer, and telephone systems
redundancy, there can be no assurance that a fire or other disaster affecting
the centers or an equipment failure would not disable the Company's systems for
a significant period of time. Any significant damage to the Company's facilities
or an equipment failure could have a material adverse effect on the Company's
results of operations.
Management of Growth. The Company has experienced rapid growth in recent years.
Continued rapid growth may place a significant strain on the Company's
management, telecommunications systems, operational infrastructure, working
capital and financial and management control systems. In order for the Company
to manage its client base successfully, management will be required to
anticipate the changing demands of their growing operations and to adopt systems
and procedures accordingly. Failure to effectively implement or maintain such
systems and controls could adversely affect the Company's business, results of
operation and financial condition. Further, there can be no assurance that the
Company's current information systems, telecommunications systems and
operational infrastructure will be adequate for its future needs, or that Access
Health will be successful in implementing new systems. Failure to upgrade its
information systems, telecommunications systems and operational infrastructure
or unexpected difficulties encountered with these systems during expansion could
adversely affect the Company's business, financial condition and results of
operations.
Acquisition-Related Risks. The Company has grown in substantial part through
mergers and acquisitions. The process of integrating an acquired company's
business into the Company's operations may result in unforeseen operating
difficulties and expenditures and may absorb significant management attention
that would otherwise be available for the ongoing development of the Company's
business. Moreover, there can be no assurance that the anticipated benefits of
an acquisition will be realized. The Company intends to evaluate acquisitions of
complementary product lines and businesses as part of its business strategy.
Future acquisitions by the Company may result in potentially dilutive issuances
of equity securities, the use of the Company's cash resources, the incurrence of
debt and increased goodwill, and contingent liabilities and amortization
expenses related to goodwill and other intangible assets, which could materially
adversely affect the Company's operating results and financial condition. In
addition, acquisitions involve numerous risks, including difficulties in the
assimilation of the operations and the products of the acquired companies, in
managing diverse geographic operations, the diversion of management's attention
from other business concerns, risks of entering markets in which the Company has
no or limited direct prior experience and the potential loss of key employees of
the acquired company. The inability of the Company's management to respond to
changing business conditions
11
<PAGE>
effectively, including the changes associated with its acquired businesses and
product lines, could have a material adverse effect on the Company's results of
operations.
Uncertainties Relating to Integration of Operations. The Company recently
consummated the acquisition of Informed Access Systems, Inc. and Clinical
Reference Systems, Ltd. with the expectation that the mergers will result in
beneficial synergies for the combined companies. Achieving the anticipated
benefits of the mergers will depend in part upon whether the integration of the
two companies' businesses with the Company is achieved in an efficient,
effective and timely manner, and there can be no assurance that this will occur.
The successful combination of the two companies with Access Health will require,
among other things, the timely integration of the companies' respective product
and service offerings, coordination of their respective sales and marketing and
research and development efforts and integration of the companies' respective
telecommunications systems with Access Health. The difficulties of such
integration may be increased by the necessity of coordinating geographically
separated organizations. There can be no assurance that integration will be
accomplished smoothly, on time or successfully. Integrating the operations of
the two companies with Access Health could have a material adverse effect of
Access Health's business and future operating results. For example, the process
could: (i) interrupt Access Health's business resulting in lower revenues or
slower revenue growth and/or increased operating expenses or inability to obtain
synergies; (ii) divert management attention; (iii) place further pressure on
Access Health's officers; and (iv) result in additional administrative expense.
Failure to effectively accomplish the integration of the two companies'
operations with Access Health could have a material adverse effect on Access
Health's business, results of operations and financial condition.
Key Employees and Management of Change. The Company's success depends on a
limited number of key management employees, none of whom is subject to post-
employment non-competition restrictions other than certain officers of Informed
Access. The loss of the services of one or more of these employees could have a
material adverse effect on the Company. The Company believes that its continued
success also will depend in large part on its ability to attract and retain
highly-skilled management, marketing, sales and nursing personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be successful in attracting and retaining such personnel as necessary.
Furthermore, the Company's ability to manage change and growth successfully will
require the Company to continue to improve its management expertise as well as
its financial systems and controls.
Volatility of Stock Price. The Company believes that factors such as
announcements of developments related to the Company's business, including the
signing or loss of a major contract, changes in market analyst estimates and
recommendations for the Company's Common Stock, changes in government regulation
and general conditions in the health care industry and the economy could cause
the price of the Company's Common Stock to fluctuate, perhaps substantially. In
addition, in recent years stock prices have experienced significant price
fluctuations.
Government Regulation. The health care industry is subject to extensive and
evolving government regulation at both the Federal and state levels relating to
many aspects of the Company's and its clients' businesses in use of the
Company's programs, including the provision of health care services,
teleservicing, health care referral programs, and health maintenance
organizations and other similar plans. These statutes and regulations in many
cases predate the development of telephone-based health care information and
12
<PAGE>
other interstate transmission and communication of medical information and
services. The literal language of certain of these statutes and regulations
governing the provision of health care services, including the practice of
nursing and the practice of medicine, could be construed by regulatory
authorities to apply to certain of the Company's activities, including without
limitation teleservicing activities which use California, Illinois, Arizona and
Colorado registered nurses to provide out-of-state personal health management
services such as nursing assessments and information regarding appropriate
sources of care and treatment time frames. These statutes and regulations could
also apply to certain activities of the Company's health service customers when
operating the Company's programs. The Company has not been made, nor is it aware
that any of its clients with respect to operation of the Company's programs, or
its nurse employees or any other organization providing out-of-state
teleservicing have ever been made, the subject of such requirements by a
regulatory authority. In addition, the literal language of the statutes and
regulations governing health maintenance organizations and other plans that
provide or arrange for the provision of health care services for a prepaid or
periodic charge could be construed by regulatory authorities to apply to certain
activities of the Company that are provided on a per-member, per-month basis.
The Company has not been made, nor is it aware that any other company providing
out-of-state teleservicing has ever been made, the subject of such requirements
by a regulatory authority. However, if regulators seek to enforce any of the
foregoing statutory and regulatory requirements, the Company, its employees
and/or its clients could be required to obtain additional licenses or
registrations, to modify or curtail the operation of the Company's programs, to
modify the method of payment for the Company's programs, or to pay fines or
incur other penalties.
The payment of remuneration to induce the referral of health care business has
been a subject of increasing governmental and regulatory focus in recent years.
Section 1128B(b) of the Social Security Act (sometimes referred to as the
"Federal anti-kickback statute") provides criminal penalties for individuals or
entities that knowingly and willfully offer, pay, solicit or receive
remuneration in order to induce referrals for items or services for which
payment may be made under the Medicare and Medicaid programs and certain other
government-funded programs. The Social Security Act provides authority to the
Office of the Inspector General through civil proceedings to exclude an
individual or entity from participation in the Medicare and state health
programs if it is determined any such party has violated Section 1128B(b) of the
Social Security Act. Regulations have been promulgated specifying certain
payment practices which will not be subject to criminal prosecution or civil
exclusion. These regulations, commonly referred to as the "safe harbor"
regulations, do not expand the scope of the Federal anti-kickback statute, and
the fact that a business arrangement does not fit within a safe harbor does not
mean the business arrangement violates the Federal anti-kickback statute. The
Company's programs do not meet the requirements of the safe harbor for referral
services. A number of states in which the Company operates have anti-kickback
statutes similar to the Federal statute as well as statutory and regulatory
requirements governing referral agencies and regulating franchising and business
opportunity ventures. In addition, the Federal government and a number of states
have enacted statutes which contain outright prohibitions on referrals for
specified services which are made by referring providers who have an ownership
interest in, or compensation arrangement with, the entity to which the referral
is made. If the Company or the use of its products and services were to be
found in violation of such statutes, the Company or its clients could be
required to modify or curtail the operation of the Company's programs, or to pay
fines or incur other penalties, and the Company's clients could be excluded from
participation in the Medicare and Medicaid programs and could be precluded from
charging fees and obtaining reimbursement for specified services.
There can be no assurance that the Company or the use of its products and
services will not be subject to review or challenge by government regulators
under any of the foregoing statutes and regulations that apply to health care
services and products. In addition, additional laws and regulations could be
enacted in the future that would regulate the Company or the use of its products
and services. Any government investigative or enforcement actions with respect
to the Company or the use of its products or services could generate adverse
publicity irrespective of the final outcome, and could have a material adverse
effect on the Company.
13
<PAGE>
Risk Management. In recent years, participants in the health care industry,
including physicians, nurses and other health care professionals, have been
subject to an increasing number of lawsuits alleging malpractice, product
liability and related legal theories, many of which involve large claims and
significant defense costs. Due to the nature of its business, the Company could
become involved in litigation regarding the telephone information given by its
registered nurses or those of its licensees with the risk of adverse publicity,
significant defense costs and substantial damage awards. The Company has
established policies and procedures that limit the information provided by its
registered nurses to that contained in its protocols and in other approved
reference sources. In connection with its teleservices operations, the Company
has a quality assurance program that includes real-time audits of calls and post
call reviews to monitor compliance with established policies and procedures.
Generally clients review and approve the Company's protocols and guidelines
prior to program implementation and do not modify them without medical approval.
To date, the Company has not been the subject of any claim involving either its
clinical assessment systems, the operation of its teleservicing centers or the
operation by hospital clients of on-site call centers. However, there can be no
assurance that claims will not be brought against the Company. Even if such
claims ultimately prove to be without merit, defending against them can be time
consuming and expensive, and any adverse publicity associated with such claims
could have a material adverse effect on the Company.
Intellectual Property. The Company regards its software, clinical nursing
assessment protocols and marketing and program operation materials as
proprietary and attempts to protect its intellectual property with patents,
copyrights, trademarks, trade secret laws and restrictions on disclosure,
copying and transferring title. Despite these precautions, it may be possible
for unauthorized third parties to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Not all of
the Company's technology is patented and existing copyright laws afford only
limited practical protection. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States, which could be a factor if the Company expands into
markets outside the United States.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
a) The Company's Certificate of Incorporation was amended on November
18, 1996 to increase the authorized number of shares of Access Health Common
Stock from 30,000,000 to 75,000,000 shares.
b) Not applicable.
c) On November 25, 1996 Access Health, Inc. exchanged 140,000 shares
of Common Stock of Access Health, Inc. for all of the outstanding shares of
Clinical Reference Systems, Ltd. ("CRS") in connection with the merger of CRS
and Access Health Colorado, Inc., a wholly-owned subsidiary of Access Health,
Inc., with CRS being the surviving corporation, in accordance with the terms
of the Agreement and Plan of Reorganization dated September 5, 1996 (the
"Reorganization Agreement") by and among the parties. There was no underwriter
involved with this transaction. Since the offering was a transaction not
involving any public offering, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended (the "Act") for the exemption from
registration. The facts relied upon to qualify for the Section 4(2) exemption
include: all offerees were employees or former employees of CRS; the former
shareholders of CRS were given the information necessary to make a sophisticated
decision regarding whether to merge with Access Health; such information was
substantially similar to the type of information that would be included in a
registration statement; the offerees were few in number and limited to the
former shareholders of CRS; there was no general solicitation; the offerees were
given the opportunity to ask questions and receive answers concerning the terms
and conditions of the merger and the opportunity to obtain additional
information; and the limitations on the resale of the securities were disclosed
to CRS shareholders prior to the exchange of the securities.
On December 1, 1996 Access Health, Inc. issued pursuant to an employment
agreement 2,000 shares of Common Stock to Thomas Gardner, a director and
executive officer of Access Health, Inc. The Company relied on Section 4(2) and
Rule 506 promulgated under the Act as an exemption from the requirement to
register these shares. The offering was a transaction not involving any public
offering. The facts relied upon to qualify for the Section 4(2) exemption
available include: Mr. Gardner is an executive officer and director of the
Company and has access to all material information necessary to make a decision
to invest in the Company and there were no other offerees.
The shares of Common Stock issued to the former shareholders of
Clinical Reference Systems, Ltd. and Thomas Gardner have subsequently been
registered on a Registration Statement on Form S-3 filed with the Commission on
February 10, 1997 (File No. 333-21423).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) A special meeting of stockholders was held on November 18, 1996.
b) Not applicable.
c) The matters voted upon at the meeting and the results of the
voting with respect to those matters were as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1) To approve the issuance of Access Health Common Stock
pursuant to the terms of the Merger Agreement with IAS, Inc. 8,433,522 182,596 7,129 2,201,851
2) To approve and adopt Certificate Amendment which increases the authorized number
of shares of Access Health Common Stock from 30,000,000 to 75,000,000 7,707,113 3,110,540 7,444 -
3) To approve an amendment to the Company's 1989 Incentive Stock Plan to increase
the number of shares reserved for issuance thereunder by 1,000,000 shares 6,292,959 2,651,190 11,038 1,869,910
</TABLE>
The foregoing matters are described in detail in the Registrant's definitive
proxy statement dated October 19, 1996 for the Special Meeting of Stockholders
held on November 18, 1996.
d) Not applicable.
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
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
3.1 (M) Amended and Restated Certificate of Incorporation
3.2 (M) Amended and Restated Bylaws
4.1 (M) Specimen Stock Certificate
4.2 (A) Registration Rights Agreement dated June 26, 1990 between Registrant and certain parties
named therein
4.3 (M) Shareholder's Representation Statement and Registration Rights Agreement dated as of
November 25, 1996 between Registrant and various investors
4.4 (M) Registration Rights Agreement dated November 18, 1996
10.1 (K) 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) Common Stock Purchase Option Agreement
10.15 (H) Registrant's 1995 Director Option Plan
10.16 (L) Registrant's 1996 Supplemental Stock Plan
10.17 (G) Employment Agreement with Jeremy J. Nobel, MD
10.18+ (I) Amended and Restated Agreement of Limited Partnership of AHN
10.19+ (I) Admission Agreement dated April 15, 1996
10.20+ (I) Partnership Interest Option Agreement dated April 15, 1996
10.21 (I) Line of Credit Note dated May 7, 1996
10.24 (M) Employment Agreement with Thomas E. Gardner dated December 1, 1996
10.25 Employment Agreement with Joseph P. Tallman dated November 18, 1996
21.1 (M) Listing of Subsidiaries of Registrant
</TABLE>
(A) Incorporated by reference to Registrant's Form S-1 Registration No.
33-44604.
(B) Incorporated by reference to Registrant's Form 10-K for the year
ended September 30, 1992.
(C) Incorporated by reference to Registrant's Form 10-Q for the quarter
ended March 31, 1993.
(D) Incorporated by reference to Registrant's Form 10-Q for the quarter
ended June 30, 1993.
(E) Incorporated by reference to Registrant's Form 10-K for the year
ended September 30, 1993.
(F) Incorporated by reference to Registrant's Form 10-K for the year
ended September 30, 1995.
(G) Incorporated by reference to Registrant's Form 10-K/A for the year
ended September 30, 1995.
(H) Incorporated by reference to Registrant's Form 10-Q for the quarter
ended December 31, 1995.
(I) Incorporated by reference to Registrant's Form 10-Q 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 10-K for the year
ended September 30, 1996.
+ -- Confidential treatment granted for portions of document
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.
16
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACCESS HEALTH, INC.
Date: February 12, 1997 /s/ John V. Crisan
--------------------
John V. Crisan
Senior Vice President and Chief
Financial Officer (principal financial
officer of Registrant)
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <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
3.1 (M) Amended and Restated Certificate of Incorporation
3.2 (M) Amended and Restated Bylaws
4.1 (M) Specimen Stock Certificate
4.2 (A) Registration Rights Agreement dated June 26, 1990 between Registrant and certain parties
named therein
4.3 (M) Shareholder's Representation Statement and Registration Rights Agreement dated as of
November 25, 1996 between Registrant and various investors
4.4 (M) Registration Rights Agreement dated November 18, 1996
10.1 (K) 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) Common Stock Purchase Option Agreement
</TABLE>
42
<PAGE>
<TABLE>
<C> <S>
10.15 (H) Registrant's 1995 Director Option Plan
10.16 (L) Registrant's 1996 Supplemental Stock Plan
10.17 (G) Employment Agreement with Jeremy J. Nobel, MD
10.18+ (I) Amended and Restated Agreement of Limited Partnership of AHN
10.19+ (I) Admission Agreement dated April 15, 1996
10.20+ (I) Partnership Interest Option Agreement dated April 15, 1996
10.21 (I) Line of Credit Note dated May 7, 1996
10.24 (M) Employment Agreement with Thomas E. Gardner dated December 1, 1996
10.25 Employment Agreement with Joseph P. Tallman dated November 18, 1996
21.1 (M) Listing of Subsidiaries of Registrant
</TABLE>
(A) Incorporated by reference to Registrant's Form S-1 Registration No.
33-44604.
(B) Incorporated by reference to Registrant's Form 10-K for the year
ended September 30, 1992.
(C) Incorporated by reference to Registrant's Form 10-Q for the quarter
ended March 31, 1993.
(D) Incorporated by reference to Registrant's Form 10-Q for the quarter
ended June 30, 1993.
(E) Incorporated by reference to Registrant's Form 10-K for the year
ended September 30, 1993.
(F) Incorporated by reference to Registrant's Form 10-K for the year
ended September 30, 1995.
(G) Incorporated by reference to Registrant's Form 10-K/A for the year
ended September 30, 1995.
(H) Incorporated by reference to Registrant's Form 10-Q for the quarter
ended December 31, 1995.
(I) Incorporated by reference to Registrant's Form 10-Q 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 10-K for the year
ended September 30, 1996.
+ -- Confidential treatment granted for portions of document
43
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, by and between Joseph P. Tallman (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 Executive Vice President, Access
Health, Inc. and President, Informed Access. Executive will report to Thomas E.
Gardner.
(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 $180,000 ("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:
-----------
(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
<PAGE>
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 50% of Base Compensation. Awards under such
Plan will range from 0% to 50% based upon Executive's performance. In addition,
at the time of Executive's first bonus payment following the increase in Base
Compensation pursuant to Section 2, Executive will be eligible to receive an
additional bonus equal to the difference between Target Base Compensation and
Base Compensation during the period from the inception of this Agreement through
the Effective Date of the increase in Base Compensation. Performance goals will
be established within 3 months of the date hereof and annually thereafter
consistent with Company's and Informed Access's business strategy. Executive
also shall be entitled to participate in pension plans, savings or profit-
sharing plans, deferred compensation plans, supplemental retirement or excess-
benefit
-2-
<PAGE>
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 60,000 shares of Common Stock of the Company, effective
as of the Effective Date pursuant to Stock Option Agreements in the in the forms
attached hereto as EXHIBIT 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 Executive for
such expenses upon presentation of an itemized account and appropriate
supporting documentation, all in accordance with the Company's generally
applicable policies.
-3-
<PAGE>
6. Term of Employment.
------------------
(a) Basic Rule. The Company agrees to continue Executive's
----------
employment, and Executive agrees to remain in the employ of the Company, during
the term of this Agreement pursuant to the provisions of this Agreement.
(b) Termination by the Company. The Company may terminate
--------------------------
Executive's employment, with Thirty (30) days advance notice in writing, only
for Cause or as a result of Death or Disability.
(i) Termination Without Cause. If the Company terminates
-------------------------
Executive's employment during the term of this Agreement for any reason
whatsoever, including a Constructive Termination, and other than voluntary
termination of employment or Termination for Cause, the provisions of Section
7(a) shall apply.
(ii) Termination for Cause. If the Company terminates
---------------------
Executive's employment for Cause during the term of this Agreement, the
provisions of Section 7(b) shall apply.
(iii) Termination on Death or Disability. If the Company
----------------------------------
terminates Executive's employment as a result of Executive's Death or
Disability, the provisions of Section 7(c) shall apply.
(c) Voluntary Termination by the Executive. The Executive may
--------------------------------------
terminate Executive's employment voluntarily by giving the Company thirty (30)
days advance notice in writing, at which time the provisions of Section 7(b)
shall apply. However, if the Executive terminates Executive's employment
pursuant to this Section 6(c) as a result of the occurrence of any of the events
set forth in the definition of a Constructive Termination, the provisions of
Section 7(a) shall apply, provided the Executive has provided written notice to
the Company reasonably specifying the reasons why one of such events in the
definition of a Constructive Termination has occurred and the Company has not
cured such event within twenty (20) days after receipt of such notice.
(d) Waiver of Notice. Any waiver of notice shall be valid only if it
----------------
is made in writing and expressly refers to the applicable notice requirement in
this Section 6.
7. Payments Upon Termination of Employment.
---------------------------------------
(a) Payments Upon Termination Pursuant to Section 6(b)(i) and
---------------------------------------------------------
Constructive Termination. If, during the term of this Agreement, the
- ------------------------
Executive's employment is terminated by the Company pursuant to Section 6(b)(i)
or voluntarily by the Executive under Section 6(c) as a result of a Constructive
Termination, the Executive shall be entitled to receive the following:
(i) Severance Payment. The Company shall continue to pay to the
-----------------
Executive his Base Compensation for the 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
-4-
<PAGE>
the month in which the date of employment termination occurs; provided, that if
the termination occurs prior to the effectiveness of the increase in Base
Compensation contemplated by Section 2, Target Base Compensation shall be used
to calculate the Severance Payment. Payment of the Severance Payment shall be
terminated if Executive materially breaches the terms of the Non-Competition
Agreement attached as EXHIBIT B hereto (the "Non-Competition Agreement"), and
fails to cure such breach within 30 days of the Company's notice.
(ii) Stock Options. All stock options will become immediately
-------------
vested and remain exercisable for the remainder of the applicable option term.
Executive acknowledges that incentive stock option treatment under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), will not be
available unless such options are exercised within the time prescribed in the
Code.
(iii) Method of Payment. The Severance Payment shall be made in
-----------------
bi-weekly payments during the Severance Period; provided, that if the
termination occurs following a Change of Control the severance payment shall be
paid in a lump sum within three (3) days after such termination.
(iv) Health and Welfare Benefits. The Company shall continue
---------------------------
to provide health and welfare benefits for the duration of the Severance Period.
Such benefits will be discontinued to the extent that Executive receives similar
benefits in connection with new employment. Executive will also be entitled to
such payments and benefits as may be provided under applicable benefit plans and
programs of the Company.
(v) Payment in Lieu of Contract Damages. The Severance Payment
-----------------------------------
shall be in lieu of any further payments to the Executive and any further
accrual of benefits with respect to periods subsequent to the date of the
employment termination.
(vi) No Duty to Mitigate. The Executive shall not be required
-------------------
to mitigate the amount of any payment contemplated by this Section 7(a) (whether
by seeking new employment or in any other manner).
(b) Termination By Company for Cause or Voluntary Termination. If
---------------------------------------------------------
the Executive's employment is terminated pursuant to Section 6(b)(ii) or
voluntarily (other than a Constructive Termination) pursuant to Section 6(c), no
compensation or payments will be paid or provided to Executive for the periods
following the date when such a termination of employment is effective.
Notwithstanding the preceding sentence, Executive's rights under the benefit
plans and option agreements of the Company shall be determined under the
provisions of those plans and agreements, provided Executive shall have three
(3) months from the date of termination of employment in which to exercise any
non-qualified stock option and three (3) months from the date of termination of
employment to exercise any incentive stock option in each case to the extent
such options are exercisable as of the date of termination.
-5-
<PAGE>
(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
------------------------
thirty-six (36) months following the Effective Date (the "Term").
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
-6-
<PAGE>
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.
(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.
-7-
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
ACCESS HEALTH, INC.
/s/ Joseph P. Tallman By: /s/ Thomas E. Gardner
- -------------------------------- ---------------------------------------
[EXECUTIVE]
Print Name: Thomas E. Gardner
------------------------------
Title: President and Chief Executive
-----------------------------------
Officer
-------
-8-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FISCAL YEAR
1997 QUARTER UNAUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,372
<SECURITIES> 16,933
<RECEIVABLES> 13,128
<ALLOWANCES> 756
<INVENTORY> 0
<CURRENT-ASSETS> 59,244
<PP&E> 24,717
<DEPRECIATION> 8,272
<TOTAL-ASSETS> 84,874
<CURRENT-LIABILITIES> 23,040
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 60,626
<TOTAL-LIABILITY-AND-EQUITY> 84,874
<SALES> 24,641
<TOTAL-REVENUES> 24,641
<CGS> 12,168
<TOTAL-COSTS> 12,168
<OTHER-EXPENSES> 20,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (379)
<INCOME-PRETAX> (7,515)
<INCOME-TAX> (1,503)
<INCOME-CONTINUING> (6,012)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,012)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
