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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
CARESCIENCE, INC.
(Name of Subject Company)
CARESCIENCE, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, NO PAR VALUE
(Title of Class of Securities)
141726109
(CUSIP Number of Class of Securities)
RONALD A. PAULUS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CARESCIENCE, INC.
3600 MARKET STREET
PHILADELPHIA, PA 19104
(215) 387-9401
(Name, address and telephone number of person
authorized to receive notices and communications on
behalf of the person(s) filing statement)
COPY TO:
MICHAEL H. FRIEDMAN, ESQ.
ROBERT B. MURPHY, ESQ.
PEPPER HAMILTON LLP
3000 TWO LOGAN SQUARE
PHILADELPHIA, PA 19103-2799
(215) 981-4000
[ ] CHECK THE BOX IF THE FILING RELATES SOLELY TO PRELIMINARY COMMUNICATIONS
MADE BEFORE THE COMMENCEMENT OF A TENDER OFFER
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ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company is CareScience, Inc., a Pennsylvania
corporation ("CareScience" or the "Company"). The address of the principal
executive office of the Company is 3600 Market Street, Philadelphia,
Pennsylvania 19104, and its telephone number is (215) 387-9401.
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (this "Schedule 14D-9"
or "Statement") relates is the common stock, no par value, of the Company (the
"Common Stock"). As of August 18, 2003, there were 13,291,461 shares of Common
Stock issued and outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
The filing person of this Statement is the subject company, CareScience.
The business address and telephone number of CareScience are as set forth in
Item 1 above.
This Statement relates to an offer (the "Offer") by Quovadx Inc., a
Delaware corporation ("Quovadx"), through its wholly owned subsidiary, Carlton
Acquisition Corp., a Pennsylvania corporation (the "Purchaser"), disclosed in a
Tender Offer Statement on Schedule TO ("Schedule TO"), dated August 21, 2003, to
exchange each outstanding share of Common Stock for (i) cash in the amount of
$1.40 and (ii) 0.1818 shares of Quovadx common stock, par value $0.01 per share
("Quovadx Common Stock"), upon the terms and subject to the conditions set forth
in a preliminary prospectus dated August 21, 2003 (the "Prospectus") contained
in a Registration Statement on Form S-4 filed by Quovadx with the Securities and
Exchange Commission ("SEC") on August 21, 2003 ("Registration Statement"), and
in the related letter of transmittal. The closing sale price of Quovadx Common
Stock on August 13, 2003, the last trading day before the Offer was announced,
was $3.80.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of August 13, 2003, between Quovadx, Purchaser and CareScience ("Merger
Agreement"). The Merger Agreement provides that, following the acquisition of
Common Stock pursuant to the Offer, the Purchaser will merge with and into
CareScience with CareScience continuing in existence as the surviving
corporation (the "Merger").
Under the terms of the Merger Agreement, at the effective time of the
Merger, each outstanding share of Common Stock that was not tendered pursuant to
the Offer and accepted by Quovadx (other than dissenting shares) will be
converted into the right to receive cash in the amount of $1.40 and 0.1818
shares of Quovadx Common Stock, without interest.
The Schedule TO indicates that the principal executive offices of Quovadx
and Purchaser are located at 6400 S. Fiddler's Green Circle, Suite 1000,
Englewood, Colorado 80111.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates with certain of its directors and executive officers
are, except as noted below, described in the Prospectus in the section
"Agreements Related to the Offer and the Merger," and is incorporated herein by
reference. Except as referred to herein or in an Information Statement prepared
by the Company and attached as Annex A (the "Information Statement"), pursuant
to Rule 14f-1 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") to the knowledge of the Company, as of the date hereof, there are no
material contracts, agreements, arrangements or understandings, or any actual or
potential conflicts of interest, between the Company or its affiliates and (1)
the Company, its executive officers, directors or affiliates or (2) Quovadx or
the Purchaser, or their respective officers, directors or affiliates.
Interests of Certain Persons in the Offer and Merger
Information with respect to the interests of certain persons in the Offer
and Merger, including directors and officers of CareScience, is included in the
Prospectus in the sections "Interests of CareScience Officers
and Directors in the Transaction," and "Agreements Related to the Offer and the
Merger," and is incorporated herein by reference.
The Merger Agreement
A summary of the material terms of the Merger Agreement in the section "The
Merger Agreement" in the Prospectus is incorporated herein by reference. The
description is qualified in its entirety by reference to the complete text of
the Merger Agreement which has been filed as Exhibit 2.1 to the Registration
Statement and is incorporated herein by reference.
Agreements Related to the Merger
A summary of the material terms of the CareScience Stockholder Tender and
Voting Agreement and the CareScience Affiliate Agreements is found in the
section "Agreements Related to the Offer and the Merger" in the Prospectus and
is incorporated herein by reference. The description is qualified in its
entirety by reference to the complete text of the agreements which have been
filed as Exhibits 2.2 and 2.3, respectively, to the Registration Statement and
are incorporated herein by reference.
Existing Indemnification; Directors' and Officers' Insurance
The articles of incorporation and bylaws of CareScience ("Charter
Documents") eliminate the personal liability of present and former directors to
CareScience for any breach of their fiduciary duty, other than for breaches of
the duty of loyalty to CareScience or for self-dealing, willful conduct or
recklessness. The Charter Documents also provide a right of indemnification to
each of CareScience's present and former directors and officers, to the fullest
extent permitted by Pennsylvania law, against any liability arising out of their
actions as a director or officer of CareScience. CareScience will advance fees
for the defense of any indemnified director or officer if he undertakes to repay
the advance if it is ultimately determined that he is not entitled to
indemnification. The Board of Directors may also provide for similar
indemnification of employees and agents of CareScience, though it is not
required to advance fees for their defense. The rights to indemnification
discussed above are not exclusive of any other rights the directors, officers,
employees or agents of CareScience may have under any contract with CareScience,
the Charter Documents, Pennsylvania law or otherwise.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
At a meeting held on August 13, 2003, the Board of Directors unanimously
voted to approve the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, and determined that the Merger Agreement,
the Offer and the Merger are advisable, fair to and in the best interests of the
shareholders of CareScience. The Board also authorized the senior members of the
Company's management to finalize and execute the Merger Agreement on behalf of
the Company. The CareScience directors unanimously voted to recommend that the
CareScience shareholders accept the Offer. A letter to CareScience shareholders
communicating the Board's recommendation accompanies these materials.
Background of the Offer
Information with respect to the background of the Merger is included in
Prospectus in the section "Background of the Offer and Merger," and is
incorporated herein by reference.
Reasons for the Offer and the Merger
Information with respect to the Company's reasons for the Offer and the
Merger is included in the Prospectus in the section "Reasons for the Offer and
the Merger -- CareScience's Reasons for the Offer and Merger," and is
incorporated herein by reference.
2
Opinion of CareScience's Financial Advisor
A description of the opinion of William Blair & Company, the financial
advisor of CareScience, is included in the Prospectus in the section "Opinion Of
CareScience's Financial Advisor," and is incorporated herein by reference.
ITEM 5. PERSON/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
A summary of the material provisions of the agreement between CareScience
and William Blair & Company, in its capacity as the Company's financial advisor,
is included in the Prospectus in the section "Opinion Of CareScience's Financial
Advisor," and is incorporated herein by reference.
StockTrans, Inc. is the exchange agent for the Offer and will be
responsible for the operation of the tender and exchange with holders of the
Common Stock. A summary of the material provisions of the agreement between
Quovadx and StockTrans, Inc. is included in the Prospectus in the section "The
Offer -- Fees and Expenses," and is incorporated herein by reference.
Information with respect to a description of the exchange agent and its role in
the Offer is included in the Prospectus in the sections "The Offer -- Exchange
of CareScience Shares; Delivery of Consideration" and "The Offer -- Procedures
for Tendering," and is incorporated herein by reference.
Except as set forth above, neither CareScience nor any person acting on its
behalf has employed, retained or compensated, or currently intends to employ,
retain or compensate, any person to make solicitations or recommendations to
CareScience shareholders on its behalf with respect to the Offer or the Merger.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
No transactions in the Common Stock during the past 60 days have been
effected by CareScience or, to the best of CareScience's knowledge, by any
executive officer, director, affiliate or subsidiary of CareScience.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as described or referred to in this Statement, no negotiation is
being undertaken or engaged in by CareScience in response to the Offer that
relates to or would result in (1) a tender offer or other acquisition of Common
Stock by CareScience, any of its subsidiaries or any other person, (2) an
extraordinary transaction, such as a merger, reorganization, or liquidation
involving CareScience or any of its subsidiaries, (3) a purchase, sale or
transfer of a material amount of assets of CareScience or any of its
subsidiaries or (4) any material change in the present dividend rate or policy,
or indebtedness or capitalization of CareScience.
Except as described or referred to in this Statement, there are no
transactions, resolutions of the Board of Directors, agreements in principle, or
signed contracts entered into in response to the Offer that would relate to one
or more of the matters referred to in the preceding paragraph.
ITEM 8. ADDITIONAL INFORMATION.
Information with respect to the dissenters' rights and antitakeover
provisions of Pennsylvania law are included in the Prospectus in the sections
"The Offer -- Purpose of the Offer; the Merger; Dissenters' Rights" and
"Comparison of Rights of Holders of Quovadx Common Stock and CareScience Common
Stock -- State Antitakeover Statutes," and are incorporated herein by reference.
Purchaser's Designation of Persons to be Elected to the Board of Directors
The Information Statement is being furnished in connection with the
possible designation by Quovadx or Purchaser, under the Merger Agreement, of
persons to be elected to the Company's Board of Directors constituting a
majority of the Board other than at a meeting of the CareScience shareholders.
3
ITEM 9. MATERIALS TO BE FILED AS EXHIBITS.
The following exhibits are filed herewith or incorporated herein by
reference:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(a)(1) Prospectus dated August 21, 2003 (incorporated by reference
to the preliminary prospectus included in the Registration
Statement on Form S-4 filed by Quovadx, Inc. on August 21,
2003).
(a)(2) Letter of Transmittal (incorporated by reference to Exhibit
99.1 to the Registration Statement on Form S-4 filed by
Quovadx, Inc. on August 21, 2003).
(a)(3) Letter to holders of Common Stock of CareScience, dated
August 21, 2003.*
(a)(4) Information Statement Pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and Rule 14f-1 thereunder
(attached as Annex A to this Schedule 14D-9).*
(a)(5) Joint Press Release of CareScience and Quovadx, Inc., dated
August 14, 2003 (incorporated by reference to CareScience's
filing pursuant to Rule 425 under the Securities Act on
August 14, 2003).
(e)(1) Agreement and Plan of Merger by and among Quovadx, Inc.,
Carlton Acquisition Corp. and CareScience, Inc., dated as of
August 13, 2003 (incorporated by reference to Exhibit 2.1 to
the Registration Statement on Form S-4 filed by Quovadx,
Inc. on August 21, 2003).
(e)(2) Tender and Voting Agreement, dated as of August 13, 2003, by
and among Quovadx, Inc. and David J. Brailer and entities
affiliated with him (incorporated by reference to Exhibit
2.2 to the Registration Statement on Form S-4 filed by
Quovadx, Inc. on August 21, 2003).
(e)(3) Opinion of William Blair & Company, L.L.C. to the Board of
Directors of CareScience, Inc., dated August 13, 2003
(attached as Annex B to this Schedule 14D-9).*
(e)(4) Amended and Restated Employment Agreement dated April 11,
2003 between CareScience, Inc. and J. Bryan Bushick
(incorporated by reference to Exhibit 10.1 to the
CareScience, Inc. Annual Report on Form 10-K/A for the year
ended December 31, 2002).
(e)(5) Amended and Restated Employment Agreement dated April 11,
2003 between CareScience, Inc. and Ronald A. Paulus
(incorporated by reference to Exhibit 10.2 to the
CareScience, Inc. Annual Report on Form 10-K/A for the year
ended December 31, 2002).
(e)(6) Amended and Restated Employment Agreement dated April 11,
2003 between CareScience, Inc. and Robb L. Tretter
(incorporated by reference to Exhibit 10.3 to the
CareScience, Inc. Annual Report on Form 10-K/A for the year
ended December 31, 2002).
(e)(7) Amended and Restated Employment Agreement dated April 11,
2003 between CareScience, Inc. and Thomas H. Zajac
(incorporated by reference to Exhibit 10.4 to the
CareScience, Inc. Annual Report on Form 10-K/A for the year
ended December 31, 2002).
(e)(8) CareScience, Inc. Amended and Restated 1995 Equity
Compensation Plan (incorporated by reference to Exhibit 10.1
to the Quarterly Report on Form 10-Q of CareScience, Inc.
for the quarter ended September 30, 2001).
(e)(9) CareScience, Inc. Amended and Restated 1998 Time Accelerated
Restricted Stock Option Plan (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q of
CareScience, Inc. for the quarter ended June 30, 2001).
---------------
* Included in materials mailed to shareholders of CareScience.
4
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
CARESCIENCE, INC.
By: /s/ RONALD A. PAULUS
------------------------------------
Ronald A. Paulus
President and Chief Executive
Officer
Date: August 21, 2003
5
ANNEX A
CARESCIENCE, INC.
3600 MARKET STREET
PHILADELPHIA, PA 19104
(215) 387-9401
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about August 21, 2003, as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 ("Schedule
14D-9") to holders of shares of common stock, no par value (the "Common Stock"),
of CareScience, Inc., a Pennsylvania corporation ("CareScience" or the
"Company"). Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in Schedule 14D-9 (including the exhibits thereto)
and are incorporated herein by reference. This Information Statement is being
provided in connection with the possible appointment of persons designated by
Quovadx, Inc., a Delaware corporation ("Quovadx"), or Carlton Acquisition Corp.,
a Pennsylvania corporation and a wholly-owned subsidiary of Quovadx
("Purchaser"), to at least a majority of the seats on the Board of Directors of
the Company (the "Board"). Such designation is to be made pursuant to Section
1.3 of the Agreement and Plan of Merger, dated as of August 13, 2003 (the
"Merger Agreement"), among Quovadx, Purchaser and the Company.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. YOU ARE URGED TO READ THIS INFORMATION STATEMENT CAREFULLY. YOU ARE
NOT, HOWEVER, REQUIRED TO TAKE ANY ACTION.
Pursuant to the Merger Agreement, Purchaser will commence an exchange offer
(the "Offer") to acquire all of the issued and outstanding shares of Common
Stock. The Offer is scheduled to expire at midnight, on September 18, 2003,
unless extended to a date not beyond January 31, 2004. In connection with the
Offer, Quovadx filed a Registration Statement on Form S-4 (the "Registration
Statement"), to register the shares of Quovadx common stock to be issued in the
Offer and Merger. The Registration Statement includes a form of preliminary
prospectus dated August 21, 2003 ("Prospectus"), to be delivered to the holders
of Common Stock. Following the successful completion of the Offer, and subject
to certain other conditions, Purchaser will be merged with and into the Company
and the Company shall become a wholly owned subsidiary of Quovadx (the
"Merger"). The Merger Agreement, a copy of which is filed as Exhibit 2.1 to the
Registration Statement, is incorporated herein by reference.
The information contained in this Information Statement concerning Quovadx,
Purchaser and the designees of Purchaser to the Board has been furnished to the
Company by Quovadx, and the Company assumes no responsibility for the accuracy
or completeness of such information.
THE QUOVADX DESIGNEES
If Purchaser acquires at least eighty percent of the outstanding Common
Stock pursuant to the Offer, the Merger Agreement provides that Purchaser will
be entitled to designate a number of directors to the Board sufficient to give
Purchaser a proportionate representation on the Board ("Purchaser's
Proportionate Representation"). The Purchaser's Proportionate Representation
will be equal to that number of directors (rounded up to the next whole number)
that equals the product of the total number of directors on the Board multiplied
by the percentage that the aggregate number of shares of Common Stock acquired
by Purchaser bears to the total number of shares of Common Stock issued and
outstanding. Upon request by Purchaser, the Company will increase the size of
the Board or use its best efforts to secure the resignations of the number of
directors necessary to provide Purchaser with the Purchaser's Proportionate
Representation and will cause Purchaser's designees to be so elected; provided,
however, that until the effective time of the Merger, the
Board will have at least two directors who were directors as of the signing of
the Merger Agreement (or failing the availability of one of such directors, a
designee of the other such director).
Quovadx and Purchaser have advised the Company that Purchaser's designees
to the Board (the "Quovadx Designees") will be among the persons listed in Annex
F attached to the Prospectus and incorporated herein by reference. Annex F
includes the name, address, principal occupation or employment and five-year
employment history with respect to each such person. Quovadx and Purchaser have
advised the Company that each of the persons listed in Annex F has consented to
serve as a director of the Company if appointed or elected. Quovadx and
Purchaser have advised the Company that none of these persons currently is a
director of, or holds any positions with, the Company. Quovadx and Purchaser
have advised the Company that, to their knowledge, none of the persons listed on
Annex F or any of their affiliates beneficially owns any equity securities or
rights to acquire any such securities of the Company, nor has any such person
been involved in any transaction with the Company or any of its directors,
executive officers or affiliates that is required to be disclosed pursuant to
the rules and regulations of the Securities and Exchange Commission (the "SEC")
other than with respect to transactions between Quovadx, Purchaser and the
Company that have been described in the Registration Statement.
Quovadx and Purchaser have advised the Company that, to the knowledge of
Quovadx and Purchaser, none of the persons listed on Annex F is an adverse party
to the Company in any material legal proceedings or has a material interest that
is adverse to the Company in any such proceedings. Quovadx and Purchaser have
also advised the Company that, to the knowledge of Quovadx and Purchaser, none
of the persons listed in Annex F was, during the last five years, convicted in a
criminal proceeding (excluding traffic violations and similar misdemeanors) or
was a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was, or is, subject to
a judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any violation
of such laws or is involved in any other legal proceeding which is required to
be disclosed under Item 401(f) of Regulation S-K promulgated by the SEC.
It is expected that the Quovadx Designees will assume office following the
acceptance by Purchaser of the specified minimum number of shares of Common
Stock pursuant to the Offer. The directors of Purchaser immediately prior to the
effective time of the Merger shall be the directors and officers of the
surviving corporation at the effective time, each to hold office in accordance
with the certificate of incorporation and by-laws of the surviving corporation
until successors are duly elected or appointed and qualified.
THE COMPANY
INFORMATION CONCERNING THE COMMON STOCK
The Common Stock is the only security outstanding of the Company having the
right to vote for the election of the directors at a shareholder meeting if one
were to be held. Each share of Common Stock entitles its record holder to one
vote on all matters submitted to the shareholders for approval. As of the close
of business on August 18, 2003, there were 13,291,461 shares of Common Stock
issued and outstanding.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of August 18, 2003, by the following
individuals or groups:
- each person, or group of affiliated persons, known by the Company to
beneficially own more than 5% of the outstanding Common Stock;
- each the Company's current directors;
- the Company's chief executive officer and each of its four most highly
compensated executive officers in the fiscal year ended December 31,
2002; and
- all of the Company's executive officers and directors as a group.
A-2
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE OF
NAME AND ADDRESS BENEFICIALLY OWNED OUTSTANDING SHARES
---------------- ------------------- ------------------
J.H. Whitney III/Whitney Strategic Partners
III(1)........................................... 2,639,948 19.9%
177 Broad Street
Stamford, CT 06901
Health Net, Inc.(2)................................ 2,519,094 19.0
21600 Oxnard Street, Suite 2000
Woodland Hills, CA 91367
Federated Investors, Inc.(3)....................... 1,328,780 10.0
Federated Investors Tower
5800 Corporate Drive
Pittsburgh, PA 15222
J.P. Morgan Chase & Co.(4)......................... 942,800 7.1
270 Park Avenue
New York, NY 10017
David J. Brailer(5)................................ 2,469,605 18.6
Ronald A. Paulus(6)................................ 886,605 6.7
J. Bryan Bushick(7)................................ 149,168 1.1
LeRoy E. Jones(8).................................. 13,750 *
Thomas H. Zajac(9)................................. 244,302 1.8
Edward N. Antoian(10).............................. 186,494 1.4
Bruce M. Fried(11)................................. 5,000 *
C. Martin Harris(12)............................... 41,500 *
Jeffrey R. Jay(13)................................. 2,647,448 19.9
Christopher R. McCleary(14)........................ 41,430 *
All directors and executive officers as a group
(12 persons)(15)................................. 4,179,892 31.4
--------------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) Based on Schedule 13G/A filed by J.H. Whitney III, L.P. on February 10,
2003. J.H. Whitney Equity Partners III, L.L.C. is the sole general partner
of J.H. Whitney III, L.P. and Whitney Strategic Partners III, L.P. The
following individuals are the managing members of J.H. Whitney Equity
Partners III, L.L.C.: Joseph D. Carrabino, Jr., Peter M. Castleman, James
H. Fordyce, Jeffrey R. Jay, William Laverack, Jr., Daniel J. O'Brien and
Michael R. Stone. Each of such individuals disclaims beneficial ownership
of such shares except to the extent of his proportionate interest.
(2) Based on Form 4 filed by Health Net, Inc. on August 18, 2003.
(3) Based on Schedule 13G/A filed by Federated Investors, Inc. on July 9, 2003.
(4) Based on Schedule 13G/A filed by J.P. Morgan Chase & Co. on February 14,
2003.
(5) Based on Form 4 filed by David J. Brailer on July 8, 2003. Includes 733,709
shares held by trust, 12,800 shares held by Matthew F. Rhoa as custodian
for Preston Rhoa Brailer and 10,000 shares of Common Stock issuable upon
exercise of stock options within 60 days.
(6) Includes 144,276 shares held by trust and 10,000 shares of Common Stock
issuable upon exercise of stock options within 60 days.
(7) Includes 112,563 shares of Common Stock issuable upon exercise of stock
options within 60 days.
(8) Includes 13,750 shares of Common Stock issuable upon exercise of stock
options within 60 days.
(9) Includes 203,438 shares of Common Stock issuable upon exercise of stock
options within 60 days.
A-3
(10) Includes 65,999 shares of Common Stock owned by Zeke Investment Partners.
Mr. Antoian is a partner of Zeke Investment Partners. Includes 39,500
shares of Common Stock issuable upon exercise of stock options within 60
days.
(11) Includes 5,000 shares of Common Stock issuable upon exercise of stock
options within 60 days.
(12) Includes 39,500 shares of Common Stock issuable upon exercise of stock
options within 60 days.
(13) Includes 7,500 shares of Common Stock issuable upon exercise of stock
options within 60 days and consists of 2,577,831 shares of Common Stock
owned by J.H. Whitney III, L.P. and 62,117 shares of Common Stock owned by
Whitney Strategic Partners III, L.P., which are affiliates. Dr. Jay is a
managing member of J.H. Whitney Equity Partners III, LLC, which is the
general partner of both entities. Dr. Jay disclaims beneficial ownership of
the shares held by these entities except to the extent of his pecuniary
interest in such entities.
(14) Includes 22,500 shares of Common Stock issuable upon exercise of stock
options within 60 days.
(15) Includes 512,251 shares of Common Stock issuable upon exercise of stock
options within 60 days.
Other than the Merger Agreement, to the knowledge of the Company, there are
no arrangements, including any pledge by any person of Common Stock, the
operation of which may, at a subsequent date, result in a change of control of
the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, all statements of beneficial ownership required
to be filed with the SEC in the fiscal year ended December 31, 2002 were timely
filed, with the exception of one late report on Form 4 covering the disposition
of 9,465 shares of Common Stock by Christopher R. McCleary as a gift to a
charitable organization.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 15, 2001, the Company entered into loan and security agreements
with some of its officers and directors in connection with their purchase of
Common Stock. The aggregate value of the loans was $420,000 with no director or
executive officer receiving more than $50,000. Each of the loans is full
recourse against the individual. On June 15, 2002, the Company declared bonuses
to each of the named executive officers, other than Mr. Jones, as set forth in
the summary compensation table under "Executive Compensation" and $17,243 to Mr.
Antoian each in the form of forgiveness of one-third of the principal plus
accrued interest under the respective loan agreement as of that date. During the
year ended December 31, 2002, Mr. Fried was a partner at the law firm, Shaw
Pittman, which the Company paid approximately $6,000 for legal services during
that year.
DIRECTORS AND EXECUTIVE OFFICERS OF CARESCIENCE, INC.
CareScience currently has six members on the Board. The Board is divided
into three classes with each director serving a three-year term and one class
being elected at each year's annual meeting of shareholders. There are no family
relationships among any of directors or executive officers of CareScience.
Executive officers serve at the discretion of the Board.
A-4
The following tables and notes set forth the names, ages, positions held
with CareScience and certain other information regarding the Company's directors
and executive officers as of the date of this Information Statement:
DIRECTORS
NAME AGE POSITION
---- --- --------
Edward N. Antoian(1)(2)(3).............................. 47 Chairman and Director
Bruce M. Fried(1)(2).................................... 53 Director
C. Martin Harris(3)(4)(6)............................... 46 Director
Jeffrey R. Jay(2)(6).................................... 45 Director
Christopher R. McCleary(5).............................. 49 Director
President and
Ronald A. Paulus(4)(5).................................. 41 Director
---------------
(1) Class III director with term expiring in 2003.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
(4) Member of Nominating Committee.
(5) Class I director with term expiring 2004.
(6) Class II director with term expiring in 2005.
Edward N. Antoian, M.B.A., has served as a director since April 1998. He
has served as a Partner of Chartwell Investment Partners since its founding in
April 1997. From 1984 to 1997, he served as a Senior Portfolio Manager at
Delaware Management Company, managing $2 billion of small- and mid-cap growth
institutional assets as well as the Trend and Delcap Funds. Mr. Antoian earned
his B.S. from The State University of New York at Albany and his M.B.A. from The
Wharton School.
Bruce M. Fried, Esq., has served as a director since February 2002. He has
served as a partner and co-chair of the health care group at Sonnenschein, Nath
& Rosenthal, a law firm, since January 2003. From 1998 to January 2003, he
served as a partner and chair of the health law group at Shaw Pittman, an
international law firm based in Washington, D.C. From 1995 to 1998, Mr. Fried
served as the Health Care Financing Administration's director of the Center for
Health Plans and Providers. From 1994 to 1995, Mr. Fried was vice president of
federal affairs at FHP International Corporation, then one of the nation's
largest managed care organizations. He is a director of Medicalogic/Medscape,
Inc. Mr. Fried earned his B.A. from the University of Florida and J.D. from the
University of Florida College of Law.
C. Martin Harris, M.D., M.B.A., has served as a director since September
1997. He has served as Chief Information Officer and Chairman of the Information
Technology Division at The Cleveland Clinic Foundation, a large integrated
delivery system, since June 1996. From 1991 to 1996, he was Chief Information
Officer of the University of Pennsylvania Health System. He is a director of
Invacare Corporation and a number of privately held health care information
technology companies. Dr. Harris earned his B.S. and M.D. from the University of
Pennsylvania and his M.B.A. from The Wharton School.
Jeffrey R. Jay, M.D., M.B.A., has been a director since December 1998. He
is a Partner of Whitney & Co., LLC, a private investment firm. He has been with
Whitney since 1993, where he focuses on health care and information technology
investments. He is a director of a number of privately held health care and
information technology companies. Dr. Jay earned his B.S. and M.D. from Boston
University and his M.B.A. from Harvard Business School.
Christopher R. McCleary has served as a director since September 2000. He
has served as Chairman and Chief Executive Officer of Evergreen Assurance, Inc.,
a provider of business continuity services, since February 2002. From January
1998 to February 2002, he was Chairman of USinternetworking, Inc., an
application service provider delivering Internet computing products. On January
7, 2002, USinternetworking
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and four of its domestic subsidiaries filed voluntary petitions for relief under
Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for
the District of Maryland, Northern Division. The filing is intended to allow
USinternetworking, as debtor-in possession, to continue to manage and operate
its assets and businesses in the ordinary course of business subject to the
supervision and orders of the court. From January 1996 to December 1997 he was
Chairman and Chief Executive Officer of DIGEX, Incorporated, a provider of
commercial internet services. From October 1990 to January 1996, Mr. McCleary
served as Vice President and General Manager for Satellite Telephone Service at
American Mobile Satellite Corporation, a satellite communications company. He is
a director of Radware, Inc., as well as a number of privately held companies.
Mr. McCleary earned his B.A. from the University of Kentucky.
Ronald A. Paulus, M.D., M.B.A., has served as the Company's Chief Executive
Officer since July 2003 and its President since November 1998. Dr. Paulus joined
us as Chief Operating and Chief Financial Officer and a director in March 1993.
From June 1989 to March 1993, he was Vice President, Operations of Salick Health
Care, Inc., a national provider of oncology, dialysis and related services, and
later, Managing Director of its INFUSX subsidiary. Dr. Paulus earned his B.S.
and M.D. from the University of Pennsylvania and his M.B.A. from The Wharton
School.
EXECUTIVE OFFICERS
NAME AGE POSITION
---- --- --------
Kristine Martin Anderson..................... 35 Vice President, Consulting
Nicholas Augustinos.......................... 45 Vice President, Market Development
Senior Vice President, Business
J. Bryan Bushick............................. 40 Development
LeRoy E. Jones............................... 34 Chief Technology Officer
Robb L. Tretter.............................. 31 General Counsel and Secretary
Thomas H. Zajac.............................. 43 Chief Operating Officer
Kristine Martin Anderson, M.B.A., has served as the Company's Vice
President, Service Operations since February 2003. She has worked for us since
June 1993 in various roles, including Vice President, Consulting, Director of
Operations and Provider Solutions, Director of Special Projects, Director of
Product Management, Director of Customer Solutions and Account Manager. In her
various roles as a director, she has developed customer service strategies to
help customers for performance measurement and improvement, designed product
requirements and managed the process by which customers submit data to us for
analysis and hosting. Ms. Anderson earned her B.S. from the University of
Pennsylvania and her M.B.A. from The Wharton School.
Nicholas Augustinos, M.B.A., has served as the Company's Vice President,
Market Development since July 2002. From January to July 2002, he worked as a
private consultant to for-profit and not-for-profit organizations with respect
to strategic market development and health care information technology. From
September 1999 to August 2000, he was Vice President responsible for marketing
and sales for the Western Region of Healtheon/WebMD, a large health care
information technology vendor. Prior to joining Healtheon/WebMD, from November
1993 to September 1998, Mr. Augustinos was a Senior Manager with Deloitte
Consulting, a large consulting firm, where he specialized in providing
consulting services to payors, providers and integrated delivery networks.
Before joining Deloitte Consulting, from April 1992 to October 1993, he was an
Experienced Associate with APM, Inc. a large healthcare operations and strategic
consulting firm. Mr. Augustinos earned an Industrial Engineering Degree in
Athens, Greece, a B.Sc. in Mechanical Engineering from King's College,
University of London, and M.B.A. from University of Michigan, Ann Arbor.
J. Bryan Bushick, M.D., M.B.A., has served as the Company's Senior Vice
President, Business Development since December 1999. From July 1999 to December
1999, he was Chief Executive Officer of HealthTides.com, an on-line professional
opinion research firm. Dr. Bushick served as Vice President, Clinical
Partnerships, and later, Vice President, Business Operations for ThinkMed, a
managed-care decision support company from September 1997 through May 1999.
Before joining ThinkMed, Dr. Bushick was Vice
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President, Delivery System Integration at United HealthCare from 1993 through
1994 and System Vice President, Performance Measurement and Improvement at
Allina Health System from 1994 to 1997. Dr. Bushick earned his B.S. from
Dickinson College and his M.D. from the University of Pennsylvania and his
M.B.A. from The Wharton School.
LeRoy E. Jones has served as the Company's Chief Technology Officer since
November 2001. From March 1999 to October 2001, he was Vice President for with
Scott-Levin Associates, a pharmaceutical market research consulting firm and
Quintiles Transnational Company, where he was responsible for leading their
Advanced Technology & Development Department. Prior to joining Scott-Levin
Associates, Mr. Jones was the Company's Director of Software Engineering and
Data Architecture from October 1996 to February 1999. Mr. Jones earned his B.S.
from Carnegie Mellon University and his M.S.E. from the University of
Pennsylvania.
Robb L. Tretter, Esq., has served as the Company's General Counsel and
Secretary since May 2000. From February 1999 to April 2000, he was a corporate
associate at Reboul, MacMurray, Hewitt, Maynard & Kristol, a law firm. From
November 1996 to January 1999, Mr. Tretter was a corporate associate at
Wachtell, Lipton, Rosen & Katz, a law firm. Mr. Tretter earned his B.A. from
Cornell University and his J.D. from New York University School of Law.
Thomas H. Zajac, M.B.A., has served as the Company's Chief Operating
Officer since November 1999. From March 1999 through November 1999, he led the
Business Solutions Group of Eclipsys Corporation, a health-information company.
He joined Eclipsys as part of its acquisition of Transition Systems, Inc. in
1998. Mr. Zajac was associated with Transition Systems for more than 11 years,
last serving as Chief Operating Officer and Vice President and General Manager
in charge of Sales, Product Development, Consulting, Customer Services and
Support. Mr. Zajac earned his B.S. and M.B.A. from Drexel University.
BOARD MEETINGS AND COMMITTEES
During the 2002 fiscal year, the Company's Board of Directors held eight
meetings, and no director then in office attended fewer than 75% of the
aggregate number of meetings of the Board and meetings of the committees of the
Board on which he served.
The Board has the following standing committees: audit, compensation and
board nominating. The audit committee consists of Messrs. Antoian and Fried and
Dr. Jay, and met five times during the 2002 fiscal year. The members of the
audit committee are independent as defined in Rule 4200(a)(15) of the National
Association of Securities Dealers, Inc. listing standards. The audit committee:
- oversees and reviews the results and scope of the audit and other
services provided by the Company's independent auditors; and
- oversees, reviews and evaluates the Company's audit and control
functions.
The compensation committee consists of Mr. Antoian and Dr. Harris. The
compensation committee met once during the 2002 fiscal year. The compensation
committee:
- reviews and approves the compensation and benefits for the Company's
executive officers and grants stock options under the Company's stock
option plans; and
- makes recommendations to the board regarding those matters.
The board nominating committee consists of Mr. Fried and Drs. Harris and
Paulus, and met once during the 2002 fiscal year. The board nominating
committee:
- reviews and evaluates potential new members to the board; and
- nominates new board members for approval by the other directors.
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SUMMARY COMPENSATION TABLE
The following table sets forth in summary form information concerning the
compensation paid by the Company during the fiscal years ended December 31,
2002, 2001 and 2000 to its former Chief Executive Officer (who resigned on July
3, 2003) and each of the Company's other four most highly paid executive
officers during the 2002 fiscal year whose salary and bonus for the fiscal year
exceeded $100,000 and who served as one of the Company's executive officers
during the 2002 fiscal year. These officers are referred to as the named
executive officers in this Information Statement. Other than the salary and
bonus described in the table below, the Company did not pay any executive
officer any fringe benefits, perquisites or other compensation in excess of
either $50,000 or 10% of the total of his salary and bonus during the fiscal
years ended December 31, 2002, 2001 or 2000.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------------
------------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
--------------------------- ---- -------- ------- ------------------ ------------
David J. Brailer(1).......... 2002 $275,625 $63,120 -- $4,000
Former Chairman and 2001 275,964 25,000 20,000 5,736
Chief Executive Officer 2000 262,500 25,000 -- 5,031
Ronald A. Paulus............. 2002 237,037 13,120 -- 4,000
President and 2001 238,579 -- 20,000 4,959
Chief Executive Officer 2000 225,750 -- -- 4,326
J. Bryan Bushick............. 2002 162,750 13,120 -- 3,535
Senior Vice President, 2001 162,780 -- 20,000 3,256
Business Development 2000 156,258 -- -- 2,325
LeRoy E. Jones............... 2002 185,000 15,000 -- --
Chief Technology Officer 2001 30,833 -- 55,000 --
2000 -- -- -- --
Thomas H. Zajac.............. 2002 225,000 43,743 -- 4,000
Chief Operating Officer 2001 225,000 25,000 20,000 4,627
2000 225,000 25,000 -- 2,250
---------------
(1) Dr. Brailer resigned from the Company and the Board of Directors on July 3,
2003. The amount listed under the column "Bonus" includes a $25,000 cash
bonus earned by Dr. Brailer in 2001 pursuant to his employment agreement,
but paid in 2002, a $25,000 cash bonus earned by Dr. Brailer in 2002
pursuant to his employment agreement and the forgiveness in June 2002 of
$13,120 in principal plus accrued interest under a loan agreement between
the Company and Dr. Brailer.
The amounts listed under All Other Compensation for the executive officers
listed above are matching contributions made by the Company for the executive
officer's account under the Company's 401(k) plan. The Company did not make any
awards of stock options to the named executive officers during the fiscal year
ended December 31, 2002.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning option exercises and
unexercised options for the fiscal year ended December 31, 2002 with respect to
each of the named executive officers.
The value realized represents the difference between the deemed value of
the common stock on the date of exercise used by us for accounting purposes and
the exercise price of the option.
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The value of unexercised in-the-money options was calculated based on the
difference between closing price of the Common Stock on the Nasdaq National
Market on December 31, 2002 of $0.95 per share and the exercise price of the
options.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
David J. Brailer...................... 5,000 135,899 $ -- $ --
Ronald A. Paulus...................... 5,000 111,719 -- --
J. Bryan Bushick...................... 107,563 63,360 -- --
LeRoy E. Jones........................ 13,750 41,250 -- --
Thomas H. Zajac....................... 198,438 111,719 -- --
COMPENSATION PLANS
EQUITY COMPENSATION PLAN
The Company's Amended and Restated 1995 Equity Compensation Plan provides
for grants of incentive stock options, nonqualified stock options, stock
appreciation rights and restricted stock to the Company's designated employees,
selected consultants and non-employee directors.
General. The plan authorizes up to 2,565,038 shares of Common Stock for
issuance under the terms of the plan. No more than 500,000 shares in the
aggregate may be granted to any individual in any calendar year, subject to
adjustment. If options granted under the plan expire, terminate, or are
canceled, forfeited, exchanged or surrendered for any reason without having been
exercised, or shares of restricted stock are forfeited, the shares of common
stock underlying that grant will again be available for purposes of the plan.
Administration of the Plan. A compensation committee administers and
interprets the plan. The compensation committee consists of two or more
non-employee directors approved by the Board. The compensation committee has the
sole authority to:
- determine grants under the plan, including eligible individuals and the
type, size, vesting, exercise price and other terms of the grants to be
made to each of those individuals; and
- make factual determinations and amend the plan.
The compensation committee may also delegate to the Chief Executive Officer
the authority to make grants and to designate individuals to receive grants
under the plan.
Options. Options granted under the plan are generally not transferable by
the optionee. Options granted under the plan must generally be exercised within
10 years. The exercise price of all options must be at least equal to the fair
market value of the underlying shares of Common Stock on the date of grant.
Incentive stock options granted to any participant who owns more than 10% of the
outstanding Common Stock on the date of grant must have an exercise price equal
to or exceeding 110% of the fair market value of a share of Common Stock on the
date of grant and must not be exercisable for longer than five years. The
vesting schedule of options granted after December 28, 1998 is determined by the
compensation committee.
Restricted Stock. Restricted stock granted under the plan is generally not
transferable by the grantee until restrictions on the grant lapse. Restrictions
on the transfer of shares will lapse as to one-half of the shares subject to a
restricted stock grant in four equal annual installments commencing on the first
anniversary of the date of grant and the remaining one-half at the end of the
fourth year, unless otherwise determined by the compensation committee.
Restricted stock will generally be granted for no consideration.
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Change of Control. All outstanding options will immediately vest and
restrictions on restricted stock will immediately lapse upon a change of
control. A change of control is defined to have occurred if:
- the Company sells or disposes of all or substantially all of its assets;
- the Company adopts a plan for its liquidation or dissolution;
- as a result of any transaction, any one shareholder, other than David J.
Brailer, becomes a beneficial owner (as defined in the Exchange Act),
directly or indirectly, of more than 50% of the Company's voting stock;
- a majority of the members of the Board are not continuing directors, as
defined in the plan; or
- the Company consolidates with, or merges with or into, any person, or any
person consolidates with, or merges with or into, us, other than any such
transaction where the Company's shareholders immediately prior to such
transaction, own, immediately after giving effect to such transaction, a
majority of the combined voting power of the corporation or other entity
surviving such transaction.
RESTRICTED STOCK OPTION PLAN
The Company's Amended and Restated 1998 Time Accelerated Restricted Stock
Option Plan provides for grants of restricted non-qualified stock options to its
officers, senior management and employee directors.
General. The plan authorizes up to 483,594 shares of Common Stock for
issuance under the terms of the plan. If options granted under the plan expire
or terminate for any reason without having been exercised, the shares of common
stock underlying that grant will again be available for purposes of the plan.
Administration of the Plan. The Board administers and interprets the plan,
except that no member of the Board may act upon any matter exclusively affecting
any option granted or to be granted to himself or herself under the plan. The
Board has the sole authority to:
- determine grants under the plan, including eligible individuals, size,
vesting, exercise price and other terms of the grants made to each of
those individuals; and
- amend the plan.
The Board may delegate its powers, duties and responsibilities to a
committee consisting of two or more non-employee directors approved by the Board
and an outside director.
Grants. Options granted under the plan consist of non-qualified stock
options that are not intended to qualify as incentive stock options under the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), and are generally
not transferable by the optionee. Options granted under the plan will generally
be exercisable within seven years and must be exercised within 10 years. The
exercise price of all options must be at least equal to the fair market value of
the underlying shares of Common Stock on the date of grant.
Changes Due to Reorganizations. In the event that the outstanding Common
Stock is changed into or exchanged for a different number or kind of shares or
other securities of the Company or securities of another corporation as the
result of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split, combination of shares or dividends payable in
capital stock, appropriate adjustments will be made in the number and kind of
shares for which options may be granted under the plan. In addition, all
outstanding options will immediately vest and restrictions on restricted stock
will immediately lapse upon a change of control. A change of control is defined
to have occurred if:
- the Company sells or disposes of all or substantially all of its assets;
- the Company adopts a plan for its liquidation or dissolution;
- as a result of any transaction, any one shareholder, other than David J.
Brailer, becomes a beneficial owner (as defined in the Exchange Act),
directly or indirectly, of more than 50% of the Company's voting stock;
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- a majority of the members of the Board are not continuing directors, as
defined in the plan; or
- the Company consolidates with, or merges with or into, any person, or any
person consolidates with, or merges with or into, us, other than any such
transaction where the Company's shareholders immediately prior to such
transaction, own, immediately after giving effect to such transaction, a
majority of the combined voting power of the corporation or other entity
surviving such transaction.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION
LIMITATIONS ON LIABILITY
The Company's articles of incorporation and bylaws and applicable
Pennsylvania law provide that its directors will not be personally liable to it
or its shareholders for monetary damages resulting from a breach of fiduciary
duty except for:
- any breach of the duty of loyalty to the Company or its shareholders; and
- any breach or failure to perform that constitutes self-dealing, willful
misconduct or recklessness.
This limitation of liability does not apply to liability pursuant to any
criminal statute nor does it relieve the directors from payment of taxes
pursuant to federal, state or local law.
INDEMNIFICATION
The Company's articles of incorporation and bylaws provide that the Company
will indemnify its directors and executive officers and may indemnify its other
corporate agents, to the fullest extent permitted by Pennsylvania law. Section
1741 of the Pennsylvania Business Corporation Law provides the power to
indemnify any officer or director acting in his capacity as the Company's
representative who was, is or is threatened to be made a party to any action or
proceeding for expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with that action or proceeding.
The indemnity provisions apply whether the action was instituted by a third
party or arose by or in the Company's right. Generally, the only limitation on
the Company's ability to indemnify its officers and directors is if the act
violates a criminal statute or if the act or failure to act is finally
determined by a court to have constituted willful misconduct or recklessness.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with its executive
officers as described below. Unless otherwise specified below all of the
Company's executive officers are eligible to receive bonuses in amounts to be
determined by the Board and to participate in the Company's stock option plans.
Each executive officer has agreed not to disclose confidential information,
including, but not limited to, any of the Company's trade secrets, policies and
proprietary technology, which are not known to the public or consented to
disclosure by the Company. In addition, each executive officer was required to
sign a non-competition agreement and an invention assignment agreement with the
Company. The Company may only terminate its executive officers under the terms
of their employment agreement for circumstances relating to their willful
failure to perform their duties, illegal, dishonest or fraudulent acts, for
breach of the agreement or mental or physical disability. On April 11, 2003, the
Company entered into amended and restated employment agreements with Drs. Paulus
and Bushick and Messrs. Tretter and Zajac, the terms of which are summarized in
this Information Statement.
Dr. Paulus' amended and restated employment agreement also provides for:
- his appointment as President;
- a term that ends on December 31, 2004;
- annual increases of not less than five percent of his base salary;
- if not renewed, at the end of the term, he is entitled to a payment of
$150,000;
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- upon a change of control, as defined in the agreement, a payment of
$175,000; and
- following his termination of employment by the Company other than for
cause, as defined in the agreement, death or disability or in the event
he leaves his employment for good reason, as defined in the agreement,
severance equal to the greater of (1) his base salary payments through
December 31, 2004 and (2) $150,000.
Dr. Bushick's amended and restated employment agreement also provides for:
- appointment as a Senior Vice President -- Business Development;
- a term that ends on December 31, 2004;
- if not renewed, at the end of the term, he is entitled to a payment of
$55,000;
- upon a change of control, as defined in the agreement, he is entitled to
a payment of $85,000; and
- following his termination of employment by the Company other than for
cause, as defined in the agreement, death or disability or in the event
he leaves his employment for good reason, as defined in the agreement,
severance equal to the lesser of (1) $83,816 and (2) his base salary
payments through December 31, 2004 plus $55,000.
Mr. Tretter's amended and restated employment agreement also provides for:
- appointment as General Counsel;
- a term that ends on December 31, 2004;
- if not renewed, at the end of the term, he is entitled to a payment of
$35,000;
- upon a change of control, as defined in the agreement, he is entitled to
a payment of $50,000; and
- following his termination of employment by the Company other than for
cause, as defined in the agreement, death or disability or in the event
he leaves his employment for good reason, as defined in the agreement,
severance equal to the lesser of (1) $74,392 and (2) his base salary
payments through December 31, 2004 plus $35,000.
Mr. Zajac's amended and restated employment agreement also provides for:
- appointment as Chief Operating Officer;
- a term that ends on December 31, 2004;
- if not renewed, at the end of the term, he is entitled to a payment of
$75,000;
- upon a change of control, as defined in the agreement, he is entitled to
a payment of $120,000; and
- following his termination of employment by the Company other than for
cause, as defined in the agreement, death or disability or in the event
he leaves his employment for good reason, as defined in the agreement,
severance equal to the lesser of (1) $173,813 and (2) his base salary
payments through December 31, 2004 plus $75,000.
The Merger would constitute a "change of control" under each of the
foregoing employment agreements.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
The compensation committee of the Board is responsible for determining
salaries, incentives and other forms of compensation for its directors, officers
and other employees and administering various incentive and benefit plans. The
compensation committee also seeks to ensure that the Company's compensation
philosophy is consistent with the Company's best interests and is properly
implemented.
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COMPENSATION PHILOSOPHY
The Board's compensation philosophy for executive officers serves two
principal purposes: (1) to provide a total compensation package for executive
officers that is competitive with the current market for executive talent and
enables the Company to attract and retain key executive and employee talent
needed to achieve the Company's business objectives and (2) to link executive
compensation to improvements in the Company's performance and increases in
shareholder value as measured principally by the trading price of its common
stock.
ELEMENTS OF EXECUTIVE OFFICER COMPENSATION
CareScience's executive compensation consists primarily of salary, health
insurance and similar benefits, and the award of stock options. CareScience has
in the past and continue to emphasize the award of stock options in its
executive compensation policy and to date CareScience has not made use of cash
incentive bonuses. The compensation committee believes that in the highly
competitive, emerging markets in which CareScience operates, equity-based
compensation provides the greatest incentive for outstanding executive
performance and encourages the greatest alignment of management and shareholder
long-term interests.
Officer Salaries. The compensation committee annually reviews the salary
of the Chief Executive Officer, President and Chief Financial Officer. In
addition, the compensation committee sets guidelines for compensation of the
other officers of CareScience. In determining the appropriate salary levels for
such officers, the compensation committee considers, among other factors, the
officer's scope of responsibility, prior experience, past accomplishments, and
data on prevailing compensation levels in relevant markets for executive talent.
During 2002, the compensation committee did not change the salary of Dr.
Brailer from $275,652 nor did it change the salary of Dr. Paulus from $237,037.
The compensation committee believes its actions are appropriate in light of
CareScience's continued emphasis on long-term equity-based compensation. Also
during 2002, the compensation committee and all other non-participating
directors approved a special bonus in the form of forgiveness of one-third of
the principal amount plus accrued interest of loans that went into effect on
June 15, 2001 for each of Messrs. Antoian, McCleary, Tretter and Zajac, Ms.
Ryan, and Drs. Brailer, Bushick and Paulus.
Stock Option Grants. As noted above, CareScience has relied substantially
on long-term equity-based compensation as the principal means of compensating
and incentivizing its executive officers. It is the Company's practice to set
option exercise prices for officers at not less than 100% of the fair market
value of its Common Stock on the date of grant. Thus, the value of the
shareholders' investment in CareScience must appreciate before an optionee
receives any financial benefit from the option. Options are generally granted
for a term of ten years. With certain exceptions, options granted to executive
officers generally provide that they are not exercisable until one year after
the date of grant, at which time they become exercisable on a cumulative basis
at a maximum annual rate of 25% of the total number of shares underlying the
option grant. In determining the number of shares subject to the stock option
grants, the compensation committee considers various subjective factors
primarily relating to the responsibilities of the individual officers, and also
to their expected future contributions and the number of shares owned by the
officer or which continue to be subject to vesting under outstanding options
previously granted to such officer. In addition, the compensation committee
examines the level of equity incentives held by each officer relative to the
other officers' equity positions and their tenure, responsibilities, experience,
and value to CareScience.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Code limits the tax deductibility by a corporation of
compensation in excess of $1 million paid to its chief executive officer and any
other of its four most highly compensated executive officers. Compensation which
qualifies as "performance-based" compensation, however, is excluded from the $1
million limit if, among other requirements, the compensation is payable only
upon attainment of pre-established, objective performance goals under a plan
approved by the corporation's shareholders.
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The compensation committee does not presently expect total cash
compensation payable for salaries to exceed the $1 million limit for any
individual executive officer. After consideration of the requirements of Section
162(m), the compensation committee believes that stock option grants to date
meet the requirement that such grants be "performance-based" and are, therefore,
exempt from the limitations on deductibility. The compensation committee will
continue to monitor the compensation levels potentially payable under
CareScience's cash compensation programs, but intends to retain the flexibility
necessary to provide total cash compensation in line with competitive practice
and the compensation philosophy and best interests of CareScience.
By the Compensation Committee of
the Board of Directors,
Edward N. Antoian
C. Martin Harris
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee consists of Mr. Antoian and Dr. Harris. Neither
of Mr. Antoian or Dr. Harris are our employees or our current or former
officers. No interlocking relationship exists between any member of our
compensation committee and any member of any other company's board of directors
or compensation committee.
On June 15, 2001, CareScience entered into loan and security agreements
with some of its officers and directors in order to facilitate the purchase of
Common Stock by them. See "Certain Relationships and Related Transactions" in
this Information Statement for additional information.
DIRECTOR COMPENSATION
Outside directors are entitled to receive $500 for attending a telephonic
meeting and $1,500 for attending a meeting in person for their services as
members of the Board. Directors are also reimbursed for expenses in connection
with attendance at Board and committee meetings. In addition, directors are
eligible to participate in the Company's stock plans.
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STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder returns on
shares of Common Stock with performance of the Nasdaq Stock Market -- U.S. Index
and the Nasdaq Computer and Data Processing Services Index from June 28, 2000
(the date on which shares of Common Stock became registered as a class under
Section 12 of the Exchange Act), to December 31, 2002. The graph assumes an
initial investment of $100 and reinvestment of any dividends. The stock
performance on this graph is not necessarily indicative of future performance
nor is it a guarantee of future performance.
'Performance Graph'
NASDAQ COMPUTER &
DATA PROCESSING SERVICES
CARE SCIENCE, INC. NASDAQ MARKET INDEX INDEX
------------------ ------------------- ------------------------
06/28/00 100.00 100.00 100.00
09/29/00 25.00 92.02 92.50
12/29/00 6.25 61.62 57.12
03/30/01 7.29 46.00 41.67
06/29/01 14.17 54.21 54.26
09/28/01 9.25 37.61 33.19
12/31/01 10.42 48.89 46.00
03/28/02 11.58 46.40 42.46
06/28/02 10.33 36.98 33.75
09/30/02 8.17 29.67 26.10
12/31/02 7.92 33.85 31.73
---------------------------------------------------------
NASDAQ
COMPUTER &
DATE CARE NASDAQ US DATA PROCESSING
---------------------------------------------------------
06/28/00 100.00 100.00 100.00
09/29/00 25.00 92.02 92.50
12/29/00 6.25 61.62 57.12
03/30/01 7.29 46.00 41.67
06/29/01 14.17 54.21 54.26
09/28/01 9.25 37.61 33.19
12/31/01 10.42 48.89 46.00
03/28/02 11.58 46.40 42.46
06/28/02 10.33 36.98 33.75
09/30/02 8.17 29.67 26.10
12/31/02 7.92 33.85 31.73
---------------------------------------------------------
A-15
SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS
The following table sets forth information as of December 31, 2002
concerning the CareScience Amended and Restated 1995 Equity Compensation Plan
and the CareScience Amended and Restated 1998 Time Accelerated Restricted Stock
Option Plan each of which have been previously approved by its shareholders.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF WEIGHTED-AVERAGE EXERCISE EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, PRICE OF OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN(A))
------------- -------------------------- ----------------------------- -------------------------
(A) (B) (C)
Equity compensation
plans approved by
security holders... 2,055,357 $2.26 958,994
Equity compensation
plans not approved
by security holders -- -- --
Total................ 2,055,357 $2.26 958,944
A-16
'(TOCOME)'
August 21, 2003
Dear Shareholders:
I am pleased to inform you that CareScience, Inc. has entered into an
agreement with Quovadx, Inc., pursuant to which Quovadx, through a wholly owned
subsidiary, has today commenced an exchange offer to purchase each outstanding
share of CareScience's common stock for cash in the amount of $1.40 and 0.1818
shares of Quovadx common stock.
The completion of the exchange offer is subject to, among other things, at
least 80% of the outstanding shares of CareScience's common stock on a
fully-diluted basis being validly tendered and not withdrawn prior to the
expiration of the offer. Following completion of the offer and the satisfaction
or waiver of certain other conditions, CareScience will be merged with the
subsidiary of Quovadx, and each remaining share of CareScience's common stock
outstanding will be converted into the right to receive cash in the amount of
$1.40 and 0.1818 shares of Quovadx common stock.
YOUR BOARD OF DIRECTORS HAS APPROVED THE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE EXCHANGE OFFER AND MERGER, AND HAS
DETERMINED THAT THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT ARE ADVISABLE,
FAIR TO AND IN THE BEST INTERESTS OF CARESCIENCE AND ITS SHAREHOLDERS. YOUR
BOARD RECOMMENDS THAT CARESCIENCE SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES OF CARESCIENCE COMMON STOCK PURSUANT TO THE OFFER.
Accompanying this letter and Solicitation/Recommendation Statement is
Quovadx's preliminary prospectus, dated August 21, 2003, together with related
materials to be used for tendering your shares of CareScience common stock,
including a letter of transmittal. These documents set forth the terms and
conditions of the offer and the merger and include additional information on how
to tender your shares. I urge you to read these materials carefully. If you need
assistance in tendering your shares, please contact StockTrans, Inc. at the
address or telephone number appearing on the back cover page of the accompanying
prospectus.
On behalf of the board of directors and management of CareScience, we thank
you for your support.
Sincerely,
/s/ Ronald A. Paulus
RONALD A. PAULUS
President and Chief Executive Officer
EXHIBIT (e)(3)
ANNEX B
[WILLIAM BLAIR & COMPANY LETTERHEAD]
August 13, 2003
Board of Directors
CareScience, Inc.
3600 Market Street
7th Floor
Philadelphia, PA 19104
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding shares of common stock, no par value,
(other than Quovadx or Merger Sub (each as defined below)) (collectively the
"Stockholders") of CareScience, Inc. (the Company") of $1.40 per share in cash
and 0.1818 of a share of common stock, par value $0.01 per share, of Quovadx,
Inc., a Delaware corporation ("Quovadx") (the "Merger Consideration") proposed
to be paid to the Stockholders pursuant to the Agreement and Plan of Merger
dated as of August 13, 2003 (the "Merger Agreement") by and among Quovadx,
Carlton Acquisition Corporation, a wholly-owned subsidiary of Quovadx ("Merger
Sub"), and the Company. Pursuant to the terms of and subject to the conditions
set forth in the Merger Agreement, Merger Sub will be merged with and into the
Company (the "Merger") and each share of common stock of the Company, no par
value per share, will be converted into the right to receive the Merger
Consideration upon consummation of the Merger.
In connection with our review of the proposed Merger and the preparation of
our opinion herein, we have examined: (a) the Merger Agreement; (b) certain
audited historical financial statements of the Company and of Quovadx for the
three years ended December 31, 2002; (c) the unaudited financial statements of
the Company and Quovadx for the six (6) months ended June 30, 2003; (d) the
reports on Form 10-K for the year ended December 31, 2002 and Form 10-Q for the
quarter ended June 30, 2003 for the Company and Quovadx; (e) certain internal
business, operating and financial information of the Company and Quovadx,
prepared by the senior management of the Company and Quovadx, respectively; (f)
certain short-term financial projections (the "Short-Term Projections") prepared
by the senior management of the Company; (g) certain longer term financial
forecasts related to the Company (the "Forecasts") we have derived based on
discussions with members of senior management of the Company; (h) information
regarding the strategic, financial and operational benefits anticipated from the
Merger prepared by the senior management of the Company and Quovadx; (i) the pro
forma impact of the Merger on the earnings per share of Quovadx based on certain
pro forma financial information prepared by the senior management of the Company
and Quovadx; (j) information regarding the amount and timing of cost savings and
related expenses and synergies which senior management of the Company and
Quovadx expect will result from the Merger (the "Expected Synergies"); (k) the
financial position and operating results of the Company compared with those of
certain other publicly traded companies we deemed relevant; (l) information
regarding publicly available financial terms of certain other business
combinations we deemed relevant; (m) current and historical market prices and
trading volumes of the common stock of the Company and Quovadx; and (n) certain
other publicly available information related to the Company and Quovadx
including independent third-party financial projections for Quovadx. We have
also held discussions with members of the senior management of the Company and
Quovadx to discuss the foregoing, have considered other matters which we have
deemed relevant to our inquiry and have taken into account such accepted
financial and investment banking procedures and considerations as we have deemed
relevant. In connection with our engagement, we were
requested to approach, and held discussions with, third parties to solicit
indications of interest in a possible acquisition of the Company.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all the information examined
by or otherwise reviewed or discussed with us for purposes of this opinion
including without limitation the Short-Term Projections provided by senior
management and the Forecasts. We have not made or obtained an independent
valuation or appraisal of the assets, liabilities or solvency of the Company or
Quovadx. We have been advised by the senior management of the Company and
Quovadx that the Short-Term Projections, the Forecasts and the Expected
Synergies examined by us have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the senior management of the
Company and Quovadx, as the case may be. In that regard, we have assumed, with
your consent, that all material assets and liabilities (contingent or otherwise)
of the Company are as set forth in the Company's financial statements or other
information made available to us. We express no opinion with respect to the
Short-Term Projections, the Forecasts or Expected Synergies or the estimates and
judgments on which they are based. Our opinion herein is based upon economic,
market, financial and other conditions existing on, and other information
disclosed to us as of, the date of this letter. It should be understood that,
although subsequent developments may affect this opinion, we do not have any
obligation to update, revise or reaffirm this opinion. We have relied as to all
legal matters on advice of counsel to the Company, and have assumed that the
Merger will be consummated on the terms described in the Merger Agreement,
without any waiver of any material terms or conditions by the Company.
William Blair & Company has been engaged in the investment banking business
since 1935. We continually undertake the valuation of investment securities in
connection with public offerings, private placements, business combinations,
estate and gift tax valuations and similar transactions. In the ordinary course
of our business, we may from time to time trade the securities of the Company or
Quovadx for our own account and for the accounts of customers, and accordingly
may at any time hold a long or short position in such securities. We have acted
as the investment banker to the Company in connection with the Merger and will
receive a fee from the Company for our services, a significant portion of which
is contingent upon consummation of the Merger. In addition, the Company has
agreed to indemnify us against certain liabilities arising out of our
engagement.
We are expressing no opinion herein as to the price at which the common
stock of the Company and Quovadx will trade at any future time or as to the
effect of the Merger on the trading price of the common stock of the Company or
Quovadx. Such trading price may be affected by a number of factors, including
but not limited to (i) dispositions of the common stock of Quovadx by
stockholders within a short period of time after the effective date of the
Merger, (ii) changes in prevailing interest rates and other factors which
generally influence the price of securities, (iii) adverse changes in the
current capital markets, (iv) the occurrence of adverse changes in the financial
condition, business, assets, results of operations or prospects of the Company
or of Quovadx or in the healthcare information technology market, (v) any
necessary actions by or restrictions of federal, state or other governmental
agencies or regulatory authorities, and (vi) timely completion of the Merger on
terms and conditions that are acceptable to all parties at interest.
Our investment banking services and our opinion were provided for the use
and benefit of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Merger Agreement. Our
opinion is limited to the fairness, from a financial point of view, to the
Stockholders of the Merger Consideration in connection with the Merger, and we
do not address the merits of the underlying decision by the Company to engage in
the Merger and this opinion does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to the proposed
Merger. It is understood that this letter may not be disclosed or otherwise
referred to without prior written consent, except that the opinion may be
included in its entirety in a prospectus, solicitation/recommendation statement,
proxy statement and/or information statement mailed to the Stockholders by the
Company with respect to the Merger.
B-2
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the Merger Consideration is fair, from a
financial point of view, to the Stockholders.
Very truly yours,
/s/ WILLIAM BLAIR & COMPANY, L.L.C.
--------------------------------------
William Blair & Company, L.L.C.
B-3