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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
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: 0-28212
SUNQUEST INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 86-0378223
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
4801 East Broadway Boulevard
Tucson, Arizona 85711-3609
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (520) 570-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
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. [X] Yes [ ] No
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 17, 2000, the registrant had 15,547,873 shares of
Common Stock outstanding. The aggregate market value of the
Common Stock held by nonaffiliates of the registrant, based on
the closing price of the Common Stock on March 17, 2000 as
reported by Nasdaq, was $42,089,396 (calculated by excluding
shares owned beneficially by directors, executive officers and
other affiliates as a group from total shares outstanding
solely for the purpose of this response).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for
1999 are incorporated by reference into Parts II and IV of
this Form 10-K.
Portions of the registrant's Proxy Statement for the 2000
Annual Meeting of Shareholders are incorporated by reference
into Part III of this Form 10-K.
Except as specifically incorporated by reference herein, the
Annual Report to Shareholders for 1999 and the Proxy Statement
are not to be deemed filed as part of this Annual Report on
Form 10-K.
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SUNQUEST INFORMATION SYSTEMS, INC.
Form 10-K - 1999
TABLE OF CONTENTS
Page
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PART I
Item 1 - Business
General 1
Industry 1
Products and Services 2
Third-Party Marketing Arrangements 9
Products Under Development 9
Year 2000 Compliance 11
Client Services 11
Balanced View Consulting 12
Marketing 12
Technology 12
Research and Development 13
Competition 14
Regulation 14
Proprietary Rights 16
System Acquisition Agreements 17
Backlog 17
Employees 18
Forward-Looking Statements 18
Executive Officers of the Registrant 24
Item 2 - Properties 25
Item 3 - Legal Proceedings 26
Item 4 - Submission of Matters to a Vote of Security Holders 26
PART II
Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters 27
Item 6 - Selected Financial Data 27
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 27
Item 7A - Quantitative and Qualitative Disclosures about
Market Risk 28
Item 8 - Financial Statements and Supplementary Data 28
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 28
PART III
Item 10 - Directors and Executive Officers of the Registrant 28
Item 11 - Executive Compensation 28
Item 12 - Security Ownership of Certain Beneficial Owners
and Management 28
Item 13 - Certain Relationships and Related Transactions 29
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 29
Signatures 32
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Part I
Item 1. Business.
General
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Sunquest Information Systems, Inc. ("Sunquest" or the
"Company") provides health care information systems ("HCISs")
to large and mid-sized hospitals, clinics and other
facilities, including integrated delivery networks ("IDNs")
comprised of multi-entity, multi-site health care
organizations. Sunquest was established in 1979 and has
become a market leader in the sale of laboratory information
systems ("LISs") that integrate disparate equipment and data
sources in order to automate a laboratory department's
specialized processes and manage its large volumes of clinical
data. In 1991, the Company also began marketing the FlexiRad
product, a radiology information system. Sunquest became a
public company on June 10, 1996, when it closed its initial
public offering of Common Stock. With the purchase of Antrim
Corporation ("Antrim") on November 26, 1996, the Company
acquired a presence in the commercial and medical reference
laboratory market. In August 1997, Sunquest purchased certain
inpatient pharmacy software systems, and in November 1997,
entered into a software license agreement for an outpatient
pharmacy system. As of December 31, 1999, Sunquest had an
installed customer base of more than 1,200 sites, including
162 of the world's largest IDNs, in the United States, Canada,
United Kingdom, Mexico, Saudi Arabia, Ireland and Denmark.
Industry
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In recent years, the health care industry has
experienced, and continues to experience significant changes.
Increases in health care costs have led the industry to move
from a fee-for-service model to alternative payment models.
This has resulted in a shift of financial risk from the payor
to the health care provider and has caused the industry to
focus on the cost-effectiveness of high quality care. In
addition, the health care industry has been experiencing
consolidation among health care providers which has led to the
development of large IDNs. These organizations have been
formed to manage the continuum of health care services for
population groups across both inpatient and outpatient
settings with the dual goals of improved quality of patient
care and reduced costs for patients and members.
In order to achieve their dual goals, IDNs need detailed
clinical and management information systems that enable
providers within the IDN to manage such important processes
as: (i) patient care processes across multiple delivery sites;
(ii) the appropriateness of diagnoses, treatments and resource
utilizations; (iii) provider performance and clinical
outcomes; and (iv) commercial and medical reference laboratory
processing and business practices. Significant market
opportunities exist for HCIS vendors offering open systems
architecture that allows interoperability with legacy systems
and solutions from other leading vendors. These systems
permit IDNs to select and integrate information systems by
either retaining existing legacy systems or selecting from an
array of new systems. With rapid Internet adoption, the
opportunity also exists for expanded e-business solutions
including application service provider ("ASP") delivery
models. Based on these opportunities,
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Sunquest now offers six suites of health care information systems
and services in addition to its stand-alone product offerings.
Sunquest markets its products and services
internationally through its direct sales force and marketing
relationships with other information systems vendors.
Products and Services
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Sunquest's business strategy is to engineer its products
for the changing health care environment, now characterized by
the emergence of IDNs, an increasing trend to outpatient care
delivery, and rapid Internet adoption. These health care
organizations are also adopting the purchasing strategy used
by large manufacturing companies and are limiting the number
of vendors with whom they deal. In response, Sunquest has
adopted a "suite" strategy for sales, and has clustered its
products into logical groupings, which are required by these
delivery systems.
With rapid Internet adoption, the opportunity also exists
for expanded e-business solutions including ASP delivery
models. In an ASP model, clinical management applications and
data are processed centrally and distributed along with remote
expert services to customers through the Internet. By
leveraging the Internet to reduce the cost of distribution and
support, ASP models are able to provide a solution that is
cost effective, thereby reducing customers' upfront
expenditures and the need for management information systems'
staff. In response, Sunquest has a new suite of systems, the
e-Business suite. The Internet delivery mechanism, currently
under development, is expected to be in general release during
the second quarter of 2000.
Sunquest now offers six suites of health care information
systems and services in addition to its stand-alone product
offerings: (i) the departmental clinical suite with systems
that automate the operations of laboratories, radiology and
pharmacy departments within a clinical environment such as a
hospital; (ii) the integration and connectivity suite with
systems that allow Sunquest products to communicate with other
vendors' software and hardware products; (iii) the commercial
and medical reference laboratory suite with systems that
automate the clinical, financial and information support
operations of commercial medical laboratories; (iv) customer
support and services; (v) the clinical data management suite
with systems that integrate clinical patient care data
directly to the caregiver or clinical department; and (vi) the
e-Business suite of Internet-based applications that include
laboratory and financial applications delivered using an ASP
model.
Departmental Clinical Systems
Departmental systems for the laboratory were the first
products developed by Sunquest, and were followed by the
addition of radiology and pharmacy systems. This suite of
systems now automates the information needed to manage the
workflow and information needs of laboratory, radiology and
pharmacy departments in one or more facilities. These systems
provide automation services specific to the needs of the
department and capture information for use by physicians and
other caregivers. In addition to the departmental clinical
suite, each product comprising the suite is individually
available as a specific solution.
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Clinical Laboratory Information Systems
Sunquest's FlexiLab system manages the workflow and
reporting requirements of the chemistry, microbiology,
hematology, anatomic pathology and outreach areas of the
laboratory. Quality assurance validations occur dynamically
as results are entered. For example, a clinician can define
normal test result ranges by age, sex and test method.
Later, if the results are out of range, Sunquest's FlexiLab
system immediately informs the technologist of the
validation failure.
The Clinical Laboratory module is the core of the
FlexiLab system and manages the processes of the high
volume test areas of the laboratory. This module
includes volume and performance statistics, patient
archiving, demographics, patient reporting including an
online call back module to organize and track phone
results, security and audit trails. The Clinical
Laboratory module features episodal management and
outpatient tracking capabilities and is moving towards
full Windows-based functionality and client server
architecture. Episodal management enables the entire on-
line clinical patient record to be viewed at the
laboratory level for clinical treatment analysis and
financial and managed care cost analysis. Outpatient
tracking capabilities enable separate tracking of the
patient and the specimen, improving the efficiency with
which a provider can manage concurrent care processes.
The Mulhos module utilizes the FlexiLab system to support
multiple facilities. Each facility can have its own
individualized reports, rules and options, which allow
for differences among facilities. The Mulhos module
manages vital inter-institutional issues such as the
security of patient information and conflicts between
each facility's patient identification system.
The Specimen Management, Routing and Tracking ("SMART")
sub-system provides for container level identification
numbers to increase tracking capabilities and provide
clean interfaces to laboratory automation (robotics)
systems.
The Commercial Outreach module enables the hospital
laboratory to expand beyond the traditional acute care
needs of an IDN. Automated results reporting to remote
physician offices, rapid order entry, and customer
service tools are among the features that support the
commercial laboratory environment. Other features
include the ability to update client data and courier
routes in order to improve the laboratory's ability to
manage its operations. Customized client reports assist
the laboratory in designing its own patient reports.
Reports are available at the patient and also the
individual physician order level.
The Microbiology module in the FlexiLab system provides a
comprehensive, paperless environment that enhances the
communication of microbiology and epidemiological
results. User definable, automated rules assist the
microbiologist in measuring the effectiveness of
medications on specific organisms in order to predict
effects on a patient's outcome.
The Blood Bank module automates a hospital's complete
transfusion service, including inventory and distribution
of blood products to the patient. This module, which
uses rules-based logic, is designed to prevent the
distribution of inappropriate
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blood products. For example, the Blood Bank module automatically
provides notice if the blood product has not been appropriately
matched to the patient at the time of issue. The donor
module, which is an available option with the Blood Bank
module, automates the collection procedures and
management of blood product inventories. It also manages
and tracks blood donated by patients for their own use
and provides quality controls to assure compliance with
rules of good practice.
The LabAccess Results Workstation module provides easily
accessible and comprehensive on-line processing of data
through defined specimen viewing configurations that are
supported by color-coded Quality Assurance ("QA") result
failures and Quality Control ("QC") specimen groupings.
Specimens may be displayed in a spreadsheet format, with
failures indicated through color changes in the displayed
results, or individually. Individual specimens or
batches of specimen tests results may be released to the
patient file at any time. On-line results entry and
assessment allow data to be viewed for either a single
analyzer or for multiple analyzers that run similar or
dissimilar tests. A user-defined, auto-verification
process tags normal results for release and suspect
results for closer review.
Requisition Based Reports ("RBR") is an application
within the Commercial Outreach module that provides
patient test results reports grouped by requisition
number which can be associated with multiple accession
numbers. RBR enables physicians and other medical staff
to view all results for a single requisition number in a
single report. One of the main advantages of the RBR
application is that reports can be delivered
electronically to clients' printers or fax machines. RBR
also offers the ability to provide clients with
preprinted multi-part requisition forms that include
clients' names, addresses and other client-specific
information.
The Flexi-3R module provides redundancy and high systems
availability within the LIS. The Flexi-3R module
provides a secondary database that allows high volume
printing of management and patient reports. Queries can
be made into this database without affecting the response
time of the primary database.
Pursuant to a value added remarketer ("VAR") agreement
with Dynamic Healthcare Technologies, Inc. ("Dynamic"),
Sunquest is marketing and selling Dynamic's anatomic
pathology product, CoPathPlus ("CoPath"). CoPath is
interfaced and integrated with the FlexiLab system.
CoPath provides a comprehensive display of patient and
specimen information via a graphical user interface.
Health care providers are able to tailor report formats,
screen layouts and incorporate images for a clear picture
of diagnostic findings. An integrated report writer
allows the user to create their own ad hoc reports or
select from the management report options built into the
system. CoPath provides fast turnaround, including
automatic faxing capabilities. See Item 3 herein as to
legal action brought by Dynamic against the Company
involving the CoPath product.
Radiology Information Systems
Sunquest's FlexiRad system is designed to streamline the
operations of the radiology department and facilitate
orders, intelligent scheduling of both patients and
resources, fee
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billing, patient tracking, film management and reporting. Using
client server architecture and a graphical user interface, the FlexiRad
product is easy to use, reducing training time on the system.
The FlexiRad system offers a full suite of interfaces:
admissions, discharge and transfer ("ADT"), orders, results
reporting and billing. Additional interfaces unique to a
radiology department and offered by the FlexiRad system
include interfaces to digital dictation systems
(DictaPhone), speech recognition systems (IBM MedSpeak) and
top-of-the-line mammography products (MRS). These
interfaces provide more information to the FlexiRad system
and further reduce the turnaround time of patient reporting.
All information collected by the FlexiRad system can be
viewed by using the relational ad hoc report writer. This
tool allows the user to customize reports. In addition, off-
the-shelf software, such as Microsoft Access or Seagate
Crystal Reports, can be used to write customized reports.
Further integration is provided directly with the FlexiLab
system. When an exam is being ordered, the radiology user
can view related laboratory results on that patient, helping
the health care provider determine the appropriateness of
the order. On the results side, radiology patient reports
can be correlated with anatomic pathology reports, providing
useful information on necessity for biopsy recommendations.
The Company markets and sells the AMICAS, Inc. ("AMICAS")
Web/Intranet Image Server software pursuant to a Marketing
Reseller agreement. The AMICAS software makes full-quality
radiology studies available to physician desktops throughout
the enterprise. Primary image viewing is enabled through
non-proprietary Web browsers such as Netscape or Microsoft
Internet Explorer. The AMICAS software is integrated with
the FlexiRad Web-based radiologist work station allowing the
radiologist to correlate both textual result data and image
data when rendering patient diagnosis and subsequent
treatment plans.
Pharmacy Information Systems
The FlexiMed system is a patient focused, integrated
pharmacy information system using state-of-the-art client
server technology. This system provides reporting of
medication use across the entire continuum of care and puts
the pharmacy in control of drug therapy and documents each
step of the medication management process. In addition, it
addresses two of the most pressing needs in today's health
care environment: medication therapy outcomes and pharmacy
cost control.
Some key features of the FlexiMed system include medication
profiling, order entry and management, clinical consulting
and documentation, dispensing and inventory control, high
volume drug prescription and ad hoc reporting capability.
The acute care functionality has several operational
options: traditional cart exchange, "just-in-time" envelope
fill, automated drug distribution machines, or a hybrid
combination of these.
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The FlexiMed system incorporates standard clinical alerts
such as drug interaction and allergy alerts, and its
configurable medication management allows the pharmacist the
necessary time to evaluate and act on this advanced clinical
information.
Sunquest Financial System
The Sunquest Financial system provides the tools needed
to manage the laboratory business and includes: Accounts
Receivable/Billing, General Ledger, Accounts Payable,
Materials Management and Electronic Claims/EDI.
The Accounts Receivable/Billing product provides
features that allow efficient billing and collections
processing of laboratory services. These features include
front-end validations, full inquiry, cash receipts entry,
one step adjustment processing and comprehensive
reporting. The system also has tools that can assist the
laboratory in meeting regulatory compliance requirements
of local carriers. This product can be sold as an option
for the FlexiLab and Commercial Laboratory systems, as
well as the laboratory information systems of other
companies.
The General Ledger application is the core product of the
Sunquest Financial system. The system is designed to
provide complete management of financial information and
is fully integrated with all components of the Sunquest
Financial system.
The Accounts Payable product provides tools to
efficiently manage the expenditures of the laboratory.
The system evaluates commitments, prints and reconciles
checks, and produces comprehensive vendor related
management reports.
The Materials Management product manages a laboratory's
supplies inventory. Features include the capability to
order, receive, issue, transfer and report all activity
within multiple locations and/or multiple inventory
environments. The system also allows retail sales of
supplies to laboratory clients, with this activity
automatically transferring to the Accounts
Receivable/Billing product.
The Electronic Claims/EDI services provide the
capabilities to electronically transmit and
electronically receive payment and rejection activity.
These capabilities are available for Medicare, Medicaid,
Blue Shield and prominent clearinghouses such as NEIC,
CYDATA and IMS.
Integration and Connectivity
Sunquest estimates that it has installed in its LIS
client base over 12,500 interfaces that were developed for
nearly 950 separate instruments and 1,000 HCISs of other
vendors. This interface library allows the Company to
seamlessly integrate virtually any lab instrument or HCIS into
Sunquest's LIS, radiology information system or pharmacy
information system. The Company uses a variety of
configuration options to support multiple hospitals and IDNs.
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Instrument Interfaces facilitate the linking of clinical
laboratory instruments, utilizing the full communication
capability of each instrument.
Application Interfaces facilitate the linking of third-party
application systems, such as hospital information and
financial systems of other vendors, to Sunquest's
departmental clinical systems. Sunquest's proven ability to
handle the complexities of interacting information systems
provides customers with more flexible configuration options.
Commercial and Medical Reference Laboratory Systems
Sunquest also offers laboratory information systems for
the commercial laboratory marketplace. Sunquest Commercial
systems provide a total solution for customers ranging from
small hospital outreach programs to large commercial reference
laboratories.
The Commercial Laboratory product suite is an efficient,
performance-oriented management system that streamlines
daily operations and increases customer efficiency.
Client specific features such as reporting conventions,
call parameters and management and statistical reporting
tools give customers a competitive edge in an aggressive
marketplace. Customer service features including
stat/call lists, courier tracking, client problem
tracking and streamlined inquiry options provide
convenient access to information that is needed to serve
a dynamic client base.
The system offers quick and simple requisition entry
allowing orders to be placed more efficiently. Bar-
coding maximizes workflow and can be used in conjunction
with instrument interfaces. Batching is also available
to facilitate high volume processing.
Additionally, patient reports may be faxed, printed on-
site or printed remotely. Automatic report scheduling
with client specific features provides for prompt and
accurate reporting.
The Paperless Microbiology product is fully integrated
with the Commercial Laboratory product and features user-
defined workcards on which daily culture observations and
activity can be recorded. Instrument interfaces and bar-
coded plate labels are also available to increase
efficiency. Epidemiology and management reports provide
detail and summary information to be used in statistical
evaluation of the department's activities.
The Anatomic Pathology product is available for
commercial laboratories providing pathology and cytology
service. The product uses the same flexible ordering,
reporting, and customer service features that
distinguishes Sunquest's other commercial products. The
system compiles and compares required elements of test
data, facilitating regulatory compliance. Efficient
storage of historical data makes it possible to link
large volumes of patient history records with current
data for quick retrieval.
Cytology features include batching capabilities,
streamlined results entry screens, and comprehensive
statistical reporting. Pathology supports Systematized
Nomenclature
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of Medicine ("SNOMED") coding, with accompanying management reports
for data analysis. QA reporting is also available to correlate
results and document any discrepancies detected.
Customer Support and Services
Sunquest provides clients with the most comprehensive
services available in the health care information industry.
These services include implementation, account management and
education, product and technical support, as well as
consulting and other services provided by Balanced View
Consulting, the consulting division of Sunquest.
Balanced View Consulting offers expert advice to health
care providers focused on application and integration of
Sunquest products. Balanced View Consulting provides services
to improve laboratory efficiency, implement new features,
establish outreach functionality and streamline workflow.
These services include project and systems management, on-site
training, outreach and custom-designed programs, system
upgrade and interface implementation, network assessment and
consolidation planning.
Clinical Data Management
Sunquest's Clinical Data Management products are designed
to provide integrated clinical patient care data directly to
the caregiver or clinical department either by combining
Sunquest's suite of ancillary systems or through integration
with disparate systems.
The Clinical Event Manager system monitors patient specific
data within a network and immediately alerts health care
providers to significant patient information based on
predetermined rules. Providers simply identify the clinical
rules of interest and the Clinical Event Manager module
notifies them via pager or e-mail of any event triggered by
the rules. Additionally, the system can check for reminders
placed by the health care provider to order tests at
specific intervals. The system can also check for
interdisciplinary events for a given patient such as changes
in vital signs versus administration of a particular drug.
Integration Server In March 1995, the Company entered into a
VAR agreement with Century Analysis, Inc. ("CAI") which
grants Sunquest a non-exclusive license to sublease and
market CAI's Transaction Distribution Manager ("TDM")
product. The agreement was subsequently assigned to New Era
of Networks, Inc. ("NEON"), successor in interest to CAI.
TDM greatly simplifies the task of performing inter-
application data interchange and performs a number of
functions including transaction store and forward with built-
in fault recovery and management tools to control all data
interchange processing.
e-Business
Sunquest's e-Suite applications are designed to leverage
the Internet to reduce the cost of distribution and support.
Although the applications are fully developed, the Internet
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delivery mechanism is currently under development. The e-
Suite applications, which consist of e-Commercial Lab, e-
Financial and e-Hospital Lab, are ASP models that meet a well-
defined market need that could provide Sunquest with an
extended domestic market of more than 3,500 hospitals with
less than 250 beds and the more than 3,500 small commercial
laboratories. The e-Commercial Lab and e-Financial systems
are live in three Beta sites and are expected to be in general
release during the second quarter of 2000. In addition, the
Company plans to deliver to Beta the e-Hospital Lab system
during the second quarter of 2000.
Remote Web Access for Internet-based Lab Ordering and
Results In December 1999, the Company entered into a VAR
agreement with Axolotl Corporation ("Axolotl") which enables
Sunquest to remarket, co-brand, implement and support
Axolotl's Elysium Access and Elysium Ordering products to
provide a comprehensive set of Web-based laboratory results
delivery and laboratory ordering capabilities with its
FlexiLab system. This agreement combines the Internet, e-
mail and powerful automation tools to link physicians,
clinics and hospitals for fast, convenient access to
clinical information in the FlexiLab system. Physicians and
clinicians can perform traditional laboratory functions of
accessing test results, place orders, print specimen labels,
process authorizations, deliver discharge summaries and more
using common browser software over a secure Internet and
intranet connections.
Third-Party Marketing Arrangements
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Sunquest believes that there are advantages to open
system solutions that facilitate the interoperation of
products from other vendors. Consequently, the Company has
entered into several VAR agreements, joint marketing
agreements and licensing agreements with other vendors.
In addition to the third-party agreements previously
noted in this report, hardware and resold software are
purchased from third-party vendors under VAR agreements and
sold to customers in conjunction with the Company's software
products. Hardware support is the responsibility of the
hardware manufacturers under agreements negotiated directly
between the supplier and the customer or agreements where
Sunquest acts as an intermediary in negotiating the support
agreement.
Products Under Development
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The following products and the ASP Internet delivery mechanism
for the e-Suite products are under development utilizing either the
same client-server architecture as the Company's existing systems or
Web-based technology. The development of new products is an uncertain
process. There can be no assurance that the following
products will be successfully developed or, if developed that
they will be accepted in the marketplace. See "Other Factors"
below.
FlexiMed-Outpatient (Departmental Clinical Suite) The FlexiMed
system has two major systems components: an inpatient system
and an outpatient system. The inpatient system is used in
hospitals and is a proven product installed at two major
hospital systems. The
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outpatient system deals with retail pharmacy functionality and is
currently under development.
Outpatient functionality will provide the user with high
volume prescription processing and will be automated with bar-
code checking. The advanced multi-site capability will
support on-line, third-party claims adjudication with billing
algorithms and financial processing that will be configurable
for site-specific variations.
Clinical Suite Integration (Departmental Clinical Suite) The
Clinical Suite Integration will integrate the three primary
Sunquest suite products, FlexiLab, FlexiRad and FlexiMed.
Under development is a Web-based common viewing system. This
system will allow users the ability to seamlessly view
clinical data from one Web-based viewer.
e-Commercial Lab (e-Business Suite) is a feature-rich
laboratory information system specially designed to facilitate
high-volume work flows in a commercial laboratory environment.
Its flexible configuration allows commercial laboratories to
do personalized physician reporting, a must for laboratories
wishing to improve their customer service abilities. This
application provides advanced internal logic to track
diagnoses, Advanced Beneficiary Notices ("ABNs"), verification
letters and the access control feature creates a comprehensive
audit trail and a secure environment in order to ease
regulatory compliance.
e-Financial (e-Business Suite) is a comprehensive financial
management system for laboratories that incorporates accounts
receivable, billing and general ledger functions into one
simple, easy-to-configure application. e-Financial is invoice-
driven, not patient-driven, in order to accelerate cash flow,
making this an ideal application for hospital laboratories
with outreach programs, as well as for traditional commercial
laboratories. Support for multiple payor types, management
reporting abilities and contract management features allow
laboratories to conduct business with maximum flexibility. In
addition, e-financial takes an aggressive stance toward Health
Insurance Portability and Accountability Act ("HIPAA")
compliance, ensuring that the most sophisticated tools are
available to respond to HIPAA.
e-Hospital Lab (e-Business Suite) is a feature-rich laboratory
information system that is designed to penetrate the small to
intermediate sized hospital market with the target market
being 250 beds or less. In addition to the same features as
the e-Commercial Lab application, e-Hospital Lab provides full
hospital laboratory capabilities as well as allowing several
hospitals to operate in the same environment even across
multiple time zones.
Clinical Data Mart (Clinical Data Management Suite) will serve
as a management tool to retrieve data from multiple databases
and their interfaces. The Clinical Data Mart will provide a
dynamic means to access data faster, generate impromptu
reports quicker, combine data from disparate databases and
will provide longer term data storage for trend analysis. The
Clinical Data Mart will be a valuable tool for today's
informed decision maker, leveraging Web browser interfaces and
e-mail reporting throughout the organization.
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Year 2000 Compliance
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In prior years, the Company discussed the nature and
progress of its plans to become Year 2000 ready. In late
1999, the Company completed the remediation and testing of its
products, internal systems and the products and services of
third parties. As a result of the Company's planning and
implementation efforts, the Company experienced no significant
disruptions in mission critical information technology and non-
information technology systems and believes that all systems
successfully responded to the Year 2000 date change. The
Company is unaware of any material problems resulting from
Year 2000 issues with its products, its internal systems, or
the products and services of third parties. The Company will
continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout 2000 to
ensure that any latent Year 2000 matters that may arise are
addressed promptly.
Client Services
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At December 31, 1999, the Company's client services
division employed approximately 491 professionals. Sunquest
Client Services provides clients with a wide array of services
including implementation, account management and education
services, as well as product and technical support. Client
Services employs skilled professionals with a strong focus on
clinical skills and technical expertise. Client Services'
employees attend rigorous training including, where required,
a formal six-month initial training program to comply with the
Company's certification requirements which are designed to
ensure the highest degree of competence.
Sunquest utilizes a variety of traditional and innovative
methods to provide educational services to its clients. In
addition to a standard "Train the Trainer" approach, PC and
Web-based educational services have contributed significantly
to this effort in 1999. Regional seminars to ensure client
competency have been widely attended in 1999 as part of an on-
going effort to provide post-live educational opportunities
for Sunquest clients. During our annual client user group
meeting, clients are offered workshops and lectures in a
variety of topics ranging from technical to management
training.
Areas of specialty have been developed within the Client
Services organization to support the deep level of
functionality in the Company's products. Client Services has
specific teams dedicated to the following areas:
instrumentation, application interfacing, devices,
microbiology, anatomical pathology, blood bank, operating
systems, as well as a Crises Team designed to provide rapid
and dedicated response in the event of a major system outage.
All support services are staffed 24 hours per day, 7 days per
week and are managed through a Help Desk "triaging" service
located in Tucson, Arizona. Services are delivered via
conventional methodologies as well as through new technology.
Many services are provided via the Internet and other advanced
technologies. The Company utilizes outside consulting
services as well as internally conducted surveys to constantly
assess client satisfaction and the quality of services
provided.
Every client is assigned a dedicated Client Advocate who
provides a single, long-term point of contact for each client.
The Client Advocate conducts regularly scheduled meetings
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with each client to ensure that all expectations are being met, and
focuses on proactive site management to assist clients with
their business needs.
Balanced View Consulting
- ------------------------
Balanced View Consulting is a division of Sunquest that
performs consulting and other services, primarily to the
Company's installed base. The services range from training in
the improved use of Sunquest's products to total reengineering
projects. In addition, Balanced View Consulting provides
clients with application interface testing in the areas of
ADT, OE, Results Reporting, Billing and Referenced Laboratory.
Balanced View Consulting can also provide System Managers on a
monthly or yearly basis, implementation assistance and
specific project work on an hourly-fee basis.
Balanced View Consulting remains committed to proving
high quality "client-side" services to our installed client
base as well as new site implementations. We are continuing
our expansion into the management consulting area,
specifically HIPPA and best practices for billing and clinical
laboratory services reimbursement.
Marketing
- ---------
The primary markets for the Company's systems and
services are the approximately 3,500 acute care hospitals in
the United States and Canada that have more than 250 beds and
the approximately 500 premier commercial and medical reference
laboratories in the United States. In addition to these
markets, the Company, through its e-Business initiatives, will
be targeting the more than 3,500 domestic hospitals with less
than 250 beds and the approximately 3,500 small commercial and
medical reference laboratories markets. The Company also
markets its systems and services to the approximately 600
hospitals in the United Kingdom, Ireland and Scandinavia that
have more than 200 beds. Sunquest's principal sources of
referrals are its clients and consultants. Sunquest also
seeks to enhance its market recognition through participation
in industry seminars and trade shows, Company-sponsored
seminars, the Sunquest User Group and Regional User Group
meetings in the United States and the United Kingdom, direct
mail campaigns, telemarketing and advertisements in trade
journals.
The Company's marketing department is composed of a team
of specialists in product management, marketing operations,
marketing communications and sales support. Its sales force
is organized into two divisions: (i) North American which is
divided into four areas, Western, Midwestern, Southern and
Northeastern, offering all of the Company's clinical products
and (ii) European Sales, offering the Company's systems in the
United Kingdom and Europe. At December 31, 1999, the Company
employed a sales and marketing force of approximately 110
individuals.
Technology
- ----------
Sunquest's clinical products operate on IBM's RS6000
servers using the AIX operating system and Compaq's Alpha
servers using Tru64 UNIX or OpenVMS operating
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systems. Users access the Company's applications using IBM
compatible PCs and/or terminals. The FlexiLab, FlexiRad and
Sunquest Financial products are offered on both IBM and Compaq
platforms. The FlexiMed product is offered on the IBM RS6000
platform only. The Company's commercial and medical reference
laboratory systems are offered on both IBM and Compaq
platforms. Ancillary modules of the FlexiLab product operate
on Intel platforms using Microsoft Windows NT operating
system.
The Company utilizes a multi-tiered approach for its
development efforts. Microsoft InterDev is used for Internet
presentation development. Microsoft Visual C++ and Visual
Basic are used for graphical presentation. Visual C++ and the
M computer language (also known as "MUMPS" or "Massachusetts
General Hospital Utility Multi-Programming System") are used
in the development of its laboratory and radiology clinical
systems business objects. The laboratory and radiology system
use InterSystem's M/SQL or Cache for data storage.
Microsoft's SQL-Server database is also used for newer
ancillary modules. FlexiRad is a completely client-server
system while the FlexiLab system uses both client-server and
monolithic based modules. These monolithic based modules
represent a limited set of functionality written entirely in
the M language. FlexiMed, the Company's pharmacy product, is
developed using Powerbuilder fourth generation language on an
Oracle database. All of the products use or are migrating to
utilize Microsoft's Windows 95/98/NT for the client operating
system. The Company's commercial and medical reference
laboratory systems have been developed in the M language.
Sunquest is migrating its laboratory and radiology
clinical systems to new technology by developing the object-
oriented middle tiers with graphical and Web-based
presentation layers while continuing to utilize hierarchical
and relational data structures (all residing on the server)
which can be deployed incrementally, depending on the state of
product evolution. Although the Company does not believe that
such migration is currently necessary to satisfy its clients'
needs, the Company expects to transition over time all of its
systems and modules to object orientation.
Sunquest resells third-party terminals, label and page
printers, storage devices and other peripheral devices. The
Company also provides services to configure computer systems
and networks. The Company has one-year renewable reseller
agreements with DEC and IBM and a variety of reseller
agreements with other middleware and device vendors.
Research and Development
- ------------------------
The Company believes that the continuing rapid evolution
of the clinical information systems market has made a
substantial and sustained commitment to product development
essential to the long-term success of its business. The
Company has a defined product development process
characterized by its phased product development lifecycle
discipline and release management methodology. This process
includes on-going analysis of the marketplace, determination
of users' requirements, prototypical engineering and user and
usability feedback, detailed design specifications, and
regression and beta testing to ensure that new systems meet
clients' needs.
Sunquest's product development managers are responsible
for product architecture, improvements to existing products,
construction verification and inspection. The Company's
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product development engineers are assigned to one of three
distinct functional groups: (i) the product engineering group,
which is responsible for the ongoing evolution of the
Company's existing products to meet the changing demands of
the market; (ii) the service engineering group, which
prioritizes corrections and improvements to deployed systems;
and (iii) the technology group, which researches industry-
standard components and develops new technologies for
integration into the Company's current and future products.
As of December 31, 1999, approximately 199 product development
engineers were assigned to improving and extending the
Company's existing systems and approximately 30 engineers were
assigned to the development of products in new product areas.
In 1999, 1998 and 1997, the Company's research and
development expenses before capitalization of software
development costs totaled approximately $19.1 million, $18.5
million and $16.9 million, respectively. See "Other Factors"
below.
Competition
- -----------
The markets for HCISs, including the markets for the
Company's information systems, are highly competitive. Most
of the Company's revenues are derived from lengthy,
competitive procurement processes managed by sophisticated
purchasers that extensively investigate and compare the
products offered by the Company and its competitors. The
Company believes that the principal competitive factors
influencing the market for its HCISs include vendor and
product reputation, quality of client support, product
architecture, functionality and features, ease of use,
rapidity of implementation, product performance and price.
The Company's principal competitors are divided into two
categories: Hospital Information Systems ("HIS") vendors and
stand-alone Clinical Information Systems ("CIS") vendors. The
Company's HIS competitive vendors are: McKesson HBOC, Inc.,
Medical Information Technology, Inc., Shared Medical Systems
Corp. and IDX Systems Corp. The primary CIS competitors are:
Cerner Corporation, Mediware Information Systems, Inc., ADAC
Healthcare Information Systems, Inc., Soft Computer
Consultants, Inc. and Triple G Corporation. In addition, the
Company competes with a large number of other information
system vendors. See "Other Factors" below.
Regulation
- ----------
The United States Food and Drug Administration (the
"FDA") is authorized to regulate medical "devices" under the
Federal Food, Drug, and Cosmetic Act, as amended (the "Act").
The FDA has interpreted the term "device" to include software
intended for use in the diagnosis, cure, mitigation,
treatment, or prevention of disease. A software product that
meets this definition is subject to the Act's regulatory
requirements applicable to devices, unless the software
product is exempted from one or more of those requirements.
The FDA's interpretation is that hospital information systems,
laboratory information management systems, expert medical
decision software systems, and blood bank information
management systems are medical devices. Software products
intended only for general accounting, communications, or
education are not subject to regulation as devices.
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Under an FDA draft policy for the regulation of computer
products, dated November 13, 1989, health information
management products that have not been classified by the FDA
are deemed medical devices but are exempt from active
regulation by the FDA if they involve competent human
intervention before any impact on human health occurs (e.g.,
clinical judgment and experience can be used to check and
interpret a system's data output). Active regulation would
include establishment registration, device listing, premarket
notification or premarket approval, good manufacturing
practices ("GMP"), and postmarket reporting. The FDA includes
in the category of software products that are exempt from
active regulation hospital information systems and pharmacy
ordering systems. The FDA has suggested that laboratory
information systems may be considered Class I devices under 21
C.F.R. 862.2100, which are exempted by that regulation from
premarket notification under section 510(k) of the Act but are
not exempt from other device regulatory requirements, such as
GMP and reporting.
In March 1994, the FDA notified blood bank software
manufacturers that blood bank software products would be
subject to active device regulation, including premarket
notification or premarket approval. Manufacturers were
notified to submit a premarket notification by March 31, 1995,
although this deadline was later extended to March 31, 1996.
Accordingly, the Company submitted a 510(k) notification to
the FDA on March 27, 1996 with respect to its Blood Bank
software. Following periodic discussions between the FDA and
the Company, on December 28, 1998, the FDA notified the
Company that the 510(k) notification was incomplete, the Blood
Bank product was deemed not substantially equivalent to a
predicate device, and a premarket approval application ("PMA")
would be required unless additional information was submitted
in a new, revised 510(k) notification for the Blood Bank
product. The Company submitted a new 510(k) notification on
January 29, 1999. On August 16, 1999, the Company received
510(k) clearance for the FlexiLab Blood Bank and Blood Donor
System version 5.2 on both the IBM AIX and the Compaq (DEC)
UNIX platforms. On November 17, 1999, the Company also
received 510(k) clearance for the FlexiLab Blood Bank and
Blood Donor System on the Compaq Alpha Open VMS platform. The
Company's ability to sell, promote, and install the FlexiLab
Blood Bank and Blood Donor System version 5.2 on other
platforms is contingent upon receiving the FDA clearance of a
510(k) notification. In addition, the marketing of versions
of the FlexiLab Blood Bank and Blood Donor System other than
version 5.2 may require FDA clearance of a 510(k)
notification. Compliance with the premarket notification and
other device regulatory requirements could be costly and could
delay or prelude the introduction of certain new products.
Based on the FDA's December 1998 letter, sales,
promotion, and new installations of the Company's Blood Bank
product were suspended, although the Company was permitted to
continue to support and service its existing Blood Bank
product customers. On March 23, 1999, the FDA notified the
Company that it could resume installation of the Blood Bank
product for customers with currently signed contracts and
customers with installations in progress. Upon FDA
clearance of the 510(k) notifications in August and November
1999, the Company was permitted to resume marketing and
distribution of the FlexiLab Blood Bank and Blood Donor System
version 5.2 on the IBM AIX and Compaq (DEC) UNIX platforms and
the Alpha Open VMS platform, respectively. The marketing
restrictions remain in effect with respect to the FlexiLab
Blood Bank and Blood Donor System on other platforms. The
Company has determined that the remaining marketing
restrictions on the Blood Bank System will have an
insignificant, if any, effect on the Company's business.
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In August and October 1998, the Company effected two
corrections in its Blood Bank software which were reported to
the FDA under regulations requiring notice of corrections and
removals of medical devices (21 C.F.R. Part 806). The FDA
classified these corrections as Class II voluntary recalls (21
C.F.R. Part 7). Implementation of the corrections at customer
sites has been completed.
Under FDA medical device reporting ("MDR") regulations,
manufacturers are required to report to the FDA device-related
deaths, serious injuries, and any malfunction which could
result in death or serious injury if it were to recur. MDRs
can result in voluntary corrective actions, such as recalls or
customer notifications, or agency action, such as inspection
or enforcement action. Manufacturers are also required to
report to the FDA certain corrections or recalls of marketed
medical devices. In November 1999, the Company submitted an
MDR relating to its Blood Bank product. A customer complaint
alleging improper system function when reflexively ordering Rh
Immune Globulin was resolved by disabling the reflex ordering
function.
The HIPAA contains requirements for the establishment of
standards for privacy of individually identifiable health
information. The Department of Health and Human Services
("HHS") has proposed regulations to standardize the electronic
exchange of health information, require protection of health
information in electronic form, and restrict the use and
further disclosure of health information. The regulations are
expected to become enforceable two years after adoption of the
final rule. The regulations will be applicable to customer
operations involving use of the Company's products, and the
Company will have to ensure that its products support
compliance with HIPAA requirements to the extent the
regulations are applicable. The Company cannot determine at
this time the effect, if any, that the final HIPAA regulations
may have on its business.
The health care industry is subject to changing
political, economic and regulatory influences that may affect
the procurement practices and operations of health care
providers. Many lawmakers have announced that they intend to
propose programs to reform the United States health care
system. These programs may contain proposals to increase
governmental involvement in health care, lower reimbursement
rates and otherwise change the regulatory environment in which
the Company's clients operate. Health care providers may
react to these proposals and the uncertainty surrounding such
proposals by curtailing or deferring investments, including
those for the Company's HCISs. This may result in greater
selectivity in the allocation of capital funds, which could
have a material adverse effect on the Company's ability to
sell HCISs and services. Such regulatory changes, if adopted,
and the reaction of health care providers to such changes may
have a material adverse effect on the Company's business and
results of operations. See "Other Factors" below.
Proprietary Rights
- ------------------
The Company's future success depends in large part upon
its ability to protect its technology and proprietary rights.
The Company relies on a combination of patent, copyright,
trade secret and trademark laws and contractual restrictions
to establish and protect its proprietary rights, although the
laws of certain foreign countries in which the Company
licenses or may license its products may not protect the
Company's proprietary rights to the
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<PAGE>
same extent as do laws in the United States. It is the
Company's policy to require employees, consultants, clients
and, in certain circumstances, suppliers to execute nondisclosure
agreements upon the commencement of a relationship with the Company.
The system acquisition agreements under which the Company
licenses its software products to its clients generally
prohibit the assignment or transfer of the software or use of
the software by any person or entity other than the named
client or its affiliates or successors. The agreements provide
that the Company retains ownership of the software and
proprietary information and of all rights therein. Except for
information which is in the public domain, the client is
required to hold the software and proprietary information in
confidence and use reasonable care to preserve and safeguard
such information.
FlexiLab, among other marks, is used by Sunquest in its
business and has been registered in the United States Patent
and Trademark Office. The trade name Sunquest has also been
registered by Sunquest in the United Kingdom and Germany.
Sunquest, Sunquest Information Systems, FlexiRad and FlexiMed,
among other marks, are trademarks of Sunquest Information
Systems, Inc. The trade name Antrim and other marks used by
Antrim in its business have also been registered with the
United States Patent and Trademark Office. Also, certain of
the Company's products are the subject of patent protection or
a pending patent application.
System Acquisition Agreements
- -----------------------------
The Company typically furnishes its systems to its
clients pursuant to system acquisition agreements that grant
perpetual, non-exclusive and non-transferable licenses to use
those systems, including the source code for certain of the
Company's proprietary software included therein. Under these
agreements, the Company also resells certain items of hardware
to its clients. Clients pay specified fees for the license of
software proprietary to the Company and the sublicense of
software proprietary to third parties. Clients also pay
specified fees for hardware, installation and training in the
use of the system. License fees for the Company's systems are
typically based on a number of factors, including the number
and type of software modules included in the system, as well
as the volume of use by the client. The Company generally
supports and maintains the licensed systems and provides
modifications, enhancements and upgrades for a monthly fee
under separate maintenance agreements.
Backlog
- -------
At December 31, 1999, the Company had a total contract
backlog of $124.6 million, which consisted of $55.9 million of
system sales and services and $68.7 million of support. At
December 31, 1998, total contract backlog was $122.0 million,
which consisted of $61.1 million of system sales and services
and $60.9 million of support. System sales and services
backlog consists of the unearned amounts of signed contracts
which have not yet been recognized as revenues. Support
backlog consists primarily of contracted software support for
a period of 12 months. The Company is unable to predict
accurately the amount of backlog it expects to fill in any
particular period, since it adjusts the timing of
installations to
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accommodate clients' needs and since installations typically require
eight to 14 months to complete.
Employees
- ---------
As of December 31, 1999, the Company had 924 employees.
None of the Company's employees are represented by a labor
union, nor has the Company experienced any work stoppages.
The Company believes that it has good relations with its
employees.
Forward-Looking Statements
- --------------------------
This report contains forward-looking statements,
including statements which contain words such as "will,"
"expects," "believes," "plans," "anticipates" and words of
similar impact. The following are certain factors that may
cause the Company's actual results to vary materially from
those which are the subject of any such forward-looking
statements.
Other Factors Affecting Future Performance
Dependence on Single Product. To date, the Company has
derived the majority of its revenues from sales of laboratory
information systems ("LISs") and related implementation
support services in the United States. The Company expects
that it will continue to derive a significant portion of its
total revenues for the foreseeable future from sales of LISs
and related implementation and support services. Accordingly,
market factors adversely affecting sales of LISs could have a
material adverse effect on the Company's business and results
of operations. Such factors include, but are not limited to,
consolidation among the Company's customers, changes in the
criteria used by such customers in making purchase decisions,
and competitive pricing pressures. The Company's target
market for its LISs, consisting primarily of large and mid-
sized hospitals, is characterized by continuing consolidation
resulting in fewer purchasing decisions at a higher dollar
value, a trend that may favor larger vendors with greater
numbers of hospitals currently under contract. There can be no
assurance that the Company will continue to be the vendor of
choice as newly consolidated customers replace legacy systems.
In addition, changes in the criteria used in making purchasing
decisions such as a shift to purchasing single vendor,
hospital-wide systems may have a material adverse effect on
the Company's ability to attract new customers. Competitive
pressures or other factors, including the Company's efforts to
expand its LIS offerings to new markets, may result in
significant price decreases that could have a material adverse
effect on the Company's business and results of operations.
There can be no assurance that the Company will be able to
sustain or increase the level of revenues from sales of its
LISs on an annual or quarterly basis.
Rapid Technological Change and Dependence on New Product
Development, Enhancement and Acceptance. The HCIS market is
characterized by rapid technological advances, frequent new
product introductions and evolving industry standards that are
outside the control of the Company. The development and sale
of additional applications is a principal means of competition
in the HCIS market. Advances in both hardware and software
technology, including the introduction of new hardware
platforms, new programming languages and new software
applications, will require the Company to make
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<PAGE>
significant ongoing expenditures for research and development in
order to adapt the Company's existing and subsequently introduced HCISs
to such new technologies and to take advantage of the benefits
they offer. For the foreseeable future, the Company intends
to continue to devote substantial financial, managerial and
personnel resources to its product development efforts. The
development of new and enhanced HCISs is a complex and
uncertain process requiring high levels of innovation and the
accurate anticipation of technological and market trends, and
from time to time the Company has experienced delays in
introducing new HCISs and HCIS enhancements. The Company
intends to complete its migration of products and clients to
Windows-based software and to Web-enable certain of its
products. An inability to accomplish these initiatives or any
significant delay in these initiatives could have an adverse
effect on the Company's business and results of operations.
The failure of the Company to develop and introduce new HCISs,
such as its pharmacy systems, its Clinical Data Management
suite of products or its e-business initiatives, and HCIS
enhancements successfully or the failure to respond
effectively to technological changes, including the use of the
Internet, could have a material adverse effect on the
Company's business and results of operations.
Competition. The markets for HCISs, including the
markets for the Company's information systems, are highly
competitive. Most of the Company's revenues are derived from
lengthy, competitive procurement processes managed by
sophisticated purchasers that extensively investigate and
compare HCISs offered by the Company and its competitors. The
Company believes that the principal competitive factors
influencing the market for its HCISs include vendor and
product reputation, quality of client support, product
architecture, functionality and features, ease of use,
rapidity of implementation, product performance and price.
There can be no assurance that the Company will be able to
compete successfully with respect to any of such factors. In
addition, many of the Company's current and potential
competitors have significantly greater financial, managerial,
development, technical, marketing and sales resources than the
Company and may be able to devote those resources to develop
and introduce new products more rapidly than the Company or
with significantly greater functionality than, and superior
overall performance to, those offered by the Company. These
competitors may also be able to initiate and withstand
significant price decreases more effectively than the Company.
Regulation. The Company expects that the FDA is likely
to become increasingly active in regulating computer software
that is intended for use in health care settings. In March
1994, the FDA notified blood bank software manufacturers that
blood bank software products would be subject to active device
regulation, including premarket notification or premarket
approval. Manufacturers were notified to submit a premarket
notification by March 31, 1995, although this deadline was
later extended to March 31, 1996. Accordingly, the Company
submitted a 510(k) notification to the FDA on March 27, 1996
with respect to its Blood Bank software. Following periodic
discussions between the FDA and the Company, on December 28,
1998, the FDA notified the Company that the 510(k)
notification was incomplete, the Blood Bank product was deemed
not substantially equivalent to a predicate device, and a
premarket approval application ("PMA") would be required
unless additional information was submitted in a new, revised
510(k) notification for the Blood Bank product. The Company
submitted a new 510(k) notification on January 29, 1999. On
August 16, 1999, the Company received 510(k) clearance for the
FlexiLab Blood Bank and Blood Donor System version 5.2 on both
the IBM AIX and the Compaq (DEC) UNIX platforms. On November
17, 1999, the Company also received 510(k) clearance for the
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<PAGE>
FlexiLab Blood Bank and Blood Donor System on the Compaq Alpha
Open VMS platform. The Company's ability to sell, promote,
and install the FlexiLab Blood Bank and Blood Donor System
version 5.2 on other platforms is contingent upon receiving
the FDA clearance of a 510(k) notification. In addition, the
marketing of versions of the FlexiLab Blood Bank and Blood
Donor System other than version 5.2 may require FDA clearance
of a 510(k) notification. Compliance with the premarket
notification and other device regulatory requirements and any
future requirements could be costly and could delay or prelude
the introduction of certain new products.
The HIPAA contains requirements for the establishment of
standards for privacy of individually identifiable health
information. The HHS has proposed regulations to standardize
the electronic exchange of health information, require
protection of health information in electronic form, and
restrict the use and further disclosure of health information.
The regulations are expected to become enforceable two years
after adoption of the final rule. The regulations will be
applicable to customer operations involving use of the
Company's products, and the Company will have to ensure that
its products support compliance with HIPAA requirements to the
extent the regulations are applicable. The Company cannot
determine at this time the effect, if any, that the final
HIPAA regulations may have on its business.
In addition, the health care industry is subject to
changing political, economic and regulatory influences that
may affect the procurement practices and operation of health
care providers. Many lawmakers have announced that they
intend to propose programs to reform the United States health
care system. These programs may contain proposals to increase
governmental involvement in health care, lower reimbursement
rates and otherwise change the regulatory environment in which
the Company's clients operate. Health care providers may
react to these proposals and the uncertainty surrounding such
proposals by curtailing or deferring investments, including
those for the Company's HCISs. This may result in greater
selectivity in the allocation of capital funds, which could
have a material adverse effect on the Company's ability to
sell HCISs and services. Such regulatory changes, if adopted,
and the reaction of health care providers to such changes may
have a material adverse effect on the Company's business and
results of operations.
Control by Current Shareholders; Payments upon Change in
Control. As of the date of this Report, Dr. Sidney A.
Goldblatt, Chairman of the Board and Chief Executive Officer
of the Company; Bradley L. Goldblatt, Dr. Goldblatt and Nina
M. Dmetruk, the Executive Vice President, Chief Financial
Officer, Secretary and Treasurer of the Company, as trustees
for the benefit of Bradley L. Goldblatt; Bradley L. Goldblatt,
Dr. Goldblatt and Ms. Dmetruk, as trustees for the benefit of
Curtis S. Goldblatt; and Jodi Beth Gottlieb, Dr. Goldblatt and
Ms. Dmetruk, as trustees for the benefit of Jodi Beth Gottlieb
(such trusts being collectively referred to herein as the
"Trusts") own approximately 76.6% of the outstanding Common
Stock. As a result, these shareholders, if acting in concert,
will be able to elect or remove the entire Board of Directors
and control the outcomes of all other issues submitted to the
Company's shareholders for approval. This concentration of
ownership may enable Dr. Goldblatt and the Trusts to cause or
prevent change in control of the Company without the approval
of other shareholders. There can be no assurance that this
concentration of ownership will not have a material adverse
effect on the market price of the Common Stock. In the event
that Dr. Goldblatt, his three children and trusts created in
their benefit (including the Trusts) cease to own, directly or
indirectly, fifty percent or more of the outstanding stock
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of the Company, Ms. Dmetruk will be entitled to elect, during the
ninety days following such event, to terminate her employment
with the Company and receive $1.2 million in severance pay.
Significant Fluctuations in Quarterly Operating Results;
Revenue Recognition Policy. The Company's quarterly revenues
and results of operations have varied significantly as a
result of a number of factors, including (i) the volume and
timing of systems sales and installations; (ii) the timing of
client acceptances; (iii) the length and complexity of the
systems sales and installation cycles; (iv) seasonal buying
trends as a result of clients' annual purchasing and budgeting
practices; and (v) the Company's sales commission practices.
The Company expects that these variations will continue for
the foreseeable future. Revenues from the software portion of
system sales are recognized on the percentage-of-completion
method and are determined based upon actual hours incurred
related to total estimated installation hours. As a result,
the timing of revenue recognition varies considerably and
could be impeded by a number of factors, including
availability of Company personnel, the Company's need to
allocate system installation resources to other installations
or to research and development activities, availability of
client personnel and other resources, and complexity of the
clients' needs and delays imposed by clients. Because a
significant percentage of the Company's expenses, particularly
employee compensation, is relatively fixed, variations in the
timing of system sales, installations and training costs can
cause significant variations in operating results from quarter
to quarter. If total revenues are below expectations in any
period, the Company's inability to adjust spending to
compensate fully for the lower revenues may magnify the
adverse effect of such a shortfall on the Company's results of
operations. Accordingly, the Company believes that period-to-
period comparisons of revenue and results of operations are
not necessarily meaningful and should not be relied upon as
indicators of future performance.
Dependence on Key Personnel; Management of Changing
Business. The Company's future success depends to a
significant extent upon the executive officers, the Board of
Directors, and certain other managerial, technical and
marketing personnel. The Company has experienced turnover at
the executive level in the past, and the loss of the services
of key personnel could have a material adverse effect on the
Company's business and results of operations. The Company's
ability to manage growth will require it to continue to
attract, motivate and retain highly skilled managerial,
technical and sales and marketing personnel. Competition for
such personnel is intense, and there can be no assurance that
the Company will be successful in attracting, motivating and
retaining the personnel required to maintain and improve its
business and results of operations.
Uncertainty of the Internet. The impact on the Company
of emerging areas such as the Internet, electronic commerce
and on-line services is uncertain. Rapid growth in the use of
and interest in the Internet and electronic commerce is a
recent phenomenon and the Company cannot predict with any
assurance whether the acceptance and use will continue to
develop or that a sufficiently broad base of customers will
adopt or continue to use the Internet as a medium of commerce.
Demand for and market acceptance of recently introduced
services and products over the Internet are subject to a high
level of uncertainty and there exist few proven services and
products.
There can be no assurance that the Company will provide a
product offering that will satisfy customer demands in these
new emerging areas. In addition, standards for network
21
<PAGE>
protocols, as well as other standards adopted by the industry
for the Internet, are evolving rapidly. There can be no
assurance that standards chosen by the Company will leverage
its products to compete effectively for Internet business
opportunities as they arise. If the Company is unable to
develop services and products that attract, retain and expand
its customer base, results of operations and financial
condition could be materially adversely affected.
Critical issues concerning the commercial use of the
Internet, including security, demand, reliability, cost, ease
of use, accessibility, quality of service and potential tax or
other government regulation, remain unresolved and may affect
the use of the Internet as a medium to support the
distribution of the Company's software. If these issues are
not favorably resolved, the Company's business, results of
operations and financial condition could be materially
adversely affected.
In addition, problems with the Company's computer and
communications hardware and network systems, including
problems with third parties' systems, could cause
interruptions. Those interruptions could result from software
or hardware failures, inadequate Internet infrastructure
capacity and other human or mechanical causes. The Company
expects to experience occasional, temporary capacity
constraints due to anticipated increased Internet traffic,
which could cause unanticipated system disruptions, slower
response time, impaired quality and degradation of levels of
customer service. If the Company experiences frequent or long-
term system interruptions, it may experience a decrease in the
number of customers using its products and services over the
Internet.
Risks Associated with Identifying and Integrating
Acquisitions; Other Strategic Alternatives. The Company may
grow through the acquisition of complementary products,
technologies or businesses in the HCIS industry. The
Company's management has limited experience in identifying
appropriate acquisitions and in integrating products,
technologies and businesses into its operations. The
evaluation, negotiation and integration of any such
acquisition may divert the time, attention and resources of
the Company, particularly its management. There can be no
assurance that the Company will be able to integrate
successfully any acquired products, technologies or businesses
into its operations. In addition, there is significant
competition for acquisition opportunities in the HCIS
industry. Consolidation in the industry may intensify such
competition and thereby increase the costs of such acquisition
opportunities. The failure to identify and compete
successfully for strategic acquisition opportunities or to
integrate successfully any acquired products, technologies or
businesses could have a material adverse effect on the
Company. In addition to acquisitions, the Company may from
time to time consider other strategic alternatives including,
without limitation, mergers, consolidations, joint ventures
and recapitalizations. The evaluation and implementation of
any such alternative may divert the time, attention and
resources of the Company. There can be no assurance that any
such strategic alternative would be implemented successfully.
Dependence on Proprietary Rights. The Company's future
success depends in large part upon its ability to protect its
technology and proprietary rights. The Company relies on a
combination of patent, copyright, trade secret and trademark
laws and contractual restrictions to establish and protect its
proprietary rights, although the laws of certain foreign
countries in which the Company licenses or may license its
products may not protect the Company's proprietary rights to
the same extent as do laws in the United States. It may
nonetheless be
22
<PAGE>
possible for third parties to misappropriate the Company's technology
and proprietary information or to develop independently similar or
superior technology. There can be no assurance that the legal protections
afforded to the Company and the measures taken by the Company will be
adequate to protect its intellectual property. Any misappropriation of
the Company's technology or proprietary information could have
a material adverse effect on the Company's business and
results of operations. Moreover, the Company is subject to
the risk that others will assert adverse claims and commence
litigation alleging infringement or misappropriation of their
intellectual property rights. There can be no assurance that
others will not assert claims or commence litigation with
respect to the Company's current or future HCISs. In any such
event, the Company may be required to engage in protracted and
costly litigation, regardless of the merits of such claims;
discontinue the use of certain software codes, processes or
trademarks; cease to manufacture, use and license infringing
products; develop non-infringing technology; or enter into
license arrangements with respect to the disputed intellectual
property. There can be no assurance that the Company would be
able to develop alternative technology or that any necessary
licenses would be available or that, if available, such
licenses could be obtained on commercially reasonable terms.
Responding to and defending any of these claims could distract
the attention of management and have a material adverse effect
on the Company's business and results of operations.
Product Liability. The Company's systems include
applications that may relate to confidential patient medical
histories and treatment plans. Improper disclosure of this
information or any failure by the Company's systems to provide
accurate and timely information could result in claims against
the Company by its clients or their patients. A successful
claim brought against the Company in excess of its insurance
coverage could have a material adverse effect on the Company's
business or results of operations, and even unsuccessful
claims could result in the expenditure of substantial funds in
litigation and the diversion of management time and resources.
There can be no assurance that the Company will not be subject
to such claims in the future, that such claims will not result
in liability in excess of any insurance coverage maintained by
the Company with respect to such claims, that insurance will
cover such claims or that appropriate insurance will continue
to be available to the Company at commercially reasonable
rates.
Fluctuations of Stock Price. In recent years, the stock
market in general, and the shares of software technology
companies in particular, have experienced extreme price
fluctuations that are often unrelated to the operating
performance of such companies. The Company has experienced
fluctuations in its stock price related to these general
market fluctuations and to such operating factors as quarterly
fluctuations in its revenues or results of operations, general
conditions in the information technology services industry and
announcements of new products or services by the Company or
its competitors. These fluctuations may adversely affect the
future market price of the Company's Common Stock.
Transactions with Affiliates. The Company has historically
engaged in transactions with affiliates, including Dr. Sidney A.
Goldblatt, Trusts and certain affiliates of the Trusts. Although
the Company took precautions to achieve results which the Company
believes were equivalent to arm's-length transactions, there can be no
assurance that actual results will be as favorable to the
Company as arm's-length transactions. In May 1996, the
Company adopted a policy that all future transactions between
the Company and its officers, directors, principal
shareholders and their affiliates shall be on terms no less
favorable to the Company than could be obtained by the Company
from unrelated third parties, and shall be approved
23
<PAGE>
by a majority of the outside independent and disinterested
directors. This policy does not apply to transactions entered
into before the adoption of the policy or to renewals of
existing transactions on similar terms.
Executive Officers of the Registrant
- ------------------------------------
Information concerning the executive officers of the
Company, as of March 17, 2000, is set forth below.
Name Age Position
- ------------------- ----- ------------------------
Sidney A. Goldblatt 65 Chief Executive Officer
and Chairman of the Board
Mark J. Emkjer 44 President and Chief
Operating Officer
Nina M. Dmetruk 47 Executive Vice President-
Chief Financial Officer,
Secretary, Treasurer and
Director
James F. Garliepp 48 Executive Vice President-
Chief Design Officer
Ivan G. Boyd 45 Senior Vice President-
Sales and Marketing
Sidney A. Goldblatt, M.D., a co-founder of the Company,
has been Chief Executive Officer of the Company since December
1994, a director of the Company since its formation in 1979
and Chairman of the Board since 1987. Dr. Goldblatt also
served as President of the Company from September 1986 to
February 2000 and Chief Operating Officer of the Company from
December 1992 to August 1994. Dr. Goldblatt has served as
President and sole shareholder of S. Goldblatt Pathology
Associates, P.C. since 1971.
Mark J. Emkjer has been President of the Company since
February 2000 and Chief Operating Officer since January 1999.
From April 1996 to December 1998, Mr. Emkjer was employed by
Pace, a company that develops clinical decision support
software for IDNs, where he served as President and Chief
Executive Officer. From January 1991 to March 1996, Mr.
Emkjer was employed by Hospital Cost Consultants, a provider
of clinical and financial software solutions to the health
care industry, where he served as President and Chief
Executive Officer.
Nina M. Dmetruk has served as Executive Vice President-
Chief Financial Officer of the Company since September 1991
and a director of the Company since December 1991. She has
served as Secretary of the Company since August 1996 and
Treasurer of the Company since April 1998. Effective May 26,
1996, Ms. Dmetruk entered into an employment agreement with
the Company under which she agreed to serve as the Executive
Vice President-Chief Financial Officer of the Company on a
full-time basis. During her earlier service as Executive Vice
President-Chief Financial Officer, Ms. Dmetruk was not an
employee of the Company and devoted approximately 60% to 80%
of her time to the Company's business. Ms. Dmetruk is a CPA
and a CFP and until May 1996 was the sole owner of a public
accounting firm for more than five years.
24
<PAGE>
James F. Garliepp has been Executive Vice President-Chief
Design Officer since March 2000. From September 1991 to March
2000, Mr. Garliepp served as Executive Vice President-Chief
Technology Officer. Mr. Garliepp previously served as Senior
Vice President-Technology from 1989 to September 1991 and
served in various other positions from 1982 to 1989.
Ivan G. Boyd has been Senior Vice President-Sales and
Marketing since November 1997. From October 1995 to September
1997, Mr. Boyd was employed by ADAC HealthCare Information
Systems, Inc., a division of ADAC Labs, a health care
information systems company, where he served as Executive Vice
President of Sales and Marketing. From September 1994 to July
1995, Mr. Boyd was employed by First Data Corporation, a
health care information systems company, where he served as
Senior Vice President of Sales. From June 1980 to September
1994, Mr. Boyd was employed by Digital Equipment Corporation,
a computer manufacturing company, where he served as
Worldwide Healthcare Director from April 1993 to September
1994 and U.S. Channels Marketing Director from July 1991 to
April 1993.
The executive officers of the Company are elected by and
serve at the discretion of the Board of Directors.
Item 2. Properties.
The Company's principal executive and administrative
offices and its sales and marketing, customer services and
product development facilities are located in two buildings
containing 102,000 square feet of office space and 85,000
square feet of office space, respectively, in Tucson, Arizona.
The Company leases the buildings from Any Travel, Inc., a
travel agency located in Tucson, Arizona, which is owned by
the Trusts. The lease for the 102,000 square foot building,
which includes an adjacent two-level parking facility,
currently requires monthly rental payments of $100,406 and
expires in September 2001. The Company occupies approximately
62,656 square feet of office space in the other building and
subleases the remaining space to a number of subtenants. The
lease for the second building currently requires monthly
rental payments of $74,971 and expires in May 2004. Sunquest
receives monthly rental payments under the subleases totaling
approximately $15,730. In addition, the Company owns a
facility containing approximately 43,620 square feet, in
Tucson, Arizona, which was purchased in February 1997 for cash
in the amount of $1.8 million. The building is being leased
to third parties but will eventually be used for office
expansion. Currently, Sunquest receives monthly rental
payments of approximately $30,289 from this facility. The
Company also owns a two-story building, containing
approximately 18,000 square feet, in Johnstown, Pennsylvania,
which it may use as an office facility.
Antrim leases office space in Plano, Texas, containing
approximately 47,420 square feet. The lease currently
requires monthly rental payments of $64,215 and expires in May
2001. Antrim receives monthly rental payments under a
sublease totaling approximately $6,222.
The Company believes that its facilities will be adequate
for its current operations for at least the next twelve
months.
25
<PAGE>
Borrowings under the Company's line of credit with Bank
of America National Trust and Savings Association ("Bank of
America") are secured by all of the Company's assets. The
Company has also granted liens on all of its assets to a
vendor to secure amounts due for the purchase of hardware and
other equipment.
Item 3. Legal Proceedings.
The civil action instituted by the Company in the United
States District Court for the Western District of Pennsylvania
against Dean Witter Reynolds, Inc. and The Compucare Company
for material misrepresentations and omissions in connection
with the Company's purchase of the outstanding capital stock
of Antrim Corporation was settled in January 2000 without a
material impact on the Company's financial statements.
On February 23, 2000, Dynamic Healthcare Technologies,
Inc. ("Dynamic") brought an action against the Company in the
Circuit Court for the 11th Judicial Circuit, Dade County,
Florida, alleging breaches by the Company of the Value Added
Reseller Agreement (the "VAR") between them under which the
Company is authorized to grant sub-licenses of Dynamic's
CoPath software product. Dynamic seeks monetary damages in an
unspecified amount and a declaration by the Court that the VAR
should be terminated as a result of the alleged breaches. The
Company believes that it has defenses and counterclaims to
Dynamic's allegations and, as such, the Company intends to
vigorously defend against Dynamic's claims. At the present
time, the Company is unable to determine the probable outcome
of the lawsuit.
The Company is also subject to legal proceedings and
claims covering a wide range of matters that arose in the
ordinary course of business. Management is of the opinion
that the potential liability with respect to these legal
proceedings and claims will not materially affect the
Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of shareholders
during the quarter ended December 31, 1999.
26
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock is traded on the over-the-
counter market and is quoted on the Nasdaq National Market
System under the symbol "SUNQ." The following table sets
forth, for the periods indicated, the high and low sales
prices of the Common Stock as reported by the Nasdaq National
Market System.
Price Range
Period High Low
- -------------------------------------------
1999
First quarter $15.0000 $ 9.3750
Second quarter $16.5000 $10.7500
Third quarter $17.7500 $12.2500
Fourth quarter $16.0000 $10.6875
Price Range
Period High Low
- -------------------------------------------
1998
First quarter $12.3750 $ 7.8750
Second quarter $11.0000 $ 6.7500
Third quarter $12.3750 $ 7.2500
Fourth quarter $15.0000 $ 6.8750
Except for S corporation distributions, no dividends have
been declared or paid on the Company's Common Stock. The
Company anticipates that it will retain future earnings, if
any, to fund the development and growth of its business and
does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company's line of credit
prohibits the payment of capital distributions or dividends.
At March 17, 2000, there were 41 holders of record of the
Common Stock, and the Company believes that on that date there
were in excess of 1,300 beneficial owners of the Common Stock.
Item 6. Selected Financial Data.
The information required by this item is included in the
Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1999 (the "Annual Report") and such
information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information required by this item is included in the
Annual Report and such information is incorporated herein by
reference.
27
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risk from changes in
interest rates. The Company's primary interest rate risk
relates to its short-term investments in Tax-exempt Municipals
and Short-term Demand Notes all of which are classified as
available-for-sale. At December 31, 1999, the Company had
total short-term investments of $37.2 million. Assuming a 10%
increase in interest rates on the Company's short-term
investments (i.e., an increase from the December 31, 1999
weighted-average interest rate of 5.56% to a weighted-average
interest rate of 6.12%), the fair value of these investments
would decrease by approximately $621,000.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the report
thereon of Ernst & Young LLP dated February 8, 2000, and
supplementary data required by this item are included in the
Annual Report and such financial statements and supplementary
data are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None
Part III
Item 10. Directors and Executive Officers of the
Registrant.
The information set forth under the caption "Executive
Officers of the Registrant" in Part I of this Annual Report on
Form 10-K and the information set forth under the caption
"Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy
Statement for the 2000 Annual Meeting of Shareholders (the
"Proxy Statement") is incorporated herein by reference.
Item 11. Executive Compensation.
The information set forth under the caption "Executive
Compensation and Related Information" in the Proxy Statement
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
The information set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement is incorporated herein by reference.
28
<PAGE>
Item 13. Certain Relationships and Related Transactions.
The information set forth under the caption "Certain
Transactions and Business Relationships" in the Proxy
Statement is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this Report:
(1) Financial Statements (Incorporated by reference in Item 8)
----------------------------------------------------------
Report of Independent Auditors dated February 8, 2000
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Income and Comprehensive
Income for the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
[All financial statement schedules are omitted as
inapplicable or because the required information is
included in the Consolidated Financial Statements or
the Notes to Consolidated Financial Statements.]
(2) Exhibits
--------
3A Amended and Restated Articles of Incorporation of
the registrant. (1)
3B Amended and Restated Bylaws of the registrant. (1)
10.3 Sunquest Information Systems, Inc. and Affiliates 401(k)
Profit Sharing Plan (as Amended and Restated Generally
Effective January 1, 1997). (2) (3)
10.4 Qualified Plan Trust Agreement dated September 2, 1999
between the registrant and T. Rowe Price Trust Company. (2) (3)
10B Lease Agreement dated as of September 17, 1991
between the registrant, as lessee, and Any Travel,
Inc., as lessor, with respect to the premises located
at 4801 East Broadway Boulevard, Tucson, Arizona. (1)
29
<PAGE>
10E Triple Net Lease Agreement dated as of May 2, 1994
between the registrant, as lessee, and Any Travel, Inc.,
as lessor, with respect to the premises located at 1121-
1161 North El Dorado Place in Tucson, Arizona. (1)
10I.3 Stock Incentive Plan of 1996, as amended March 12, 1998. (2) (5)
10K Business Loan Agreement dated as of March 8, 1996,
as amended March 11, 1996, among the registrant,
Sunquest Europa Limited and Bank of America Arizona, and
related Security Agreements. (1)
10N Tax Indemnification Agreement dated as of April 30, 1996,
between the registrant and its shareholders of
record as of April 30, 1996. (1)
10P Employment Agreement effective May 26, 1996 between
Nina M. Dmetruk and the registrant. (1) (2)
10Q Lease dated June 1, 1996 between Antrim Corporation,
as lessee, and Massachusetts Mutual Life Insurance
Company, as lessor, with respect to office space in
Plano, Texas. (6)
10S Form of Underwriting Agreement dated May 30, 1996,
filed as Exhibit 1A to Registration Statement No. 333-2790
and incorporated herein by reference.
10T Business Loan Agreement dated as of December 30, 1997,
among the registrant, Sunquest Europa Limited, Antrim
Corporation, Sunquest Pharmacy Information Systems, Inc.,
Sunquest Germany GmbH and Bank of America National Trust
and Savings Association. (5)
10.2 Second Amendment to Business Loan Agreement
dated December 30, 1997, among the registrant,
Sunquest Europa Limited, Antrim Corporation,
Sunquest Pharmacy Information Systems, Inc.,
Sunquest Germany GmbH and Bank of America National
Trust and Savings Associations, filed as Exhibit
10.1 to Form 10-Q for the quarter ended June 30, 1999.
10U Stock Purchase Agreement with The Compucare Company,
dated as of November 26, 1996, filed as Exhibit 2A to
Form 8-K dated December 11, 1996 and incorporated
herein by reference.
10.1 Employment Agreement effective December 14, 1998
between Mark J. Emkjer and the registrant. (2) (4)
13.1 Financial Information Section of Annual Report to
Shareholders for 1999. (3)
21.1 Subsidiaries of the registrant. (3)
30
<PAGE>
23.1 Consent of Independent Auditors, dated March 27, 2000. (3)
27.1 Financial Data Schedule for the year ended December 31, 1999. (3)
99.1 CD Presentation (3)
___________________
(1) Filed, under the same number, as an exhibit to Registration
Statement No. 333-2790 and incorporated herein by reference.
(2) Management contract or compensatory plan or arrangement.
(3) Filed herewith.
(4) Filed, under the same number, as an exhibit to the Form
10-K for the year ended December 31, 1998.
(5) Filed, under the same number, as an exhibit to the Form
10-K for the year ended December 31, 1997.
(6) Filed, under the same number, as an exhibit to the Form
10-K for the year ended December 31, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during
the quarter ended December 31, 1999.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Johnstown, Commonwealth of Pennsylvania, on March 27, 2000.
SUNQUEST INFORMATION SYSTEMS, INC.
(Registrant)
By: /s/ Sidney A. Goldblatt
_______________________
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated.
Signature Title Date
--------- ----- ----
/s/ Sidney A. Goldblatt Chairman of the Board and March 27,2000
_______________________ Chief Executive Officer
Sidney A. Goldblatt (Principal Executive Officer)
and Director
/s/ Nina M. Dmetruk Executive Vice President and March 27, 2000
_______________________ Chief Financial Officer
Nina M. Dmetruk (Principal Financial and
Accounting Officer) and Director
/s/ Richard W. Barker Director March 27, 2000
_______________________
Richard W. Barker
/s/ Larry R. Ferguson Director March 27, 2000
_______________________
Larry R. Ferguson
/s/ Curtis S. Goldblatt Director March 27, 2000
_______________________
Curtis S. Goldblatt
/s/ Stanley J. Lehman Director March 27, 2000
_______________________
Stanley J. Lehman
/s/ Charles A. Schliebs Director March 27, 2000
_______________________
Charles A. Schliebs
32
<PAGE>
Sunquest Information Systems, Inc.
Form 10-K For Fiscal Year Ended December 31, 1999
Commission File No. 0-28212
---------------------------
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
3A Amended and Restated Articles of Incorporation of
the registrant. *
3B Amended and Restated Bylaws of the registrant. *
10.3 Sunquest Information Systems, Inc. and Affiliates 401(k)
Profit Sharing Plan (as Amended and Restated Generally
Effective January 1, 1997).
10.4 Qualified Plan Trust Agreement dated September 2, 1999
between the registrant and T. Rowe Price Trust Company.
10B Lease Agreement dated as of September 17, 1991
between the registrant, as lessee, and Any Travel,
Inc., as lessor, with respect to the premises located at
4801 East Broadway Boulevard, Tucson, Arizona. *
10E Triple Net Lease Agreement dated as of May 2, 1994
between the registrant, as lessee, and Any Travel, Inc.,
as lessor, with respect to the premises located at 1121-
1161 North El Dorado Place in Tucson, Arizona. *
10I.3 Stock Incentive Plan of 1996, as amended March 12, 1998. *
10K Business Loan Agreement dated as of March 8, 1996,
as amended March 11, 1996, among the registrant,
Sunquest Europa Limited and Bank of America Arizona, and
related Security Agreements. *
10N Tax Indemnification Agreement dated as of April 30,
1996, between the registrant and its shareholders
of record as of April 30, 1996. *
10P Employment Agreement effective May 26, 1996 between
Nina M. Dmetruk and the registrant. *
10Q Lease dated June 1, 1996 between Antrim Corporation,
as lessee, and Massachusetts Mutual Life Insurance
Company, as lessor, with respect to office space in Plano,
Texas. *
10S Form of Underwriting Agreement dated May 30, 1996. *
<PAGE>
10T Business Loan Agreement dated as of December 30,
1997, among the registrant, Sunquest Europa Limited,
Antrim Corporation, Sunquest Pharmacy Information Systems,
Inc., Sunquest Germany GmbH and Bank of America National
Trust and Savings Association. *
10.2 Second Amendment to Business Loan Agreement dated
December 30, 1997, among the registrant, Sunquest
Europa Limited, Antrim Corporation, Sunquest
Pharmacy Information Systems, Inc., Sunquest Germany
GmbH and Bank of America National Trust and Savings
Associations. *
10U Stock Purchase Agreement with The Compucare Company,
dated as of November 26, 1996. *
10.1 Employment Agreement effective December 14, 1998
between Mark J. Emkjer and the registrant. *
13.1 Financial Information Section of Annual Report to
Shareholders for 1999.
21.1 Subsidiaries of the registrant.
23.1 Consent of Independent Auditors, dated March 27, 2000.
27.1 Financial Data Schedule for the year ended December
31, 1999.
99.1 CD Presentation
___________________
* Incorporated by reference.
<PAGE>
Exhibit 10.3
SUNQUEST INFORMATION SYSTEMS, INC.
AND AFFILIATES
401(k) PROFIT SHARING PLAN
(As Amended And Restated Generally Effective
January 1, 1997)
ARTICLE I
Name and Effective Date
-----------------------
1.1 Name. This Plan shall be known as the Sunquest
Information Systems, Inc. and Affiliates 401(k) Profit Sharing
Plan (hereinafter referred to as the "Plan").
1.2 Effective Date. The effective date of this amended and
restated Plan shall be January 1, 1997 and such later effective
dates as may be stated herein. The provisions of this amended
and restated Plan shall apply only to a Participant who is an
Employee of the Employer on or after the Effective Date. The
rights and benefits, if any, of any former Employee shall be
determined in accordance with the provisions of the Plan in
effect on the date his employment terminated.
1.3 Profit Sharing Plan. This Plan is a profit sharing
plan intended to qualify under Section 401(a) and 401(k) of the
Code.
<PAGE>
ARTICLE II
Definitions
-----------
2.1 Accrued Benefit. The balance in all of a Participant's
accounts as of the relevant date. For purposes of Article XIII,
"Accrued Benefit" means the Participant's accrued benefit under a
defined benefit plan.
2.2 Antrim 401(k) Plan. The Antrim Corporation 401(k)
Profit Sharing Plan and Trust, as it existed prior to September
1, 1999.
2.3 Authorized Leave of Absence. Any absence authorized by
the Employer under the Employer's standard personnel practices if
all persons under similar circumstances are treated alike in the
approval thereof, and provided that the Employee returns within
the authorized period.
2.4 Beneficiary. The person or other entity entitled to
receive a distribution of death benefits, if any, in accordance
with Article IX.
2.5 Code. The Internal Revenue Code of 1986, as amended.
2.6 Compensation. "Compensation" as defined in Section
6.3(f)(2), except that any year end bonus which is subject to a
salary deferral election shall be excluded from Compensation.
For any Plan Year beginning after December 31, 1996,
the annual Compensation (as defined in this Section or any other
Section of the Plan) of each Participant that is to be taken into
account for any purpose under this Plan shall not exceed
2
<PAGE>
$150,000, as adjusted pursuant to Code Section 401(a)(17) and as
set forth in more detail in Section 14.3.
2.7 Date of Employment. The first day an Employee
completes one Hour of Service for the Employer following
employment.
2.8 Disability. A Participant shall be deemed to be
disabled if he (i) is receiving Social Security disability
payments, (ii) is receiving disability insurance payments from
any duly organized insurance company by reason of total
disability, as defined by the payor of the disability benefit, or
(iii) is otherwise determined by the Retirement Committee, in
accordance with a policy adopted and applied in a
nondiscriminatory, consistent and uniform manner, to be totally
disabled. A disability shall be deemed to occur on the date
determined by the payor, or the Retirement Committee, as the case
may be.
2.9 Earned Income. Net earnings from self-employment in
the trade or business with respect to which the Employer has
established the Plan, provided that personal services of the
individual are a material income producing factor. Such net
earnings shall be determined without regard to items not included
in gross income and the deductions allocable to those items, and
after reduction for the Employer's deductible contribution made
on behalf of such individual for such year. Net earnings shall
be determined with regard to the deduction allowed to the
3
<PAGE>
Employer by Section 164(f) of the Code for taxable years
beginning after December 31, 1989.
2.10 Employee. Any person who is employed on a regular basis
by the Employer, including employed officers and directors of the
Employer. The term "Employee" shall also include any Leased
Employee as provided in Code Sections 414(n) or 414(o). If the
Plan benefits any Owner-Employees, the term Employee shall also
mean Employees of any trade or business controlled by such
Owner-Employees within the meaning of Code Section 401(d). The
term Employee shall not include any person whose employment is
governed by the terms of a collective bargaining agreement under
which retirement benefits were the subject of good-faith
bargaining between the Employer and Employee representatives,
unless such agreement expressly provides for the coverage of such
person in this Plan. The term Employee shall not include a
Temporary Employee; provided, that, only with respect to
eligibility to make Salary Reduction Contributions (but, not with
respect to any Matching Contributions or Employer Contributions)
a Temporary Employee whose Date of Employment was before
January 1, 1998 and who remains employed by the Employer after
January 1, 1998 shall be included as an Employee. For this
purpose, a Temporary Employee shall be defined as an individual
who is engaged in work full-time or part-time, with the
understanding that his or her employment will be terminated as of
a specific date or upon completion of a specific assignment.
4
<PAGE>
2.11 Employer. Sunquest Information Systems, Inc. The term
"Employer" shall also include any employer which is affiliated
with Sunquest Information Systems, Inc. and which adopts this
Plan by resolution or other appropriate action.
2.12 Employer Contribution Account. The account of each
Participant, created in accordance with Section 4.1, to which the
Employer's contributions to the Plan are credited.
2.13 ERISA. Public Law No. 93-406, the Employee Retirement
Income Security Act of 1974, as amended from time to time.
2.14 Highly Compensated Employee. The term Highly
Compensated Employee includes Highly Compensated active Employees
and Highly Compensated former Employees.
A Highly Compensated active Employee includes any
Employee who performs service for the Employer during the Plan
Year and who: (i) was a 5%-owner, as defined in Code Section
416(i)(1), at any time during the prior Plan Year or the Plan
Year; or (ii) during the prior Plan Year received Compensation
from the Employer in excess of $80,000 (as adjusted pursuant to
Code Section 415(d)) and was a member for such year of the group
consisting of the top twenty (20%) percent of Employees when
ranked on the basis of Compensation paid during such year.
For this purpose, the prior Plan Year shall be the
twelve-month period immediately preceding the Plan Year.
A Highly Compensated former Employee includes any
Employee who separated from service (or was deemed to have
separated) prior to the Plan Year, performs no service for the
5
<PAGE>
Employer during the Plan Year, and was a Highly Compensated
active Employee for either the separation year or any Plan Year
ending on or after the Employee's 55th birthday.
The determination of who is a Highly Compensated
Employee, including the determination of the number and identity
of Employees in the top twenty (20%) percent-paid group, will be
made in accordance with Section 414(q) of the Code and the
regulations thereunder.
For purposes of this Section 2.14 only, the term
"Compensation" shall have the meaning given such term in Section
6.3(f)(2), and in the case of a Plan Year which is less than
twelve (12) consecutive months, the term "Plan Year" shall mean
the calendar year ending with the short Plan Year.
2.15 Hour of Service.
(a) An Hour of Service shall mean any hour for which
an Employee (including any Leased Employee under Code Sections
414(n) or 414(o)) who is directly or indirectly paid or entitled
to payment by the Employer for the performance of duties, or on
account of a period of time during which no duties are performed
(up to a maximum of 501 Hours in any continuous period in which
no duties are performed) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military
duty or Authorized Leave of Absence. Credit shall also be given
for any Hour for which back pay, irrespective of mitigation of
damages, has been awarded or agreed to by the Employee and the
Employer. In computing and crediting Hours of Service under this
6
<PAGE>
Plan, the rules set forth in Sections 2530.200b-2(a), (b) and (c)
of the Department of Labor Regulations shall apply, said Sections
being incorporated herein by reference. Except as provided in
(b) below, Hours of Service shall be credited to the Plan Year
during which the services were performed or the non-working time
occurred, regardless of the time when compensation therefor may
be paid.
For purposes of determining service under the
Plan, if the Employer is a member of an affiliated service group
(within the meaning of Code Section 414(m)), a controlled group
of corporations (within the meaning of Code Section 414(b)), or a
group of trades or businesses under common control (within the
meaning of Code Section 414(c)), Hours of Service will be
credited for employment with the other members of the group and
any other entity that is required to be aggregated with the
Employer pursuant to Code Section 414(o) (but only for such
periods of time that the Employer is also a member of the group
or the entity is required to be aggregated with the Employer).
Also, Hours of Service will be credited for any individual
considered to be an Employee under Code Sections 414(n) or
414(o).
(b) In the case of a Participant who is absent from
work for any period by reason of pregnancy, birth of a child,
placement of a child with the Participant for adoption, or for
purposes of caring for such child for a period commencing
immediately following such birth or placement, and solely for
7
<PAGE>
purposes of determining whether the Participant has incurred a
one-year Break in Service (as defined in Section 3.5 of the
Plan), Hours of Service shall include: (i) the Hours of Service
which otherwise would normally have been credited to such
Participant but for such absence; or (ii) in any case in which
the Retirement Committee is unable to determine the hours in
subclause (i) above, eight (8) Hours of Service per day of such
absence. The total number of hours treated as Hours of Service
under this Section 2.15 (b) for any Plan Year shall not exceed
501 hours. The Hours of Service described in this Section 2.15
(b) shall be treated as Hours of Service only in the Plan Year in
which the Participant's absence from work begins, and if a
Participant would otherwise incur a one-year Break in Service in
such Plan Year as a result of such absence or, in any other case,
in the immediately following Plan Year.
2.16 Leased Employee. The term "Leased Employee" means any
person (other than an Employee of the Employer) who pursuant to
an agreement between the Employer and any other person ("leasing
organization") has performed services for the Employer (or for
the Employer and related persons determined in accordance with
Section 414(n)(6) of the Code) on a substantially full time basis
for a period of at least one year, and such services are
performed under the primary direction or control of the Employer.
Contributions or benefits provided to a Leased Employee by the
leasing organization which are attributable to services performed
for the Employer shall be treated as provided by the Employer. A
8
<PAGE>
Leased Employee shall be deemed to be an Employee of the Employer
unless such Employee is covered by a plan satisfying the
requirements of Code Section 414(n)(5)(B) and Leased Employees do
not constitute more than twenty (20%) percent of the Employer's
non-highly compensated workforce.
2.17 Normal Retirement Age. Age sixty-five (65).
2.18 Owner-Employee. An individual who is a sole
proprietor, or who is a partner owning more than ten (10%)
percent of either the capital or profits interest of the
partnership.
2.19 Participant. Any Employee who has met the eligibility
requirements of this Plan and whose nonforfeitable Accrued
Benefit has not been fully distributed.
2.20 Plan Year. The calendar year. Notwithstanding the
foregoing, the period from October 1, 1987 through December 31,
1987 shall constitute a Plan Year for purposes of converting to a
Plan Year ending December 31.
2.21 Required Beginning Date. That date which is (i) in the
case of a Participant who is not a "5 percent owner" (as defined
in Code Section 416(i)(1)(B)) and who attains age 70 1/2 after
December 31, 1999, April 1 of the calendar year following the
later of the calendar year in which the Participant attains age
70-1/2, or the calendar year in which the Participant retires; or
(ii) in the case of a Participant who is a "5 percent owner" (as
defined in Code Section 416(i)(1)(B)) or a Participant who
attains age 70 1/2 on or prior to December 31, 1999 and elects to
9
<PAGE>
be treated in accordance with this subparagraph (ii), April 1 of
the calendar year following the calendar year in which the
Participant attains age 70-1/2. For Participants who are not
five (5%) percent owners, who attained age 70-1/2 before January
1, 1988, the Required Beginning Date is April 1 following the
calendar year in which the Participant retires, and for such
Participants who attained age 70-1/2 during 1988 but had not
retired as of January 1, 1989, the Required Beginning Date is
April 1, 1990. Notwithstanding the foregoing, if a Participant
elected to defer distribution until retirement in a written
election dated before January 1, 1984, such Participant's
Required Beginning Date shall be April 1 following the calendar
year in which the Participant retires.
2.22 Retirement Committee. The persons appointed pursuant
to Article X to administer the Plan.
2.23 Self-Employed Individual. An individual who has Earned
Income for the taxable year from the trade or business for which
the Plan is established; also, an individual who would have
Earned Income but for the fact that the trade or business had no
net profits for the taxable year.
2.24 Trust (or Trust Fund). The fund maintained in
accordance with the terms of the Trust Agreement.
2.25 Trustee. The corporation or individuals appointed by
the Employer to administer the Trust who are named in, and have
executed the Trust Agreement.
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<PAGE>
ARTICLE III
Participation and Service
-------------------------
3.1 Participation. The provisions of Subsections 3.1(b)
and 3.1(c) shall be effective only for Plan Years prior to
January 1, 1998; Subsection 3.1(f) shall be effective with
respect to Plan Years on or after January 1, 1998; and Subsection
3.1(g) shall be effective September 1, 1999. An Employee shall
become a Participant in this Plan as follows:
(a) Any Employee who was a Participant under the prior
provisions of the Plan as of the Effective Date shall continue to
participate in accordance with the provisions of this amended and
restated Plan.
(b) Any Employee who, in Plan Years beginning prior to
January 1, 1998, had both attained age 21 and completed 1,000 or
more Hours of Service in a twelve (12) consecutive month period
ending prior to a date on which the Plan had been amended and
restated, shall continue as a Participant on such date.
(c) For Plan Years beginning prior to January 1,
1998, any other Employee shall become a Participant as of the
Entry Date next following the date on which he has both attained
age 21 and completed 1,000 or more Hours of Service in a twelve
(12) consecutive month period.
(d) Solely for the purpose of determining an
Employee's eligibility for participation under Section 3.1(b) and
(c), the twelve (12) month period shall begin on the
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<PAGE>
Participant's Date of Employment. Subsequent twelve (12) month
periods shall begin on the anniversary of the Participant's Date
of Employment.
(e) A Participant, or former Participant, who has a
vested interest in any of his accounts when he incurs a Break in
Service shall participate, again, as of his reemployment
commencement date. If a Participant, or a former Participant,
does not have a vested interest in any of his accounts when he
incurs a Break in Service, he shall be eligible to participate,
again, (i) with respect to Salary Reduction and Matching
Contributions upon his reemployment commencement date; and (ii)
with respect to Employer Contributions effective as of his
reemployment commencement date, upon completion of one Year of
Service (measured by the twelve (12) consecutive month period
beginning on his reemployment commencement date and, if
necessary, subsequent twelve (12) month periods beginning on
anniversaries of his reemployment commencement date). The term
"reemployment commencement date" means the date on which the
Participant, or former Participant, is first credited with an
Hour of Service after having incurred a Break in Service.
(f) Eligibility Conditions - Notwithstanding anything
in this Section 3.1 to the contrary, effective for Plan Years
commencing after December 31, 1997:
(1) Salary Reduction and Matching Contributions.
Each Employee of the Employer who has an election to make Salary
Reduction Contributions under the Plan on or after December 31,
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<PAGE>
1997 shall continue to participate in the Salary Reduction
Contributions and Matching Contributions as provided under the
Plan. Any other Employee shall be eligible to become a
Participant, but only with respect to making Salary Reduction
Contributions to the Plan and, as applicable, receiving an
allocation of Matching Contributions with respect thereto,
beginning as of the first full payroll period beginning after the
later of January 1, 1998 or the first day of the calendar month
following the Date of Employment.
(2) Employer Contributions. Each Participant in
the Plan on December 31, 1997 shall remain a Participant for
purposes of sharing in an allocation of Employer Contributions.
Any other Employee shall become a Participant for purposes of
sharing in an allocation of Employer Contributions as of the
Entry Date next following the date on which he has completed
1,000 or more Hours of Service in a twelve (12) consecutive month
period as set forth in Section 3.1(d).
(g) Effective September 1, 1999, each individual who
was on that effective date an active participant in the Antrim
401(k) Plan shall become and be a Participant immediately on such
date. Salary Deferral elections and other administrative forms
for such Participant under the Antrim 401(k) Plan shall be
assumed and recognized under the Plan until such time as a
Participant formerly covered by the Antrim 401(k) Plan properly
changes, modifies or revokes such prior elections or other forms.
Employees of Antrim Corporation who, effective as of September
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<PAGE>
1, 1999, are not active participants in the Antrim 401(k) Plan shall
be eligible to become a Participant in accordance with Section
3.1(f) above.
3.2 Entry Date. For purposes of this Article III, "Entry
Date" shall mean the first day of each month of the Plan Year.
3.3 Year of Service. An Employee shall receive credit for
one Year of Service for each Plan Year during which he completes
at least 1,000 Hours of Service. However, if the Plan Year is
less than twelve (12) consecutive months, an Employee shall
receive credit for one Year of Service if he completes at least
1,000 Hours of Service during the calendar year ending with the
short Plan Year. For the purpose of determining Participants'
Years of Service, the provisions of the Plan in effect at the end
of each Plan Year shall govern with respect to all determinations
regarding Years of Service and Breaks in Service. For purposes
of this Plan, Years of Service shall include all years of service
credited to an Employee while employed by Antrim Corporation,
including without limitation those years of service prior to the
date Antrim Corporation was a member of the Employer's controlled
group (within the meaning of Section 2.15).
3.4 Inactive Status. If during a Plan Year, or in the case
of a Plan Year which is less than twelve (12) consecutive months,
the calendar year ending with the short Plan Year, a Participant
completes more than 500 Hours of Service, but less than 1,000
Hours of Service, his Employer Contribution Account shall be
placed on "Inactive Status." In such event, the Participant
14
<PAGE>
shall not be entitled to share in the Employer contribution or
forfeitures for the Plan Year, but his Employer Contribution
Account shall continue to receive its allocable share of any
earnings or losses of the Trust Fund as provided in Section 6.4.
The Participant's Employer Contribution Account shall revert to
active status upon completion of at least 1,000 Hours of Service
in a subsequent Plan Year, or in the calendar year ending with
the Plan Year, if the subsequent Plan Year is less than twelve
(12) consecutive months, so long as the Participant has not
incurred any Break in Service during the interim period.
3.5 Break in Service. For purposes of eligibility to
participate and subject to Section 3.8, a twelve (12) consecutive
month period described in Section 3.1(d) during which a
Participant fails to complete more than 500 Hours of Service
shall constitute a one year Break in Service. For purposes of
vesting, a Plan Year during which a Participant does not complete
more than 500 Hours of Service shall constitute a one year Break
in Service. However, if the Plan Year is less than twelve (12)
consecutive months, a Participant shall incur a one year Break in
Service, for purposes of vesting, if he does not complete more
than 500 Hours of Service during the calendar year ending with
the short Plan Year.
3.6 Crediting Service Following a Break in Service. The
Years of Service of a Participant who has incurred a Break in
Service shall be determined in accordance with the following
rules:
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<PAGE>
(a) If a Participant has a vested interest in any of
his accounts, all of his Years of Service shall be counted for
vesting in the Participant's post-break account upon
participation following a Break in Service.
(b) Pre-break service of a Participant who does not
have a vested interest in any of his accounts shall be
disregarded if the number of consecutive one year Breaks in
Service equals or exceeds five (5), or if greater, the number of
Years of Service prior to such Break in Service.
(c) Service after a Break in Service shall be
disregarded for purposes of vesting in the pre-break Employer
Contribution Account of a Participant who does not have a vested
interest in such Account if the number of consecutive one year
Breaks in Service equals or exceeds five (5).
(d) Separate Employer Contribution Accounts will be
maintained for the Participant's pre-break and post-break
Employer contributions. Both accounts will share in the earnings
and losses of the Trust Fund.
3.7 Election Not to Participate. A Participant may make a
one-time irrevocable election not to participate in the Plan.
The election not to participate must be communicated to the
Employer or the Plan in writing by the Participant upon becoming
eligible to participate in the Plan, and prior to the date any
amount is credited to the Participant's Employer Contribution
accounts.
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<PAGE>
3.8 Military Leave. If an Employee enlists or is
inducted into military service in the Armed Forces of the United
States under such circumstances as would entitle him to
reemployment rights under governing provisions of law, he shall
be deemed to be on leave of absence unless a resignation is given
by him and accepted by the Employer. Contributions, benefits and
service credit with respect to qualified military service (as
defined in Code Section 414(u)(5)) will be provided in accordance
with Code Section 414(u) which provides, among other things, that
a Participant who is reemployed by the Employer in accordance
with Chapter 43 of Title 38 of the United States Code:
(a) shall be treated with respect to this Plan as not
having incurred a Break in Service by reason of such
Participant's period of qualified military service;
(b) shall have each period of qualified military service
credited as service with the Employer for purposes of
determining the vesting and accrual of the
Participant's Account under the Plan;
(c) shall be entitled to Employer contributions, if any,
that are contingent on the making of, or that are
derived from the Participant's own contributions only
to the extent the Participant makes payment of such
contributions to the Plan, subject to applicable Plan
limits and during a period beginning on the first day
of reemployment and continuing for the lesser of five
17
<PAGE>
(5) years or three (3) times the Participant's period
of qualified military service;
(d) to the extent authorized by the Plan, shall be
permitted to make his or her own additional
contributions under the Plan in the maximum amount that
the Participant would have been permitted to make under
the annual Plan limitations if the Participant had
continued to be employed by the Employer and received
Compensation during his or her period of qualified
military service, provided such contributions are made
during a period beginning on the first day of
reemployment and continuing for the lesser of five (5)
years or three (3) times the Participant's period of
qualified military service; and
(e) loan repayments shall be suspended during periods of
qualified military service.
Nothing in this Section shall require any allocation of (i) any
Plan forfeitures with respect to a period of qualified military
service or (ii) any investment performance with respect to any
Plan contributions before they are made.
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<PAGE>
ARTICLE IV
Regular Contributions
---------------------
4.1 Individual Accounts. The Retirement Committee shall
keep adequate records to disclose the interest in the Trust Fund
of each Participant, former Participant and Beneficiary in the
form of individual accounts. Each Participant shall have an
Employer Contribution Account and such other separate accounts as
may be required hereunder. The maintenance of such individual
accounts shall be for accounting purposes only, and a segregation
of the assets of the Trust Fund shall not be required.
4.2 Employer Contributions.
(a) The Employer shall contribute to the Trust Fund
for each Plan Year such sums, if any, as the Board of Directors
of the Employer may determine.
(b) The Employer's contributions shall be paid to the
Trust Fund no later than the due date of the Employer's Federal
income tax return for the Employer's taxable year ending within
or coincident with the Plan Year for which the contribution is
made, including extensions thereof.
(c) Notwithstanding the foregoing but subject to the
limitations on discriminatory benefits imposed by Code Section
401(a)(4), if there are two or more separate legal entities that
participate in the Plan as Employers, the amount and level of
Employer contributions may be separately determined and
established on a separate basis with respect to each of the
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<PAGE>
separate legal entities to and for the benefit of their
respective Employees who are Participants.
4.3 Participant Contributions. Except as provided,
Participants are not permitted to make any contributions under
this Plan. All Participant contributions, if any, under prior
provisions of the Plan shall be maintained in a separate account
which shall be fully vested and share in the allocation of income
pursuant to Article VI, but not in the allocation of Employer
contributions and, if applicable, forfeitures. The separate
account shall be distributed in accordance with Article VIII. A
Participant may withdraw any part of his separate account by
making a written application to the Retirement Committee, subject
to the spousal consent requirements of Section 9.1, if
applicable. Elective Contributions under Article V are not
treated as Participant contributions for purposes of this
Section.
4.4 Rollover From Other Plans.
(a) A Participant who has by reason of his separation
from service or termination of a plan become entitled to make a
direct rollover election, or received a distribution, from
another plan that meets the requirements of Code Section 401(a)
(the "Other Plan") of the balance to his credit in the Other Plan
or that is otherwise an eligible rollover distribution (as
defined in Code Section 402), may, in accordance with procedures
adopted by the Retirement Committee, transfer the distribution
received from the Other Plan to the Trust in a direct rollover or
20
<PAGE>
on or before the 60th day following receipt of the distribution
from the Other Plan, or if such distribution had previously been
deposited in an Individual Retirement Account ("IRA") and not
commingled with assets from other sources, on or before the 60th
day following receipt of distribution from the IRA. The amount
transferred must not be more than the sum of the total
distribution attributable to the Other Plan plus, in the case of
distribution from an IRA, the earnings thereon in the IRA, less
the amount, if any, considered contributed by the Employee in
accordance with Code Section 402. Notwithstanding the foregoing,
no rollover contribution may be made to this Plan from a plan to
which Code Section 401(a)(11) applies.
(b) The Retirement Committee shall develop such
procedures, and may require such information from an Employee
desiring to make a rollover contribution as it deems necessary to
determine that the proposed rollover contribution will meet the
requirements of this Section. The amount transferred shall be
deposited in the Trust and shall be credited to a separate
"Rollover Contribution Account" for the Employee.
(c) The Rollover Contribution Account shall be fully
vested and share in the allocation of income pursuant to Section
6.4, but not in the allocation of Employer contributions and, if
applicable, forfeitures.
(d) Rollover Contribution Accounts shall be
distributed in accordance with Section 5.10(c) and Article VII.
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<PAGE>
ARTICLE V
Salary Reduction Contributions and Matching Contributions
---------------------------------------------------------
5.1 Elective Contributions. As soon as practical after the
end of each pay period, the Employer shall deposit to the Trust
the Elective Contributions of Participants who have entered into
Salary Reduction Agreements effective for such pay period,
pursuant to Section 5.2. In addition, the Employer shall deposit
to the Trust, and allocate to the Participants' Elective
Contribution Accounts, any amounts subject to a Salary Reduction
Agreement with respect to other Compensation that would have been
received during the Plan Year, but for the Salary Reduction
Election, or that are attributable to services rendered during
the Plan Year. Any such additional contribution shall be
deposited to the Trust before the last day of the following Plan
Year. Each Participant's share of any Elective Contribution
shall be credited to the Participant's separate Elective
Contribution Account as soon as practical, but in all events
effective on or before the last day of the Plan Year to which the
compensation relates.
5.2 Salary Reduction Agreements Each Participant may elect
in writing, on such forms as provided by the Retirement
Committee, to reduce his Compensation otherwise payable by the
Employer by a percentage (in 1/2 percent increments or, for
elections made on or after September 1, 1999, in whole percentage
increments) chosen by the Participant, and have the amount of
22
<PAGE>
such reduction credited to the Participant's Elective
Contribution Account. Salary deferral elections may be made upon
eligibility for participation, and thereafter made or changed
once per calendar quarter (or such more frequent times as may be
provided by the Retirement Committee) as to future Compensation
only. For purposes of this Section 5.2 and Section 5.3(b) (and
all provisions of this Plan relating thereto), the term
"Participant" shall include those Employees who are eligible to
make a Salary Reduction Contribution under the Plan pursuant to
Section 3.1(f)(1). A Participant may revoke a salary deferral
election at any time during the Plan Year. Salary Deferral
elections under the Antrim 401(k) Plan in periods prior to
September 1, 1999, shall be enforceable and recognized under the
Plan until such time as a Participant formerly covered by the
Antrim 401(k) Plan properly changes, modifies or revokes such
prior elections.
5.3 Matching Contributions. The Employer may at its
election make an additional contribution which is conditioned on
Participants' Elective Contributions. Any Matching Contribution
shall be credited to the Participant's Matching Contribution
Account. Matching Contributions shall be allocated among the
Matching Contribution Accounts of Participants in a uniform ratio
to the Elective Contributions of each Participant for the same
period and shall be made available in a manner that does not
discriminate in favor of Highly Compensated Employees. Effective
for the first Plan Year after December 31, 1997, and for each
23
<PAGE>
Plan Year thereafter until otherwise modified by the Employer in
its discretion, the Employer shall provide a Matching
Contribution in an amount equal to 100% of the Participant's
Elective Contributions under Section 5.1, up to a maximum
Matching Contribution of 3% of such Participant's Compensation.
The Employer Matching Contribution provided under this Section
5.3 shall be paid to the Trust Fund at such time or times as may
be determined by the Employer, but no later than the due date of
the Employer's Federal income tax return (including actual
extensions thereof) for the Employer's taxable year ending within
or coincident with the Plan Year for which the Matching
Contribution is made.
5.4 Qualified Non-Elective Contributions. The Employer may
also make an additional contribution, or designate part of the
Employer Contribution under Article IV, as a Qualified Non-
Elective Contribution pursuant to this Section. All Qualified
Non-Elective Contributions shall be credited to the Participants'
Elective Contribution Accounts in the same proportion as each
Participant's Compensation for the Plan Year bears to total
Compensation for all Participants for the Plan Year. Qualified
Non-Elective Contributions shall be allocated among the accounts
of all Participants without regard to whether the Participant has
Elective Contributions for the year.
5.5 Maximum Contribution. In no event shall contributions
under this Article V for any Plan Year cause the total amount
contributed on behalf of any Participant to exceed the amount
24
<PAGE>
permitted under Section 6.3 or the maximum amount deductible
under Section 404 of the Code. During any taxable year, no
Participant shall be permitted to make Elective Deferrals under
the Plan or any other qualified plan maintained by the Employer
in excess of the dollar limitation that is in effect under Code
Section 402(g) at the beginning of the taxable year.
5.6 Nondiscrimination Requirements. Elective Contributions
made under the Plan for any Plan Year must satisfy the ADP test
described in subsection (a) below, and Matching Contributions and
Voluntary Contributions made under the Plan for any Plan Year
must satisfy the ACP test described in subsection (b) below.
(a) The ADP for Participants who are Highly
Compensated Employees for the Plan Year shall not exceed the ADP
for Participants who are non-Highly Compensated Employees for the
immediately preceding Plan Year either (1) multiplied by 1.25; or
(2) multiplied by 2.0, provided that the ADP for Participants who
are Highly Compensated Employees does not exceed the ADP for
Participants who are non-Highly Compensated Employees by more
than two (2) percentage points.
(b) The ACP for Participants who are Highly
Compensated Employees for the Plan Year shall not exceed the ACP
for Participants who are non-Highly Compensated Employees for the
immediately preceding Plan Year either (1) multiplied by 1.25; or
(2) multiplied by 2.0 provided that the ACP for Participants who
are Highly Compensated Employees does not exceed the ACP for
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<PAGE>
Participants who are not Highly Compensated Employees by more
than two (2) percentage points.
(c) The ADP and ACP for any Participant who is a
Highly Compensated Employee for the Plan Year and who is eligible
to have Elective Contributions and/or Matching Contributions
allocated to his or her accounts under two or more arrangements
described in section 401(a) of the Code, that are maintained by
the Employer, shall be determined as if all such Elective
Contributions were made under a single arrangement, and all such
Matching Contributions were made under a single arrangement.
(d) In the event that this Plan satisfies the
requirements of sections 401(k), 401(m), 401(a)(4), or 410(b) of
the Code only if aggregated with one or more other plans, or if
one or more other plans satisfy the requirements of such sections
of the Code only if aggregated with this Plan, then this section
shall be applied by determining the ADP and ACP of Employees as
if all such plans were a single plan. For Plan Years beginning
after December 31, 1989, plans may be aggregated in order to
satisfy section 401(k) and 401(m) of the Code only if they have
the same Plan Year.
(e) [Reserved; Intentionally left blank]
(f) For purposes of determining ADP, Elective
Contributions, Qualified Non-elective Contributions and Qualified
Matching Contributions must be made before the last day of the
twelve-month period immediately following the Plan Year to which
the contributions relate.
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<PAGE>
(g) If one or more Highly Compensated Employees
receives allocations subject to both the ADP and the ACP test,
and the sum of the ADP and ACP for all Highly Compensated
Employees exceeds the Aggregate Limit, then the ACP of those
Highly Compensated Employees who also receive an allocation
subject to the ADP test will be reduced (beginning with such
Highly Compensated Employee whose amount of contributions subject
to ACP testing is the highest) so that the limit is not exceeded.
The amount by which each Highly Compensated Employee's Matching
Contribution Amount is reduced shall be treated as an Excess
Aggregate Contribution. The ADP and ACP of the Highly
Compensated Employees are determined after any corrections
required to meet the ADP and ACP tests. This subparagraph (g)
shall not apply if either the ADP or ACP of the Highly
Compensated Employees for the Plan Year does not exceed 1.25
multiplied by the ADP and ACP of the Non-Highly Compensated
Employees for the immediately preceding Plan Year.
(h) If a Highly Compensated Employee participates in
two or more cash or deferred arrangements that have different
plan years, all cash or deferred arrangements ending with or
within the same calendar year shall be treated as a single
arrangement.
(i) For purposes of the ACP test, Voluntary
Contributions are considered to have been made in the Plan Year
in which contributed to the Trust. Matching Contributions and
Qualified Non-elective Contributions will be considered made for
27
<PAGE>
a Plan Year if made no later than the end of the twelve-month
period beginning on the day after the close of the Plan Year.
5.7 Distribution of Excess Contributions. Notwithstanding
any other provision of this Plan, Excess Contributions (as
defined in Section 5.12 below), plus any income and minus any
loss allocable thereto, shall be distributed no later than the
last day of each Plan Year to the Participants to whose accounts
such Excess Contributions were allocated for the preceding Plan
Year. Such distributions shall be made to Highly Compensated
Employees on the basis of the dollar amount of the Excess
Contributions on behalf of, or by, each of such Employees. For
purposes of determining the amount of Excess Contributions to be
distributed under this Section, Excess Contributions shall be
reduced by any Excess Elective Deferrals previously distributed
to a Participant for the Participant's taxable year ending with
or within the Plan Year. Excess Contributions shall be treated
as Annual Additions under Section 6.3.
Excess Contributions shall be adjusted for any income
or loss up to the date of distribution. The income or loss
allocable to Excess Contributions is the sum of: (1) income or
loss allocable to the Participant's Elective Contribution
Account, for the Plan Year multiplied by a fraction, the
numerator of which is such Participant's Excess Contributions for
the year and the denominator is the Participant's account balance
attributable to Elective Contributions without regard to any
income or loss occurring during such Plan Year; and (2) ten
28
<PAGE>
percent of the amount determined under (1) multiplied by the
number of whole calendar months between the end of the Plan Year
and the date of distribution, counting the month of distribution
if distribution occurs after the 15th of such month.
5.8 Distribution of Excess Aggregate Contributions.
Notwithstanding any other provision of this Plan, Excess
Aggregate Contributions (as defined in Section 5.12 below), plus
any income and minus any loss allocable thereto, shall be
distributed no later than the last day of each Plan Year to
Participants to whose accounts such Excess Aggregate
Contributions were allocated for the preceding Plan Year. Such
distributions shall be made to Highly Compensated Employees on
the basis of the dollar amount of the Excess Aggregate
Contributions on behalf of, or by, each of such Employees.
Excess Aggregate Contributions shall be adjusted for
any income or loss up to the date of distribution. The income or
loss allocable to Excess Aggregate Contributions is the sum of:
(1) income or loss allocable to the Participant's Matching
Contribution Account (if any, and if all amounts therein are not
used in the ADP test) multiplied by a fraction, the numerator of
which is such Participant's Excess Aggregate Contributions for
the year and the denominator is the Participant's account balance
attributable to Matching Contribution Amounts without regard to
any income or loss occurring during such Plan Year; and (2) ten
percent of the amount determined under (1) multiplied by the
number of whole calendar months between the end of the Plan Year
29
<PAGE>
and the date of distribution, counting the month of distribution
if distribution occurs after the 15th of such month.
In applying this Section 5.8, Excess Aggregate
Contributions shall be distributed on a pro-rata basis from the
Participant's Voluntary Contribution Account, Matching
Contribution Account, and Qualifying Matching Contribution
Account (and, if applicable, the Participant's Qualified Non-
Elective Contribution Account or Elective Contribution Account or
both). Excess Aggregate Contributions shall be treated as Annual
Additions under Section 6.3.
5.9 Vesting. Notwithstanding anything to the contrary in
this Plan, the Participant's interest in all amounts in his
Elective Contribution Accounts shall be one hundred percent
(100%) vested at all times.
5.10 Distributions of Elective Contributions, Rollover
Contributions and Matching Contribution Accounts.
(a) Matching Contribution Accounts shall be
distributed in accordance with Section 7.3, Article VIII, Article
IX and Section 11.2.
(b) Elective Contribution Accounts shall be
distributed as follows:
(1) Upon separation from service, retirement or
Disability, or death, in accordance with Section 7.3, Article
VIII and Article IX, respectively;
(2) Upon termination of the Plan, in accordance
with Section 11.2, but only if another defined contribution plan
30
<PAGE>
(other than an employee stock ownership plan or simplified
employee pension) is not established or maintained after
termination of the Plan.
(3) On or after attainment of age 59-1/2, upon
application to the Retirement Committee, a Participant may
receive a lump-sum distribution of all or a portion of his
Elective Contribution Account;
(4) As provided in Section 5.10(c).
(c) In the event of hardship, upon application to the
Retirement Committee, a Participant may receive a distribution of
all or a portion of his Rollover Contribution Account and
Elective Contribution Account (excluding any earnings credited to
a Participant's Elective Contribution Account after July 1,
1989), but only if all of the following conditions are satisfied:
(1) The amount distributed must not exceed the
amount of an immediate and heavy financial need (including
amounts necessary to pay any federal, state or local income taxes
or penalties reasonably anticipated to result from the
distribution) of the Participant. For purposes of this paragraph
(4), the following shall be deemed an immediate and heavy
financial need of the Participant:
(i) deductible medical expenses of the
Participant or dependents of the Participant;
(ii) purchase (excluding mortgage payments)
of a principal residence of the Participant;
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<PAGE>
(iii)payment of tuition and related
educational fees for the next 12 months of post-secondary
education for the Participant, the Participant's spouse, children
or dependents; or
(iv) the amounts necessary to prevent
eviction of the Participant from his principal residence, or
foreclosure on the mortgage of the Participant's principal
residence.
(2) The Participant must have obtained all other
distributions, and all non-taxable loans available to him under
this Plan and all other Plans of the Employer, whether or not
qualified under Section 401 of the Code. A Participant shall not
receive a distribution of any portion of his Elective
Contribution Account unless such Participant has first received
all available funds (if any) from his Rollover Contribution
Account under this subsection 5.10(c).
(3) No Elective Contributions shall be made for
the Participant to this Plan or to any other qualified or
non-qualified deferred compensation plan of the Employer for a
period of twelve (12) months following the date that the hardship
distribution was received, and the Participant shall not be
permitted to make voluntary contributions under this Plan or any
other plan of the employer during such twelve (12) month period.
(4) The Participant may not make Elective
Contributions to this Plan or any other Plan of the Employer for
the taxable year immediately following the taxable year of the
32
<PAGE>
hardship distribution in excess of the dollar limitation in
effect under Code Section 402(g), reduced by the amount of the
Participant's Elective Contributions under this Plan or any other
plan of the Employer for the taxable year of the hardship
distribution.
In no event may a Participant's Elective Contribution
Account be distributed earlier than upon the occurrence of one of
the events described above. For purposes of applying this
Section, hardship distributions under the Antrim 401(k) Plan
prior to September 1, 1999, shall be recognized and treated as if
they were a hardship distribution under this Plan.
5.11 Distribution of Excess Elective Deferrals.
(a) If Excess Elective Deferrals were made on behalf
of a Participant during a taxable year, not later than the first
March 1 following that taxable year, the Participant may notify
the Retirement Committee of the amount of the Excess Elective
Deferrals made during the prior taxable year, and may assign such
Excess Elective Deferrals to his Elective Contribution Account.
A Participant shall be deemed to have notified the Retirement
Committee of any Excess Elective Deferrals made under this Plan
during the prior taxable year. For purposes of this deemed
notification, Excess Elective Deferrals shall be determined by
taking into account only the Elective Deferrals made under this
Plan and any other plan of the Employer.
(b) Upon such notice to the Retirement Committee, and
notwithstanding any provision of this Plan to the contrary, any
33
<PAGE>
Excess Elective Deferrals (adjusted for gains or losses) made
under or assigned to this Plan shall be distributed to the
Participant no later than the first April 15 following the
taxable year during which the Excess Elective Deferrals were
made.
(c) In determining the amount of Excess Elective
Deferrals to be distributed under this Section 5.11, Excess
Elective Deferrals shall be reduced by any Excess Contributions
previously distributed to the Participant for the Plan Year
beginning with or within the Participant's taxable year. Also,
the amount of Excess Elective Deferrals to be distributed shall
be adjusted for any income or loss as of the date of
distribution. For this purpose, the income or loss allocable to
the Excess Elective Deferrals shall equal the sum of (1) income
or loss allocable to the Participant's Elective Contribution
Account for the taxable year multiplied by a fraction, the
numerator of which is the Participant's Excess Elective Deferrals
for the year and the denominator of which is the Participant's
Elective Contribution Account balance determined without regard
to any income or loss occurring during the taxable year; and (2)
ten percent (10%) of the amount determined under (1) multiplied
by the number of whole calendar months between the end of the
Participant's taxable year and the date of distribution, taking
into account the month of distribution only if occurring after
the 15th of such month. In no event shall the amount of Excess
Elective Deferrals distributed to an individual under this
34
<PAGE>
Section 5.11 exceed the individual's total Elective Contributions
under the Plan for the taxable year.
5.12 Article V Definitions. The following definitions shall
apply to this Article:
"Average Contribution Percentage" or "ACP" shall mean
for a specified group of Participants, the average of the ratios
calculated separately for each Participant in such group of (1)
the Matching Contribution Amount of such Participant; over (2)
the Participant's Compensation for the Plan Year (whether or not
the Employee was a Participant for the entire Plan Year). For
purposes of this paragraph, "Participant" means any Employee who
has met the eligibility requirements of the Plan and is directly
or indirectly eligible to receive an allocation of Matching
Contributions (including forfeitures) or make Voluntary
Contributions (or Elective Contributions if the Employer takes
such contributions into account in determining the ACP),
including any Employee who would be a Participant but for the
failure to make any required contributions; any Employee whose
right to receive Matching Contributions has been suspended
because of an election not to participate (other than a one-time
irrevocable election not to participate); and any Employee who
cannot receive a Matching Contribution or make a Voluntary
Contribution because of the limitations of Section 6.3, relating
to Annual Additions. In the case of a Participant who receives
no allocation of Matching Contributions and makes no Voluntary
Contributions (and no Elective Contributions are taken into
35
<PAGE>
account in determining the ACP), the ratio that is to be included
for such Participant in determining the ACP is zero (0).
"Aggregate Limit" shall mean the sum of (1) 1.25 times
the greater of the ADP of the non-Highly Compensated Employees or
the ACP of non-Highly Compensated Employees and (2) two
percentage points, plus the lesser of such ADP or ACP. In no
event, however, shall (2) exceed twice the lesser of such ADP or
ACP. "Lesser" is substituted for "greater" in "(1)", above, and
"greater" is substituted for "lesser" in "(2)" if it would result
in a larger Aggregate Limit.
"Actual Deferral Percentage" or "ADP" shall mean, for a
specified group of Participants, the average of the ratios
(calculated separately for each Participant in such group) of (1)
the amount actually paid over to the Trust on behalf of such
Participant for the Plan Year on account of any Elective
Contributions made pursuant to the Participant's salary reduction
agreement, excluding Elective Contributions that are taken into
account in the ACP test (provided the ADP test is satisfied both
with and without exclusion of these Elective Contributions) over
(2) the Participant's Compensation for such Plan Year (whether or
not the Employee was a Participant for the entire Plan Year).
For purposes of this paragraph, a Participant means any Employee
who is directly or indirectly eligible to make an Elective
Contribution under the Plan for all or a part of the Plan Year,
including any Employee who would be a Participant but for the
failure to make required contributions; any Employee whose
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<PAGE>
eligibility to make Elective Contributions has been suspended as
a result of an election not to participate (other than a one-time
irrevocable election not to participate); and any Employee who
cannot make any Elective Contributions because of the limitations
in Section 6.3, relating to Annual Additions. In the event that
a Participant makes no Elective Contributions, and no Qualified
Non-Elective or Qualified Matching Contributions are taken into
account with respect to the Participant, the ratio that is to be
included for the Participant in determining the ADP is zero (0).
"Elective Contribution" shall mean a contribution for
the benefit of a Participant pursuant to a salary reduction
agreement.
"Elective Contribution Account" shall mean the separate
account to which a participant's Elective Contributions are
credited, pursuant to Section 5.1.
"Elective Deferrals" shall mean, for a taxable year,
the sum of: (1) Elective Contributions made under this Plan or
any other qualified plan of the Employer; (2) any employer
contributions made on behalf of a Participant under any other
Code Section 401(k) plan, simplified employee pension cash or
deferred arrangement described in Code Section 401(h)(1)(B), or
eligible deferred compensation plan under Code Section 457; and
(3) any employer contributions made on behalf of a participant to
purchase an annuity contract under Code Section 403(b) pursuant
to a salary reduction agreement. Elective Deferrals shall not
37
<PAGE>
include any Elective Deferrals properly distributed as excess
Annual Additions.
"Excess Elective Deferrals" shall mean the amount of
Elective Deferrals for a Participant's taxable year which exceeds
the dollar limitation in effect under Code Section 402(g) at the
beginning of the taxable year and which are includible in the
Participant's gross income under that Section of the Code. Any
Excess Elective Deferrals that are not distributed in accordance
with Section 5.11 shall be treated as Annual Additions under
Section 6.3.
"Excess Aggregate Contributions" shall mean, with
respect to any Plan Year, the excess of: (1) the aggregate
Matching Contribution Amounts on behalf of Highly Compensated
Employees for such Plan Year, over (2) the maximum Matching
Contribution Amounts permitted by the ACP test (determined by
reducing contributions made on behalf of Highly Compensated
Employees in order of their ACP beginning with the highest of
such percentages).
"Excess Contributions" shall mean, with respect to any
Plan Year, the excess of: (1) the aggregate amount of Employer
contributions actually taken into account in computing the ADP of
Highly Compensated Employees for such Plan Year, over (2) the
maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly
38
<PAGE>
Compensated Employees in order of the ADPs, beginning with the
highest of such percentages).
"Matching Contribution" shall mean a contribution for
the benefit of a Participant pursuant to Section 5.3.
"Matching Contribution Account" shall mean the separate
account to which Matching Contributions on behalf of a
Participant are credited pursuant to Section 5.3.
"Matching Contribution Amount(s)" shall mean the sum of
the Voluntary Contributions, Matching Contributions, and
Qualified Matching Contributions (to the extent not taken into
account for purposes of the ADP test) made under the plan on
behalf of the Participant for the Plan Year. Such Matching
Contribution Amounts shall include forfeitures of Excess
Aggregate Contributions or Matching Contributions allocated to
the Participant's account. The Employer also may elect to use
Elective Contributions in the Matching Contribution Amounts so
long as the ADP test is met before the Elective Contributions are
used in the ACP test and continues to be met following the
exclusion of those Elective Contributions that are used to meet
the ACP test.
"Qualified Matching Contributions" shall mean Matching
Contributions which are subject to the distribution and
nonforfeitability requirements under Section 401(k) of the Code
when made.
39
<PAGE>
"Qualified Non-Elective Contributions" shall mean
contributions (other than Matching Contributions or Qualified
Matching Contributions) made by the Employer, pursuant to Section
5.4 and allocated to Participants' accounts that the Participants
may not elect to receive in cash until distributed from the Plan;
that are nonforfeitable when made; and that are distributable
only in accordance with the distribution provisions that are
applicable to Elective Contributions and Qualified Matching
Contributions.
"Voluntary Contribution" shall mean any contribution
made to the Plan by or on behalf of a Participant that is
included in the Participant's gross income in the year in which
made and that is maintained under a separate account to which
earnings and losses are allocated.
40
<PAGE>
ARTICLE VI
Participants' Accounts
----------------------
6.1 Allocations of Employer Contributions. As of the last
day of each Plan Year, the Employer contribution for the Plan
Year shall be allocated among the Employer Contribution Accounts
of all Participants who are then employed by the Employer,
excluding any Employer Contribution Accounts on Inactive Status,
in the proportion that each Participant's Compensation during the
Plan Year bears to the total Compensation during the Plan Year of
all Participants entitled to share in such allocation. For the
purpose of allocation hereunder, Compensation of an Employee
prior to participation or reparticipation shall be disregarded.
No allocation shall be made with respect to a Participant whose
employment by the Employer terminates prior to the last day of
the Plan Year.
6.2 Use or Allocation of Forfeitures. (a) Subject to
Section 7.4, amounts which have been credited to a Participant's
Employer Contribution Account or Matching Contribution Account
and which are forfeited for any reason shall be used first to
restore accounts under Section 7.4 and then to reduce the total
amount of the Employer Matching Contributions required to be
provided pursuant to Section 5.3 for the Plan Year in which the
forfeiture occurs; to the extent there are any forfeitures
remaining because they exceed the actual Matching Contribution
made by the Employer for such year, then next applied to the
41
<PAGE>
payment of Plan administrative expenses as provided in Section
5.3 of the Trust; and, then to the extent not so used, allocated
as an Employer Contribution in accordance with Section 6.1.
Notwithstanding the foregoing but subject to the limitations on
discriminatory benefits imposed by Code Section 401(a)(4), if
there are two or more separate legal entities that participate in
the Plan as Employers, forfeitures under the Plan (i) may be
separately determined, and established on a separate basis, with
respect to and for the benefit of their respective former
Employees who were Participants and for which such forfeitures
are attributable and (ii) may be used and applied in accordance
with this Section 6.2 specifically with respect to Matching
Contributions, administrative expenses and Participant Accounts
attributable to each of such separate legal entities.
(b) Amounts which have been credited to a
Participant's Employer Contribution Account and which are
forfeited for any reason in periods prior to January 1, 1998,
shall be reallocated to the Employer Contribution Accounts of the
Participants entitled to receive an allocation of the Employer
contribution as of the last day of the Plan Year in which such
forfeiture occurs in the same manner as the Employer contribution
for such Plan Year is allocated under Section 6.1, subject to the
limitations in Section 6.3. Amounts which have been credited to
a Participant's Matching Contribution Account and which are
forfeited for any reason in periods prior to January 1, 1998,
shall be reallocated to the Matching Contribution Accounts of the
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<PAGE>
Participants entitled to receive an allocation of a Matching
Contribution as of the last day of the Plan Year in which such
forfeiture occurs in the same manner as a Matching Contribution
for such Plan Year is allocated under Section 5.3, subject to
Section 6.3.
6.3 Maximum Additions.
(a) Notwithstanding any provision in the Plan to the
contrary, the amount of Annual Additions credited to a
Participant's accounts for the Plan Year shall not exceed the
lesser of $30,000 or twenty five percent (25%) of the
Participant's Compensation (the "maximum permissible amount"),
except that in calculating the maximum permissible amount, the
$30,000 limitation shall be increased as permitted by Treasury
regulations to reflect cost-of-living adjustments. For any Plan
Year which is less than twelve (12) consecutive months, the term
"calendar year ending with or within the Plan Year" shall be
substituted for the term "Plan Year" wherever such term appears
in this Section 6.3.
(b) Notwithstanding the foregoing, the Annual
Additions which may be credited to a Participant's accounts under
the Plan for any Plan Year shall not exceed the maximum
permissible amount, reduced by the Annual Additions credited to a
Participant's accounts under all defined contribution plans,
welfare benefit funds and individual medical accounts maintained
by the Employer. If the Annual Additions with respect to the
Participant under the other defined contribution plans, welfare
43
<PAGE>
benefit funds or individual medical accounts maintained by the
Employer are less than the maximum permissible amount, and the
Employer contribution that would otherwise be contributed or
allocated to the Participant's accounts under this Plan would
cause the aggregate Annual Additions for the Plan Year to exceed
the maximum permissible amount, the amount contributed or
allocated under this Plan will be reduced in order to ensure that
the aggregate Annual Additions do not exceed the maximum
permissible amount for the Plan Year. If the annual Additions
with respect to the Participant under such other defined
contribution plans and welfare benefit funds in the aggregate are
equal to or greater than the maximum permissible amount, no
amount will be contributed or allocated to the Participant's
account under this Plan for the Plan Year. If the maximum
permissible amount is exceeded or as a result of the allocation
of forfeitures there is an excess amount, the excess will be
disposed of as follows:
(1) Any nondeductible voluntary employee
contributions, to the extent they would reduce the excess amount,
will be returned to the Participant.
(2) If after the application of subparagraph (1)
an excess amount still exists, and the Participant is covered by
the Plan at the end of the Plan Year, the excess amount in the
Participant's account will be used to reduce Employer
contributions (including any allocation of forfeitures) for such
44
<PAGE>
Participant in the next Plan Year, and each succeeding Plan Year
if necessary.
(3) If after the application of subparagraph (1)
an excess amount still exists, and the Participant is not covered
by the Plan at the end of the Plan Year, the excess amount will
be held unallocated in a suspense account. The suspense account
will be applied to reduce future Employer contributions for all
remaining Participants in the next Plan Year, and each succeeding
Plan Year if necessary.
(4) If a suspense account is in existence at any
time during a Plan Year pursuant to this Section, it will not
participate in the allocation of the trust's investment gains and
losses. If a suspense account is in existence at any time during
a particular Plan Year, all amounts in the suspense account must
be allocated and reallocated to Participants' accounts before any
Employer or any Employee contributions may be made to the Plan
for that Plan Year. Excess amounts may not be distributed to
Participants or former Participants.
(c) The provisions of this subsection (c) shall not
apply with respect to Plan Years commencing on or after January
1, 2000. If an Employee is a Participant at any time in both a
defined benefit plan and a defined contribution plan maintained
by the Employer, the sum of the defined benefit plan fraction and
the defined contribution plan fraction for any Plan Year may not
exceed 1.0. The defined benefit plan fraction for any Plan Year
is a fraction, the numerator of which is the Participant's
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<PAGE>
projected Annual benefit under the Plan (determined at the close
of the Plan Year) and the denominator of which is the lesser of
1.25 multiplied by $90,000 or such greater amount permitted by
Treasury regulations to reflect cost-of-living adjustments; or
1.4 multiplied by 100% of the Participant's average monthly
Compensation, as defined in Section 1.415-2(d)(1)(i) of the
Treasury Regulations, during the three consecutive years when the
total Compensation paid to him was highest. The defined
contribution plan fraction for any Plan Year is a fraction, the
numerator of which is the sum of the Annual Additions to the
Participant's accounts in such Plan Year and for all prior Plan
Years and the denominator of which is the sum of the applicable
maximum amounts of Annual Additions which could have been made
under Section 415(c) of the Code for such Plan Year and for all
prior years of such Participant's employment (assuming for this
purpose, that said Section 415(c) had been in effect during such
prior years). The applicable maximum amount for any Plan Year
shall be equal to the lesser of 1.25 multiplied by the dollar
limitation in effect for such Plan Year under Subsection
415(c)(1)(A) of the Code; or 1.4 multiplied by 25% of the
Participant's Compensation for such Plan Year. At the election
of the Retirement Committee, special transitional rules may apply
for both the defined benefit fraction and the defined
contribution fraction for Employees who were Participants as of
December 31, 1982.
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<PAGE>
(d) For purposes of this limitation, all defined
benefit plans of the Employer (and members of its controlled
group), whether or not terminated, are to be treated as one
defined benefit plan, and all defined contribution plans of the
Employer (and members of its controlled group), whether or not
terminated, are to be treated as one defined contribution plan.
The extent to which Annual Additions under the Plan shall be
reduced as compared with the extent to which the Annual benefit
under any defined benefit plans shall be reduced in order to
achieve compliance with the limitations of Section 415 of the
Code shall be determined by the Retirement Committee in such a
manner so as to maximize the aggregate benefits payable to such
Participant. If such reduction is under this Plan, the
Retirement Committee shall advise affected Participants of any
additional limitation on their Annual benefits required by this
paragraph.
(e) The above limitations are intended to comply with
the provisions of Section 415 of the Code so that the maximum
benefits provided by plans of the Employer and members of its
controlled group shall be exactly equal to the maximum amounts
allowed under Section 415 of the Code and regulations thereunder.
If there is any discrepancy between the provisions of this
Section 6.3 and the provisions of Section 415 of the Code and
regulations thereunder, such discrepancy shall be resolved in
such a way as to give full effect to the provisions of Section 15
of the Code.
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<PAGE>
(f) For purposes of this Section:
(1) "Annual Additions" shall mean, for a Plan
Year, the sum of: (i) Employer contributions, including Elective
Contributions and Matching Contributions, but excluding
restoration of a Participant's Accrued Benefit under Section 7.4
and any transfer of funds to the Plan from another qualified
plan; (ii) Employee Contributions, excluding Rollover
Contributions, repayment of amounts distributed in accordance
with Section 7.4 and any transfer of funds to the Plan from
another qualified plan; and (iii) forfeitures. In addition,
amounts allocated after March 31, 1984 to an individual medical
account (within the meaning of Code Section 415(1)(2)) which is
part of a pension or annuity plan maintained by the Employer are
treated as Annual Additions under a defined contribution plan.
Also, any amounts which are derived from contributions paid or
accrued after December 31, 1985, and allocated to the separate
account of a Key Employee under a welfare benefit fund (within
the meaning of Code Section 419(e)) maintained by the Employer,
shall be treated as Annual Additions under a defined contribution
plan in taxable years ending after December 31, 1985, but only to
the extent that such amounts are attributable to post-retirement
medical benefits.
(2) For purposes of this Section 6.3 only,
"Compensation" shall mean, for a Plan Year (or if the Plan Year
is less than twelve consecutive months, for the calendar year
ending with the short Plan Year), all wages, salaries and other
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amounts received (without regard to whether or not an amount is
paid in cash) for personal services actually rendered in the
course of employment with the Employer to the extent that the
amounts are includible in gross income (including, but not
limited to, commissions paid salesmen, compensation for services
on the basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as
described in Treasury regulation 1.62-2(c)) plus, effective on
and after January 1, 1998, amounts not included in income by
reason of being elective deferrals under Code Section 402(g) or
pre-tax contributions under Code Section 125, but the following
shall be excluded in determining Compensation:
(i) Employer contributions to a plan of
deferred compensation which are not includible in the Employee's
gross income, Employee contributions under a simplified employee
pension plan to the extent such contributions are deductible by
the Employee, and any distributions from a plan of deferred
compensation;
(ii) amounts realized from the exercise of a
nonqualified stock option, or when restricted stock (or property)
held by the Employee either becomes freely transferable or is no
longer subject to a substantial risk of forfeiture;
(iii) amounts realized from the sale,
exchange or other disposition of stock acquired under a qualified
stock option; and
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(iv) other amounts which receive special tax
benefits, such as premiums for group-term life insurance (but
only to the extent not includible in gross income), or
contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity contract
described under Code Section 403(b) (whether or not the
contributions are actually excludable from the gross income of
the Employee).
Compensation for any Self-Employed Individual
shall mean Earned Income.
For Plan Years beginning after December 31,
1991, Compensation for a Plan Year is the Compensation actually
paid or made available during such Plan Year, except that
Compensation for a Participant who has incurred a Disability is
the Compensation that the Participant would have received for the
Plan Year if he had been paid at the rate of Compensation paid
immediately before incurring the Disability. However, imputed
compensation may be taken into account under this paragraph only
if the Participant is not a Highly Compensated Employee and the
contributions made on his behalf are one hundred percent (100%)
vested when made.
(3) Employer shall include all members of a
controlled group of corporations and all commonly controlled
trades or businesses as defined in Code Sections 414(b) and (c),
and as modified by Code Section 415(h). Employer shall also
include any affiliated service groups of the Employer and any
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other entity required to be aggregated pursuant to Code Sections
414(m) and (o).
6.4 Annual or Other More Periodic Valuation of
Participants' Accounts. As of the last day of each Plan Year or
at such other more frequent times as may be established by the
Retirement Committee, the Retirement Committee shall revalue the
account or accounts of each Participant so as to reflect to each
account a proportionate share in any increase or decrease in the
fair market value of the assets in the Trust Fund as of that date
as compared with the value of the assets in the Trust Fund as of
the last annual or other more periodic valuation or of the latest
interim valuation. Such increase or decrease shall be allocated
to each account in proportion to the total value of each such
account as of the last valuation. No amount shall be allocated
hereunder to any segregated account or to any Employer
Contribution Account holding only the unvested portion of a
terminated Participant's account.
6.5 Interim Valuation. If, on the date a Participant
becomes entitled to a distribution under the Plan, there has been
a substantial change in the fair market value of the Trust Fund,
then, to the extent that the Retirement Committee deems it
necessary, the Retirement Committee shall value the account of
each Participant so as to reflect in each such account a
proportionate share in any increase or decrease in the fair
market value of the assets of the Trust Fund as of that date as
compared with the fair market value of the assets in the Trust
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Fund as of the last preceding valuation. The increase or
decrease resulting from an interim valuation shall be allocated
to each Participant's account in the same manner as the
allocation described in Section 6.4 for the annual valuation.
6.6 Annual or Other Periodic Statement. Upon completion of
the annual or other periodic valuation and the allocations
required for the Plan Year, the Retirement Committee shall
provide each Participant a statement showing the fair market
value of the Participant's account and the allocations made to,
or charges against, the Participant's account during the
preceding Plan Year or since the most recent statement.
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ARTICLE VII
Vesting
-------
7.1 No Vested Rights Except as Provided Herein. Neither
the making of any allocations nor the credit of any amount to the
account of a Participant shall give any Participant any right to,
or interest in, any assets of the Trust Fund, or any right to
payment, except as expressly provided in this Plan.
7.2 Vesting In Employer Contribution Account and Matching
Contribution Account. The percentage of a Participant's Employer
Contribution Account and Matching Contribution Account which is
vested in such Participant shall be based upon such Participant's
Years of Service. If an Employee participated in the Plan during
any Plan Year that ended on or before September 30, 1987, the
vesting schedule in effect under the Plan at such time shall
apply to the Employee for all purposes hereunder. Any Employee
who is a Participant or shall become a Participant on or after
the effective date of this amended and restated Plan shall become
vested in accordance with the following schedule:
Years of Service Vested Percentage
---------------- -----------------
1 33 1/3%
2 66 2/3%
3 100%
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Notwithstanding the foregoing and effective September 1, 1999,
the Vested Percentages shall be changed as follows:
Years of Service Vested Percentage
---------------- -----------------
1 34%
2 67%
3 100%
7.3 Distribution Upon Termination Prior to Normal
Retirement Age. If a Participant's employment by the Employer
terminates prior to Normal Retirement Age for any reason other
than death or Disability, the Participant's interest in the Trust
Fund shall be distributed as follows:
(a) The Participant may elect to have his vested
interest in the Trust Fund distributed by the later of (i) sixty
(60) days after the end of the Plan Year in which his employment
terminates or (ii) the date on which the valuation of accounts
for such Plan Year and all other necessary actions for processing
such distribution have been completed. The Participant's
election shall be made in accordance with uniform rules of the
Retirement Committee. Distribution shall be in a lump sum, as
provided in Section 8.2.
(b) An election to receive a distribution in
accordance with subsection (a) above shall be effective only if
the Participant is notified that he may defer distribution of his
interest in the Trust Fund until attainment of Normal Retirement
Age, and consents in writing to the immediate distribution of his
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interest. The notice described in the preceding sentence shall
be provided to the Participant not less than 30 days, and not
more than 90 days, prior to the date on which the Participant's
interest is actually distributed to him, and shall be provided in
a manner that would satisfy the notice requirement of Code
Section 417(a)(3). The written consent of the Participant shall
be valid only if it is obtained after the Participant receives
the notice of his right to defer the immediate distribution, but
in no event more than 90 days prior to the date his interest is
actually distributed to him. A Participant who does not receive
the notice required by this subsection, or who does not consent
to the immediate distribution of his interest, shall be treated
as having elected not to receive a distribution under subsection
(a) above.
(c) If a Participant does not elect to receive an
immediate distribution of his interest as provided in subsection
(a) above, distribution of his interest in the Trust Fund shall
be deferred until he attains Normal Retirement Age or otherwise
requests a distribution of his interest in accordance with
uniform rules of the Retirement Committee, whichever is earlier.
In such event, the Participant's accounts shall be placed on
"Inactive Status," and he shall not be entitled to share in any
contributions or, if applicable, forfeitures. However, the
Participant shall continue to participate in the allocation of
earnings (or losses) of the Trust Fund as provided in Section
6.5. In the event that the Participant becomes reemployed by the
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Employer while his accounts remain on "Inactive Status," he shall
again be eligible to share in any contributions and, if
applicable, forfeitures upon meeting the requirements of Section
3.1(e).
(d) Notwithstanding any provision of this Section 7.3
to the contrary, if the present value of the Participant's vested
account balances derived from Employer and Employee contributions
is not greater than $3,500 (or, for Plan Years starting on and
after January 1, 1998, $5,000), the Participant will receive a
lump-sum distribution of the value of his entire vested interest
in such account balances, and the nonvested portion will be
treated as a forfeiture as of the date of distribution. For
purposes of this Article VII, if the value of the Participant's
vested account balances is zero, the Participant shall be deemed
to have received a distribution of such vested account balances.
(e) If an Employee terminates service, and elects in
accordance with the requirements of this Section 7.3 to receive
the value of the Employee's vested account balance, the nonvested
portion will be treated as a forfeiture. If the Employee elects
to have distributed less than the entire vested portion of the
account balance derived from Employer contributions, the part of
the nonvested portion that will be treated as a forfeiture is the
total nonvested portion multiplied by a fraction, the numerator
of which is the amount of the distribution attributable to
Employer contributions and the denominator of which is the total
value of the vested Employer derived account balance.
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<PAGE>
(f) Except as provided in subsections (d) and (e)
above, if a Participant whose employment with the Employer has
terminated is not reemployed by the Employer before he incurs
five (5) consecutive one-year Breaks in Service, the nonvested
portion of his Employer Contribution Account and Matching
Contribution Account shall be forfeited when such Participant
incurs five (5) consecutive one-year Breaks in Service, and shall
be used or reallocated among other Participants as provided in
Section 6.2. Until such forfeiture, the nonvested portion shall
remain in the Participant's Employer Contribution Account and
Matching Contribution Account.
7.4 Repayment. Any Participant who receives a distribution
of the vested portion of his Employer Contribution Account and
Matching Contribution Account when he is not fully vested in such
account balances may repay to the Trust the entire amount
distributed to him, so long as that amount is repaid after the
Participant becomes reemployed by the Employer, but before the
earlier of (i) incurring five (5) consecutive one year Breaks in
Service following the date of distribution, or (ii) five (5)
years from the date of reemployment. Upon repayment of the
amount distributed to him, the amount that will be restored to
the Participant's Employer Contribution Account and Matching
Contribution Account shall not be less than the balance in such
accounts at the time of distribution, both the amount distributed
and the amount that was not vested, unadjusted by any subsequent
gains or losses. Amounts restored under this Section shall be
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<PAGE>
made from forfeitures occurring during the Plan Year under
Article VII.
7.5 Amendment of Vesting Schedule. If the Plan's vesting
schedule is amended, each Participant with at least three (3)
Years of Service with the Employer may elect to have his
nonforfeitable percentage computed under the Plan without regard
to such amendment within sixty (60) days of the latest of: the
adoption, effective date, or written notice to the Participant of
the amendment. For Participants who do not have at least one (1)
hour of service after December 31, 1988, this provision shall
apply by substituting "five (5) Years of Service" for "three (3)
Years of Service".
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ARTICLE VIII
Retirement Benefits
-------------------
8.1 Retirement or Disability. A Participant who attains
Normal Retirement Age, or whose employment is terminated prior to
the attainment of Normal Retirement Age because of Disability,
shall be one hundred percent (100%) vested in his Accrued Benefit
and shall be entitled to a distribution thereof upon termination
of employment. A Participant who remains in the employ of the
Employer after reaching his Normal Retirement Date shall continue
to participate in the Plan in the same manner as Participants who
have not reached their Normal Retirement Date. For purposes of
this Section 8.1, Normal Retirement Date means the first day of
the month following the month in which a Participant attains
Normal Retirement Age.
8.2 Method of Distribution. Except as provided in Section
8.4, all benefits hereunder shall be paid to the Participant or
the Participant's Beneficiary in the form of one (1) lump sum.
8.3 Time of Distribution. All distributions shall be made
in accordance with the rules of this Section.
(a) Unless the Participant elects, or is deemed to
elect otherwise, payment of benefits shall begin not more than
sixty (60) days after the close of the Plan Year in which the
latest of the following occurs: (1) the Participant's employment
with the Employer is terminated (including termination by reason
of death or Disability), (2) the Participant attains age 65 or
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Normal Retirement Age, if earlier, or (3) the tenth (10th)
anniversary of Participant's participation.
(b) A Participant shall be deemed to elect to defer
payment of any benefit which can not be distributed by reason of
the failure of the Participant and/or the Participant's spouse to
consent to such distribution.
(c) In no event may distribution to a Participant
begin later than such Participant's Required Beginning Date.
8.4 Protected Benefits -- Antrim 401(k) Plan. The accrued
benefit of each Participant in the Antrim 401(k) Plan as of
August 31, 1999 shall be determined and established as a
separately identified amount on the books and records of the Plan
(the "Antrim Protected Benefit"). With respect to his or her
Antrim Protected Benefit, each Participant shall have a right,
and shall be entitled, to each and every benefit, right or
feature which was existing under the Antrim 401(k) Plan as of
August 31, 1999, and which is and was a protected benefit in
accordance with Code Section 411(d)(6). Without limiting the
foregoing, a Participant shall have his or her Antrim Protected
Benefit distributed in the form of, if the Participant is
married, joint and 50% annuity payments over the joint lives of
the Participant and his or her spouse or, if the Participant is
not married, annuity payments over the life of the Participant;
unless, the Participant (with the consent of his spouse) makes a
qualified election to waive the normal form of payment of his or
her Antrim Protected Benefit and selects an optional form. Prior
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to a qualified election to waive the normal form the Retirement
Committee shall provide the Participant with information
explaining the terms and conditions of the annuity, the
Participant's right to waive and the effect of such waiver and
the rights of the Participant's spouse. In the event of a proper
waiver of the normal form of payment of the Antrim Protected
Benefit, the optional forms of payment for such Benefit shall be
monthly installments for a period not to exceed the Participant's
life expectancy or the joint life expectancies of the Participant
and the Participant's designated beneficiary and such other forms
of distribution as are available under Section 8.2.
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ARTlCLE IX
Death Benefits
--------------
9.1 Death During Employment. Upon the death of a
Participant during his employment, his Employer Contribution
Account shall become fully vested and the Retirement Committee
shall direct the Trustee to distribute the Participant's entire
interest in the Trust Fund to the Participant's surviving spouse,
or if there is no surviving spouse, to the Participant's
designated Beneficiary. If the Participant's spouse has
consented to the designation of another Beneficiary in writing,
which acknowledges the effect of such election and which is
witnessed by a Plan representative or a Notary Public, such
benefits may be paid to the Participant's designated Beneficiary
in accordance with Section 9.4 in the method of payment provided
by Section 8.2.
9.2 Death After Termination of Employment. Upon the death
of a Participant after termination of his employment, but prior
to the complete distribution of his interest in the Trust Fund,
the vested balance of the Participant's Employer Contribution
Account shall be distributed to the same persons as would be
entitled thereto pursuant to Section 9.1, if the Participant had
not terminated his employment, at least as rapidly as under the
method of distribution in effect prior to his death.
9.3 Designation of Beneficiary. Each Participant may, by
written instrument signed by him and filed with the Retirement
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Committee, designate a Beneficiary or Beneficiaries to receive
any death benefits payable under this Plan. Notwithstanding the
foregoing, in the event the Participant designates a Beneficiary
other than his surviving spouse, such designation shall not be
effective unless the Participant's spouse consents or has
consented to such designation in accordance with Section 9.1. If
at the time of the Participant's death, no such Beneficiary is
living, or if the Participant has failed to designate a
Beneficiary, and the Participant has no surviving spouse,
distribution shall be made to the Participant's personal
representative in a lump sum within one (1) year after the
Participant's death. If no personal representative has been
appointed within one (1) year of the Participant's death, or if
administration of the Participant's estate is not otherwise
required, the Retirement Committee shall direct distribution of
the deceased Participant's interest in the Trust Fund to his
heirs under the laws of the Commonwealth of Pennsylvania.
9.4 Time for Distribution to Beneficiary. In the event of
a Participant's death before distribution of his interest has
commenced, any amounts payable pursuant to Sections 9.1 or 9.2
shall be distributed by December 31 of the year containing the
fifth anniversary of the death of the Participant.
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ARTlCLE X
Administration
--------------
10.1 Named Fiduciaries. The "Named Fiduciaries" of this
Plan are (1) the Employer, (2) the Retirement Committee, and (3)
the Trustee. The Named Fiduciaries shall have only those powers,
duties, responsibilities and obligations as are specifically
given them under this Plan and Trust.
10.2 Allocation of Responsibility Among Fiduciaries. In
general, the Employer shall have the sole responsibility for
making Employer contributions and shall have the sole authority
to appoint and remove the Trustee, and/or the members of the
Retirement Committee, and to amend or terminate, in whole or in
part, this Plan and Trust. The Retirement Committee shall have
the sole responsibility for the administration of this Plan. The
Trustee shall have the sole responsibility for the administration
of the Trust and the management of the assets held under the
Trust, except as specifically provided in this Plan and Trust.
The Named Fiduciaries are expressly authorized to allocate
fiduciary duties among themselves except for Trustee
responsibility, provided that such allocation is evidenced by a
signed written document which shall be maintained with all other
Plan documents. Each fiduciary may rely upon any direction,
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<PAGE>
information or action of any other fiduciary as being proper
under this Plan and Trust, and is not required under this Plan
and Trust to inquire into the propriety of any such direction,
information or action. Each fiduciary shall be responsible for
the proper exercise of its own power, duties, responsibilities
and obligations under this Plan and Trust and shall not be
responsible for any act or failure to act of any other fiduciary.
Each fiduciary shall have the right to engage agents to assist in
carrying out the functions of such fiduciary hereunder, including
legal counsel.
10.3 Retirement Committee.
(a) The Employer shall appoint a Retirement Committee
to administer the Plan. In the absence of any appointment, the
Retirement Committee shall be the Employer.
(b) Members of the Retirement Committee may resign at
any time upon thirty (30) days written notice to the Employer,
and the Employer may remove any member of the Retirement
Committee with or without cause, upon thirty (30) days written
notice.
(c) Upon the resignation or removal of a member of the
Retirement Committee, the Employer shall promptly designate a
successor. In the event no successor is appointed, the remaining
members of the Retirement Committee shall constitute the entire
Retirement Committee until a successor has been appointed and has
accepted such appointment.
(d) The Retirement Committee shall be responsible for
administration of the Plan for the exclusive benefit of the
Participants and their Beneficiaries, subject to the terms of the
Plan. The Retirement Committee shall have full discretion in the
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administration, interpretation and construction of the Plan. The
Retirement Committee shall exercise its discretion in a
nondiscriminatory manner consistent with continued qualification
under Section 401(a) of the Code and compliance with ERISA. The
Retirement Committee's construction or determination in good
faith shall be final and conclusive.
(e) The Retirement Committee shall have the power and
authority necessary and/or appropriate to discharge its duties
under this Plan.
(f) If there is more than one member of the Retirement
Committee, the signature of any member of the Retirement
Committee may be accepted by any person acting in good faith and
in reliance thereon. The Retirement Committee shall act by
majority vote at a meeting or in writing without a meeting.
10.4 Self Directed Accounts. Prior to September 1, 1999,
Participants may not direct the investment of their Employer
Contribution Accounts. The Retirement Committee shall, on a
uniform and nondiscriminatory basis, adopt a procedure to permit
Participants to exercise control over the assets in their
Elective Contribution Account, Matching Contribution Account,
Rollover Account and, effective on and after September 1, 1999,
Employer Contribution Account (with the exception of those
covered by the Antrim 401(k) Plan on or before September 1, 1999,
in which case control over the assets in their Accounts shall be
effective as soon as reasonably practical after September 1,
1999). Such procedure shall provide that the Participant may
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<PAGE>
choose from an enumerated series of available options. The
procedure shall be clearly communicated in writing to each
Participant. All gains and losses on the directed investments
shall be credited or charged solely to the Participant's
individual account, and the Participant's share of the allocation
of increase or decrease in value of the Trust pursuant to Section
6.4 shall be only to the extent of the balance of the
Participant's account not subject to the Participant's control.
In accordance with Section 5.3 of the Trust, the administrative
expenses for the Plan shall be charged against the Participants'
Accounts as determined by the Retirement Committee.
10.5 Claims Procedure.
(a) Any person claiming benefits under the Plan shall
submit an application therefor to the Retirement Committee,
together with such supporting documents and information as the
Retirement Committee shall deem necessary.
(b) Within sixty (60) days following receipt of an
application and all necessary documents and information, the
Retirement Committee shall furnish the claimant with written
notice of its decision with respect to such application. In the
case of a denial of the claimant's application, such written
notice shall set forth specific reasons for the denial, including
reference to Plan provisions upon which the denial is based, a
description of any additional information or material necessary
to perfect the application (together with an explanation why such
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material or information is necessary), and an explanation of the
Plan's claim review procedure.
(c) A claimant who does not agree with the decision on
his application may request a review of his application by the
Retirement Committee, in writing, within ninety (90) days after
the date of notice of the decision. If the application has
neither been approved nor denied within sixty (60) days after
receipt by the Retirement Committee, then a request for review
shall be made within ninety (90) days after the expiration of
such sixty (60) day period. A claimant may review pertinent
documents and submit issues and comments in writing in connection
with his request for review. The decision of the Retirement
Committee shall be made promptly, and not later than sixty (60)
days after receipt of a request for review, unless special
circumstances require an extension of time for processing, in
which case a decision shall be rendered as soon as possible, but
not later than one hundred twenty (120) days after receipt of a
request for review. The decision on review shall be written in a
manner calculated to be understood by the claimant, and shall
include specific reasons for the decision and reference to the
specific Plan provisions upon which the decision is based.
10.6 Records and Reports. The Retirement Committee shall be
responsible for maintaining such records as shall be necessary
and appropriate in order to comply with the applicable provisions
of the Internal Revenue Code, ERISA and regulations issued
thereunder relating to records, notification and reports to
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Participants, and annual registration and/or reports to the
Internal Revenue Service and the Department of Labor.
10.7 Benefit Payments.
(a) The Retirement Committee shall direct the Trustee
concerning all benefits to be paid from the Trust Fund.
(b) If at the time of any payment a doubt exists as to
the right of the person claiming such payment, or as to the
amount or time of such payment, including, without limitation,
doubt as to the identity, or legal right of such person, the
Retirement Committee may, in its discretion, direct the Trustee
to hold such sum as a segregated amount until a determination is
made, to pay such sum into court in accordance with the rules of
court, or to make payment only upon receipt of a bond or
indemnification satisfactory to the Retirement Committee.
10.8 Indemnification. The Employer shall indemnify and hold
harmless the Retirement Committee and each member thereof
individually, from any liability to which they may be subjected
by reason of any act or conduct (except willful misconduct or
gross negligence) in their official capacity in the
administration of the Plan, including all expenses reasonably
incurred in their defense. This indemnification shall not
relieve any person of any liability he may have under ERISA for
breach of a fiduciary duty.
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ARTlCLE XI
Amendment or Termination
------------------------
11.1 Amendment of Plan. The Employer reserves the right at
any time and from time to time to amend the Plan in whole or in
part. No amendment shall be made which would cause or permit any
part of the Trust Fund to be diverted to purposes other than for
the exclusive benefit of the Participants or their Beneficiaries.
No amendment to the Plan shall be effective to the extent that it
has the effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's account
balance may be reduced to the extent permitted under Section
412(c)(8) of the Code. For purposes of this paragraph, a plan
amendment which has the effect of decreasing a Participant's
account balance or eliminating an optional form of benefit, with
respect to benefits attributable to service before the amendment
shall be treated as reducing an accrued benefit. Furthermore, if
the vesting schedule of a plan is amended, in the case of an
Employee who is a Participant as of the later of the date such
amendment is adopted or the date it becomes effective, the
nonforfeitable percentage (determined as of such date) of such
Employee's Employer derived accrued benefit will not be less than
the percentage computed under the plan without regard to such
amendment.
11.2 Termination of Plan or Discontinuance of Contributions.
The Plan may be terminated, in whole or in part, by the Employer
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at any time in the Employer's sole discretion. Notwithstanding
any other provision of the Plan, upon termination or the complete
discontinuance of Employer contributions, the share of each
Participant in the Trust Fund shall be one hundred (100%) percent
vested. In the event that no other defined contribution plan
(other than an employee stock ownership plan) is established or
maintained by the Employer (or any entity in the same controlled
group) following termination of the Plan, the Retirement
Committee shall instruct the Trustee to distribute the net assets
of the Trust Fund (after payment of, or provision for, all
expenses of final administration and liquidation) in the form of
a lump-sum exclusively for the benefit of the Participants and
Beneficiaries in accordance with their interests. If, after
termination of the Plan, the Employer (or any entity in the same
controlled group) does establish or maintain another defined
contribution plan (other than an employee stock ownership plan),
each Participant's Accrued Benefit shall be transferred to such
other plan, unless the Participant consents to an immediate
distribution of his Accrued Benefit in accordance with Section
7.3. In the event of a partial termination of the Plan, the
share in the Trust Fund of each Participant affected by such
partial termination shall be one hundred (100%) percent vested.
11.3 Expenses of Termination. In the event of the complete
or partial termination of the Plan, the expenses of termination
shall be a prior claim and lien upon the assets of the Trust
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Fund, and shall be paid or provided for prior to the distribution
of any benefits pursuant to such termination.
11.4 Plan Merger. Neither the Plan nor the Trust Fund may
be merged or consolidated with, nor may its assets or liabilities
be transferred to any other plan or trust, in whole or in part,
unless each Participant would be entitled to a benefit
immediately after the merger, consolidation, or transfer (as if
the Plan then terminated) which is equal to or greater than the
benefit he would have been entitled to receive immediately before
the merger, consolidation or transfer, on the same basis.
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ARTlCLE XII
Miscellaneous
-------------
12.1 Governing Law. All questions pertaining to the
construction, regulation, validity and effect of the provisions
hereof shall be determined in accordance with Federal law.
12.2 Captions. The captions contained herein are inserted
only as a matter of convenience for reference and shall not, in
any way affect the Plan or the construction of any provisions
thereof.
12.3 Construction. Whenever appropriate, words used in this
Plan in the singular shall include the plural, words used in the
plural shall include the singular, and the masculine shall
include the feminine. The words "hereof", "herein", "hereunder"
and other similar compounds of the word "here" shall unless the
context clearly indicates to the contrary, refer to the entire
Plan and not to any particular provision or Section.
12.4 Nonalienation of Benefits. Neither the benefits
provided under this Plan nor the interest of any Participant or
Beneficiary under this Plan shall be subject to any voluntary or
involuntary assignment, alienation, pledge, hypothecation,
attachment, sequestration or other legal process, or the claims
of any creditor, except that the Plan will honor (i) any domestic
relations order that the Retirement Committee determines to be a
"qualified domestic relations order" within the meaning of Code
Section 414(p); provided, that no other type of domestic
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relations order will be honored by the Plan; and (ii) any
requirement of, or an order requiring, an offset of a
Participant's benefit under the Plan where such requirement or
order meets all of the requirement of Code Section 401(a)(13)(C).
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ARTICLE XIII
TOP-HEAVY RULES
---------------
13.1 Application of Article.
(a) The provisions of this Article shall take effect
as of the first day of any Plan Year beginning after December 31,
1983, in which the Plan is determined to be top-heavy by
application of Section 416 of the Code as amended and regulations
thereunder.
(b) All other Plan provisions, to the extent
inconsistent with this Article, shall be superseded for any Plan
Year beginning after December 31, 1983, in which the Plan is
determined to be top-heavy; however, all other Plan provisions
not inconsistent with this Article shall remain in full force and
effect.
13.2 Definitions.
(a) Compensation. For purposes of this Article XIII,
"Compensation" shall have the meaning given such term in Section
6.3(f)(2).
(b) Determination Date. The last day of the preceding
Plan Year. Notwithstanding the foregoing, the Determination Date
for the first Plan Year shall be the last day of such Plan Year.
(c) Key Employee. Any Employee or former Employee
(and the Beneficiaries of such Employee) who, at any time during
the Plan Year containing the Determination Date and the four (4)
preceding Plan Years, is or was:
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(1) an officer of the Employer having Annual
Compensation in excess of fifty-percent (50%) of the dollar
limitation in effect under Code Section 415(b)(1)(A);
(2) an owner of (or considered as owning under
Code Section 318) one of the ten largest interests in the
Employer having Annual Compensation in excess of the dollar
limitation in effect under Code Section 415(c)(1)(A);
(3) a five percent (5%) owner (within the meaning
of Code Section 416(i)(1)(B)(i)) of the Employer; or
(4) a one percent (1%) owner (within the meaning
of Code Section 416(i)(1)(B)(ii)) of the Employer who has Annual
Compensation in excess of $150,000.
For purposes of this subsection (c), the term
"Annual Compensation" shall mean compensation as defined in Code
Section 415(c)(3), but shall include amounts contributed under a
salary reduction agreement which are excludable from the
Employee's gross income under Code Section 125, 402(a)(8), 402(h)
or 403(b). In determining who is a Key Employee, Employees of
the Employer shall include those employed by any trade or
business which must be aggregated with the Employer under Code
Sections 414(b), 414(c) or 414(m), except that such aggregation
rules shall not apply in determining five percent (5%) or one
percent (1%) owners.
The determination of who is a Key Employee shall
be made in accordance with Code Section 416(i)(1) of the Code and
the Treasury regulations thereunder.
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(d) Non-Key Employee. Any Employee who is not a Key
Employee.
(e) Present Value. The value of a Participant's
Accrued Benefit as of the Determination Date.
13.3 Determination of Top-Heavy Status
(a) For each Plan Year, the Plan shall be determined
to be top-heavy if, as of the Determination Date, the top-heavy
ratio exceeds 60%.
(b) For purposes of this Section, Aggregation Group
shall mean each qualified plan of the Employer in which a Key
Employee is a Participant and any other qualified plan of the
Employer which is aggregated with such Plan for purposes of
meeting the requirements of IRC 401(a)(4) or 410.
The Aggregation Group shall be top-heavy if, as of
the Determination Date, the sum of the Present Value of the
cumulative Accrued Benefits for Key Employees under all defined
benefit plans included in such group and the aggregate of the
accounts of Key Employees under all defined contribution plans
included in such group exceeds 60% of a similar sum determined
for all Employees. If such required aggregation group is top-
heavy, the Plan, and each plan in the required aggregation group
shall be top-heavy. If such required aggregation group is not
top-heavy, no plan in the group shall be top-heavy.
(c) The Employer may treat any Employer plan which is
qualified under Section 401 of the Code but which is not required
to be included in the aggregation group under subsection (b) as
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being part of such aggregation group if such group would continue
to meet the requirements of Sections 401(a)(4) and 410 of the
Code with such plan being taken into account.
(d) For purposes of determining the Present Value of
the cumulative Accrued Benefit for any Employee, or the current
balance of the account of any Employee, such Present Value or
balance shall be increased by the aggregate distributions made
with respect to such Employee under the Plan during the five (5)
year period ending on the Determination Date.
(e) The Accrued Benefit of any Participant who is not
a Key Employee shall be determined by:
(1) the method, if any, that uniformly applies
for accrual purposes under all defined benefit plans maintained
by the Employer; or
(2) if there is no such method, as if the benefit
accrued under the slowest accrual rate permitted under the
fractional rule of Section 411(b)(1)(C) of the Code.
(f) Except to the extent provided in regulations under
Section 416 of the Internal Revenue Code, any rollover
contribution (or similar contribution) initiated by an Employee
and made after December 31, 1983 to a plan shall not be taken
into account with respect to the transferee plan for purposes of
determining whether such plan is a top-heavy plan (or whether any
aggregation group which includes such plan is a top-heavy group).
(g) If any individual is a Non-Key Employee with
respect to this Plan, or any plan included in the aggregation
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group under subsection (b), for any plan year, but such
individual was a Key Employee with respect to any prior Plan
Year, any Accrued Benefit for such Employee (and the account of
such Employee) shall not be taken into account under this
section.
(h) If a Participant has not performed an Hour of
Service with the Employer maintaining the Plan at any time during
the five (5) year period ending on the Determination Date, the
accounts of such individual (and any Accrued Benefit for such
individual) shall not be taken into account hereunder.
(i) For purposes of this Section, top-heavy ratio
shall mean:
(1) If the Employer maintains one or more defined
contribution plans (including any Simplified Employee Pension
Plan) and the Employer has not maintained any defined benefit
plan which during the five (5) year period ending on the
Determination Date(s) has or has had accrued benefits, the top-
heavy ratio for this Plan alone or for the required or permissive
aggregation group as appropriate is a fraction, the numerator of
which is the sum of the account balances of all Key Employees as
of the Determination Date(s) (including any part of any account
balance distributed in the five (5) year period ending on the
Determination Date(s)), and the denominator of which is the sum
of all account balances (including any part of any account
balance distributed in the five (5) year period ending on the
Determination Date(s), both computed in accordance with section
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416 of the Code and the regulations thereunder. Both the
numerator and denominator of the top-heavy ratio are increased to
reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into
account on that date under section 416 of the Code and the
regulations thereunder.
(2) If the Employer maintains one or more defined
contribution plans, (including any Simplified Employee Pension
Plan) and the Employer maintains or has maintained one or more
defined benefit plans which during the five (5) year period
ending on the Determination Date(s) has or has had any Accrued
Benefits, the top-heavy ratio for any required or permissive
aggregation group as appropriate is a fraction, the numerator of
which is the sum of account balances under the aggregated defined
contribution plan or plans for all Key Employees determined in
accordance with (a) above, and the Present Value of accrued
benefits under the aggregated defined benefit plan or plans for
all Key Employees as of the Determination Date(s), and the
denominator of which is the sum of the account balances under the
aggregated defined contribution plan or plans for all
Participants determined in accordance with (a) above, and the
Present Value of accrued benefits under the defined benefit plan
or plans for all Participants as of the Determination Date(s),
all determined in accordance with section 416 of the Code and the
regulations thereunder. The accrued benefits under a defined
benefit plan in both the numerator and denominator of the top-
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heavy ratio are increased for any distribution of an accrued
benefit made in the five (5) year period ending on the
Determination Date.
(3) For purposes of (a) and (b) above, the value
of account balances and the Present Value of accrued benefits
will be determined as of the most recent valuation date that
falls within or ends with the 12-month period ending on the
determination date, except as provided in section 416 of the Code
and the regulations thereunder for the first and second plan
years of a defined benefit plan. The account balances and
accrued benefits of a Participant (1) who is not a Key Employee
but who was a Key Employee in a prior year, or (2) who has not
been credited with at least one Hour of Service with any employer
maintaining the Plan at any time during the five (5) year period
ending on the Determination Date will be disregarded. The
calculation of the top-heavy ratio, and the extent to which
distributions, rollovers, and transfers are taken into account
will be made in accordance with section 416 of the Code and the
regulations thereunder.
13.4 Minimum Contribution. For any Plan Year in which the
Plan is determined to be top-heavy, the sum of Employer
Contributions and Forfeitures allocated under Article V to the
accounts of any Participant who is a Non-Key Employee who is in
the employ of the Employer on the last day of the Plan Year
(regardless of whether the Non-Key Employee has less than 1,000
Hours of Service, fails to make any mandatory contributions or in
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the case of a cash or deferred arrangement, makes elective
contributions to the Plan) shall be not less than three (3%)
percent of the Compensation of the Participant from the Employer
for the Plan Year with the following exception:
If the sum of Employer contributions and forfeitures
allocated under Article VI to the account of each Participant who
is a Key Employee is less than three (3%) percent of Compensation
(subject to the limitation in Section 13.5, below), then the sum
of the Employer contributions and forfeitures allocated to the
account of any Participant who is a Non-Key Employee who is in
the employ of the Employer on the last day of the Plan Year shall
be not less than the largest percentage of Compensation provided
on behalf of any Key Employee for the Plan Year in which the Plan
is determined to be top-heavy. For purposes of determining the
largest percentage of Compensation provided on behalf of any Key
Employee, all defined contribution plans of the Employer in which
a Key Employee participates shall be aggregated and amounts
contributed as a result of any salary reduction agreement shall
be included.
13.5 Coordination with Social Security and Similar
Contributions and Benefits. For any Plan Year in which the Plan
is top-heavy, the requirements of Section 13.4 and 13.5 shall be
met without taking into account contributions or benefits under
Chapter 2 of the Code (relating to the tax on self-employment
income), Chapter 21 of the Code (relating to the Federal
Insurance Contributions Act), Title II of the Social Security
Act, or any similar Federal or state law.
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13.6 Cessation of Top-Heavy Status. For any Plan Year in
which the Plan ceases to be top-heavy, all provisions of this
Article XII shall cease to be effective, and the vesting schedule
in Section 7.2 shall again apply subject to the following
limitations:
(a) For any Participant to whom Section 13.5 applied,
the vested percentage of such Participant as of the first day of
the Plan Year when the Plan ceased to be top-heavy shall not be
less than the vested percentage applicable to such Participant as
of the last day of the Plan Year when the Plan was determined to
be top-heavy.
(b) Any Participant to whom Section 13.5 applied who
has had 3 or more Years of Service, whether or not consecutive,
as of the first day of the Plan Year when the Plan ceases to be
top-heavy, shall be permitted to elect, within a reasonable
period of time after the first day of such Plan Year, to continue
to be treated under the vesting schedule in Section 13.5.
13.7 Maximum Benefits Under Combined Plans. For any Plan
Year in which the Plan is top-heavy, Section 6.3(c) shall be read
by substituting the number "1.0" for the number "1.25" wherever
it appears therein; PROVIDED, HOWEVER, that this Section shall
not apply in any Plan Year in which both of the following
requirements are met:
(a) The Plan meets the requirement of Section 13.4 as
modified by substituting "4%" for "3%" wherever such percentage
appears therein; and
(b) The Plan would not be a top-heavy Plan under the
provisions of Section 13.3 if "90%" were substituted for "60%"
wherever such percentage appears therein.
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ARTICLE XIV
DIRECT ROLLOVERS; LIMIT ON COMPENSATION
---------------------------------------
14.1 Direct Rollover Election. This Article applies to
distributions made on or after January 1, 1993. Notwithstanding
any provisions of the Plan to the contrary that would otherwise
limit a distributee's election under this Article, a distributee
may elect, at the time and in the manner prescribed by plan
administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
14.2 Definitions.
(a) Eligible Rollover Distribution: An eligible
rollover distribution is any distribution of all or any portion
of the balance to the credit of the distributee, except than an
eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period
of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and
the portion of any distribution that is not includible in gross
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income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
(b) Eligible retirement plan: An eligible retirement
plan is an individual retirement account described in section
408(b) of the Code, an annuity plan described in section 403(a)
of the Code, or a qualified trust described in section 401(a) of
the Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan
is an individual retirement account or individual retirement
annuity.
(c) Distributee: A distributee include an employee or
former employee. In addition, the employee's or former
employee's surviving spouse and the employee' or former
employee's spouse or former spouse who is the alternate payee
under a qualified domestic relations order, as defined in section
414(p) of the Code, are distributees with regard to the interest
of the spouse or former spouse.
(d) Direct Rollover: A direct rollover is a payment
by the plan to the eligible retirement plan specified by the
distributee.
14.3 Compensation Limitation - OBRA '93. In addition
to the other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary,
for plan years beginning on or after January 1, 1994, the annual
compensation of each employee taken into account under the Plan
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shall not exceed the OBRA '93 annual compensation limit. The
OBRA '93 annual compensation limit is $150,000, as adjusted by
the Commissioner for increases in the cost of living in
accordance with section 401(a)(17) of the Internal Revenue Code.
The cost-of-living adjustment in effect for a calendar year
applies to any period over which compensation is determined
(determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA
'93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For plan years beginning on or after January 1, 1994,
any reference in the Plan to the limitation under section
401(a)(17) of the Code shall mean the OBRA '93 annual
compensation limit set forth in this provision.
If compensation for any prior determination period is
taken into account in determining an employee's benefits accruing
in the current plan year, the compensation for that prior
determination period is subject to the OBRA '93 annual
compensation limit for that prior determination period. For this
purpose, for determination periods beginning before the first day
of the first plan year beginning on or after January 1, 1994, the
OBRA '93 annual compensation limit is $150,000.
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ARTICLE XV
LOANS
-----
15.1 Loans. Upon the application of any Active
Participant and with the consent of his spouse (if any), the
Trustee, in accordance with a uniform, nondiscriminatory policy,
may make a loan to such Participant in such amounts as may be
allowed by law for home purchases, educational purposes, or such
other lawful purposes as the Trustee may determine. The Trustee
may delegate its authority hereunder to the Retirement Committee
or such other person or persons as the Trustee considers
appropriate, in which case references in this Article XV to
Trustee shall be deemed to include its authorized delegate. The
loan policy stated herein may be revised by the Trustee or the
Retirement Committee at its or their sole discretion. The
decision of the Trustee with regard to circumstances warranting
loans shall be final. Notwithstanding the foregoing, the Trustee
shall not make more than one loan and shall not make any loan
which, when added to the outstanding balance of all other loans
from the Plan, would exceed the lesser of: (i) $50,000 (reduced
by the excess, if any, of the highest outstanding loan balance at
anytime during the one year period ending on the day before the
date a loan is made, over the total outstanding loan balance on
the date a loan is made) or (ii) one-half of the present vested
Account balance of the Participant.
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15.2 Security; Repayment. Any such loan or loans shall
be secured by a proper assignment of an appropriate interest in
the Participant's Account. Any such loan or loans shall be
repaid by the Participant in such manner as the Trustee shall
determine, but in no event shall the repayment period be in
excess of five years unless the loan will be used to acquire any
dwelling unit which within a reasonable time is to be used
(determined at the time the loan is made) as a principal
residence of the Participant. Any loan hereunder shall be
amortized on a substantially level basis with payments not less
frequently than quarterly. In the event that the Participant
does not repay such loan within the time prescribed, the Plan
may, in accordance with such assignment, deduct the total amount
of such loan or any portion thereof from any payment or
distribution from the Trust Fund to which such Participant or his
Beneficiary or Beneficiaries may be entitled, or take other
appropriate action, including an immediate right of setoff
against the Participant's Account. In addition, the Trustee or
its delegate may from time to time prescribe other security to be
provided for any such loan and may adopt policies and procedures
for the collection of any amounts due which, in the opinion of
the Trustee, adequately protect the Trust Fund. Any loans shall
be repaid by mandatory payroll deduction. If the Participant's
employment terminates before the loan is repaid in full, the
unpaid balance thereof, together with interest due thereon, shall
become immediately due and payable.
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15.3 Interest. Except as otherwise provided herein,
loans shall be considered an investment of the Account of the
Participant borrowing the funds, and interest shall be charged
thereon at a reasonable rate which shall be equivalent to and
commensurate with the prevailing interest rate charged by persons
in the business of lending money for loans which would be made
under similar circumstances. The Trustee or the Retirement
Committee, in its or their sole discretion, shall establish and
maintain a written procedure which shall describe, among other
things, how and when, the prevailing interest rate shall be
determined. Notwithstanding the foregoing, the Trustee, in its
sole discretion, may determine that any such loan shall be
considered an investment of the Trust Fund as a whole and such
loan shall not be considered an investment of the Account of the
Participant borrowing the funds. Every loan applicant shall
receive a statement of the charges involved in each loan
transaction as required by law.
IN WITNESS WHEREOF, as evidence of its adoption of this
Plan, Sunquest Information Systems, Inc. has caused this
instrument to be signed by its duly authorized officer and its
corporate seal to be hereunto affixed and attested by its
Secretary this 17th day of March, 2000.
SUNQUEST INFORMATION SYSTEMS, INC.
By: /s/ Nina M. Dmetruk
-------------------
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SUNQUEST INFORMATION SYSTEMS, INC.
AND AFFILIATES
401(k) PROFIT SHARING PLAN
(As Amended And Restated Generally Effective
January 1, 1997)
90
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I - NAME AND EFFECTIVE DATE 1
1.1 Name 1
1.2 Effective Date 1
1.3 Profit Sharing Plan 1
ARTICLE II - DEFINITIONS 2
2.1 Accrued Benefit 2
2.2 Antrim 401(k) Plan 2
2.3 Authorized Leave of Absence 2
2.4 Beneficiary 2
2.5 Code 2
2.6 Compensation 2
2.7 Date of Employment 3
2.8 Disability 3
2.9 Earned Income 3
2.10 Employee 4
2.11 Employer 5
2.12 Employer Contribution Account 5
2.13 ERISA 5
2.14 Highly Compensated Employee 5
2.15 Hour of Service 6
2.16 Leased Employee 8
2.17 Normal Retirement Age 9
2.18 Owner-Employee 9
2.19 Participant 9
2.20 Plan Year 9
2.21 Required Beginning Date 9
2.22 Retirement Committee 10
2.23 Self-Employed Individual 10
2.24 Trust (or Trust Fund) 10
2.25 Trustee 10
ARTICLE III - PARTICIPATION AND SERVICE 11
3.1 Participation 11
3.2 Entry Date 14
3.3 Year of Service 14
3.4 Inactive Status 14
3.5 Break in Service 15
3.6 Crediting Service Following a Break in Service 15
3.7 Election Not to Participate 16
3.8 Military Leave 17
<PAGE>
ARTICLE IV - REGULAR CONTRIBUTIONS 19
4.1 Individual Accounts 19
4.2 Employer Contributions 19
4.3 Participant Contributions 20
4.4 Rollover From Other Plans 20
ARTICLE V - SALARY REDUCTION CONTRIBUTIONS 22
AND MATCHING CONTRIBUTIONS
5.1 Elective Contributions 22
5.2 Salary Reduction Agreements 22
5.3 Matching Contributions 23
5.4 Qualified Non-Elective Contributions 24
5.5 Maximum Contribution 24
5.6 Nondiscrimination Requirements 25
5.7 Distribution of Excess Contributions 28
5.8 Distribution of Excess Aggregate Contributions 29
5.9 Vesting 30
5.10 Distribution of Elective Contributions, 30
Rollover Contributions and
Matching Contribution Accounts
5.11 Distribution of Excess Elective Deferrals 33
5.12 Article V Definitions 35
ARTICLE VI - PARTICIPANTS' ACCOUNTS 41
6.1 Allocations of Employer Contributions 41
6.2 Use or Allocation of Forfeitures 41
6.3 Maximum Additions 43
6.4 Annual or Other More Periodic 51
Valuation of Participants' Accounts
6.5 Interim Valuation 51
6.6 Annual or Other Periodic Statement 52
ARTICLE VII - VESTING 53
7.1 No Vested Rights Except as Provided Herein 53
7.2 Vesting in Employer Contribution Account 53
and Matching Contribution Account
7.3 Distribution Upon Termination Prior to 54
Normal Retirement Age
7.4 Repayment 57
7.5 Amendment of Vesting Schedule 58
<PAGE>
ARTICLE VIII - RETIREMENT BENEFITS 59
8.1 Retirement or Disability 59
8.2 Method of Distribution 59
8.3 Time of Distribution 59
8.4 Protected Benefits -- Antrim 401(k) Plan 60
ARTICLE IX - DEATH BENEFITS 62
9.1 Death During Employment 62
9.2 Death After Termination of Employment 62
9.3 Designation of Beneficiary 62
9.4 Time for Distribution to Beneficiary 63
ARTICLE X - ADMINISTRATION 64
10.1 Named Fiduciaries 64
10.2 Allocation of Responsibility Among Fiduciaries 64
10.3 Retirement Committee 65
10.4 Self Directed Accounts 66
10.5 Claims Procedure 67
10.6 Records and Reports 68
10.7 Benefit Payments 69
10.8 Indemnification 69
ARTICLE XI - AMENDMENT OR TERMINATION 70
11.1 Amendment of Plan 70
11.2 Termination of Plan or Discontinuance of 70
Contributions
11.3 Expenses of Termination 71
11.4 Plan Merger 72
ARTICLE XII - MISCELLANEOUS 73
12.1 Governing Law 73
12.2 Captions 73
12.3 Construction 73
12.4 Nonalienation of Benefits 73
ARTICLE XIII - TOP-HEAVY RULES 75
13.1 Application of Article 75
13.2 Definitions 75
13.3 Determination of Top-Heavy Status 77
13.4 Minimum Contribution 81
13.5 Coordination with Social Security and 82
Similar Contributions and Benefits 83
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13.6 Cessation of Top-Heavy Status 83
13.7 Maximum Benefits Under Combined Plans 83
ARTICLE XIV - DIRECT ROLLOVERS; LIMIT ON COMPENSATION
84
14.1 Direct Rollover Election 84
14.2 Definitions 84
14.3 Compensation Limitation - OBRA '93 85
ARTICLE XV - LOANS 87
15.1 Loans 87
15.2 Security; Repayment 88
15.3 Interest 89
<PAGE>
Exhibit 10.4
T. ROWE PRICE TRUST COMPANY
QUALIFIED PLAN TRUST AGREEMENT
------------------------------
This TRUST AGREEMENT is made by and between SUNQUEST
INFORMATION SYSTEMS, INC., hereinafter referred to as the
"Employer," and T. ROWE PRICE TRUST COMPANY, a Maryland limited
trust company, hereinafter referred to as the "Trustee."
WITNESSETH
WHEREAS, the Employer has adopted the SUNQUEST INFORMATION
SYSTEMS, INC. AND AFFILIATES 401(k) PROFIT SHARING PLAN, a defined
contribution plan intended to be a qualified plan under Section
401(a) of the Internal Revenue Code ("Code"), which plan is
hereinafter referred to as the "Plan," for the benefit of all
those individuals eligible to participate under the Plan terms
(including beneficiaries and alternate payees), hereinafter
referred to individually as "Participant" and collectively as
"Participants;" and
WHEREAS, the Plan provides that the assets thereof be held,
in trust, by a trustee or trustees, subject to the provisions of a
trust agreement to be entered into between the Employer and a
trustee or trustees;
NOW THEREFORE, the Employer and the Trustee agree as follows:
ARTICLE I - TRUST FUND
1.1 Trust. The Employer hereby establishes with the Trustee, a
trust account or accounts ("Accounts") consisting of such sums of
U.S. currency and such other property acceptable to the Trustee as
shall from time to time be contributed to, paid or delivered to
the Trustee pursuant to this Trust Agreement at the address
specified by the Trustee. All such money and property, all
investments and reinvestments made therewith and proceeds thereof,
less any payments or distributions made by the Trustee pursuant to
the terms of this Trust Agreement are referred to herein as the
"Trust." The Trust shall be held by the Trustee in accordance
with the express provisions of this instrument and the
requirements of law. To the extent provided for in Section 403(b)
of the Employee Retirement Income Security Act of 1974 ("ERISA"),
this Trust excludes any Plan assets held by an insurance company.
1.2 Custody of Trust Assets. The Trustee is authorized to: (a)
hold property hereunder in bearer form or in its own name or the
name of its nominee; (b) combine certificates representing
investments of the Trust with certificates of the same issue held
by the Trustee or other fiduciaries; (c) hold securities in
definitive form on a segregated or nonsegregated basis or with a
correspondent bank or depository (or nominee of such bank or
depository); and (d) hold obligations of the United States
Government and agencies thereof on a book entry basis at the
appropriate Federal Reserve bank; provided, however, that the
Trustee may not serve as custodian or appoint or terminate a
custodian for any plan assets, as defined in ERISA and the
regulations thereunder, that are managed by an investment manager,
as defined in Section 3(38) of ERISA ("Investment Manager") that
is an affiliate of the Trustee. In all cases, the books and
records of the Trustee
<PAGE>
shall, at all times, show that all such property and securities are held
in trust. The Trustee shall not hold any property or securities hereunder
in the same account as any individual property of the Trustee. The Trustee
is also authorized to appoint a subcustodian to perform any of the above
functions.
1.3 Limitations of Trustee's Duties. With respect to its duties
hereunder, the Trustee is a directed trustee and shall have no
duty to: (a) determine or enforce payment of any contribution due
under the Plan; (b) inquire into the accuracy of any contribution;
(c) determine the adequacy of the funding policy adopted by the
Employer to meet its obligations under the Plan; (d) look into the
propriety of any investment or distribution made under the Plan;
or (e) ensure the qualification of the Plan under the Code. The
Trustee shall not be deemed to be the administrator, the Plan
sponsor or a "named fiduciary" of the Plan as defined in Sections
3(16)(A), 3(16)(B) and 402(a)(2), respectively, of ERISA.
ARTICLE II - ACCOUNTS
2.1 Establishing Accounts. The Trustee shall open and maintain
an Account for the Plan.
2.2 Charges Against the Trust. Upon receipt of written
instructions from the Employer or the Retirement Committee of the
Plan ("Retirement Committee"), the Trustee shall charge the Trust
for any withdrawals or distributions made under the Plan and for
any administrative fees or expenses which may be charged against
the Trust assets. Excluding those fees set forth in Section 8.3 of
this Trust Agreement and the Plan's Recordkeeping Agreement, the
Employer or the Retirement Committee shall follow the procedures
in Exhibit A with respect to expenses to be charged to the Trust.
2.3 Custody of Participant Loan Documents. The Trustee shall
retain custody of original executed documents evidencing loans to
Participants made after September 1, 1999. The prior trustee
shall provide the Trustee with original executed documents
evidencing currently outstanding loans which loan documents were
executed prior to September 1, 1999. The Trustee shall retain
custody only for those loan documents which have been provided to
the Trustee by the prior trustee. The Employer, the Retirement
Committee or the prior trustee shall provide the Trustee with a
list of all outstanding loans made to Participants prior to
September 1, 1999.
ARTICLE III - INVESTMENT OF TRUST ASSETS
3.1 Investment of Trust Assets. The Trustee shall not have any
discretion, and is specifically prohibited from having or
exercising any discretion, with respect to the investment of Trust
assets. The Employer, the Retirement Committee, and any other
person so designated pursuant to Article X of the Plan shall be
the named fiduciaries ("Named Fiduciary", singularly); provided,
however that the Trustee shall not be considered a Named Fiduciary
for purposes of this Agreement and the Plan, and except as
provided in Section 3.5 (Participant Directed Investments), the
Employer or other designated Named Fiduciary shall be solely
responsible for giving the Trustee directions as to the investment
and disposition of the Trust assets, including but not limited to
guaranteed investment contracts, bank investment contracts,
synthetic investment contracts, certificates of deposit and
insurance company annuity contracts. The Trustee, unless it has
knowledge that an investment
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direction constitutes a violation of ERISA or any other applicable law, shall
be entitled to rely on such direction, and the Trustee shall not review any
securities or other assets or make suggestions with respect to the investment,
reinvestment, retention or disposition of any Trust assets. The
Trustee shall invest and reinvest the Trust's assets only as
directed and free from any limitations imposed by state law on
investments of trust funds and without distinction between income
and principal in any property, including, but not limited to,
common and preferred stocks, governmental obligations, equipment
trust certificates, participation certificates, investment
companies or trusts (including any investment company or trust
which has an investment management or other agreement with an
affiliate of the Trustee), collateral trust notes, savings and
time deposits, commercial paper (including participation in
variable amount notes), leasebacks, mortgages and other interests
in realty, corporate bonds, debentures, notes and other evidences
of indebtedness, secured or unsecured, non-income producing
securities or property, options and participation in any group or
common trust funds, including any such funds held or maintained by
the Trustee or an affiliate of the Trustee, for commingling assets
of participating trusts and exempt from Federal income tax,
including but not limited to, any group or common trust fund which
is qualified under the provisions of Section 401(a) of the Code or
any successor provisions thereto (the instrument of trust creating
any such qualified group or common trust fund, to the extent of
the Trust's equitable share thereof, being adopted hereby).
Notwithstanding any language in this Agreement to the contrary,
the Trustee will not serve as trustee for Plan assets invested in
the Verde Santa Fe Limited Partnership or the Sedona Diversified
Properties Limited Partnership (collectively, "Limited
Partnerships"). The trustee for the Limited Partnerships will
continue to be Sidney A. Goldblatt pursuant to a trust agreement
between Sunquest Information Systems, Inc. and Sidney A. Goldblatt
dated April 3, 1991.
3.2 Investment and Insurance Contracts. In the event that the
Trust holds assets consisting of bank investment contracts,
structured or synthetic investment contracts or insurance
contracts selected by the Employer ("Contracts"), the Trustee
shall not be liable for the refusal or inability of any insurance
company or financial institution to issue, change, pay proceeds or
make payments due under any Contract; for the form, terms,
genuineness, validity or sufficiency of any Contract; or for any
delay in payment or proceeds due under any Contract. The Trustee
shall not be responsible for evaluating or monitoring the
financial condition or status of any financial institution or
insurance company issuing any such Contract which the Trustee is
properly directed to hold or to purchase with assets of the Trust.
3.3 Plan Loans. At the direction of the Employer or Retirement
Committee, the Trustee shall invest assets of the Trust in loans
to Participants in accordance with procedures established by the
Retirement Committee. The Trustee shall accept as collateral for
each Participant loan only the appropriate amount of the
Participant's Plan account designated by the Plan document or
established policies. No asset, other than the Participant's Plan
account, can be pledged as collateral for any such loan. The
Trustee shall process all loan repayments and distributions of
loans in accordance with the directions of the Retirement
Committee.
3.4 Written Instruction. Any action of the Employer pursuant to
any provisions of this Trust Agreement shall be in writing, from
the Employer, and the Trustee shall be fully protected in relying
upon such written notification as actions of the Employer.
Written instructions shall include the electronic transmission of
information or data as mutually agreed upon by the Trustee
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and the Employer. If written instructions are not received by the
Trustee, or if such instructions are received but are deemed by
the Trustee to be unclear, the Trustee may elect to hold all or
part of any such contribution in cash, without liability for
rising security prices or distributions made, pending prompt
request for and receipt by it from the Employer of written
instructions or other clarification. If any contributions
received by the Trustee from the Employer are less than any
minimum which a directed investment requires, the Trustee may hold
the specified portion of such contributions in cash, without
interest, until such time as the proper amount has been
contributed so that the directed investment may be made. In such
event, the Trustee shall provide prompt notice. The Trustee shall
receive all directions or instructions in writing provided that
the Trustee may accept oral directions for purchases or sales from
the Employer or Participant with subsequent written confirmation.
3.5 Participant Directed Investments. When so instructed by the
Employer or Retirement Committee, the Trustee shall invest all or
any portion of the Trust as directed by Participants. The
Employer or other Named Fiduciary shall have the duty to select
and monitor all investment options made available to Participants
under the Plan. The Retirement Committee shall ensure that all
Participants who are entitled to direct the investment of Trust
assets allocated to their Plan accounts previously received or
receive a copy of all material describing such investment options
that is required by law. Delivery of investment directions by the
Retirement Committee in accordance with the instructions of a
Participant or by the Participant directly to the Trustee shall
entitle the Trustee to assume that the Participant has received
all such descriptive material. Each Participant who directs the
investment of Trust assets allocated to his Plan account shall be
solely and absolutely responsible for the investment, or
reinvestment of any such directed Plan investment held on his
behalf in the Trust, and, except as otherwise provided herein, the
Trustee shall not question any such direction, review any
securities or other such assets, or make suggestions with respect
to the investment, reinvestment, retention or disposition of any
such assets. The Trustee shall not have any liability or
responsibility for diversification of such assets, for any loss to
or depreciation of such assets because of the purchase, retention
or sale of assets in accordance with a Participant's direction,
and the Participant shall have sole responsibility for the overall
diversification, liquidity and prudence of the investments held on
his behalf in the Trust. If a Participant fails to direct the
investments of Trust assets held on his behalf, the Trustee shall
invest such assets in accordance with the written directions of
the Employer or other authorized Named Fiduciary.
3.6 Employer Directed Investments. The Employer, by written
direction to the Trustee, is authorized to designate all or a
portion of the Trust assets of which the Employer will direct
investments, and the Trustee may segregate such assets into one or
more separate Accounts or administer the Trust as one Account.
The Employer may direct the Trustee to invest all or a portion of
the Trust assets in securities which constitute qualifying
employer securities within the meaning of Section 407(d) of ERISA
("Qualifying Employer Securities"). Any such direction shall
include a certification by the Employer that the acquisition and
holding of such Qualifying Employer Securities does not constitute
a prohibited transaction under Section 406 of ERISA or Section
4975 of the Code. In the event the Employer shall employ or
appoint an Investment Manager to direct the Trustee with respect
to all or a portion of the Trust, the Employer will notify the
Trustee in writing of the appointment of an Investment Manager,
including its name and address. Whether or not the Trust is
segregated into separate Accounts, the Trustee shall invest
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such portion of the Trust as directed by the Employer or its duly
appointed Investment Manager. The Trustee shall have no duty to
question any action or direction of the Employer (provided that
such action or direction is signed by one of the individuals
indicated in Schedule A of this Agreement) or Investment Manager
or any failure of the Employer or Investment Manager to give
directions, or to review the securities or other investments which
are held pursuant to the Employer's or Investment Manager's
directions, or to make suggestions to the Employer or Investment
Manager as to the investment, reinvestment, retention or
disposition of any such assets. The Trustee shall not have any
liability or responsibility for diversification of such assets, or
for any loss to or the depreciation of such assets because of the
purchase, retention or sale of assets in accordance with the
Employer's or Investment Manager's direction. The Employer shall
have responsibility for the overall diversification of the Trust.
3.7 Self-Directed Individual Brokerage Accounts. At the
direction of the Employer, the Trustee will add Participant-
directed individual brokerage accounts as an investment in the
Trust available to Plan Participants. The Employer hereby directs
the Trustee that the following incidents of ownership of the
assets in a Participant's self-directed individual brokerage
account shall be exercised solely by the Participant: (a) vote in
person or by proxy, general or special, any such assets; (b)
exercise conversion privileges, subscription rights and other
options; and (c) participate in or dissent from reorganizations,
tender offers or other changes in property rights. Each
Participant shall be a named fiduciary within the meaning of
Section 403(a)(1) of ERISA for the purpose of exercising the above
rights and shall be deemed to have exercised the above rights with
respect to assets in the Participant's self-directed individual
brokerage account. The Trustee shall not have any right to vote,
tender or otherwise exercise any similar incidents of ownership of
investments held in a self-directed individual brokerage account.
The Retirement Committee hereby certifies that the Plan complies
with ERISA Section 404(c) and the regulations issued thereunder
and shall complete Exhibit B on an annual basis. The Trustee is
entitled to rely upon such certification without further
investigation. If, however, the Plan does not in fact meet the
requirements of ERISA Section 404(c) and the regulations issued
thereunder, the Employer shall be responsible for the exercise of
the above incidents of ownership of assets held in a Participant's
self-directed individual brokerage account.
3.8 Trustee's Responsibility with Respect to Directed Accounts.
The Trustee shall not be responsible for, and the Employer will
indemnify and hold harmless the Trustee (including its employees,
affiliates, representatives and agents) from and against, any
liability or expense (including counsel fees) because of: (a) any
investment action taken or omitted by the Trustee in accordance
with any direction of the Employer, an Investment Manager or a
Participant; or (b) any investment inaction in the absence of
investment directions from the Employer, an Investment Manager or
a Participant; or (c) any investment action taken by the Trustee
pursuant to an order to purchase or sell securities placed by the
Employer, an Investment Manager or a Participant directly with a
broker, dealer or issuer.
3.9 Limitations on Investments. Notwithstanding any other
provision of this Trust Agreement to the contrary:
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The Trustee may establish such reasonable rules and
regulations, applied on a uniform basis to all Participants, with
respect to the requirements for, and the form and manner of,
effecting any transaction with respect to Participant directed
investments as the Trustee shall determine to be consistent with
the purposes of the Plan. Any such rules and regulations shall be
binding upon all persons interested in the Trust.
In no event shall the Trustee engage in any transactions that
would be prohibited under ERISA, unless a Named Fiduciary
determines that an exemption is available.
3.10 "Knowledge" of Trustee. It is understood that although, when
the Trustee is subject to the direction of the Employer, the
Retirement Committee, another Named Fiduciary, an Investment
Manager or a Participant, the Trustee will perform certain duties
("Duties") with respect to the portion of the Trust subject to
such direction, subject to applicable law, such duties do not
involve the exercise of any discretionary authority to manage or
control Trust assets. Such Duties will be performed in the normal
course of business by employees of the Trustee, its affiliates or
agents who may be unfamiliar with investment management. It is
agreed that the Trustee is not undertaking any duty or obligation,
express or implied, to review, and will not be deemed to have any
knowledge of or responsibility with respect to, any transaction
involving the investment of the Trust as a result of the
performance of these Duties. Therefore, in the event that
"knowledge" of the Trustee shall be a prerequisite to imposing a
duty upon or determining liability of the Trustee under the Plan,
this Trust Agreement or any law regulating the conduct of directed
trustees with respect to the investment of trust assets, as a
result of any act or omission of the Employer, or any Participant,
or as the result of any transaction engaged in by any of them,
then the receipt and processing of investment orders and other
documents relating to Trust assets by an employee of the Trustee
or its affiliates or agents engaged in the performance of Duties
shall not alone constitute "knowledge" of the Trustee.
ARTICLE IV - DUTIES OF THE TRUSTEE
4.1 Duties of the Trustee. The Trustee is authorized and
empowered with respect to the Trust:
a) To make, execute, acknowledge and deliver any and all
documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate to carry out the
powers herein granted.
b) To register any investment held in the Trust in the name of
the Trustee or in the name of a nominee, and to hold any
investment in bearer form, but the books and records of the
Trustee shall at all times show that all such investments are part
of the Trust.
c) To employ suitable agents and counsel (who may also be agents
and/or counsel for the Employer) and to pay their reasonable
expenses and compensation out of the Trust.
d) The Trustee shall use its best efforts to trade Qualifying
Employer Securities as soon as an order is received and processed
by T. Rowe Price Retirement Plan Services, Inc. Trade delays may
occur, however, due to stock market constraints or the liquidity
of the Qualifying Employer Securities.
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e) Solely at the written direction of the Employer, to borrow or
raise monies for the purpose of the Trust from any source and, for
any sum borrowed, to issue its promissory note as Trustee and to
secure the repayment thereof by pledging all or any part of the
Trust, but nothing contained herein shall obligate the Trustee to
render itself liable individually for the amount of any such
borrowing; and no person loaning money to the Trustee shall be
bound to see the application of money loaned or to inquire into
the validity or propriety of any such borrowing.
f) Each and all of the foregoing powers may be exercised without
a court order or approval. No one dealing with the Trustee need
inquire concerning the validity or propriety of anything that is
done or need see the application of any money paid or property
transferred to or upon the order of the Trustee.
4.2 Valuation of Trust. The Trustee, as of the valuation date
set forth in the Plan and at such other time or times as is
necessary or as the Trustee and the Employer agree, shall
determine the net worth of the assets of the Trust. The valuation
shall be based, without independent investigation, upon valuations
provided by Investment Managers, trustees of common trust funds,
sponsors of mutual funds and records of securities exchanges.
Notwithstanding the foregoing, the Trustee shall not be
responsible for providing the value of any Contracts, or for any
asset which is not liquid or not publicly traded, the value of
which shall be provided by the Employer. The Trustee may obtain
the opinions of qualified appraisers, as necessary in the
discretion of the Trustee, to determine the fair market value of
Qualifying Employer Securities, the fees of which appraiser shall,
unless paid by the Employer, be paid from the Trust.
4.3 Trust Records. The Trustee shall keep accurate and detailed
records of all receipts, investments, disbursements and other
transactions required to be performed hereunder with respect to
the Trust. The Trustee agrees to treat as confidential all
records and other information relative to the Trust. The Trustee
shall not disclose such records and other information to third
parties except to the extent required by law or as requested in
writing by the Employer.
4.4 Accounting. Within 90 days after the close of the Plan's
fiscal year or such other period as the Employer and the Trustee
may agree, and within 90 days after the resignation or removal of
the Trustee, as provided herein, the Trustee shall file with the
Employer a written account setting forth all investments,
receipts, disbursement and other transactions effected by it
during such fiscal year or during the period from the close of the
last fiscal year to the date of notice of such resignation or
removal. Except as otherwise proscribed by ERISA and except for
willful misconduct, negligence, knowing concealment, fraud, or
lack of good faith on the part of the Trustee, upon expiration of
180 days from the date of receipt of the report by the Employer,
the Trustee shall be released and forever discharged from all
liability or further accountability to the Employer for the
accuracy of such accounting and for the propriety of all acts and
the transactions of the Trustee clearly reflected in said account
to which the Employer has not specified written objections with
the Trustee within such 180 day period.
4.5 Distributions. At the direction of a representative of the
Retirement Committee authorized as designated in Schedule A of
this Agreement, the Trustee shall make distributions from the
Trust to the Participants. The Trustee shall not be liable or
responsible for any errors made by the
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Retirement Committee with respect to distributions. The Trustee shall
be entitled to rely conclusively upon the Retirement Committee directions.
Notwithstanding any other provision of the Trust Agreement, the
Trustee may condition its delivery, transfer or distribution of
any Trust assets upon the Trustee's receiving satisfactory
assurances that the approval of appropriate governmental agencies
or other authorities have been secured and that all notice and
other procedures required by applicable law have been satisfied.
4.6 Duties not Assigned. The duties of the Trustee with respect
to the Trust are limited to those assumed by the Trustee under the terms of
this Trust Agreement. The Trustee shall not be responsible for filing
reports, returns or disclosures with any government agency except as
may otherwise be required by its duties as Trustee under applicable law.
4.7 Standards for the Trustee's Powers. Notwithstanding any
other provision of this Trust Agreement, the Trustee shall
discharge its duties hereunder solely in the interest of the
Participants and for the exclusive purpose of providing benefits
to the Participants and defraying reasonable expenses of
administering the Trust, with the skill, care, prudence and
diligence under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and with
like aims. The Trustee shall perform its duties in accordance
with this Trust Agreement insofar as this Trust Agreement is
consistent with the provisions of ERISA. To the extent not
prohibited by ERISA, the Trustee shall not be responsible in any
way for any action or omission of the Employer or another Named
Fiduciary with respect to the performance of its duties and
obligations set forth in this Trust Agreement and in the Plan.
The Trustee may rely upon such information, direction, action or
inaction of the Employer or another Named Fiduciary as being
proper under the Plan or the Trust Agreement and is not required
to inquire into the propriety of any such information, direction,
action or inaction, provided that such information and direction
is from a representative of the Employer or another Named
Fiduciary as authorized in Schedule A of this Agreement. To the
extent not inconsistent with or not prohibited by ERISA, the
Trustee shall not be responsible for any action or omission of any
of its agents, or with respect to reliance upon advice of its
counsel (whether or not such counsel is also counsel to the
Employer), provided that such agents or counsel were prudently
chosen by the Trustee and that the Trustee relied in good faith
upon the action of such agent or the advice of such counsel.
ARTICLE V - DUTIES OF THE EMPLOYER
5.1 Duties of the Employer. It is understood that the Employer
shall be responsible for the performance of the following
functions with respect to the Trust:
a) Transmitting all Trust contributions made by or on behalf of
each Participant in accordance with the instructions of each
Participant to the Trustee at such times and in such manner as is
mutually agreed between the Employer and the Trustee.
b) Providing to the Trustee, on a timely basis, a copy of the
Plan document including all amendments and restatements.
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c) Determining that the contributions made by or on the behalf
of each Participant are in accordance with any applicable Federal
and state law and regulations.
d) Assuring that the Plan maintains qualified status under
applicable provisions of the Code.
e) Providing, or making arrangements to provide, the Trustee
with the value of any Contracts.
f) Determining the suitability of any investment offered as an
option in the Plan, including but not limited to Qualifying
Employer Securities.
g) Determining that loans to Participants are made in accordance
with ERISA section 408(b)(1).
h) Meeting any U.S. securities laws that may apply with respect
to offering Qualifying Employer Securities as an investment option
under the Plan. This includes, but is not limited to, registering
such stock with the Securities and Exchange Commission ("SEC") and
other government agencies, filing reports with the SEC and other
government agencies, and preparing prospectuses, proxy
solicitations and other similar materials.
5.2 Bonding. The Employer agrees to obtain and maintain a
fiduciary bond and to include as those covered by such bond the
employees of the Employer, the Retirement Committee and the
Trustee, including any of the Trustee's employees, officers and
agents required by law to be so covered. The cost of any such
bond shall be paid, to the extent permitted by applicable law, by
the Plan or by the Employer.
5.3 Information and Data to be Furnished to the Trustee. The
Employer shall furnish, or make arrangements to furnish, the
Trustee with such information and data relevant to the Plan as is
necessary for the Trustee to properly perform its duties assumed
hereunder, including but not limited to a copy of the Plan's
qualification letter from the Internal Revenue Service.
5.4 Qualified Domestic Relations Orders. It shall be the
responsibility of the Retirement Committee to determine whether
any domestic relations order is "qualified" in accordance with
Code Section 414(p). The Trustee will act only as directed by the
Retirement Committee with respect to the payment of benefits to an
alternate payee under any qualified domestic relations order.
ARTICLE VI - TERMINATION OF TRUST AGREEMENT
6.1 Resignation or Removal of Trustee. The Trustee may resign at
any time upon 90 days prior written notice to the Employer and may
be removed by the Employer at any time upon 90 days prior written
notice to the Trustee. If mutually agreed upon between the
parties, the advance notice may be waived or reduced. Upon
resignation or removal of the Trustee, the Employer shall appoint
a successor trustee. Upon receipt by the Trustee of written
acceptance of such appointment by the successor trustee, the
Trustee shall transfer and pay over to the successor the assets of
the Trust and
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all records (or copies) pertaining thereto. The Trustee is authorized,
however, to reserve such sum of money or property as it may deem
advisable for payment of all fees, compensation, costs and expenses, or
for payment of any liabilities constituting a charge on or against the
assets of the Trust or on or against the Trustee, with any balance of such
reserve remaining after payment of all such items to be paid over
to the successor trustee. Upon the assignment, transfer and
payment over of the assets of the Trustee, the Trustee shall be
released and discharged from any and all claims, demands, duties
and obligations arising out of the Trust and its management
thereof, excepting claims based only upon the Trustee's willful
misconduct or gross negligence. The successor trustee shall hold
the assets paid over to it under the terms similar to those of
this Trust Agreement under a trust that will qualify under Section
401(a) of the Code. If within 30 days after the Trustee's
resignation or removal, the Employer has not appointed a successor
trustee which has accepted such appointment, the Trustee shall
have the right to apply to a court of competent jurisdiction for
the appointment of such successor and for the determination of any
question of construction or instruction. If the Trustee fails to
receive a judgment or decree with respect to the appointment of a
successor trustee within 60 days of its initial filing with the
court, the Trustee may either terminate the Trust pursuant to
Section 6.2 hereof or appoint such successor trustee itself.
6.2 Termination of the Trust. Subject to the right of the
Trustee to terminate the Trust in accordance with this Section,
this Trust shall continue as to the Employer so long as the Plan
is in full force and effect. If the Plan ceases to be in full
force and effect, this Trust shall thereupon terminate unless
expressly extended by the Employer. Termination of the Trust
shall be effected by distribution of all assets thereof to the
Participants or other persons entitled thereto pursuant to the
directions of the Employer (or, in the absence of such direction,
as determined by the Trustee), subject to the Trustee's right to
reserve funds as provided in Section 6.1 hereof. Upon the
completion of such distribution, the Trustee shall be relieved
from all further liability with respect to all amounts so paid,
other than any liability arising out of the Trustee's willful
misconduct or gross negligence.
ARTICLE VII - PROXY VOTING
7.1 General Provisions. The Employer or another Named Fiduciary
shall direct the Trustee as to the manner in which the Trustee
shall:
a) vote in person or by proxy, general or special, any
securities held in the Trust;
b) exercise conversion privileges, subscription rights and other
options; and
c) participate in or dissent from reorganizations, tender offers
or other changes in property rights.
Notwithstanding the foregoing, the Trustee shall follow any
directions of the Employer or Participants in the performance of
these functions only to the extent that following such directions
would not violate the provisions of ERISA.
7.2 Receipt of Notices. Upon receipt, the Trustee shall transmit
to the Employer all notices of conversion, redemption, tender,
exchange, subscription, class action, claim in insolvency
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proceedings or other rights or powers relating to any investment
in the Trust, which notices are received by the Trustee from its
agents or custodian, from issuers of securities in question and
from the party (or its agents) extending such rights. The Trustee
shall have no obligation to determine the existence of any
conversion, redemption, tender, exchange, subscription, class
action, claim in insolvency proceedings or other right or power
relating to any investments in the Trust.
ARTICLE VIII - MISCELLANEOUS
8.1 Purpose. This Trust has been established for the exclusive
benefit of the Plan's Participants. Except as provided herein, it
shall be impossible at any time prior to the satisfaction of all
liabilities to the Participants for any part of the principal or
income of the Trust, other than such part as is required to pay
taxes, administrative expenses or refund contributions as provided
herein, to be paid or diverted to the Employer or to be used for
any purpose whatsoever other than for the exclusive benefit of the
Participants.
8.2 Indemnification and Hold Harmless. The Employer shall
indemnify and hold harmless the Trustee (including its affiliates,
employees, representatives and agents) from and against any
penalty, liability, cost or other expense, including, but not
limited to, the payment of attorneys' fees which the Trustee may
incur in connection with this Trust Agreement or the Plan, unless
such liability, cost or expense arises out of the Trustee's own
willful misconduct or negligence. The Trustee shall not be
obligated or expected to commence or defend any legal action or
proceeding in connection with this Trust Agreement unless agreed
upon in writing by the Trustee and Employer and unless the Trustee
is fully indemnified to its satisfaction for doing so.
8.3 Trustee's Fees. The Trustee's fees for performing its duties
hereunder shall be $2000.00 annually. The Trustee shall give 60
days advance written notice to the Employer whenever its fees are
changed or revised. Such fees, any taxes of any kind whatsoever
which may be levied or assessed upon the Trust, and any expenses
incurred by the Trustee in the performance of its duties,
including fees for legal services rendered to the Trustee, shall,
unless paid by the Employer, be paid from the Trust.
8.4 Conflict with the Plan Document. In the event of any
conflict between the provisions of the Plan document and this
Trust Agreement, the provisions of this Trust Agreement shall
prevail.
8.5 Construction. Whenever used in this Trust Agreement, unless
the context indicates otherwise, the singular shall include the
plural, the plural shall include the singular, and the male gender
shall include the female gender.
8.6 Headings. Headings in this Trust Agreement are inserted
solely for convenience of reference and shall neither constitute a
part of this Trust Agreement, nor affect its meaning, construction
or intent.
8.7 Severability. If any provision of this Trust Agreement is
held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provision, and this Trust Agreement
shall be construed and enforced as if such provision had not been
included.
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8.8 Return of Contributions. Contributions are conditioned on
initial qualification of the Plan under Section 401(a) of the
Code, and if the Plan and Trust do not qualify, the Trustee shall
return such contributions to the Employer upon the Employer's
written direction. The Trustee shall also return amounts to the
Employer upon the Employer's written direction due to a "mistake
of fact" as described in Section 403(c) of ERISA. Contributions
made by the Employer by "mistake of fact" shall revert and be paid
to the Employer within one year after the payment of such mistaken
contributions, if the Employer so directs the Trustee in writing.
In making such a return of assets to the Employer, the Trustee
shall accept the Employer's written direction as its warranty that
such return is provided for in the Plan and complies with the Plan
document and ERISA Section 403(c), and the Trustee need make no
further investigation.
8.9 Nonalienation of Benefits. No rights or claims to any of the
monies or other assets of the Trust shall be assignable, nor shall
such rights or claims be subject to garnishment, attachment,
execution or levy of any kind; and any attempt to transfer, assign
or pledge the same, except as specifically permitted by law, shall
not be recognized by the Trustee.
8.10 Amendments. The Employer and the Trustee may amend this
Trust Agreement at any time by a written agreement between them;
provided, however, that no such amendment shall make it possible
for any part of the corpus or income of the Fund to be used or
diverted to purposes other than the exclusive benefit of
Participants and defraying reasonable expenses of administering
the Plan and Trust.
8.11 Surviving Sections. Notwithstanding any Sections of this
Trust Agreement to the contrary, Sections 4.7, 6.1, 6.2 and 8.2
shall survive the termination of this Trust Agreement.
8.12 Inspection of Plan Records by Employer. The Trustee agrees
to permit the Employer to inspect the records of the Trust
maintained by the Trustee during regular business hours and to
permit the Employer to audit the same upon the giving of
reasonable notice to the Trustee. The Trustee further agrees that
it will provide the Employer with information and records that the
Employer may reasonably require in order to perform audits of said
records.
8.13 Law Governing. This Trust Agreement shall be administered,
construed and enforced according to the laws of the State of
Maryland and applicable Federal law.
8.14 Merger, Consolidation or Transfer. In the event of the
merger, consolidation or transfer of any portion of the Trust to a
trust fund held under any other plan, the Trustee shall dispose of
all or part, as the case may be, of the Trust, in accordance with
the written directions of the Employer, subject to the right of
the Trustee to reserve funds as provided in Section 6.1 hereof.
8.15 Trustee as Successor Trustee. If the Trustee is acting as a
successor trustee with respect to the Trust, the Employer shall
indemnify and hold harmless the Trustee against all penalties,
liabilities, taxes, claims, cost or expense with respect to the
Trust arising prior to the appointment of the Trustee and its
acceptance thereof.
8.16 Successors and Assigns. This Trust Agreement shall be
binding upon the successor and assigns of the parties hereto.
-12-
<PAGE>
8.17 Effective Date. This Trust Agreement shall be effective as
of the date of September 1,1999.
8.18 Signature Authority and Conformity with the Plan. The person
executing this Trust Agreement on behalf of the Employer certifies
that he or she is duly authorized by the Employer consistent with
the terms of the Plan to do so. The Employer represents that
copies of all Plan documents as in effect on the date of this
Trust Agreement have been delivered to the Trustee.
IN WITNESS WHEREOF, the Employer and the Trustee have caused
their duly authorized officers to execute this Trust Agreement.
SUNQUEST INFORMATION SYSTEMS,
INC.
ATTEST:
/s/ Luanne Arndt By: /s/ Nina M. Dmetruk
- ---------------- -------------------
Exec VP
-----------------------
Title
8-31-99
-----------------------
Date:
T. ROWE PRICE TRUST COMPANY
ATTEST:
/s/ Maryanne Jacobs By: /s/ David M. Abbey
- ------------------- -------------------
Vice President
-----------------------
Title:
9-2-99
-----------------------
Date:
-13-
<PAGE>
EXHIBIT A TO
THE TRUST AGREEMENT BETWEEN
THE T. ROWE PRICE TRUST COMPANY AND
SUNQUEST INFORMATION SYSTEMS, INC.
Payment of Plan Expenses by the Plan Trust
Excluding Plan recordkeeping and Trustee fees, the Employer
shall submit to the Trustee all expenses to be charged to the Trust. Each
submission also shall include the following certification executed by
the appropriate Named Fiduciary:
I hereby certify that these expenditures reflect
administrative expenses solely for the SUNQUEST INFORMATION
SYSTEMS, INC. AND AFFILIATES 401(k) PROFIT SHARING PLAN ("Plan")
for the time period of __________ and that such expenses are
proper and reasonable.
Each submission shall also include an explanation of the
purpose of the expenditure (e.g. copying costs for the Summary
Plan Description) and an invoice, if possible.
-14-
<PAGE>
EXHIBIT B TO
THE TRUST AGREEMENT BETWEEN
THE T. ROWE PRICE TRUST COMPANY AND
SUNQUEST INFORMATION SYSTEMS, INC.
Certification of Compliance with ERISA Section 404(c)
and Applicable Regulations
The Retirement Committee shall certify the following in
writing at the beginning of each plan year:
I represent that I am a Named Fiduciary of the Sunquest
Information Systems, Inc. and Affiliates 401(k) Profit
Sharing Plan ("Plan"). In such capacity, I hereby certify that
the Plan is in compliance with ERISA Section 404(c) and the
Regulations issued thereunder.
-15-
<PAGE>
Schedule A
T. ROWE PRICE TRUST COMPANY
QUALIFIED PLAN TRUST AGREEMENT
between Sunquest Information Systems, Inc.
and T. Rowe Price Trust Company
Re: Authorized Representatives
The following individuals shall be the exclusive Authorized
Representatives for purposes of providing directions on behalf of
the Employer and the Retirement Committee, respectively:
On behalf of the Employer:
- --------------------------
Dr. Sidney A. Goldblatt,
Chief Executive Officer
Nina M. Dmetruk
Chief Financial Officer
Executive Vice President,
Secretary and Treasurer
On behalf of the Retirement Committee:
- --------------------------------------
Nina M. Dmetruk
Chief Financial Officer
Executive Vice President
Secretary and Treasurer
Trena L. Couch
Vice President of Finance
Michael A. Dudzenski
AVP Finance
Tracy L. Slagel
Senior Accountant
Sunquest Information Systems, Inc.
By: /s/ Nina M. Dmetruk Title: Exec VP
------------------- -------
Date: 8-31-1999
---------
-16-
<PAGE>
Exhibit 13.1
SUNQUEST INFORMATION SYSTEMS, INC.
Table of Contents for Financial Section of 1999 Annual Report
Management's Discussion and Analysis of Financial
Condition and Results of Operations 1
Report of Independent Auditors 11
Consolidated Financial Statements and Notes 12
Selected Consolidated Financial Data 31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
- --------
Sunquest Information Systems, Inc. (the "Company") designs,
develops, markets, installs and supports health care information
systems for large and mid-sized hospitals, clinics and other
facilities, including integrated delivery networks ("IDNs"). The
Company was established in 1979 and became a public company on
June 10, 1996, when it closed its initial offering to the public
of Common Stock.
At December 31, 1999, the Company had an installed customer
base of more than 1,200 sites in the United States, Canada,
United Kingdom, Mexico, Saudi Arabia, Ireland and Denmark. Total
revenues are derived from the licensing of software, the
provision of value-added services and the sale of related
hardware. To date, the majority of the Company's revenues have
been derived from the sale of its laboratory information systems
("LISs") and related hardware, support and services.
On August 29, 1997, Sunquest Pharmacy Information Systems,
Inc. ("Sunquest Pharmacy") purchased certain inpatient pharmacy
software systems comprising the PreciseCare Medication Management
System ("PreciseCare") from Medintell Systems Corporation, for
$1.4 million in cash and the assumption of certain obligations
and transition costs. The PreciseCare system was subsequently
renamed "FlexiMed."
On November 26, 1997, Sunquest Pharmacy entered into a
Software License Agreement ("Agreement") with MEDITrust
Healthcare Services, Inc. for an outpatient pharmacy system for
$750,000 in cash. The Agreement grants the Company a perpetual,
fully paid-up, worldwide, non-exclusive license to modify,
interface, market, sublicense, support, copy and otherwise use
the software, including the source code and object code.
During 1997, the Company decided to refocus its technology
and development efforts on its core competencies. The Company
reduced the carrying value of IntelliCare software development
costs by $2.4 million. The after-tax effect was a reduction to
net income of $1.5 million, or $.10 per diluted share. See Note
6 of Notes to Consolidated Financial Statements.
During the quarter ended June 30, 1998, the Company sold the
assets comprising its Managed Care Manager Payor ("MCM") software
product line to Monument Systems, Inc. ("Monument") for
approximately $1.1 million. Monument assumed the existing
contracts and future support of customer installations. The pre-
tax gain resulting from the sale, after associated write-offs,
was approximately $404,000. The after-tax gain was approximately
$238,000, or $.02 per diluted share.
During the quarter ended March 31, 1999, the Company sold
its Enterprise Master Person Index ("EMPI") product to New Era of
Networks, Inc. ("NEON") for net proceeds of
1
<PAGE>
approximately $750,000. The pre-tax gain resulting from the sale was
approximately $681,000. The after-tax gain was approximately
$429,000, or $.03 per diluted share.
During the quarter ended December 31, 1999, the Company
charged operations $971,000 related to the reduction in carrying
value of pharmacy software development costs. The carrying value
was reduced to recognize that future anticipated revenues would
not be sufficient to recover these costs. The after-tax effect
was a reduction to net income of approximately $656,000, or $.04
per diluted share. See Note 6 of Notes to Consolidated Financial
Statements.
Net income for 1999, 1998 and 1997 was $15.8 million, $8.3
million and $2.8 million, respectively. Diluted net income per
share was $1.01 in 1999, $.54 in 1998 and $.18 in 1997. The
effect of the previously described charges to operations and
gains on sales of assets, and a change in tax law on diluted net
income per share follows:
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
Diluted net income per share
excluding gain on sale of assets,
charges to operations and change
in tax law $ .97 $.52 $ .35
Gain on sale of assets, net of tax .03 .02 -
Change in tax law .06 - -
Acquired, in-process technology, net
of tax - - (.07)
Capitalized software development
cost adjustments, net of tax (.04) - (.10)
----- ---- -----
$1.01 $.54 $ .18
===== ==== =====
Revenues from system sales include revenues from software
licenses, related hardware, relicensed software and resold
software. Revenues from software licenses are generated from
contracts that grant the right to use the Company's software
products. Hardware revenues are generated from sales of third-
party manufactured hardware which is typically sold in
conjunction with the Company's software. Revenues from
relicensed software and resold software are generated from the
Company's licensing and sale of third-party software. Support
and service revenues include revenues from installation, training
and documentation related to software license revenues,
consulting revenues, custom-programming revenues and revenues
associated with maintenance and support services.
The sales cycle for the Company's LISs is typically nine to
18 months from initial contact to contract execution, and
depending upon the combination of products purchased and the
client's installation schedule, an installation typically takes
from eight to 14 months. The sales cycle for the Company's
commercial and medical reference laboratory systems is typically
six to 12 months, and an installation typically takes from nine
to 12 months. Revenues from the software and related
installation portions of system sales are recognized on the
percentage-of-completion method and are determined based upon
actual hours incurred related to total estimated installation
hours in accordance with Statement of Position ("SOP") 97-2, "Software
2
<PAGE>
Revenue Recognition," and SOP 81-1, "Accounting for Performance
of Construction-Type and Certain Production-Type Contracts," as amended.
Anticipated losses are recorded in the earliest period in which such
losses become evident. Revenues from the hardware portion of system
sales are recognized upon shipment. Maintenance and support services are
provided under multi-year renewable agreements with revenues recognized
ratably over the term of the agreement. Fees for other services are
recognized as the work is performed or on a percentage-of-
completion basis.
At December 31, 1999, the Company had a total contract
backlog of $124.6 million, which consisted of $55.9 million of
system sales and services and $68.7 million of support. At
December 31, 1998, total contract backlog was $122.0 million,
which consisted of $61.1 million of system sales and services and
$60.9 million of support. System sales and services backlog
consists of the unearned amounts of signed contracts which have
not yet been recognized as revenues. Support backlog consists
primarily of contracted software support for a period of 12
months. The Company is unable to predict accurately the amount
of backlog it expects to fill in any particular period, since it
adjusts the timing of installations to accommodate clients' needs
and since installations typically require eight to 14 months to
complete.
During the third quarter of 1999, the Company experienced a
delay in sales signings, although the pipeline of potential sales
increased. Customers have indicated that the delay was the
result of the effects of Year 2000 issues and the Balanced Budget
Amendment of 1997. Sales signings during the fourth quarter of
1999 increased 62% over those of the third quarter of 1999.
Total sales signings for 1999 were 13.6% below 1998 and estimated
gross profit on sales signings was 7.2% below 1998. The
percentage decline in estimated gross profit percentage on sales
was less than the percentage decline in sales due to a more
favorable product mix in 1999 compared to 1998 sales signings.
Hardware sales, which have lower estimated margins compared to
software and service sales, were 25% of total sales in 1999
compared to 33% in 1998. Given historical experience and
carryover projects related to the Year 2000, the Company
anticipates that sales signings in the first quarter of 2000 will
be less than the fourth quarter of 1999. The Company anticipates
that sales signings will accelerate beginning in the second
quarter of 2000.
Capitalized software development costs are stated at the
lower of net amortized cost or net realizable value. The Company
capitalizes software development costs incurred from the point of
technological feasibility until the product is ready for general
release to the public. Amortization of capitalized software costs
begins when the related product is available for general release
to customers and is provided for each product based on the
greater of the relationship of current year revenues of the
product to anticipated total revenues or the straight-line
amortization of such costs over a five-year period.
3
<PAGE>
Year 2000 Compliance
- --------------------
In prior years, the Company discussed the nature and
progress of its plans to become Year 2000 ready. In late 1999,
the Company completed the remediation and testing of its
products, internal systems and the products and services of third
parties. As a result of the Company's planning and
implementation efforts, the Company experienced no significant
disruptions in mission critical information technology and non-
information technology systems and believes that all systems
successfully responded to the Year 2000 date change. The Company
is unaware of any material problems resulting from Year 2000
issues with its products, its internal systems, or the products
and services of third parties. The Company will continue to
monitor its mission critical computer applications and those of
its suppliers and vendors throughout 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated,
certain items from the Company's consolidated statements of
income expressed as a percentage of total revenues.
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
Revenues:
System sales 40.7% 50.1% 51.6%
Support and service 59.3 49.9 48.4
----- ----- -----
Total revenues 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Cost of system sales 16.7 22.7 25.4
Client services 27.9 27.3 26.8
Research and development 12.2 12.7 12.9
Sales and marketing 13.1 14.5 13.7
General and administrative 11.9 11.7 12.1
Gain on sale of assets (0.5) (0.3) -
Capitalized software
development cost adjustments 0.7 - 2.4
Acquired, in-process technology - - 1.2
----- ----- -----
Total operating expenses 82.0 88.6 94.5
----- ----- -----
Operating income 18.0 11.4 5.5
Other income (expense):
Interest income 1.3 1.1 1.1
Interest expense (0.9) (0.9) (1.2)
Other (0.6) - (0.3)
----- ----- -----
Income before income taxes 17.8 11.6 5.1
Income tax provision 5.8 4.7 2.4
----- ----- -----
Net income 12.0% 6.9% 2.7%
===== ===== =====
4
<PAGE>
Comparison of Years Ended December 31, 1999 and December 31, 1998
Revenues. The Company's total revenues were $131.7 million
in 1999 compared to $120.8 million in 1998, an increase of $10.9
million, or 9.0%. Revenues from system sales were $53.7 million
in 1999 compared to $60.6 million in 1998, a decrease of $6.9
million, or 11.4%. This decrease was attributable to decreases
in hardware and operating system deliveries partially offset by
increases in installations of software. Revenues from support
and service were $78.0 million in 1999 compared to $60.2 million
in 1998, an increase of $17.8 million, or 29.6%. This increase
was primarily attributable to increased installations, growth in
support services to the Company's installed customer base and
growth in other services including consulting.
Over the last three years, the Company has been experiencing
a favorable trend in revenue mix. As a percentage of total
revenues, software license fee and services revenues have been
increasing and hardware revenues, which have lower margins, have
been decreasing. Hardware revenues as a percentage of total
revenues were 14% in 1999 compared to 24% and 26% in 1998 and
1997, respectively. The Company cannot determine with certainty
whether this trend in decreasing hardware revenues will continue
in future periods.
Cost of System Sales. Cost of system sales includes the
costs of computer hardware, relicensed software and resold
software purchased from third parties, hardware maintenance
contracts and amortization of previously capitalized software
development costs. Cost of system sales was $21.9 million in
1999 compared to $27.4 million in 1998, a decrease of $5.5
million, or 20.0%. As a percentage of total revenues, cost of
system sales was 16.7% in 1999 compared to 22.7% in 1998. The
dollar decrease was primarily attributable to decreases in
hardware and operating system deliveries partially offset by
increased hardware related costs. Amortization of previously
capitalized software development costs was $3.6 million for 1999
compared to $3.4 million for 1998, an increase of $198,000, or
5.9%. The increase in amortization was primarily attributable to
increased amortization of the Company's reference laboratory
product.
Client Services. Client services expenses include salaries
and expenses of product installation, support and consulting.
Client services expenses were $36.7 million in 1999 compared to
$32.9 million in 1998, an increase of $3.8 million, or 11.5%. As
a percentage of total revenues, client services expenses were
27.9% in 1999 compared to 27.3% in 1998. The dollar increase in
client services expenses was primarily attributable to additional
staff and outside consultants dedicated to the support and
installation of the Company's systems and to providing consulting
services to customers.
Research and Development. Research and development expenses
include salaries and expenses related to development and
documentation of software systems reduced by capitalized software
development costs. Research and development expenses were $16.1
million in 1999 compared to $15.3 million in 1998, an increase of
$819,000, or 5.3%. As a percentage of total revenues, research
and development expenses were 12.2% in 1999 compared to 12.7% in
1998. The dollar increase in research and development expenses
was primarily attributable to increased efforts related to the
development, enhancement and documentation of the Company's
clinical laboratory systems, legal and professional fees
associated with the United States Food and Drug
5
<PAGE>
Administration registration of the Company's Blood Bank product and
increased efforts related to the development, enhancement and documentation
of the Company's e-Suite and Clinical Event Manager systems. The
increases were partially offset by decreased expenses related to
non-laboratory products and the discontinuance of the MCM and
EMPI products. The Company capitalized $3.0 million of its
software development costs in 1999 compared to $3.1 million in
1998, a decrease of $198,000, or 6.3%. The decrease in
capitalized software development costs was primarily attributable
to decreased capitalization for the Company's reference
laboratory and pharmacy products. The decreases were partially
offset by increased capitalization for the clinical laboratory
systems.
Sales and Marketing. Sales and marketing expenses include
salaries, commissions, advertising, trade show costs, and user
group costs related to the sale and marketing of the Company's
systems. Sales and marketing expenses were $17.3 million in 1999
compared to $17.6 million in 1998, a decrease of $252,000, or
1.4%. As a percentage of total revenues, sales and marketing
expenses were 13.1% in 1999 compared to 14.5% in 1998. The
dollar decrease was primarily attributable to decreased
commissions resulting from a decline of 13.6% in sales bookings
in 1999 partially offset by additional sales staff for the
Company's reference laboratory products and the European market
and increased advertising and marketing expense.
General and Administrative. General and administrative
expenses include salaries and expenses for the corporate
administration, finance, legal, human resources, corporate
education, facilities administration, internal systems and
internal purchasing departments as well as depreciation, profit
sharing, variable executive compensation, insurance and capital
lease amortization net of rental credit. General and
administrative expenses were $15.6 million in 1999 compared to
$14.2 million in 1998, an increase of $1.4 million, or 10.2%. As
a percentage of total revenues, general and administrative
expenses were 11.9% in 1999 compared to 11.7% in 1998. The
dollar increase was primarily attributable to increased variable
compensation relating to employee incentives and additional
employees and related hiring expenses. Employee incentive goals
required for variable compensation were not achieved in the prior
year. The increases were partially offset by decreased
depreciation expense.
Transition Costs. For the year ended December 31, 1999, the
Company paid previously accrued transition costs established at
the time of the acquisition of 100% of the outstanding capital
stock of Antrim Corporation ("Antrim") of $1.4 million, as
compared to $1.5 million paid in 1998. These costs were
primarily associated with replacing certain Antrim software
products with Sunquest products. At December 31, 1999,
approximately $305,000 remains accrued for these costs which will
cover the remaining transition and be paid during the next
operating period.
Income Taxes. Income taxes were $7.6 million in 1999
compared to $5.7 million in 1998, an increase of $1.9 million, or
32.8%. This increase was primarily attributable to higher
taxable income in 1999 compared to 1998 partially offset by an
8.3% decrease in the Company's effective tax rate. The decrease
in the effective tax rate is primarily attributable to a decrease
in the Company's valuation allowance and research and development
credits. The decrease in valuation allowance is due to a change
in tax law that has mitigated certain limitations on pre-
6
<PAGE>
acquisition net operating loss carry forwards. Based on the tax
law change, management has determined that it is more likely than
not that the pre-acquisition net operating loss obtained in
connection with the Antrim acquisition will be realized.
Therefore, the previously recorded valuation allowance of
$950,000 provided for Antrim's separate company net operating
loss was eliminated. Recently issued accounting rules resulted
in this non-recurring reduction to the valuation allowance being
recognized as a credit to income taxes.
At December 31, 1999, the Company had an acquired net
operating loss carry forward for tax purposes of approximately
$2.2 million that was generated by Antrim. This amount can be
carried forward and used to offset future taxable income. This
loss carry forward is subject to limitations as to the amount and
timing of its use. The Company anticipates that future taxable
income will be sufficient to realize the net operating loss carry
forward. See Note 8 of Notes to Consolidated Financial
Statements.
Comparison of Years Ended December 31, 1998 and December 31, 1997
Revenues. The Company's total revenues were $120.8 million
in 1998 compared to $102.3 million in 1997, an increase of $18.4
million, or 18.0%. Revenues from system sales were $60.6 million
in 1998 compared to $52.8 million in 1997, an increase of $7.8
million, or 14.8%. This increase was attributable to an increase
in installations of software and hardware to existing customers.
Revenues from support and service were $60.2 million in 1998
compared to $49.6 million in 1997, an increase of $10.7 million,
or 21.5%. This increase was primarily attributable to the
Company's increased installed customer base and other services
for existing customers.
Cost of System Sales. Cost of system sales was $27.4 million
in 1998 compared to $26.0 million in 1997, an increase of $1.4
million, or 5.4%. As a percentage of total revenues, cost of
system sales was 22.7% in 1998 compared to 25.4% in 1997. The
dollar increase was primarily attributable to an increase in
deliveries of resold operating systems. Amortization of
previously capitalized software development costs was $3.4
million for 1998 compared to $3.6 million for 1997, a decrease of
$255,000, or 7.0%. The decrease in amortization was primarily
attributable to the reduction in carrying value of IntelliCare
software in 1997 and decreased amortization related to the
clinical laboratory product, partially offset by increased
amortization of the Company's pharmacy and reference laboratory
products.
Client Services. Client services expenses were $32.9 million
in 1998 compared to $27.4 million in 1997, an increase of $5.5
million, or 20.1%. As a percentage of total revenues, client
services expenses were 27.3% in 1998 compared to 26.8% in 1997.
The dollar increase in client services expenses was primarily
attributable to additional staff and outside consultants
dedicated to support and installation of the Company's systems
and to providing consulting services to customers.
Research and Development. Research and development expenses
were $15.3 million in 1998 compared to $13.2 million in 1997, an
increase of $2.1 million, or 15.6%. As a percentage
7
<PAGE>
of total revenues, research and development expenses were 12.7% in 1998
compared to 12.9% in 1997. The dollar increase in research and
development expenses was primarily attributable to increased
staff dedicated to the development, enhancement and documentation
of the Company's clinical laboratory, reference laboratory and
pharmacy systems partially offset by decreased expenses and
capitalization related to the IntelliCare suite of products and
the MCM product line. The Company capitalized $3.1 million of its
software development costs in 1998 compared to $3.7 million in
1997, a decrease of $514,000, or 14.0%. The decrease in
capitalized software development costs was primarily attributable
to the discontinuation of development related to IntelliCare and
the MCM software product lines, partially offset by increased
capitalization for the clinical laboratory and pharmacy products.
Sales and Marketing. Sales and marketing expenses were $17.6
million in 1998 compared to $14.0 million in 1997, an increase of
$3.5 million, or 25.3%. As a percentage of total revenues, sales
and marketing expenses were 14.5% in 1998 compared to 13.7% in
1997. The dollar increase was primarily attributable to
increases in commissions resulting from a 21.5% growth in sales
bookings in 1998, additional sales staff and related travel costs
for new products and the European market.
General and Administrative. General and administrative
expenses were $14.2 million in 1998 compared to $12.3 million in
1997, an increase of $1.9 million, or 15.0%. As a percentage of
total revenues, general and administrative expenses were 11.7% in
1998 compared to 12.1% in 1997. The dollar increase was
primarily attributable to increases related to depreciation
expense resulting from additions of property and equipment,
additional employees, variable compensation, the addition of
Sunquest Pharmacy and contributions to the Company's Profit
Sharing Plan partially offset by decreased sales tax accruals.
Transition Costs. For the year ended December 31, 1998, the
Company paid previously accrued transition costs established at
the time of the acquisition of Antrim of $1.5 million as compared
to $1.9 million paid in 1997. These costs were primarily
associated with replacing certain Antrim software products with
Sunquest products and employee-related costs. In 1998, the
Company also paid transition costs related to the purchase of the
PreciseCare pharmacy software systems of $163,000 compared to
$217,000 paid in 1997. These costs were primarily employee-
related costs and professional services related to the purchase.
Income Taxes. Income taxes were $5.7 million in 1998
compared to $2.5 million in 1997, an increase of $3.2 million, or
129.6%. This increase was primarily attributable to higher
taxable income in 1998 compared to 1997 partially offset by a
6.5% decrease in the Company's effective tax rate. The decrease
in the effective tax rate is primarily the result of no acquired,
in-process technology being charged to operations during 1998.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1999, the Company had cash, cash equivalents
and short-term investments of $46.9 million, which consisted of
cash of $9.7 million and short-term investments
8
<PAGE>
of $37.2 million. This compares to cash, cash equivalents and short-term
investments of $34.3 million at December 31, 1998, an increase of
$12.5 million. Cash provided by operating activities was $19.8
million, $18.8 million and $11.2 million in 1999, 1998 and 1997,
respectively.
As of December 31, 1999, the Company had net trade
receivables of $43.1 million which consisted of $31.0 million in
net billed trade receivables and $12.1 million in unbilled trade
receivables. See Note 4 of Notes to Consolidated Financial
Statements. At December 31, 1998, the Company had net trade
receivables of $40.3 million which consisted of $25.0 million in
net billed trade receivables and $15.3 million in unbilled trade
receivables. Net trade receivables have increased by $2.8
million since December 31, 1998, with $6.0 million related to the
net billed trade receivables partially offset by a decrease in
the unbilled portion of $3.2 million. The unbilled receivables
represent revenue that has been recognized in accordance with the
percentage-of-completion accounting method, but which has not yet
been billed to customers under contractual milestone billings.
Generally, the unbilled amounts will be billed and collected
within the following twelve months. The Company maintains an
allowance for doubtful accounts that it believes is adequate to
cover potential credit losses. The average collection period, a
rolling twelve-month average, on net billed trade receivables was
76 days at December 31, 1999 compared to 69 days at December 31,
1998. The Company is responding to the increase in average
collection period with intensified collection efforts. Days
sales outstanding ("DSO") was 120 at December 31, 1999 compared
to 110 at September 30, 1999 and 112 at December 31, 1998.
Cash used in investing activities was $17.7 million, $34.7
million and $14.8 million in 1999, 1998 and 1997, respectively.
During 1999, purchases of investments totaled $42.1 million,
proceeds from the sale of investments totaled $30.0 million and
proceeds from the maturity of investments totaled $2.2 million.
Capitalized software development costs totaled $4.0 million. Of
this amount, $1.0 million was related to the final payment under
the Value Added Reseller agreement with Dynamic Healthcare
Technologies, Inc. for the license of a software program known as
CoPathPlus ("CoPath"). CoPath is a computer clinical information
system used in surgical pathology, cytology and autopsy.
Purchases of property and equipment totaled $3.2 million and
consisted primarily of purchases of computers, computer-related
equipment, computer software and leasehold improvements. Costs
related to acquisitions totaled $1.4 million and were primarily
associated with replacing certain Antrim software products with
Sunquest products. In addition, the proceeds from the sale of
assets consisted of $750,000 from the sale of the EMPI product to
NEON in the first quarter of 1999.
Cash provided by financing activities was $706,000 in 1999.
Cash used in financing activities was $658,000 and $4.5 million
in 1998 and 1997, respectively. During 1999, the Company issued
142,088 shares of Common Stock for approximately $1.5 million
under the Stock Incentive Plan of 1996, as amended, and 10,652
shares of Common Stock for approximately $129,000 under the
Employee Stock Purchase Plan. Cash used by financing activities
was $917,000 related to principal payments on capital leases.
9
<PAGE>
At December 31, 1999, working capital was $67.7 million, an
increase of $19.2 million from December 31, 1998.
At December 31, 1999, the Company had a revolving line of
credit with a bank allowing the Company to borrow up to $10.0
million. Any borrowings under the line of credit will bear
interest at the bank reference rate unless the Company elects a
fixed rate or certain variable rates contemplated by the
agreement. All outstanding principal and interest under the line
of credit is due April 28, 2000 except for any amounts
outstanding under standby letters of credit which have a maximum
maturity of 365 days. Borrowings under the line of credit are
secured by all of the Company's assets. Approximately $785,000
of the line of credit is used to secure letters of credit and is
not available for immediate expenditure. There were no
borrowings outstanding as of December 31, 1999. See Note 7 of
Notes to Consolidated Financial Statements.
The Company has no significant purchase commitments at this
time. However, the Company continues to be actively involved in
identifying and evaluating potential acquisitions, which may
result in the future expenditure of funds.
Management believes that existing cash, cash equivalents,
short-term investments, cash available under its revolving line
of credit and funds generated from operations will be sufficient
to meet operating requirements for at least the next twelve
months.
To date, inflation has not had a material impact on the
Company's revenues or income, and the Company does not expect
inflation to have a material impact in the foreseeable future.
Forward-Looking Statements
- --------------------------
This report, and other reports and communications to
shareholders, contains forward-looking statements, including
statements which contain words such as "will," "expects,"
"believes," "plans," "anticipates" and words of similar impact.
Certain other factors affecting future performance, including but
not limited to dependence on LIS products, competition in the
marketplace, Year 2000 readiness of the Company's products and of
other vendors' products utilized by the Company, purchase and
installation decisions of customers, pricing decisions of
competitors, changes in regulatory requirements, and product
status and development risks and uncertainties could cause actual
results to differ materially from such forward-looking
statements. These and other factors affecting future performance
are detailed in the Company's Securities and Exchange Commission
filings.
10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Sunquest Information Systems, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Sunquest Information Systems, Inc. and subsidiaries as of
December 31, 1999 and 1998 and the related consolidated
statements of income and comprehensive income, shareholders'
equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Sunquest Information Systems, Inc. and
subsidiaries at December 31, 1999 and 1998 and the consolidated
results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 8, 2000
11
<PAGE>
Sunquest Information Systems, Inc.
Consolidated Balance Sheets
[CAPTION]
<TABLE>
December 31,
------------------
1999 1998
-------- --------
(in thousands, except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,660 $ 7,057
Short-term investments 37,218 27,283
Receivables, less allowance for
doubtful accounts of $1,970 in
1999 and $2,045 in 1998 43,079 40,302
Other receivables 312 314
Inventory 612 566
Prepaid expenses and other 1,469 1,227
Deferred tax assets 1,888 1,473
-------- --------
Total current assets 94,238 78,222
Property and equipment, net of
accumulated depreciation 10,100 10,246
Capital leases from related party,
net of accumulated amortization 2,512 3,304
Software development costs, net of
accumulated amortization 9,493 11,146
Other receivables 31 114
Deferred tax assets 479 -
Other assets 410 1,212
-------- --------
Total assets $117,263 $104,244
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,485 $ 3,721
Obligations under capital leases,
primarily from related party 1,064 917
Accrued compensation and related taxes 5,646 4,599
Accrued expenses 5,468 6,141
Deferred revenue 11,919 13,266
Deferred income taxes - 115
Other liabilities - 1,000
-------- --------
Total current liabilities 26,582 29,759
Obligations under capital leases from
related party 3,099 4,163
Deferred income taxes 1,959 2,128
Commitments and contingencies (Note 10) - -
Shareholders' equity:
Preferred stock, 15,000,000 shares
authorized, no shares issued - -
Common stock, no par value, 35,000,000
shares authorized,15,547,200 and
15,394,460 shares issued and
outstanding in 1999 and 1998,
respectively 52,460 50,616
Retained earnings 33,490 17,692
Accumulated other comprehensive loss (327) (114)
-------- --------
Total shareholders' equity 85,623 68,194
Total liabilities and -------- --------
shareholders' equity $117,263 $104,244
======== ========
</TABLE>
See accompanying notes.
12
<PAGE>
Sunquest Information Systems, Inc.
Consolidated Statements of Income and Comprehensive Income
[CAPTION]
<TABLE>
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues:
System sales $ 53,656 $ 60,549 $ 52,761
Support and service 78,049 60,226 49,576
-------- -------- --------
Total revenues 131,705 120,775 102,337
-------- -------- --------
Operating expenses:
Cost of system sales 21,930 27,424 26,015
Client services 36,720 32,945 27,438
Research and development 16,128 15,309 13,244
Sales and marketing 17,304 17,556 14,007
General and administrative 15,640 14,196 12,343
Gain on sale of assets (681) (404) -
Capitalized software development cost
adjustments 971 - 2,419
Acquired, in-process technology - - 1,211
-------- -------- --------
Total operating expenses 108,012 107,026 96,677
-------- -------- --------
Operating income 23,693 13,749 5,660
Other income (expense):
Interest income 1,710 1,348 1,154
Interest expense (1,211) (1,090) (1,237)
Other (796) 2 (316)
-------- -------- --------
Income before income taxes 23,396 14,009 5,261
Income tax provision 7,598 5,720 2,491
-------- -------- --------
Net income 15,798 8,289 2,770
Other comprehensive (loss) income, net
of tax:
Foreign currency translation adjustment (208) (64) (148)
Unrealized (loss) gain on securities
available-for-sale (5) 5 -
-------- -------- --------
Comprehensive income $ 15,585 $ 8,230 $ 2,622
======== ======== ========
Net income per common share:
Basic $1.02 $.54 $.18
===== ==== ====
Diluted $1.01 $.54 $.18
===== ==== ====
Weighted-average number of common
shares outstanding:
Basic 15,445 15,383 15,369
====== ====== ======
Diluted 15,609 15,404 15,428
====== ====== ======
</TABLE>
See accompanying notes.
13
<PAGE>
Sunquest Information Systems, Inc.
Consolidated Statements of Shareholders' Equity
[CAPTION]
<TABLE>
Accumulated
Other Total
Common Stock Retained Comprehensive Shareholders'
Shares Amount Earnings Income (Loss) Equity
---------- ---------- -------- ------------- -------------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 15,362,587 $50,340 $ 6,334 $ 93 $56,767
S corporation distribution
adjustment - - 299 - 299
Issuance of common stock
through Employee Stock
Purchase Plan, net 13,375 134 - - 134
Foreign currency translation
adjustment - - - (148) (148)
Net income - - 2,770 - 2,770
---------- ------- ------- ----- -------
Balance at December 31, 1997 15,375,962 50,474 9,403 (55) 59,822
Issuance of common stock
through Employee Stock
Purchase Plan, net 18,498 142 - - 142
Foreign currency translation
adjustment - - - (64) (64)
Net change in unrealized
gain on securities
available-for-sale - - - 5 5
Net income - - 8,289 - 8,289
---------- ------- ------- ----- -------
Balance at December 31, 1998 15,394,460 50,616 17,692 (114) 68,194
Issuance of common stock
through Employee Stock
Purchase Plan, net 10,652 129 - - 129
Issuance of common stock
upon the exercise of
nonqualified stock options 142,088 1,494 - - 1,494
Tax benefit related to
exercise of nonqualified
stock options - 221 - - 221
Foreign currency translation
adjustment - - - (208) (208)
Net change in unrealized
gain on securities
available-for-sale - - - (5) (5)
Net income - - 15,798 - 15,798
---------- ------- ------- ----- -------
Balance at December 31, 1999 15,547,200 $52,460 $33,490 ($327) $85,623
========== ======= ======= ===== =======
</TABLE>
See accompanying notes.
14
<PAGE>
Sunquest Information Systems, Inc.
Consolidated Statements of Cash Flows
[CAPTION]
<TABLE>
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 15,798 $ 8,289 $ 2,770
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,273 8,108 7,773
Capitalized software development
cost adjustments 971 - 2,419
Acquired, in-process technology - - 1,211
Loss on disposition of equipment - - 10
Bad debt expense 1,497 670 1,125
Deferred revenue (1,347) 1,811 (395)
Deferred income taxes (1,176) 1,830 1,087
Gain on sale of assets (681) (404) -
Changes in operating assets and
liabilities, net of acquisitions:
Receivables (4,274) (4,831) (6,822)
Inventory (46) 27 1,178
Prepaid expenses and other (242) (118) (118)
Other assets 85 159 1,347
Accounts payable (1,236) 320 568
Accrued compensation and related taxes 1,047 76 (160)
Other accrued expenses 1,135 2,896 (771)
-------- -------- --------
Net cash provided by operating activities 19,804 18,833 11,222
-------- -------- --------
Cash flows from investing activities:
Acquisition of Antrim Corporation,
net of cash acquired - - 13
Purchase of PreciseCare Pharmacy System - - (1,410)
Purchase of property and equipment (3,195) (2,559) (4,931)
Costs related to acquisitions (1,362) (1,894) (3,103)
Capitalized software development costs (3,950) (4,148) (5,412)
Purchase of investments (42,103) (89,594) -
Proceeds from sale of investments 29,996 62,319 -
Proceeds from maturity of investments 2,165 - -
Proceeds from sale of assets 750 1,130 -
-------- -------- --------
Net cash used in investing activities (17,699) (34,746) (14,843)
-------- -------- --------
Cash flows from financing activities:
Principal payments on debt - - (289)
Principal payments on capitalized
leases, primarily from related party (917) (800) (694)
Net proceeds from issuance of stock 1,623 142 134
S corporation distribution - - (3,601)
-------- -------- --------
Net cash provided by (used in)
financing activities 706 (658) (4,450)
-------- -------- --------
Foreign currency translation adjustment (208) (64) (148)
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 2,603 (16,635) (8,219)
Cash and cash equivalents at beginning of year 7,057 23,692 31,911
-------- -------- --------
Cash and cash equivalents at end of year $ 9,660 $ 7,057 $ 23,692
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 8,108 $ 2,550 $ 2,325
======== ======== ========
Cash paid for interest $ 1 $ 15 $ 53
======== ======== ========
Supplemental disclosure of non cash investing
and financing activities:
Disposal of property and equipment $ 2,345 $ 3,768 $ 2,543
======== ======== ========
Tax benefit related to exercise of
nonqualified stock options $ 221 $ - $ -
======== ======== ========
Capitalized software development cost adjustments $ 1,662 $ - $ 3,542
======== ======== ========
Debt related to Dynamic Agreement $ - $ - $ 2,000
======== ======== ========
</TABLE>
See accompanying notes.
15
<PAGE>
SUNQUEST INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Significant Accounting Policies
- ----------------------------------
Nature of Business
Sunquest Information Systems, Inc. ("the Company") designs,
develops, markets, installs and supports health care information
systems for large and mid-sized hospitals, clinics and other
health care facilities in the United States, Canada, United
Kingdom, Mexico, Saudi Arabia, Ireland and Denmark. Total
revenues are derived from the licensing of software, the
provision of value-added services and the sale of related
hardware. To date, the Company has derived the majority of its
revenues from sales of laboratory information systems ("LISs")
and related implementation and support services in the United
States. The Company expects that it will continue to derive a
significant portion of its total revenues for the foreseeable
future from sales of LISs and related implementation and support
services.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company, Sunquest Europa Limited ("Sunquest Europa"),
Sunquest Germany GmbH ("Sunquest Germany"), Antrim Corporation
("Antrim") and Sunquest Pharmacy Information Systems, Inc.
("Sunquest Pharmacy"). All transactions between the Company and
Sunquest Europa, Sunquest Germany, Antrim and Sunquest Pharmacy
have been eliminated in preparing the consolidated financial
statements.
Certain prior year amounts have been reclassified to conform
to the current year presentation.
Use of Estimates
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Revenue Recognition
Revenues for the proprietary software, training and
installation portion of system sales are recognized using the
percentage-of-completion method and are determined based upon
actual hours incurred related to total estimated installation
hours in accordance with Statement of
16
<PAGE>
Position ("SOP") 97-2,"Software Revenue Recognition," and SOP 81-1,
"Accounting for Performance of Construction-Type and Certain
Production-Type Contracts," as amended. Anticipated losses are
recorded in the earliest period in which such losses become evident.
Revenues for the hardware portion of system sales are
recognized upon shipment. Maintenance and support services are
provided under multi-year renewable agreements with revenues
recognized ratably over the term of the agreement. Fees for
other services are recognized as the work is performed or on a
percentage-of completion basis.
Customer payment terms vary and are typically different from
the revenues recognized. Revenues recognized in advance of
billings are classified with current assets as unbilled
receivables and are included in the balance sheet as receivables.
Billings recognized in advance of revenues are classified with
current liabilities as deferred revenue.
Software Development Costs
Software development costs incurred internally are expensed
as research and development until the technological feasibility
of the newly designed product is established. Thereafter, all
software development costs are capitalized until the product is
ready for general release to the public. Capitalized software
development costs are stated at the lower of unamortized cost or
net realizable value. Net realizable value relating to a
particular software product is assessed based on anticipated
gross margins applicable to sales of the product in future
periods. Amortization of capitalized software development costs
begins when the related product is available for general release
to clients and is provided for each product based on the greater
of the relationship of current year revenues of the product to
anticipated total revenues or the straight-line amortization of
such costs over a five-year period. Historically, the straight-
line approach has produced the greater amortization amount.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. Cash equivalents are stated at cost, which
approximates market value.
Investment Securities
The Company accounts for investment securities based on
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS No.
115"). SFAS No. 115 provides the accounting and reporting
requirements for investments in securities that have readily
determinable fair values and for all investments in debt
securities. At December 31, 1999 and 1998, all of the Company's
investments in debt securities have been classified as available-
for-sale securities. Available-for-sale securities are carried
at fair value with net unrealized gains and losses on such
securities, net of tax, reported as a component of shareholders'
equity and associated changes as an element of comprehensive
income. See Note 2 of Notes to Consolidated Financial
Statements.
17
<PAGE>
Inventory
Inventory consists primarily of computer hardware held for
resale and is recorded at the lower of cost (first-in, first-out)
or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation
is provided principally on the straight-line basis over estimated
useful lives of three or five years for equipment and software
and five or seven years for furniture and fixtures. Leasehold
improvements are depreciated over the estimated useful life of
the asset or the term of the lease, whichever is less.
Intangibles/Acquisitions
Certain intangible assets were acquired in connection with
the purchase of the PreciseCare software and the acquisition of
100% of the outstanding capital stock of Antrim. These
acquisitions were accounted for as purchases. Total
consideration for PreciseCare and Antrim was $1,410,000 and
$5,000,000, respectively, plus assumed obligations in both
acquisitions. These assets include in-process technology related
to the purchase of the PreciseCare software and the Antrim
acquisition, and other related intangibles. The in-process
technology acquired of $1,265,000, or $.07 per diluted share,
related to the purchase of the PreciseCare software in the third
quarter of 1997 was charged to operations as the underlying
products had not reached technological feasibility. The remaining
intangible assets related to the Antrim acquisition are being
amortized over their remaining useful lives of five and seven
years.
Stock-Based Compensation
The Company has adopted the disclosure provisions of
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123
permits the Company to continue accounting for stock-based
compensation as set forth in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion
No. 25"), provided the Company discloses the pro forma effect on
net income and earnings per share of adopting the full provisions
of SFAS No. 123. Accordingly, the Company continues to account
for stock-based compensation under APB Opinion No. 25 and has
provided the required pro forma disclosures. See Note 11 of
Notes to Consolidated Financial Statements.
18
<PAGE>
2. Investments
- --------------
The following is a summary of securities available-for-sale
at December 31, 1999 and 1998:
1999
--------------------------------------------
(in thousands)
Gross
Unrealized Estimated
Cost Gain Fair Value
------------ ----------- --------------
Tax-exempt municipals $12,300 $ - $12,300
Short-term demand notes 24,918 - 24,918
------- --- -------
Total $37,218 $ - $37,218
======= === =======
1998
--------------------------------------------
(in thousands)
Gross
Unrealized Estimated
Cost Gain Fair Value
------------ ----------- --------------
Tax-exempt municipals $20,269 $ 8 $20,277
Short-term demand notes 7,006 - 7,006
------- --- -------
Total $27,275 $ 8 $27,283
======= === =======
There were no gross unrealized gains or losses at December
31, 1999. The gross unrealized gains on securities available-for-
sale totaled $8,413 at December 31, 1998 and are reflected, net
of tax, in shareholders' equity with the associated changes as an
element of comprehensive income.
In determining gross realized gains and losses on sales or
maturities of securities, specific identification is used. Gross
realized losses were $6,702 in 1999. There were no gross
realized gains or losses in 1998.
The amortized cost and estimated fair value of debt
securities at December 31, 1999, by contractual maturity, are
shown below.
Estimated
Cost Fair Value
-------- -----------
(in thousands)
Within one year $26,818 $26,818
One to five years - -
Five to ten years 1,000 1,000
Over ten years 9,400 9,400
------- -------
Total $37,218 $37,218
======= =======
19
<PAGE>
3. Net Income Per Share
- -----------------------
The following table sets forth the computation of basic and
diluted net income per share:
[CAPTION]
<TABLE>
Year Ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Numerator for basic and
diluted net income per share:
Net income $15,798,000 $ 8,289,000 $ 2,770,000
=========== =========== ===========
Denominator:
Denominator for basic net income
per share - weighted-average shares 15,445,125 15,382,508 15,368,771
Effect of stock options 163,734 21,950 59,553
----------- ----------- -----------
Denominator for diluted net income
per share - adjusted weighted-
average shares 15,608,859 15,404,458 15,428,324
=========== =========== ===========
Basic net income per share $1.02 $.54 $.18
===== ==== ====
Diluted net income per share $1.01 $.54 $.18
===== ==== ====
Options to purchase 410,006, 920,473 and 22,775 shares of
common stock were outstanding at December 31, 1999, 1998 and
1997, respectively, but were not included in the computation of
diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares
and, therefore, the effect would be antidilutive.
20
<PAGE>
4. Receivables
- --------------
Receivables consist of the following:
December 31,
----------------------
1999 1998
---------- ----------
(in thousands)
Billed receivables $32,922 $27,062
Unbilled receivables 12,127 15,285
------- -------
45,049 42,347
Allowance for doubtful accounts (1,970) (2,045)
------- -------
Total receivables $43,079 $40,302
======= =======
Unbilled receivables represent recorded revenue that is
billable by the Company at future dates based on contractual
payment terms.
Substantially all receivables are derived from sales and
related support and maintenance of the Company's clinical
information systems to health care providers located throughout
the United States and in certain foreign countries. Included in
receivables at December 31, 1999 and 1998 are amounts due from
European health care providers of approximately $2,932,000 and
$1,478,000, respectively. Total revenues include European
revenues of $2,895,000 and $1,312,000 for the years ended
December 31, 1999 and 1998, respectively.
Credit is extended based on an evaluation of the customer's
financial condition and generally collateral is not required.
The provision for bad debt expense recognized in 1999, 1998 and
1997 was $1,497,000, $670,000 and $1,125,000, respectively.
During 1999, 1998 and 1997, $1,572,000, $577,000 and $2,616,000,
respectively, of receivables were charged against the allowance.
21
<PAGE>
5. Property and Equipment
- -------------------------
Property and equipment consist of the following:
December 31,
----------------------
1999 1998
---------- ----------
(in thousands)
Building $ 2,000 $ 2,000
Land 257 257
Computers and software 9,840 9,355
Furniture and fixtures 1,542 1,379
Leasehold improvements 4,292 3,865
Other equipment and vehicles 37 262
------- -------
17,968 17,118
Accumulated depreciation (7,868) (6,872)
------- -------
Total property and equipment, net $10,100 $10,246
======= =======
Depreciation expense for the years ended December 31, 1999,
1998 and 1997 was approximately $3,296,000, $3,605,000 and
$3,005,000, respectively.
6. Capitalized Software Development Costs
- -----------------------------------------
During the years ended December 31, 1999, 1998 and 1997, the
Company capitalized $2,950,000, $3,148,000 and $3,662,000,
respectively, of total software development costs of $19,078,000,
$18,457,000 and $16,906,000, respectively. Amortization expense
related to capitalized software development costs for the years
ended December 31, 1999, 1998 and 1997 was $3,562,000, $3,364,000
and $3,619,000, respectively, and accumulated amortization was
$19,210,000, $16,350,000 and $13,105,000, respectively.
During the third and fourth quarters of 1997, the Company
reduced the carrying value of IntelliCare software development
costs by $1,529,000 and $890,000, respectively. The third quarter
adjustment was related to certain modules incorporated into the
Company's IntelliCare suite of products that had not generated
sufficient sales to justify continued capitalization. The fourth
quarter adjustment was related to the Company's decision to
discontinue the sale of the IntelliCare suite of products as an
enterprise-wide computerized patient record solution and to
discontinue the development of a nurse clinical documentation
system. The after-tax effect of both the third and fourth
quarter charges to operations was a reduction to net income of
$1,451,000, or $.10 per diluted share.
During the quarter ended December 31, 1999, the Company
charged operations $971,000 related to the reduction in carrying
value of pharmacy software development costs. The carrying value
was reduced to recognize that future anticipated revenues would
not be sufficient to
22
<PAGE>
recover these costs. The after-tax effect was a reduction to net
income of approximately $656,000, or $.04 per diluted share.
7. Line of Credit
- -----------------
On December 30, 1997, the Company entered into a $10,000,000
line of credit agreement with the Bank of America National Trust
and Savings Association ("Bank of America"). Unless the Company
elects one of the optional interest rates (the "Optional Rates"),
the interest rate is the reference rate as announced from time to
time by the Bank of America (the "Bank of America Rate").
At December 31, 1999, the Optional Rates and the Bank of
America Rate ranged from 6.71% to 8.5%. All outstanding
principal and interest under the line of credit are due April 28,
2000 except for any amounts under the line of credit outstanding
under financing standby letters of credit which have a maximum
maturity of 365 days. Amounts borrowed under the line of credit
are secured by all of the Company's assets. Approximately
$785,000 of the line of credit is used to secure letters of
credit and is not available for immediate expenditure. The
amount of letters of credit outstanding at any one time may not
exceed $5,000,000.
The line of credit contains requirements as to minimum
levels of working capital, net worth and cash flow and places
certain restrictions on new debt, acquisitions, capital
expenditures and loans to related parties. The agreement
prohibits the payment of any capital distributions or dividends.
There were no borrowings outstanding as of December 31, 1999
and 1998 under the line of credit.
23
<PAGE>
8. Income Taxes
- ---------------
The provision for income taxes, reconciliation of income tax
expense and components of deferred tax assets and liabilities are
set forth below.
Provision for Income Taxes
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
Current tax expense:
Federal $ 7,176 $ 3,223 $ 1,107
State 1,600 813 297
------- ------- -------
Total current tax expense 8,776 4,036 1,404
------- ------- -------
Deferred tax (benefit) expense:
Federal (1,108) 1,449 1,057
State (70) 235 30
------- ------- -------
Total deferred tax (benefit) expense (1,178) 1,684 1,087
------- ------- -------
Total income tax expense $ 7,598 $ 5,720 $ 2,491
======= ======= =======
Reconciliation of Income Tax Expense
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
Income tax provision at the
statutory rate $ 7,955 $ 4,763 $ 1,871
Increases (decreases):
State income taxes 1,081 647 185
Valuation allowance reduction (950) - -
Research and development credit (300) - -
Foreign taxes (63) 105 -
Acquired, in-process technology - - 500
Other (125) 205 (65)
------- ------- -------
Total income tax expense $ 7,598 $ 5,720 $ 2,491
======= ======= =======
The decrease in valuation allowance is due to a change in
tax law that has mitigated certain limitations on pre-acquisition
net operating loss carry forwards. Based on the tax law change,
management has determined that it is more likely than not that
the pre-acquisition net operating loss obtained in connection
with the Antrim acquisition will be realized. In accordance with
Emerging Issues Task Force Issue 99-15, the Company has recorded
the non-recurring reduction in valuation allowance as a credit to
income tax expense.
24
<PAGE>
Components of Deferred Tax Assets and Liabilities
December 31,
------------------
1999 1998
-------- --------
(in thousands)
Deferred tax assets:
Net operating loss carry forwards acquired $ 846 $1,282
Transition costs accruals 228 840
Capital leases 638 673
Vacation and compensation accruals 1,165 570
Bad debt allowance 745 663
Deferred revenue 56 195
Accrued expenses - 25
Other 622 693
------ ------
Total deferred tax assets 4,300 4,941
------ ------
Deferred tax liabilities:
Book basis in excess of tax basis:
Software development 3,604 3,732
Acquired intangibles 129 438
Fixed assets 84 493
Other 75 98
------ ------
Total deferred tax liabilities 3,892 4,761
------ ------
Less: valuation allowance - (950)
------ ------
Net deferred tax assets (liabilities) $ 408 ($770)
====== ======
The Company has an acquired net operating loss carry forward
of approximately $2,191,000 that was generated by Antrim. This
amount can be carried forward and used to offset future taxable
income. The loss carry forward is subject to limitations as to
the amount and timing of its use. The net operating loss carry
forward will expire in the year 2010.
9. Leases
- ---------
The Company leases two buildings from Any Travel, Inc. ("Any
Travel"), an affiliated entity, under capital leases. The
affiliation is through common ownership of the Company and Any
Travel. The Company also leases certain buildings and equipment
from third parties under noncancelable lease arrangements that
may be adjusted for increases in maintenance and insurance costs
and the consumer price index. These capital and operating leases
expire in various years through May 2004 and may be renewed for
periods ranging from one to five years.
Amortization expense related to leased assets for the years
ended December 31, 1999, 1998 and 1997 was $838,000, $883,000 and
$883,000, respectively.
25
<PAGE>
Future minimum payments under capital leases and
noncancelable operating leases with initial terms of one year or
more consisted of the following at December 31, 1999:
Capital Operating
Leases Leases
------- ---------
(in thousands)
2000 $2,104 $1,102
2001 2,104 601
2002 1,402 266
2003 900 200
2004 300 6
Thereafter - -
------ ------
Total minimum lease payments 6,810 $2,175
======
Amounts representing interest 2,647
------
Present value of net minimum
lease payments (including
current portion of $1,064) $4,163
======
At December 31, 1999, aggregate future minimum rental
payments to be received under noncancelable leases and subleases
were approximately $975,000.
Rental expense for the years ended December 31, 1999, 1998
and 1997 was approximately $1,199,000, $1,227,000 and $1,158,000,
respectively.
10. Commitments and Contingencies
- ---------------------------------
The Company has granted liens on all of its assets to a
vendor to secure amounts due for purchases of hardware and other
equipment.
11. Employee Benefit Plans
- --------------------------
Profit Sharing Plan
The Company has a Profit Sharing Plan covering substantially
all of its employees. Under provisions of the plan, participants
may contribute up to 15% of their eligible compensation to the
plan and the Company can make discretionary contributions to the
plan. Effective January 1, 1998, the Company began matching 100%
of up to the first 3% of employee contributions and the vesting
period was reduced from five years to three years. Matching
contributions were $1,050,000 and $912,000 in 1999 and 1998,
respectively. The Company incurred expenses of approximately
$704,000 for the year ended December 31, 1997 related to this
plan.
26
<PAGE>
Employee Stock Purchase Plan
The Employee Stock Purchase Plan authorizes the sale of up
to 450,000 shares of Common Stock to substantially all employees
of the Company and its subsidiaries. Offerings under the plan
commence on the first day of each calendar quarter and end on the
last day of the same calendar quarter at a purchase price that is
equal to 90% of the last sale price of the Common Stock, as
reported on the National Association of Security Dealers, Inc.
Automated Quotation System ("Nasdaq"), on the commencement date
of the offering. During 1999, 1998 and 1997, 10,652, 18,498 and
13,375 shares, respectively, of Common Stock were issued under
the plan for net proceeds to the Company of $129,000, $142,000
and $134,000, respectively. The weighted-average fair value of
shares sold under the Employee Stock Purchase Plan was $3.01 in
1999, $2.08 in 1998 and $2.79 in 1997. These fair values were
estimated using the Black-Scholes option pricing model with the
following weighted-average assumptions for 1999, 1998 and 1997,
respectively: risk-free interest rate of 4.59%, 5.06% and 5.00%;
dividend yield of 0%; volatility factor of the expected market
price of the Company's Common Stock of .62, .62 and .62; and a
weighted-average expected life of the options of .25 years.
Stock Incentive Plan
The Stock Incentive Plan of 1996, as amended, authorizes the
issuance of up to 3,800,000 shares of Common Stock pursuant to
stock options or other awards granted to employees and other
eligible persons at prices not less than the fair market value of
the stock at the date of grant. All options granted have ten-
year terms and become exercisable as specified in the stock
option agreements. The plan will expire in March 2006.
The Company has complied with the pro forma requirements of
SFAS No. 123 for those companies which choose not to account for
the effects of stock-based compensation in the financial
statements under SFAS No. 123. The fair value of these options
was estimated at the dates of grant using the Black-Scholes
option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively: risk-free
interest rate of 4.98%, 5.24% and 6.54%; dividend yield of 0%;
volatility factor of the expected market price of the Company's
Common Stock of .64, .64 and .61; and a weighted-average expected
life of the options of 4.3, 4.3 and 4.1 years.
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's options under the Employee Stock Purchase
Plan and the Stock Incentive Plan of 1996, as amended, have
characteristics significantly different from those of traded
options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's
opinion, the Black-Scholes option valuation model does not
necessarily provide a reliable measure of the fair value of its
employee stock options.
27
<PAGE>
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'
vesting periods. The Company's pro forma information follows:
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(in thousands, except per share data)
Net income:
As reported $15,798 $8,289 $2,770
Pro forma 13,873 7,105 1,393
Net income per share:
As reported:
Basic 1.02 .54 .18
Diluted 1.01 .54 .18
Pro forma:
Basic .90 .46 .09
Diluted .89 .46 .09
A summary of the Company's stock option activity and related
information for the years ended December 31, 1999, 1998 and 1997
follows:
<CAPTION>
</TABLE>
<TABLE>
1999 1998 1997
---------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,150,633 $10.42 1,167,604 $10.50 743,561 $15.95
Granted 654,706 $13.58 303,760 $10.42 1,409,593 $10.85
Exercised (142,088) $10.51 - $ - - $ -
Forfeited (162,197) $11.23 (320,731) $10.71 (985,550) $15.11
--------- --------- ---------
Outstanding at end of year 1,501,054 $11.70 1,150,633 $10.42 1,167,604 $10.50
========= ========= =========
Exercisable at end of year 482,670 $10.19 284,201 $10.12 51,240 $10.50
========= ========= =========
Weighted-average fair value of
options granted during the year $ 7.36 $ 5.67 $ 5.72
Reserved for future options 2,156,858 2,649,367 1,332,396
</TABLE>
28
<PAGE>
The following table presents weighted-average price and life
information about significant option groups outstanding at
December 31, 1999:
[CAPTION]
<TABLE>
Options Outstanding Options Exercisable
---------------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- ------------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$7.1875 - $9.375 211,895 8.05 years $ 8.30 116,808 $ 8.27
$10.125 - $12.8125 751,153 7.44 years $11.03 359,139 $10.74
$13.125 - $15.1875 459,075 9.07 years $13.67 6,723 $14.38
$15.5625 - $17.1875 78,931 9.54 years $15.78 - $ -
--------- -------
1,501,054 8.13 years 482,670
========= =======
</TABLE>
12. Fair Value of Financial Instruments
- ---------------------------------------
The carrying amounts of the Company's financial instruments
approximate the fair values at December 31, 1999 and 1998.
29
<PAGE>
13. Quarterly Financial Data (Unaudited)
- ----------------------------------------
Summarized quarterly financial data for the years ended December 31, 1999
and 1998, appear below:
[CAPTION]
<TABLE>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
1999
Total revenues $32,720 $33,765 $33,032 $32,188 $131,705
Operating expenses <F1> 28,009 27,731 25,598 26,674 108,012
Operating income <F1> 4,711 6,034 7,434 5,514 23,693
Net income <F1>, <F2> 2,890 3,948 4,400 4,560 15,798
Net income per common share <F1>, <F2>
Basic $.19 $.26 $.28 $.29 $1.02
Diluted $.19 $.25 $.28 $.29 $1.01
Weighted-average number of common
shares outstanding:
Basic 15,394 15,402 15,441 15,542 15,445
Diluted 15,512 15,550 15,698 15,674 15,609
1998
Total revenues $28,614 $27,697 $32,200 $32,264 $120,775
Operating expenses <F3> 26,936 24,888 28,098 27,104 107,026
Operating income <F3> 1,678 2,809 4,102 5,160 13,749
Net income <F3> 927 1,790 2,438 3,134 8,289
Net income per common share <F3>
Basic and diluted $.06 $.12 $.16 $.20 $.54
Weighted-average number of common
shares outstanding:
Basic 15,376 15,381 15,385 15,389 15,383
Diluted 15,394 15,393 15,401 15,429 15,404
</TABLE>
[FN]
<F1> During the first quarter, the Company sold its Enterprise Master
Person Index product for net proceeds of approximately $750,000. The pre-
tax gain resulting from the sale was approximately $681,000. The after-tax
gain was approximately $429,000, or $.03 per diluted share. In addition,
during the fourth quarter the Company charged operations $971,000 ($656,000
after-tax, or $.04 per diluted share) related to a reduction in the
carrying value of pharmacy software development costs.
<F2> Pursuant to a change in tax law, the Company's income tax expense for
the fourth quarter of 1999 was reduced by $950,000. This resulted in an
increase in earnings per diluted share of $.06.
<F3> During the second quarter, the Company sold the assets comprising its
Managed Care Manager Payor software product line for approximately $1.1
million. The pre-tax gain resulting from the sale, after associated write-
offs, was approximately $404,000. The after-tax gain was approximately
$238,000, or $.02 per diluted share.
</FN>
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the five years
ended December 31, 1999, should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the Consolidated Financial Statements and Notes thereto included herein.
The selected consolidated financial data presented below have been derived from
the Company's Consolidated Financial Statements, which have been audited
(except for pro forma data) by Ernst & Young LLP, independent auditors.
[CAPTION]
<TABLE>
Year Ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
System sales $ 53,656 $ 60,549 $ 52,761 $ 45,059 $ 32,262
Support and service 78,049 60,226 49,576 35,937 29,270
-------- -------- -------- -------- --------
Total revenues 131,705 120,775 102,337 80,996 61,532
-------- -------- -------- -------- --------
Operating expenses:
Cost of system sales 21,930 27,424 26,015 20,056 14,085
Client services 36,720 32,945 27,438 18,401 17,764
Research and development 16,128 15,309 13,244 9,988 9,040
Sales and marketing 17,304 17,556 14,007 10,896 8,734
General and administrative 15,640 14,196 12,343 9,758 7,068
Gain on sale of assets <F1>, <F4> (681) (404) - - -
Capitalized software development
cost adjustments <F2>, <F5> 971 - 2,419 - -
Acquired, in-process
technology <F6> - - 1,211 3,252 -
-------- -------- -------- -------- --------
Total operating expenses 108,012 107,026 96,677 72,351 56,691
-------- -------- -------- -------- --------
Operating income 23,693 13,749 5,660 8,645 4,841
Other income (expense):
Interest income 1,710 1,348 1,154 1,345 408
Interest expense (1,211) (1,090) (1,237) (1,395) (1,465)
Other (796) 2 (316) (98) 78
-------- -------- -------- -------- --------
Income before income taxes 23,396 14,009 5,261 8,497 3,862
Income tax provision:
Current year operations <F3> 7,598 5,720 2,491 2,755 73
Change in tax status - - - 1,122 -
-------- -------- -------- -------- --------
Net income $ 15,798 $ 8,289 $ 2,770 $ 4,620 $ 3,789
======== ======== ======== ======== ========
Pro forma data (unaudited): <F7>
Historical income before
income taxes $ - $ - $ - $ 8,497 $ 3,862
Pro forma income tax provision - - - 4,459 1,661
----- ----- ----- -------- --------
Pro forma net income $ - $ - $ - $ 4,038 $ 2,201
===== ===== ===== ======== ========
Net income per common share: <F7>
Basic $1.02 $ .54 $ .18 $ .29 $ .18
===== ===== ===== ======== ========
Diluted $1.01 $ .54 $ .18 $ .29 $ .18
===== ===== ===== ======== ========
Weighted-average number of common
shares outstanding:
Basic 15,445 15,383 15,369 13,919 11,904
====== ====== ====== ====== ======
Diluted 15,609 15,404 15,428 13,919 11,904
====== ====== ====== ====== ======
Balance Sheet Data (at end of period):
Cash and cash equivalents $ 9,660 $ 7,057 $23,692 $31,911 $ 352
Short-term investments 37,218 27,283 - - -
Working capital 67,656 48,463 38,090 39,065 3,963
Total assets 117,263 104,244 94,173 96,911 43,874
Long-term debt and obligations
under capital leases, primarily
from related party, net
of current portion 3,099 4,163 6,080 5,921 6,396
Total shareholders' equity 85,623 68,194 59,822 56,767 20,701
</TABLE>
31
<PAGE>
[FN]
<F1> In 1999, the Company sold its Enterprise Master Person Index product
for net proceeds of approximately $750,000. The pre-tax gain resulting
from the sale was approximately $681,000. The after-tax gain was
approximately $429,000, or $.03 per diluted share.
<F2> In 1999, the Company charged operations $971,000 ($656,000 after-tax,
or $.04 per diluted share) related to a reduction in the carrying value of
pharmacy software development costs.
<F3> Pursuant to a change in tax law, the Company's income tax expense for
1999 was reduced by $950,000. This resulted in an increase in earnings per
diluted share of $.06.
<F4> In 1998, the Company sold the assets comprising its Managed Care
Manager Payor software product line for approximately $1.1 million. The
pre-tax gain resulting from the sale, after associated write-offs, was
approximately $404,000. The after-tax gain was approximately $238,000, or
$.02 per diluted share.
<F5> In 1997, the Company charged operations $2,419,000 ($1,451,000 after-
tax, or $.10 per diluted share) related to the reduction in the carrying
value of IntelliCare software development costs.
<F6> In 1997, the Company charged operations $1,265,000 ($1,113,000 after-
tax, or $.07 per diluted share) for acquired, in-process technology in
conjunction with the purchase of the PreciseCare software. In 1996, the
Company charged operations $3,252,000, or $.23 per diluted share, for
acquired, in-process technology in conjunction with the Antrim acquisition.
<F7> Pro forma data for the years 1996 and 1995 has been computed as if the
Company had been subject to federal and all applicable state income taxes.
</FN>
32
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of
Incorporation
Name and Name Under Which Doing Business or Organization
- ---------------------------------------- ---------------
Sunquest Europa Limited United Kingdom
Sunquest Germany GmbH Germany
Antrim Corporation Texas
Sunquest Pharmacy Information Systems, Inc. Pennsylvania
e-Suite, Inc. Arizona
Commerce Medica, Inc. Delaware
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Sunquest Information Systems, Inc. of our report dated
February 8, 2000 included in the 1999 Annual Report to Shareholders of
Sunquest Information Systems, Inc.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8, No. 333-06015) pertaining to the Employee Stock
Purchase Plan and the Registration Statements (Form S-8, No. 333-40541
and Form S-8, No. 333-56713) pertaining to the Stock Incentive Plan
of 1996 of Sunquest Information Systems, Inc. of our report dated
February 8, 2000 with respect to the consolidated financial statements
of Sunquest Information Systems, Inc. incorporated by reference in
the Annual Report (Form 10-K)
/s/ ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9660
<SECURITIES> 37218
<RECEIVABLES> 45049
<ALLOWANCES> 1970
<INVENTORY> 612
<CURRENT-ASSETS> 94238
<PP&E> 17968
<DEPRECIATION> 7868
<TOTAL-ASSETS> 117263
<CURRENT-LIABILITIES> 26582
<BONDS> 0
0
0
<COMMON> 52460
<OTHER-SE> 33163
<TOTAL-LIABILITY-AND-EQUITY> 117263
<SALES> 131705
<TOTAL-REVENUES> 131705
<CGS> 21930
<TOTAL-COSTS> 58650
<OTHER-EXPENSES> 16128
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1211
<INCOME-PRETAX> 23396
<INCOME-TAX> 7598
<INCOME-CONTINUING> 15798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15798
<EPS-BASIC> 1.02
<EPS-DILUTED> 1.01
</TABLE>
<PAGE>
Exhibit 99.1
The following is the contents of the visual and audio CD
presentation that was included with Sunquest Information
Systems, Inc.'s 1999 Annual Report to Shareholders.
<PAGE>
The following information and or statements appear upon
insertion of the CD in consecutive order.
FORWARD-LOOKING STATEMENTS
This presentation, and other reports and communications to
shareholders, contains forward-looking statements, including
statements which contain words such as "will," "expects,"
"believes," "plans," "anticipates" and words of similar
impact. Certain other factors affecting future performance,
including but not limited to dependence on LIS products,
competition in the marketplace, Year 2000 readiness of the
Company's products and of other vendors' products utilized
by the Company, purchase and installation decisions of
customers, pricing decisions of competitors, changes in
regulatory requirements, and product status and development
risks and uncertainties could cause actual results to differ
materially from such forward-looking statements. These and
other factors affecting future performance are detailed in
the Company's Securities and Exchange Commission filings.
<PAGE>
SUNQUEST INFORMATION SYSTEMS
DEPARTMENTAL CLINICAL SYSTEMS
INTEGRATION AND CONNECTIVITY
COMMERCIAL AND MEDICAL REFERENCE LABORATORY SYSTEMS
CUSTOMER SUPPORT AND SERVICES
CLINCIAL DATA MANAGEMENT
e-BUSINESS
<PAGE>
SUNQUEST INFORMATION SYSTEMS
LOOKING AHEAD
e-BUSINESS
APPLICATION SERVICE PROVIDER (ASP)
e-Commercial Lab
e-Financial
e-Hospital Lab
AXOLOTL
COMMERCE MEDICA, INC.
<PAGE>
SUNQUEST INFORMATION SYSTEMS
MAIN MENU
This menu appears for the user to select one of the
following:
- - CUSTOMER SATISFACTION
- - FINANCIAL PERFORMANCE
- - LOOKING AHEAD
- - VISIT OUR WEBSITE
QUIT
<PAGE>
If the user selects the CUSTOMER SATISFACTION tab from the
MAIN MENU, the following will appear.
SUNQUEST INFORMATION SYSTEMS
EXCELLENCE IN VALUE AND SERVICE
KLAS Enterprises/RL Johnson Report (1999)
#1 Overall -- Lab Vendor
#2 Overall -- Specialty Clinical Systems Vendor
#1 Quality of Implementation
Survey of 2000 healthcare institutions
AUDIO
In the 1999 independent survey prepared by KLAS Enterprises
and RL Johnson & Associates, Sunquest received high honors.
The survey is a ranking of the top 20 HCIS vendors and
contains data gathered from nearly 2000 healthcare
facilities and includes product evaluations and CIO
interviews. In the survey, Sunquest was ranked the #2
Specialty Clinical Vendor overall and was the #1 LIS vendor.
<PAGE>
SUNQUEST INFORMATION SYSTEMS
CUSTOMER SATISFACTION
SCROLLING TEXT
Aurora Health Care
Mayo
MEMORIAL SLOAN-KETTERING CANCER CENTER
FAIRVIEW
Fairview Health Services
SCRIPPS CLINIC
THE CLEVELAND CLINIC FOUNDATION
Catholic Healthcare West (CHW)
BOSTON MEDICAL CENTER
Henry Ford Health System
Lahey Clinic
MultiCare
TEXAS HEALTH RESOURCES
FLORIDA HOSPITAL
Health Network LABORATORIES
CEDARS-SINAI HEALTH SYSTEM
INTERMOUNTAIN HEALTH CARE (IHC)
AUDIO
Sunquest has a strong reputation for service excellence.
It's the reason that we retain our clients. After 20 years
in business, we still have every one of our first 25 clients
including prestigious facilities throughout the country.
Healthcare has changed a lot in 20 years, yet we have
continued to serve these clients with excellence. At 12-31-99,
we were serving over 1,200 healthcare facilities and 43%
of the IDNs in the U.S.
<PAGE>
If the user selects the FINANCIAL PERFORMANCE tab from
the MAIN MENU, the following will appear.
SUNQUEST INFORMATION SYSTEMS
Revenues and Gross Profit
Improving Operating Income
Diluted EPS
Research and Development
Strong Balance Sheet and Financial Performance
Backlog
MENU
<PAGE>
If the user selects Revenues and Gross Profit, the
following will appear.
SUNQUEST INFORMATION SYSTEMS
Revenues and Gross Profit ($ Millions)
Revenues
Graph
1996 1997 1998 1999
- ------ ------ ------ ------
81.0 102.3 120.8 131.7
Gross Profit
Graph
1996 1997 1998 1999
- ------ ------ ------ ------
60.9 76.3 93.4 109.8
TEXT
Revenue -- 3 year CAGR of 18%
Gross Profit -- 3 year CAGR of 22%
More Profitable Mix of Products
AUDIO
Revenues have increased each year, and, impressively, gross
profit has increased at an even faster growth rate. A trend
of a more favorable mix of products has resulted in
increasing gross profit dollars and margins each year. As a
percentage of total revenues, hardware revenues have been
decreasing and support and services revenues, including
consulting revenues, have been increasing. Recurring
maintenance revenue is approximately 40% of total revenues.
MENU
<PAGE>
If the user selects Improving Operating Income, the
following will appear.
SUNQUEST INFORMATION SYSTEMS
Improving Operating Income ($ Millions)
Operating income
Graph
1996 1997 1998 1999
- ------ ------ ------ ------
8.6 5.7 13.7 23.7
Operating income excluding charges to operations in 1996,
1997, and 4Q99, and gain on the sale of assets in 2Q98 and
1Q99.
Graph
1996 1997 1998 1999
- ------ ------ ------ ------
11.9 9.3 13.3 24.0
TEXT
Gross profit growth + Expense control = 80% growth in
operating revenue.
AUDIO
In 1999, excluding non-recurring items, gross profit
increased 18% while expenses increased only 7%, yielding an
impressive 80% growth in operating income compared to 1998.
The operating margin was 18.2% for 1999 compared to 11% for
1998. Sunquest intends to invest heavily in e-business in
2000, but still anticipates maintaining a consolidated
operating margin of 18%.
MENU
<PAGE>
If the user selects Diluted EPS, the following will
appear.
SUNQUEST INFORMATION SYSTEMS
Diluted EPS (Dollars Per Share)
Diluted EPS
Graph
1996 1997 1998 1999
- ------ ------ ------ ------
.29 .18 .54 1.01
Diluted EPS excluding charges to operations in 1996, 1997,
and 4Q99, gain on the sale of assets in 2Q98 and 1Q99 and a
change in tax law in 4Q99.
Graph
1996 1997 1998 1999
- ------ ------ ------ ------
.52 .35 .52 .97
TEXT
Sunquest outperforms the sector with 87% growth in diluted EPS.
AUDIO
Excluding non-recurring items, diluted EPS was $.97 in 1999,
87% growth over 1998 diluted EPS of $.52. In the 3-1/2 years
since Sunquest's IPO, the compound average growth rate for
diluted EPS has been 41%, which is a higher average than our
competitors for the same period. In 2000, we will report
diluted EPS for our core business segmented from diluted EPS
from our e-business. Our core business diluted EPS is
expected to grow 35-40% and be $1.30 to $1.34. Our diluted
EPS from our e-business is expected to be a charge of $.27
to $.30. The consolidation of these two segments is
expected to result in diluted EPS for 2000 of $1.00 to
$1.04.
MENU
<PAGE>
If the user selects Research and Development, the
following will appear.
SUNQUEST INFORMATION SYSTEMS
Research and Development ($ Millions)
Research and Development - Capitalized
Graph
1996 1997 1998 1999
- ------ ------ ------ ------
2.8 3.7 3.2 3.0
Research and Development - Expensed
Graph
1996 1997 1998 1999
- ------ ------ ------ ------
10.0 13.2 15.3 16.1
Research and Development - Total
Graph
1996 1997 1998 1999
- ------ ------ ------ ------
12.8 16.9 18.5 19.1
Capitalization Rate
Graph
1996 1997 1998 1999
- ------ ------ ------ ------
21.8% 21.7% 17.1% 15.5%
TEXT
Ongoing commitment to R&D will be accelerated in 2000.
AUDIO
Sunquest spent 14% of revenues on R&D in 1999 compared to
15% of revenues in 1998. We capitalized 15.5% of R&D
expenses in 1999 and 17.1% in 1998. We anticipate a
capitalization rate of 20% in 2000. In 2000, Sunquest filed
for registration of a subsidiary in India which will be
solely dedicated to R&D. Offshore development will not only
accelerate our ability to add functionality to our core and
e-business products but will also provide cost savings over
comparable activities in the U.S. We intend to web-enable
many of our products which we believe has inherent
advantages over client server in performance and ease of
maintenance for ourselves and our clients. We believe that
this will allow us to transcend our competitors' existing
technologies.
MENU
<PAGE>
If the user selects Strong Balance Sheet and Financial
Performance, the following will appear.
SUNQUEST INFORMATION SYSTEMS
Strong Balance Sheet and Financial Performance
Chart
12/31/98 12/31/99
-------- --------
Cash and short-term
investments $34,340 $46,878
Working capital $48,463 $67,656
Current Ratio 2.6 3.5
Shareholders' Equity $68,194 $85,623
1998 1999
---- ----
Return on Equity 13.9% 23.2%
Cash provided by
operations $18,833 $19,804
AUDIO
Return on equity for 1999 was 23.2%, an increase of nearly
67% over 1998. Cash provided by operations during 1999
totaled $19.8 million and cash and short-term investments of
$46.9 million had increased nearly 37% compared to the prior
year-end. Our current ratio at 12/31/99 was 3.5, an
increase of nearly 35% compared to 12/31/98.
MENU
<PAGE>
If the user selects Backlog, the following will appear.
SUNQUEST INFORMATION SYSTEMS
Backlog ($ Millions)
Graph
1996 1997 1998 1999
- ------ ------ ------ ------
87.3 99.5 122.0 124.6
TEXT
Y2K consumed buyers' financial and staff resources, yet our
backlog continued to climb.
AUDIO
Backlog consists of the uninstalled portions of signed
contracts and one year of annual maintenance. Our backlog
at 12/31/99 was $124.6 million which is an increase of 2.1%
over 1998. Given the difficult year that 1999 was for the
HCIS industry, we are pleased at the increase in our backlog
year over year and our 1999 sales performance compared to
competitors. We anticipate that approximately 2/3 of our
2000 revenues will be recognized from backlog. Therefore,
we have strong visibility into 2000 revenues.
MENU
<PAGE>
If the user selects the LOOKING AHEAD tab from the MAIN
MENU, the following will appear.
SUNQUEST INFORMATION SYSTEMS
TEXT
From bricks and mortar to clicks and mortar
AUDIO
We believe that our stability, strength, and infrastructure
are invaluable, and necessary, to move into the current age
of clicks and mortar, away from yesterday's standard of
bricks and mortar.
Our strategy is to penetrate and dominate clinical vertical
markets both through our core turnkey business expansion as
well as through our e-business initiatives.
In our core business we are expanding both our outreach
products in lab and consulting services.
E-BUSINESS
AUDIO
Our e-Business initiatives are well underway and provide
growth opportunity by leveraging our client base and by
strengthening and broadening our product offerings within
our vertical markets.
Application Services Provider (ASP)
AUDIO
Our e-Business initiatives include ASP delivery models. In
an ASP model, clinical management applications and data are
processed centrally and distributed along with remote expert
services to customers through the Internet. By leveraging
the Internet to reduce the cost of distribution and support,
ASP models are able to provide a solution that is cost
effective for customers. We believe that our ASP product
growth strategy allows us access to a new market of
approximately 7,000 smaller health care facilities while
giving customers the opportunity to conserve capital and
lower operating costs.
e-Commercial Lab
AUDIO
e-Commercial Laboratory is a feature-rich laboratory
system specially designed to facilitate high-volume
work flows in a commercial laboratory environment. e-
Commercial Laboratory will allow us to penetrate the
small commercial laboratory market. This system has
been in beta testing since the fourth quarter of 1999
and we plan for general release on April 1, 2000.
<PAGE>
SUNQUEST INFORMATION SYSTEMS
LOOKING AHEAD (continued)
e-Financial
AUDIO
e-Financial is a comprehensive financial management
system for both hospital and commercial laboratories
that incorporates accounts receivable, billing and
general ledger functions into one simple, easy-to-
configure application. e-Financial is invoice-driven,
not patient-driven, in order to accelerate cash flow,
making this an ideal application for hospital
laboratories with outreach programs, as well as for
traditional commercial laboratories. This system has
been in beta testing since the fourth quarter of 1999
and we plan for general release on April 1, 2000.
e-Hospital Lab
AUDIO
e-Hospital Laboratory is a feature-rich laboratory
information system that is designed to penetrate the
small to intermediate sized hospital market with the
target market of hospitals with 250 beds or less. We
plan to deliver this system to Beta testing during the
second quarter of 2000.
AXOLOTL
AUDIO
Our e-business initiatives include not only leveraging our
client base, but also strengthening and broadening our
product offerings within our vertical markets. We market
and sell Axolotl, a third party product with functionality
that allows physicians to order tests and review results
over the Internet.
COMMERCE MEDICA, INC.
AUDIO
We will soon unveil an exciting new venture. It is a
separate Internet portal called Commerce Medica, Inc. We
believe that Commerce Medica will provide us and our
strategic partners and investors with tremendous
opportunities to penetrate the clinical vertical markets.
Initially, this B2B model aggregates a host of products and
services for the laboratory market, providing a portal into
a virtual shopping mall and research library. This
enterprise will initially target our laboratory client base
and shortly thereafter define its market as the worldwide
laboratory community. Laboratory is just a starting point,
since the infrastructure can be leveraged to address other
vertical clinical markets. Look for our announcement in the
second quarter of 2000.
MENU
<PAGE>
If the user selects the VISIT OUR WEBSITE tab from the
MAIN MENU, the following will appear.
SUNQUEST INFORMATION SYSTEMS
GO Netscape and Internet Explorer
If you use these browsers and have an Internet
connection, it will automatically launch after
selecting GO.
GO America Online
If you use America Online, selecting GO will
launch AOL. You may then need to select Internet
and then enter www.sunquest.com into the browser.
MENU