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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended September 30,
1998.
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: 0-28170
OACIS HEALTHCARE HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 68-0012790
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1101 Fifth Avenue, Suite 200
SAN RAFAEL, CA 94901
(Address of principal executive offices, including zip code)
(415) 482-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
At November 6, 1998, there were 10,610,202 shares of the Registrant's Common
Stock outstanding.
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OACIS HEALTHCARE HOLDINGS CORP.
QUARTERLY REPORT ON FORM 10-Q
INDEX
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PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1998 3
(unaudited) and December 31, 1997
Consolidated Statement of Operations 4
for the three months and nine months ended September 30, 1998 and
1997 (unaudited)
Consolidated Statement of Cash Flows 5
for the nine months ended September 30, 1998 and 1997 (unaudited)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
PART II OTHER INFORMATION
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 21
INDEX TO EXHIBITS 22
Exhibit 10.15 Master Lease Agreement dated as of September 1, 1998, between Varilease
Corporation and Oacis Healthcare Holdings Corp. attached hereto.
Exhibit 27.1 Financial Data Schedule
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OACIS HEALTHCARE HOLDINGS CORP.
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,527 $ 5,962
Short-term investments 3,970 9,687
Accounts receivable, net 8,600 8,276
Other current assets 1,234 1,149
-------- --------
Total current assets 20,331 25,074
Property and equipment, net 5,088 3,341
Capitalized software, net 3,673 2,382
Other assets 353 394
-------- --------
Total assets $ 29,445 $ 31,191
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,214 $ 1,784
Accrued expenses 1,783 2,818
Short-term borrowings 1,630 --
Unearned revenue 2,818 3,585
-------- --------
Total current liabilities 7,445 8,187
-------- --------
Long-term obligations 211 461
-------- --------
Stockholders' equity:
Preferred Stock, $0.01 par value;
5,000,000 shares authorized; none issued
and outstanding -- --
Common Stock, $0.01 par value,
30,000,000 shares authorized; 10,527
and 10,330, shares issued and outstanding 105 103
Additional paid-in capital 48,985 48,542
Accumulated deficit (27,238) (26,002)
Deferred stock compensation (63) (100)
-------- --------
Total stockholders' equity 21,789 22,543
-------- --------
Total liabilities and stockholders' equity $ 29,445 $ 31,191
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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OACIS HEALTHCARE HOLDINGS CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1998 1997 1998 1997
------- -------- -------- --------
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Revenues:
Software licenses $ 5,101 $ 2,792 $ 10,508 $ 7,118
Installation and support services 2,226 2,222 7,033 6,045
Third party hardware and software 61 930 2,606 4,439
------- -------- -------- --------
Total revenues 7,388 5,944 20,147 17,602
------- -------- -------- --------
Cost of revenues:
Software licenses 286 267 854 535
Installation and support services 1,734 1,885 5,089 4,931
Third party hardware and software 42 820 2,182 3,839
------- -------- -------- --------
Total cost of revenues 2,062 2,972 8,125 9,305
------- -------- -------- --------
Gross profit 5,326 2,972 12,022 8,297
------- -------- -------- --------
Operating expenses:
Sales and marketing 2,220 1,498 5,813 4,768
Research and development 1,583 1,646 4,951 4,733
General and administrative 1,117 821 2,947 2,680
------- -------- -------- --------
Total operating expenses 4,920 3,965 13,711 12,181
------- -------- -------- --------
Income (loss) from operations 406 (993) (1,689) (3,884)
Interest income, net 117 230 453 832
------- -------- -------- --------
Net income (loss) $ 523 $ (763) $ (1,236) $ (3,052)
======= ======== ======== ========
Earnings (loss) per share:
Basic $ 0.05 $ (0.07) $ (0.12) $ (0.30)
Diluted $ 0.05 $ (0.07) $ (0.12) $ (0.30)
Weighted average common shares outstanding:
Basic 10,520 10,175 10,438 10,121
Diluted 11,465 10,175 10,438 10,121
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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OACIS HEALTHCARE HOLDINGS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands, unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,236) $ (3,052)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,455 995
Stock compensation expense 37 37
Changes in assets and liabilities:
Accounts receivable, net (324) (332)
Other current assets (85) (665)
Other assets 41 (390)
Accounts payable (570) 366
Accrued expenses (1,100) (1,297)
Unearned revenue (767) 707
------- --------
Net cash used in operating activities (2,549) (3,631)
------- --------
Cash flows from investing activities:
Purchase of short-term investments (3,933) (4,689)
Sale of short-term investments 9,650 13,412
Purchases of property and equipment (2,872) (1,335)
Capitalized software development costs (1,621) (1,556)
------- --------
Net cash provided by investing activities 1,224 5,832
------- --------
Cash flows from financing activities:
Proceeds from employee stock purchase plan 252 271
Proceeds from option exercises 193 33
Proceeds from line of credit 1,630 --
Payments on capital lease obligations (185) (158)
------- --------
Net cash provided by financing activities 1,890 146
------- --------
Increase in cash and cash equivalents 565 2,347
Cash and cash equivalents, beginning of period 5,962 4,307
------- --------
Cash and cash equivalents, end of period $ 6,527 $ 6,654
======= ========
Supplemental disclosure:
Cash paid for interest $ 51 $ 40
======= ========
Capital equipment lease additions $ -- $ 422
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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OACIS HEALTHCARE HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BASIS OF PRESENTATION
The unaudited financial statements included herein for Oacis Healthcare
Holdings Corp. (the "Company") have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. In management's
opinion, the interim financial data presented includes all adjustments (which
include only normal and recurring adjustments) necessary for a fair presentation
in accordance with generally accepted accounting principles. Certain information
and footnote disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures are adequate to understand the information presented. The
results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of the operating results expected for the entire year.
The financial statements included herein should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1997,
included on Form 10-KSB filed with the Securities and Exchange Commission.
2. BASIC AND DILUTED NET EARNINGS (LOSS) PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earning per Share" (SFAS 128) and Staff Accounting Bulletin No. 98 during the
year ended December 31, 1997 and retroactively restated all prior periods. Basic
net loss per share is computed using the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed
using the weighted average number of common and common equivalent shares
outstanding during the period except that common equivalent shares are excluded
from the computation if the effect is anti-dilutive. Common equivalent shares
consist of the incremental shares issuable upon the conversion of preferred
stock and the exercise of stock options and warrants (using the treasury stock
method).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
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(In thousands,
except per share data)
(Unaudited)
<S> <C> <C>
Net Income $ 523 $ (763)
Shares used to compute basic earnings per share
(weighted average number of common shares
outstanding during the period) 10,520 10,175
Incremental common shares attributable to exercise
of outstanding options and warrants 945 0
------- --------
Shares used to compute diluted earnings per share 11,465 10,175
======= ========
Basic earnings per share $ 0.05 $ (0.07)
======= ========
Diluted earnings per share $ 0.05 $ (0.07)
======= ========
</TABLE>
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income." SFAS 130 establishes standards for reporting
and displaying comprehensive income and its components in a full set of
general-purpose financial statements. Adoption of SFAS 130 did not have a
material effect on the Company's financial statements for the quarter ended
September 30, 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas, and
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major customers. The disclosures prescribed by SFAS 131 will be reflected in the
Company's financial statements for the year ending December 31, 1998.
In October 1997 and March 1998, the American Institute of Certified Public
Accountants issued Statement of Positions Nos. 97-2 and 98-4 ("SOP 97-2" and
"SOP 98-4") respectively, relating to software revenue recognition which the
Company has adopted for transactions entered into in the fiscal year beginning
January 1, 1998. SOP 97-2 and SOP 98-4 provide guidance on recognizing revenue
on software transactions and supersedes SOP 91-1, "Software Revenue
Recognition". Historically, the Company has accounted for the majority of its
software license fee revenue under Statement of Position 81-1, "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts,"
accordingly the Company believes that the adoption of SOP 97-2 and SOP 98-4 has
not had a significant impact on its revenue recognition accounting policies.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
This statement establishes standards for derivative instruments and hedging
activities. The Company is required to adopt SFAS 133 in the first quarter of
2000. The Company does not anticipate that SFAS 133 will have a material impact
on its financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Background
The Company develops, markets, licenses, installs, implements and supports
clinical information systems primarily for major medical centers, hospitals and
integrated healthcare delivery networks ("IDNs"). In 1986, the Company
introduced StatLAN, the initial version of the Company's clinical information
system. In 1994, the Company introduced Oacis. Oacis is comprised of the Oacis
Healthcare Network, which includes an interface engine, a clinical data
repository and an Enterprise Member/Patient Index and Clinical Care
applications, which facilitate the input and delivery of information at the
point of care.
Substantially all of the Company's revenues are derived from the licensing,
installation, implementation and support of Oacis. The Company intends to focus
its sales and marketing efforts on IDNs which currently account for a growing
portion of the overall market for clinical information systems. The formation of
IDNs and a general consolidation in the healthcare industry has a number of
effects which include the creation of larger healthcare networks with greater
market concentration. The Company believes that while such consolidation may
result in an increase in demand for open architecture clinical information
systems such as the Company provides, the near term effect of such consolidation
reduces the resources available for IDNs to invest in clinical information
systems until such time as the rate of consolidation slows. Additionally, the
software industry as a whole is currently addressing the issues related to Year
2000. Although the Company believes that its products do not have significant
Year 2000 issues, it believes that IDN's in general are dealing with multiple
software systems which do require major attention to Year 2000 issues which may
distract these IDN's from pursuing enterprise information systems solutions such
as the Company provides. Accordingly, the Company believes that the market for
the Company's products may continue to develop slowly in the near term and that
sales cycles will continue to be long.
The Company's future success and financial performance depends in large part
upon the Company's ability to provide the increasing system functionality
required by its customers through the timely development and successful
introduction of new applications and enhancements to Oacis. The Company has
historically devoted significant resources to system enhancements and
development and believes that significant continuing development efforts
together with an increased focus on integration of third party applications will
be required to sustain and enhance the Company's competitive market position.
Additionally, the Company's ability to develop, market, sell, install and
implement its systems depends on the Company's ability to recruit, hire and
retain highly skilled personnel in a number of technical and clinical fields
particularly in the area of installation and implementation services. The market
for this highly skilled workforce is extremely competitive.
The Company's cost of revenues for installation and support services, as well
as its operating expenses, are primarily comprised of personnel and personnel
related costs. These costs are impacted by a number of factors including
increases in personnel and adjustments in compensation levels to remain
competitive in the markets in which the Company operates. The Company regularly
appraises its competitive position with regard to compensation strategies and
makes adjustments when and as required. Additionally,
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the Company adjusts salary levels, generally at the beginning of its reporting
year, for all personnel based on merit and other factors including increases in
the cost of living. As a result, the year over year quarterly results before the
effect of capitalized software reflect the increased operating expenses
resulting from increased personnel related expenses.
Revenue Recognition
The Company's revenues consist of license fees for the perpetual use of its
software, installation revenues associated with installing and configuring the
software to achieve system acceptance as well as implementation services to
further configure, design and test the system to meet specific customer needs,
revenues from the sale of third-party hardware and software, and revenues from
ongoing support services. The price of an Oacis system varies depending on a
number of factors, including the modules licensed and the volume of outpatient
visits and inpatient days for the customer organization, and generally ranges
from more than nine hundred thousand dollars to a few million dollars. The
Company resells third-party hardware and software pursuant to standard reseller
agreements.
Software license fee revenues from contracts where the Company is actively
involved in the installation or installation and implementation of the system,
which are primarily in the United States and Canada, are recognized using the
percentage of completion method. Progress toward completion is measured using
labor hours incurred over total estimated labor hours or upon the achievement of
certain project installation and acceptance milestones. The Company generally
bills its installation and implementation services as the services are provided.
Software license fees are generally billed in accordance with installation or
software acceptance milestones. Accordingly, revenues recognized in advance of
achieving billing milestones are recorded as unbilled accounts receivable and
collections resulting from billing milestones achieved in advance of recognizing
revenues are recorded as unearned revenues on the consolidated balance sheet. If
the total estimated cost of a contract is expected to exceed the contract price,
determined primarily by the installation component of the contract, the total
estimated loss is charged to expense in the period the loss is identified. In
addition, in certain transactions where existing customers seek to expand the
license rights of previously licensed software or where no significant
installation services are required, the Company recognizes license fee revenue
from certain software components upon the delivery of these expanded rights or
upon software acceptance and when collection of the additional license fees are
probable.
Software license fee revenues from contracts where the Company is not
actively involved in the installation of the system, typically contracts outside
of North America, are recognized as contract amounts become due and payable by
the international partner typically on a milestone basis. In addition, revenue
recognition on a contract milestone basis can cause quarterly revenue and
earnings variability due to the size and timing of such milestones. Because the
Company is not actively involved in these international installations, milestone
attainment and consequently revenue recognition on these contracts may be
delayed for reasons which include delays caused by the customer, or the
Company's international integration partner, both of which are beyond the
control of the Company.
The Company also recognizes revenues from support fees and sales of
third-party hardware and software. Support agreements generally cover a one year
period and the associated revenues are recognized ratably over the period of the
support agreement. Third-party hardware and software revenues are recognized
upon delivery of the related hardware and software. Third-party hardware and
software are generally sold pursuant to a purchase order and are not governed by
the terms of the software license and services agreement.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues
In the three months ended September 30, 1998, total revenues increased 24% to
$7.4 million from $5.9 million in the three months ended September 30, 1997. Of
these amounts, software license fee revenues increased 83% to $5.1 million,
installation and support services revenues were unchanged at $2.2 million and
third-party hardware and software revenue decreased 93% to $0.1 million. The
increase in software license fee revenue resulted from a generally strong
quarter in domestic software license fees which included the effects of the
Company's contract with Kaiser Permanente (Kaiser) signed during the current
quarter which
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included a significant component of license fees and no installation service
component. Software license fee revenues are expected to continue to be
positively impacted by this contract at least for the next quarter as additional
software elements are delivered. The increase in domestic software license fee
revenue was partially offset by an absence of international software license fee
revenue in the current quarter which compares with $1.1 in international license
fee revenue in the third quarter of 1997. Future international revenues will be
primarily dependent on the ability of the Company and its international
distribution partners to attain additional international contracts, the timing
and amount of such will continue to be subject to variability. Installation and
support service revenues for the quarter reflected an increase in maintenance
revenues due to a number of new customers initiating maintenance since the prior
year period, offset by a decline in installation revenue which was due to a
number of factors including a trend on the part of some customers to rely more
on internal resources to complete their implementations, the timing of
implementations in progress, the continued high turnover of implementation
personnel and a slower than expected ramp up of the Company's third-party
implementation partner, Superior Consultants. The decrease in third-party
hardware and software revenues compared to the prior year third quarter was due
mainly to the timing of new customer contracts which generally include
significant third-party hardware and software components. We expect third party
hardware revenues to remain below our expectation for the remainder of the year
and continue to be primarily dependent upon the timing of new software license
contracts.
Cost of Revenues
Cost of revenues were $2.1 million, or 28% of total revenues, in the three
months ended September 30, 1998, compared to $3.0 million, or 50% of total
revenues, in the three months ended September 30, 1997. Cost of installation and
support services decreased 8% to $1.7 million in the three months ended
September 30, 1998 from $1.9 million in the three months ended September 30,
1997 as a result of a decrease in the number of implementation personnel offset
by a higher average cost of those personnel including an increase in the use of
third-party implementation personnel which generally carry a higher hourly cost
than Oacis personnel. The decrease in cost of installation and support services
was also attributable to a decrease in the cost of support services, due in part
to the restructuring of the support organization announced at the end of 1997.
Gross profit as a percentage of total revenues increased to 72% in the three
months ended September 30, 1998 from 50% in the three months ended September 30,
1997. The increase in gross profit as a percentage of total revenues reflects
significant growth in domestic software license fee revenue relative to the
prior year quarter in addition to a shift in the mix of revenues to higher
margin software license fee from lower margin third-party hardware and software.
Gross profit on software license fees increased to 94% in the third quarter of
1998 from 90% in the prior year period as there were no international
distributor fees reported in the third quarter of 1998. Offsetting the absence
of international distributor fees during the quarter was an increase in
amortization of capitalized software development costs resulting from the
commencement of amortization of capitalized products which became generally
available during the quarter. Gross profit on installation and support services
increased to 22% for the third quarter of 1998 from 15% in the prior year period
due to improved margins in the support organization where revenues have
increased as more clients have initiated support services while expenses were
lower due in part to the restructuring previously noted.
Sales and Marketing
Sales and marketing expenses increased 48% to $2.2 million in the three
months ended September 30, 1998 from $1.5 million in the three months ended
September 30, 1997 and increased as a percentage of total revenues to 30% in the
three months ended September 30, 1998 from 25% in the three months ended
September 30, 1997. The increase in sales and marketing expenses were due to
marketing fees related to revenue recognized from sales through the VHA sales
channel in the current quarter as well as the timing of recognizing certain
marketing credits from third party product suppliers in the prior year quarter.
Sales and marketing expenses were also higher as a result of higher consulting,
commission and travel expenses. The Company expects sales and marketing expenses
to decrease during the fourth quarter. Additionally, quarterly sales and
marketing expenses may fluctuate as a result of the timing of commission
expenses associated with new contract signings and attainment of project
milestones on existing contracts.
Research and Development
Research and development expenses, before software capitalization, decreased
3% to $2.07 million in the three months ended September 30, 1998 from $2.14
million in the three months ended September 30, 1997, and decreased as a
percentage of total revenue to 28% for the three months ended September 30, 1998
from 36% in the three months ended September 30, 1997. The decrease in expenses
was primarily attributable to lower consulting expenses partially offset by
higher salary expense. Capitalized
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software development costs were $490,000, or approximately 24% of research and
development costs, for the three months ended September 30, 1998 as compared to
$495,000, or approximately 23%, for the three months ended September 30, 1997.
General and Administrative
General and administrative expenses increased 36% to $1.1 million in the
three months ended September 30, 1998 from $0.8 million in the three months
ended September 30, 1997, and increased to 15% as a percentage of total revenue
for the three months ended September 30, 1998 from 14% for the same period in
the prior year. The increase in general and administrative expenses was due to
the timing of accruals as well as an increase in maintenance expense stemming
from investments in computer hardware and software acquired for internal use.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues
In the nine months ended September 30, 1998, total revenues increased 14% to
$20.1 million from $17.6 million in the nine months ended September 30, 1997. Of
these amounts, software license fee revenues increased 48% to $10.5 million,
installation and support services revenues increased 16% to $7.0 million and
third-party hardware and software revenues decreased 41% to $2.6 million. The
increase in software license revenues reflects increased domestic software
license fees including the effects of the Company's contract with Kaiser which
was signed during the quarter ended September 30, 1998 and which contributed
significantly to software license revenues during that quarter. International
software license fee revenues for the nine month period ended September 30, 1998
accounted for approximately 7% of total revenues as compared to 15% for the same
prior year period. Future international revenue contribution will be primarily
dependent on the ability of the company and its international distribution
partners to attain additional international contracts, the timing and amount of
such will continue to be subject to variability. The increase in installation
and support services revenues from the same period in 1997 was due to an
increase in billable hours resulting from increased implementation activity over
the nine month period as well as increased support services revenues resulting
from new sites that have initiated support services since September 30, 1997.
The decrease in third-party hardware and software revenues was due mainly to the
timing of new customer contracts which generally include significant third-party
hardware and software components.
Cost of Revenues
Cost of revenues were $8.1 million, or 40% of total revenues, in the nine
months ended September 30, 1998, compared to $9.3 million, or 53% of total
revenues, in the nine months ended September 30, 1997. The decrease in the cost
of revenues resulted primarily from lower third-party product sales in the nine
months ended September 30, 1998 offset by a 3% increase in the cost of
installation and support services. Cost of installation and support services
increased 3% to $5.1 million in the nine months ended September 30, 1998 from
$4.9 million in the nine months ended September 30, 1997 as a result of an
increase in the average cost of those personnel as well as an increase in the
use of third-party implementation personnel which generally carry a higher
hourly cost, offset by a decrease in the cost of support services, due in part
to the restructuring of the support organization announced at the end of 1997.
Gross profit as a percentage of total revenues increased to 60% in the nine
months ended September 30, 1998 from 47% in the nine months ended September 30,
1997. The increase in gross profit resulted from a shift in the mix of revenues
to higher margin software license fee revenue away from lower margin third-party
product revenues. Gross profit on software license fee revenue was unchanged at
92% but reflected a decrease in international distributor fees and an offsetting
increase in amortization of capitalized software development costs during the
nine months ended September 30, 1998. Gross profit on installation and support
services increased to 28% for the nine months ended September 1998 from 18% in
the prior year period due to improved margins principally in the support
organization where revenues have increased as more clients have initiated
support services while expenses were lower due in part to the restructuring
previously noted. Gross profit on third-party hardware and software increased to
16% in the nine months ended September 30, 1998 from 14% in the nine months
ended September 30, 1997 principally due to the mix of third-party products
sold.
Sales and Marketing
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Sales and marketing expenses increased 22% to $5.8 million in the nine months
ended September 30, 1998 from $4.8 million in the nine months ended September
30, 1997 and was 29% of total revenues as compared to 27% for the nine months
ended September 30, 1997. The increase in sales and marketing expenses were due
to marketing fees related to revenue recognized from sales through the VHA sales
channel in the current nine month period. Additionally, the increase was due to
higher consulting, commission and travel expenses in the 1998 period as well as
the timing of recognizing certain marketing credits from third-party suppliers
in the nine months ended September 30, 1997.
Research and Development
Research and development expenses, before software capitalization, increased
5% to $6.6 million in the nine months ended September 30, 1998 from $6.3 million
in the nine months ended September 30, 1997. The increase was a result of an
increase in personnel as well as an increase in the average cost of personnel
partially offset by lower consulting expense. Software capitalization totaled
$1.6 million, or 25% of total research and development costs, for the nine
months ended September 30, 1998 consistent with the nine month period ended
September 30, 1997. Research and development costs, before software
capitalization, decreased as a percentage of total revenue to 33% for the nine
months ended September 30, 1998 from 36% for the nine months ended September 30,
1997.
General and Administrative
General and administrative expenses increased 10% to $2.9 million in the nine
months ended September 30, 1998 from $2.7 million in the nine months ended
September 30, 1997, and were 15% of total revenue for the nine months ended
September 30, 1998 unchanged from the prior year nine month period. The increase
was due to higher consulting expenses and maintenance expense stemming from the
significant investment made in computer hardware and software acquired for
internal use as well as the timing of accruals.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998 the Company's cash and cash equivalents and short-term
investments totaled $10.5 million as compared to $15.6 million at December 31,
1997.
The Company relocated its corporate headquarters during the third quarter of
1998 contemporaneously with the expiration of its current corporate office
lease. In conjunction with this relocation, the Company incurred capital
expenditures totaling approximately $3 million for leasehold improvements,
furniture, computers and equipment of which the Company has already paid $2.0
million as of September 30, 1998. The Company expects that it will be required
to fund the remaining amount during the fourth quarter.
In September 1998, the Company entered into a master lease agreement with
Varilease Corporation which enabled the Company to finance the purchase of new
equipment, or sell and lease back certain existing equipment, up to an aggregate
of approximately $700,000. The lease term is 36 months from the date of funding,
and the annual interest rate is approximately 10.5%. As of September 30, 1998,
none of this facility had been utilized.
In June 1998, the Company entered into a financing agreement which allows the
Company to borrow up to $3 million through April 1999 with Union Bank of
California at which time the outstanding amount converts to a four year term
loan with interest rate terms equal to Libor plus 1 1/4%. All outstanding
amounts are secured by the Company's short-term investments to the extent of the
outstanding balance. As of September 30, 1998, expenditures of $1.6 million
related to the Company's new corporate headquarters had been financed under this
agreement.
During 1997, the Company invested $2,253,000 in capital expenditures
primarily related to computers and office equipment. Of this amount, $423,000
was acquired under a capital lease agreement with Comdisco, Inc.
("Comdisco").
In April 1996, the Company entered into a master lease agreement with
Comdisco which enabled the Company to finance the purchase of new equipment, or
sell and lease back certain existing equipment, up to an aggregate of $1.0
million. The lease term is 42 months from the date of funding, and the annual
interest rate is 8.5%. As of September 30, 1998, $1,000,000 of new equipment was
financed under this agreement.
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The Company's working capital and capital requirements will depend upon
numerous factors including possible customer installation delays, lengthy sales
cycles, the Company's plans for developing, acquiring or licensing new
applications and technologies, the Company's requirements to purchase additional
capital equipment and the level of resources that the Company devotes to its
sales and marketing activities. The Company believes that its existing capital
resources and available financing arrangements will be adequate to fund its
current operations for at least the next 12 months. Thereafter, the Company may
require additional funds to support its operations and may seek to raise such
additional funds through public or private equity financing or from other
sources. There can be no assurance that additional financing will be available
at all or that, if available, such financing will be obtainable on terms
favorable to the Company.
YEAR 2000 READINESS
GENERAL
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. Any programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in the computer shutting down or performing incorrect computations.
As a result, before December 31, 1999, computer systems and software used by
many companies may need to be upgraded to comply with such "Year 2000"
requirements.
YEAR 2000 ISSUES AFFECTING OACIS
Year 2000 issues may affect the Company in two primary areas. The first
relates to readiness of the products that the Company offers for license to its
customers. The second relates to the Company's internal systems and the internal
systems of its suppliers and customers.
THE COMPANY'S PRODUCTS
The Company has completed an evaluation of its software products which it
holds for license to customers. This evaluation was made with the assistance of
an independent third party. The results of this evaluation have identified
certain minor modifications which were required to be made to the Oacis and
StatLan product lines. These modifications have been completed prior to the end
of the Company's third quarter. The Company has released one version of Oacis
which is Year 2000 compliant which has been tested on Year 2000 compliant
releases of certain of the Company's third party product vendors such as Sybase
and Sun. The Company is also releasing a Year 2000 compliant version of its
StatLan product. The Company provides its Year 2000 ready software releases to
its customers under the terms of its maintenance and support arrangements. The
Company's customers are responsible for implementing and testing the Company's
Year 2000 releases in their particular environment. To assist in this effort,
the Company organized and trained personnel to assist the Company's customers
with the installation of the Company's Year 2000 releases. These services are
provided on a time and materials basis. The Company is working to upgrade all of
its customers on its Year 2000 compliant version by September 1999. The Company
will continue to closely assess the risks associated with Year 2000 and develop
contingency plans when and if necessary, but at this time the Company has not
developed any formal contingency plans.
INTERNAL SYSTEMS
The Company has evaluated its internal systems, including Payroll,
Accounting, and other business critical systems to determine whether any
significant Year 2000 issues exist. Although the Company's evaluation is
ongoing, the Company believes that no material issues exist with its internal
use software with regard to Year 2000. The Company also has and will continue to
discuss with its vendors and clients the potential impact the Year 2000 issue
will have on their systems, including possible delays in receiving payment from
clients resulting from Year 2000 problems affecting such clients' accounting and
payable systems. As the Company assesses these issues, it expects to develop
contingency plans against such payment delays and other Year 2000 problems which
may include, for example, holding additional cash reserves.
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COSTS
The Company has devoted internal resources and hired external resources to
assist with the implementation and monitoring of its Year 2000 compliance
programs. The Company has incurred to date, costs approximating $400,000, to
address its Year 2000 compliance programs and expects that it will incur
additional costs through December 31, 1999. The Company believes that the costs
it has incurred to date and future costs to implement its Year 2000 programs
will not be material.
RISKS
The Company has identified certain potential risks with regard to Year 2000
which include; the failure by clients to fully or adequately implement and test
the Company's Year 2000 releases in sufficient time prior to Year 2000 which
could result in requests by such clients to provide additional services to
support client readiness programs and could ultimately result in claims against
the Company, the failure by vendors or clients to adequately update their
internal systems including accounting systems which could impact their ability
to make payments or supply products; the failure by the Company to identify all
potential Year 2000 issues within its internal systems, the affect of which
cannot be predicted. Each of these risks, including the risks that the Company
will not timely complete or successfully implement its Year 2000 readiness
programs could result in material adverse affects on the Company's financial or
operating results. However, at this time, the Company does not anticipate that
the risks will have a material effect on the Company. Additionally, Oacis'
customers are currently assessing their own systems and those of vendors for
compliance with Year 2000. Installation work required by customers to implement
Year 2000 releases may distract customers' and potential future customers'
attention from acquiring and installing Oacis' Systems. Such distraction could
have a material adverse affect on the Company's business, financial condition
and results of operations.
FACTORS AFFECTING OPERATING RESULTS
This report on Form 10-Q contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated by such forward-looking statements as a result of certain
factors including those set forth below.
HISTORY OF OPERATING LOSSES; UNCERTAIN PROFITABILITY. The Company has
incurred a net loss of $4.1 million for the year ended December 31, 1997 and
$1.2 million for the nine months ended September 30, 1998, and as of September
30, 1998 had an accumulated deficit of $27.2 million. The Company has not
achieved consistent profitability on a quarterly basis and has not achieved
annual profitability. The Company's prior operating history, consolidation and
uncertainty in the healthcare industry, dependence on the emerging market for
IDNs, dependence on Oacis as its principal product, effects of Year 2000 issues
on IDN's clinical information system purchasing decisions, long sales and
installation cycles, and dependence upon key personnel and third parties,
competition, and general economic and other factors make the prediction of
future operating results difficult. There can be no assurance that any of the
Company's business strategies will be successful or that the Company will be
able to achieve consistent revenue growth or achieve consistent profitability on
a quarterly or annual basis.
CONSOLIDATION AND UNCERTAINTY IN THE HEALTH CARE INDUSTRY, DEPENDENCE ON
EMERGING MARKET FOR IDNs. Many health care providers are consolidating to create
larger health care networks and IDNs with greater market concentration. The
Company focuses its sales and marketing efforts primarily on IDNs, which
currently account for a growing portion of the overall market for clinical
information systems. The Company believes that consolidation and formation of
IDNs will continue and may ultimately result in an increase in demand for open
architecture clinical information systems such as the Company provides, and
accordingly focuses its sales and marketing efforts on this market. However, the
near term effect of such consolidation includes reducing the resources available
for IDNs to invest in clinical information systems until such time as the rate
of consolidation slows. Accordingly, the Company believes that the market for
the Company's products may continue to develop slowly in the near term and that
sales cycles will continue to be long. In addition, continued consolidation
could erode the Company's existing customer base and reduce the size of the
Company's target market. Additionally, the resulting enterprises could have
greater bargaining power, which could lead to price erosion of the Company's
systems and services. The reduction in the size of the Company's target market
resulting from industry consolidation or delays in purchasing clinical
information systems due to industry consolidation or the failure of the Company
to maintain adequate price levels could have a material adverse effect on the
Company's business, financial condition and results of operations. The health
care industry also is subject to changing political, economic and regulatory
influences that may affect the procurement practices and operation of health
care industry participants. During the past several years, the United States
health care industry has been subject to an increase in governmental regulation
and reform proposals. These reforms may increase governmental involvement in
health care, lower reimbursement rates and otherwise change the operating
environment for the Company's customers. Health care industry participants may
react to these proposals and the uncertainty surrounding such proposals by
curtailing or deferring investments, including those for the Company's systems
and
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services. The failure of the Company to maintain adequate price levels or sales
as a result of legislative or market-driven reforms could have a material
adverse effect on the Company's business, financial condition and results of
operations.
YEAR 2000. Many computer systems experience problems handling dates beyond
the year 1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. The Company along
with an independent third-party consultant is assessing both the internal
readiness of its computer systems and the compliance of its computer products
and software sold to customers for handling the Year 2000. The Company expects
to implement successfully the systems and programming changes necessary to
address Year 2000 issues, and does not believe that the cost of such actions
will have a material effect on the Company's results of operations or financial
condition. There can be no assurance, however, that there will not be a delay
in, or increased costs associated with, the implementation of such changes, and
the Company's inability to implement such changes could impact the timing of
installations and have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company is also assessing the possible effects on the Company's
operations of the Year 2000 readiness of key suppliers and subcontractors. The
Company's reliance on suppliers and subcontractors, and, therefore, on the
proper functioning of their information systems and software, means that failure
to address Year 2000 issues could have a material impact on the Company's
operations and financial results; however, the potential impact and related
costs are not known at this time. Additionally, Oacis' customers are currently
assessing their own systems and those of vendors for compliance with Year 2000.
Installation work required by customers to implement Year 2000 releases may
distract customer's attention from acquiring and installing Oacis' Systems. Such
distraction could have a material adverse affect on the Company's business,
financial condition and results of operations.
DEPENDENCE ON OACIS; MARKET ACCEPTANCE; SYSTEM ENHANCEMENTS. Substantially
all of the Company's revenues are currently derived from licenses of Oacis.
Therefore, any significant reduction in licensing of Oacis would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's future success and financial performance depends in
large part upon the Company's ability to provide the increasing system
functionality required by its customers through the timely development or
integration of new applications and enhancements and the successful introduction
of such applications and enhancements to Oacis. The Company has historically
devoted significant resources to system enhancements and research and
development and believes that significant continuing development efforts will be
required to sustain and enhance the Company's competitive market position. There
can be no assurance that the Company will successfully develop or integrate,
introduce, market and sell new system enhancements or applications, or that
system enhancements or new applications developed or integrated by the Company
will meet the requirements of health care providers and achieve market
acceptance.
LONG SALES AND INSTALLATION CYCLES. The sales cycle for large scale clinical
information systems is lengthy. The Company's sales cycle is subject to delays
associated with the lengthy approval process that typically accompanies
significant capital expenditures, customer budgeting cycles and changes in
customer budgets, changes or the anticipation of changes in the regulatory
environment affecting healthcare organizations, changes in the customer's
strategic information system initiatives, competing information systems projects
within the customer organization, consolidation in the health care industry in
general, the highly sophisticated nature of the Company's products and
competition in the market for clinical information systems. Additionally, during
the sales process, the Company expends substantial time, effort and funds
preparing a contract proposal, demonstrating the system, arranging visits to
customer reference sites and negotiating the contract. For these and other
reasons, the Company's sales cycle is lengthy and the Company does not have the
ability to predict when or if the sales process with a prospective customer will
result in a signed contract.
The time required to fully implement the Company's systems can vary
significantly depending on the needs and skill sets of its customers. Full
implementation of an Oacis system typically requires nine to 18 months,
depending on a number of factors including the size of the customer, the system
licensed, the number of legacy systems to be interfaced, the degree of
customization requested by the customer and the customer's implementation
schedule. This period may be longer if unforeseen technical, integration or
other problems arise during the implementation process, if the Company has
insufficient trained installation personnel to handle several implementations
simultaneously, if the Company is unable to contract with third parties to
provide supplemental implementation resources, or if a customer decides to delay
the implementation schedule. Due to this long implementation cycle, the
Company's future results of operations depend in large part on maintaining
efficient and timely implementation procedures, particularly since a typical
system license and implementation contract is relatively large compared to the
Company's annual revenues. In addition, payments to the Company are dependent
upon achievement of certain implementation or software acceptance milestones,
the achievement of which can be dependent upon the customer and other
third-parties. If implementation is delayed, then payments and
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revenue recognition may also be delayed. Any failure by the Company to install
or implement its clinical information systems on a timely basis could have a
material adverse effect on the Company's business, financial condition and
results of operations.
INTERNATIONAL SALES. The Company has licensed clinical information systems to
customers located outside of the United States and expects to continue marketing
its systems to foreign customers. In 1995, revenues from international customers
were immaterial, however, revenues from international customers accounted for
approximately 4% and 16% of the total revenues in 1996 and 1997, respectively.
In the first nine months of 1998, international revenues accounted for 7% of
total revenues. Future international revenues will be primarily dependent on the
ability of the Company and its international partners to attain additional
international contracts, the timing and amount of such will continue to be
subject to variability.
POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS. The Company's quarterly
revenues and operating results have varied significantly in the past and are
likely to vary substantially from quarter to quarter in the future. Quarterly
revenues and operating results may fluctuate as a result of a variety of
factors, including the following: the Company's long sales cycle; demand for the
Company's systems, applications and services, including variability in demand,
orders for and shipment of hardware; increasing dependence on international
revenues; the number, timing and significance of announcements and releases of
system enhancements and new applications by the Company and its competitors; the
termination of, or a reduction in, offerings of the Company's systems,
applications and services; the loss of customers due to consolidation in the
health care industry; delays in installations requested by customers or caused
by other factors; the timing of revenue recognition; the amount of backlog at
the beginning of any particular quarter; customer budgeting cycles and changes
in customer budgets; investments by the Company in marketing, sales, research
and development, and administrative personnel necessary to support the Company's
anticipated operations; marketing and sales promotional activities; software
defects and other system quality factors; and general economic conditions. In
particular, the timing of revenue recognition can be affected by many factors,
including the timing of customer attainment of software acceptance or
installation milestones. As a result of the relatively large size of each
customer contract, combined with the Company's method of revenue recognition,
quarterly results are likely to be significantly affected by small changes in
the number of customer contracts in process during a particular quarter. There
can be no assurance that the Company will not experience delays in recognizing
revenue in the future, particularly considering the complexity and large scale
of installations of the Company's systems. In addition, since purchase of the
Company's systems generally involves a significant commitment of capital, any
downturn in any potential customer's business or the economy in general,
including changes in the health care market, could have a material adverse
effect on the Company's business, financial condition and results of operations.
Moreover, the Company's operating expense levels are relatively fixed and, to a
large degree, are based on anticipated revenues. If revenues are below
expectations, net income is likely to be disproportionately affected. Further,
it is likely that in some future quarter the Company's unit sales volume,
revenue, backlog or operating results will be below the expectations of public
market analysts and investors. In such event, the trading price of the Company's
Common Stock would likely be materially adversely affected.
HIGHLY COMPETITIVE MARKET. Competition in the market for clinical information
systems and services is intense and is expected to increase. The Company's
competitors include other providers of health care information systems and
services, and health care consulting firms. The Company's principal competitors
include 3M Health Information Systems, Cerner Corporation, HBO & Company,
HealthVISION, Inc. and Shared Medical Systems Corporation. Furthermore, other
major health care information companies not presently offering clinical
information systems may enter the Company's markets. Increased competition could
result in price reductions, reduced gross margins, and loss of market share, any
of which could materially adversely affect the Company's business, financial
condition and results of operations. In addition, many of the Company's
competitors and potential competitors have significantly greater financial,
technical, product development, marketing and other resources and market
recognition than the Company. Many of the Company's competitors also currently
have, or may develop or acquire, substantial installed customer bases in the
health care industry. As a result of these factors, the Company's competitors
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements or to devote greater resources to the development,
promotion and sale of their products than the Company. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, financial condition and results of
operations.
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NEED TO MANAGE CHANGING OPERATIONS; DEPENDENCE UPON KEY PERSONNEL. The
Company's anticipated future operations may place a strain on its management
systems and resources. The Company expects that it will be required to continue
to improve its financial and management controls, reporting systems and
procedures, and will need to expand, train and manage its work force. There can
be no assurance that the Company will be able to effectively manage these tasks,
and the failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company intends to
hire additional installation, research and development and sales personnel in
1998 and beyond. Competition for such personnel is intense and there can be no
assurance that the Company will be able to attract, assimilate or retain
additional highly qualified employees in the future. If the Company is unable to
hire and retain such personnel, particularly those in key positions, the
Company's business, financial condition and results of operations could be
materially adversely affected. The Company's future success also depends in
significant part upon the continued service of its executive officers and other
key sales, marketing, development and installation employees. The loss of the
services of any of its executive officers or other key employees could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has historically experienced turnover in
certain key positions of the Company and high turnover in general. Additions of
new and departures of existing personnel can be disruptive and could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company is seeking to supplement its service delivery
capability through partnerships with healthcare related consulting firms. There
can be no assurance that the Company will be successful in incorporating
third-party consulting services into its existing services operations. Failure
by the Company to incorporate third-party consulting services into its existing
services operations could have a material adverse affect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON THIRD PARTY PRODUCTS. The Company's systems are dependent upon
a number of third-party computer hardware and software products. There can be no
assurance that financial or other difficulties experienced by third-party
providers will not have an adverse impact upon the technologies incorporated by
the Company's systems, or that, if such technologies become unavailable, the
Company will be able to find suitable alternatives. In particular, both the
Gateway++ and Oacis Data Repository components of Oacis incorporate a Sybase
relational database. Any significant failure by Sybase to meet the Company's
database requirements could have a material adverse effect on the Company's
business, financial condition and results of operations. A decline in Sybase's
reputation could reduce the appeal of the Company's products to its potential
customers. Although the Company believes that it can port Oacis to other
relational database platforms, such efforts would require substantial time and
investment and would have an adverse affect on the Company's operations,
including its ability to complete other product development. In addition, Oacis
includes a number of embedded software products licensed from third parties.
Failure of such third parties to maintain or enhance their products could impair
the functionality of Oacis and could require the Company to obtain alternative
products from other sources or to develop such software internally, either of
which could involve costs and delays as well as diversion of engineering
resources. In addition, modifications or enhancements by these third-party
vendors often require that the Company modify its own software products to
operate with these enhancements or modifications. There can be no assurance that
the Company will be able to modify its own software to accommodate third-party
changes or that the effort to make such changes will not adversely affect the
Company's other development projects.
RISK OF SYSTEM DEFECTS; FAILURE TO MEET PERFORMANCE CRITERIA. Systems as
complex as those offered by the Company frequently contain errors or failures,
especially when first introduced or when new versions are released. Although the
Company conducts extensive testing, the Company has in the past released systems
that contain defects, has discovered software errors in certain of its
enhancements and applications after their introduction and, as a result, has
experienced delays in recognizing revenues and incurred higher than expected
operating expenses during certain periods in order to correct these errors. The
Company's systems are intended for use in a clinical health care setting, to
collect and display clinical information used in the diagnosis and treatment of
patients. As a result, the Company expects that its customers and potential
customers have a greater sensitivity to system defects than the market for
software products generally. In addition, customer contracts typically provide
that the Oacis system is warranted to meet certain performance criteria
concerning response time and system availability. The Company also will
generally recommend hardware configurations that it believes will be adequate to
achieve user acceptable response time performance and system availability.
Failure of a customer's system to meet these performance criteria could
constitute a material breach under such contracts, and could delay revenue
recognition and require that the Company incur additional expense in order to
make the system meet these performance criteria or to purchase additional
hardware where the recommended hardware configurations have been determined to
be inadequate. Although to date the Company has not experienced material adverse
effects resulting from any software errors or performance failures, there can be
no assurance that, despite testing by the Company and by current and potential
customers, errors or performance failures will not occur in new enhancements or
applications after commencement of commercial shipments, resulting in loss of
revenue or delay in market acceptance, diversion of development
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resources, damage to the Company's reputation, or increased service and warranty
costs, any of which could have a material adverse effect upon the Company's
business, financial condition and results of operations.
LIMITED PROPRIETARY RIGHTS; RISK OF INFRINGEMENT. The Company relies on a
combination of trade secrets, copyright and trademark laws, nondisclosure and
other contractual provisions to protect its proprietary rights. The Company has
not filed any patent applications covering its technology or registered any of
its copyrights with state or federal agencies. There can be no assurance that
measures taken by the Company to protect its intellectual property will be
adequate or that the Company's competitors will not independently develop
systems and services that are substantially equivalent or superior to those of
the Company. Substantial litigation regarding intellectual property rights
exists in the software industry, and the Company expects that software products
may be increasingly subject to third-party infringement claims as the number of
competitors in the Company's industry segment grows and the functionality of
systems overlap. Although the Company believes that its systems and applications
do not infringe upon the proprietary rights of third parties, there can be no
assurance that third parties will not assert infringement claims against the
Company in the future or that a license or similar agreement will be available
on reasonable terms in the event of an unfavorable ruling on any such claim. In
addition, any such claim may require the Company to incur substantial litigation
expenses or subject the Company to significant liabilities and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
PRODUCT LIABILITY AND MEDICAL MALPRACTICE. The Company's clinical information
systems provide clinical information used by clinicians in the diagnosis and
treatment of patients. Any failure by the Company's systems to provide accurate,
reliable and timely information, or to adequately protect the confidentiality of
the information, could result in claims against the Company. The Company
maintains insurance to protect against claims associated with the use of its
systems, but there can be no assurance that its insurance coverage would
adequately cover any claims asserted against the Company. A successful claim
brought against the Company in excess of its insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations. Even unsuccessful claims could result in the Company's
expenditure of funds in litigation and diversion of management time and
resources. There can be no assurance that the Company will not be subject to
product liability or medical malpractice claims that will result in liability in
excess of its insurance coverage, that the Company's insurance will cover such
claims or that appropriate insurance will continue to be available to the
Company in the future at commercially reasonable rates.
GOVERNMENT REGULATION. The United States Food and Drug Administration (the
"FDA") is responsible for assuring the safety and effectiveness of medical
devices under the Federal Food, Drug and Cosmetic Act. Computer products are
subject to regulation when they are used or are intended to be used in the
diagnosis of disease or other conditions, or in the cure, mitigation, treatment
or prevention of disease, or are intended to affect the structure or function of
the body. The FDA could determine in the future that predictive applications of
the Company's systems and applications make them clinical decision tools subject
to FDA regulation. Medical devices are subject to regulation by the FDA, which
requires, among other things, premarket notifications or approvals and
compliance with labeling, registration and listing requirements, good
manufacturing practices and records and reporting requirements. Compliance with
these regulations could be burdensome, time consuming and expensive. The Company
also could become subject to future legislation and regulations concerning the
manufacture and marketing of medical devices and health care software systems.
These could increase the cost and time necessary to market new products and
could affect the Company in other respects not presently foreseeable. The
Company cannot predict the effect of possible future legislation and regulation.
The confidentiality of patient records and the circumstances under which such
records may be released for inclusion in the Company's databases is subject to
substantial regulation by state governments. These state laws and regulations
govern both the disclosure and use of confidential patient medical record
information. Although compliance with these laws and regulations is principally
the responsibility of the hospital, physician or other health care provider with
access to the Company's information system, regulations governing patient
confidentiality rights are evolving rapidly. Additional legislation governing
the dissemination of medical record information has been proposed at both the
state and federal level. This legislation may require holders of such
information to implement security measures that may be of substantial cost to
the Company. There can be no assurance that changes to state or federal laws
will not materially restrict the ability of health care providers to submit
information from patient records to the Company's systems.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS. The Company may in the future
pursue acquisitions of complementary products, technologies or businesses.
Future acquisitions by the Company may result in potentially dilutive issuances
of equity securities, the incurrence of additional debt and amortization
expenses related to goodwill and other intangible assets,
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which could adversely affect the Company's results of operations. In addition,
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, products and personnel of the acquired company, the diversion
of management's attention from other business concerns, risks of entering
markets in which the Company has no direct prior experience, and the potential
loss of key employees of the acquired company. There can be no assurance that
the Company will ever successfully complete an acquisition.
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PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Pursuant to recent changes to the proxy rules, unless a stockholder who
wishes to bring a matter before the stockholders at the Company's 1999 Annual
Meeting of Stockholders notifies the Company of such matter prior to March 31,
1999, management will have discretionary authority to vote all shares for which
it has proxies in opposition to such matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<S> <C>
3.1(1) Certificate of Incorporation of Registrant
3.2(2) Bylaws of Registrant.
4.1(3) Form of Common Stock certificate.
10.1(4) 1996 Stock Plan and form of agreement thereunder.
10.2(3) 1996 Director Option Plan and form of option agreement thereunder.
10.3(5) 1996 Employee Stock Purchase Plan and form of subscription agreement
thereunder.
10.4(3) Form of Indemnification Agreement entered into between Registrant and
its directors and executive officers.
10.5(3) Restated Stockholders Agreement dated as of April 8, 1996 between the
Registrant and certain stockholders.
10.6(3) Lease dated August 30, 1990 for facilities located at 100 Drake's
Landing Road, Greenbrae, California, together with related expansion
and extension agreements and work agreements.
10.7(3) Lease dated July 10, 1992 for facilities located in Atlanta, Georgia,
together with an addendum thereto dated March 29, 1993.
10.8(3) Employment Agreement dated May 17, 1995 between Jim McCord and Oacis
Healthcare Systems, Inc., a wholly-owned subsidiary of the Registrant
("Subsidiary").
10.9(3) Master Lease Agreement and Equipment Schedule VL-1, each dated as of
March 1, 1996, between Comdisco, Inc. and Subsidiary.
10.11(3) Standard form of Software License Agreement for the Oacis System.
10.12(6) Lease dated March 19, 1997 for Facility located at 1101 5th Avenue,
San Rafael, Marin County, California 10.13 Promissory Note dated June
2, 1998 for line of credit extended to Oacis Healthcare Systems, Inc.
(Debtor) by Union Bank of California, N.A. previously filed with the
Company's Form 10-Q for the quarterly period ended June 30, 1998.
10.13 Promissory Note dated June 2, 1998 between Oacis Healthcare Holdings
Corp. (Debtor) and Union Bank of California, N.A. previously filed
with the Company's Form 10-Q for the quarterly period ended June 30,
1998.
10.14 Security Agreement dated June 2, 1998 between Oacis Healthcare
Holdings Corp. (Debtor) and Union Bank of California, N.A. previously
filed with the Company's Form 10-Q for the quarterly period ended June
30, 1998.
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
10.15 Master Lease Agreement dated as of September 1, 1998, between
Varilease Corporation and Oacis Healthcare Holdings Corp. attached
hereto.
21.1(3) Subsidiaries of the Registrant.
27.1 Financial Data Schedule (electronic version only)
</TABLE>
- - ----------
(1) Incorporated by reference to Exhibit 3.2 previously filed with the Company's
Registration Statement on Form SB-2 (No. 333-02804-LA).
(2) Incorporated by reference to Exhibit 3.3 previously filed with the Company's
Registration Statement on Form SB-2 (No. 333-02804-LA).
(3) Incorporated by reference to the same numbered exhibit previously filed with
the Company's Registration Statement on Form SB-2 (No. 333-02804-LA).
(4) Incorporated herein by reference to the Company's 1996 Stock Plan, as filed
with the Commission on April 30, 1998 with the Company's definitive proxy
statement for its 1998 Annual Meeting of Stockholders and to the form of
agreement thereunder, as previously filed as Exhibit 10.1 with the Company's
Registration Statement on Form SB-2 (No. 333-02804-LA).
(5) Incorporated herein by reference to the Company's 1996 Employee Stock
Purchase Plan and form of subscription agreement thereunder, as filed with
the Commission on April 30, 1997 with the Company's definitive proxy
statement for its 1997 Annual Meeting of Stockholders.
(6) Incorporated by reference to the same numbered exhibit previously filed with
the Company's Form 10-KSB for the year ended December 31, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three months
ended September 30, 1998.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OACIS HEALTHCARE HOLDINGS CORP.
(Registrant)
Date November 16, 1998 /s/ Stephen F. Ghiglieri
----------------- --------------------------------------------
Stephen F. Ghiglieri Vice President,
Finance and Administration,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
Date November 16, 1998 /s/ Jim McCord
----------------- --------------------------------------------
Chairman and Chief Executive Officer
(Principal Executive Officer)
21
<PAGE> 1
EXHIBIT 10.15
EXHIBIT A
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT ("Master Agreement") made as of September 1, 1998,
between VARILEASE CORPORATION, a Michigan corporation, having its chief
executive offices at 28525 Orchard Lake Road, Farmington Hills, MI 48334
("Lessor") and Oacis Healthcare Holdings Corporation, a Delaware corporation
having its chief executive offices at 300 Drake's Landing Road, Suite 1000
("Lessee").
1. LEASE
On the terms and conditions of this Master Agreement, Lessor shall lease to
Lessee, and Lessee shall hire from Lessor, the items of personal property
described in the Schedule(s) (collectively the "Equipment", and individually an
"Item") which shall incorporate this Master Agreement. Each Schedule shall
constitute a separate and independent lease and contractual obligation of
Lessee. The term "Lease" shall refer to an individual Schedule which
incorporates this Master Agreement. In the event of a conflict between this
Master Agreement and any Schedule, the language of the Schedule shall prevail.
The Lease shall be effective upon execution by Lessor at its offices.
2. TERM
(a) The term of the Lease shall be comprised of a Delivery Term,
Installation Term and Base Term. The Delivery Term for each Item shall
commence on the date the Item is delivered to Lessee and shall end on
the Installation Date. The Installation Term shall commence on the
Installation Date and terminate on the first day of the month following
the Installation Date for the last Item to be installed (the "Base Term
Commencement Date"). The Base Term of the Lease shall begin on the Base
Term Commencement Date, and may, subject to Subsection 2(b), terminate
on the last day of the last month of the Base Term. The date of
installation (the "Installation Date") for any Item shall be the earlier
of either (i) the date on which the entity responsible for installing
such Item certifies that the Item is installed and placed in good
working order, or (ii) if Lessee has caused a delay in the installation
of an Item, seven days from the date the Item is delivered to the
equipment location specified in the Schedule, or (iii) if Lessee is to
install the Item, the third day after delivery. In the event the
Equipment is already installed at the equipment location of Lessee and
has been previously paid for by Lessee, the Installation Date shall be
the date on which the Lessor pays Lessee for the Equipment.
(b) A Lease may be terminated as of the last day of the last month of the
Base Term by written notice given by either Lessor or Lessee not less
than six (6) months prior to the date of termination of the Base Term.
If the Lease is not so terminated at the end of the Base Term, the Base
Term shall be automatically extended for successive six (6) month
periods until such six (6) month notice is given. The Base Monthly
Rental, as hereinafter defined, shall continue to be due and payable by
Lessee until the Equipment is redelivered to Lessor upon the termination
of the Base Term or any extension term, and throughout any such
extension term(s). No notice of termination may be revoked without the
written consent of the other party.
3. RENTAL
(a) The rental amount payable to Lessor by Lessee for the Equipment will be
as set forth on the Schedule ("Base Monthly Rental"). As rent for
Equipment, Lessee shall pay Lessor in immediately available funds and in
advance on the Base Term Commencement Date and on the first day of each
month during the Base Term of the Lease the Base Monthly Rental, per
month, and (ii) on the Installation Date an amount equal to 1/30th of
the Base Monthly Rental for each Item times the number of days which
will elapse from the Installation Date of such Item to the Base Term
Commencement Date of the Lease. Each remittance from Lessee to Lessor
shall contain information as to the Lease for which payment is made.
(b) For any payment of rent or other amount due under a Lease which is past
due for more than five (5) days, interest shall accrue at the rate of 2%
per month, from the date such payment was due until payment is received
by Lessor, or if such rate shall exceed the maximum rate of interest
allowed by law, then at such maximum rate.
4. TAXES
Lessee shall reimburse Lessor for (or pay directly, but only if instructed by
Lessor) all taxes, fees, and assessments that may be imposed by any taxing
authority on the Equipment, on its purchase, ownership, delivery, possession,
operation, rental, return to Lessor or its purchase by Lessee (collectively,
Taxes); provided, however, that Lessee shall not be liable for any such Taxes
(whether imposed by the United States of America or by any other domestic or
foreign taxing authority) imposed on or measured by Lessor's net income or tax
preference items. Lessee's obligation includes, but is not limited to, the
obligation to pay all license and registration fees and all sales, use, personal
property, recordation and other
23
<PAGE> 2
taxes and governmental charges, together with any penalties, fines and interest
thereon, that may be imposed during the Base Term of the applicable Schedule.
Lessor shall report and file any and all Taxes and shall invoice Lessee for
same. Lessee shall promptly reimburse Lessor for all Taxes and hold Lessor
harmless with respect to any non-payment thereof.
5. NET LEASE
The Lease is a net lease, it being the intention of the parties that all costs,
expenses and liabilities associated with the Equipment or its lease shall be
borne by Lessee. Lessee's agreement to pay all obligations under the Lease,
including but not limited to Base Monthly Rental, is absolute and unconditional
and such agreement is for the benefit of Lessor and its Assignee(s). Lessee's
obligations shall not be subject to any abatement, deferment, reduction, setoff,
defense, counterclaim or recoupment for any reason whatsoever. Except as may be
otherwise expressly provided in the Lease, it shall not terminate, nor shall the
obligations of Lessee be affected by reason of any defect in or damage to, or
any loss or destruction of, or obsolescence of, the Equipment or any Item from
any cause whatsoever, or the interference with its use by any private person,
corporation or governmental authority, or as a result of any war, riot,
insurrection or an Act of God. It is the express intention of Lessor and Lessee
that all rent and other sums payable by Lessee under the Lease shall be, and
continue to be, payable in all events throughout the term of the Lease. The
Lease shall be binding upon the Lessee, its successors and permitted assigns and
shall inure to the benefit of Lessor and its Assignee(s).
6. INSTALLATION, RETURN AND USE OF EQUIPMENT
(a) Upon delivery of the Equipment to Lessee, Lessee shall pay all
transportation, installation, rigging, packing and insurance charges
with respect to the Equipment. In the case of a sale and leaseback
transaction, Lessee shall, upon the request of Lessor, certify the date
the Equipment was first put into use. Lessee will provide the required
electric current and a suitable place of installation for the Equipment
with all appropriate facilities as specified by the manufacturer. No
cards, tapes, disks, data cells or other input/output and storage media
may be used by Lessee to operate any Item unless it meets the
specifications of the manufacturer. Lessee agrees that it will not
install, or permit the installation of, the Equipment without Lessor's
consent.
(b) Lessee shall, at all times during the term of the Lease, be entitled to
unlimited use of the Equipment. Lessee will at all times keep the
Equipment in its sole possession and control. The Equipment shall not be
moved from the location stated in the Schedule without the prior written
consent of Lessor and in no event shall the Equipment be moved outside
the continental, contiguous United States. Lessee will comply with all
laws, regulations, and ordinances, and all applicable requirements of
the manufacturer of the Equipment which apply to the physical
possession, use, operation, condition, and maintenance of the Equipment.
Lessee agrees to obtain all permits and licenses necessary for the
operation of the Equipment.
(c) Lessee shall not without the prior written consent of Lessor, affix or
install any accessory, feature, equipment or device to the Equipment or
make any improvement, upgrade, modification, alteration or addition to
the Equipment (any such accessory, feature, equipment, device or
improvement, upgrade, modification, alteration or addition affixed or
installed is an "Improvement"). Title to all Improvements shall, without
further act, upon the making, affixing or installation of such
Improvement, vest solely in Lessor, except such Improvements as may be
readily removed without causing material damage to the Equipment and
without in any way affecting or impairing the originally intended
function, value or use of the Equipment. Removal of the Improvement
shall be performed by the manufacturer, at the sole expense of Lessee.
Provided the Equipment is returned to Lessor in the condition required
by the Lease, including, but not limited to coverage under the
manufacturer's standard maintenance contract, title to the Improvement
shall vest in the Lessee upon removal. Any Improvement not removed from
the Equipment prior to return shall at Lessor's option remain the
property of Lessor and shall be certified for maintenance by the
manufacturer, at Lessee's expense.
Lessee shall notify Lessor in writing no less than 60 days prior to the
desired installation date of the type of Improvement Lessee desires to
obtain. Lessor may, at any time within 10 days after receipt of the
notice offer to provide the Improvement to Lessee upon terms and
conditions to be mutually agreed upon. Lessee shall notify Lessor of any
third party offers and shall lease the Improvement from Lessor if Lessor
meets the terms of the third party offer.
If Lessee leases an Improvement from Lessor, such lease shall be under a
separate Schedule, the Improvement shall not be placed in service by
Lessee prior to acquisition by Lessor, and Lessee shall execute and
deliver any document necessary to vest title to such Improvement in
Lessor.
During the term of the Lease term and any renewal term, Lessee shall
cause all Improvements to be maintained, at Lessee's expense, in
accordance with the requirements of Section 7. Unless otherwise agreed
to by Lessor, upon the expiration or earlier termination of the term of
the Lease, any Improvement shall be de-installed and removed from the
Equipment by the manufacturer, at Lessee's expense. If the Improvement
is removed, the Equipment shall be restored to its unmodified condition
and shall be certified for maintenance by the manufacturer, at Lessee's
expense.
24
<PAGE> 3
In the event an Improvement is provided to Lessee by a party other than
Lessor, Lessee shall cause such party to execute and deliver to Lessor
such documents as shall be required by Lessor to protect the interests
of Lessor and any Assignee in the Equipment, this Master Agreement and
any Schedule.
(d) Lessee shall, at the termination of the Lease, at its expense,
de-install, pack and return the Equipment to Lessor at such location
within the continental United States as shall be designated by Lessor in
the same operating order, repair, condition and appearance as of the
Installation Date, reasonable wear and tear excepted, with all current
engineering changes prescribed by the manufacturer of the Equipment or a
maintenance contractor approved by Lessor (the "Maintenance
Organization") incorporated in the Equipment. Until the return of the
Equipment to Lessor, Lessee shall be obligated to pay the Base Monthly
Rental and all other sums due under the Lease. Upon redelivery to
Lessor, Lessee shall arrange and pay for such repairs (if any) as are
necessary for the manufacturer of the Equipment to accept the Equipment
under a maintenance contract at its then standard rates.
7. MAINTENANCE AND REPAIRS
Lessee shall, during the term of the Lease, maintain in full force and effect a
contract with the manufacturer of the Equipment or Maintenance Organization
covering at least prime shift maintenance of the Equipment. Lessee upon request
shall furnish Lessor with a copy of such maintenance contract as amended or
supplemented. During the term of the Lease, Lessee shall, at its expense, keep
the Equipment in good working order, repair, appearance and condition and make
all necessary adjustments, repairs and replacements, all of which shall become
the property of Lessor. Lessee shall not use or permit the use of the Equipment
for any purpose for which, in the opinion of the manufacturer of the Equipment
or Maintenance Organization, the Equipment is not designed or intended.
8. OWNERSHIP, LIENS AND INSPECTIONS
(a) Lessee shall keep the Equipment free from any marking or labeling which
might be interpreted as a claim of ownership by Lessee or any party
other than Lessor and its Assignee(s), and shall affix and maintain
tags, decals or plates furnished by Lessor on the Equipment indicating
ownership and title to the Equipment in Lessor or its Assignee(s). Upon
reasonable notice to Lessee, Lessor or its agents shall have access to
the Equipment and Lessee's books and records with respect to the Lease
and the Equipment at reasonable times for the purpose of inspection and
for any other purposes contemplated by the Lease, subject to the
reasonable security requirements of Lessee.
(b) Lessee shall execute and deliver such instruments, including Uniform
Commercial Code financing statements, as are required to be filed to
evidence the interest of Lessor and its Assignee(s) in the Equipment or
the Lease. Lessee has no interest in the Equipment except as expressly
set forth in the Lease, and that interest is a lease-hold interest.
Lessor and Lessee agree, and Lessee represents for the benefit of Lessor
and its Assignee(s) that the Lease is intended to be a "finance lease"
and not a "lease intended as security " as those terms are used in the
Uniform Commercial Code; and that the Lease is intended to be a "true
lease" as the term is commonly used under the Internal Revenue Code of
1986, as amended.
(c) LESSEE SHALL KEEP THE LEASE, THE EQUIPMENT AND ANY IMPROVEMENTS FREE AND
CLEAR OF ALL LIENS AND ENCUMBRANCES OF WHATSOEVER KIND (EXCEPT THOSE
CREATED BY LESSOR) AND LESSEE SHALL NOT ASSIGN THE LEASE OR ANY OF ITS
RIGHTS UNDER THE LEASE OR SUBLEASE ANY OF THE EQUIPMENT OR GRANT ANY
RIGHTS TO THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. No
permitted assignment or sublease shall relieve Lessee of any of its
obligations under the Lease and Lessee agrees to pay all costs and
expenses Lessor may incur in connection with such sublease or
assignment. Lessee grants to Lessor the right of first refusal on any
sublease or other grant of Lessee's rights to the Equipment.
9. DISCLAIMER OF WARRANTIES
(a) LESSOR LEASES THE EQUIPMENT "AS IS," AND BEING NEITHER THE MANUFACTURER
OF THE EQUIPMENT NOR THE AGENT OF EITHER THE MANUFACTURER OR SELLER,
LESSOR DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR
IMPLIED, WITH RESPECT TO THE CONDITION OR PERFORMANCE OF THE EQUIPMENT,
ITS MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WITH RESPECT
TO PATENT INFRINGEMENTS OR THE LIKE. LESSOR SHALL HAVE NO LIABILITY TO
LESSEE FOR ANY CLAIM, LOSS OR DAMAGE OF ANY KIND OR NATURE WHATSOEVER,
NOR SHALL THERE BE ANY ABATEMENT OF RENTAL FOR ANY REASON INCLUDING
CLAIMS ARISING OUT OF OR IN CONNECTION WITH (i) THE DEFICIENCY OR
INADEQUACY OF THE EQUIPMENT FOR ANY PURPOSE, WHETHER OR NOT KNOWN OR
DISCLOSED TO LESSOR, (ii) ANY DEFICIENCY OR DEFECT IN THE EQUIPMENT,
(iii) THE USE OR PERFORMANCE OF THE EQUIPMENT, OR (iv) ANY LOSS OF
BUSINESS OR OTHER CONSEQUENTIAL LOSS OR DAMAGE, WHETHER OR NOT RESULTING
FROM ANY OF THE FOREGOING.
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<PAGE> 4
(b) For the term of the Lease, Lessor assigns to Lessee (to the extent
possible), and Lessee may have the benefit of, any and all
manufacturer's warranties, service agreements and patent indemnities, if
any, with respect to the Equipment; provided, however, that Lessee's
sole remedy for the breach of any such warranty, indemnification or
service agreement shall be against the manufacturer of the Equipment and
not against Lessor, nor shall any such breach have any effect whatsoever
on the rights and obligations of Lessor or Lessee with respect to the
Lease.
(c) NO REPRESENTATIONS OR WARRANTIES OF THE MANUFACTURER OR DISTRIBUTOR OF
THE EQUIPMENT, OR ANY OTHER THIRD PARTY, CAN BIND LESSOR, AND LESSEE
ACKNOWLEDGES AND AGREES THAT LESSOR SHALL HAVE NO OBLIGATIONS WITH
RESPECT TO THE EQUIPMENT EXCEPT AS SPECIFICALLY SET FORTH HEREIN OR
OTHER DOCUMENT EXECUTED BY LESSOR.
10. ASSIGNMENT
(a) Lessee acknowledges and understands that Lessor may assign to a
successor, financing lender and/or purchaser (the "Assignee"), all or
any part of the Lessor's right, title and interest in and to the Lease
and the Equipment and Lessee hereby consents to such assignment(s). In
the event Lessor transfers or assigns, or retransfers or reassigns, to
an Assignee all or part of Lessor's interest in the Lease, the Equipment
or any sums payable under the Lease, whether as collateral security for
loans or advances made or to be made to Lessor by such Assignee or
otherwise, Lessee covenants that, upon receipt of notice of any such
transfer or assignment and instructions from Lessor,
(i) Lessee shall, if so instructed, pay and perform its obligations
under the Lease to the Assignee (or to any other party designated
by Assignee), and shall not assign the Lease or any of its rights
under the Lease or permit the Lease to be amended, modified, or
terminated without the prior written consent of Assignee; and
(ii) Lessee's obligations under the Lease with respect to Assignee
shall be absolute and unconditional and not be subject to any
abatement, reduction, recoupment, defense, offset or counterclaim
for any reason, alleged or proven, including, but not limited to,
defect in the Equipment, the condition, design, operation or
fitness for use of the Equipment or any loss or destruction or
obsolescence of the Equipment or any part, the prohibition of or
other restrictions against Lessee's use of the Equipment, the
interference with such use by any person or entity, any failure
by Lessor to perform any of its obligations contained in the
Lease, any insolvency or bankruptcy of Lessor, or for any other
cause; and
(iii) Lessee shall, upon request of Lessor, submit documents and
certificates as may be reasonably required by Assignee to secure
and complete such transfer or assignment, including but not
limited to the documents set forth in Section 15(c) of this
Master Agreement.
(iv) Lessee shall deliver to Assignee copies of any notices which are
required under the Lease to be sent to Lessor; and
(v) Lessee shall, if requested, restate to Assignee the
representations, warranties and covenants contained in the Lease
(upon which Lessee acknowledges Assignee may rely) and shall make
such other representations, warranties and covenants to Assignee
as may be reasonably required to give effect to the assignment.
(b) Lessor shall not make an assignment or transfer to any Assignee who
shall not agree that, so long as Lessee is not in default under the
Lease, such Assignee shall take no action to interfere with Lessee's
quiet enjoyment and use of the Equipment in accordance with the terms of
the Lease. No such assignment or conveyance shall relieve Lessor of its
obligations under the Lease and Lessee agrees it shall not look to any
Assignee to perform any of Lessor's obligations under the Lease. No such
assignment shall increase Lessee's obligations nor decrease Lessee's
rights hereunder.
11. QUIET ENJOYMENT
Lessor covenants that so long as Lessee is not in default under a Lease, Lessor
shall take no action to interfere with Lessee's possession and use of the
Equipment subject to and in accordance with the provisions of the Lease.
12. INDEMNIFICATION
Except for the sole and gross negligence or willful misconduct of Lessor or
Assignee, Lessee shall and does agree to indemnify, protect, defend, save and
keep harmless Lessor and its Assignee(s) from and against any and all
liabilities, obligations, losses, damages, penalties, claims, actions, suits,
costs, or expenses of any kind and nature whatsoever, including but not limited
to attorneys fees, including without limitation
26
<PAGE> 5
attorneys fees in connection with the enforcement of this indemnification, which
may be imposed upon, incurred by or asserted against Lessor or its Assignee(s)
in any way relating to or arising out of the Lease, the manufacture, ownership,
lease, possession, use, condition, operation, or accident in connection with the
Equipment (including, without limitation, those claims based on latent and other
defects, whether or not discoverable, or claims based on strict liability, or
any claim for patent, trademark or copyright infringement). Lessor's rights
arising from this Section shall survive the expiration or other termination of
the Lease. Nothing in this Section shall limit or waive any right of Lessee to
proceed against the manufacturer of the Equipment.
13. RISK OF LOSS
(a) Lessee assumes and shall bear the entire risk of loss and damage,
whether or not insured against, of the Equipment from any and every
cause whatsoever as of the date the Equipment is delivered to Lessee.
(b) In the event of loss or damage of any kind to any Item, Lessee shall use
all reasonable efforts to place the Item in good repair, condition and
working order to the reasonable satisfaction of Lessor within sixty (60)
days of such loss or damage, unless the manufacturer of the Equipment
determines that such Item has been irreparably damaged, in which case
Lessee shall, within ten (10) days of the manufacturer's determination
of irreparable loss, make its election to either pay Lessor the
Stipulated Loss Value (as set forth in Attachment A to this Master
Agreement) for the irreparably damaged Item or replace the irreparably
damaged Item, all as provided in this Section. To the extent that the
Item is damaged but not irreparably damaged and if Lessee is entitled,
pursuant to the insurance coverage, to obtain proceeds from such
insurance for the repair of the Item, Lessee (provided no Event of
Default has occurred under the Lease) may arrange for the disbursement
of such proceeds to the manufacturer or other entity approved by Lessor
to perform the repairs to pay the cost of repair. However, Lessee's
obligation to timely repair the damaged Item is not contingent upon
receipt of such insurance proceeds.
(c) In the event that Lessee elects to pay Lessor the Stipulated Loss Value
for the irreparably damaged Item, Lessee shall (i) pay such amount
(computed as of the first day of the month following the determination
of the irreparable damage by the manufacturer) to Lessor on the first
day of the month following the election by Lessee as provided in (b)
above, (ii) pay all Base Monthly Rental for the Item up to the date that
the Stipulated Loss Value is paid to Lessor; and (iii) arrange with the
applicable insurance company (with the consent of Lessor) for the
disposition of the irreparably damaged Item. If not all the Equipment is
irreparably damaged, the Value for Calculation of Stipulated Loss Value
("Value") as set forth on the Schedule for the irreparably damaged Item
shall be multiplied by the applicable percentage set forth in Attachment
A to compute the Stipulated Loss Value for such irreparably damaged
Item, and the Base Monthly Rental for the undamaged Equipment remaining
due (after payment of the Stipulated Loss Value for the irreparably
damaged Item) shall be that amount resulting from multiplying the
original Base Monthly Rental by the ratio of the Value of the undamaged
Equipment divided by the Value for all the Equipment prior to the
damage.
(d) If Lessee elects to replace the irreparably damaged Item, Lessee shall
continue all payments under the Lease without interruption, as if no
such damage, loss or destruction had occurred, and shall replace such
irreparably damaged Item, paying all such costs, associated with the
replacement, and Lessee shall be entitled to insurance proceeds up to
the amount expended by Lessee in effecting the replacement. Lessee shall
within twenty (20) days following the date of determination of
irreparable damage by the manufacturer, effect the replacement by
replacing the irreparably damaged Item with a "Replacement Item" so that
Lessor has good, marketable and unencumbered title to such Replacement
Item. The Replacement Item shall have a fair market value equal to or
greater than the Item replaced, and anticipated to have a fair market
value at the expiration of the Base Term equal to the fair market value
that the replaced Item would have had at the end of the Base Term, and
be the same manufacture, model and type and of at least equal capacity
to the Item for which the replacement is being made. Upon delivery, such
Replacement Item shall become subject to all of the terms and conditions
of the Lease. Lessee shall execute all instruments or documents
necessary to effect the foregoing.
(e) For purposes of this Lease, the term "fair market value" shall mean the
price of the Equipment delivered and installed at Lessee's location that
would be obtained in an arm's-length transaction between an informed and
willing buyer-lessee under no compulsion to buy or lease and an informed
and willing seller-lessor under no compulsion to sell or lease. If
Lessor and Lessee are unable to agree upon fair market value, such value
shall be determined, at Lessee's expense, in accordance with the
foregoing definition, by three independent appraisers, one to be
appointed by Lessee, one to be appointed by Lessor and the third to be
appointed by the first two.
14. INSURANCE
During the term of the Lease, Lessee, at its own expense, shall maintain in
regard to the Equipment all risk insurance (in an amount not less than the
Stipulated Loss Value as identified on Attachment A) and comprehensive public
liability insurance in amounts and with carriers reasonably satisfactory to
Lessor. Any such insurance shall name Lessor and the Assignee(s) as additional
insured and, as for the all risk insurance, loss payees as their interests may
appear. All such insurance shall provide that it may not be terminated, canceled
or altered without at least thirty
27
<PAGE> 6
(30) days' prior written notice to Lessor and its Assignee(s). Coverage afforded
to Lessor shall not be rescinded, impaired, or invalidated by any act or neglect
of Lessee. Lessee agrees to supply to Lessor, upon request, evidence of such
insurance.
15. REPRESENTATIONS AND WARRANTIES OF LESSEE; FINANCIAL STATEMENTS
(a) Lessee represents and warrants to Lessor and its Assignee(s) (i) that
the execution, delivery and performance of this Master Agreement and the
Lease was duly authorized and that upon execution of this Master
Agreement and the Lease by Lessee and Lessor, the Master Agreement and
the Lease will be in full force and effect and constitute a valid legal
and binding obligation of Lessee, and enforceable against Lessee in
accordance with their respective terms; (ii) the Equipment is accurately
described in the Lease and all documents of Lessee relating to the
Lease; (iii) that Lessee is in good standing in the jurisdiction of its
incorporation and in any jurisdiction in which any of the Equipment is
located; (iv) that no consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of, any
state, federal or other government authority or agency is required with
respect to the execution, delivery and performance by the Lessee of this
Master Agreement or the Lease or, if any such approval, notice,
registration or action is required, it has been obtained; (v) that the
entering into and performance of this Master Agreement and the Lease
will not violate any judgment, order, law or regulation applicable to
Lessee or any provision of Lessee's Articles of Incorporation or Bylaws
or result in any breach of, or constitute a default under, or result in
the creation of any lien, charge, security interest or other encumbrance
upon any assets of Lessee or upon the Equipment pursuant to any
instrument to which Lessee is a party or by which it or its property may
be bound; (vi) there are no actions, suits or proceedings pending, or to
the knowledge of Lessee, threatened, before any court or administrative
agency, arbitrator or governmental body which will, if determined
adversely to Lessee, materially adversely affect its ability to perform
its obligations under the Lease or any related agreement to which it is
a party; (vii) that aside from the Master Agreement and the Lease there
are no additional agreements between Lessee and Lessor relating to the
Equipment, and (viii) that any and all financial statements and other
information with respect to Lessee supplied to Lessor at the time of
execution of the Lease and any amendment, are true and complete. The
foregoing representations and warranties shall survive the execution and
delivery of the Lease and any amendments hereto and shall upon the
written request of Lessor, be made to Lessor's Assignee(s).
(b) Prior to and during the term of the Lease, Lessee will furnish Lessor
with Lessee's audited financial statements. If Lessee is a subsidiary of
another company, Lessee shall supply such company's financial statements
and guarantees as are reasonably acceptable to Lessor. Lessor's
obligations to perform under any Lease is subject to the condition that
the financial statements furnished to Lessor by Lessee present the
financial condition and results of operations of Lessee and its
affiliated corporations, if any, and any guarantor of Lessee's
obligations under any Lease, as of the date of such financial
statements, and that since the date of such statements there have been
no material adverse changes in the assets or liabilities, the financial
condition or other condition which in Lessor's or Assignee(s) sole
discretion are deemed to be materially adverse. Lessee shall also
provide Lessor with such other statements concerning the Lease and the
condition of the Equipment as Lessor may from time to time request.
(c) Upon Lessor's request, Lessee shall, with respect to each Lease, deliver
to Lessor (i) a certificate of a secretarial officer of Lessee
certifying the bylaw, resolution (specific or general) or corporate
action authorizing the transactions contemplated in the Lease; (ii) an
incumbency certificate certifying that the person signing this Master
Agreement and the Lease holds the office the person purports to hold and
has authority to sign on behalf of Lessee; (iii) an opinion of Lessee's
counsel with respect to the representations in Section 15(a); (iv) an
agreement with Lessor's Assignee with regard to any assignment as
referred to in Section 10; (v) the purchase documents if Lessee has sold
or assigned its interest in the Equipment to Lessor; (vi) an insurance
certificate evidencing the insurance provided by Lessee pursuant to
Section 14; and (vii) an Installation Certificate duly executed by
Lessee. Failure by Lessee to deliver any of these documents when due
shall operate, at Lessor's option, to continue the Installation Term for
the Lease thus delaying the Base Term Commencement Date, or to increase
the Base Monthly Rental to recover costs incurred by Lessor consequent
to the delay or the termination of the Lease as provided in Section 16.
16. DEFAULT, REMEDIES
(a) The following shall be deemed "Events of Default" under the Lease:
(1) Lessee fails to pay any installment of rent or other charge or
amount due under the Lease within ten (10) days after notice that
such payment is overdue; or
(2) Except as expressly permitted in the Lease, Lessee attempts to
remove, sell encumber, assign or sublease or fails to insure any
of the Equipment, or fails to deliver any documents required of
Lessee under the Lease; or
(3) Any representation or warranty made by Lessee or Lessee's
guarantor in the Lease or any document supplied in connection
with the Lease or any financial statement is misleading or
materially inaccurate; or
28
<PAGE> 7
(4) Lessee fails to observe or perform any of the other obligations
required to be observed by Lessee under the Lease within thirty
(30) days of Lessee's first knowledge of such failure; or
(5) Lessee or Lessee's guarantor ceases doing business as a going
concern; makes an assignment for the benefit of creditors; admits
in writing its inability to pay its debts as they become due;
files a voluntary petition in bankruptcy; is adjudicated a
bankrupt or an insolvent; files a petition seeking for itself any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any present
or future statute, law or regulation or files an answer admitting
or fails to deny the material allegations of a petition filed
against it in any such proceeding; consents to or acquiesces in
the appointment of a trustee, receiver, or liquidator for it or
of all or any substantial part of its assets or properties, or if
it or its trustee, receiver, liquidator or shareholders shall
take any action to effect its dissolution or liquidation; or
(6) If within thirty (30) days after the commencement of any
proceedings against Lessee or Lessee's guarantor seeking
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceedings shall not
have been dismissed, or if within thirty (30) days after the
appointment (with or without Lessee's or Lessee's guarantor's
consent) of any trustee, receiver or liquidator of it or all of
or any substantial part of its respective assets and properties,
such appointment shall not be vacated.
(b) Upon the happening of any Event of Default, Lessor may declare the
Lessee to be in default. Lessee authorizes Lessor at any time
thereafter, with or without terminating the Lease, to enter any premises
where the Equipment may be and take possession of the Equipment. Lessee
shall, upon such declaration of default, without further demand,
immediately pay Lessor an amount which is equal to (i) any unpaid amount
due on or before Lessor declared the Lease to be in default, plus (ii)
as liquidated damages for loss of a bargain and not as a penalty, an
amount equal to the Stipulated Loss Value for the Equipment computed as
of the date the last Base Monthly Rental payment was due prior to the
date Lessor declared the Lease to be in default, together with interest,
as provided herein, plus (iii) all attorney and court costs incurred by
Lessor relating to the enforcement of its rights under the Lease. After
an Event of Default, at the request of Lessor and to the extent
requested by Lessor, Lessee shall immediately comply with the provisions
of Section 6(d) and Lessor may sell the Equipment at private or public
sale, in bulk or in parcels, with or without notice, without having the
Equipment present at the place of sale; or Lessor may lease, otherwise
dispose of or keep idle all or part of the Equipment, subject, however,
to its obligation to mitigate damages. The proceeds of sale, lease or
other disposition, if any, of the Equipment shall be applied: (1) to all
Lessor's costs, charges and expenses incurred in taking, removing,
holding, repairing and selling, leasing or otherwise disposing of the
Equipment including attorney fees; then (2) to the extent not previously
paid by Lessee, to pay Lessor the Stipulated Loss Value for the
Equipment and all other sums owed by Lessee under the Lease, including
any unpaid rent which accrued to the date Lessor declared the Lease to
be in default and indemnities then remaining unpaid under the Lease;
then (3) to reimburse to Lessee Stipulated Loss Value previously paid by
Lessee as liquidated damages; and (4) any surplus shall be retained by
Lessor. Lessee shall pay any deficiency in (1) and (2) immediately. The
exercise of any of the foregoing remedies by Lessor shall not constitute
a termination of the Lease unless Lessor so notifies Lessee in writing.
Lessor may also proceed by appropriate court action, either at law or in
equity to enforce performance by Lessee of the applicable covenants of
the Lease or to recover damages for the breach of the Lease.
(c) The waiver by Lessor of any breach of any obligation of Lessee shall not
be deemed a waiver of any future breach of the same or any other
obligation. The subsequent acceptance of rental payments under the Lease
by Lessor shall not be deemed a waiver of any such prior existing breach
at the time of acceptance of such rental payments. The rights afforded
Lessor under Section 16 shall be cumulative and concurrent and shall be
in addition to every other right or remedy provided for the Lease or now
or later existing in law (including as appropriate all the rights of a
secured party or lessor under the Uniform Commercial Code) or in equity
and Lessor's exercise or attempted exercise of such rights or remedies
shall not preclude the simultaneous or later exercise of any or all
other rights or remedies.
(d) In the event Lessee shall fail to perform any of its obligations under
the Lease, then Lessor may perform the same, but shall not be obligated
to do so, at the cost and expense of Lessee. In any such event, Lessee
shall promptly reimburse Lessor for any such costs and expenses incurred
by Lessor.
17. LESSOR'S TAX BENEFITS
Lessee acknowledges that Lessor shall be entitled to claim all tax benefits,
credits and deductions related to the Equipment for federal income tax purposes
including, without limitation: (i) deductions on Lessor's cost of the Equipment
for each of its tax years during the term of the Lease under any method of
depreciation or other cost recovery formula permitted by the Internal Revenue
Code of 1986, as amended (hereinafter called the "Code"), and (ii) interest
deductions as permitted by the Code on the aggregate interest paid to any
Assignee (hereinafter collectively "Lessor's Tax Benefits"). Lessee agrees to
take no action inconsistent (including the voluntary substitution of Equipment)
with the foregoing or
29
<PAGE> 8
which would result in the loss, disallowance, recapture or unavailability to
Lessor of Lessor's Tax Benefits. Lessee hereby indemnifies Lessor and its
Assignee(s) from and against (a) any loss, disallowance, unavailability or
recapture of Lessor's Tax Benefits resulting from any action or failure to act
of Lessee, including replacement of the Equipment, plus (b) all interest,
penalties, costs, (including attorney fees), or additions to tax resulting from
such loss, disallowance, unavailability or recapture.
18. GENERAL
(a) The Lease shall be deemed to have been made and delivered in the State
of Michigan and shall be governed in all respects by the laws of such
State. THE PARTIES HERETO AGREE THAT IN THE EVENT OF AN ALLEGED BREACH
OF THIS AGREEMENT OR ANY DOCUMENTS RELATING THERETO BY EITHER PARTY, OR
ANY CONTROVERSIES ARISE BETWEEN THE PARTIES RELATING TO THIS AGREEMENT
OR ANY DOCUMENTS RELATING THERETO, AND SUCH BREACHES OR CONTROVERSIES
ARE BROUGHT BEFORE ANY COURT, SUCH CONTROVERSIES SHALL BE TRIED BY A
JUDGE ALONE. THE PARTIES, HAVING HAD THE OPPORTUNITY TO CONSULT WITH
INDEPENDENT COUNSEL OF THEIR OWN CHOOSING, HEREBY KNOWINGLY AND
VOLUNTARILY WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN ANY MATTER RELATING
TO THIS AGREEMENT OR ANY DOCUMENTS RELATED THERETO.
(b) The Master Agreement and the Lease constitute the entire and only
agreement between Lessee and Lessor with respect to the lease of the
Equipment, and the parties have only those rights and have incurred only
those obligations as specifically set forth herein. The covenants,
conditions, terms and provisions may not be waived or modified orally
and shall supersede all previous proposals, both oral and written,
negotiations, representations, commitments or agreements between the
parties. The Lease may not be amended or discharged except by a
subsequent written agreement entered into by duly authorized
representatives of Lessor and Lessee.
(c) All notices, consents or requests desired or required to be given under
the Lease shall be in writing and shall be delivered in person or sent
by certified mail, return, receipt requested, or by courier service to
the address of the other party set forth in the introduction of the
Master Agreement or to such other address as such party shall have
designated by proper notice.
(d) Each Schedule shall be executed in three counterparts, consecutively
numbered. To the extent, if any, that a Schedule constitutes chattel
paper (as such term is defined in the Uniform Commercial Code) no
security interest in the Schedule may be created through the transfer or
possession of any counterpart other than Counterpart No. 1. The Master
Agreement, in the form of a photocopy, is Exhibit A to the Schedule and
is not chattel paper by itself.
(e) Section headings are for convenience only and shall not be construed as
part of the Lease.
(f) It is expressly understood that all of the Equipment shall be and remain
personal property, notwithstanding the manner in which the same may be
attached or affixed to realty, and, upon Lessor's request, Lessee shall
secure from its mortgagee, landlord or owner of the premises a waiver in
form and substance reasonably satisfactory to Lessor.
(g) Lessor may upon written notice to Lessee advise Lessee that certain
Items supplied to Lessee are leased to Lessor and supplied to Lessee
under the Lease as a sublease. Lessee agrees to execute and deliver such
acknowledgements and assignments in connection with such a Lease as are
reasonably required. If, at any time during the term of the Lease,
Lessor's right to lease the Equipment expires, Lessor may remove the
Equipment from Lessee's premises and shall promptly provide identical
substitute Equipment. All expenses of such substitution, including
de-installation, installation and transportation expenses, shall be
borne by Lessor.
(h) Prior to the delivery of any Item, the obligations of Lessor hereunder
shall be suspended to the extent that it is hindered or prevented from
complying therewith because of: labor disturbances, including strikes
and lockouts; acts of God; fires; storms; accidents; failure to deliver
any Item; governmental regulations or interferences or any cause
whatsoever not within the sole control of Lessor.
(i) Any provision of the Master Agreement or any Schedule prohibited by or
unlawful or unenforceable under any applicable law of any jurisdiction
shall be ineffective as to such jurisdiction without invalidating the
remaining provisions of the Master Agreement and such Schedule.
(j) Although this Lease is the standard form used by Lessor to lease
hardware equipment to Lessee, both Lessor and Lessee acknowledge that,
with respect to any software which may be included as Equipment
("Software"), this Lease is a financing agreement whereby that portion
of Lessee's Base Monthly Rental payment obligation applicable to any
Software represents license fees which are being paid by Lessee in
consideration for payment by Lessor to the software vendor ("Vendor") of
the total license fee relating to any such Software. Neither Lessor nor
Lessee have or were granted any ownership or other proprietary rights in
the Software, and neither party purports to transfer any such rights to
the other hereunder. Lessee has only those rights in the Software which
were granted to Lessee pursuant
30
<PAGE> 9
to the software license agreement entered into directly between Vendor
and Lessee ("License").The terms of this Lease are applicable only as
between Lessor (and any Assignee) and Lessee. The terms of the License
are applicable only as between Lessee and Vendor, and Lessor does not
assume and is not liable for any obligations under any of the provisions
of the License. Lessee's Base Monthly Rental payment obligation is
absolute and unconditional in all respects regardless of any problem
Lessee may have with the Software, any dispute Lessee may have with the
Vendor, any inability of Lessee to use the Software, or the exercise by
Vendor of any remedies it may have pursuant to the License.
(k) The parties agree that this is a "Finance Lease" as defined by section
2A-103(g) of the Uniform Commercial Code ("UCC"). Lessee acknowledges
either (a) that Lessee has reviewed and approved any written Supply
Contract (as defined by UCC 2-A-103(y)) covering the Equipment purchased
from the Supplier (as defined by UCC 2A-103(x)) thereof for lease to
Lessee or (b) that Lessor has informed or advised Lessee, in writing,
either previously or by this Lease of the following: (i) the identity of
the Supplier, (ii) that the Lessee may have rights under the Supply
Contract; and (iii) that the Lessee may contact the Supplier for a
description of any such rights Lessee may have under the Supply
Contract.
(l) The parties acknowledge that serial numbers for one or more Items may be
unavailable prior to execution of the applicable Schedule. In the event
a Schedule fails to indicate a serial number for one or more Items,
Lessee expressly consents to Lessor's unilateral amendment of the
applicable Schedule to insert accurate serial numbers therein.
The parties have executed this Master Lease Agreement as of the date written
above.
LESSOR: LESSEE:
VARILEASE CORPORATION OACIS HEALTHCARE HOLDINGS CORPORATION
By: /s/ Gary F. Miller By: /s/ Stephen F. Ghiglieri
----------------------------- ----------------------------------
Name: Gary F. Miller Name: Stephen F. Ghiglieri
--------------------------- --------------------------------
By: Senior Vice President Title: Chief Financial Officer
----------------------------- -------------------------------
If there are no Additional Provisions to this Master Lease Agreement, check
here [X]. If there are Additional Provisions describe here:
31
<PAGE> 10
ATTACHMENT A
to MASTER LEASE AGREEMENT
dated September 1, 1998
between VARILEASE CORPORATION ("LESSOR")
and OACIS HEALTHCARE HOLDINGS CORPORATION ("LESSEE")
To calculate Stipulated Loss Value, multiply the applicable percentage,
below, by the value of the applicable Item(s) set forth on the Schedule.
<TABLE>
<CAPTION>
RENT RENT RENT
PAYMENT STIP LOSS PAYMENT STIP LOSS PAYMENT STIP LOSS
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
1 110.50% 21 85.31% 41 60.13%
2 109.24% 22 84.05% 42 58.87%
3 107.98% 23 82.80% 43 57.61%
4 106.62% 24 81.54% 44 56.35%
5 105.46% 25 80.28% 45 55.09%
6 104.20% 26 79.02% 46 53.83%
7 102.94% 27 77.76% 47 52.57%
8 101.68% 28 76.50% 48 51.31%
9 100.43% 29 75.24% 49 50.05%
10 99.17% 30 73.98% 50 48.79%
11 97.91% 31 72.72% 51 47.53%
12 96.65% 32 71.46% 52 46.28%
13 95.39% 33 70.20% 53 45.02%
14 94.13% 34 68.94% 54 43.76%
15 92.87% 35 67.68% 55 42.50%
16 91.61% 36 66.42% 56 41.24%
17 90.35% 37 65.17% 57 39.98%
18 89.09% 38 63.91% 58 38.72%
19 87.83% 39 62.65% 59 37.46%
20 86.57% 40 61.39% 60 36.10%
AND THEREAFTER
</TABLE>
Lessor: _____ Lessee: _____
32
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,527
<SECURITIES> 3,970
<RECEIVABLES> 8,600
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,331
<PP&E> 5,088
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,445
<CURRENT-LIABILITIES> 7,445
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 21,684
<TOTAL-LIABILITY-AND-EQUITY> 29,445
<SALES> 13,114
<TOTAL-REVENUES> 20,147
<CGS> 3,036
<TOTAL-COSTS> 8,125
<OTHER-EXPENSES> 13,711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,236)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,236)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,236)
<EPS-PRIMARY> (0.12)<F1>
<EPS-DILUTED> (0.12)
<FN>
<F1>For purposes of this exhibit, Primary means Basic.
</FN>
</TABLE>
