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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
June 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)
300 DRAKE'S LANDING RD., SUITE 1000
GREENBRAE, CA 94904
(Address of principal executive offices, including zip code)
(415) 925-0121
(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 August 10, 1998, there were 10,523,521 shares of the Registrant's Common
Stock outstanding.
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OACIS HEALTHCARE HOLDINGS CORP.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1998 3
(unaudited) and December 31, 1997
Consolidated Statement of Operations 4
for the three months and six months ended June 30, 1998 and 1997(unaudited)
Consolidated Statement of Cash Flows 5
for the six months ended June 30, 1998 and 1997(unaudited)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 19
INDEX TO EXHIBITS 20
Exhibit 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. 21
Exhibit 10.14 Security Agreement dated June 2, 1998 between Oacis Healthcare
Holdings Corp. (Debtor) and Union Bank of California, N.A. 26
Exhibit 27.1 Financial Data Schedule 35
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OACIS HEALTHCARE HOLDINGS CORP.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ----------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,865 $ 5,962
Short-term investments 4,915 9,687
Accounts receivable, net 8,721 8,276
Other current assets 1,670 1,149
-------- --------
Total current assets 22,171 25,074
Property and equipment, net 3,623 3,341
Capitalized software, net 3,435 2,382
Other assets 311 394
-------- --------
Total assets $ 29,540 $ 31,191
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,535 $ 1,784
Accrued expenses 2,609 2,818
Unearned revenue 3,867 3,585
-------- --------
Total current liabilities 8,011 8,187
-------- --------
Long-term obligations 288 461
-------- --------
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; 10,506,000
and 10,330,000, shares issued and outstanding 105 103
Additional paid-in capital 48,972 48,542
Accumulated deficit (27,761) (26,002)
Deferred stock compensation (75) (100)
-------- --------
Total stockholders' equity 21,241 22,543
-------- --------
Total liabilities and stockholders' equity $ 29,540 $ 31,191
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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OACIS HEALTHCARE HOLDINGS CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- --------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 2,561 $ 2,588 $ 5,407 $ 4,326
Installation and support services 2,591 2,163 4,807 3,823
Third party hardware and software 1,178 2,110 2,545 3,509
------------ ------------ ------------ ------------
Total revenues 6,330 6,861 12,759 11,658
------------ ------------ ------------ ------------
Cost of revenues:
Software licenses 39 205 568 268
Installation and support services 1,724 1,581 3,355 3,046
Third party hardware and software 998 1,811 2,140 3,019
------------ ------------ ------------ ------------
Total cost of revenues 2,761 3,597 6,063 6,333
------------ ------------ ------------ ------------
Gross profit 3,569 3,264 6,696 5,325
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 1,837 1,561 3,593 3,270
Research and development 1,686 1,723 3,368 3,087
General and administrative 989 902 1,830 1,859
------------ ------------ ------------ ------------
Total operating expenses 4,512 4,186 8,791 8,216
------------ ------------ ------------ ------------
Loss from operations (943) (922) (2,095) (2,891)
Interest income, net 161 278 336 602
------------ ------------ ------------ ------------
Net loss $ (782) $ (644) $ (1,759) $ (2,289)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.07) $ (0.06) $ (0.17) $ (0.23)
============ ============ ============ ============
Weighted average common shares outstanding 10,462,205 10,111,823 10,396,775 10,091,727
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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OACIS HEALTHCARE HOLDINGS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands, unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,759) $ (2,289)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 829 603
Stock compensation expense 25 24
Changes in assets and liabilities:
Accounts receivable, net (445) (490)
Other current assets (521) (1,085)
Other assets 83 (390)
Accounts payable (249) 549
Accrued expenses (644) 945
Unearned revenues 282 1,269
-------- --------
Net cash used in operating activities (2,399) (864)
-------- --------
Cash flows from investing activities:
Purchase of short-term investments (2,166) (4,689)
Sale of short-term investments 6,938 10,408
Purchases of property and equipment (1,033) (971)
Capitalized software development costs (1,131) (1,061)
-------- --------
Net cash provided by (used in) investing activities 2,608 (3,687)
-------- --------
Cash flows from financing activities:
Proceeds from option exercises 432 280
Proceeds from line of credit 400 --
Payments on capital lease obligations (138) (100)
-------- --------
Net cash provided by financing activities 694 180
-------- --------
Increase in cash and cash equivalents 903 3,003
Cash and cash equivalents, beginning of period 5,962 4,307
-------- --------
Cash and cash equivalents, end of period $ 6,865 $ 7,310
======== ========
Supplemental disclosure:
Cash paid for interest $ 30 $ 28
======== ========
Capital equipment lease additions $ 400 $ 286
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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OACIS HEALTHCARE HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF PRESENTATION
The financial statements included herein for Oacis Healthcare Holdings Corp.
(the "Company") have been prepared by the Company, without audit, 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 six months ended June
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 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).
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 June
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 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 will
not have 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 financial statements.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Background
The Company develops, markets, licenses, installs, 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
and installation 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 and install 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 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, 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 and 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 and installation services revenues from contracts where
the Company is actively involved in the installation of the system, which are
primarily in the United States and Canada, are recognized on a percentage of
completion basis measured
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either by the labor hours incurred or upon attainment of customer acceptance
milestones as provided for in the underlying Software License Agreement. 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, the Company recognizes license fee revenue from certain software
components upon the granting of these expanded rights 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 JUNE 30, 1998 AND 1997
Revenues
In the three months ended June 30, 1998, total revenues decreased 8% to $6.3
million from $6.9 million in the three months ended June 30, 1997. Of these
amounts, software license fee revenues were essentially unchanged at $2.6
million, installation and support services revenues increased 20% to $2.6
million and third-party hardware and software revenue decreased 44% to $1.2
million. Software license fee revenue, although unchanged from the prior year
quarter, reflected a shift to domestic revenues. In recent quarters,
international revenues have contributed significantly to software license fee
revenues. However, in the quarter ended June 30, 1998, all software license fee
revenue was derived from domestic contracts which compares with $1.4 from
international contracts in the second quarter of 1997. International revenues
are subject to quarterly variability due to the revenue recognition policies
employed for these contracts. Future international revenue contribution will be
primarily dependent on 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 quarter in 1997 was primarily due to
a higher number of billable hours resulting from an increase in the number of
projects and higher utilization rates and, to a lesser degree, from an increase
in support services revenues. The decrease in third-party hardware and software
revenues compared to the prior year second quarter 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 $2.7 million, or 44% of total revenues, in the three
months ended June 30, 1998, compared to $3.6 million, or 52% of total revenues,
in the three months ended June 30, 1997. Cost of installation and support
services increased 9% to $1.7 million in the three months ended June 30, 1998
from $1.6 million in the three months ended June 30, 1997 as a result of an
increase in the number of installation personnel and the average cost of those
personnel including an increase in the use of third-party installation
personnel which generally carry a higher hourly cost than Oacis personnel. The
increase in cost of installation and support services was partially 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 56% in the three months
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ended June 30, 1998 from 48% in the three months ended June 30, 1997. Gross
profit on software license fees increased to 98% in the second quarter of 1998
from 92% in the prior year period due primarily to the shift in the mix of
revenues to domestic contracts which generally do not carry distribution fees.
Included in the cost of software license fees in the second quarter of 1997 was
$140,000 in international distributor fees. The Company anticipates that future
gross margin percentages on software license fees will be lower than that
experienced in the second quarter of 1998 and more in line with historical
levels as a result of increases in amortization of software development costs
and that software license fee gross margin percentages may fluctuate on a
quarter to quarter basis due to timing of recognition of license fees and
related distribution fees for international contracts. Gross profit on
installation and support services increased to 33% for the second quarter of
1998 from 27% in the prior year period due primarily to improved margins in the
support organization where revenues have increased as more clients have
initiated support services while expenses were lower during the quarter due in
part to the restructuring previously noted. The Company expects that
installation and support services margins may decline in the third and fourth
quarters, consistent with prior years, due in part to the seasonal effects of
holiday schedules. Gross profit on third-party hardware and software increased
to 15% in the three months ended June 30, 1998 from 14% in the three months
ended June 30, 1997.
Sales and Marketing
Sales and marketing expenses increased 18% to $1.8 million in the three
months ended June 30, 1998 from $1.6 million in the three months ended June 30,
1997 and increased as a percentage of total revenues to 29% in the three months
ended June 30, 1998 from 23% in the three months ended June 30, 1997. The
increase in sales and marketing expenses was attributable in part to an increase
in marketing fees related to the Company's marketing agreement with the VHA,
Inc. ("VHA"). The VHA marketing fees are expensed as revenue is recognized on
VHA contracts and are paid upon collection of billing milestones. An increase in
consulting, salary, commission and related expenses also contributed to the
overall increase. The Company expects sales and marketing expenses to increase
during the remainder of the year due to increased VHA marketing fees and
increased travel related expenses resulting from increased sales related
activity. 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, increased
2% to $2.3 million in the three months ended June 30, 1998 from $2.2 million in
the three months ended June 30, 1997, and increased as a percentage of total
revenue to 36% for the three months ended June 30, 1998 from 32% in the three
months ended June 30, 1997. The increase in expenses was primarily attributable
to increased personnel and personnel related expenses and partially offset by
lower consulting costs. Capitalized software development costs were $583,000, or
approximately 26% of research and development costs, for the three months ended
June 30, 1998 as compared to $487,000, or approximately 22%, for the three
months ended June 30, 1997. The higher software capitalization rate is due to an
increase in the number of products in the later stages of development.
General and Administrative
General and administrative expenses increased 10% to $1.0 million in the
three months ended June 30, 1998 from $0.9 million in the three months ended
June 30, 1997, and increased to 16% as a percentage of total revenue for the
three months ended June 30, 1998 from 13% for the same period in the prior year.
The increase in general and administrative expenses was due to an increase in
personnel related expenses, including consulting expense.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Revenues
In the six months ended June 30, 1998, total revenues increased 9% to $12.8
million from $11.7 million in the six months ended June 30, 1997. Of these
amounts, software license fee revenues increased 25% to $5.4 million,
installation and support services revenues increased 26% to $4.8 million and
third-party hardware and software revenues decreased 27% to $2.5 million. The
increase in software license fee revenues was due to a $1.2 million, or 46%,
increase in revenue from the domestic customer base which was partially offset
by a $0.2 million, or 9%, decrease in international revenues. International
revenues for the six month period ended June 30,
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1998 accounted for approximately 12% of total revenues as compared to 14% for
the same prior year period. The Company expects international revenues will
continue to contribute to quarterly variability during the remainder of the
year. The increase in installation and support services revenues from the same
period in 1997 was due to an increase in billable installation hours resulting
from increased installation activity as well as increased support services
revenues resulting from new sites that have initiated support services since
June 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 $6.1 million, or 48% of total revenues, in the six
months ended June 30, 1998, compared to $6.3 million, or 54% of total revenues,
in the six months ended June 30, 1997. Cost of installation and support services
increased 10% to $3.4 million in the six months ended June 30, 1998 from $3.0
million in the six months ended June 30, 1997 as a result of an increase in the
number of installation personnel and the average cost of those personnel
including an increase in the use of third-party installation personnel which
generally carry a higher hourly cost than Oacis personnel. The increase in the
cost of installation and support services was 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 52% in the six months ended June 30, 1998 from 46% in the
six months ended June 30 1997. Gross profit on software license fees decreased
to 89% from 94% due to increases in international distributor fees during the
six months ended June 30, 1998. The Company anticipates that the gross margin
percentage on software license fees will continue to fluctuate on a quarterly
basis as a result of the timing of international revenues and the amount of
distributor fees associated with those revenues. Gross profit on installation
and support services increased to 30% for the first half of 1998 from 20% in the
prior year period due to improved margins in both the support and installation
organizations, with the principal improvement in margins resulting from the
support organization where revenues have increased as more clients have
initiated support services while expenses were lower during the period due in
part to the restructuring previously noted. Gross profit on third-party hardware
and software increased to 16% in the six months ended June 30, 1998 from 14% in
the six months ended June 30, 1997 principally due to the mix of third-party
products sold.
Sales and Marketing
Sales and marketing expenses increased 10% to $3.6 million in the six months
ended June 30, 1998 from $3.3 million in the six months ended June 30, 1997 and
was 28% of total revenues - unchanged from the prior year six month period. The
increase in sales and marketing expenses was attributable in part to an increase
in marketing fees related to the Company's marketing agreement with the VHA in
addition to an increase in compensation related expenses. The VHA marketing fees
are expensed as revenue is recognized on VHA contracts and are paid upon
collection of billing milestones. 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, increased
8% to $4.5 million in the six months ended June 30, 1998 from $4.1 million in
the six months ended June 30, 1997. The increase was a result of an overall
increase in personnel as well as an increase in the average cost of personnel
partially offset by lower consulting expense. Software capitalization totaled
$1.1 million, or 25% of total research and development costs, for the six months
ended June 30, 1998 as compared to $1.1 million, or 26% of research and
development costs, for the six months ended June 30, 1997. Research and
development costs, before software capitalization, decreased as a percentage of
total revenue to 35% for the six months ended June 30, 1998 from 36% for the six
months ended June 30, 1997.
General and Administrative
General and administrative expenses decreased 2% to $1.8 million in the six
months ended June 30, 1998 from $1.9 million in the six months ended June 30,
1997, and decreased as a percentage of total revenue to 14% for the six months
ended June 30, 1998 from 16% for the six months ended June 30, 1997. The
decrease was due to lower headcount related expenses partially offset by higher
consulting expenses.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998 the Company's cash and cash equivalents and short-term
investments totaled $11.8 million as compared to $15.6 million at December 31,
1997.
The Company will be relocating its corporate headquarters during the third
quarter of 1998 commensurate with the expiration of its current corporate office
lease. In conjunction with this relocation, the Company will incur capital
expenditures totaling approximately $3 million for leasehold improvements,
furniture, computers and equipment of which the Company has already paid
$500,000 as of June 30, 1998 and expects that it will be required to fund the
remaining amount during the third quarter.
During 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 June 30, 1998, expenditures of $400,000 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 June 30, 1998, $1,000,000 of new equipment was
financed under this agreement.
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.
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
$1.8 million for the six months ended June 30, 1998, and as of June 30, 1998 had
an accumulated deficit of $27.8 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
11
<PAGE> 12
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 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 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.
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
12
<PAGE> 13
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 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 six months of 1998, international revenues accounted
for 12% of total revenues. The Company expects that international revenues may
continue to be a significant component of total revenues in future quarters.
Accordingly, the Company's operating results may increasingly be subject to the
risks inherent in international transactions, including difficulties in staffing
and managing foreign sales operations, changes in regulatory requirements,
exchange rates, tariffs or other barriers, and other factors including
dependence on third-party distributors and installers of the Company's products.
Additionally, due to the revenue recognition model used for international sales
(sales outside of North America) this increasing reliance on international sales
may result in higher quarter to quarter variability of software revenues.
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
13
<PAGE> 14
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.
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
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<PAGE> 15
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 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.
15
<PAGE> 16
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, 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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<PAGE> 17
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:
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. attached hereto.
10.13 Promissory Note dated June 2, 1998 between Oacis Healthcare
Holdings Corp. (Debtor) and Union Bank of California, N.A.
attached hereto.
10.14 Security Agreement dated June 2, 1998 between Oacis Healthcare
Holdings Corp. (Debtor) and Union Bank of California, N.A.
attached hereto.
21.1(3) Subsidiaries of the Registrant.
27.1 Financial Data Schedule
- ----------
(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
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<PAGE> 18
No reports on Form 8-K were filed by the Company during the six months ended
June 30, 1998.
<PAGE> 19
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 August 14, 1998 /s/ Stephen F. Ghiglieri
----------------- ---------------------------------------
Stephen F. Ghiglieri Vice President,
Finance and Administration,
Chief Financial Officer and
Secretary (Principal Financial and
Accounting Officer)
Date August 14, 1998 /s/ Jim McCord
----------------- ---------------------------------------
Chairman and Chief Executive Officer
(Principal Executive Officer)
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
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.
10.14 Security Agreement dated June 2, 1998 between Oacis Healthcare Holdings Corp.
(Debtor) and Union Bank of California, N.A.
27.1 Financial Data Schedule
</TABLE>
20
<PAGE> 1
EXHIBIT 10.13
UNION BANK OF CALIFORNIA
PROMISSORY NOTE
(BASE RATE)
<TABLE>
<CAPTION>
=================================================================================================================
Borrower Name: Oacis Healthcare Systems, Inc.
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Borrower Address: Office 001 Loan Number
300 Drake's Landing Road, Ste. 1000 -------------------------------------------------------------------------
Greenbrae, CA 94904 Maturity Date: March 15, 2003 Amount
$3,000,000.00
=================================================================================================================
</TABLE>
$3,000,000.00 Date: June 2, 1998
FOR VALUE RECEIVED, on March 15, 2003, the undersigned ("Debtor") promises to
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below,
the principal sum of Three Million and No/100 Dollars ($3,000,000.00), or so
much thereof as is disbursed, together with interest on the balance of such
principal from time to time outstanding, at the per annum rate or rates and at
the times set forth below.
1. PAYMENTS.
PRINCIPAL PAYMENTS. Debtor shall pay principal in 48 equal consecutive
installments, each installment in an amount sufficient to fully amortize the
principal balance by the final maturity date, beginning April 15, 1999, and
continuing on the 15th day of each consecutive month, until March 15, 2003,
when all principal and interest hereunder shall be due and payable.
INTEREST PAYMENTS. Debtor shall pay interest on the 15th day of each month
(commencing August 15, 1998). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year
of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder in
minimum amounts of at least $250,000.00 shall bear interest at a rate,
based on an index to be selected by Debtor, which is 1.250% per annum in
excess of: (i) Bank's Adjusted Treasuries Rate for the interest Period
selected by Debtor, or (ii) Bank's LIBOR Rate for the Interest Period
selected by Debtor, in each case acceptable to Bank.
No Base Interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not
discharge Debtor from its obligations to repay in full with interest all
amounts borrowed. In no event shall any Interest Period extend beyond the
maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and on
the expiration of any Interest Period with respect to principal outstanding
on which a Base Interest Rate has been accruing, select an index offered by
Bank for a Base Interest Rate Loan and an Interest Period by telephoning an
authorized lending officer of Bank located at the banking office identified
below prior to 10:00 a.m., Pacific time, on any Business Day and advising
that officer of the selected index, the Interest Period and the Origination
Date selected (which Origination Date, for a Base Interest Rate Loan based
on the LIBOR Rate, shall follow the date of such selection by no more than
two (2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the rate
selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves the
right to fund the principal from any source of funds notwithstanding any
Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is not
bearing interest at a Based Interest Rate shall bear interest at a rate per
annum of 0.00% in excess of the Reference Rate, which rate shall vary as
and when the Reference Rate changes.
At any time prior to March 15, 1999, subject to the provisions of paragraph
4, below, of this note, Debtor may borrow and repay hereon so long as the
total outstanding at any one time does not exceed the principal amount of
this note. Debtor shall pay all amounts due under this note in lawful money
of the United States at Bank's San Francisco Business Banking Center, or
such other office as may be designated by Bank, from time to time.
<PAGE> 2
2. LATE PAYMENTS. If any payment required by the terms of this note shall remain
unpaid ten days after same is due, at the option of Bank, Debtor shall pay a fee
of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. IN THE EVENT OF DEFAULT AT THE OPTION OF
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five percent
(5%) in excess of the interest rate specified in subparagraph 1.b, above,
calculated from the date of default until all amounts payable under this note
are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based on
the Reference Rate may be prepaid in whole or in part at any time, without
penalty or premium. Debtor may prepay amounts outstanding under this note
bearing interest at a Base Interest Rate in whole or in part provided
Debtor has given Bank not less than five (5) Business Days prior written
notice of Debtor's intention to make such prepayment and pays to Bank the
liquidated damages due as a result. Liquidated Damages shall also be paid,
if Bank, for any other reason, including acceleration or foreclosure,
receives all or any portion of principal bearing interest at a Base
Interest Rate prior to its scheduled payment date. Liquidated Damages
shall be an amount equal to the present value of the product of: (i) the
difference (but not less than zero) between (a) the Base Interest Rate
applicable to the principal amount which is being prepaid, and (b) the
return which Bank could obtain if it used the amount of such prepayment of
principal to purchase at bid price regularly quoted securities issued by
the United States having a maturity date most closely coinciding with the
relevant Base Rate Maturity Date and such securities were held by Bank
until the relevant Base Rate Maturity Date ("Yield Rate"); (ii) a
fraction, the numerator of which is the number of days in the period
between the date of prepayment and the relevant Base Rate Maturity Date
and the denominator of which is 360; and (iii) the amount of the principal
so prepaid except in the event that principal payments are required and
have been made as scheduled under the terms of the Base Interest Rate Loan
being prepaid, then an amount equal to the lessor of (A) the amount
prepaid or (B) 50% of the sum of (1) the amount prepaid and (2) the amount
of principal scheduled under the terms of the Base Interest Rate Loan
being prepaid to be outstanding at the relevant Base Rate Maturity Date).
Present value under the note is determined by discounting the above
product to present value using the Yield Rate as the annual discount
factor.
b. In no event shall Bank be obligated to make any payment of refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim against
Bank, should the return which Bank could obtain under this prepayment
formula exceed the interest that Bank would have received if no prepayment
had occurred. All prepayments shall include payment of accrued interest on
the principal amount so prepaid and shall be applied to payment of
interest before application to principal. A determination by Bank as to
the prepayment fee amount, if any, shall be conclusive. In the event of
partial prepayment, such prepayments shall be applied to principal
payments in the inverse order of their maturity.
c. Bank shall provide Debtor a statement of the amount payable on account
of prepayment. Debtor acknowledges that (i) Bank establishes a Base
Interest Rate upon the understanding that it apply to the Base Interest
Rate Loan for the entire Interest Period, and (ii) any prepayment may
result in Bank incurring additional costs, expenses and liabilities; and
Debtor agrees to pay these liquidated damages as a reasonable estimate of
the costs, expenses and liabilities of Bank associated with such
prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not
be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach, misrepresentation or
other default by Debtor, any guarantor, co-maker, endorser, or any person or
entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any Obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any Obligor
of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all or any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgement, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice of
levy, notice to withhold, or other legal process for taxes other than property
taxes; (l) the default by any Obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money; (m) the issuance
against any Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself, in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of default
under d, e, f, or g, all principal and interest shall automatically become
immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are
not paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement
of this note. Debtor and any endorsers of this note, for the maximum period of
time and the full extent permitted by law, (a) waive diligence, presentment,
demand, notice of nonpayment, protest, notice of protest, and notice of every
kind; (b) waive the right to assert the defense of any statute of limitations
to any debt or obligation hereunder, and (c) consent to renewals and extensions
of time for the payment of any amounts due under this note. If this note is
signed by more than one party, the term "Debtor" includes each of the
undersigned and any successors in interest thereof; all of whose liability shall
be joint and several. The receipt of any check or other item of payment by
Bank, at its option, shall not be considered a payment on account until such
check or other item of payment is honored when presented for payment at the
drawee bank. Bank may delay the credit of such payment based upon Bank's
schedule of funds availability, and interest under this note shall accrue until
the funds are deemed collected. In any action brought under or arising out of
this note, Debtor and any Obligor, including
<PAGE> 3
their successors and assigns, hereby consent to the jurisdiction of any
competent court within the State of California, except as provided in any
alternative dispute resolution agreement executed between Debtor and Bank, and
consent to service of process by any means authorized by said state's law. The
term "Bank" includes, without limitation, any holder of this note. This note
shall be construed in accordance with and governed by the laws of the State of
California. This note hereby incorporates any alternative dispute resolution
agreement previously, concurrently or hereafter executed between Debtor and
Bank.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "ADJUSTED TREASURIES RATE" means a per annum rate
of interest based on the percentage yield on U.S. Treasury securities, plus a
margin, set by Bank in its discretion, related to the general cost of corporate
borrowing for a term comparable to the term of Bank's loan to Debtor, plus
Bank's costs, including the cost, if any, of reserve requirement and FDIC
assessments. "BASE INTEREST RATE" means a rate of interest based on either the
Adjusted Treasuries Rate or the LIBOR Rate. "BASE INTEREST RATE LOAN" means
amounts outstanding under this note that bear interest at a Base Interest Rate.
"BASE RATE MATURITY DATE" means the last day of the Interest Period with
respect to principal outstanding under a Base Interest Rate loan. "BUSINESS
DAY" means a day on which Bank is open for business for the funding of corporate
loans, and, with respect to the rate of interest based on the LIBOR Rate, on
which dealings in U.S. dollar deposits outside of the United States may be
carried on by Bank. "INTEREST PERIOD" means (i) with respect to funds bearing
interest at a rate based on the Adjusted Treasuries Rate, any period of not
less than 30 nor more than 360 days until March 15, 1999 and not less than 6
months nor more than 48 months up until March 15, 2003, or (ii) with respect to
funds bearing interest at a rate based on the LIBOR Rate, any calendar period
of not less than 30 days nor more than 360 days until March 15, 1999 and not
less than 180 days nor more than 360 days until March 15, 2003. In determining
an Interest Period, a month means a period that starts on one Business Day in a
month and ends on and includes the day preceding the numerically corresponding
day in the next month. For any month in which there is no such numerically
corresponding day, then as to that month, such day shall be deemed to be the
last calendar day of such month. Any Interest Period which would otherwise end
on a non-Business Day shall end on the next succeeding Business Day unless that
is the first day of a month, in which event such Interest Period shall end on
the next preceding Business Day. "LIBOR RATE" means a per annum rate of
interest (rounded upward, if necessary, to the nearest 1/100 of 1%) at which
dollar deposits, in immediately available funds and in lawful money of the
United States would be offered to Bank, outside of the United States, for a
term coinciding with the Interest Period selected by Debtor and for an amount
equal to the amount of principal covered by Debtor's interest rate selection,
plus Bank's costs, including the cost, if any, of reserve requirements.
"ORIGINATION DATE" means the first day of the Interest Period. "REFERENCE RATE"
means the rate announced by Bank from time to time at its corporate headquarters
as its "Reference Rate." The Reference Rate is an index rate determined by Bank
from time to time as a means of pricing certain extensions of credit and is
neither directly tied to any external rate of interest or index nor necessarily
the lowest rate of interest charged by Bank at any given time.
Oacis Healthcare Systems, Inc.
/s/ STEPHEN F. GHIGLIERI
- ---------------------------------------
Stephen F. Ghiglieri
VP Finance & Admin./CFO/Secr.
/s/ JOHN C. KINGERY
- ---------------------------------------
John C. Kingery
President/COO
<PAGE> 1
EXHIBIT 10.14
UNION BANK OF CALIFORNIA
SECURITY AGREEMENT
(Investment Accounts)
This Security Agreement ("Agreement") is made as of June 2, 1998, by and
between Oasis Healthcare Holdings Corp. ("Debtor"), and UNION BANK OF
CALIFORNIA, N.A. ("Bank"). In consideration of the financial accommodations
given, to be given or continued, to Oacis Healthcare Systems, Inc. ("Systems"),
Bank and Debtor agree to the following terms and conditions.
1. GRANT OF SECURITY INTEREST; DELIVERY OF COLLATERAL; OBLIGATIONS SECURED.
1.1 Debtor hereby grants Bank a security interest in the Collateral, as
hereinafter defined.
1.2 The security interest granted by Debtor to Bank secures payment and
performance of all of Systems present and future debts, obligations and
liabilities to Bank, whether absolute or contingent, direct or indirect,
liquidated or unliquidated, arising in connection with (a) that certain
promissory note by Systems in favor of Bank dated June 2, 1998, and any
renewals, extensions, modifications and substitutions thereof, and (b)
any obligation arising in connection with System's depository
relationship with Bank, including cash management and ACH services, and
whether or not secured by assets in addition to the Collateral, except:
any "consumer credit" indebtedness under the Federal Truth in Lending Act
and regulations thereunder unless the Collateral and type of security
interest granted to Bank under this Agreement is disclosed at the time
incurred if and as then required by such Act and regulations (the
foregoing to be hereinafter collectively called "Obligations"). Any
writing which evidences or is an agreement in respect to all or any
portion of the Obligations is a "Loan Document".
2. COLLATERAL. The term "Collateral" means, collectively, (i) Debtor's
securities account(s) described in Exhibit A hereto, all security entitlements,
investment property and other financial assets now or hereafter credited to said
securities account(s), and all of Debtor's rights in respect of said securities
account(s) security entitlements, investment property and other financial
assets; (ii) Debtor's deposit account(s) described in Exhibit A hereto; (iii)
all other investment accounts of Debtor described in Exhibit A hereto, and all
certificated securities, uncertificated securities and financial or other assets
now or hereafter contained in said accounts; and (iv) all products, proceeds and
revenues of and from the personal property described in clauses (i), (ii), and
(iii), above, together with all substitutions therefor and additions thereto
including without limitation stock rights, rights to subscribe, liquidating
dividends, stock dividends, cash dividends, interest, new securities and other
property to which Debtor is or may hereafter become entitled to receive on
account of such personal property (collectively, "Collateral Revenues"). Bank
acknowledges that Debtor maintains additional deposit and investment accounts
with Bank that are not substitutions for the foregoing and are not collateral
hereunder.
3. PERFECTION OF SECURITY INTEREST. It is the intent of Debtor and Bank that
the security interest herein granted be perfected by "control" (as defined in
Section 8-106 of the Uniform Commercial Code or the equivalent section of
Division/Article 8 of the Commercial Code, as amended from time to time, of the
state whose law governs this Agreement). Debtor hereby agrees that it will join
with Bank in taking any action required by Bank in order to perfect such
security interest and protect the rights and priorities of Bank with respect to
the Collateral. Debtor will, at Bank's request (i) duly endorse in blank, and
deliver to Bank, each and every security certificate and instrument constituting
Collateral by signing on said certificate or instrument or by signing a
separate document of assignment or transfer; (ii) join with Bank in executing
any instructions to, or agreement with, a securities intermediary for the
purpose of obtaining control of each security account and each financial asset
constituting Collateral; and (iii) instruct the issuer of any uncertificated
security to transfer any such security to and register such security in the
name of Bank. Debtor agrees that if any Collateral is being held by Bank in its
capacity as a securities intermediary or pursuant to a safekeeping or similar
agreement, Bank shall be deemed to possess such Collateral as a secured party
for purposes of perfecting its security interest, and if there is any conflict
between the terms of the agreement under which Bank is holding such Collateral
and this Agreement, the terms of this Agreement shall prevail.
4. APPLICATION OF COLLATERAL REVENUES. So long as the Collateral Requirement
is maintained and no Event of Default has occurred, as both those terms are
hereinafter defined, Debtor may make withdrawals consisting solely of cash
dividend and/or interest income from the securities account(s) in which Bank
has herein been granted a security interest. If Debtor is out of compliance
with the Collateral Requirement or an Event of Default has occurred,
Page 1
<PAGE> 2
Bank may take such steps as shall be necessary to preclude Debtor from making
withdrawals of any type from such securities account(s), or to direct payment
of all Collateral Revenues to Bank to be held in a non-interest bearing
account, until such time as Debtor has complied with the provisions of Section
6.3 or until such Event of Default has been cured or waived by Bank, as the
case may be. Bank's rights under the preceding sentence of this Section 4 are
in addition to all other rights afforded Bank under this Agreement, or
otherwise, including without limitation those set forth in Sections 10.1 and
10.2.
5. DEBTOR'S COVENANTS. Debtor hereby represents, warrants and agrees that:
5.1 Debtor has full and complete marketable title to the Collateral and
the Collateral now is, and Debtor will at all times keep the Collateral
free of all liens, encumbrances and claims of any kind or nature other than
the security interest of Bank.
5.2 Debtor will not sell, transfer or otherwise dispose of any of the
Collateral or any interest therein to any individual or entity ("Person").
5.3 The Collateral complies with all applicable laws, regulations,
interpretations and orders concerning form, content and manner of
preparation and execution.
5.4 All the Collateral has been duly and validly issued and is fully paid
for and non-assessable. Except for Collateral that Debtor has specifically
designated in writing as "restricted stock" and/or "control stock" as
defined by Securities and Exchange Commission Rule 144 in effect on the
date of this Agreement, or as may be specifically stated to Bank in
writing prior to the date hereof, all Collateral is transferable without
prior notice to, or approval or consent from, any Person or governmental
authority, and there exists no condition or restriction to or affecting
the transfer of the Collateral.
5.5 Debtor will pay when due and prior to delinquency all taxes, levies,
assessments or other claims which are or may become liens against the
Collateral.
5.6 Debtor will neither make nor permit any material change in the
nature, value or type of the Collateral without Bank's prior written
consent.
5.7 Debtor will deliver to Bank promptly or ensure that Bank promptly
receives (i) all Collateral, (ii) except as otherwise provided herein, all
Collateral Revenues, (iii) such specific acknowledgments, Regulation U
Statement of Purpose forms or other agreements or writings as Bank may
request relating to the Collateral, (iv) copies of records and other
reports relating to the Collateral in such form and detail and at such
times as Bank may from time to time require, and (v) such information as
Bank reasonably requires from time to time regarding Debtor's financial
condition or the Collateral and events which could affect either or both,
and will permit Bank access at reasonable times to its records containing
such information.
5.8 Debtor will from time to time as required by Bank: execute and
deliver to Bank, and file or record at Debtor's expense, all notices and
other documents Bank deems necessary in order for it to maintain a
first-priority perfected security interest and control over, the
Collateral; and perform such other acts, and execute and deliver to Bank
in, such additional assignments, agreements and instruments as Bank may
request in connection with the administration and enforcement of this
Agreement and Bank's rights, powers and remedies hereunder.
5.9 Without Bank's prior written consent, Debtor will not change its
name, mailing address, the nature of its business, or its legal structure,
or, if Debtor is an issuer of any Collateral, issue, cause, permit or
suffer any stock or other securities to be issued, except subject to this
Agreement, and delivered to Bank hereunder.
5.10 Debtor will not exercise or refrain from exercising any voting or
consensual rights or powers relating to any Collateral if, in the judgment
of Bank, such action would have a material adverse effect on the value of
the Collateral.
6. COLLATERAL REQUIREMENT.
6.1 The Collateral shall be maintained by or on behalf of Debtor in an
amount such that the Obligations secured hereby shall not at any time
exceed an amount equal to: (A.) Ninety percent (90%) of the Pledged Value
of the eligible collateral which are United States Government Treasury
Bills, Bonds or Notes; and (B.) Eighty percent (80%) of the Pledge Value
of the eligible collateral which are other government or corporate notes,
bonds or commercial paper which are rated Baa or better as rated by
Moody's Investor Service or BBB or better by Standard and Poors
Corporation (the "Collateral Requirement").
Page 2
<PAGE> 3
6.2 The "Pledged Value" of the Collateral shall be the aggregate current
fair market value of the Collateral consisting of marketable securities,
plus 100% of the value of Collateral Revenues consisting of cash or its
equivalent then held by Bank hereunder. From time to time, Bank may, at
its option, value the Collateral as of the preceding Business Day, as
hereinafter defined (the "Valuation Date"), for the purpose of determining
compliance with Section 6.1. Subject to the foregoing, the current fair
market value of the Collateral shall be determined: (i) by reference to
the lowest bid prices therefor appearing on the appropriate pages of, at
Bank's option, the Telerate system or the Bloomberg system, or (ii) if
dealer bids are used, with reference to the lower of two or more bids (at
least one of which shall be in writing) from NASD member dealers making
markets in the specific Collateral being valued, or (iii) by reference to
any other source that commonly quotes values for such securities.
"Business Day" means a day on which Bank's corporate headquarters is open
for business to the public.
6.3 If at any time Bank's Collateral valuation indicates a deficiency
with respect to the Collateral Requirement, Bank shall give telephonic or
other notice of such deficiency to Debtor, and Debtor shall immediately
either (a) deliver to Bank additional Collateral, or (b) pay down the
outstanding principal balance of the Obligations in an amount sufficient
to comply with the Collateral Requirement.
6.4 Bank shall not be liable to Debtor or any other Person for any loss
or diminution in value of any Collateral or the proceeds thereof,
irrespective of whether Debtor may retain hereunder the right to
substitute Collateral. Bank shall not pay interest on the Collateral and
does not assume responsibility for the earning of any income thereon.
7. SUBSTITUTION OF COLLATERAL. Except as and to the extent otherwise provided
in Exhibit A hereto, and unless an Event of Default has occurred and is
continuing, Debtor shall have the right, at any time after the date of Bank's
initial receipt of Collateral sufficient to meet the Collateral Requirement, to
deliver to Bank new Collateral in substitution for the Collateral or any portion
thereof and to obtain the release of the Collateral or a portion thereof so
substituted for by presenting to Bank: (i) a written request for such release
specifying the Collateral to be released; (ii) new Collateral having a Pledged
Value at least equal to the Pledged Value of the Collateral to be released;
(iii) a certificate executed by Debtor stating that: (a) following such release
and substitution, the Collateral held by Bank will have a Pledged Value at
least equal to the Collateral Requirement, and (b) the Collateral has been
delivered in accordance with this Agreement and all actions necessary to be
taken by Debtor to perfect Bank's first priority security interest in, and
obtain control over, such Collateral have been duly taken and a valid first
priority perfected security interest has been created in such Collateral in
favor of Bank. Bank may, at its option, confirm the value of such substitute
Collateral in accordance with the procedures specified in Section 6.2. Upon
receipt of the items enumerated above and confirmation, if undertaken, of the
value of such substitute Collateral, Bank shall promptly release or cause to be
released the Collateral for which substitution has been made, together with any
transfer instruments or documents in such form as may be required to achieve
such transfer. Debtor may request substitution of Collateral when desired.
8. EXCESS COLLATERAL. Unless an Event of Default has occurred and is
continuing, if at any time Debtor determines, in accordance with Section 6.2,
that the Collateral has a Pledged Value equal to Collateral Requirement, Debtor
may obtain the release of Collateral having a Pledged Value equal to such
excess by presenting to Bank: (i) a written request for such release specifying
the Collateral Debtor wishes released and (ii) a certificate executed by Debtor
stating that, following such release, the remaining Collateral will have an
aggregate Pledged Value at least equal to the Collateral Requirement. Bank may,
at its option, confirm the value of the requested Collateral and the remaining
Collateral in accordance with the procedures specified in Section 6.2. Upon
receipt of the items enumerated above and confirmation, if undertaken, of the
value of the requested and remaining Collateral, Bank shall release or cause to
be released such requested Collateral, together with any transfer instruments
or documents in such form as may be required to achieve such transfer. Debtor
may submit a written request for the release of Collateral when desired.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute
an Event of Default:
9.1 Debtor shall fail to pay any fees or other charges when due under this
Agreement, or Debtor, Systems or any other Person shall fail to perform
any obligation under this Agreement or any other Loan Documents, or any
default shall occur under any Loan Document.
9.2 Any representation or warranty made, or financial statement,
certificate or other document provided, by Debtor or any guarantor of the
Obligations ("Guarantor") to Bank shall prove to have been false or
misleading.
9.3 Debtor or any Guarantor shall fail to pay its debts generally as they
become due or shall file any petition or action for relief under any
bankruptcy, insolvency, reorganization, moratorium, creditor composition
<PAGE> 4
law, or any other law for the relief of or relating to debtors; an involuntary
petition shall be filed under any such law against Debtor or any Guarantor, or a
custodian, receiver, trustee, assignee for the benefit of creditors or other
similar official shall be appointed to take possession, custody or control of
the properties of Debtor or any Guarantor; or the death, incapacity, dissolution
or termination of the business of Debtor or any Guarantor.
9.4 N/A
9.5 N/A
9.6 N/A
9.7 Any Person shall fail to perform its obligations under the terms of any
promissory note, contract or other obligation that is held by Bank as
Collateral; or Bank shall not have a first-priority perfected security interest
in, and control over, or shall deem itself insecure with respect to the value
of, any Collateral.
9.8 N/A
9.9 N/A
9.10 Any deterioration or impairment of any of the Collateral or any decline
or depreciation in the value or the market price thereof (whether actual or
reasonably anticipated), which causes the Collateral, in Bank's judgment, to
become unsatisfactory as to character or value.
9.11 Bank reasonably determines, in good faith, that its security interest
in the Collateral or the prospect of payment or performance under this Agreement
or any Loan Document secured hereby is materially impaired.
9.12 Bank, in good faith, believes any or all of the Collateral, including
any proceeds, to be in danger of misuse, dissipation, commingling, loss, theft,
damage or destruction, or otherwise in jeopardy.
9.13 N/A
9.14 Debtor shall fail to perform any of its duties or obligations under
this Agreement not specifically referenced in this Section 9.
10. Bank's Rights On Default.
10.1 Upon the occurrence of an Event of Default, Bank shall be entitled to
declare any of the Obligations immediately due and payable, and Bank shall have
all rights provided in the California Uniform Commercial Code or otherwise
available by law to take possession of any Collateral and sell and dispose of
the same or any part thereof at public or private sale or at any broker's board
or on any securities exchange, for cash, upon credit or for future delivery, and
at such price or prices as Bank may deem satisfactory. Bank may be the purchaser
of any or all of the Collateral sold at any public sale (or, if the Collateral
is of a type customarily sold in a recognized market or is of a type which is
the subject of widely distributed standard price quotations, at any private
sale) and thereafter hold the same free from any right or claim of whatsoever
kind. Bank is authorized, an any such sale, if it deems it advisable so to do,
to restrict the prospective bidders or purchasers of any of the Collateral to
persons who will represent and agree that they are purchasing for their own
account for investment, and not with a view to the distribution or sale of any
of the Collateral. Upon any such sale Bank shall have the right to deliver,
assign and transfer such Collateral sold to the purchaser. Each purchaser shall
hold the Collateral, free from any claim or right of whatsoever kind, including
without limitation any equity or right of redemption of Debtor, who or which, to
the extent permitted by law, hereby waives any now existing or hereafter
acquired rights of redemption, stay or appraisal. If notice to Debtor of any
intended disposition of the Collateral is required by law in a particular
instance, Bank shall give Debtor ten days' written notice of its intention to
make any such public or private sale or sale at a broker's board or on a
securities exchange. Such notice, in case of a public sale, shall state the time
and place for such sale, and, in case of sale at a broker's board or on a
securities exchange, shall state the board or exchange at which such sale is to
be made and the day on which the Collateral or portion thereof, will first be
offered for sale. Any public sale shall be held at such times within ordinary
business hours and at such places as Bank may fix in the notice of such sale. At
any such sale the Collateral may be sold in one lot or in separate parcels. Bank
shall not be obligated to make any such sale pursuant to any such notice. Bank
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned. In case of any sale of all or part of the
Collateral on credit or for future delivery, the
Page 4
<PAGE> 5
Collateral so sold may be retained by Bank until the selling price is paid
by the purchaser thereof, but Bank shall not incur any liability in case
of the failure of such purchaser to take up and pay for the Collateral so
sold and, in case of any such failure, such Collateral may again be sold
upon like notice. Bank, instead of exercising the power of sale herein
conferred upon it, may proceed by a suit(s) at law or in equity to
foreclose upon and sell the Collateral, or any portion thereof, under a
judgment or decree of court(s) of competent jurisdiction. Debtor hereby
agrees that any disposition of Collateral by way of a private placement or
other method which, in the opinion of Bank, is required or advisable under
Federal and state securities laws is commercially reasonable.
10.2 Upon the occurrence and during the continuance of an Event of
Default: All rights of Debtor to receive Collateral Revenues shall be
suspended as set forth in Section 4. Debtor's right to exercise voting or
consensual rights and powers with respect to the Collateral shall cease,
and all such rights and authority to exercise such voting or consensual
rights and powers shall inure to Bank. Any and all Collateral Revenues
received by Bank may be retained by Bank as additional Collateral or, in
Bank's sole discretion, may be applied toward the satisfaction of the
Obligations. In such event Bank shall have the right and power to receive,
endorse and collect all checks and other orders for payment of money made
payable to Debtor representing any dividend or other distribution payable
or distributable in respect of any Collateral.
11. COSTS AND EXPENSES. Debtor shall, to the extent permitted by applicable
law, reimburse Bank promptly for all costs and expenses incurred by Bank in
performing any agreement of Debtor which Debtor shall fail to perform, or in
taking any other action which Bank deems necessary for the maintenance or
preservation of any Collateral or Bank's interest therein.
12. POWER OF ATTORNEY.
12.1 Debtor hereby irrevocably appoints Bank, or any officer thereof, as
Debtor's true and lawful attorney-in-fact coupled with an interest, with
full power of substitution, to sign or endorse any instrument, document,
or other writing necessary or desirable to transfer title or other rights
to or in any of the Collateral; and to do all acts necessary or incidental
to assert, protect and enforce Bank's rights in the Collateral and under
this Agreement. Debtor agrees to reimburse Bank promptly upon demand for
any expenses Bank may incur while acting as Debtor's attorney-in-fact. The
power of attorney granted herein shall not be exercised except during the
continuance of an Event of Default.
12.2 At any time, during the continuance of an Event of Default, without
notice, and at Debtor's expense, Bank in its name or in the name of Debtor
may, but shall not be obligated to (i) collect by legal proceedings or
otherwise, endorse, receive and receipt for all dividends, interest,
principal payments and other sums now or hereafter payable upon or on
account of the Collateral; (ii) make any compromise or settlement it deems
desirable or proper with reference to the Collateral; (iii) participate in
any recapitalization, reclassification, reorganization, consolidation,
redemption, stock split, merger or liquidation of any issuer of any
Collateral, and, in connection therewith, deposit or surrender control of
the Collateral, accept money or other property in exchange for the
Collateral, and take such action as it deems proper in connection
therewith, and any other money or property received in exchange for the
Collateral shall be applied to the Obligations or held by Bank thereafter
as Collateral pursuant to the provisions hereof; (iv) cause Collateral to
be transferred to its name (if not already in Bank's name) or to the name
of its nominee; and (v) pursuant to Section 10.2, exercise as to the
Collateral all the rights, powers and remedies of an owner.
13. WAIVERS OF DEBTOR. Debtor waives any right to require Bank to proceed
against any Person, or to exhaust any Collateral or to pursue any remedy in
Bank's power whatsoever. Bank shall not be required to make presentment, demand
or protest, or give any notices thereof, or take any action to preserve rights
against prior parties with respect to any of the Collateral. Debtor waives the
right to plead any statute of limitations or any defense to the personal
liability of Debtor as a defense to Bank's exercise of any right or remedy
hereunder.
14. BANK'S DUTIES.
14.1 Bank's sole duty with respect to the Collateral in its possession
shall be to use reasonable care in the custody and preservation thereof.
Bank shall be deemed to have exercised reasonable care in the custody and
preservation of such Collateral if such Collateral is accorded treatment
substantially equal to that which Bank accords its own property, it being
understood that Bank shall not have any responsibility for ascertaining or
taking action with respect to calls, conversions, exchanges, maturities,
declining value, tenders or other matters relative to any Collateral,
regardless of whether Bank has or is deemed to have knowledge of such
matters; or taking any steps to preserve any rights against any Person
with respect to any Collateral. Under no circumstances shall Bank be
responsible for any injury or loss to the Collateral, or any part thereof,
arising from any cause beyond the reasonable control of Bank.
Page 5
<PAGE> 6
14.2 Bank may at any time deliver or cause to be delivered the
Collateral or any part thereof to Debtor, and Debtor's receipt shall be a
complete and full acquittance for the Collateral so delivered, and Bank
shall thereafter be discharged from any liability or responsibility
therefor.
15. ASSIGNMENT. Debtor may not assign or transfer Debtor's obligations
hereunder without Bank's prior written consent. Bank reserves the right to
sell, assign or transfer its rights and duties under this Agreement, in whole
or in part without notice to Debtor. In that connection, Bank may disclose all
documents and information which Bank may have pertaining to this Agreement,
Debtor or Debtor's business. On transfer of all or any part of the
Indebtedness or a participation interest therein, Bank may transfer all or any
part of or interest in the Collateral. Bank may deliver all or any part of the
Collateral to any Debtor at any time. Any such transfer or delivery shall
discharge Bank from all liability and responsibility with respect to such
Collateral transferred or delivered. This agreement benefits Bank's successors
and assigns and binds Debtor's heirs, legatees, personal representatives,
successors and assigns. Debtor agrees not to assert against any assignee of
Bank any claim or defense Debtor may have against Bank.
16. MODIFICATION AND WAIVER. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder, or acceptance of partial or
delinquent payments, shall not be deemed a waiver thereof or of any other right
hereunder, and any single or partial exercise of any right, power or remedy
shall not preclude the further exercise thereof. No waiver or consent shall be
effective unless it is in writing and signed by an officer of Bank. No waiver
of a current breach shall be deemed a waiver of a future breach. Bank may cure
any Event of Default at Debtor's expense.
17. MISCELLANEOUS. Time is of the essence of this Agreement and all its
provisions. Debtor will execute any additional agreements, assignments,
notices, filings or documents reasonably required by Bank to effectuate this
Agreement or to preserve and protect any Collateral and Bank's rights. This
Agreement shall be governed by the laws of the State of California and, unless
otherwise defined or provided herein, all words used in this Agreement have the
meanings given them in the California Uniform Commercial Code. Titles preceding
any paragraph of this Agreement are for convenience only and are not a part of
this agreement. All rights herein are cumulative and in addition to all rights
available under law or contract. Any notices or other communications provided
for or allowed hereunder shall be effective only when given by one of the
following methods and addressed to the respective party at its address given
with the signatures at the end of this Agreement and shall be considered to
have been validly given (a) upon delivery, if delivered personally, or (b) upon
receipt, if mailed upon placement in the United States mail, first class postage
prepaid or if sent by overnight courier service of recognized standing, and (c)
upon telephoned confirmation of receipt, if sent by telecopy or facsimile.
Unless separate notice is requested in writing by any Debtor, notice given to
any Debtor shall constitute notice to all Debtors. Should any one or more
provisions of this Agreement be determined to be illegal or unenforceable, all
other provisions nevertheless shall be effective. Except for the Loan Documents
and documents and instruments referenced herein, this Agreement and any
exhibits, schedules or addenda, constitute the entire agreement between Bank
and Debtor in connection with the Collateral and supersede all prior
understandings or agreements concerning the subject matter hereof.
18. INDEMNIFICATION. Debtor shall pay and protect, defend and indemnify Bank
and Bank's employees, officers, directors, shareholders, affiliates,
correspondents, agents and representatives (other than Bank, collectively
"Agents") against, and hold Bank and each such Agent harmless from, all claims,
actions, proceedings, liabilities, damages, losses, expenses (including without
limitation attorneys' fees and costs) and other amounts incurred by Bank and
each such Agent, arising from the matters-contemplated by this Agreement or any
Loan Document; PROVIDED, HOWEVER, that this indemnification shall not apply to
any of the foregoing incurred solely as the result of Bank's or any Agent's
gross negligence or willful misconduct. This indemnification shall survive the
payment and satisfaction of all Obligations.
19. REIMBURSEMENT. Debtor shall reimburse Bank for all costs and expenses,
including without limitation reasonable attorneys' fees and disbursements (and
fees and disbursements of Bank's in-house counsel) expended or incurred by Bank
in any arbitration, mediation, judicial reference, legal action or otherwise in
connection with (a) the negotiation, preparation, amendment, interpretation and
enforcement of this Agreement, (b) any workout or attempted workout, (c) the
rendering of legal advice as to Bank's rights, remedies and obligations under
this Agreement or any of the Loan Documents, (d) collecting any sum which
becomes due Bank under this Agreement or any Loan Document, (e) any proceeding
for declaratory relief, counterclaim to any proceeding, appeal, contempt
proceeding, discovery, or post-judgment motions and proceedings of any kind,
including without limitation any action taken to collect or enforce any
judgment, (f) the protection, preservation or enforcement of any rights of Bank,
(g) any motion, proceeding or other activity in connection with a case under
Title 11 of the United States Code or any similar law, or (h) garnishment, levy
and third party examinations.
20. N/A.
Page 6
<PAGE> 7
21. COPY. Each Debtor acknowledges receipt of a copy of this Agreement.
22. N/A DESIGNATION. Whenever "N/A" appears in this Agreement, it means that
the section in which it appears is deemed deleted from this Agreement.
IN WITNESS WHEREOF, Debtor has executed this Agreement as of the date set forth
in the preamble.
DEBTOR
Oacis Healthcare Holdings Corp.
/s/ STEPHEN F. GHIGLIERI
- -------------------------------------
Stephen F. Ghiglieri
VP Finance & Admin./CFO/Secretary
/s/ JOHN C. KINGERY
- -------------------------------------
John C. Kingery
President/Chief Operating Officer
Address(es) of chief place(s) of business and
chief executive office, or if none, residence:
300 Drake's Landing Road, Ste. 1000
Greenbrae, CA 94904
<PAGE> 8
' SECURITY AGREEMENT
EXHIBIT "A"
The following securities, deposit and other investment accounts in which Debtor
now has or hereafter acquires any right, all security entitlements, investment
property and financial and other assets now or hereafter credited to or
contained in said accounts, and all products, proceeds, interest and revenues of
and from said accounts and assets, together with any and all renewals,
substitutions, exchanges or replacements thereof or of any of the assets
contained therein ("Collateral"):
Custodial Account No. 20002370001
Additional Covenants: Debtor further agrees that Bank reserves the right at any
time following and during the continuance of an Event of Default hereunder, and
in its sole discretion, to limit and/or prohibit Debtor from effecting
withdrawals (including withdrawals of cash dividend or interest income), sales,
trades, transfers or exchanges of any Collateral held in said account or to
place reasonable additional conditions upon such transactions.
DEBTOR
Oacis Healthcare Holdings Corp.
/s/ STEPHEN F. GHIGLIERI
- -------------------------------------
Stephen F. Ghiglieri
VP Finance & Admin./CFO/Secretary
/s/ JOHN C. KINGERY
- -------------------------------------
John C. Kingery
President/Chief Operating Officer
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,865
<SECURITIES> 4,915
<RECEIVABLES> 8,721
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,171
<PP&E> 3,623
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,540
<CURRENT-LIABILITIES> 8,011
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 21,136
<TOTAL-LIABILITY-AND-EQUITY> 29,540
<SALES> 7,952
<TOTAL-REVENUES> 12,759
<CGS> 2,708
<TOTAL-COSTS> 6,063
<OTHER-EXPENSES> 8,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,759)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,759)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,759)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
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