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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 0 - 25078
PHAMIS, Inc.
(Exact name of registrant as specified in its charter)
Washington 91-1141795
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1001 Fourth Avenue Plaza, Suite 1500, Seattle, Washington 98154-1144
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 622-9558
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. [ ]
The aggregate market value of the common stock held by non-affiliates of the
registrant as of March 1, 1997 was $88,998,062.
The number of shares outstanding of the registrant's common stock as of March 1,
1997 was 6,143,145.
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TABLE OF CONTENTS
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Page No.
PART I
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Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 41
PART III
Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain Beneficial Owners and Management 43
Item 13. Certain Relationships and Related Transactions 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 44
Signatures
Exhibits
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PART I
ITEM 1. BUSINESS
THE COMPANY
PHAMIS Inc. ("PHAMIS" or the "Company"), headquartered in Seattle, Washington,
offers healthcare information solutions that are part of a complete software and
hardware system strategy designed for integrated healthcare delivery
enterprises. Products include LastWord/R/, a comprehensive computerized patient
record system; DataBreeze/TM/, an integrated practice management and managed
care system; and Enterprise View/TM/, a data warehouse for outcomes and
strategic analysis. Through its alliances with its third-party solution
partners, PHAMIS also offers a critical care solution from European-based Picis,
S.A., and a home healthcare solution from Point-of-Care Systems, Inc.
PHAMIS was founded in 1981 to provide computer systems and services to the
healthcare industry. Its flagship product, PHAMIS-LastWord/R/, was originally
developed in the late 1970s to help the U.S. Public Health Service (USPHS), a
nationwide provider of comprehensive care, track, coordinate and manage the
medical care given to merchant seaman and certain dependents of military
personnel, as this highly mobile population moved within its national system of
hospitals and clinics.
PHAMIS has many years of experience in patient-centered, enterprise-wide system
design with the majority of its installed customer base representing multi-
facility organizations. The Company has historically offered solutions which
target, and are well suited to support the large, integrated delivery network
(IDN) marketplace. Additionally, the Company's recent introduction of new
products and services has broadened its market to include the physician practice
management sector and mid-size healthcare organizations.
In March 1996, the Company acquired Data Breeze, Inc. ("DataBreeze"), a Florida-
based provider of information systems for the physician practice management
marketplace. DataBreeze became a wholly-owned subsidiary of the Company and
continues to operate from its Florida headquarters.
The business needs of the complex organizations that make up the Company's
client base are unique, and PHAMIS works in conjunction with its clients to
provide the very best combination of information solutions and services to meet
the evolving needs and requirements of the client.
On March 25, 1997, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") by and among PHAMIS, Inc. and IDX Systems Corporation, a
Vermont-based corporation ("IDX"). Pursuant to the Merger Agreement, each
outstanding share of PHAMIS, Inc. common stock will be canceled and converted
automatically into the right to receive .73 shares of IDX common stock, subject
to adjustment within a range of .6811 to .80 shares of IDX common stock, based
on the average market price per share of IDX's common stock. The Merger is
expected to be accounted for as a pooling-of-interests and to qualify as a tax-
free reorganization.
The Merger is subject to the customary closing conditions, including shareholder
approval by both companies, to be considered at separate meetings anticipated to
occur in July 1997, and legal and regulatory approvals. The Merger will be
effective promptly following shareholder approval, assuming satisfaction of the
other conditions of the Merger.
HEALTHCARE INDUSTRY
The healthcare marketplace continues to undergo significant change. Industry
consolidation and reorganization continues to take place, as healthcare
organizations are undergoing a major transformation in the way they operate and
conduct business. These ongoing pressures are requiring healthcare providers to
thoroughly evaluate their organizational structure and their information system
requirements. Due to the increasing influence of managed care in the healthcare
industry, financial risk is shifting from payor to provider, creating an
incentive for providers to maintain the wellness of their patient population.
In response to these shifts, many providers are aligning themselves with other
care facilities, thereby creating integrated healthcare delivery organizations
designed to more economically serve the healthcare needs of a regional
population.
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As the business of providing healthcare continues to become more challenging,
healthcare information systems are becoming a critical resource in providing the
relevant information that organizations need to succeed in the highly
competitive healthcare industry.
In addition, managed care has increased the importance of comprehensive patient-
centered healthcare information, as providers must accurately measure and track
medical tests and procedures, automate patient care and administrative
processes, ensure timely access to relevant information, and match patient needs
with available resources. Increasingly, as healthcare organizations continue to
evolve, they will rely on sophisticated information systems to address their
patient care requirements.
TARGET MARKETS
PHAMIS expanded its product offerings in 1996, through the acquisition of
DataBreeze and alliances with third-party solution partners, which broadened the
scope of the Company's target market. The target market for the Company's
flagship LastWord system consists of approximately 1,000 existing large- and
medium-sized healthcare providers with annual revenues in excess of $100
million, spending an aggregate of approximately $1 billion per year on
healthcare information system purchases. Most of these healthcare delivery
organizations are focused on providing high-quality care at competitive prices,
have multiple sites operating as an integrated enterprise, and are community
healthcare providers with a major market position.
The Company's Enterprise View product targets the same market. Enterprise View,
an outcomes and strategic analysis data warehouse system, offers large, complex
healthcare organizations the detailed clinical and financial outcomes data
required to operate successfully in a highly competitive marketplace.
The rapid growth of the practice management sector has created a new market
opportunity. The Company is well positioned to capitalize on this high-
potential market with its DataBreeze product offering, designed to support
management service organizations (MSOs) and physician group practices ranging in
size from 50 to more than 500 physicians. These organizations may be operating
as either independent entities, or as part of an integrated delivery network.
Finally, the Company's new FASTRACK implementation approach has expanded its
target market for the LastWord product to include mid-size healthcare
organizations in the 300-500 bed range. With the FASTRACK approach, clients are
able to take advantage of a fully featured LastWord product which is delivered
with predefined "starter sets", requiring minimal tailoring and can be installed
within a 12-month time frame.
The Company believes that these target prospects will spend increasing amounts
of funds on healthcare information systems as (a) the consolidation of
healthcare providers into regional enterprises creates the need for new
information systems that operate in a common systems environment and that
integrate previously unautomated patient-care processes and (b) these providers
view sophisticated information systems as a key competitive element in a
managed-care environment.
PRODUCT SOLUTIONS
COMPREHENSIVE COMPUTERIZED PATIENT RECORD SYSTEM: LASTWORD/R/
The LastWord computerized patient record system is a collection of integrated
applications designed to automate the organization's workflow, and provide vital
clinical, financial and administrative information to providers at all points of
care. The patient-centered LastWord system maintains data from a wide variety
of environments - critical care, acute care, ambulatory care and home care - and
stores data permanently in a single, long-term relational database. Clients use
the LastWord lifetime medical record to achieve their goals to reduce costs,
improve work processes and improve outcomes.
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LastWord operates on the fault-tolerant Tandem Computers, Inc. ("Tandem")
computing platform, which enables healthcare providers to cost-effectively
expand system capacity and increase functionality in smooth increments without
loss of computing efficiency. LastWord application groups, composed of a variety
of individual modules, include:
. Enterprise Scheduling
. Encounter, Visit and Admission Management
. Quality Management
. Medical Records
. Patient Accounting
. Clinic Billing & Receivables Management
. Clinician Tools
. Patient Care Documentation
. Protocols
. Order Communication
. Results Reporting
. Inpatient and Outpatient Pharmacy
. Ancillary/Radiology Department Management
. Emergency Department
In order to accommodate the diverse and complex needs of its clients, PHAMIS has
acquired equity positions in, or formed alliances with, companies offering
products that expand the reach of LastWord.
. Critical Care/Operating Room: Chart+ from Picis, S.A. (equity
position) integrates with LastWord at the database level to provide
connections to patient monitoring devices. The system automates the
capture, recording, and graphic display of monitor-originating data,
thereby reducing the manual recording of such information by
clinicians. Chart+ runs on Microsoft's Windows NT(TM) platform.
. Home Care: Pegasus(TM) from Point-of-Care Systems, Inc. (equity
position) integrates with LastWord at the database level to provide
mobile clinical documentation and communications capabilities using
a hand held device. It enables a seamless flow of information to the
enterprise from the home, hospital or sub-acute facility, thereby
contributing to a complete electronic medical record. Modules
include automated forms processing, data communications, clinical
charting and case management. Pegasus servers run on Microsoft's
Windows NT(TM) platform.
. Expert System: Computer Associates' CA:DB Expert enables clients to
define and incorporate site-specific rules that govern certain
processes within LastWord. This tool is intended to provide
supplemental information to users in their decision-making
processes.
. Managed Care: The Company's managed care solution, for
organizations having their own HMO, is provided through several
standard, generic interfaces designed to support clients' payor-
related financial risk management requirements such as member
enrollment, premium billing, eligibility, claims management and
benefits administration. The interfaces can be utilized with any
standards-based managed care system.
. Imaging: The Company's imaging solution, the LastWord Image Engine
(TM), facilitates the management of document, medical and other
images throughout a healthcare enterprise, without regard to storage
media.
Integrated Managed Care and Practice Management Solution: DataBreeze(TM)
DataBreeze provides an integrated collection of applications designed to enhance
the operation of physician practices. The system combines practice management
applications and managed care capabilities to automate the workflow and support
the complex contracting requirements of MSOs and multi-specialty physician group
practices. The core of the system, the DataBreeze Healthcare Server(TM), is
based on the open architecture of the Sybase(R) SQL Server database.
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DataBreeze is distinguished by its integration of practice management and
managed care functionality, and offers the following suite of applications:
. Universal Patient Record
. Managed Care
. Patient and Resource Scheduling
. Chart Tracking
. Provider/Plan Management
. Medical Billing
The scaleable DataBreeze system runs on Digital Equipment Corporation (DEC)
hardware.
Data Warehouse for Outcomes and Strategic Analysis: Enterprise View(TM)
Enterprise View is a new generation of healthcare decision support systems
enabling clinicians and executives to perform enterprise-wide clinical and
strategic analyses of issues essential to the successful management of the
organization. The depth of data facilitates clinical research, supports
financial and demographic analysis, and provides answers to questions such as
why a particular patient population requires more resources than another, or how
cost effective a particular disease management program is at meeting objectives.
Enterprise View is designed as a stand-alone data repository enabling
information to be aggregated from a wide variety of clinical and financial
database sources, including the LastWord system or external clinical information
systems, capitated plan membership databases, clinical registries and cost
accounting systems. Enterprise View users can select from an array of
commercially-available query tools to gain access to the SQL database and
measure critical outcomes data. The Enterprise View system is currently in
Alpha-testing at a client site where the product was co-developed.
Customer Service
The Company believes that the quality of its products and services has a
significant impact on the customer's satisfaction and enhances its reputation.
The Company provides ongoing customer support services to its clients. The
Company's customers enter into software maintenance agreements, which typically
have three-year terms which can be renewed thereafter.
In December 1996, the Company reorganized its Installation and Customer Support
departments into a single Client Services Organization. The new department
merges all aspects of client support into a single operating department
overseeing all implementation, maintenance and support activities. The
restructuring is intended to leverage personnel resources to ensure fast,
thorough response to clients, and streamline installations to help clients reap
early system-wide benefits. In addition, the leverage of finite resources may
reduce the overall cost of providing such services.
Implementation Services and Support. The Company provides services associated
with installation of the system. These include project planning and management;
analysis of client work flows; hardware installation; tailoring the database;
specifying and developing interfaces; testing tailored modules; integration
testing; training operations personnel and training customer users and user
trainers. Each LastWord installation requires a significant commitment of
labor hours by the Company and its customer. A typical LastWord installation
process lasts between 12 to 30 months. The time frame for a DataBreeze
implementation is typically six to nine months. The Company believes that the
quality of its implementation services is crucial to its continued success,
because the Company depends on successful installation client sites as
references for subsequent sales.
Post-Implementation Services. The Company provides post-implementation services
which include routine software maintenance, user assistance and a product
upgrade release program. The Company also operates a user hot-line for
customers to obtain technical support. The Company provides additional services
on an as-needed basis, including application utilization audits, system
customization, system management consulting, customized user training and
customized database reports.
Computing Platforms
The PHAMIS-LastWord and Enterprise View systems operate on Tandem's NonStop
computing platform, which is designed to support high-volume, mission-critical
applications, such as automation of stock exchange transactions,
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telecommunications, banking transactions and airline reservations. The Tandem
platform can be expanded without adversely affecting system responsiveness or
interrupting existing on-line users, and can support systems of various sizes
and numbers of users at a competitive cost. Therefore, the Company is able to
cost-effectively deliver incremental computing capacity such that the system
does not constrain a healthcare providers growth.
The Tandem server supports large-scale, high-performance SQL database access and
is designed for inter-operability with other computing systems.
The Company currently has a distribution agreement with Tandem that expires in
January 2002, and the Company expects that such agreement will be renewed in the
ordinary course of business.
RESEARCH AND DEVELOPMENT
To maintain its highly competitive position, PHAMIS focuses its research and
development efforts on products and technologies that address the anticipated
information needs of evolving integrated healthcare delivery organizations. As
new information needs emerge in the market, the Company investigates new
technologies and engages in appropriate product development activities to
enhance or add to its current suite of products. Most development activities
are conducted in cooperation with a customer to determine market reaction and
acceptance, help provide evaluation and product design suggestions and act as an
initial user site.
The Company has historically made substantial investments in research and
development programs and expects to continue to allocate significant resources
to these efforts. There can be no assurance that such research and development
efforts will be successful. However, the Company's commitment to product
development is critical to its long-term success.
Product development efforts in 1997 will continue to focus on the information
needs of clinicians through the addition of sets of tools designed to manage
care in the ambulatory setting. These tools will build on existing LastWord
applications to enable clinician users to better manage provider schedules, view
essential patient information and support physician workflow. In addition, the
Company expects to spend significant resources on the further development of
Enterprise View and integrating solution partner products into its enterprise-
wide systems.
The Company also will be devoting development resources to various technology
migration strategies including investments in web-based technology and
incremental conversion of LastWord to a standards-based SQL database.
SALES AND MARKETING
The Company sells its software systems through a direct sales force supported by
a product marketing staff that conducts product presentations and
demonstrations, and sales personnel who prepare sales proposals. The sales
cycle for a healthcare information system is typically 12 to 18 months or longer
from initial contact to contract execution. Prospective customers typically
organize a sizable committee to select an information system, often with the
help of an outside consultant. The committee identifies likely vendor
candidates through requests for information, and over the course of nine to 15
months, identifies the most suitable vendor with which to enter contract
negotiations. This process requires vendors to make detailed proposals, conduct
multiple demonstrations at the prospective customers site, arrange visits to
customer reference sites and to the vendors' headquarters for demonstrations and
presentations.
The Company's product marketing specialists, most of whom are healthcare
professionals, typically spend considerable time explaining the qualities and
benefits of PHAMIS' products as they pertain to various aspects of the
prospective customer's needs. A vendor of choice is announced at the end of this
period, followed by business planning and final contract negotiations, which
conclude the sales cycle. Due to the significant time and resources typically
required to sell its systems, the Company applies qualification standards
throughout the sales cycle to determine which healthcare providers to pursue.
The Company expanded its direct sales force during 1996, enabling more
aggressive coverage of prospective customers. Additionally, there are sales
personnel dedicated to sales of add-on products into the Company's existing
customer base.
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The Company's marketing efforts are organized into corporate marketing, target
marketing, and customer communication programs. The corporate marketing
activities include press relations, customer testimonials, presentations at
industry tradeshows and events, and advertising. The Company communicates
directly with targeted decision-makers and consultants in the healthcare
community through presentations and direct mail. The Company also publishes a
quarterly newsletter for its customers and actively supports its user group.
CUSTOMERS
The Company generates a majority of its revenues from large, long-term, fixed-
price contracts to deliver and install its products. The LastWord system is
currently in use or contracted for use by approximately 40 healthcare providers.
The DataBreeze system is currently in use or contracted for use by over 30
healthcare providers. The Company's customers are located throughout the United
States, and in Canada and the United Kingdom, and are major providers in their
respective market areas. The Company believes that its current customer base
represents a significant opportunity to market and sell additional LastWord,
DataBreeze and Enterprise View applications, as well as new products, services
and third party products.
BACKLOG
The Company's total backlog as of December 31, 1996 was $87.9 million, compared
to $63.6 million at December 31, 1995. Total backlog consists of signed
contracts for systems installation, support and maintenance, and additional
software and services that are not yet recognized as revenue. The Company's
installation contracts generally provide that the customer may terminate its
contract only upon a material breach by the Company. Occasionally, however, the
customer may negotiate provisions that do not relate to the Company's
performance or that allow the customer to delay certain aspects of installation.
Due to the relative size of a typical system sale and installation contract
compared to the Company's annual revenues, a installation delay of one or more
contracts could have a adverse effect on the Company's business, financial
condition and results of operations.
COMPETITION
The Company believes that the principal competitive factors in its markets are
company and product reputation and reliability, system features, proprietary
nature of methodologies and technical resources, customer service, price, and
effective marketing and sales efforts. In addition, the Company believes that
the ability to anticipate and respond to evolving healthcare market needs is an
important competitive factor. The Company believes that it competes favorably
within each of these areas.
The market for enterprise-wide healthcare information systems is intensely
competitive. Many of the Company's competitors have significantly greater
resources than the Company. Competitors vary in size and in the scope and
breadth of the products and services offered. Among the Company's principal
competitors for the LastWord system are healthcare information systems companies
such as Cerner Corporation, HBO & Company, Medaphis and SMS Corporation.
DataBreeze system competitors in the market serving multi-specialty practice
management organizations include HBO & Company (Cycare), IDX Corporation and
Medic. The competitive environment for products such as Enterprise View is
still emerging. Companies including Transition Systems, Inc., and HBO & Company
are positioning themselves to compete in this market, however their products are
primarily financially-oriented and lack the depth and breadth of integrated
clinical data contained in the Enterprise View system. Furthermore, other
information systems companies not presently offering clinical healthcare
information services may enter the markets in which the Company competes.
INTELLECTUAL PROPERTY
The Company seeks to protect its proprietary information through nondisclosure
agreements with its employees. The Company's policy is to have employees enter
into a nondisclosure agreement containing provisions prohibiting the disclosure
of confidential information to anyone outside the Company, requiring disclosure
to the Company of any new ideas, developments, discoveries or inventions
conceived during employment, and requiring assignment to the Company of
proprietary rights to such matters that are related to the Company's business
and technology.
The Company also relies on a combination of trade secret, copyright and
trademark laws, contractual provisions and technical measures to protect its
rights in its software technology. The Company has not filed any patent
applications
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or copyrights covering its software technology. Due to the nature
of the software, the Company believes that patent, trade secret and copyright
protection are less significant than the Company's ability to further develop,
enhance and modify its current products and other clinical information systems.
There can be no assurance that the legal protections and precautions taken by
the Company will be adequate to prevent misappropriation of the Company's
technology. In addition, these protections do not prevent independent third-
party development of functionally equivalent or superior technologies or
services. The Company does not believe that its operations or products infringe
on the intellectual property rights of others; however, there can be no
assurance that others will not assert infringement or trade secret claims
against the Company with respect to its current or future products or that the
Company will be successful in defending any such claim.
Healthcare and Governmental Regulation
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare facilities. During the past several years, the healthcare industry
has been subject to an increase in governmental regulation of, among other
things, reimbursement rates and certain capital expenditures. Many lawmakers
have announced that they intend to propose programs to reform the U.S.
healthcare system. These programs may contain proposals to increase governmental
involvement in healthcare, lower reimbursement rates and otherwise change the
operating environment for the Company's customers. Healthcare facilities may
react to these proposals and the uncertainty surrounding such proposals by
curtailing or deferring investments, including those for the Company's system
and related services.
The regulatory environment also continues to increase the needs of healthcare
organizations for cost-effective data management, and thereby enhance the
marketability of the Company's system and related services. The Company cannot
predict with any certainty what impact, if any, such proposals or healthcare
reforms might have on the Company's business, financial condition and results of
operations.
Finally, the Food and Drug Administration (FDA) has declared its intent to
publish federal regulations concerning medical software within 12 to 24 months.
It appears that the FDA may choose to either exclude or exempt financial and
administrative systems from regulation. The FDA is most concerned, however,
with clinical systems and real-time clinical decision support. The Company's
core product, LastWord, is a clinically-driven, tightly integrated transaction
system. New regulations could require either FDA notification or approval of
all fixes, enhancements and upgrades to the LastWord product. Because
DataBreeze provides only financial and administrative functions, and Enterprise
View is a research database, it appears these two products may not be as
directly affected by FDA oversight.
Employees
As of December 31, 1996, the Company employed 367 individuals, with 25% assigned
to research and development, 23% to Sales and Marketing, 42% to Customer Service
and 10% to Administration. None of the Company's employees are represented by a
union or other bargaining group. The Company believes its relationship with its
employees to be positive.
Executive Officers of the Registrant
See Part III, ITEM 10. at page 41 herein for a list of all executive officers of
the Company and a description of each such executive officers prior business
experience.
ITEM 2. PROPERTIES
The Company leases approximately 111,000 square feet of office space in Seattle,
Washington, under a lease that expires on December 31, 2005. The lease provides
for one option term of ten additional years, and provides for future expansion
options for additional space at the Company's discretion. The Company also
leases office space in Arlington, Virginia, Louisville, Kentucky, Deerfield
Beach, Florida, Chicago, Illinois and Cedar Rapids, Iowa.
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ITEM 3. LEGAL PROCEEDINGS
On June 4, 1992, TDS Healthcare Systems Corporation ("TDS") filed a civil action
in the United States District Court for the Northern District of Georgia in
which TDS alleged that Humana Hospital Illinois, Inc. and the Company
misappropriated confidential and trade secret information from TDS. The case
went to trial on July 5, 1995. On October 2, 1995, the District Court dismissed
all claims against the Company. In January 1996, the Company and TDS agreed that
the judgment entered in the case was final and no appeals would be filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market Tier of The
NASDAQ Stock Market under the symbol "PHAM". As of March 19, 1997, there were
approximately 118 holders of record of the Company's common stock. Most of such
shares are held by brokers and other institutions on behalf of shareholders.
Based on a recent brokers search, the Company believes there are approximately
3,625 beneficial owners of its common stock. The Company has not paid cash
dividends on its common stock and does not anticipate doing so in the
foreseeable future.
High and low stock prices for the last two fiscal years were as follows:
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Three months ended Year
ended
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March June Sept. Dec. Dec.
31, 30, 30, 31, 31,
1996 1996 1996 1996 1996
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Common stock prices
High $ 28.75 20.38 19.25 19.63 28.75
Low $ 16.75 14.50 14.75 11.00 11.00
Three months ended Year
ended
----------------------------------
March June Sept. Dec. Dec.
31, 30, 30, 31, 31,
1995 1995 1995 1995 1995
----------------------------------------------
Common stock prices
High $ 23.38 26.13 29.75 29.75 29.75
Low $ 15.38 17.13 24.63 21.75 15.38
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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data that should be
read in conjunction with the Company's consolidated financial statements, and
the notes thereto, as of December 31, 1996 and 1995 and for each of the years in
the three-year period ended December 31, 1996, and the independent auditors'
report thereon, and with ITEM 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
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Year ended December 31,
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1996 1995 1994 1993 1992
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(in thousands, except per share data)
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STATEMENTS OF OPERATIONS DATA (1):
Net revenues............................................. $49,300 $47,165 $39,101 $22,167 $24,755
Cost of revenues......................................... 28,718 28,000 24,924 15,842 16,396
------- ------- ------- ------- -------
Gross margin........................................... 20,582 19,165 14,177 6,325 8,359
Operating expenses:
Sales and marketing..................................... 7,510 5,579 4,657 4,205 3,326
Research and development................................ 5,793 3,896 2,957 2,106 1,592
General and administrative.............................. 3,885 4,954 4,143 2,541 3,047
Merger and acquisition costs............................ 292 -- -- -- --
Corporate headquarters relocation....................... 304 -- -- -- --
International market entry costs........................ 810 -- -- -- --
------- ------- ------- ------- -------
Total operating expenses................................. 18,594 14,429 11,757 8,852 7,965
Operating income (loss).................................. 1,988 4,736 2,420 (2,527) 394
Other income (expense), net.............................. 717 1,060 (151) (101) (68)
------- ------- ------- ------- -------
Income (loss) before income taxes and
extraordinary item..................................... 2,705 5,796 2,269 (2,628) 326
Provision for income taxes............................... 927 1,488 30 -- 174
------- ------- ------- ------- -------
Income (loss) before extraordinary item.................. 1,778 4,308 2,239 (2,628) 152
Extraordinary items (2).................................. -- -- 298 -- 136
Net income (loss) (3).................................... $ 1,778 $ 4,308 $ 2,537 $(2,628) $ 288
------- ------- ------- ------- -------
Income (loss) per common share before
extraordinary item (3)................................. $0.28 $0.68 $0.54 $(0.67) $0.04
Net income (loss) per common share - primary (3)......... $0.28 $0.68 $0.61 $(0.67) $0.07
Shares used in per share calculation - primary........... 6,361 6,320 4,165 3,916 3,982
Net income (loss) per common share - fully diluted (3)... $0.28 $0.68 $0.57 $(0.67) $0.07
Shares used in per share calculation - fully diluted..... 6,361 6,353 4,443 3,916 3,982
BALANCE SHEET DATA (1):
Cash, cash equivalents and investments................... $18,838 $24,378 $18,270 $ 405 $ 1,560
Working capital surplus (deficit)........................ 19,479 21,451 12,987 (4,278) (1,336)
Total assets............................................. 43,747 41,106 29,170 9,525 8,167
Long-term obligations, excluding current
installments............................................ 51 152 570 815 720
Shareholders' equity (deficit)........................... 31,160 28,080 16,947 (595) 2,000
- ---------------
</TABLE>
(1) The historical consolidated financial data for all periods presented prior
to the year ended December 31, 1996 has been restated to include the
accounts and operations of DataBreeze, which was acquired by the Company in
March 1996 and accounted for as a pooling of interests.
(2) The year ended December 31, 1994 includes an extraordinary gain of $298
resulting from the forgiveness of debt in connection with the settlement of
a note payable. The year ended December 31, 1992 includes an extraordinary
gain of $136 related to income tax benefits of net operating losses and tax
credit carryforwards.
(3) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the net income (loss) per share calculation.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
OVERVIEW
The Company develops, markets, installs and services enterprise-wide,
patient-centered healthcare information systems for use by large- and medium-
sized healthcare providers, and medium- to large-sized management service
organizations (MSOs), and multi-specialty, multi-site physician group
practices. PHAMIS operates in the single industry segment of healthcare
information systems. The Company's revenues are derived from system, license
and service sales, support and maintenance fees, and sales of third-party
hardware relating to its products.
Systems revenues are generated from long-term contracts to deliver and
install an integrated system solution. Since the Company sells an integrated
system solution, it does not assign a separate value to individual revenue
components within a particular contract. The revenues and related costs on
these contracts, including the revenues from the resale of third-party
hardware, are recognized using the percentage-of-completion method based on
the estimated labor hours required to complete an installation. Revenues for
additional software licenses and services purchased separately from a systems
contract are recognized using the percentage-of-completion method or as the
services are provided, depending upon the terms of the specific agreement.
Support and maintenance revenues are recognized over the contract period,
while additional hardware revenues, generated from hardware sales not
included in a systems contract, are recognized when the hardware is shipped.
The Company's total backlog consists of signed contracts for systems
installation, support and maintenance, and additional software and services
that are not yet recognized as revenue.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations includes a number of forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks
and uncertainties including those discussed below that could cause actual
results to differ materially from historical results or those anticipated.
The Company has identified by italics, or all capital letters, various
sentences within this Form 10-K which contain such forward-looking
statements, and words such as "believes", "anticipates", "expects",
"intends", and similar expressions are intended to identify forward-looking
statements, but are not the exclusive means of identifying such statements.
In addition, the disclosures beginning on page 17 under the caption "Other
Factors That May Affect Future Operating Results", which is not italicized or
capitalized for improved readability, consists principally of a discussion of
risks which may affect future results and, are thus, in their entirety
forward-looking in nature. Readers are urged to carefully review and consider
the various disclosures made by the Company in this report and in the
Company's other reports filed with the Securities and Exchange Commission
that attempt to advise interested parties of the risks and factors that may
affect the Company's business.
RESULTS OF OPERATIONS
In 1996, the Company reported record net revenues of $49.3 million, a 5
percent increase over the prior year. Revenue growth in 1996 is attributable
to a 34 percent increase in support and maintenance revenues, as well as a 12
percent increase in additional hardware revenues. This revenue growth, was
offset by a $532,000 or 2 percent decline in systems, licenses and service
revenues. The Company's total net revenues are substantially dependent on the
signing and implementation of a limited number of high-dollar value (average
value in excess of $5.0 million) initial implementation contracts.
Historically, the Company's sales cycle has been 12 to 18 months, and its
implementation schedule has been 12 to 30 months. However in 1996, the
Company was affected by both lengthening sales cycles and customer-driven
implementation delays which were the primary cause for the decline in
systems, licenses and service revenues. The implementation delays experienced
in 1996 were not significantly attributable to PHAMIS product issues or
installation capacity, but rather due to unique issues within a number of
customer organizations.
The Company became aware in the first quarter of 1996 that systems, licenses
and service revenues, in all likelihood, would be less than its revenue
forecast for 1996. Notwithstanding this revenue shortfall, management
determined that it was strategically advisable to continue with its intended
plans to invest significantly in product development, and sales and marketing
infrastructures for the balance of 1996. As a result, operating expenses,
excluding one-time charges,
12
<PAGE>
increased $2.8 million or 19 percent over levels of the previous year.
Current year operating expenses also included $1.4 million of one-time, non-
recurring charges related to the acquisition of DataBreeze, the Company's
relocation to its new corporate headquarters, and costs associated with the
Company's entry into the European marketplace. Due to all of the factors
above, fully diluted earnings per share were $0.28 in 1996, as compared to
$0.68 per share in 1995. Absent the one-time charges, fully diluted earnings
per share for 1996 would have been $0.45.
In March 1996, the Company acquired DataBreeze in a transaction accounted for
as a pooling of interests. Accordingly, the historical consolidated financial
data for all periods presented has been restated to include the accounts and
operations of DataBreeze. The following table sets forth certain statements
of income data as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0%
Cost of revenues........................ 58.3 59.4 63.7
----- ----- -----
Gross margin.......................... 41.7 40.6 36.3
Operating expenses:
Sales and marketing.................... 15.2 11.8 11.9
Research and development............... 11.8 8.3 7.6
General and administrative............. 7.9 10.5 10.6
Merger and acquisition costs........... 0.6 -- --
Corporate headquarters relocation...... 0.6 -- --
International market entry costs....... 1.6 -- --
----- ----- -----
Total operating expenses................ 37.7 30.6 30.1
Operating income........................ 4.0 10.0 6.2
----- ----- -----
Other income (expense), net............. 1.5 2.3 (0.4)
----- ----- -----
Income before income taxes and
extraordinary item................... 5.5 12.3 5.8
Provision for income taxes.............. 1.9 3.2 0.1
----- ----- -----
Income before extraordinary item........ 3.6 9.1 5.7
Extraordinary item-gain from -- -- 0.8
forgiveness of debt.................... ----- ----- -----
Net income.............................. 3.6% 9.1% 6.5%
===== ===== =====
</TABLE>
13
<PAGE>
Net Revenues, Cost of Revenues and Gross Margins
The following table sets forth the dollar amount of each revenue category, the
percentage that each revenue category represents of total revenue, the dollar
amount of each category of cost of revenues and gross margins, and the
percentage that each category of cost of revenues and gross margins bears to net
revenues for that category:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1996 1995 1994
----- ------ ------
$ % $ % $ %
--- --- --- --- --- ---
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NET REVENUES:
Systems, licenses and service... $35,128 71.3% $35,660 75.6% $28,597 73.1%
Support and maintenance......... 8,033 16.3 6,001 12.7 4,994 12.8
Additional hardware............. 6,139 12.4 5,504 11.7 5,510 14.1
------ ----- ------ ----- ------- ----
Total......................... 49,300 100.0 47,165 100.0 39,101 100.0
COST OF REVENUES:
Systems, licenses and service... 19,665 56.0 20,058 56.2 17,247 60.3
Support and maintenance......... 5,061 63.0 4,091 68.2 3,547 71.0
Additional hardware............. 3,992 65.0 3,851 70.0 4,130 75.0
------ ----- ------- ----- ------- -----
Total......................... 28,718 58.3 28,000 59.4 24,924 63.7
GROSS MARGINS:
Systems, licenses and service... 15,463 44.0 15,602 43.8 11,350 39.7
Support and maintenance......... 2,972 37.0 1,910 31.8 1,447 29.0
Additional hardware............. 2,147 35.0 1,653 30.0 1,380 25.0
------ ---- ------- ----- ------- -----
Total......................... $20,582 41.7 $19,165 40.6 $14,177 36.3
======= ==== ======= ===== ======= ====
</TABLE>
Systems, Licenses and Service. Systems revenues decreased slightly during
1996, after increasing in 1995 and 1994, primarily due to an decrease in the
number of labor hours dedicated to contract installation. The decline in labor
hours was partially offset by an increase in the rates realized per revenue
hour. The Company's backlog of systems, licenses and services was $57.2 million
at December 31, 1996, or 163% of 1996 systems, licenses and services revenues.
Total contracts signed were approximately $38.4 million, $20.2 million and $44.9
million for the years ended December 31, 1996, 1995 and 1994, respectively.
Gross margin percentages on systems, licenses and service sales were 44.0% in
1996, 43.8% in 1995, and 39.7% in 1994. The Company's gross margin percentages
have increased since 1994 primarily due to the addition of newer contracts with
more favorable margins replacing completed, or nearly completed, older
contracts. In addition, the Company's adoption of more formalized implementation
methodologies, the introduction of release-based products, and additional
experience in performing large-system contract installations contributed to the
increased gross margins. THE COMPANY EXPECTS GROSS MARGIN PERCENTAGES FROM
SYSTEMS, LICENSES AND SERVICE SALES TO FLUCTUATE ON A QUARTERLY BASIS DUE TO
CHANGES IN THE COMPANY'S REVENUE MIX, VOLUME OF LABOR HOURS, AND RATES REALIZED
PER REVENUE HOUR, ALL OF WHICH MAY RESULT IN INCREASED GROSS MARGINS IN 1997.
Support and Maintenance. Support and maintenance revenues increased to $8.0
million from $6.0 million, and to $6.0 million from $5.0 million for the years
ended December 31, 1996, 1995 and 1994, respectively, primarily due to the
increase in the number of installed customer sites and an increase in fees from
certain renewed support and maintenance contracts. In 1996, gross margins on
support and maintenance increased as the Company has been able to spread the
fixed portion of its maintenance costs over a larger installed customer base. In
addition, the Company's support and maintenance costs have stabilized as more of
the Company's customers have migrated to the Company's release-based products,
which decreases the amount of site-specific maintenance costs incurred by the
Company. THE COMPANY EXPECTS GROSS MARGINS TO FLUCTUATE ON A QUARTERLY BASIS IN
THE UPCOMING YEAR DUE TO INCREASES IN SUPPORT COSTS FOLLOWING SYSTEM
ACTIVATIONS, AS CUSTOMERS REQUIRE ADDITIONAL SUPPORT TO BECOME ACCLIMATED WITH
THE COMPANY'S SYSTEM, AND ADDITIONAL COSTS RELATED TO PERIODIC UPDATES FOR
REGULATORY REQUIREMENTS. HOWEVER, THE COMPANY EXPECTS GROSS MARGINS TO INCREASE
OVER 1996 LEVELS IN 1997, AS THE NUMBER OF INSTALLATIONS INCREASES.
14
<PAGE>
Additional Hardware. Additional hardware revenues were $6.1 million, $5.5
million, and $5.5 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Sales of additional hardware have been volatile, and may vary
significantly from period to period, as they are limited in number and
individual sales can have a high dollar value. THE LEVEL OF FUTURE HARDWARE
SALES MAY BE IMPACTED BY BOTH PRICE DECREASES AND BY THE INCREASING
OPPORTUNITIES TO SELL SUCH HARDWARE AS THE COMPANY'S INSTALLED CUSTOMER BASE
INCREASES AND CONSOLIDATION CONTINUES IN THE HEALTHCARE INDUSTRY.
Gross margins from the shipment of additional hardware varied in part due to the
mix of products shipped and the impact of large transactions. The gross margin
percentages on sales of additional hardware were 35%, 30% and 25% for the years
ended December 31, 1996, 1995 and 1994, respectively. Current year gross margin
percentages on sales of additional hardware were positively affected by sales of
additional hardware for which the Company acted as an agent instead of as a
reseller.
Operating Expenses
Sales and Marketing. Sales and marketing expense was $7.5 million, $5.6 million
and $4.7 million for the years ended December 31, 1996, 1995 and 1994,
respectively. As a percentage of net revenues, sales and marketing expense was
15.2%, 11.8%, and 11.9% for the years ended December 31, 1996, 1995 and 1994,
respectively. Sales and marketing expense increased significantly in both
absolute dollars and as a percentage of net revenues in 1996, as the Company
undertook planned strategic investments in sales and marketing initiatives to
promote the Company's competitive position, expand its customer base, and
capitalize on significant market opportunities to sell new systems contracts in
the Company's target market. Sales and marketing expense in 1995 and 1994 were
relatively unchanged as the rate of increase in sales and marketing expense was
comparable to the rate of increase in net revenues. THE COMPANY ANTICIPATES THAT
SALES AND MARKETING EXPENSE WILL INCREASE IN 1997, IN ABSOLUTE DOLLARS, AS IT
CONTINUES TO EXPAND ITS CUSTOMER BASE, PROMOTE ITS COMPETITIVE POSITION, AND
SUPPORT THE SALES AND MARKETING OF NEW AND EXISTING APPLICATIONS.
Research and Development. The Company's research and development efforts focus
on enhancing existing applications and developing new applications for the
LastWord, Enterprise View, and DataBreeze systems, and integrating applications
from its third-party solution providers.
The following table sets forth certain information regarding research and
development expense and amounts of capitalized software development costs:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1996 1995 1994
------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Research and development expenditures:
Research and development expense.............................. $5,793 $3,896 $2,957
Capitalized software development costs........................ 3,397 1,853 526
Funded research and development under development contracts... 370 353 --
------ ------ ------
Total research and development expenditures................... $9,560 $6,102 $3,483
====== ====== ======
As a percentage of net revenues:
Research and development expense.............................. 11.8% 8.3% 7.6%
Total research and development expenditures................... 19.4 12.9 8.9
Capitalized costs as a percentage of total
research and development expenditures........................ 35.5 30.4 15.1
</TABLE>
THE COMPANY BELIEVES IT MUST MAINTAIN A SUBSTANTIAL COMMITMENT TO RESEARCH AND
DEVELOPMENT TO REMAIN COMPETITIVE. THE COMPANY HAS SPENT INCREASING AMOUNTS ON
RESEARCH AND DEVELOPMENT AND EXPECTS THIS TREND TO CONTINUE. The Company
capitalizes software development costs when technological feasibility on a
particular project has been established and thereafter until the related product
is available for general release to customers. Research and development expense
increased $1.9 million in 1996, as the Company added development personnel and
devoted increased hours and resources to development projects. These strategic
investments were undertaken to introduce new products and enhance existing
products of the Company, as well as integrate solutions from recently entered
strategic partnerships.
During 1996, the Company incurred significant expenditures developing two new
general releases of the LastWord system, which contributed to the $1.5 million
increase in capitalized software development costs. Similarly in 1995,
15
<PAGE>
several of the Company's larger development projects reached technological
feasibility, which increased capitalized development costs by approximately $1.3
million. During 1994, many of the Company's development projects had not yet
reached technological feasibility, as a result capitalized software development
costs were significantly reduced. RESEARCH AND DEVELOPMENT EXPENDITURES IN 1997,
INCLUDING CAPITALIZED SOFTWARE DEVELOPMENT COSTS, ARE EXPECTED TO BE COMPARABLE,
OR SLIGHTLY HIGHER, THAN 1996 LEVELS, IN ABSOLUTE DOLLARS, AS THE COMPANY
CONTINUES ITS INVESTMENT IN RESEARCH AND DEVELOPMENT INITIATIVES. IN ADDITION,
THE COMPANY ANTICIPATES ITS LEVEL OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS AS A
PERCENTAGE OF TOTAL RESEARCH AND DEVELOPMENT EXPENDITURES WILL FLUCTUATE BASED
UPON THE NATURE AND TIMING OF SPECIFIC DEVELOPMENT PROJECTS UNDERTAKEN.
General and Administrative. General and administrative expense was $3.9
million, $5.0 million and $4.1 million for the years ended December 31, 1996,
1995 and 1994, respectively. The decline in spending on general and
administrative expenses is attributable to the absence of legal costs of
approximately $700,000 related to the Company's successful defense of the 1992
civil action complaint filed against the Company and the foregoing of management
bonuses. The litigation, which commenced in June 1992, was settled in the fourth
quarter of 1995. The legal fees and bonus decreases were partially offset by
increased costs related to the growth in personnel and resources necessary to
support the overall increases in the scope of the Company's operations. The
increase in 1994, compared to 1993, was primarily due to the accrual of
management bonuses and the addition of personnel and resources necessary to
support the Company's expansion. THE COMPANY EXPECTS THAT GENERAL AND
ADMINISTRATIVE EXPENSE WILL INCREASE IN 1997, IN ABSOLUTE DOLLARS, DUE TO
INCREASED STAFFING COSTS AND FACILITY COSTS, AS WELL AS OTHER ADMINISTRATIVE
COSTS INCURRED TO SUPPORT THE COMPANY'S INCREASED OPERATIONS AND INFRASTRUCTURE.
Merger and Acquisition Costs. During the first quarter of 1996, the Company
recorded merger and acquisition costs associated with the acquisition of
DataBreeze of approximately $292,000. To execute the merger, the Company
incurred transaction costs consisting principally of transaction fees for
investment bankers, attorneys, and other related charges necessary to consummate
the transaction.
Corporate Headquarters Relocation. During the second quarter of 1996, PHAMIS
relocated to its new corporate headquarters in Seattle, Washington. In
connection with its relocation the Company incurred approximately $304,000 of
one-time, non-recurring administrative expenses.
International Market Entry Costs. In 1996, the Company signed a contract to
install its LastWord system with a U.K.-based healthcare provider (Note 13 to
Consolidated Financial Statements). In connection with the signing of the
contract, the Company recorded approximately $810,000 of one-time, non-recurring
costs, which included pre-contract signing costs and initial product conversion
costs to make the Company's product applicable to the U.K. marketplace. These
costs fully reflect the Company's estimate of the excess costs over estimated
recoveries over the eight-year term of the contract. The Company does not
anticipate reporting any significant revenues or additional costs related to the
contract in its consolidated statement of income over the term of the contract.
Future revenues and profits in the U.K. marketplace will be dependent on the
Company's ability to secure additional contracts to deliver and install its
LASTWORD system.
Other Income (Expense). The decrease in other income (expense), net in 1996 was
directly attributable to lower cash, cash equivalents, and investment balances
during 1996, and lower interest yields due to a shift in investment portfolio
holdings from taxable securities to tax-exempt securities. THE COMPANY'S
INVESTMENTS CONSIST OF TAX-EXEMPT, INVESTMENT-GRADE, INTEREST BEARING SECURITIES
DIVERSIFIED AMONG SECURITY TYPES AND USERS. THE COMPANY EXPECTS TO CONTINUE TO
HOLD ITS EXCESS LIQUID ASSETS IN A SHORT-TERM INVESTMENT PORTFOLIO IN THE
FORESEEABLE FUTURE.
Income Taxes. The Company's effective tax rate was 34.3% in 1996, 25.7% in 1995,
and 1.3% in 1994. The 1996 increase was due primarily to the one-time,
nondeductible merger costs related to the acquisition of DataBreeze, and the
absence of tax benefits recognized in 1995 related to previously unrecognized
deferred tax benefits. An analysis of the differences between the statutory and
effective tax rates is provided in Note 11 of Notes to Financial Statements. IN
1997, THE COMPANY EXPECTS ITS EFFECTIVE TAX RATE TO APPROXIMATE THE ENACTED
STATUTORY TAX RATES.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company's principal sources of liquidity consisted
of $18.8 million in investments available for sale, $8.4 million of accounts
receivable and up to $5.0 million available under a bank line of credit. As of
December 31, 1996, no amounts were outstanding under this line of credit, and
the Company was in compliance with all applicable debt covenants. The Company
requires significant down payments on its system and license sales contracts and
attempts to negotiate its subsequent milestone payments so that it is in a cash
positive position throughout
16
<PAGE>
most of the contract period. Amounts billed in excess of costs and earnings on
contracts are reflected as deferred revenue on the Company's balance sheet.
The Company's working capital was $19.5 million at December 31, 1996, compared
to $21.5 million at December 31, 1995. In 1996, the Company generated cash from
operations of $2.8 million, while cash flows provided by operations were $5.3
million for the years ended December 31, 1995 and December 31, 1994,
respectively. In 1995 and 1994, cash generated from operations was sufficient to
fund the Company's investments in research and development, acquisitions of
capital assets, investments in strategic alliances, and repayments of long-term
obligations. However, due to the reduced net income levels in 1996, the
increased capital assets acquisition costs and capitalized software development
costs were, in part, funded by a $4.5 million decrease in cash and cash
equivalents and a $1.0 million reduction in the Company's investment portfolio.
Additions to capitalized software development costs totaled $3.4 million, $1.9
million, and $526,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Purchases of furniture and equipment totaled $3.2 million, $1.8
million, and $807,000, respectively, for such periods. Purchases in 1996
increased significantly primarily due to the Company's relocation to its new
corporate headquarters. In addition, the Company invested in two software
developers during 1996 and 1995 for $1.5 million and $1.1 million, respectively.
UNDER THE TERMS AND CONDITIONS OF THE CONTRACT SIGNED WITH A U.K.-BASED
HEALTHCARE PROVIDER (NOTE 13 TO CONSOLIDATED FINANCIAL STATEMENTS), THE COMPANY
WILL INITIALLY BEAR THE COSTS RELATED TO DEVELOPMENT AND IMPLEMENTATION
ACTIVITIES PRECEDING THE EXPECTED INITIAL ACTIVATION OF THE SYSTEM IN 1998. AS A
RESULT, THE COMPANY WILL EXPERIENCE SIGNIFICANT ADDITIONAL CASH OUTFLOWS DURING
1997, AS COSTS WILL EXCEED RECOVERIES FROM THE HEALTHCARE PROVIDER. UPON THE
COMPLETION OF THE INITIAL ACTIVATION THE COMPANY WILL BEGIN BILLING THE
HEALTHCARE PROVIDER FOR RECOVERIES, THUS RECOVERIES WILL EXCEED COSTS AND RESULT
IN NET CASH INFLOWS FOR THE COMPANY.
As of December 31, 1996, the Company had total long-term obligations, excluding
current installments, of $51,000 and had no material commitments for capital
expenditures, however the Company anticipates continued increased expenditures
for additions to capitalized software in 1997.
THE COMPANY BELIEVES EXISTING INVESTMENTS AVAILABLE FOR SALE, ACCOUNTS
RECEIVABLE AND AVAILABLE BANK CREDIT, TOGETHER WITH THE ANTICIPATED CASH
GENERATED FROM OPERATIONS AND THE EXERCISE OF STOCK OPTIONS, WILL PROVIDE
SUFFICIENT FUNDS FOR INTERNAL WORKING CAPITAL NEEDS, CAPITAL EXPENDITURE
REQUIREMENTS, INTERNATIONAL CONTRACT DEVELOPMENT COSTS, AND POSSIBLE
ACQUISITIONS OF PRODUCTS OR TECHNOLOGIES COMPLEMENTARY TO THE COMPANY'S BUSINESS
IN 1997.
IMPACT OF INFLATION
The Company is affected by inflation through increased costs of salaries and
benefits and other operating and administrative expenses. To the extent
permitted by the marketplace, the Company attempts to pass on increased costs to
its customers by periodically increasing prices of new sales and services.
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company believes that its future results of operations could be impacted by
a number of factors. The following factors, among others, should be considered
in evaluating the future operating results of the Company.
Customer Concentration; Dependence on Large Long-Term Fixed-Price Contracts.
The Company currently derives the majority of its annual net revenues from a
relatively small number of large long-term fixed-price contracts relating to
sales of its healthcare information system and related installation services.
The Company prices its system based in large part on the estimated number of
hours required for installation at an assumed hourly rate, and typically charges
several million dollars for each system, including related installation
services. The majority of the Company's system installations have required from
approximately 15,000 to 30,000 labor hours over a 12- to 30-month period for
substantial contract completion. The Company recognizes revenue using the
percentage-of-completion method, which the Company calculates based on hours
worked compared to total hours estimated by the Company for installation.
Therefore, any significant increase in the hours required for a system
installation, or any significant delay in an installation schedule, could have a
material adverse effect on a contracts profitability and, because of the size of
each contract, on the Company's overall results of operations.
Long Sales Cycle; Dependence on Backlog. The Company's initial contact with a
potential customer depends in significant part on the customers decision to
replace, or substantially modify, its existing information system. How and when
to replace or substantially modify an existing information system are major
decisions for a healthcare provider.
17
<PAGE>
Accordingly, the sales cycle for the Company's system is typically 12 to 18
months, or longer, from initial contact to contract execution.
As of December 31, 1996, the Company had approximately $87.9 million in total
backlog. This backlog primarily consists of a relatively small number of large
contracts relating to sales of its healthcare information system and related
installation services that are not yet recorded as revenue. Due to the long,
complex sales process, the Company is unable to predict with certainty whether a
contract proposal will be accepted, when an accepted proposal will result in an
executed contract and what the installation schedule will be for the executed
contract. Therefore, the Company's future results of operations depend in large
part on maintaining an adequate backlog. Any significant or ongoing failure by
the Company to effectively manage the sales process to achieve sufficient levels
of system sales to maintain an adequate backlog could have a material adverse
effect on the Company's future business, financial condition and results of
operations.
Dependence on Principal Product; Market Acceptance; New Product Development.
The Company's success and substantially all of its net revenues currently derive
from sales of its healthcare information system and related services. For
example, in excess of 90 percent of the Company's 1996 total net revenues were
generated from sales of its LastWord system and related services. Therefore, any
significant reduction in sales of the Company's system would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company believes that a substantial factor in the market
acceptance of its system has been its ability to meet the needs of users of
healthcare information systems. The Company's future success and financial
performance will depend in large part on the Company's ability to continue to
meet the increasingly sophisticated needs of its customers through the timely
development and successful introduction of new and enhanced versions of its
system and other complementary products. Product development focused on
enhancing existing products or introducing new products has inherent risks, and
there can be no assurance that the Company will be successful in its product
development efforts or that the market will continue to accept the Company's
existing or new products.
Competition; Consolidation of the Healthcare Industry. The market for
enterprise-wide healthcare information systems is intensely competitive. Many of
the Company's competitors have significantly greater financial, technical,
product development and marketing resources than the Company. Competitors vary
in size and in scope and breadth of the products and services offered.
Competitive pressures and other factors, such as new product introductions by
the Company or its competitors, or the entry into new geographic markets, may
result in significant price erosion that could have a material adverse effect on
the Company's business, financial condition and results of operations.
Many healthcare providers are consolidating to create larger healthcare delivery
enterprises with greater regional market power. As a result, these enterprises
have greater bargaining power, which may lead to price erosion of the Company's
system. The Company's failure to maintain adequate price levels could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company believes that once a healthcare
provider has chosen a particular healthcare information system vendor, such
provider will continue to rely on that vendor for its future information system
requirements. As the healthcare industry undergoes further consolidation, each
sale of the Company's system assumes even greater importance to the Company's
business, financial condition and results of operations. The Company's inability
to make initial sales of its system to healthcare providers that are replacing
or substantially modifying their healthcare information systems could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Dependence on Tandem. The Company's LastWord and Enterprise View systems
currently operate solely on the Tandem computing platform. The Company currently
has a distribution agreement with Tandem that expires in January 2002, and there
can be no assurance that this agreement will be renewed. For the last several
years, all systems sold by the Company have operated on the Tandem computing
platform, and the Company has derived a significant amount of its net revenues
from the resale of this platform. Therefore, termination of Tandem's
relationship with the Company for any reason would have a material adverse
effect on the Company's business, financial condition and results of operations.
Because of the foregoing factors, as well as other factors such as; the volume
and timing of systems and additional hardware sales, possible contract and
implementation postponements, changes in product mix of revenues, changes in the
level of operating expenses, delays in revenue contributions from additional
product offerings, uncertainty of international business development, and
general economic conditions in the healthcare industry, the Company's operating
results may fluctuate. All of the above factors are difficult for the Company to
forecast, and can materially adversely affect the Company's business and
operating results for one quarter or a series of quarters.
18
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
- ------------------------------------------ ----
<S> <C>
. Report of Independent Auditors' 20
. Consolidated Balance Sheets at December 31, 1996 and 1995 21
. Consolidated Statements of Income for each of
the years in the three-year period ended December 31, 1996 23
. Consolidated Statements of Shareholders' Equity
(Deficit) for each of the years in the three-year period ended
December 31, 1996 24
. Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1996 25
. Notes to Consolidated Financial Statements 26
</TABLE>
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
PHAMIS, Inc.:
We have audited the accompanying consolidated balance sheets of PHAMIS, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity (deficit), and cash flows for each of
the years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PHAMIS, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
January 31, 1997, except for note 14,
which is as of March 25, 1997
20
<PAGE>
PHAMIS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------
ASSETS 1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - 4,488
Investments available for sale, at
fair value (note 2) 18,838 19,890
Accounts receivable, net of allowance
of $102 in 1996 and $67 in 1995 8,417 6,153
Accrued revenue receivable (note 3) 2,073 1,143
Refundable income taxes (note 11) 316 777
Deferred income taxes (note 11) 323 557
Prepaid expenses and other assets
(note 4) 857 651
------------------
Total current assets 30,824 33,659
------------------
Furniture, equipment and leasehold
improvements (notes 7 and 8):
Furniture 2,074 1,127
Equipment 6,349 4,673
Leasehold improvements 366 596
------------------
8,789 6,396
Less accumulated depreciation and
amortization 4,023 3,458
------------------
Net furniture, equipment and
leasehold improvements 4,766 2,938
------------------
Other investments and advances, at cost
(note 4) 2,560 1,082
Capitalized software costs, net of
accumulated amortization of $4,137 in
1996 and $2,800 in 1995 5,120 3,060
Other 477 367
- --------------------------------------------------------------
Total assets $ 43,747 41,106
- --------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
PHAMIS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets, continued
December 31, 1996 and 1995
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Note payable to bank (note 6) $ - 209
Current installments of long-term obligations (note 7) 102 265
Accounts payable 1,739 2,531
Accrued compensation expense 985 1,657
Other accrued expenses 929 310
Deferred revenue (note 3) 7,590 7,236
-----------------------
Total current liabilities 11,345 12,208
-----------------------
Long-term obligations, excluding current installments (note 7) 51 152
Deferred income taxes (note 11) 1,191 666
Shareholders' equity (note 9):
Preferred stock, $.0025 par value. Authorized 4,000 shares; no shares
outstanding - -
Common stock, $.0025 par value. Authorized 25,000 shares; issued and
outstanding 6,127 shares in 1996 and 5,968 shares in 1995 15 15
Additional paid-in capital 27,240 25,921
Unrealized gains on investments (note 2) 15 32
Retained earnings 3,890 2,112
-----------------------
Total shareholders' equity 31,160 28,080
Commitments and contingencies (notes 8, 9, 12 and 13)
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $43,747 41,106
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
PHAMIS, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues (note 10):
Systems, licenses and service $35,128 35,660 28,597
Support and maintenance 8,033 6,001 4,994
Additional hardware 6,139 5,504 5,510
----------------------------------------
Total net revenues 49,300 47,165 39,101
----------------------------------------
Costs of revenues:
Systems, licenses and service 19,665 20,058 17,247
Support and maintenance 5,061 4,091 3,547
Additional hardware 3,992 3,851 4,130
----------------------------------------
Total cost of revenues 28,718 28,000 24,924
----------------------------------------
Gross margin 20,582 19,165 14,177
----------------------------------------
Operating expenses:
Sales and marketing 7,510 5,579 4,657
Research and development 5,793 3,896 2,957
General and administrative 3,885 4,954 4,143
Merger and acquisition costs (note 5) 292 - -
Corporate headquarters relocation (note 8) 304 - -
International market entry costs (note 13) 810 - -
----------------------------------------
Total operating expenses 18,594 14,429 11,757
----------------------------------------
Operating income 1,988 4,736 2,420
----------------------------------------
Other income (expense):
Interest income 780 1,096 81
Interest expense (31) (65) (123)
Other, net (32) 29 (109)
----------------------------------------
Other income (expense), net 717 1,060 (151)
----------------------------------------
Income before income taxes and extraordinary item 2,705 5,796 2,269
Provision for income taxes (note 11) 927 1,488 30
----------------------------------------
Income before extraordinary item 1,778 4,308 2,239
Extraordinary item-gain from forgiveness of debt (note 5) - - 298
----------------------------------------
Net income $ 1,778 4,308 2,537
----------------------------------------
Net income per common share - primary $ .28 .68 .61
Net income per common share - fully diluted $ .28 .68 .57
Weighted average number of common shares outstanding - 6,361 6,320 4,165
primary
Weighted average number of common shares outstanding - fully 6,361 6,353 4,443
diluted
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
PHAMIS, INC.
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Total
Unrealized share-
Additional gains on Retained holders'
Common stock paid-in invest- earnings equity
----------------
Shares Amount capital ments (deficit) (deficit)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 3,803 $ 9 $ 4,129 $ - (4,733) $ (595)
Stock issued in connection with initial public
offering 1,400 4 14,750 - - 14,754
Stock options exercised 44 - 115 - - 115
Stock issued pursuant to employee stock
purchase plan 7 - 33 - - 33
Stock issued to 401(k) plan 21 - 103 - - 103
Net income - - - - 2,537 2,537
------------------------------------------------------------------------------
Balances at December 31, 1994 5,275 13 19,130 - (2,196) 16,947
Stock issued in connection with initial public
offering (underwriters' overallotment) 385 1 4,176 - - 4,177
Stock options exercised 276 1 1,177 - - 1,178
Tax benefit related to stock options - - 769 - - 769
Stock issued pursuant to employee stock
purchase plan 7 - 149 - - 149
Stock issued to 401(k) plan 25 - 520 - - 520
Unrealized gains on investments - - - 32 - 32
Net income - - - - 4,308 4,308
------------------------------------------------------------------------------
Balances at December 31, 1995 5,968 15 25,921 32 2,112 28,080
Stock options exercised 117 - 509 - - 509
Tax benefit related to stock options - - 164 - - 164
Stock issued pursuant to employee stock
purchase plan 14 - 182 - - 182
Stock issued to 401(k) plan 28 - 464 - - 464
Unrealized gains (losses) on investments - - (17) - (17)
Net income - - - - 1,778 1,778
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1996 6,127 $ 15 $27,240 $ 15 $ 3,890 $ 31,160
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
PHAMIS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,778 4,308 2,537
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,640 1,955 1,498
Deferred income taxes 768 357 (265)
International market entry costs 810 - -
Other 106 21 (151)
Change in certain assets and liabilities:
Accounts receivable (2,264) (934) (1,709)
Accrued revenue receivable (930) (647) 104
Refundable income taxes 625 (8) -
Prepaid expenses and other current assets (206) (291) 42
Accounts payable (792) 939 (280)
Accrued compensation expense and other accrued expenses (53) 362 710
Income taxes payable - (255) 255
Deferred revenue 354 (536) 2,520
-----------------------------------
Net cash provided by operating activities 2,836 5,271 5,261
-----------------------------------
Cash flows from investing activities:
Purchases of investments (18,459) (60,908) (14,964)
Maturities and sales of investments 19,485 56,030 -
Purchases of furniture, equipment and leasehold improvements (3,237) (1,792) (807)
Capitalized software development costs (3,397) (1,853) (526)
Other investments (1,478) (1,082) -
International contract development costs (824) - -
Decrease (increase) in other assets and other (96) (137) 84
-----------------------------------
Net cash used in investing activities (8,006) (9,742) (16,213)
-----------------------------------
Cash flows from financing activities:
Net proceeds from initial public offering - 4,177 14,754
Proceeds from issuance of common stock under stock option and employee benefit
plans 1,155 1,847 251
Principal repayments of long-term obligations (264) (480) (370)
Net change in note payable to bank (209) 109 (782)
-----------------------------------
Net cash provided by financing activities 682 5,653 13,853
-----------------------------------
Net increase (decrease) in cash and cash equivalents (4,488) 1,182 2,901
Cash and cash equivalents at beginning of year 4,488 3,306 405
-----------------------------------
Cash and cash equivalents at end of year $ - 4,488 3,306
-----------------------------------
Supplemental disclosures of cash flow information - cash paid during the year for:
Interest $ 31 65 122
Income taxes 84 1,395 43
-----------------------------------
Supplemental schedule of noncash investing and financing activities:
Equipment acquired under capital lease agreements $ - - 355
Tax benefit from stock options exercised 164 769 -
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
PHAMIS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies
(a) Nature of Operations
PHAMIS, Inc. (Company) develops, markets, installs and services, enterprise-
wide, patient-centered health care information systems for use by large- and
medium-sized health care providers. The PHAMIS-LASTWORD system is an integrated
hardware and software solution that constructs an on-line lifetime medical
record that is accessible simultaneously throughout the health care delivery
enterprise. The LASTWORD system collects, stores and organizes patient-centered
health care information as a single relational database that enables immediate
on-line access to current and prior episodes of patient care. The majority of
the Company's revenues (in excess of 90%) are generated from sales of the
LASTWORD system, and its remaining revenues are generated from its recently
acquired Data Breeze, Inc. practice management solution. The principal market
for the Company's products and technologies are hospitals and medical group
practices with revenues in excess of $100 million located throughout the United
States, and targeted international markets.
The LASTWORD system operates on the fault-tolerant computing platform provided
by Tandem Computers, Inc. (Tandem). The Company has derived a significant
amount of its net revenues from the resale of this platform. The Company has
operated for a number of years under various distribution agreements with
Tandem, and the current agreement expires in January 2002. Any significant
failure by Tandem to meet the Company's hardware requirements would require the
Company to make substantial investments to convert its products to operate on a
computing platform provided by another supplier.
In March 1996, the Company acquired Data Breeze, Inc. (DataBreeze), a Florida-
based provider of information systems for the physician practice management
marketplace through a pooling-of-interests. The DataBreeze practice management
and managed care information system is designed for medium- to large-sized
management service organizations (MSOs), and multi-specialty, multi-site
physician group practices. The consolidated financial statements for all periods
prior to the acquisition have been restated to include the accounts and results
of operations of DataBreeze.
In December 1994, the Company completed an initial public offering (IPO) of
1,400,000 shares of common stock at an offering price of $12 per share. The
proceeds to the Company from the IPO, after deducting commissions and offering
expenses, were approximately $14,754,000.
In January 1995, an additional 385,200 shares of common stock were offered at
the offering price, and at the same terms of the IPO shares, to cover
underwriters' overallotments made in connection with the IPO. The proceeds to
the Company, after deducting commissions and offering expenses, were
approximately $4,177,000.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(c) Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(d) Revenue Recognition
Systems revenues are typically generated from long-term contracts to deliver and
install an integrated systems solution. Systems revenues include software
license fees, service fees, and revenues from the resale of third-party
hardware. Such revenues and the related costs, including the cost of contract
hardware, are recognized using the percentage-of-completion method as the work
progresses. These revenues and costs are measured primarily based on the ratio
of labor hours incurred to total estimated labor hours for the particular
contract, as prescribed by generally accepted accounting principles for long-
term, fixed-price contracts. Should the total estimated cost of a contract be
expected to exceed the contract price, the total estimated loss is recorded in
the period in which such loss is determined. The Company also licenses
additional software and provides additional services to its customers outside
the scope of its original system contract. Such revenues are recognized either
by the percentage-of-completion method or as the services are provided.
Support and maintenance fees are generally billed monthly and are recognized
ratably over the contract period with the related costs expensed as incurred.
Revenues for hardware sales not included in a systems contract, ("additional
hardware"), are recognized upon shipment.
Customer payment terms vary. Amounts billed in advance of satisfying revenue
recognition criteria are classified in current liabilities as "deferred revenue"
in the accompanying consolidated balance sheets. Costs and earnings recognized
in advance of billing are classified in current assets as "accrued revenue
receivable." The Company charged $27,000, $33,000 and $38,000, net of
recoveries, in 1996, 1995 and 1994, respectively, to the consolidated statements
of income related to allowances for doubtful accounts receivable.
(e) Software Development Costs
Software development costs incurred in conjunction with product development are
charged to research and development expense until technological feasibility has
been established. Thereafter, all software development costs for qualified
projects are capitalized and are stated at the lower of unamortized cost or net
realizable value. Net realizable value for a particular software product is
assessed based on anticipated gross margins applicable to sales of the related
product in future periods. Amortization of capitalized software costs begins
when the related product is available for general release to customers and is
provided for each product based on the greater of the amount computed using (i)
the ratio of current gross revenues to total current and anticipated future
gross revenues for the related software or (ii) the straight-line method over a
three-year life or the products estimated economic life, if shorter.
Amortization expense related to capitalized software costs amounted to
$1,338,000, $943,000 and $722,000 in the years ended December 31, 1996, 1995 and
1994, respectively. These amounts are included in costs of systems, licenses
and service.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(f) Research and Development
Research and development costs, other than software development costs, are
charged to expense as incurred.
(g) Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." Under
SFAS 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(h) Earnings Per Common Share
Primary and fully diluted net income per common share are computed using the
weighted average number of common and common-equivalent shares outstanding,
including shares issuable upon exercise of stock options. The computation, using
the treasury stock method, assumes that the proceeds from the exercise of stock
options, including tax benefits, are used to repurchase common shares at the
average market price of the Company's common stock during each period for
primary net income per common share, and at the greater of the average market
price during each period or the market price at the end of each period for fully
diluted net income per common share. Pursuant to the rules of the Securities and
Exchange Commission, common and common-equivalent shares issued during the 12
months immediately preceding the date of the Company's IPO in 1994 have been
included in the calculation of common and common-equivalent shares as if they
were outstanding for all periods presented through the date of the Company's IPO
using the IPO price of $12.00 per share.
(i) Cash and Cash Equivalents
Cash and cash equivalents include demand deposits with commercial banks and
certain money market mutual funds used for temporary cash management purposes.
Net overdrafts with commercial banks of $49,000 at December 31, 1996 are
classified in current liabilities as "other accrued expenses."
(j) Investments Available-For-Sale
Investments in short-term investment-grade, interest-bearing debt securities are
classified as available-for-sale, and are carried at fair value. The Company
records unrealized holding gains and losses, net of income taxes, as a separate
component of shareholders' equity. The Company's policy is to classify
investments, some of which may have maturities of three months or less at the
time of purchase, as investments available-for-sale rather than cash equivalents
if they are acquired and disposed of through its available-for-sale investment
portfolio.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(k) Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
investments available-for-sale and other investments, accounts receivable and
payable, and long- and short-term borrowings. The fair value of these
instruments approximates their recorded value. The Company periodically enters
into forward exchange contracts to hedge certain recorded or anticipated
transactions denominated in foreign currencies. The objective of the Company's
foreign currency hedging activities is to protect the Company from the risk that
the eventual equivalent dollar cash flows resulting from transactions
denominated in foreign currencies will be adversely affected by changes in
exchange rates. Gains and losses are deferred and included as a component of the
related transaction. The Company did not have any outstanding financial
instruments with off-balance sheet risk at December 31, 1996.
The Company's customers are substantially all large integrated health care
delivery enterprises located in the United States, United Kingdom and Canada.
Since a substantial portion of the Company's business is related to large dollar
value contracts, these receivables may be concentrated in relatively few
accounts. Three customer accounts at December 31, 1996 represented 34% of the
total accounts receivable balance while at December 31, 1995, the three largest
accounts represented 38% of the total balance. The Company does not have a
general policy of requiring collateral for its receivables, but it generally
requires down payments to be received in advance of performing significant
services.
(l) Furniture, Equipment and Leasehold Improvements
Furniture, leasehold improvements and owned equipment are stated at cost.
Equipment under capital leases is stated at the lower of the present value of
minimum lease payments discounted at the Company's incremental borrowing rate at
the beginning of the lease term or fair value at the inception of the lease.
Depreciation and amortization of furniture, equipment and leasehold improvements
are provided using the straight-line method over the following estimated useful
lives:
<TABLE>
<S> <C>
Furniture 7 years
Equipment 4 to 5 years
Leasehold improvements Lesser of lease term or estimated useful life
</TABLE>
(m) Stock Based Compensation
In 1996, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock Based Compensation." In accordance with the
provisions of SFAS No. 123, the Company has elected to continue to apply the
provisions of Accounting Principles Board (APB) Opinion No. 25 and related
interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation expense for options granted with an exercise price
equal to or in excess of fair value at the date of grant. Note 9 to the
consolidated financial statements contains a summary of pro forma net income and
earnings per share for 1996 and 1995 as if the Company had recognized
compensation expense based on the fair value of the options granted at grant
date as prescribed by SFAS No. 123.
(n) Reclassifications
Certain prior period balances have been reclassified to conform to the 1996
presentation.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(2) INVESTMENTS AVAILABLE-FOR-SALE
Investments available-for-sale at December 31, 1996 and 1995 consist principally
of tax-exempt, investment-grade, interest-bearing securities diversified among
security types and users. Investments available-for-sale consisted of the
following at December 31, 1996:
<TABLE>
<CAPTION>
Unrealized Fair
Cost gains (losses) value
----------------------------------------------
(In thousands)
<S> <C> <C> <C>
State and municipal bonds and notes $ 9,087 24 9,111
Tax-exempt municipal preferreds 9,728 (1) 9,727
----------------------------------------------
$ 18,815 23 18,838
==============================================
</TABLE>
Investments available-for-sale consisted of the following at December 31, 1995:
<TABLE>
<CAPTION>
Unrealized gains Fair
Cost value
----------------------------------------------
(In thousands)
<S> <C> <C> <C>
Money market funds $ 622 - 622
State and municipal bonds and notes 8,899 49 8,948
Tax-exempt municipal preferreds 10,320 - 10,320
----------------------------------------------
$ 19,841 49 19,890
==============================================
</TABLE>
At December 31, 1996 and 1995, approximately $15,000 and $32,000, net of income
taxes, of unrealized holding gains were recorded in shareholders' equity,
respectively. The cost and fair value of available-for-sale securities as of
December 31, 1996, by contractual maturity, consisted of the following:
<TABLE>
<CAPTION>
Fair
Cost value
-------------------------------
(In thousands)
<S> <C> <C>
Due in one year or less $ 15,497 15,504
Due in one to two years 3,318 3,334
------------------------------
$ 18,815 18,838
==============================
</TABLE>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(3) UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings to date on uncompleted contracts were as
follows at December 31:
<TABLE>
<CAPTION>
1996 1995
---------------------
(In thousands)
<S> <C> <C>
Costs incurred on uncompleted contracts $ 49,770 55,641
Estimated earnings 33,618 33,322
----------------------
83,388 88,963
Less billings to date 88,905 95,056
----------------------
$ (5,517) (6,093)
======================
Included in accompanying balance sheets
under the following captions:
Accrued revenue receivable 2,073 1,143
Deferred revenue (7,590) (7,236)
----------------------
$ (5,517) (6,093)
======================
</TABLE>
(4) OTHER INVESTMENTS AND ADVANCES
In February 1996, the Company signed a Distribution Agreement with a California-
based software developer of mobile computing solutions for the home healthcare
marketplace. The Agreement allows the Company to distribute the home healthcare
solutions throughout its direct sales network. In addition to the Agreement, the
Company purchased a minority equity interest in the developer for approximately
$950,000 in cash. The equity interest is accounted for under the cost method of
accounting. Subsequent to the initial investment, the Company advanced $295,000
to the developer which was repaid in 1997.
In December 1995, the Company purchased an equity interest in a critical care
information systems developer based in Europe, for approximately $1,082,000 in
cash. The equity interest is accounted for under the cost method of accounting.
In addition to the equity interest, the Company entered into an OEM Distribution
Agreement to distribute the critical care system throughout the Company's
customer base. To consummate the Agreement the Company paid certain costs for
advance license fees, which are recorded as prepaid expenses. During 1996 the
Company was a participant in an additional round of equity financing of the
developer, as a result of which the Company invested an additional $225,000.
(5) ACQUISITION
In March 1996, the Company completed the acquisition of DataBreeze which became
a wholly-owned subsidiary of the Company and continues to operate from its
Florida headquarters. The transaction was accounted for as a pooling-of-
interests, and was effected through the exchange of 153,609 shares of common
stock of the Company for all the issued and outstanding shares of DataBreeze. In
connection with the merger, the Company incurred approximately $292,000 of one-
time merger costs consisting principally of transaction fees for investment
bankers, attorneys, and other related charges necessary to consummate the
transaction.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The results of operations previously reported by the separate enterprises and
the consolidated amounts for the years ended December 31, 1995 and 1994 are
summarized below.
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994
----------------------------
(In thousands)
<S> <C> <C>
Net revenues:
PHAMIS Inc. $ 44,003 34,442
DataBreeze 3,162 4,659
----------------------------
Consolidated $ 47,165 39,101
============================
Extraordinary item:
PHAMIS Inc. - -
DataBreeze - 298
----------------------------
Consolidated $ - 298
============================
Net income (loss):
PHAMIS Inc. 4,546 2,401
DataBreeze (238) 136
----------------------------
Consolidated $ 4,308 2,537
============================
</TABLE>
In 1994, DataBreeze negotiated a settlement on a note payable resulting in a
forgiveness of debt of $298,000 which is recorded as an extraordinary item in
the 1994 consolidated statement of income.
(6) NOTE PAYABLE TO BANK
As of December 31, 1996, the Company has an unsecured $5,000,000 revolving line
of credit agreement with a bank which expires on June 1, 1998. The agreement
imposes certain financial covenants requiring the Company to maintain certain
levels of net worth, debt to net worth ratios, and current ratios. In addition,
the agreement contains an option to convert up to $5,000,000 of the revolving
line of credit to a two-year term loan with a maturity no later than June 1,
2000. Borrowings under this line bear interest at the bank's prime rate. There
were no amounts outstanding at December 31, 1996 or 1995.
Prior to the acquisition of DataBreeze by the Company (Note 5), DataBreeze had a
$250,000 line of credit agreement with a bank. Borrowings under the line carried
interest at rates above the bank's prime rate, were subject to certain
restrictive financial covenants, and were collateralized by substantially all of
DataBreeze's assets. Borrowings of $209,000 were outstanding under this line at
December 31, 1995. The line of credit agreement was subsequently canceled in
connection with the acquisition of DataBreeze by the Company.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(7) Long-Term Obligations
Long-term obligations consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
----------------
(In thousands)
<S> <C> <C>
Unsecured notes payable due in monthly installments, including interest
at rates ranging from 10% to 12%, final payment due January 1997 $ 2 133
Capital lease obligations payable, including imputed interest at rates
ranging from 9.25% to 11.0%, final payments due 1998 to 2000 151 284
----------------
Total long-term obligations 153 417
Less current installments 102 265
----------------
Total long-term obligations, excluding current installments $ 51 152
----------------
</TABLE>
The principal maturities of total long-term obligations, excluding current
installments, at December 31, 1996 are currently scheduled to mature during 1998
through 2000.
Capitalized equipment leases included in equipment at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
----------------
(In thousands)
<S> <C> <C>
Equipment $ 1,056 1,147
Less accumulated amortization 776 678
----------------
$ 280 469
----------------
</TABLE>
(8) Operating Leases
The Company occupies its office space and uses certain of its equipment under
terms of noncancelable operating leases expiring at various dates through 2005.
Future minimum lease payments under noncancelable operating leases are as
follows at December 31, 1996:
<TABLE>
<CAPTION>
(In thousands)
Years ending December 31:
<S> <C>
1997 $ 1,589
1998 1,728
1999 1,780
2000 1,782
2001 1,784
Thereafter 8,403
--------
$ 17,066
--------
</TABLE>
Rent expense under noncancelable operating leases amounted to $1,417,000,
$976,000 and $821,000 in the years ended December 31, 1996, 1995 and 1994,
respectively.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
In 1996, the Company relocated to its new corporate headquarters in Seattle,
Washington. In connection with the relocation, the Company incurred
approximately $304,000 of one-time, nonrecurring administrative expenses.
(9) Shareholders' Equity
(a) Shareholder Rights Plan
In July 1996, the Board of Directors of the Company adopted a shareholder rights
plan (the "Rights Plan") and declared a dividend of one preferred share purchase
right (a "Right") on each outstanding share of common stock. Under certain
circumstances, following a merger or other business combination transaction of
15% or more of the Company's outstanding common stock by an acquiring person or
group, each Right (other than Rights held by an acquiring group or person) may
be exercised to purchase one one-thousandth of a share of the Company's Series A
Junior Participating Preferred Stock for $105. The Rights, which are redeemable
by the Company at $0.01 per Right, expire in July 2006. The Rights have certain
antitakeover effects and will cause substantial dilution to a person or group
that attempts to acquire the Company on terms not approved by the Board of
Directors.
(b) Stock Compensation Plans
At December 31, 1996, the Company has three fixed stock option plans and an
employee stock purchase plan, which are described below. The Company applies APB
Opinion No. 25 and related interpretations in accounting for its plans under
which no compensation expense has been recognized for its four stock-based
compensation plans. Had compensation expense for the Company's plans been
determined consistent with SFAS No. 123, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated in the
table below:
<TABLE>
<CAPTION>
1996 1995
----------------
(In thousands)
<S> <C> <C>
Net income - as reported $ 1,778 4,308
Net income - pro forma 913 3,837
Primary net income per common share - .28 .68
as reported
Primary net income per common share - .15 .61
pro forma
Fully diluted net income per common .28 .68
share - as reported
Fully diluted net income per common .15 .60
share - pro forma
</TABLE>
The effects of applying SFAS No. 123 in the pro forma disclosures are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.
Fixed Stock Option Plans
Options granted under the PHAMIS, Inc. Amended and Restated 1983 Combined
Nonqualified and Incentive Stock Option Plan (1983 Plan) and the PHAMIS, Inc.
1993 Combined Incentive and Nonqualified Stock Option Plan (1993 Plan), are
exercisable at the fair market value of the stock at the date of grant. Options
granted under both plans, prior to May 1996, are generally exercisable in
cumulative increments of 1.667% per month over a five-year period and expire ten
years from the date of grant. In April 1996, the Company's Compensation
Committee
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
amended the 1993 Plan's vesting policy for option grants from 1.667%
per month over a five-year period to 25% per year over a four-year period. In
addition, the Board of Directors amended the 1993 Plan in May 1996 and October
1994, authorizing the increase in the number of shares available for issuance
from 400,000 to 900,000 and 200,000 to 400,000, respectively.
In October of 1994, the Board of Directors authorized 25,000 shares of common
stock to be reserved for grant pursuant to the Nonemployee Director Stock Option
Plan (1994 Plan). The options become fully vested and exercisable one year from
the date of grant provided the director attends the requisite number of Board of
Directors meetings. Options expire upon the earlier of 10 years from the date
of grant or one year after a directors termination of service as a director.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 62.50% 62.50%
Risk-free interest rate 6.14% 7.16%
Expected life of options 3.8 years 4.4 years
</TABLE>
The weighted average fair value of options granted during 1996 and 1995 was
$10.10 and $11.28, respectively.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A Summary of the status of the Company's fixed stock option plans as of December
31, 1996, 1995, and 1994, and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
Outstanding
-------------------
options
Shares ------------------- Weighted Options Exercisable
available 1983 1993 1994 average exercisable price per
for grant plan plan plan exercise price at year-end share
----------------------------------------------------------------------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 152 650 48 - $ 4.21 414 .50-4.80
Options set aside 225 - - -
Options granted (140) - 137 3 5.53
Options exercised - (42) (2) - 2.56
Options relinquished 6 (14) (6) - 4.62
-------------------------------------
Balances at December 31, 1994 243 594 177 3 4.53 486 .50-12.00
Options granted (116) - 113 3 19.11
Options exercised - (269) (7) - 4.27
Options relinquished 4 (2) (4) - 6.33
-------------------------------------
Balances at December 31, 1995 131 323 279 6 7.43 347 1.45-28.38
Options set aside 500 - - -
Options granted (221) - 218 3 19.97
Options exercised - (100) (17) - 4.35
Options relinquished 14 (2) (14) (1) 15.69
--------------------------------------
Balances at December 31, 1996 424 221 466 8 $ 11.74 329 3.85-28.55
======================================
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Excercisable
------------------------------------------------------ ---------------------------------
Shares Weighted average Shares
Range of outstanding remaining Weighted average exercisable Weighted average
exercise prices at 12/31/96 contractual life exercise price at 12/31/96 exercise price
- ---------------------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
$3.85 - 6.04 364 5.39 $4.66 272 $4.50
9.00 - 12.88 17 9.04 11.64 4 10.43
14.50 - 16.93 86 8.11 16.86 31 16.93
18.63 - 21.11 147 9.48 19.03 5 19.37
23.76 - 28.55 81 7.73 24.80 17 25.01
---- ----
$3.85 - 28.55 695 6.96 $11.74 329 $7.05
---- ----
</TABLE>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Employee Stock Purchase Plan
The Company has an employee stock purchase plan whereby eligible employees may
purchase the Company's common stock at 85% of the lower of the fair market value
on the first or the last day of each three-month exercise period. The Company
has reserved 200,000 shares of common stock for issuance under the plan. The
number of shares available for purchase during the year is determined at the
discretion of the Board of Directors. At December 31, 1996, 179,000 shares were
reserved for future issuance. During 1996, 14,000 shares were purchased under
the plan at an average price of $12.53 per share. During 1995, 7,000 shares were
purchased at an average price of $22.00 per share. During 1994, 7,000 shares
were purchased at an average price of $5.16 per share. Employees are also
allowed to direct portions of their investments in the 401(k) Retirement Savings
Plan (Note 12) to acquire Company common stock.
Under SFAS No. 123, compensation expense is recognized for the fair value of the
employees' purchase rights, which was estimated using the Black-Scholes model
with the following assumptions for 1996 and 1995, respectively: dividend yield
of 0% for both years; an expected life of 90 days for both years; expected
volatility of 62.5% for both years; and risk-free interest rates of 5.14% and
5.69%. The weighted average fair value of those purchase rights granted in 1996
and 1995 was $5.44 and $7.25, respectively.
(10) SALES INFORMATION
The Company currently derives a significant amount of its annual net revenues
from a relatively small number of large long-term fixed-price contracts,
relating to sales of its health care information system and related installation
services. During 1996 and 1994 there were no individual customers that accounted
for more than 10% of total net revenues. One customer represented 11% of the
Company's total net revenues for the year ended December 31, 1995.
Under the percentage-of-completion method, a significant increase in the hours
required for a system installation could have an adverse effect on a contracts
profitability. In addition, the Company's installation contracts generally
provide for payments upon the achievement of certain milestones. Therefore, any
significant delay in the achievement of milestones on one or more contracts
could have an adverse effect on cash flows.
(11) INCOME TAXES
The components of the provision for income taxes for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------
(In thousands)
<S> <C> <C> <C>
Federal:
Current $ 175 941 265
Deferred 647 357 (265)
---------------------
822 1,298 --
---------------------
State:
Current (16) 190 30
Deferred 121 -- --
--- --- --
105 190 30
---------------------
$ 927 1,488 30
---------------------
</TABLE>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Provision for income taxes differs from "expected" income tax expense (computed
by applying the U.S. Federal income tax rate of 34%) as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------------------
<S> <C> <C> <C>
Computed "expected" tax expense 34% 34% 34%
State income taxes, net of Federal benefit 2 2 1
Tax-exempt interest and dividends (8) (4) -
Nondeductible merger costs 4 - -
Change in valuation allowance for net deferred tax - (9) (35)
assets
Other 2 3 1
------------------
34% 26% 1%
------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets (liabilities) are comprised of the following for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995
----------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts $ 38 23
Compensated absences, principally due to accrual for
financial reporting purposes 294 241
Contracts in progress - 302
Research and development tax credit 244 222
Loss carryforwards and other tax credits 521 157
Other 68 21
-----------------
Total deferred tax assets 1,165 966
------------------
Deferred tax liabilities:
Capitalized software costs, net of accumulated amortization 1,888 1,040
Other 145 35
------------------
Total deferred tax liabilities 2,033 1,075
------------------
Net deferred tax liabilities $ 868 109
------------------
Included in accompanying balance sheets under thw following caption:
Current assets - deferred income taxes 323 557
Noncurrent liabilities - deferred income taxes 1,191 666
-----------------
$ 868 109
==================
</TABLE>
As of December 31, 1996, the Company had net operating loss carryforwards of
$1,054,000 and minimum tax credit carryforwards of $156,000 for Federal and
state income tax reporting purposes. In addition, at December 31, 1996, the
Company had research and development tax credit carryforwards for Federal income
tax purposes, of approximately $244,000. These net operating losses and research
and development tax credit carryforwards expire in
38
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
various periods from 2007 to 2011 and are available to reduce future Federal and
state income taxes. The minimum tax credit carryforwards have no expiration date
and are available to reduce future Federal income taxes. The Company believes
that it is more likely than not that the deferred tax assets will be realized
prior to their expiration. This belief is based on recent and anticipated future
earnings, as such, no valuation allowance was recorded at December 31, 1996 or
1995.
(12) 401(K) RETIREMENT SAVINGS PLAN
The Company has a 401(k) Retirement Savings Plan in which all full-time
employees of the Company are eligible to participate. Participants become
eligible for the employer-matching contribution on the first day of the calendar
quarter immediately following the completion of one year of service. The
Company matches 50% of participant contributions up to a maximum Company
contribution of $1,500 per employee in the Company's stock. Matching
contributions to the plan were $320,000, $165,000 and $97,000 in the years ended
December 31, 1996, 1995 and 1994, respectively.
(13) INTERNATIONAL MARKET ENTRY COSTS
In December 1996, the Company signed an agreement to install its LastWord system
at a United Kingdom-based health care provider, to provide facilities management
services and assist in the development process of modifying the Company's system
to reflect U.K. market requirements. The agreement will be accounted for as a
development contract with an estimated term of eight years. The contract payment
terms and conditions were negotiated in accordance with the provisions of the
Private Finance Initiative. A portion of the contract value is subject to
certain variable pricing requirements which are determined in accordance with
certain performance indicators. The variable portion of the contract is not
considered material to the total contract value. During 1996, the Company
recorded approximately $810,000 of non-recurring charges representing the excess
of estimated costs over estimated recoveries related to the contract. Future
expenditures to be incurred over the term of the contract are expected to be
approximately $15 million, including costs to be incurred by a third party
subcontractor, which amounts the Company expects to recover over the term of the
contract.
(14) SUBSEQUENT EVENT
On March 25, 1997, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") by and among PHAMIS, Inc. and IDX Systems Corporation, a
Vermont-based corporation ("IDX"). Pursuant to the Merger Agreement, each
outstanding share of PHAMIS, Inc. common stock will be canceled and converted
automatically into the right to receive .73 shares of IDX common stock, subject
to adjustment within a range of .6811 to .80 shares of IDX common stock, based
on the average market price per share of IDXs common stock. In addition, the
Company agreed to pay IDX a $6 million fee plus expenses not to exceed $1.5
million if the Merger Agreement is terminated under certain circumstances. The
Merger is expected to be accounted for as a pooling-of-interests and to qualify
as a tax-free reorganization.
The Merger is subject to the customary closing conditions, including shareholder
approval by both companies, to be considered at separate meetings anticipated to
occur in July 1997, and legal and regulatory approvals. The Merger will be
effective promptly following shareholder approval, assuming satisfaction of the
other conditions of the Merger.
39
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(15) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following tables (presented in thousands, except per share amounts) set
forth certain unaudited quarterly supplementary data for each of the years in
the two-year period ended December 31, 1996:
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------- Year ended
March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
1996 1996 1996 1996 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 12,115 12,160 12,814 12,211 49,300
Gross margin 5,115 5,295 5,002 5,170 20,582
Net income 356 467 671 284 1,778
Net income per common
share - primary .06 .07 .11 .04 .28
Net income per common
share - fully diluted .06 .07 .11 .04 .28
Three months ended
------------------------------------------------- Year ended
March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
1995 1995 1995 1995 1995
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 11,663 12,026 11,173 12,303 47,165
Gross margin 4,574 4,855 4,759 4,977 19,165
Net income 1,162 1,102 1,073 971 4,308
Net income per common
share - primary .18 .17 .17 .16 .68
Net income per common
share - fully diluted .18 .17 .17 .16 .68
</TABLE>
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no disagreements on any matter of accounting principles, financial
statement disclosure, or auditing scope or procedure to be reported under this
item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Frank T. Sample.............. 51 President, Chief Executive Officer and
Director
Malcolm A. Gleser............ 54 Senior Vice President of Corporate Research
Organization and Chairman of the Board
Mark F. Wheeler.............. 47 Senior Vice President of Corporate Research
Organization and Secretary
Gregg W. Blodgett............ 43 Vice President of Finance and Administration,
Chief Financial Officer and Treasurer
Laurie Lancaster Pike........ 41 Vice President of Business Development
Charles H. Reiling........... 59 Senior Vice President of Client Services Organization
Thomas M. Watson............. 47 Vice President of Sales
Daniel Dyer (1)(2)........... 67 Director
Timothy J. Wollaeger (1)(2).. 53 Director
Lonnie M. Smith (1)(2)....... 52 Director
- ---------------
</TABLE>
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
For purposes of determining terms of office, directors are divided into three
classes. The current class designations of directors are Class II -- Dr. Gleser
and Mr. Dyer, Class III -- Messrs. Sample and Wollaeger and Class I -- Mr.
Smith. The Company's directors serve for terms of three years, with one class
being elected by the shareholders each year. The terms of the current directors
will expire as follows: Messrs. Sample and Wollaeger at the 1997 annual meeting
of shareholders, Mr. Smith at the 1998 annual meeting of shareholders, and Dr.
Gleser and Mr. Dyer at the 1999 annual meeting of shareholders, in each case
until their respective successors are elected and qualified or until their
resignation or removal. Officers serve at the discretion of the Board of
Directors. There are no family relationships between any of the directors or
executive officers of the Company.
Mr. Sample has been President, Chief Executive Officer and a director of the
Company since December 1990. From July 1987 to December 1990, Mr. Sample served
as Vice President of Product Management, Sales and Marketing of the Information
Systems & Services division of TRW, Inc., a provider of financial information
services. From 1986 to 1987, he served as General Manager for the Healthcare
Services Group of Control Data Corporation. From 1982 to 1986, he served as
President of the MedTec division of Control Data Corporation, a provider of
hardware and software to large multi-specialty clinics. Prior to that, Mr.
Sample held various positions with IBM Corporation and Control Data Corporation.
Mr. Sample received his B.B.A. in Business Administration from Cleveland State
University. Mr. Sample was initially elected to the Board of Directors pursuant
to his employment agreement with the Company.
Dr. Gleser is a co-founder of the Company and has been a director since 1981.
Dr. Gleser has served as the Company's Chairman of the Board since 1982 and as
its Senior Vice President of Corporate Research Organization since May 1995. He
served as the Company's Senior Vice President of Business Development from
January 1991 to May 1995. From the Company's inception until December 1990, Dr.
Gleser served as the Company's Chief
41
<PAGE>
Executive Officer; he also served as its President from the Company's inception
until July 1985 and from January 1989 to December 1990. A physician and
biomathematician, he designed the precursor of the LASTWORD system and directed
its development from 1976 to 1981 while employed by the USPHS. Dr. Gleser
received his B.A. in Mathematics from the University of Michigan, his M.D. from
Albert Einstein College of Medicine and his Ph.D. in Biomathematics from the
University of Cincinnati.
Dr. Wheeler is a co-founder of the Company and was a director from the Company's
inception to October 1994. Dr. Wheeler has served as the Company's Senior Vice
President of Corporate Research Organization since May 1995 and as its Secretary
since 1982. He served as the Company's Senior Vice President of Technical
Research from January 1991 to May 1995. From the Company's inception until
November 1988, Dr. Wheeler served as Vice President of the Company in charge of
product development, and from November 1989 to December 1990, he served as Vice
President of Research and Development. A former practicing physician, beginning
in 1978 he designed the applications that became the LASTWORD clinical
applications. Dr. Wheeler received his B.A. and M.D. from Yale University and
his M.P.H. from the University of Washington.
Mr. Blodgett joined the Company in August 1994 as its Vice President of Finance
and Administration, Chief Financial Officer and Treasurer. From July 1992 to
August 1994, Mr. Blodgett served as Chief Financial Officer of Computeach, Inc.,
a developer of children's educational software. From May 1990 to June 1992, he
served as Chief Financial Officer of Edelstein Associates Advertising, Inc., an
advertising and fixture manufacturing firm, and from May 1985 to May 1990, as a
Vice President of Rainier Bancorporation and its successor, Security Pacific
Bank, a national banking association, with responsibility for its financial and
regulatory reporting and accounting policy. From June 1976 to May 1985, he was
with Deloitte Haskins & Sells, a certified public accounting firm. Mr. Blodgett
is a Certified Public Accountant and received his B.A. in Business
Administration (Accounting) from the University of Washington.
Ms. Pike has served as the Company's Vice President of Business Development
since January 1997. She served as the Company's Vice President of Corporate
Research Organization from May 1995 to January 1997. She served as the Company's
Vice President of Product Management from September 1991 to May 1995. She served
in the Company's Product Management department as Director of Product Management
from January 1991 through August 1991 and as Director of Clinical Applications
from January 1990 to December 1990. From July 1985 to 1989, she served in
various capacities in the Company's Product Management department. Ms. Pike
received her B.S.N. from De Pauw University and her M.N. from the University of
Washington.
Mr. Reiling has served as the Company's Vice President of Client Services
Organization since April 1994. He served as the Company's Vice President of
Product Development from April 1991 through April 1994. From 1986 to 1990, he
served in several management positions with Tandem, an international
manufacturer of fault-tolerant computer systems, with responsibility for
developing business plans, management processes and product strategies. Mr.
Reiling received his M.B.A. from the University of Chicago. In January 1997, Mr.
Reiling was appointed Senior Vice President of the Client Services Organization.
Mr. Watson served as the Company's Vice President of Sales since October 1991.
He served as the Company's Vice President of Client Services from October 1990
to September 1991 and as an Account Executive of the Company from June 1989 to
October 1990. Mr. Watson received his B.S. in Business Administration from
Drexel University. In February 1997, Mr. Watson resigned from the Company.
Mr. Dyer has been a director of the Company since March 1984. From 1969 to 1983,
he served as Chief Executive Officer of Manugistics Group Inc. (formerly STSC,
Inc.), a developer and marketer of business operations software products and
services. Mr. Dyer is currently Chairman of the Board of Governors of
Opportunity International, an organization that creates and supports
microenterprise development organizations in developing countries. He received
his B.S.E.E. from Yale University and his M.B.A. from Harvard University. Mr.
Dyer serves on the Audit and Compensation Committees of the Board of Directors.
Mr. Wollaeger has been a director of the Company since February 1994. Mr.
Wollaeger has been the general partner of Kingsbury Associates, L.P., the
general partner of Kingsbury Capital Partners, L.P., and of Kingsbury Capital
Partners, L.P. II, a venture capital investment firm, since December 1993. From
May 1990 until December 1993, he served as Senior Vice President and was a
director of Columbia Hospital Corporation ("Columbia"), a hospital management
company now known as Columbia/ HCA Healthcare Corp. Mr. Wollaeger also served as
President and
42
<PAGE>
Chief Executive Officer of Smith Laboratories, Inc., a manufacturer of medical
and surgical products, from 1989 until its merger with Columbia in May 1990.
From October 1986 until July 1993, he was a general partner of the general
partner of Biovest Associates, a venture capital investment firm. He is a
director of Amylin Pharmaceuticals, Inc. and Celtrix Pharmaceuticals, Inc., both
developers of biopharmaceutical therapies, a director of Pyxis Corporation, a
provider of automated medication and supply dispensing systems, and of Raytel
Medical Corporation, a provider of cardiac services. Mr. Wollaeger is also a
founder and director of several privately held medical and biotechnology
companies. Mr. Wollaeger received his B.A. in Economics from Yale University and
his M.B.A. from Stanford University. He serves on the Audit and Compensation
Committees of the Board of Directors.
Mr. Smith has been a director of the Company since May 1995. Mr. Smith is
currently the Chief Executive Officer of Intuitive Surgical, Inc., a private
corporation located in Palo Alto, California. From 1982 to February of 1997, Mr.
Smith served as the Senior Executive Vice President of Hillenbrand
Industries, Inc. ("Hillenbrand"), a publicly traded holding company for five
diversified, wholly-owned and autonomously managed operating companies, since
1982. The five subsidiaries are organized into healthcare and funeral service
segments and are leaders in the markets they serve. Mr. Smith received his B.S.
in Electrical Engineering from Utah State University and his M.B.A. from Harvard
University. Mr. Smith serves on the Audit and Compensation Committees of the
Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item will be filed in an amendment to the Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item will be filed in an amendment to the Form
10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
43
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
1. FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements under Part II, ITEM 8. on
page 19 herein.
2. FINANCIAL STATEMENT SCHEDULES
The consolidated financial statement schedules have been omitted because
they are either not required, not applicable, or the required information
is shown in the consolidated financial statements or notes thereto.
3. EXHIBITS
See Index of Exhibits on page 45 herein.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed by the Company with the
Securities and Exchange Commission during the fourth quarter of 1996.
44
<PAGE>
PHAMIS, INC.
INDEX OF EXHIBITS
Exhibit Page
- ------- ----
3.1 Amended and Restated Articles of Incorporation of PHAMIS,
Inc. (1)
3.2 Amendment to Articles of Incorporation, dated as of July 24,
1996 (2)
3.3 Rights Agreement dated as of July 24, 1996 by and between
PHAMIS, Inc. and First Interstate Bank of Washington, N.A.,
as Rights Agent (3)
3.4 Bylaws of PHAMIS, Inc. (1)
4.1 Specimen Common Stock Certificate of PHAMIS, Inc. (1)
10.1 PHAMIS, Inc. Amended and Restated 1983 Combined Nonqualified
and Incentive Stock Option Plan (1)
10.2 PHAMIS, Inc. Amended and Restated 1993 Combined Incentive and
Nonqualified Stock Option Plan (1)
10.3 First Amendment to PHAMIS, Inc. Amended and Restated 1993
Combined Incentive and Nonqualified Stock Option Plan (4)
10.4 Second Amendment to PHAMIS, Inc. Amended and Restated 1993
Combined Incentive and Nonqualified Stock Option Plan
10.5 Third Amendment to PHAMIS, Inc. Amended and Restated 1993
Combined Incentive and Nonqualified Stock Option Plan
10.6 PHAMIS, Inc. 1994 Nonemployee Director Stock Option Plan (1)
10.7 First Amendment to PHAMIS, Inc. 1994 Nonemployee Director Stock
Option Plan (4)
10.8 PHAMIS, Inc. 1994 Employee Stock Purchase Plan (1)
10.9 First Amendment to 1994 Employee Stock Purchase Plan (4)
10.10 PHAMIS, Inc. Salary Savings and Deferral Plan (1)
10.11 First Amendment to PHAMIS, Inc. Salary Savings and Deferral
Plan (4)
10.12 Second Amendment to PHAMIS, Inc. Salary Savings and Deferral
Plan (4)
10.13 Employment Agreement between PHAMIS, Inc. and Frank T. Sample
dated November 12, 1990, as amended October 27, 1994 (1)
10.14 Form of Memorandum of Understanding regarding 1996 Bonus
Program
45
<PAGE>
10.15 Memorandum of Understanding regarding 1996 Incentive Award
between PHAMIS, Inc. and Thomas M. Watson dated January
25,1996
10.16 1996 Executive Bonus Program for Frank T. Sample
10.17 Revised Form of Indemnification Agreement for directors,
officers, employees and/ or agents of the Company (5)
10.18 Business Loan Agreement between Seattle-First National Bank
and PHAMIS, Inc. dated September 27, 1994, as amended
October 14, 1994 (1)
10.19 First Amendment to Business Loan Agreement between Seattle-
First National Bank and PHAMIS, Inc. dated September 27,
1994, as amended May 31, 1996
10.20 First Data Bank National Drug Data File Standard License
Agreement between PHAMIS, Inc. and First Data Bank dated
June 15, 1988 (1)
10.21 System and Service Agreement between PHAMIS, Inc. and
Methodist Health Network of Iowa dated June 21, 1994 (1)
10.22 Software Development and Marketing Agreement between
PHAMIS, Inc. and Inova Health System Hospitals dated August
30, 1994 (1)
10.23 Lease Agreement by and between SEAFO, INC. and PHAMIS, Inc.
dated July 21, 1995 (6)
10.24 Tandem Alliance Agreement between PHAMIS, Inc. and Tandem
Computers Incorporated dated December 7, 1994 (1)
10.25 Fourth Amendment to Tandem Alliance Agreement between
PHAMIS,Inc. and Tandem Computers Incorporated dated
March 12, 1997 (7)
21.1 Subsidiaries of PHAMIS, Inc.
23.1 Consent of KPMG Peat Marwick LLP
24.1 Power of Attorney from officers and directors Signature Page
27 Financial Data Schedule
- ------------
(1) Incorporated by reference to the exhibits filed as part of the PHAMIS, Inc.
Registration Statement on Form S-1 dated November 17, 1994
(Registration No. 33-85852).
(2) Incorporated by reference to the exhibit filed as part of the Current
Report on Form 8-K dated July 24, 1996.
(3) Incorporated by reference to the exhibits to the registration statement on
Form 8-A dated August 1, 1996.
(4) Incorporated by reference to the exhibits filed as part of the Annual
Report on Form 10-K for the period ended December 31, 1995.
(5) Incorporated by reference to the exhibit filed as part of the Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1995.
(6) Incorporated by reference to the exhibit filed as part of the Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1995.
(7) Confidential treatment requested for portions of this exhibit.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PHAMIS, Inc.
By /s/ Frank T. Sample Date: March 28, 1997
------------------- ----- --------------
Frank T. Sample
President, Chief Executive Officer
and Director
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY AUTHORIZES AND APPOINTS FRANK
T. SAMPLE AND GREGG W. BLODGETT, AND EACH OF THEM, WITH FULL POWER OF
SUBSTITUTION AND FULL POWER TO ACT WITHOUT THE OTHER, AS HIS TRUE AND LAWFUL
ATTORNEY-IN-FACT AND AGENT TO ACT IN HIS NAME, PLACE AND STEAD AND TO EXECUTE IN
THE NAME AND ON BEHALF OF EACH PERSON, INDIVIDUALLY AND IN EACH CAPACITY STATED
BELOW, AND TO FILE, ANY AND ALL AMENDMENTS TO THIS FORM 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 28, 1997.
<TABLE>
<CAPTION>
<S> <C>
Signature Title
- ------------------------------------------------- -------------------------------------------
/s/ Frank T. Sample
- -------------------------------------------------
Frank T. Sample President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Gregg W. Blodgett
- -------------------------------------------------
Gregg W. Blodgett Vice President of Finance and Administration
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
- -------------------------------------------------
Malcolm A. Gleser Chairman of the Board
- -------------------------------------------------
Daniel Dyer Director
/s/ Lonnie Smith
- -------------------------------------------------
Lonnie Smith Director
/s/ Timothy J. Wollaeger
- -------------------------------------------------
Timothy J. Wollaeger Director
</TABLE>
47
<PAGE>
EXHIBIT 10.4
SECOND AMENDMENT TO
THE PHAMIS INC.
1993 COMBINED INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN
THIS AMENDMENT to the PHAMIS Inc. 1993 Combined Incentive and Nonqualified
Stock Option Plan (the "1993 Plan") is made by PHAMIS Inc. (the "Company") on
this 24th day of April, 1996, and is effective immediately.
RECITALS:
WHEREAS, pursuant to Section 3.3 of the 1993 Plan, the Board of Directors
has previously delegated to the Compensation Committee the full administration
of the 1993 plan;
WHEREAS, the Compensation Committee believes that it is in the Company's
best interest to revise the Company's current policy with regard to vesting of
option grants made under the 1993 plan;
NOW, THEREFORE, the Plan is hereby amended as follows;
1. Vesting Schedule. All options granted under the 1993 Plan shall,
----------------
unless otherwise noted in the resolutions relating to any specific option grant,
be subject to the following vesting provisions:
25% of the shares subject to the option shall be vested one year from the
date of option grant;
50% of the shares subject to the option shall be vested two years from the
date of option grant;
75% of the shares subject to the option shall be vested three years from
the date of option grant; and
100% of the shares subject to the option shall be vested four years from
the date of the option grant.
IN WITNESS WHEREOF, the undersigned authority has executed this amendment
as of the day and year first written above.
PHAMIS INC.
By: ___________________________________
Its: ___________________________________
<PAGE>
EXHIBIT 10.5
THIRD AMENDMENT TO
THE PHAMIS INC.
1993 COMBINED INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN
THIS AMENDMENT to the PHAMIS Inc. 1993 Combined Incentive and Nonqualified
Stock Option Plan (the "Plan") is made by PHAMIS Inc. (the "Company") on this
14th day of May, 1996, and is effective immediately.
RECITALS:
WHEREAS, under the terms of the Plan, options may be granted to employees,
directors, consultants or advisors of the Company or any subsidiary, up to an
aggregate of 400,000 shares;
WHEREAS, the Board of Directors and shareholders believe that it is in the
Company's best interest to approve the amendments to allow the Company to
continue to grant options under the Plan to secure for the company the benefits
of additional incentive inherent in the ownership of its Common Stock by key
employees of the Company and its subsidiaries and to help the Company and its
subsidiaries secure and retain the services of key employees;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Increase of the Number of Shares Reserved for Issuance. The
------------------------------------------------------
aggregate amount of Common Stock reserved for issuance under Section 2 of the
Plan shall be increased by 500,000 shares, from 400,000 to 900,000.
IN WITNESS WHEREOF, the undersigned authority has executed this amendment
as of the day and year first written above.
PHAMIS INC.
By: ___________________________________
Its: ___________________________________
<PAGE>
EXHIBIT 10.14
PHAMIS INCORPORATED
INTERNAL MEMORANDUM
TO:
FROM:
DATE:
RE: Memo of Understanding
1996 Executive Bonus Program
You are eligible to participate in the 1996 Executive Bonus Program, as
described below. Your 1996 target compensation is established at $ ________.
This is comprised of $ _____ in annual base salary and a target bonus of $ _____
or __ % of annual base salary for attaining 100% of your business objectives.
1. Purpose: To grant significant individual incentive awards for members of
--------
the executive team whose judgments and decisions impact overall business
results. These awards are designed to incent executives to attain specific
annual business results, targets, and to reward them for exceptional
individual accomplishment.
2. Eligibility: Vice Presidents and Senior Directors reporting to the
------------
President/CEO are eligible to participate in the program.
3. Target Compensation: Target compensation is comprised of an annual base
--------------------
salary and a target bonus defined below as a % of annual salary for
attaining 100% of business objectives.
4. Distribution of Bonus: Subject to paragraph 5 below, the target bonus will
----------------------
be distributed based on achieving the results outlined in an attachment of
the senior manager's individual goals. Each goal has a target value, as
defined as a % of base salary, and the goals will be evaluated and paid out
according to the performance criteria noted. The maximum bonus payout for
each goal will not exceed the maximum potential bonus amount. This will be
calculated at year end and paid no later than March 15, 1997.
5. Funding of Program and Minimum Threshold for Payment: Funding of this bonus
----------------------------------------------------
program is contingent on the Company attaining its profit objectives as
agreed to by the Board of Directors of PHAMIS Inc., and the individual
position. For purposes of this bonus program, annual profits are defined
as "annual profits before taxes and bonuses, not including one time
charges."
<PAGE>
1996 Executive Bonus Program
May 1996
Page 2
a. If annual profits are 100% of goal, or $7,900,000, then 100% of the
earned bonus shall be funded. Actual payment shall be subject to the
manager's achievement of individual goals.
b. If annual profits are equal to or greater than $7,650,000 but less
than $7,900,000, 75% of the earned bonus shall be funded. Actual
payment shall be subject to the manager's achievement of individual
goals.
c. If annual profits are equal to or greater than $7,400,000 but less
than $7,650,000, 50% of the earned bonus shall be funded. Actual
payment shall be subject to the manager's achievement of individual
goals.
d. If annual profits are greater than 100% of goal, or $7,900,000,
payment shall be made according to the following schedule:
(salary x bonus %) x % completion x % profit factor
% profit factor = 100% plus 1% for every $79,000 of profit over
$7,900,000, up to a maximum profit factor of 150%
Example: Net Profit Before Taxes & Bonuses = $8,295,000
($8,295,000 - $7,900,000)/ $7,900,000 = 5%
100% + 5% = 105%
($60,000 salary x 10% bonus) x 85% completion x 105% profit
factor = $5,100 x 105% = $5,355
e. If annual profits are less than $7,400,000, the earned bonus will not
be paid to the participant and PHAMIS, Inc. shall not have any future
obligation to make such payment.
6. Executives Newly Eligible to Participate in 1996: Executive managers who
-------------------------------------------------
become eligible to participate in the plan after the start of the plan year
due to new employment or a promotion shall receive a prorated bonus based
on the number of months employed in the position in the plan year,
attainment of individual written goals, and plan funding as described
above. Executives who are promoted or employed on or after October 1, 1996
shall not be eligible to participate in the 1996 Executive Bonus Plan.
Individuals who are promoted to a position receiving a higher bonus level
during the year shall receive a prorated bonus based on the number of
months employed in each position at the corresponding salary in the plan
year, attainment of individual written goals, and plan funding as described
above.
7. Ineligible Participants: Individuals who are promoted or employed on or
-----------------------
after October 1, 1996, shall not be eligible to participate in the 1996
Executive Bonus Plan. Individuals
<PAGE>
1996 Executive Bonus Program
May 1996
Page 3
who during the year are removed from a position eligible to receive a bonus
due to reasons of poor performance or misconduct shall not be eligible for
payment of any bonus.
8. Termination of Employment: In the event that the executive's employment
--------------------------
with PHAMIS Inc. is voluntarily or involuntarily terminated for any reason
during the term of the plan, he/she will cease to be a participant of the
plan and will no longer be eligible for payment of any bonus.
9. Participation in this bonus program does not constitute an employment
agreement, and the company may terminate the executive's employment at any
time, with or without cause or advance notice.
10. This plan supersedes all previous bonus program agreements and contains all
the terms of the plan. It will become effective January 1, 1996, and
subject to PHAMIS Inc. rights as described below to prospectively amend,
modify or discontinue the plan at any time during the plan year, the plan
will remain in effect through December 31, 1996.
11. PHAMIS Inc. has developed the terms and goals of this plan based upon
existing products, territorial, customer, and personnel assignments;
existing business, market and economic conditions. In the event that
material changes occur in PHAMIS Inc. its products, its territorial,
customer or personnel arrangements, or business market or economic
conditions, or the forecasts are inaccurate, PHAMIS Inc. reserves the right
to prospectively add to, amend, modify or discontinue any of the terms or
goals of the plan at any time during the plan for legitimate business
reasons. Any addition, amendment, modification or discontinuance of the
plan shall not be effective unless set forth in a written document signed
by the President and Chief Executive Officer of PHAMIS Inc.
Approved:
__________________________________ __________________________________
Senior Staff Date
__________________________________ __________________________________
President and CEO Date
__________________________________ __________________________________
Senior Director, Human Resources Date
<PAGE>
EXHIBIT 10.15
PHAMIS, INCORPORATED
INTERNAL MEMORANDUM
TO: Thomas M. Watson
FROM: Frank T. Sample
DATE: January 25, 1996
RE: Memo of Understanding
1996 Incentive Award
Your 1996 Target Compensation is established at $205,000. This is comprised of
$120,000 in annual base salary and a target incentive bonus of $85,000 for
attaining 100% of your revenue and business objectives. These will include:
1. Net Income - TARGET: $5.5 million
You will receive $18,000 for attaining 100% of your assigned net income
goal of $5.5 million. For quarter achievement up to 100% of the goal, you
will receive an equivalent percentage payout.
Example: If by March end you are 60% of your total year-to-date net
-------- income goal, you would have earned ($1,500 x 3 x .60)
2. New Account Bookings - TARGET: $54 million of system and license bookings
--------------------
You will receive a bonus of one tenth of one percent (.1%) of the contract
system and license booking value for each new name customer signed between
January 1 and December 31, 1996 with projected gross margins in excess of
$2 million and gross earnings per hour in excess of $200.00. (The earnings
per hour requirement may be waived on exception only with the approval of
the President/CEO).
If you achieve greater than nine new name customer accounts and exceed $54
million in contract system and license bookings, you will receive .15% for
each account, meeting the aforementioned criteria, greater than seven.
3. Existing Customer Bookings - TARGET: $13 million If you achieve greater
--------------------------
than or equal to 100% of goal, you will receive one tenth of one percent
(.1%) of the sales order value for the aggregate existing customer bookings
consisting of LASTWORD software licenses, third party software royalties
(from IMNET, SD&G, HcM, etc.), hardware, implementation fees, and
professional services fees (training, consulting, product audits, etc.)
Custom enhancements, interfaces, and
<PAGE>
Memo of Understanding
to Thomas M. Watson
January 25, 1996
Page 2
conversions are excluded. This will be paid out on a quarterly basis after
the goal is met.
Example: Total aggregate bookings are $12.9 million - no payout. If
-------- $13 million, then $13,000 payout, if $15 million, then
$15,000 payout, etc.
1.0 Terms of the Plan
-----------------
This plan supersedes all previous incentive compensation program agreements
and contains all the terms of the plan. It will become effective January
1, 1996, and subject to PHAMIS Inc. rights as described below to
prospectively amend, modify or discontinue the plan at any time during the
plan year, the plan will remain in effect through December 31, 1996.
2.0 Changes to or Discontinuance of the Plan
----------------------------------------
PHAMIS Inc. has developed the terms and goals of this plan based upon
existing products, territorial, customer, and personnel assignments;
existing business, market and economic conditions; and its forecasts of
changes, if any, in those products, arrangements and conditions. In the
event that material changes occur in PHAMIS Inc., its products, its
territorial, customer or personnel arrangements, or business market or
economic conditions, or the forecasts are inaccurate, PHAMIS Inc. reserves
the right to prospectively add to, amend, modify or discontinue any of the
terms or goals of the plan at any time during the plan for legitimate
business reasons.
Any addition, amendment, modification or discontinuance of the plan shall
not be effective unless set forth in a written document signed by the
President and Chief Executive Officer of PHAMIS Inc.
3.0 Termination of Employment
-------------------------
In the event that your employment with PHAMIS Inc. is voluntarily or
involuntarily terminated for any reason during the term of the plan, a
final accounting will be made as of the date of termination. Under no
circumstances will you be paid any compensation for customer contracts
which are executed after your termination. Any balance due to the employee
will be paid in the next regular payroll and any balance due the Company as
a result of a draw exceeding the earned incentive will be due and
<PAGE>
Memo of Understanding
to Thomas M. Watson
January 25, 1996
Page 3
collectable by PHAMIS Inc. at the time of termination or as an offset
against final payroll accounting. The employee will be paid any incentive
compensation earned as of the date of termination. The balance due will be
forwarded to the employee in the normal accounting month; balances owed
PHAMIS Inc. for unearned incentive payouts and draw reconciliation will be
due and collectable by PHAMIS Inc. at the same time.
This notification supersedes any previously communicated incentive plan for
1996.
APPROVAL:
- -----------------------------------------
Thomas M. Watson
Vice President, Sales
PHAMIS Inc.
- ----------------------------------------
Frank T. Sample
President and CEO
PHAMIS Inc.
- ----------------------------------------
Kathy Dellplain
Sr. Director, Human Resources
PHAMIS Inc.
<PAGE>
Memo of Understanding
to Thomas M. Watson
January 25, 1996
Page 4
ATTACHMENT I
VICE PRESIDENT, SALES
A. REVENUE GOALS
1. TOTAL REVENUE $44 million (including Mayo)
B. BOOKINGS GOALS
1. New-Name Customers $42 million
2. Existing Customers $6 million (excluding Mayo)
3. TOTAL BOOKINGS $48 million (excluding Mayo)
<PAGE>
EXHIBIT 10.16
PHAMIS, INCORPORATED
1996 EXECUTIVE BONUS PROGRAM
FRANK T. SAMPLE
The 1996 target compensation for Frank Sample is established at $375,000. This
is comprised of $250,000 in annual base salary and a target bonus of $125,000 or
50% of annual base salary for attaining 100% of his business objectives.
The business objectives for Frank Sample for 1996 are as follows:
1. REVENUES: $56 million
2. EARNINGS PER SHARE: $ 0.70 (excluding one time charges)
3. INVESTOR RELATIONS: Build confidence in PHAMIS Inc. stock through excellent
communications.
Funding of this bonus is contingent on the Company attaining its profit
objectives as agreed to by the Board of Directors of PHAMIS Inc. Actual payment
shall be subject to the achievement of business goals described above. For
purposes of this bonus program, annual profits are defined as "annual profits
before taxes and bonuses, not including one time charges (e.g. DataBreeze
pooling transaction costs, moving expenses to the new facilities)."
a. If annual profits are 100% of goal, or $7,900,000, then 100% of the earned
bonus shall be funded.
b. If annual profits are equal to $7,600,000 and less than $7,900,000, 75% of
the earned bonus shall be funded.
c. If annual profits are equal to $7,400,000 and less than $7,600,000, 50% of
the earned bonus shall be funded.
d. If annual profits are greater than 100% of goal, or $7,900,000, payment shall
be made according to the following schedule:
(salary x bonus %) x % completion x % profit factor
% profit factor = 100% plus 1% for every $79,000 of profit over
$7,900,000, up to a maximum profit factor
of 150%
e. If annual profits are less than $7,400,000, the earned bonus will not be paid
and PHAMIS, Inc. shall not have any future obligation to make such payment.
______________________________________ _________________________________
Frank T. Sample Daniel Dyer
President and CEO Compensation Committee
______________________________________ _________________________________
Timothy J. Wollaeger Lonnie M. Smith
Chair, Compensation Committee Compensation Committee
<PAGE>
EXHIBIT 10.19
[LOGO - 1 SEAFIRST]
BUSINESS LOAN AGREEMENT
Part A
This Seafirst Business Loan Agreement ("Agreement") is made as of June 1, 1996
between Bank of America NW, N.A., doing business as Seafirst Bank, ("Bank") and
PHAMIS, Inc. ("Borrower") with respect to the following:
- ------------
LINE OF CREDIT Subject to the terms of this Agreement, Bank will
- -------------- make loans to Borrower under a revolving line of
credit as follows:
Total Amount
Available: Borrower may borrow, repay and reborrow up to a
- --------- maximum of Five Million Dollars ($5,000,000.00).
-------------
Availability
Period: Date of Note through June 1, 1998 .
- ------ ------------------ ------------------
However, if loans are made and/or new promissory
notes executed after the last date, such advances
will be subject to the terms of this Agreement until
repaid in full unless a written statement signed by
the Bank and Borrower provides otherwise, or a
replacement loan agreement is executed. The making
of such additional advances alone, however, does
not constitute a commitment by the Bank to make any
further advances or extend the availability period.
Interest Rate: As set forth in the Note required under Part B,
- ------------- Article 1 of this Agreement (the "Note").
Interest
Rate Basis: All interest will be calculated at the per annum
- ---------- interest rate based on a 360-day year and applied to
the actual number of days elapsed.
Prepayment: Bank may assess a prepayment fee in the event of a
- ---------- a partial or complete prepayment. Such prepayment
fee will be fully defined and disclosed to Borrower
at the time the interest rate is fixed.
Conversion Fee: On the "Conversion Date" set forth in the Note,
- -------------- Borrower shall pay the conversion fee described
therein; provided that no conversion fee shall be
due if Borrower pays the Note in full at the end of
the revolving period without converting to the "Term
Period" as defined in the Note.
Fee on Unutilized
Portion of Line: On June 30, 1996 and every quarter thereafter,
- --------------- ---------------- -------
Borrower shall pay a fee based upon the average
daily unused portion of the line of credit. This
fee is calculated as follows: 1/4 of 1.00% per
----------------
annum, payable quarterly in arrears. This nonusage
-----------------------------------
fee shall cease to accrue on the Conversion Date (as
defined above). Borrower shall pay to Bank on the
Conversion Date the remaining accrued but unpaid
nonusage fee.
Repayment: At the times and in amounts as set forth in note(s)
- --------- required under Part B Article 1 of this Agreement.
Collateral: Unsecured.
- ----------
Rev. 11/93
Page 1
<PAGE>
[LOGO]
BUSINESS LOAN AGREEMENT
Part B
1. PROMISSORY NOTE(S). All loans shall be evidenced by promissory notes in a
form and substance satisfactory to Bank.
2. CONDITIONS TO AVAILABILITY OF LOAN/LINE OF CREDIT. Before Bank is obligated
to disburse/make any advance, or at any time thereafter which Bank deems
necessary and appropriate, Bank must receive all of the following, each of
which must be in form and substance satisfactory to Bank ("loan documents"):
2.1 Original, executed promissory note(s);
2.2 Original executed security agreement(s) and/or deed(s) of trust
covering the collateral described in Part A; N/A
2.3 All collateral described in Part A in which Bank wishes to have a
possessory security interest; N/A
2.4 Financing statement(s) executed by Borrower; N/A/
2.5 Such evidence that Bank may deem appropriate that the security
interests and liens in favor of Bank are valid, enforceable, and prior
to the rights and interests of others except those consented to in
writing by Bank; N/A
+2.6 The following guaranty(ies) in favor of the Bank: N/A
+2.7 Subordination agreement(s) in favor of Bank executed by: N/A
2.8 Evidence that the execution, delivery, and performance by Borrower of
this Agreement and the execution, delivery, and performance by Borrower
and any corporate guarantor or corporate subordinating creditor of any
instrument or agreement required under this Agreement, as appropriate,
have been duly authorized;
2.9 Any other document which is deemed by the Bank to be required from time
to time to evidence loans or to effect the provisions of this
Agreement;
2.10 If requested by Bank, a written legal opinion expressed to Bank, of
counsel for Borrower as to the matters set forth in sections 3.1 and
3.2, and to the best of such counsel's knowledge after reasonable
investigation, the matters set forth in sections 3.3, 3.5, 3.6, 3.7,3.8
and such other matters as the Bank may reasonably request; N/A
2.11 Pay or reimburse Bank for any out-of-pocket expenses expended in making
or administering the loans made hereunder including without limitation
attorney's fees (including allocated costs of in-house counsel);
+2.12 Other (describe): N/A
Page 2
<PAGE>
3. Representations and Warranties. Borrowers represents and warrants to Bank,
except as Borrower has disclosed to Bank in writing, as of the date of this
Agreement and hereafter so long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under
this Agreement and promissory notes that:
+3.1 Borrower is duly organized and existing under the laws of the state
of its organization as a:
General Limited Sole
X Corporation Partnership Partnership Proprietorship
--- --- --- ---
dba-----------
Borrower is properly licensed and in good standing in each state in
which Borrower is doing business and Borrower has qualified under,
and complied with, where required, the fictitious or trade name
statutes of each state in which Borrower is doing business, and
Borrower has obtained all necessary government approvals for its
business activities; the execution, delivery, and performance of this
Agreement and such notes and other instruments required herein are
within Borrower's powers, have been duly authorized, and, as to
Borrower and any guarantor, are not in conflict with the terms of any
charter, bylaw, or other organization papers of Borrower, and this
Agreement, such notes and the loan documents are valid and
enforceable according to their terms;
3.2 The execution, delivery, and performance of this Agreement, the loan
documents and any other instruments are not in conflict with any law
or any indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is bound or affected;
3.3 Borrower has title to each of the properties and assets as reflected
in its financial statements (except such assets which have been sold
or otherwise disposed of in the ordinary course of business), and no
assets or revenues of the Borrower are subject to any lien except as
required or permitted by this Agreement, disclosed in its financial
statements or otherwise previously disclosed to Bank in writing;
3.4 All financial information, statements as to ownership of Borrower and
all other statements submitted by Borrower to Bank, whether
previously or in the future, are and will be true and correct in all
material respects upon submission and are and will be complete upon
submission insofar as may be necessary to give Bank a true and
accurate knowledge of the subject matter thereof;
3.5 Borrower has filed all tax returns and reports as required by law to
be filed and has paid all taxes and assessments applicable to
Borrower or to its properties which are presently due and payable,
except those being contested in good faith;
3.6 There are no proceedings, litigation or claims (including unpaid
taxes) against Borrower pending or, to the knowledge of the Borrower,
threatened, before any court or government agency, and no other event
has occurred which may have a material adverse effect on Borrower's
financial condition;
3.7 There is no event which is, or with notice or lapse of time, or both,
would be, an Event of Default (as defined in Section 7) under this
Agreement;
3.8 Borrower has exercised due diligence in inspecting Borrower's
properties for hazardous wastes and hazardous substances. Except as
otherwise previously disclosed and acknowledged to Bank in writing:
(a) during the period of Borrower's ownership of Borrower's
properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous
waste or hazardous substance by any person in, on, under or about any
Borrower's properties: (b) Borrower has no actual or constructive
knowledge that there has been any use, generation, manufacture,
storage, treatment, disposal, release or threatened release of any
hazardous waste or hazardous substance by any person in, on, under or
about any of Borrower's properties by any prior owner or occupant of
any of Borrower's properties; and (c) Borrower has no actual or
constructive notice of any actual or threatened litigation or claims
of any kind by any person relating to such matters. The terms
"hazardous waste(s)," "hazardous substance(s)," "disposal,"
"release," and "threatened release" as used in this Agreement shall
have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq., the Superfund Amendments
and Reauthorization Act of 1986, as amended, Pub. L. No. 99-499, the
Hazardous Materials Transportation Act, as
Page 3
<PAGE>
amended, 49 U.S.C.Section 1801, et seq., the Resource Conservation and
Recovery Act, as amended, 49 U.S.C. Section 6901, et seq., or other
applicable state or federal laws, rules or regulations adopted pursuant
to any of the foregoing.
3.9 Each chief place of business of Borrower, and the office or offices
where Borrower keeps its records concerning any of the collateral is
located at: N/A
4. Affirmative Covenants. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under this
Agreement and promissory note(s) Borrower will:
+4.1 Use the proceeds of the loans covered by this Agreement only in
connection with Borrower's business activities and exclusively for the
following purposes: Working capital and general corporate purposes.
----------------------------------------------
+4.2 Maintain current assets in an amount at least equal to 1.50 times
----
current liabilities. Current assets and current liabilities shall be
determined in accordance with generally accepted accounting principles
and practices, consistently applied;
+4.3 Maintain on a quarterly basis a tangible net worth of at least
$24,000,000 until December 31, 1997 at which time Borrower shall
----------------------------------------------------------------
maintain a tangible net worth of at least $27,000,000 thereafter and not
----------------------------------------------------------------
permit Borrower's total indebtedness which is not subordinated in a
manner satisfactory to Bank to exceed 1.20 times Borrower's tangible net
----
worth. "Tangible net worth" means the excess of total assets over total
liabilities, excluding, however, from the determination of total assets
(a) all assets which should be classified as intangible assets such as
goodwill, patents, trademarks, copyrights, franchises, and deferred
charges (including unamortized debt discount and research and
development costs), (b) treasury stock, (c) cash held in a sinking or
other similar fund established for the purpose of redemption or other
retirement of capital stock, (d) to the extent not already deducted from
total assets, reserves for depreciation, depletion, obsolescence or
amortization of properties and other reserves or appropriations of
retained earnings which have been or should be established in connection
with the business conducted by the relevant corporation, and (e) any
revaluation or other write-up in book value of assets subsequent to the
fiscal year of such corporation last ended at the date of this
Agreement;
4.4 N/A
+4.5 Promptly give written notice to Bank of: (a) all litigation and claims
made or threatened affecting Borrower where the amount is $500,000 or
--------
more; (b) any substantial dispute which may exist between Borrower and
any governmental regulatory body or law enforcement authority; (c) any
Event of Default under this Agreement or any other agreement with Bank
or any other creditor or any event which become an Event of Default; and
(d) any other matter which has resulted or might result in a material
adverse change in Borrower's financial condition or operations;
+4.6 Borrower shall as soon as available, but in any event within 120 days
---
following the ended of each Borrower's fiscal years and within 45 days
--
following the end of each quarter provide to Bank, in a form
-------
satisfactory to Bank such financial statements, Form 10-K Reports and
Form 10-Q Reports and other information respecting the financial
condition and operations of Borrower as Bank may reasonably request.
Borrower's fiscal year financial statement shall be audited by an
independent certified public accounting firm and bear an unqualified
opinion.
4.7 Borrower will maintain in effect insurance with responsible insurance
companies in such amounts and against such risks as is customarily
maintained by persons engaged in businesses similar to that of Borrower
and all policies covering property given as security for the loans shall
have loss payable clauses in favor of Bank. Borrower agrees to deliver
to Bank such evidence of insurance as Bank may reasonably require and,
within thirty (30) days after notice from Bank, to obtain such
additional insurance with an insurer satisfactory to the Bank;
4.8 Borrower will pay all indebtedness taxes and other obligations for which
the Borrower is liable or to which its income or property is subject
before they shall become delinquent, except any which is being contested
by the Borrower in good faith;
4.9 Borrower will continue to conduct its business as presently constituted,
and will maintain and preserve all rights, privileges and franchises now
enjoyed, conduct Borrower's
Page 4
<PAGE>
business in an orderly, efficient and customary manner, keep all
Borrowers properties in good working order and condition, and from
time to time make all needed repairs, renewals or replacements so
that the efficiency of Borrower's properties shall be fully
maintained and preserved;
4.10 Borrower will maintain adequate books, accounts and records and
prepare all financial statements required hereunder in accordance
with generally accepted accounting principles and practices
consistently applied, and in compliance with the regulations of any
governmental regulatory body having jurisdiction over Borrower or
Borrower's business;
4.11 Borrower will permit representatives of Bank to examine and make
copies of the books and records of Borrower and to examine the
collateral of the Borrower at reasonable times;
4.12 Borrower will perform, on request of Bank, such acts as may be
necessary or advisable to perfect any lien or security interest
provided for herein or otherwise carry out the intent of this
Agreement;
4.13 Borrower will comply with all applicable federal, state
and municipal laws, ordinances, rules and regulations relating to its
properties, charters, businesses and operations, including compliance
with all minimum funding and other requirements related to any of
Borrower's employee benefit plans.
4.14 Borrower will permit representatives of Bank to enter onto Borrower's
properties to inspect and test Borrower's properties as Bank, in its
sole discretion, may deem appropriate to determine Borrower's
compliance with section 5.8 of this Agreement; provided however, that
any such inspections and tests shall be for Bank's sole benefit and
shall not be construed to create any responsibility or liability on
the part of Bank to Borrower or to any third party.
4.15 In the event Borrower elects to convert the loan represented by the
Note from a revolving loan to a term loan, Borrower shall maintain
minimum Cash Flow coverage of at least 1.20:1. Cash Flow coverage
shall be defined as Net Income plus Depreciation and Amortization
divided by scheduled principal payments of long-term debt plus
interest expense on a four quarter trailing average, tested
quarterly.
5. Negative Covenants. So long as credit granted under this Agreement is
available and until full and final payment of all sums outstanding under
this Agreement and promissory note(s):
+5.1 N/A;
5.2 Borrower will not, without the prior written consent of Bank,
mortgage, assign, or otherwise encumber any of Borrower's assets, nor
sell, transfer or otherwise hypothecate any such assets except in the
ordinary course of business. Borrower shall not guaranty, endorse,
co-sign, or otherwise become liable upon the obligations of others,
except by the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business. For purposes of this
paragraph, the sale or assignment of accounts receivable, or the
granting of a security interest therein, shall be deemed the
incurring of indebtedness for borrowed money.
+5.3 N/A;
5.4 Borrower will not, without Bank's prior written consent, declare any
dividends on shares of its capital stock, or apply any of its assets
to the purchase, redemption or other retirement of such shares, or
otherwise amend its capital structure;
+5.5 N/A;
5.6 Borrower will not liquidate or dissolve or enter into any
consolidation, merger, pool, joint venture, syndicate or other
combination, or sell, lease, or dispose of Borrower's business assets
as a whole or such as in the opinion of Bank constitute a substantial
portion of Borrower's business or assets;
5.7 Borrower will not engage in any business activities or operations
substantially different from or unrelated to present business
activities or operations; and
5.8 Borrower, and Borrower's tenants, contractors, agents or other
parties authorized to use any of Borrower's properties, will not use,
generate, manufacture, store, treat, dispose of, or release any
hazardous substance or hazardous waste in, on, under or about any of
Borrower's properties, except as previously disclosed to Bank in
writing as provided in section 3.8; and any such activity shall be
conducted in compliance with all applicable federal, state and local
laws, regulations and ordinances, including without limitation those
described in section 3.8.
Rev. 11/93
Page 5
<PAGE>
6. Waiver, Release and Indemnification. Borrower hereby:
(a) releases and waives any claims against Bank for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any of the applicable federal, state or local laws,
regulations or ordinances, including without limitation those described in
section 3.8, and (b) agrees to indemnify and hold Bank harmless from and
against any and all claims, losses, liabilities, damages, penalties and
expenses which Bank may directly or indirectly sustain or suffer resulting
from a breach of (i) any of Borrower's representations and warranties with
respect to hazardous wastes and hazardous substances contained in section
3.8, or (ii) section 5.8. The provisions of this section 6 shall survive
the full and final payment of all sums outstanding under this Agreement
and promissory notes and shall not be affected by Bank's acquisition of
any interest in any of the Borrower's properties, whether by foreclosure
or otherwise.
7. Events of Default. The occurrence of any of the following events ("Events
of Default") shall terminate any and all obligations on the part of Bank to
make or continue the loan and/or line of credit and, at the option of Bank,
shall make all sums of interest and principal outstanding under the loan
and/or line of credit immediately due and payable, without notice of
default, presentment or demand for payment, protest or notice of non
payment or dishonor, or other notices or demands of any kind or character,
all of which are waived by Borrower, and Bank may proceed with collection
of such obligations and enforcement and realization upon all security which
it may hold and to the enforcement of all rights hereunder or at law:
7.1 The Borrower shall fail to pay when due any amount payable by it
hereunder on any loans or notes executed in connection herewith;
7.2 Borrower shall fail to comply with the provisions of any other
covenant, obligation or term of this Agreement for a period of fifteen
(15) days after the earlier of written notice thereof shall have been
given to the Borrower by Bank or Borrower or any Guarantor has
knowledge of an Event of Default or an event that can become an Event
of Default;
7.3 Borrower shall fail to pay when due any other obligation for borrowed
money, or to perform any term or covenant on its part to be performed
under any agreement relating to such obligation or any such other debt
shall be declared to be due and payable and such failure shall
continue after the applicable grace period;
7.4 Any representation or warranty made by Borrower in this Agreement or
in any other statement to Bank shall prove to have been false or
misleading in any material respect when made;
7.5 Borrower makes an assignment for the benefit of creditors, files a
petition in bankruptcy, is adjudicated insolvent or bankrupt,
petitions to any court for a receiver or trustee for Borrower or any
substantial part of its property, commences any proceeding relating to
the arrangement, readjustment, reorganization or liquidation under any
bankruptcy or similar laws, or if there is commenced against the
Borrower any such proceedings which remain undismissed for a period of
thirty (30) days or, if Borrower by any act indicates its consent or
acquiescence in any such proceeding or the appointment of any such
trustee or receiver;
+7.6 Any judgment attaches against Borrower or any of its properties for an
amount in excess of $500,000 which remains unpaid, unstayed on appeal,
--------
unbonded, or undismissed for a period of thirty (30) days;
7.7 Loss of any required government approvals, and/or any governmental
regulatory authority takes or institutes action which, in the opinion
of Bank, will adversely affect Borrower's condition, operations or
ability to repay the loan and/or line of credit;
7.8 Failure of Bank to have a legal, valid and binding first lien on, or a
valid and enforceable prior perfected security interest in, any
property covered by any deed of trust or security agreement required
under this Agreement;
7.9 Borrower ceases to exist as a going concern;
7.10 Occurrence of an extraordinary situation which gives Bank reasonable
grounds to believe that Borrower may not, or will be unable to,
perform it obligations under this or any other agreement between Bank
and Borrower; or
7.11 Any of the preceding events occur with respect to any guarantor of
credit under this Agreement, or such guarantor dies or becomes
incompetent, unless the obligations arising under the guaranty and
related agreements have been unconditionally assumed by the
guarantor's estate in a manner satisfactory to Bank.
Rev. 11/93 Page 6
<PAGE>
8. SUCCESSORS; WAIVERS. Notwithstanding the Events of Default above, this
Agreement shall be binding upon and inure to the benefit of Borrower and
Bank, their respective successors and assigns, except that Borrower may
not assign its rights hereunder. No consent or waiver under this Agreement
shall be effective unless in writing and signed by the Bank and shall not
waive or affect any other default, whether prior or subsequent thereto,
and whether of the same or different type. No delay or omission on the
part of the Bank in exercising any right shall operate as a waiver of such
right or any other right.
9. ARBITRATION.
9.1 At the request of either Bank or Borrower any controversy or claim
between the Bank and Borrower, arising from or relating to this
Agreement or any Loan Document executed in connection with this
Agreement or arising from any alleged tort shall be settled by
arbitration in King County Washington. The United States Arbitration
Act will apply to the arbitration proceedings which will be
administered by the American Arbitration Association under its
commercial rules of arbitration except that unless the amount of the
claim(s) being arbitrated exceeds $5,000,000 there shall be only one
arbitrator. Any controversy over whether an issue is arbitrable shall
be determined by the arbitrator(s). Judgment upon the arbitration
award may be entered in any court having jurisdiction. The
institution and maintenance of any action for judicial relief or
pursuit of a provisional or ancillary remedy shall not constitute a
waiver of the right of either party, including plaintiff, to submit
the controversy or claim to arbitration if such action for judicial
relief is contested.
For purposes of the application of the statute of limitations the
filing of an arbitration as provided herein is the equivalent of
filing a lawsuit and the arbitrator(s) will have the authority to
decide whether any claim or controversy is barred by the statute of
limitations, and if so, to dismiss the arbitration on that basis. The
parties consent to the joinder in the arbitration proceedings of any
guarantor, hypothecator or other party having an interest related to
the claim or controversy being arbitrated.
9.2 Notwithstanding the provisions of Section 9.1, no controversy or
claim shall be submitted to arbitration without the consent of all
parties if at the time of the proposed submission, such controversy
or claim arises from or relates to an obligation secured by real
property;
9.3 No provision of this Section 9 shall limit the right of the Borrower
or the Bank to exercise self-help remedies such as setoff,
foreclosure or sale of any collateral, or obtaining any ancillary
provisional or interim remedies from a court of competent
jurisdiction before, after or during the pendency of any arbitration
proceeding. The exercise of any such remedy does not waive the right
of either party to request arbitration. At Bank's option foreclosure
under any deed of trust may be accomplished by exercise of the power
of sale under the deed of trust or judicial foreclosure as a
mortgage.
10. COLLECTION ACTIVITIES, LAWSUITS AND GOVERNING LAW. Borrower agrees to pay
Bank all costs and expenses (including reasonable attorney's fees and the
allocated cost for in-house legal services incurred by Bank), to enforce
this Agreement, any notes or any Loan Documents pursuant to this
Agreement, whether or not suit is instituted. If suit is instituted by
Bank to enforce this Agreement or any of these documents, Borrower
consents to the personal jurisdiction of the Courts of the State of
Washington and Federal Courts located in the State of Washington. Borrower
further consents to the venue of this suit, being laid in King County,
Washington. This Agreement and any notes and security agreements entered
into pursuant to this Agreement shall be construed in accordance with the
laws of the State of Washington.
+11. ADDITIONAL PROVISIONS. Borrower agrees to the additional provisions set
forth immediately following this Section 11 or on any Exhibit attached to
and hereby incorporated into Agreement. This Agreement supersedes all oral
negotiations or agreements between Bank and Borrower with respect to the
subject matter hereof and constitutes the entire understanding and
Agreement of the matters set forth in this Agreement.
11.1 If any provision of this Agreement is held to be invalid or
unenforceable, then (a) such provision shall be deemed modified if
possible, or if not possible, such provision shall be deemed
stricken, and (b) all other provisions shall remain in full force
and effect.
11.2 If the imposition of or any change in any law, rule, or regulation
guideline or the interpretation or application of any thereof by any
court of administrative or governmental
Page 7
<PAGE>
authority (including any request or policy whether or not having the
force of law) shall impose or modify any taxes (except U.S. federal,
state or local income or franchise taxes imposed on Bank), reserve
requirements, capital adequacy requirements or other obligations which
would: (a) increase the cost to Bank for extending or maintaining any
loans and/or line of credit to which this Agreement relates, (b) reduce
the amounts payable to Bank under this Agreement, such notes and other
instruments, or
(c) reduce the rate of return on Bank's capital as a consequence of
Bank's obligations with respect to any loan and/or line of credit to
which this Agreement relates, then Borrower agrees to pay Bank such
additional amounts as will compensate Bank therefor, within five (5) days
after Bank's written demand for such payment, which demand shall be
accompanied by an explanation of such imposition or charge and a
calculation in reasonable detail of the additional amounts payable by
Borrower, which explanation and calculations shall be conclusive, absent
manifest error.
11.3 Bank may sell participations in or assign this loan in whole or in part
without notice to Borrower and Bank may provide information regarding the
Borrower and this Agreement to any prospective participant or assignee.
If a participation is sold or the loan is assigned the purchaser will
have the right of set off against the Borrower and may enforce its
interest in the Loan irrespective of any claims or defenses the Borrower
may have against the Bank.
12. Notices. Any notices shall be given in writing to the opposite party's
signature below or as that party may otherwise specify in writing.
13. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
-----------------------------------------------------------------------
FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
---------------------------------------------------------------------
WASHINGTON LAW.
---------------
This Business Loan Agreement (Parts A and B) executed by the parties on
_____________, 1996. Borrower acknowledges having read all of the provisions of
this Agreement and Borrower agrees to its terms.
SEAFIRST BANK
Western Commercial Banking Division, Team 2
By: -------------------------------
Steven E. Melby, Vice President
Address: 10500 N.E. 8th Street, Suite 500
Bellevue, WA 98004
Phone: (206) 585-6390
Fax: (206) 585-6393
PHAMIS, INC.
By: ------------------------------- Title: -----------------------------
By: ------------------------------- Title: -----------------------------
Address: 1001 Fourth Avenue Plaza
Reception Suite 1500
Phone: (206) 622-9558
Fax: (206) 622-0889
Page 8
<PAGE>
[LOGO OF SEAFIRST BANK]
LOAN MODIFICATION AGREEMENT
- --------------------------------------------------------------------------------
This agreement amends the REVOLVING NOTE dated June 7, 1995 ("Note") executed by
PHAMIS, INC. (together if more than one "Borrower") in favor of Bank of America
NW, N.A. doing business as SEAFIRST BANK, successor by name change to Seattle-
First National Bank ("Bank"), regarding a loan in the maximum principal amount
of $5,000,000.00 (the "Loan"). All references to "Seattle-First National Bank"
in any of the loan documents entered into by Borrower with regard to the Loan
are hereafter deemed to be references to Bank. For mutual consideration,
Borrower and Bank agree to amend the Note as follows:
1. Maturity Date. The maturity date of the Note is changed to June 1,
-------------
1998. Bank's commitment to make advances to Borrower under its line of
credit is also extended to June 1, 1998.
2. Other Terms. Except as specifically amended by this agreement or any
-----------
prior amendment, all other terms, conditions, and definitions of the Note,
and all other security agreements, guaranties, deeds of trust, mortgages,
and other instruments or agreements entered into with regard to the Loan
shall remain in full force and effect.
This agreement is dated May 29, 1996.
Bank: SEAFIRST BANK
By: /s/ Steven E. Melby
-------------------------------------------
Name: Steven E. Melby
-----------------------------------------
Title: Vice President
----------------------------------------
Borrower: PHAMIS, INC.
Signature: /s/ Frank T. Sample
------------------------------------
By: Frank T. Sample
-------------------------------------------
Title: President & C.E.O.
----------------------------------------
<PAGE>
EXHIBIT 10.25
to
PHAMIS, INC.'s
ANNUAL REPORT
on
FORM 10-K
"XXXXXXX" = omitted, confidential material, which material has been separately
filed with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
<PAGE>
EXHIBIT 10.25
AMENDMENT NUMBER FOUR
TO
TANDEM ALLIANCE AGREEMENT NUMBER 7467
This Amendment (the "Amendment") to that certain Tandem Alliance Agreement
dated December 7, 1994 (the "Agreement"), is made and entered into by and
between Tandem Computers Incorporated, a Delaware corporation having its
principal place of business at 10435 North Tantau Avenue, Cupertino, California,
95014 ("Tandem") and PHAMIS, Incorporated, a Washington corporation having its
principle place of business at 1001 Fourth Avenue Plaza, Suite 1500, Seattle,
Washington, 98154-1144 ("PHAMIS").
RECITALS
WHEREAS, the Agreement and its related Exhibits and amendments are due to
expire on January 31, 1997, and
WHEREAS, Tandem and PHAMIS wish to extend the Agreement, with the
modifications set forth in the attachments hereto, for an additional five-year
period,
NOW, THEREFORE, in consideration of the mutual promises, obligations and
agreements herein, the parties hereby agree as follows:
1. The current Exhibit B3, Mandatory Software Sublicensing Terms, shall be
deleted in its entirety and the attached Exhibit B3 substituted therefor.
2. The current Exhibit B4 of the Agreement shall be deleted in its entirety
and the attached Schedule TA-SC and Exhibit B4 substituted therefor.
3. Alliance Member selects Discount Level 6, which represents an annual
purchase level of $XXXXXX and a discount of XX% for Hardware and One-Time
License Charges and XX% for Monthly License Charges.
4. A new Schedule TA-D, Alliance Member Hardware Product Services
Agreement, is hereby added.
5. The new expiration date of the Agreement will be January 31, 2002.
Other than as specifically stated above and in the attachments, all other
terms and conditions of the Agreement remain unchanged.
PHAMIS, INCORPORATED TANDEM COMPUTERS INCORPORATED
By: /s/ Frank T. Sample By: /s/ June R. Klein
-------------------- -----------------
Name: Frank T. Sample Name: June R. Klein
---------------- -------------
Title: President & CEO Title: Region Controller
--------------- -----------------
Date: March 12, 1997 Effective Date: February 1, 1997
-------------- ----------------
Page 1 of 16
<PAGE>
EXHIBIT B3
MANDATORY SOFTWARE SUBLICENSING TERMS
1. Grant. [Alliance Member] hereby grants Customer a non-transferable, non-
-----
exclusive license, without right to sublicense, to use the software developed or
acquired by Tandem Computers Incorporated ("Tandem") and delivered to Customer
under this Sublicense Agreement ("Software"), exclusively on the Tandem computer
system owned, possessed and operated by Customer and specified in [Alliance
Member]'s invoice ("Designated System"). No source code or license to use source
code is provided hereunder. Software includes the programs delivered to
Customer, all related documentation and any update, revision, translation,
adaptation, modification, derivation or copy of the foregoing. Software does not
include software delivered to Customer with a shrink-wrap license. As to such
licenses, Customer agrees to be bound by the terms set forth therein, unless it
notifies [Alliance Member] of any objections and returns the software within 10
days of receipt thereof.
2. Use. Customer will use the Software only in its or its permitted users' own
---
internal business operations. Customer will not permit any other person to use
the Software, except to enter or retrieve information in the ordinary course of
processing transactions. If the Designated System becomes temporarily inoperable
due to natural disaster, accident or other cause beyond Customer's control,
Customer may use the Software on another Tandem computer until the Designated
System becomes operable. Customer may make two back-up copies of the Software
upon which it will reproduce all confidentiality and proprietary notices.
Customer will not otherwise copy, translate, modify, adapt, decompile,
disassemble or reverse engineer the Software.
3. Ownership. Title to the Software and all patents, copyrights, trademarks,
---------
mask works, circuit layout rights, design rights, trade secrets and other
proprietary rights in or related to the Software are and will remain the
exclusive property of Tandem or its licenser, whether or not specifically
recognized or perfected under the laws of the country where the Software is
located. Customer will not take any action that jeopardizes such proprietary
rights nor will it acquire any right in the Software, except the limited use
rights specified herein.
4. Confidentiality. The Software incorporates confidential and proprietary
---------------
information developed or acquired by Tandem. Customer will protect the
confidentiality of the Software and all such information with the same degree of
care as it employs to protect its own confidential and proprietary information,
but at least with a reasonable degree of care. Customer will not allow the
removal or defacement of any confidentiality or proprietary notice placed on the
Software, which notice will not constitute publication or otherwise impair the
Software's confidential nature. Tandem will protect the confidentiality of
Customer's confidential information with which it may come into contact with the
same degree of care as it employs to protect its own confidential and
proprietary information, but at least with a reasonable degree of care. Neither
party will have confidentiality obligations with respect to any confidential or
proprietary information incorporated which (i) was in its lawful possession
prior to receipt of such confidential information without any obligation to keep
it confidential, (ii) is later lawfully obtained by it from a third party under
no obligation of secrecy, (iii) is independently developed by it or (iv) is, or
later becomes, available to the public through no act or failure to act by it.
Neither party will disclose confidential information to any person, except to
those of its employees, agents or consultants who require access in the course
of its internal business. Before disclosure to such parties, Customer will state
in writing that such employees, agents or consultants expressly: (i) recognize
Tandem's or its licenser's confidential and proprietary rights in the Software,
(ii) agree to comply with the use, ownership, confidentiality and export control
restrictions applicable to the Software, and (iii) acknowledge Tandem's, its
licenser's and [Alliance Member]'s right to enforce these restrictions, in each
case in writing . The parties will be liable for non-compliance by their
respective agents and contractors to the same extent it would be liable for non-
compliance by its employees.
5. NO WARRANTIES; LIMITATION ON DAMAGES. THIS SUBLICENSE AGREEMENT DOES NOT
------------------------------------
INCLUDE ANY WARRANTIES, EXPRESS OR IMPLIED, BY OR ON BEHALF OF TANDEM OR ANY
ENTITY GRANTING TANDEM LICENSE RIGHTS TO THE SOFTWARE. IN NO EVENT WILL TANDEM
OR ITS LICENSER (A) BE LIABLE FOR ANY SPECIAL, PUNITIVE, MORAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, WHETHER OR NOT FORESEEABLE, INCLUDING, BUT NOT LIMITED
TO, LOST PROFIT OR DATA OR (B) INCUR AGGREGATE LIABILITY IN ANY ACTION OR
PROCEEDING WHICH EXCEEDS THE TOTAL AMOUNT ACTUALLY PAID TO TANDEM BY ALLIANCE
MEMBER FOR THE SOFTWARE THAT DIRECTLY CAUSED THE DAMAGE.
6. Termination. This Tandem Software Sublicense Agreement may be terminated with
-----------
30 days prior written notice upon violation by Customer of any terms or
conditions of this Tandem Software Sublicense Agreement. During the 30-day
notice period, Customer will immediately cease any and all activity which is in
violation of the Tandem Software Sublicense Agreement and may attempt to cure
such violation. In the event a cure is adequately effected, in Tandem's opinion,
no termination will occur as a result thereof. Notwithstanding the foregoing,
nothing in this Tandem Software Sublicense Agreement shall be construed to limit
or delay Tandem's rights to seek immediate injunctive relief for any breach or
violation hereof by Customer.
7. Export Controls. The confidential information of Tandem, and all related
---------------
technical documents and materials are subject to export controls under the U.S.
Export Administration Regulations and related U.S. laws. Customer will (i)
comply strictly with all legal requirements established under these controls,
(ii) cooperate fully with Tandem in any official or unofficial audit or
inspection that relates to these controls and (iii) not export, re-export,
divert, transfer or disclose, directly or indirectly, any Software, confidential
information of Tandem, or related technical documents and materials or any
direct product thereof to any country (or to any national or resident thereof)
which the U.S. Government determines from time to time is a country (or end-
user) to which such export, re-export, diversion, transfer, or disclosure is
restricted, without obtaining the prior written authorization of Tandem and the
applicable U.S. Government agency. If Customer is located outside the United
States, see Attachment A for the list of export-restricted countries.
8. Assignment; Enforcement. Customer may not assign, delegate or otherwise
-----------------------
transfer the Software, this Sublicense Agreement or any of its rights or
obligations without Tandem's and [Alliance Member]'s prior approval. Any
assignment, delegation or transfer which violates the foregoing will be void. If
[Alliance Member] ceases to be Tandem's authorized value-added reseller for any
reason, then [Alliance Member]'s rights against Customer may be assigned to
Tandem or its designee. Customer hereby consents to any such assignment and, at
Tandem's request, will execute any instrument which may be required to perfect
the assignment. The provisions of this Sublicense Agreement are intended to
inure to the benefit of Tandem and its licenser. Tandem or its licenser has the
right to enforce these provisions directly against Customer, whether in
Tandem's, its licenser's or [Alliance Member]'s name, and Tandem and its
licenser accept this right.
Page 2 of 16
<PAGE>
SCHEDULE TA-SC
ADDITIONAL TERMS AND CONDITIONS
A. SPECIAL TERMS AND CONDITIONS APPLICABLE TO KAISER HOSPITALS:
1. Tandem will act as the Project Manager on all sales to Kaiser Hospitals in
Northern California. Tandem Hardware purchases and Software Initial License Fees
for Kaiser Hospitals in Northern California will pass through Tandem.
2. Tandem will use best efforts to encourage Kaiser Hospitals in Portland,
Oregon to purchase and license Tandem Products directly through Alliance Member
when such purchases and licenses are associated with Alliance Member's
Application Software. Alliance Member's then-current discounts will apply to
such orders.
B. SERVICES PROVIDED FOR SUPPORT CHARGES:
1. In consideration of payment of annual Support Charges, as noted in Exhibit
B4, Alliance Member will be entitled to receive Support Center Assistance
coverage on Current Products only for its Customers with Himalaya System
Software. Alliance Member will act as the focal point for Customer's calls for
service. If Alliance Member determines that the service is related to Tandem's
Software, corrective Service will be furnished to Alliance Member via Tandem or
the Tandem NonStop Support Center ("TNSC") and will include action to verify the
existence of a defect, determine the severity or impact of the defect, and
determine conditions under which the defect may recur. During such verification,
Tandem may request further information about the defect from Alliance Member.
After such information is provided to enable Tandem to duplicate or verify the
defect, Tandem will:
a. for a Critical Defect (a defect is critical when Customer's application
is down or is at high risk, business functions cannot be conducted, or Customer
is experiencing continual failures or data corruption as a result of the
defect), provide Service via phone or fax from the TNSC 24 hours a day, 7 days a
week, excluding national holidays. Tandem will use commercially reasonable
efforts to provide a temporary solution of or workaround to the defect. Except
for workstation Software, Tandem will generally commence action during the
initial contact and provide on-site assistance to Alliance Member location when
deemed necessary by Tandem and Alliance Member, at Alliance Member's expense per
the terms of Section 4.3 of Schedule TA-B of the Agreement; or
b. for a non-critical defect or any defect in workstation Software, provide
Service via phone from the TNSC between the hours of 8:00 a.m. to 5:00 p.m.,
Monday through Friday, excluding national holidays ("Standard Work-Shift
Hours"). Calls for non-critical defects or defects in workstation Software will
be accepted and logged at the time received, whether during or after Standard
Work-Shift Hours. Tandem will generally commence action during the initial
contact or within 4 Standard Work-Shift Hours for workstation Software. Tandem
will provide either the actions set forth in 1.a, above, or a statement that the
defect will be corrected in a future Release; or
c. provide a statement to Alliance Member that the Licensed Product
operates as described in Tandem's current user documentation or that the defect
arises when such Product is used other than in a manner for which it was
designed.
2. Prior to contacting Tandem for corrective Service for non-critical defects,
Alliance Member is responsible for:
a. researching the Tandem database to determine if there is an interim
product modification ("IPM") that will address the problem;
b. identifying, documenting and reporting each problem with a Supported
Product necessitating Service;
c. supplying Tandem with all documentation and assistance necessary to
demonstrate and allow Tandem to diagnose the problem;
d. promptly installing each solution to such problem provided by Tandem;
e. designating an employee and an alternate who (i) will direct all
requests for information and maintenance to the TNSC, (ii) are familiar with and
able to perform diagnostic tests for operation of the Supported Products, and
(iii) will provide Tandem with assistance and information necessary to
demonstrate, diagnose and correct malfunctions.
f. ensuring that Customers install and maintain a direct, dedicated
telephone line that does not pass through a switch before connecting to
Customer's System enabling Tandem to access the System to perform diagnostic
tests.
g. ensuring that the Customer maintain the environment of and operate each
Product according to instructions furnished by the manufacturer.
3. One copy of software media, Releases and updates to Releases, documentation
and updates to documentation via CD are provided to Alliance Member.
Page 3 of 16
<PAGE>
EXHIBIT B4
HIMALAYA K DISCOUNT TERMS
The Exhibit B4 is effective from February 1, 1997 to January 31, 1998 only.
1. APPLICABILITY. This exhibit applies only to Tandem's Himalaya K Products
-------------
listed in the Price Guide on the Effective Date. It excludes (a) Himalaya
Products currently identified by number K2, (b) NonStop Kernel Integrity FT and
S4000 Products, (c) Integrity NR Products (including Integrity NR workstations
and Servers), (d) Tandem Source Company Products, (e) Tandem Telecom Division
Products, (f) Atalla Products, (g) Network Products (h) NT products, (i) CLX/R
Products and (j) Products purchased under special promotional and trade-in
programs, and (k) Himalaya S Products("Excluded Products").
2. DISCOUNTS. Tandem grants the following Discounts to Alliance Member:
---------
2.1 Certain Himalaya Products. Himalaya Products currently identified by
-------------------------
numbers K11x will receive a XX% Discount. Himalaya Products currently identified
by number K12x and K2xx will receive a XX% Discount.
2.2 Software Discounts. Software discounts apply only to One-time License
------------------
Charges (OLC) or Monthly License Charges (MLC).
2.3 Himalaya K Products.
-------------------
<TABLE>
<CAPTION>
Annual Product
Discount Level Purchase Volume (U.S. Dollars) Hardware & OLC Software MLC Software
- -------------- ------------------------------ ----------------------- ------------
<S> <C> <C> <C>
Level 1 less than $XXXX XX% XX%
Level 2 $XXXX - $XXXX XX% XX%
Level 3 $XXXX - $XXXX XX% XX%
Level 4 $XXXX - $XXXX XX% XX%
Level 5 $XXXX - $XXXX XX% XX%
Level 6 greater than $XXXX XX% XX%
</TABLE>
2.4 Kaiser Sales.
------------
2.4.1 Customer orders in which Alliance Member is the sales lead in licensing
Alliance Member Application Software to Kaiser California and Kaiser California
places orders for Tandem Products directly with Tandem for Systems on which
Kaiser California is operating Alliance Member's Application Software, Tandem
agrees to pay Alliance Member the difference between Alliance Member's discount
percentage and Kaiser California's earned discount.
2.4.2 Payment to Alliance Member of the sum noted in 2.4.1, above, shall be
due 90 days from the original shipment date of the Tandem Products shipped to
Kaiser California, or within 30 days after Tandem has received payment from
Kaiser, whichever is sooner. Notwithstanding the above, in any case where
Alliance Member is the cause of Kaiser's failure to make timely payments to
Tandem for Tandem Products shipped to Kaiser California, payment to Alliance
Member shall be within 30 days after Tandem has received such delayed payment
from Kaiser.
2.4.3 All Tandem Hardware purchases and Software license fees or charges for
Kaiser California that have been influenced by Alliance Member's Application
Package shall accumulate toward Alliance Member's Purchase Volumes.
2.5 NSSQL Product. The following discounts will apply to MLCs purchased by
-------------
PHAMIS for resale to its Customers, subject to the restrictions indicated in
Section 2, below:
<TABLE>
<CAPTION>
TIME PERIOD MLC DISCOUNT # OF LICENSES
<S> <C> <C>
10/96 - 12/97 XX% XX
1/98 - 12/98 XX% XX
1/99 - 12/99 XX% XX
1/2000 - 12/2000 XX% XX
1/2001> PHAMIS' then-current level XX
of discount
</TABLE>
The restrictions applicable to the above discounts are as
follows:
2.5.1 The discounts may be applied only to NSSQL product for use on
Himalaya K platforms.
2.5.2 The licenses Tandem will sell to PHAMIS during the time period at
the discounts designated above are limited to the number indicated in the column
entitled "# of Licenses." NSSQL product purchased in excess of the numbers
indicated above will be priced at Tandem's then-current List Price, less PHAMIS'
standard Alliance Member discounts applicable to such product.
2.5.3 The above discounts are not available when the NSSQL product is to
be packaged with the PHAMIS Enterprise View(TM) product in a separate Tandem
system.
2.5.4 The above discounts are not available when the NSSQL product is to
be installed on a new Tandem System; only PHAMIS' existing installations are
eligible.
2.5.5 The above discounts are available only on NSSQL product that is
licensed on a per-system basis; user-based NSSQL will not be eligible for the
above discounts.
The NSSQL discounts above will survive expiration of the Agreement or any
subsequent Alliance Member agreement executed by the parties.
2.6 Remanufactured Products. For any Tandem Product classified and sold
-----------------------
as remanufactured, Alliance Member will receive a XX% discount off of the United
States list price of new products during the term of the Agreement.
2.7 Special DS25 Promotion. Alliance Member will receive a XX% discount
----------------------
off of the List Price of the software packages marketed as "DS25" during the
term of the Agreement.
Page 4 of 16
<PAGE>
3. SOFTWARE SUPPORT CHARGES. Support Charges (SCs) for Himalaya K Products
------------------------
System Software will be paid to Tandem on each anniversary date of the Effective
Date of the Agreement by Alliance Member as follows:
<TABLE>
<CAPTION>
# of Systems Worldwide with Annual
Himalaya K Software Fee to Tandem
----------------------------- ---------------
<S> <C>
X - XX systems $ X
XX - XX systems XXXX
XX - XX systems XXXXX
XX - XX systems XXXXX
XX - XXX systems XXXXX
XXX - XXX systems XXXXX
XXX+ systems XXXXX
</TABLE>
4. PURCHASE VOLUME COMMITMENT.
--------------------------
4.1 Discount Level. Alliance Member has selected the Discount Level indicated
--------------
on the signature page of this Amendment and commits to purchase 100% of the
applicable Purchase Volume during each 12-month period of the term of this
Schedule (each a "Period").
4.2. Determination of Purchase Volume. Alliance Member's Purchase Volume
--------------------------------
during a Period shall be the sum of the U. S. List Prices of new Products and
the actual purchase prices of re-manufactured Hardware purchased during a
Period, less any credit for trade-in Products ("Cumulative Prices"). Although
Excluded Products do not receive Discounts, the Cumulative Prices of those
Products may be included in determining actual Purchase Volume, but only if the
trade-in or promotional program allows it for Excluded Products purchased under
such programs.
4.3 Exceeding Discount Level. If Alliance Member's actual Purchase Volume
------------------------
during a Period exceeds the Purchase Volume required for the corresponding
Discount Level, Alliance Member will be assigned a new Discount Level and a
corresponding Purchase Volume and Discount for the remainder of the Period.
4.4 Renegotiation of Discount Level. Before the end of a Period, the parties
-------------------------------
will determine a new Discount Level for the next Period based on Alliance
Member's actual Purchase Volume for the preceding Period. If the parties extend
the initial or any subsequent term of the Agreement, then before the extended
term becomes effective they will determine a new Discount Level for such term
based on Alliance Member's actual Purchase Volume for the preceding term.
5. CO-OP ACCOUNT. In addition to the discounts offered in Section 2, Tandem
-------------
will credit 2% of the Discounted Price of all Hardware sales paid for by
Alliance Member into a cooperative account administered by Tandem or its agent
("Co-op Account"). The 2% Co-op Credit will only apply to Software for which a
One-time License Fee is charged and paid for by the Alliance Member. Tandem may
change its administrator at any time in its sole discretion. Neither this
Agreement nor the agreement between Tandem and its administrator is intended to
confer any third party beneficiary rights on Alliance Member. Co-op Account
credits may be used solely for approved activities described in Tandem's Co-op
Account guidelines ("Claims Administration Guide for Channel Partners"), product
education and the purchase or licensing of Tandem Products to use as sales/demo
equipment or development Systems, all of which enhance the marketability and/or
value of Application Packages. Credits must be used within 1 year of the date
first credited to the Co-op Account or they will expire. Any unapplied credits
in the Co-op Account at the termination or expiration of Schedule TA-B will also
expire, unless the parties renew this Schedule or enter into a new agreement
within 30 days. In that event, such credits will be applied in accordance with
the terms of the then current Co-op Guidelines.
6. DISCOUNT MODIFICATIONS. With 60 days prior written notice, Tandem may alter
----------------------
any Discount as part of a programmatic change to Tandem Alliance Member
discounts in the following situations: (i) for Products manufactured by Tandem,
if Tandem reduces the List Price, provided that the new Discounted Price for
Hardware will not exceed its immediately preceding Discounted Price; (ii) for
Products acquired by Tandem from a third party, when Tandem determines that the
alteration is necessary or appropriate.
Page 5 of 16
<PAGE>
SCHEDULE TA-D
ALLIANCE MEMBER HARDWARE PRODUCT SERVICES AGREEMENT
RECITALS
A. Alliance Member may wish to be the primary interface for the hardware
maintenance of Tandem equipment ("Hardware") sold by Alliance Member to
customers to whom it has sold Hardware in conjunction with Alliance Member's
application(s) ("Customers").
B. Alliance Member may wish to engage Tandem as a subcontractor to provide
maintenance services on Hardware to Customer(s) pursuant to a contract
between Alliance Member and Customer(s).
C. Tandem wishes to provide such services on the terms and conditions contained
herein.
AGREEMENTS
Now, therefore, in the event Alliance Member elects to be the primary interface
as set forth in A, above, the parties agree as follows:
1. PROVISION OF MAINTENANCE SERVICES
Tandem hereby authorizes Alliance Member to contract with Customers to
provide maintenance for the Hardware. Alliance Member will not provide
maintenance services for the Hardware except in accordance with the terms of
this Agreement.
2. CONTRACT MANAGEMENT
A. Contract Format. Alliance Member will provide such Hardware maintenance
services to Customers, if at all, pursuant to a Hardware maintenance
agreement ("Product Services Agreement") substantially in the form of
Tandem's current end-user maintenance agreement, an example of which is
attached hereto as Exhibit 1.
B. Standard Agreements. Alliance Member will obtain an executed Product
Services Agreement and Service Plan Order Form from each Customer desiring
maintenance.
C. Non-Standard Agreements. Any Product Services Agreement containing non-
standard terms with respect to services to be provided will not be
effective without the prior written consent of Tandem. Tandem's customer
service organization will assist Alliance Member with the completion of
any non-standard Amendment to be attached to a Product Services Agreement.
Price quotations to Alliance Member protected for a period of time as
outlined in the Alliance Member Agreement will not cause a Product
Services Agreement to be construed as non-standard under this Section.
Should Tandem discover that Alliance Member has offered any terms,
services, or configurations to Customer different from Tandem's standards,
Alliance Member will make, or cause to be made, any necessary corrections
to the Product Services Agreement with Customer.
IN ANY EVENT, TANDEM WILL NOT BE OBLIGATED IN ANY WAY AS A RESULT OF
UNAPPROVED DEVIATIONS IN TERMS, SERVICES, OR CONFIGURATION WITH CUSTOMER
OR NON-STANDARD PRICING TO ALLIANCE MEMBER.
D. Contract Administration. Alliance Member will promptly supply Tandem with
copies of all Product Services Agreements executed by Customers and copies
of all notices pertinent to Tandem and received or sent by Alliance Member
under such Product Services Agreements.
3. MAINTENANCE CHARGES
A. Published Charges. The charges for maintenance services charged to
Alliance Member will be Tandem's standard maintenance charges as published
from time to time by Tandem less any discount as stated in Section 6,
Payment, below. Tandem's currently published maintenance charges are found
in the current version of Tandem's Product & Price Guide.
B. Price Changes. Tandem agrees that it will provide Alliance Member with 120
days prior written notice of any changes in Hardware maintenance charges.
4. ALLIANCE MEMBER'S RESPONSIBILITIES
A. Initial Point of Contact. Alliance Member will be Customers' initial point
of contact for supporting all Hardware being maintained pursuant to a
Product Services Agreement with the service coverage elected by such
Customers and agreed to by Alliance Member. Initial point of contact
support will include all obligations of Alliance Member pursuant to
Section 9 of the Alliance Member Agreement.
Alliance Member will take all service requests from Customers is to
distinguish software problems from hardware problems. Once categorized,
all software application problems will be resolved by Alliance Member
Page 6 of 16
<PAGE>
and all System-level software will be resolved by Alliance Member and
Tandem in accordance with the Alliance Member Agreement. Hardware problems
will be resolved by Tandem.
B. Parts For Non-Tandem Equipment. If Tandem agrees to provide maintenance
services on non-Tandem equipment, Alliance Member will be responsible for
providing Tandem with all replacement parts required by Tandem to perform
said maintenance. All non-Tandem replaced parts will become the property
of Alliance Member.
C. Collections and Billing. Alliance Member will bill and will be responsible
for all collections from Customers. Alliance Member will pay Tandem for
the Hardware maintenance services provided to Customers, regardless of
Alliance Member's ability to collect such charges from Customers. All risk
of non-collection will be the responsibility of Alliance Member.
D. Service Marketing. Alliance Member will be responsible for training its
personnel in the marketing of maintenance services, so that Alliance
Member's personnel can explain the services and ensure that a Product
Services Agreement is properly signed. Tandem will participate in the
marketing of Product Services Agreements only in those cases where a non-
standard support plan requires Tandem's expertise.
E. Central Administrator. Alliance Member will assign a central administrator
to act as the focal point for all issues that cannot be resolved at a
lower level. Such administrator will have primary responsibility to ensure
the effective coordination of the Hardware maintenance services.
5. TANDEM'S RESPONSIBILITIES
A. Provision of Maintenance Services. Exhibit 1 to this Agreement is a sample
of Tandem's current Product Services Agreement and Tandem's Service Plan
Order Form. It may, from time to time, be modified by Tandem. Tandem will
provide Alliance Member with at least 90 days notice of such modification.
Such modifications are deemed to be included herewith in references to
Exhibit 1.
Subject to the limitations set forth in Exhibit 1, Tandem will provide all
Hardware maintenance services described therein.
Corrective maintenance requested by Customer will be provided by Tandem
upon telephonic request by Alliance Member. Alliance Member will contact
Tandem after initial determination has been made by Alliance Member that
Tandem services are required to satisfy Alliance Member's obligations
under the Product Services Agreement.
In the event that Customer's System is down during non-standard coverage
hours as specified by the Product Services Agreement and Service Plan
Order Form, Tandem may provide corrective maintenance at the Alliance
Member's request through the Tandem NonStop Support Center, on a time-and-
materials basis.
Tandem will schedule required preventive maintenance with Customer and
will ensure that Alliance Member's technical support specialists are
informed of the schedule. In addition, Tandem will promptly notify
Alliance Member of maintenance issues if the Tandem NonStop Support Center
is contacted automatically by the Hardware.
Tandem will supply Customers with replacement parts in accordance with
Alliance Member's Product Services Agreement with such Customers. Alliance
Member will designate, in the Product Services Agreement, that all
replaced parts will become the property of Tandem upon the exchange of
such replaced parts with new, replaced, or exchanged parts.
Tandem is responsible for furnishing replacement parts for Tandem
equipment. Alliance Member is responsible for furnishing replacement parts
for non-Tandem equipment as detailed in Section 4B above.
B. Marketing and Contract Support Resources. Tandem will provide Alliance
Member with some necessary sales tools, documentation and consultation so
Alliance Member is equipped to market Hardware maintenance services and
execute standard Product Services Agreements and Service Plan Order Forms
with Customers.
When approval of non-standard contracts is required from Tandem, Tandem
will respond within a reasonable period of time, once all relevant
information has been received by Tandem.
6. PAYMENT
A. Contract Services. For up to $XXXXXX per year in maintenance revenue at
list maintenance prices, Alliance Member will be entitled to a XX%
discount off the Tandem Basic Monthly Maintenance Charges ("BMMC") for the
Hardware and non-Tandem hardware covered under the Product Services
Agreements.
Tandem will review annually any discount to be provided to Alliance Member
for Hardware maintenance services. At each annual review, if Alliance
Member has produced over $XXXXXX in maintenance revenue at list
maintenance prices, the discount will increase to XX% off the BMMC for
that year for all hardware.
Page 7 of 16
<PAGE>
B. Special Discounts. Discounts that Tandem offers to its commercial
customers for such options as multiple-year contracts will be passed onto
Alliance Member.
C. Time-and-Materials Charges. Alliance Member will also pay Tandem 100% of
all of Tandem's time-and-materials charges as well as any other charges
that are in addition to the BMMC for services delivered by Tandem under
any Product Services Agreements or otherwise as specified in Section 5,
regardless of Alliance Member's ability to collect such charges from
Customers.
D. Invoices. Tandem will deliver to Alliance Member monthly, in advance, an
invoice totaling all applicable BMMCs for each Product Services Agreement
supplied by Alliance Member to Tandem pursuant to Section 2 hereof.
Invoices for time-and-materials services will be rendered after completion
of service.
Invoices will be mailed to the address set forth in the first paragraph
hereof for all services provided under this Agreement, or such other
address as Alliance Member may provide to Tandem in writing. All such
invoices will be due and payable 45 days after the date of such invoice.
7. CUSTOMER OPTIONS
If Alliance Member, under its Alliance Member Agreement, has made a sale of
an Application Computer System to a Customer already owning or leasing Tandem
hardware, such Customer has the option to obtain its maintenance services on
such hardware through a Product Services Agreement executed by Alliance
Member and Customer.
Alternatively, the Customer may choose to have all of its Tandem computer
equipment maintained by Tandem, including those sold by Alliance Member, by
executing a Product Services Agreement directly with Tandem.
8. CROSS-DEFAULT
A default under the Alliance Member Agreement will be a default hereunder and
a default hereunder will be a default under the Alliance Member Agreement.
Under this Schedule, the following will be the events of default:
A. If Alliance Member fails to pay any invoice for services rendered within
the time period allowed, reasonable disputations excepted;
B. If Alliance Member breaches any of its obligations under this Schedule and
fails to remedy such breach to the satisfaction of Tandem within 30
calendar days after Tandem notifies Alliance Member in writing of said
breach.
C. If Alliance Member ceases to conduct business in the normal course,
becomes insolvent or bankrupt, enters into suspension of payments or
moratorium, makes a general assignment for the benefit of creditors,
admits in writing its inability to pay its debts as they mature, suffers
or permits the appointment of a receiver for its business or assets, or
avails itself of or becomes subject to any proceeding under any statute of
any governing authority relating to insolvency or the protection of
debtors.
9. TERM
This Schedule will commence upon the date first written above and will
continue as long as the Alliance Member Agreement is in effect.
10. AVAILABILITY OF REPLACEMENT PARTS
Tandem warrants the availability of replacement parts for Tandem Hardware for
3 years following the date of shipment of each Hardware product. Replacement
parts may, at Tandem's option, include improved or modified parts. Parts may
be newly manufactured, remanufactured, or used.
11. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between Tandem and Alliance
Member for the maintenance of Customer Hardware. There are no other
agreements or understandings, oral or written, relating to such maintenance
services by which the parties intend to be bound in connection with the
Hardware.
Page 8 0f 16
<PAGE>
Exhibit 1 Agreement No.
------
TANDEM COMPUTERS INCORPORATED
19191 VALLCO PARKWAY
CUPERTINO, CALIFORNIA 95014
PRODUCT SERVICES AGREEMENT
Name ("Customer")
---------------------------------------------------------------
Address
City State Zip
-------------------------------------------- ------ -------------
hereby contracts for and TANDEM COMPUTERS INCORPORATED ("Tandem"), by its
acceptance and execution hereof, agrees to furnish hardware maintenance and/or
software support services for performance in the United States of America, in
accordance with the terms and conditions of this Agreement.
1. GENERAL TERMS AND CONDITIONS
1.1 DEFINITIONS
a. "Basic Monthly Maintenance Charge" or BMMC means the charge specified by
Tandem for Service of a Hardware product.
b. "Confidential Information" means the confidential and proprietary data or
information developed or acquired by either party and marked or clearly
designated in writing.
c. "Critical Defect." A defect is considered to be critical when Customer's
application is down or is at high risk, business functions cannot be conducted,
or Customer is experiencing continual failures or data corruption as a result of
the defect.
d. "Current Software" means any Software (excluding Software Tools) which is
contained in a Release for which Tandem has not provided Customer notification
of Service termination or for which the period of time specified in such
notification has not expired.
e. "Hardware" means any item(s) of computer and related equipment for which
Service is provided by Tandem under this Agreement.
f. "Monthly Service Charge" or MSC means the charge specified by Tandem for
Service of Software.
g. "Release" means a collection of Software product versions which is packaged
into a single entity and, as such, is made available by Tandem periodically to
its customers. A Release includes any enhancements or other changes made by
Tandem to those Software products. A Release may contain patches and bypasses
previously furnished to some customers.
h. "Service(s)" means Hardware maintenance and/or Software support service
provided by Tandem under this Agreement.
i. "Service Plan" means an optional Service plan offered by Tandem and selected
by Customer for specific Tandem products on a Service Plan Order Form.
j. "Software" means any item(s) of software for which Service is provided by
Tandem under this Agreement.
k. "Software Tool" means any item(s) of Software, developed or provided by
Tandem and used to standardize or simplify routines or functions, enhance
productivity, or assist in the maintenance of any product. Software Tools may
include metrics, routines, diagnostics, templates or other devices.
l. "Supported Product(s)" means any item of Hardware or Software for which
Service is provided by Tandem under this Agreement.
m. "System" means a collection of Hardware (excluding desktop and network
products) that is designed to operate as a functional unit.
1.2 EFFECTIVE DATE, TERM
Customer will have the right to acquire Services under this Agreement for an
initial term of 12 months and thereafter until this Agreement is terminated by
either party upon 90 days prior written notice to the other party, unless sooner
terminated as provided herein.
1.3 ORDERS, PRICES, PAYMENT TERMS, TAXES, AND TRANSPORTATION
a. Customer will order Service by submitting a Service Plan Order Form (example
attached) referencing this Agreement number (an "Order"). Orders are subject to
acceptance by Tandem.
b. Prices for Service will be as set forth in Tandem's Price Guide effective on
the date of an Order, less any applicable discount. Additional zone charges will
apply to desktop and network hardware located over 50 miles and Systems located
over 100 miles from a Tandem Service location. Service charges will not increase
for 12 months from the commencement date of such charges. Thereafter, Tandem may
increase or decrease Service charges, upon 90 days prior written notice.
c. Invoices for Service and any applicable surcharges will be issued beginning
on the Service commencement date specified in an Order and monthly in advance
thereafter unless otherwise specified on an Order. Customer will pay all
invoices, in full, within 30 days of the date of invoice.
d. Service furnished to Customer by Tandem which is beyond the scope of the
Service Plan selected by Customer or is due to Customer's failure to fulfill its
responsibilities under this Agreement will be invoiced to Customer on a time-
and-materials basis in accordance with Tandem's standard rates.
e. All quoted prices are exclusive of taxes. Customer agrees to pay any tax,
exclusive of any taxes based on Tandem's net income, resulting from this
Agreement.
1.4 CONFIDENTIALITY
a. The receiving party will keep all Confidential Information in confidence and
will not disclose any item of Confidential Information to any person other than
its employees, agents or contractors who need to know the same in the
performance of their duties. The receiving party will protect and maintain the
confidentiality of all Confidential Information with the same degree of care as
it employs to protect its own Confidential Information, but at least with a
reasonable degree of care including requiring agents and contractors to sign a
non-disclosure agreement. The receiving party will be liable to the disclosing
party for any non-compliance by its agents or contractors to the same extent it
would be liable for non-compliance by its employees.
b. Customer recognizes that each item of Software (i) is considered by Tandem to
be a trade secret, (ii) is furnished by
Page 9 of 16
<PAGE>
Tandem to Customer in confidence, and (iii) contains proprietary and
Confidential Information, and that, accordingly, such Software constitutes
Confidential Information under this Section.
c. Confidential Information does not include any data or information which (i)
was in the receiving party's lawful possession prior to the submission thereof
by the disclosing party, (ii) is later lawfully obtained by the receiving party
from a third party under no obligation of secrecy, (iii) is independently
developed by the receiving party, or (iv) is, or later becomes, available to the
public through no act or failure to act by the receiving party.
1.5 WARRANTY
a. Hardware will meet the then-current specifications published by Tandem for
such Hardware provided that it has been continuously covered by Tandem Hardware
maintenance Service or inspected and certified by Tandem as eligible for
Service.
b. Service provided hereunder will be performed by qualified personnel in a
workmanlike manner.
1.6 WARRANTY EXCLUSION
a. THE WARRANTIES CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF
ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE.
b. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, TANDEM AND ITS SUPPLIERS DO
NOT WARRANT THAT NETWORK PRODUCTS WILL OPERATE IN ALL COMBINATIONS OF HARDWARE
AND SOFTWARE WHICH MAY BE SELECTED FOR USE BY CUSTOMER OR THAT LICENSED PRODUCTS
ARE ERROR-FREE OR THAT THEIR USE WILL BE UNINTERRUPTED.
1.7 LIMITATION OF REMEDIES AND LIABILITY
a. FOR ANY MATERIAL BREACH OF SERVICE BY TANDEM, CUSTOMER'S REMEDY AND TANDEM'S
LIABILITY WILL BE LIMITED TO A REFUND OF THE RELATED SERVICE CHARGE PAID DURING
THE PERIOD OF BREACH, UP TO A MAXIMUM OF 12 MONTHS.
b. THE REMEDIES IN THIS AGREEMENT ARE CUSTOMER'S SOLE AND EXCLUSIVE REMEDIES. IN
NO EVENT WILL TANDEM OR ITS SUPPLIERS BE LIABLE TO CUSTOMER FOR SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES INCLUDING LOST PROFIT OR DATA.
1.8 TERMINATION FOR DEFAULT
Should either party fail to perform any of its obligations under this Agreement
for a period of 30 days after receipt of written notice of such failure, the
non-defaulting party will have the right to terminate this Agreement, or any
Service hereunder that is the subject of such default, immediately upon delivery
of written notice to the defaulting party of its election to do so. The
foregoing rights of termination are in addition to any other rights and remedies
that either party may have.
2. SERVICES
2.1 SERVICE PLANS
The Service Plans and options available for specific Products are described in a
Service Plan Order Form.
2.2 CUSTOMER RESPONSIBILITIES
Customer will:
a. (i) Provide peripheral cabling including fiber optics, (ii) provide adequate
workspace to enable Tandem to perform Services and space for continuous
operation of any diagnostic Software Tools, and (iii) permit Tandem to remove
Software Tools for any reason.
b. (i) Identify, document and report each problem with a Supported Product
necessitating Service, (ii) supply Tandem with all documentation and assistance
necessary to demonstrate and allow Tandem to diagnose the problem, and (iii) for
Software problems, promptly install each solution to such problem provided by
Tandem.
c. Undertake appropriate backup, removal and protection of any software
programs, databases and removable storage media. At Tandem's request, Customer
may be required to remove equipment, parts, accessories or attachments which are
not maintained under this Agreement prior to Service by Tandem.
d. Designate an employee and an alternate who (i) will direct all requests for
information and maintenance to the Tandem NonStop Support Center (TNSC), (ii)
are familiar with and able to perform diagnostic tests for operation of the
Supported Products, and (iii) will provide Tandem with assistance and
information necessary to demonstrate, diagnose and correct malfunctions.
Customer will be available during all Service actions.
e. Install and maintain a direct, dedicated telephone line that does not pass
through a switch before connecting to the System enabling Tandem to access the
System to perform diagnostic tests.
f. Maintain the environment of and operate each Supported Product according to
instructions furnished by the manufacturer.
g. Notify Tandem in writing at least 30 days before moving any Supported Product
or undertaking any reconfiguration of the Hardware.
2.3 SOFTWARE
a. Tandem will provide error correction and maintenance Service on Current
Software pursuant to the Software Service Plan selected by Customer at the
applicable charges for the Software referenced on an Order.
b. All Software (i) on a System, (ii) on all Systems at a Site, or (iii) on all
Systems electronically networked together must be under the same Service Plan.
c. User documentation and related materials for use in connection with Current
Software will be provided by Tandem under a Service Plan, if applicable, or may
be acquired by Customer at Tandem's then-current charge. In either event, user
documentation and related materials become part of the Software.
d. Software Tools are provided "as is". Tandem may provide limited support of
Software Tools on an as-available basis.
2.4 SERVICE PLAN TERM AND CANCELLATION
a. Except as set forth herein, Service will commence on the date specified in an
Order. Unless specifically excluded in writing by Customer, any Tandem product
sold or licensed to Customer by Tandem or Tandem's authorized resellers that is
added to a System or group of Systems networked together for which Tandem is
providing Service hereunder, will automatically become a Supported Product under
the applicable Service Plan then in effect for the remainder of the term. The
service charges for such additional Supported Products will begin on the date
that any applicable warranty period expires or on the date of installation if no
warranty applies.
b. Service will continue (i) for 12 months from the Service effective date, (ii)
for 24 months if Customer selects a Premier24 or Flex12 Service Plan with the
EnhancePlan feature,
Page 10 of 16
<PAGE>
or (iii) for the term selected by Customer in accordance with 2.4.c below (the
"Minimum Term").
c. Customer may elect to receive a term discount on applicable service charges
in consideration for committing to have Hardware and/or Software maintained
under this Agreement for a specified minimum term. Supported Products receiving
a term discount are subject to a cancellation charge of up to 6 times the
monthly service charge applicable to the canceled Supported Product if the
cumulative effect of the cancellation reduces the total service charges due for
all Supported Products during any 12 month period by more than 10% of the total
service charges paid for the preceding 12 month period. Cancellation charges
will not apply if cancellation is due to an upgrade of the Tandem products or if
Customer is discontinuing the line of business for which the Tandem products are
used.
d. After the Minimum Term (i) Tandem may, upon 90 days prior written notice,
amend or modify a Service Plan effective on the date stated in such notice, and
(ii) Customer or Tandem may, upon 60 days prior written notice, terminate
Service. Customer's obligation to pay further applicable Service charges will
cease with respect to any or all Supported Products on date of termination.
Hardware Service options described in the Service Plan Order Form may be
terminated by Tandem or Customer upon 30 days prior written notice.
2.5 PRODUCT ELIGIBILITY
If Tandem determines that any product not currently maintained by Tandem is
ineligible for Service, Customer may request that Tandem upgrade or repair such
item to an acceptable condition at Tandem's time-and-materials rates, or
Customer may take other corrective actions satisfactory to Tandem.
2.6 SERVICE LIMITATION
a. Tandem's Service obligations hereunder will not apply to any Supported
Product if adjustment, repair, or parts replacement is required because of (i)
accident, neglect, misuse, failure of electric power, failure of Customer to
provide appropriate environmental conditions, relocation of hardware, or causes
other than ordinary use, (ii) repair or alteration, or attempted repair or
alteration, of any Supported Product by Customer or others, (iii) failure caused
by a product for which Tandem is not responsible, (iv) Customer's connection of
another machine or device to Hardware which makes Service impractical or which
has caused damage to such Hardware, or (v) damage or destruction caused by
natural or man-made acts or disasters.
b. Services do not include cosmetic repairs, refurbishment, furnishing
consumables, supplies or accessories, making accessory changes, or attaching
additional devices.
c. Tandem will not be required to provide Service for any item of Hardware on
which neither the current nor the immediately preceding release of Software has
been installed.
3. MISCELLANEOUS
3.1 FORCE MAJEURE
Except for Customer's obligation to make payments hereunder, a party is not
liable for non-performance of this Agreement if the non-performance is caused by
events or conditions beyond that party's control and the party gives prompt
notice and makes all reasonable efforts to perform.
3.2 ASSIGNMENT; RIGHT TO SUBCONTRACT
Neither party may assign this Agreement or any of its rights or obligations
without prior written consent from the other party, except that Tandem may
assign its rights to payment. In addition, Tandem may use subcontractors to
perform Services hereunder.
3.3 ESCALATION
Each party agrees that any dispute between the parties relating to this
Agreement will first be submitted in writing to a designated senior executive of
both Tandem and Customer who will meet and confer in an effort to resolve such
dispute. Any decisions of the executives will be final and binding on the
parties. In the event the executives are unable to resolve any dispute within 30
days after submission to them, either party may refer any dispute to a court of
final jurisdiction or, if both parties agree, to arbitration.
3.4 RELATIONSHIP OF THE PARTIES
The parties are independent contractors under this Agreement and no other
relationship is intended, including a partnership, franchise, joint venture,
agency, employer/employee, or master/servant relationship. Neither party shall
act in a manner which expresses or implies a relationship other than that of
independent contractor, nor bind the other party.
3.5 NOTICES
Any notice required to be given under this Agreement must be given in writing
and will be effective on receipt when delivered to the party at the address
stated on the first page of this Agreement, or to such other address as such
party may designate by written notice in accordance with the provisions of this
Section.
If to Tandem: Attn.: Contracts Manager, Americas Division
If to Customer: Signatory to this Agreement or as otherwise designated by
Customer in writing.
3.6 ENTIRE AGREEMENT; GOVERNING LAW; MISCELLANEOUS
a. This Agreement is the parties' entire agreement relating to Services provided
hereunder. It supersedes all prior or contemporaneous oral or written
communications, proposals and representations with respect to its subject matter
and prevails over any conflicting or additional terms of any quote, Order,
acknowledgment or similar communications between the parties during the term of
this Agreement. No modification to this Agreement will be binding, unless in
writing and signed by a duly authorized representative of each party.
b. This Agreement will be governed by and interpreted in accordance with the
laws of the State of California, excluding conflict of law rules and principles.
c. Any waiver of any provision of this Agreement, or a delay by either party in
the enforcement of any right hereunder, shall neither be construed as a
continuing waiver, nor create an expectation of non-enforcement of that or any
other provision or right.
3.7 SURVIVAL
The terms and limitations, exclusions, and warranties contained in this
Agreement that by their sense and context are intended to survive the
performance thereof by either or both parties hereunder shall so survive the
completion of performance and termination of this Agreement, including without
limitation the confidentiality provisions and the making of any and all payments
due hereunder.
IN ACCORDANCE WITH SECTION 2.4 HEREIN, CUSTOMER HEREBY ELECTS A MINIMUM TERM FOR
SERVICE AS FOLLOWS:
HARDWARE: 3 YEAR _______ OR 5 YEAR _______ TERM DISCOUNT: _______%
Page 11 of 16
<PAGE>
SOFTWARE: 3 YEAR _______ OR 5 YEAR _______ TERM DISCOUNT: _______%
CUSTOMER HAS READ THIS AGREEMENT AND AGREES TO BE BOUND THEREBY.
Agreed to: Accepted by:
- ----------------------------------- TANDEM COMPUTERS INCORPORATED
(Customer)
By By
--------------------------------- ----------------------------------
--------------------------------- ----------------------------------
(Print Name) (Print Name)
Title Title
------------------------------ -------------------------------
Date Effective Date
------------------------------ ----------------------
Page 12 of 16
<PAGE>
@Tandem
SERVICE PLAN ORDER FORM FOR HIMALAYA K SERIES
Agreement No.
----------
Customer Name: Tandem Quote No.
---------------------------------- -------
Customer P.O. No.
------
Customer agrees to obtain and Tandem agrees to provide Service for Products at
the charges indicated on the attached quotation or purchase order under the
Service Plan selected herein, in accordance with the terms and conditions of the
above Agreement and the selected Service Plans and Options.
NOTE: Not all Service Plans and Options are available for all Products or at
all locations.
TANDEM SYSTEM NUMBER(S): # # # # #
------------ . ---------- . ------------
SOFTWARE SERVICE PLAN SELECTION:
- -------------------------------
BASIC PLANS: WARRANTY ENHANCEMENT: Yes / No (Circle One)
_____ SELF SUPPORT SERVICE COMMENCEMENT DATE:
_____ SUPPORT CENTER ASSISTANCE _____ Date of Installation
_____ CUSTOM AVAILABILITY _____ Date of Warranty Expiration
_____ Other _____/_____/_____
OPTIONS: (available with Support Center Assistance only unless otherwise
indicated)
_____ MULTIPLE SYSTEM SUPPORT:
Primary System(s): #______________ #______________ #______________
#______________
_____ CRITICAL PROBLEM SUPPORT FOR WORKSTATION SOFTWARE (also available on
Integrity Workstations under Self Support.)
HARDWARE SERVICE PLAN SELECTION:
- -------------------------------
BASIC PLANS: WARRANTY ENHANCEMENT: Yes / No
(Circle One)
______ PREMIER24: Price Cap ______ % SERVICE COMMENCEMENT DATE:
______ FLEX12: ______ a.m. to ______ p.m. _____ Date of Installation
______ BASE9 _____ Date of Warranty Expiration
_____ Other _____/_____/_____
OPTIONS:
______ ACCELERATED RESPONSE: 2 hr. ___ _____ NO FAULT
4 hr. ---
______ BASE9 W/COOPERATIVE SERVICE _____ OFF-HOURS PM/FCO
______ BUSINESS RECOVERY TOOL _____ READY REVIEW
______ ENHANCEPLAN _____ REMOTE BYPASS
______ FLEX9 ____ a.m. to ____ p.m. _____ TANDEM EXPRESS
______ OTHER (detail)_______________________________________________________
PERIODIC SERVICE: EXTENDED COVERAGE:
Schedule: _____ hours per day ______ a.m.
----------------------- to ______ p.m.
_____ Mon. thru Fri. _____ Sat.
_____ Sun.
SERVICES AGREED TO BY: TITLE:
------------------ ----------------------------
NAME (Please print): DATE:
------------------ ----------------------------
- -----------------------------------------------------------------------------
TANDEM INTERNAL USE ONLY:
Customer # Discounts: Site @ % Volume @ %
-------------- ------- ---------
Term: 3 / 5 years @ %
-----------
Account Support Team (Sales and Service):
------------------------------------
Page 13 of 16
<PAGE>
SOFTWARE SERVICE PLANS
GENERAL PROVISIONS:
At any time during the Warranty Period of any Licensed Product, warranty Service
can be enhanced to the level of a Service Plan at the charges indicated in
Tandem's Price Guide. Corrective Service will be furnished via the Tandem
NonStop Support Center ("TNSC") and will include action to verify the existence
of a defect, determine the severity or impact of the defect, and determine
conditions under which the defect may recur. During such verification, Tandem
may request further information about the defect from Customer. After such
information is provided to enable Tandem to duplicate or verify the defect,
Tandem will, at its option:
1. for a Critical Defect (as defined in the Agreement), commence action within
the work-shift hours specified in the selected Service Plan using commercially
reasonable efforts to provide a temporary solution of or workaround to the
defect; or
2. for a non-critical defect, commence action within the work-shift hours
specified in the selected Service Plan to provide either the action set forth
in 1. above or a statement that the defect will be corrected in a future
Release; or
3. provide a statement that the Licensed Product operates as described in
Tandem's current user documentation or that the defect arises when such Product
is used other than in a manner for which it was designed.
Prior to contacting Tandem for corrective Service for non-critical defects,
Customer is responsible for researching the Tandem database to determine if
there is an interim product modification ("IPM") that will address the problem.
Software media, Releases and updates to Releases, and documentation and updates
to documentation via CD are provided with each Service Plan.
SELF SUPPORT PLAN
- -----------------
For a Critical Defect, Customer may request corrective Service via electronic
mail or fax to the TNSC between the hours of 8:00 a.m. to 5:00 p.m., Monday
through Friday, excluding national holidays. Except for workstation Software,
Tandem will commence action within 2 work-shift hours and provide on-site
assistance when deemed necessary by Tandem.
For a non-critical defect or any defect in workstation Software, Customer may
request Service via electronic mail to the TNSC between the hours of 8:00 a.m.
to 5:00 p.m., Monday through Friday, excluding national holidays. Tandem will
commence action within 4 work-shift hours or within 8 work-shift hours for
workstation Software.
Problem support on a time and expense basis is not available under the Self
Support Plan.
SUPPORT CENTER ASSISTANCE PLAN includes usage problem support through the TNSC
- ------------------------------
and:
For a Critical Defect, Customer may request corrective Service via phone or fax
to the TNSC 24 hours a day, 7 days a week, excluding national holidays. Except
for workstation Software, Tandem will generally commence action during the
initial contact and provide on-site assistance when deemed necessary by Tandem.
For a non-critical defect or any defect in workstation Software, Customer may
request Service via phone to the TNSC between the hours of 8:00 a.m. to 5:00
p.m., Monday through Friday, excluding national holidays. Tandem will generally
commence action during the initial contact or within 4 work-shift hours for
workstation Software.
A service planning meeting will be provided at least once annually between
Tandem and Customer to discuss the current Service Plans and Customer's future
requirements.
CUSTOM AVAILABILITY PLAN provides a guaranteed limit on unscheduled outages,
- ------------------------
subject to a separate Custom Availability Attachment.
MULTIPLE SYSTEMS SUPPORT OPTION (AVAILABLE ONLY IF SUPPORT CENTER ASSISTANCE
PLAN IS SELECTED) is designed for Customers with more than one System. "Multiple
System" means a System for which the Customer elects to receive support through
a Primary System. "Primary System" means each System that is not a Multiple
System. Customer must identify each Primary System and its corresponding
Multiple Systems.
Multiple Systems Support will be provided under the following conditions:
. The Primary System must be approved by Tandem per current policy and
supported under Support Center Assistance;
. All Licensed Products on a Multiple System(s) must be licensed on the Primary
System;
. Service on a Multiple System will be furnished through the identified Primary
System;
. The Customer will reproduce on the identified Primary System any Multiple
System problem requiring support;
. Customer's key contact for a Primary System will be responsible for working
all problems with Tandem;
. Tandem will provide Releases and Release updates to a Primary System only,
and Customer will distribute such Releases and Release updates to each
designated Multiple System; and
. Service requested directly on a Multiple System will be provided at Tandem's
published time and expense rates.
Tandem retains the right to refuse to provide Multiple System Support in cases
where the above conditions are not met.
Page 14 of 16
<PAGE>
HARDWARE SERVICE PLANS AND OPTIONS
GENERAL PROVISIONS:
At any time during the Warranty Period of an item of Hardware, warranty Service
can be enhanced to the level of any Service Plan at the charges indicated in
Tandem's Price Guide. If Customer requests corrective Service and Tandem
determines that the malfunction is not related to an item of Maintained
Hardware, Tandem may charge Customer for Service on a time and expenses basis.
Under all Hardware Service Plans, Tandem will:
. Provide corrective or scheduled preventive Service during the Principal Period
of Maintenance ("PPM") specified in the Plan.
. Log all Service requests and furnish telephone and/or on-line diagnostic
services from the Tandem NonStop Support Center ("TNSC") 24 hours per day, 7
days per week.
. Unless Customer is receiving Cooperative Service, furnish all labor, parts,
materials, and on-site Service during the PPM as necessary to keep Maintained
Hardware operating substantially in accordance with applicable published
specifications. Replacement parts will be new or equivalent of new in
performance and replaced parts become the property of Tandem.
. Install any mandatory field change order required for the safety or proper
operation of Maintained Hardware except that, under Cooperative Service, the
parts necessary for a mandatory field change order will be provided to Customer
for installation.
. Provide an annual (i) equipment inventory of Maintained Hardware, and (ii)
planning meeting to discuss the current Service Plans and Customer's future
requirements.
PREMIER24 PLAN Under the Premier24 Plan, the PPM is 24 hours per day, 7 days
- --------------
per week. Tandem will provide coverage on national holidays for corrective
Service only. For Systems located within 50 miles of a Tandem service location,
Tandem will schedule a Support Engineer ("SE") for arrival on Site within 2
hours, as needed. For Network Products and desktop hardware located within 50
miles of a Tandem service location, Tandem will schedule an SE for arrival on
Site within 4 hours, as needed. The Premier24 Plan includes the following
features at no additional charge:
CALL RESERVE provides up to 3 hardware related Service calls per System per
- ------------
contract year, for up to 4 hours each, to be used at the Customer's discretion.
Certain custom services such as T-Site and T-Move are excluded. The Service
calls may be used consecutively for longer on-site assistance.
ENHANCEPLAN is an optional feature available only with a 24-month initial term
- -----------
that enhances the standard warranty Service on applicable Maintained Hardware,
except desktop hardware and Network Products, to the Service Plan that will
apply to such hardware after the Warranty Period expires.
NO FAULT extends Service for repair of damage to hardware for certain causes
- --------
other than ordinary use of the hardware such as: Customer spilling substances or
objects in or onto hardware; Customer operational error; Customer errors in
hardware configuration; Customer improperly attaching or using non-Tandem-
supplied equipment or parts; interruption of communication lines; or
fluctuations or failure of electrical current except where the fluctuation or
failure is caused by lightning or other natural causes. This feature may be
canceled by either party upon 30 days prior written notice.
PRICE CAP limits any increase in the total list Basic Monthly Maintenance Charge
- ---------
("BMMC") for a System to not more than a predetermined annual percentage
following the initial 12 month term. The applicable percentage for the first 12
month term is designated herein and may be adjusted by Tandem after each 12
month term.
READY REVIEW provides Tandem's "Guide to Business Recovery Planning" and annual
- ------------
consultation with Customer to discuss disaster preparedness.
TANDEM EXPRESS is an optional feature which provides access to databases for
- --------------
support, marketing, Alliance and education information from a compact disc or
remotely from an online server.
FLEX12 PLAN Under the Flex12 Plan, the PPM is 12 continuous hours per day as
- -----------
selected by Customer between 6:00 a.m. and 9:00 p.m., local time, Monday through
Friday, excluding national holidays. At Customer request, Tandem will work
through a critical problem after PPM at no additional charge. Within 50 miles of
a Tandem Service location, Tandem will schedule an SE for arrival on Site within
4 PPM hours, as needed, for Systems and within 8 PPM hours, as needed, for
desktop hardware. The Flex12 Plan also includes Comprehensive Business Recovery
Tool, EnhancePlan and Tandem Express (as described under Premier24 Plan above).
BASE9 PLAN Under the Base9 Plan, the PPM is from 8:00 a.m. to 5:00 p.m., local
- ----------
time, Monday through Friday, excluding national holidays. For hardware located
within 50 miles of a Tandem service location, Tandem will schedule an SE for
arrival on Site within 8 PPM hours, as needed.
SERVICE OPTIONS stated below may be purchased separately if not included in the
selected Plan:
ACCELERATED RESPONSE provides arrival on Site within 2 PPM hours for Network
- --------------------
Products under the Premier24 Plan, within 2 PPM hours for the Flex12 Plan and
within 4 PPM hours for the Base9 Plan. Desktop hardware is excluded unless
otherwise specified.
COOPERATIVE SERVICE requires Customer to contact the TNSC via phone or system-
- -------------------
to-system link for assistance in problem diagnosis. Tandem specialists will
guide Customer's focal point in problem diagnosis and, when necessary, ship
replacement parts, priority delivery, for Customer replacement. Customer is
responsible for (i) packaging hardware and parts to avoid damage in transit by
using the same packaging material in which the replacement unit was received by
Customer, (ii) shipping replaced hardware and parts to Tandem within 72 hours of
receipt of the replacement unit or part; and (iii) paying the return shipping
charge to Tandem's designated return facility and bearing the risk of loss until
the hardware or parts are received by Tandem. If Tandem does not receive the
replaced hardware and parts within 72 hours of receipt of the replacement unit
or part, Customer agrees to pay the then current list price for the hardware or
parts.
EXTENDED COVERAGE extends the PPM to any time periods currently offered by
Tandem.
FLEX9 provides alternate PPM coverage for Base9 Plan customers beginning between
6 a.m. and 9 a.m..
HOLIDAY COVERAGE provides Service coverage during the PPM on all national
holidays.
<PAGE>
NO FAULT OR READY REVIEW as described under the Premier24 Plan.
OFF HOURS PM/FCO provides preventive Service and mandatory FCO installations
outside the PPM at a mutually agreed upon time excluding national holidays.
PERIODIC SERVICE provides a fixed schedule for Service based on the number of
units covered. The SE will repair units at a central site designated by Customer
rather than during the response time provided under the Service Plan.
REMOTE BYPASS provides that Tandem will dispatch an SE upon receipt of
Customer's Service request at the TNSC without first diagnosing the problem.
This option is not available for desktop hardware.
<PAGE>
Exhibit 21.1
PHAMIS, INC.
SUBSIDIARIES OF THE REGISTRANT
Subsidiary Legal Name
- ---------------------
Data Breeze, Inc.
PHAMIS Canada, Inc.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors
PHAMIS, Inc.:
We consent to incorporation by reference in the registration statement (No. 33-
87798) on Form S-8 and the registration statement (No. 333-04314) on Form S-3 of
PHAMIS, Inc. and subsidiaries of our report dated January 31, 1997, except for
note 14 which is as of March 25, 1997, relating to the consolidated balance
sheets of PHAMIS, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, shareholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December 31,
1996, which report appears in the December 31, 1996 annual report on Form 10-K
of PHAMIS, Inc. and subsidiaries.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 0 4,488
<SECURITIES> 18,838 19,890
<RECEIVABLES> 8,519 6,220
<ALLOWANCES> 102 67
<INVENTORY> 0 0
<CURRENT-ASSETS> 30,824 33,659
<PP&E> 8,789 6,396
<DEPRECIATION> 4,023 3,458
<TOTAL-ASSETS> 43,747 41,106
<CURRENT-LIABILITIES> 11,345 12,208
<BONDS> 0 0
0 0
0 0
<COMMON> 15 15
<OTHER-SE> 31,145 28,065
<TOTAL-LIABILITY-AND-EQUITY> 43,747 41,106
<SALES> 49,300 47,165
<TOTAL-REVENUES> 49,300 47,165
<CGS> 28,718 28,000
<TOTAL-COSTS> 28,718 28,000
<OTHER-EXPENSES> 18,594 14,429
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 31 65
<INCOME-PRETAX> 2,705 5,796
<INCOME-TAX> 927 1,488
<INCOME-CONTINUING> 1,778 4,308
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,778 4,308
<EPS-PRIMARY> .28 .68
<EPS-DILUTED> .28 .68
</TABLE>
