Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Form 10-K 36 187K
2: EX-10.A1 Profit Sharing Plan as Amended December 31, 1997 5 20K
3: EX-10.I3 Stock Incentive Plan of 1996, as Amended 3/12/98 11 52K
4: EX-10.T Business Loan Agreement Dated December 30, 1997 20 80K
5: EX-13.B Financial Section of Annual Report to Shareholders 37 178K
6: EX-21.C Subsidiaries of the Registrant 1 4K
7: EX-23.I Consent of Ernst & Young LLP 1 6K
8: EX-27.F Financial Data Schedule 1 6K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
_______________ TO _________________
Commission file number: 0-28212
SUNQUEST INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 86-0378223
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
4801 East Broadway Boulevard
Tucson, Arizona 85711-3609
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (520) 570-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 20, 1998, the registrant had 15,375,962 shares of
Common Stock outstanding. The aggregate market value of the
Common Stock held by nonaffiliates of the registrant, based on
the closing price of the Common Stock on March 20, 1998 as
reported by Nasdaq, was $38,159,924 (calculated by excluding
shares owned beneficially by directors, executive officers and
other affiliates as a group from total shares outstanding
solely for the purpose of this response).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Annual Report to Shareholders for
1997 are incorporated by reference into Parts II and IV of
this Form 10-K.
Portions of the registrant's Proxy Statement for the 1998
Annual Meeting of Shareholders are incorporated by reference
into Part III of this Form 10-K.
Except as specifically incorporated by reference herein, the
Annual Report to Shareholders for 1997 and the Proxy Statement
are not to be deemed filed as part of this Annual Report on
Form 10-K.
SUNQUEST INFORMATION SYSTEMS, INC.
Form 10-K - 1997
TABLE OF CONTENTS
Page
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PART I
Item 1 - Business
General 1
Recent Developments 1
Products 2
Third-Party Marketing Arrangements 8
Products Under Development 9
Year 2000 Compliance 10
Client Services 11
Marketing 12
Technology 12
Research and Development 13
Competition 13
Proprietary Rights 14
System Acquisition Agreements 14
Backlog 15
Employees 15
Forward-Looking Statements 15
Executive Officers of the Registrant 22
Item 2 - Properties 23
Item 3 - Legal Proceedings 24
Item 4 - Submission of Matters to a Vote of Security
Holders 24
PART II
Item 5 - Market for Registrant's Common Equity and
Related Stockholder Matters 25
Item 6 - Selected Financial Data 26
Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 26
Item 7A - Quantitative and Qualitative Disclosures
about Market Risk 26
Item 8 - Financial Statements and Supplementary
Data 26
Item 9 - Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 26
PART III
Item 10 - Directors and Executive Officers of the
Registrant 27
Item 11 - Executive Compensation 27
Item 12 - Security Ownership of Certain Beneficial
Owners and Management 27
Item 13 - Certain Relationships and Related
Transactions 27
PART IV
Item 14 - Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 27
Signatures 31
i
Part I
Item 1. Business.
General
Sunquest Information Systems, Inc. ("Sunquest" or the
"Company") provides health care information systems ("HCISs")
to large and mid-sized hospitals, clinics and other
facilities, including integrated delivery networks ("IDNs")
comprised of multi-entity, multi-site health care
organizations. Sunquest was established in 1979 and has
become a market leader in the sale of laboratory information
systems ("LISs") that integrate disparate equipment and data
sources in order to automate a laboratory department's
specialized processes and manage its large volumes of clinical
data. In 1991, the Company also began marketing FlexiRad, a
radiology information system. Sunquest became a public
company on June 10, 1996, when it closed its initial public
offering of Common Stock. With the purchase of Antrim
Corporation ("Antrim") on November 26, 1996, the Company
acquired a presence in the commercial and medical reference
laboratory market. In August 1997, Sunquest purchased certain
inpatient pharmacy software systems, and in November 1997,
entered into a software license agreement for an outpatient
pharmacy system. See "Recent Developments." As of December
31, 1997, Sunquest had an installed customer base of more than
1,060 sites, including 135 of the world's largest IDNs, in the
United States, Canada, Europe, Mexico and Saudi Arabia.
In order to lower health care delivery costs while
improving the quality of patient care, IDNs need detailed
clinical and management information that enables providers
within the IDN to manage such important processes as: (i)
patient care processes across multiple delivery sites; (ii)
the appropriateness of diagnoses, treatments and resource
utilizations; (iii) provider performance and clinical
outcomes; and (iv) commercial and medical reference laboratory
processing and business practices. Significant market
opportunities exist for HCIS vendors offering open systems
architecture that allows interoperability with legacy systems
and solutions from other leading vendors. These systems
permit IDNs to select and integrate information systems by
either retaining existing legacy systems or selecting from an
array of new and existing systems from different vendors.
Sunquest now offers four suites of health care information
systems in addition to its stand-alone product offerings.
Sunquest markets its products and services
internationally through its direct sales force and marketing
relationships with other information systems vendors. These
relationships include a marketing partnership with IBM in
IBM's Open Healthcare Alliance.
Recent Developments
On August 29, 1997, MSC Acquisition, Inc., a newly formed
subsidiary of the Company, purchased certain inpatient
pharmacy software systems comprising the PreciseCare
Medication Management System ("PreciseCare") from Medintell
Systems Corporation ("Medintell"), for $1.4 million in cash
and the assumption of certain obligations and transition
costs. MSC Acquisition, Inc. was subsequently renamed
"Sunquest Pharmacy Information Systems, Inc." ("Sunquest
Pharmacy") and the product was renamed "FlexiMed." The
addition of pharmacy systems is an important component in the
Company's strategy to be a
1
"best-of-suite vendor" in enterprise clinical departmental systems.
In conjunction with the purchase of the PreciseCare software, the Company
charged operations $1.3 million for acquired, in-process technology.
The after-tax effect of this charge to operations was to
reduce net income by $1.1 million, or $.07 per share. In
addition, the Company and ValueRx Inc., an affiliate of
Medintell, have entered into a marketing arrangement with
respect to PreciseCare.
On November 26, 1997, Sunquest Pharmacy entered into a
Software License Agreement ("Agreement") with MEDITrust
Healthcare Services, Inc. ("Meditrust") for an outpatient
pharmacy system for $750,000 in cash. The Agreement grants
the Company a perpetual, fully paid-up, worldwide, non-
exclusive license to modify, interface, market, sublicense,
support, copy and otherwise use the software, including the
source code and object code. The Company plans to continue to
develop and to market these pharmacy systems through Sunquest
Pharmacy.
During the third quarter of 1997, the Company reduced the
carrying value of IntelliCare software development costs by
$1.5 million. The adjustment was related to certain modules
incorporated into the Company's IntelliCare suite of products
that had not generated sufficient sales to justify continued
capitalization. During the fourth quarter of 1997, the
Company decided to discontinue the sale of its IntelliCare
suite of products as an enterprise-wide computerized patient
record solution and to discontinue the development of a nurse
clinical documentation system. In connection with the
discontinuation of such products, the Company charged
operations $890,000. The Company plans to refocus its
technology and development efforts on the integration of its
suite of laboratory, radiology and pharmacy information
systems, the Clinical Event Manager rules-based alerts system
and the Laboratory Data Network system for medical laboratory
consortia. The after-tax effect of both the third and fourth
quarter charges to operations was a reduction to net income of
$1.5 million, or $.10 per share.
Products
Sunquest's business strategy is to engineer its products
for the changing health care environment, now characterized by
the emergence of IDNs and a trend to outpatient care delivery.
These large organizations are also adopting the purchasing
strategy used by large manufacturing companies and are
limiting the number of vendors with whom they deal. In
response, Sunquest has adopted a "suite" strategy for sales,
and has clustered its products into logical groupings which
are required by these delivery systems.
Sunquest now offers four suites of health care
information systems in addition to its stand-alone product
offerings: (i) the departmental clinical services suite with
systems that automate the operations of laboratories,
radiology and pharmacy departments within a clinical
environment such as a hospital; (ii) the commercial and
medical reference laboratory suite with systems that automate
the clinical, financial and information support operations of
commercial medical laboratories; (iii) the integration and
connectivity suite with systems that allow Sunquest products
to communicate with other vendors' software and hardware
products; and (iv) the clinical data management suite with
systems that integrate clinical patient care data directly to
the caregiver or clinical department.
2
Departmental Clinical Services Systems
Departmental systems for the laboratory were the first
products developed by Sunquest, and were followed by the
addition of radiology and pharmacy systems. This suite of
systems now automates the information needed to manage the
workflow and information needs of laboratory, radiology and
pharmacy departments in one or more facilities. These systems
provide automation services specific to the needs of the
department and capture information for use by physicians
and other caregivers. In addition to the departmental
clinical suite, each product comprising the suite is
individually available as a specific solution.
Clinical Laboratory Information Systems
Sunquest's FlexiLab system manages the workflow and
reporting requirements of the chemistry, hematology, blood
bank, anatomic pathology and outreach areas of the
laboratory. Quality assurance validations occur dynamically
as results are entered. For example, a clinician can define
normal test result ranges by age, sex and test method.
Later, if the results are out of range, Sunquest's FlexiLab
system immediately informs the technologist of the
validation failure.
The Clinical Laboratory module is the core of the
FlexiLab system and manages the processes of the high
volume test areas of the laboratory. This module
includes volume and performance statistics, patient
archiving, demographics, patient reporting, security and
audit trails. Sunquest has recently released Windows-
based functionality, using client server architecture,
to its Clinical Laboratory module that features a new
database schema, episodal management and outpatient
tracking capabilities. Episodal management enables the
entire on-line clinical patient record to be viewed at
the laboratory level for clinical treatment analysis and
financial and managed care cost analysis. Outpatient
tracking capabilities enable separate tracking of the
patient and the specimen, improving the efficiency with
which a provider can manage concurrent care processes.
The Mulhos module utilizes the FlexiLab system to support
multiple facilities. Each facility can have its own
individualized reports, rules and options which allow for
differences among facilities. The Mulhos module manages
vital inter-institutional issues such as the security of
patient information and conflicts between each facility's
patient identification system.
The Commercial Outreach module enables the hospital
laboratory to expand beyond the traditional acute care
needs of an IDN. Automated results reporting to remote
physician offices, rapid order entry, and customer
service enhancements are among the features that support
the commercial laboratory environment. Other features
include the ability to update client data and courier
routes in order to improve the laboratory's ability to
manage its operations. Customized client reports assist
the laboratory in designing its own patient reports.
The Microbiology module in FlexiLab provides a
comprehensive, paperless environment that enhances the
communication of microbiology and epidemiological
results. User definable, automated rules assist the
microbiologist in measuring the effectiveness of
medications on specific organisms in order to predict
effects on a patient's outcome.
3
The Blood Bank module automates a hospital's complete
transfusion service, including inventory and distribution
of blood products to the patient. This module, which
uses rules-based logic, is designed to prevent the
distribution of inappropriate blood products. For
example, the Blood Bank module automatically provides
notice if the blood product has not been appropriately
matched to the patient at the time of issue. The donor
module which is included with Blood Bank automates the
collection procedures and management of blood product
inventories. It also manages and tracks blood donated by
patients for their own use and provides quality controls
to assure compliance with rules of good practice.
The Lab Access Results Workstation module provides easily
accessible and comprehensive on-line processing of data
through defined specimen viewing configurations that are
supported by color-coded Quality Assurance ("QA") result
failures and Quality Control ("QC") specimen groupings.
Specimens may be displayed in a spreadsheet format, with
failures indicated through color changes in the displayed
results, or individually. Individual specimens or
batches of specimen tests results may be released to the
patient file at any time. On-line results entry and
assessment allow data to be viewed for either a single
analyzer or for multiple analyzers that run similar or
dissimilar tests. A user-defined, auto-verification
process tags normal results for release and suspect
results for closer review.
The Flexi-3R module provides redundancy and high systems
availability within the LIS. Flexi-3R provides a
secondary database that allows high volume printing of
management and patient reports. Queries can be made into
this database without affecting the response time of the
primary database.
The Anatomic Pathology module is designed to manage
specimens and reports, including reports for surgical
pathology and cytology. The main features of this module
are the archiving and retrieving of patient records. For
example, the pathologist, while examining specimens, can
automatically retrieve historic specimen results
including previous tissue diagnoses, thereby improving
the timeliness and quality of patient care. The module
supports special cytology reports, such as pap smear
reports. The Company is no longer actively marketing and
selling this product but continues to support those sites
that are currently using the Anatomic Pathology module.
Radiology Information Systems
Sunquest's FlexiRad system is designed to streamline the
operations of the radiology department and facilitate
orders, intelligent scheduling of both patients and
resources, fee billing, patient tracking, film management
and reporting. Using client server architecture and a
graphical user interface, the FlexiRad product is easy to
use, reducing training time on the system.
FlexiRad offers a full suite of interfaces: admissions,
discharge and transfer ("ADT"), orders, results reporting
and billing. Additional interfaces unique to a Radiology
department and offered by FlexiRad include interfaces to
digital dictation systems (DictaPhone), speech recognition
systems (IBM MedSpeak) and top of the line mammography
products (MRS). These interfaces provide more information
to the FlexiRad system and further reduce the turnaround
time of patient reporting.
4
Further integration is provided directly with FlexiLab.
When an exam is being ordered, the radiology user can view
related laboratory results on that patient, helping the
health care provider determine the appropriateness of the
order. On the results side, radiology patient reports can
be correlated with anatomic pathology reports, providing
useful information on necessity for biopsy recommendations.
All information collected by the FlexiRad system can be
viewed by using the relational ad hoc report writer. This
tool allows the user to customize reports. In addition, off-
the-shelf software, such as Microsoft Access or Seagate
Crystal Reports, can be used to write customized reports.
Pharmacy Information Systems
FlexiMed is a patient focused, integrated pharmacy
information system using state-of-the-art client server
technology. This system provides reporting of medication
use across the entire continuum of care and puts the
pharmacy in control of drug therapy and documents through
every step of the medication management process. In
addition, it addresses two of the most pressing needs in
today's health care environment: medication therapy outcomes
and pharmacy cost control.
Some key features of FlexiMed include medication profiling,
order entry and management, clinical consulting and
documentation, dispensing and inventory control, high volume
drug prescription and ad hoc reporting capability.
The acute care functionality has several operational
options: traditional cart exchange, "just-in-time" envelope
fill, automated drug distribution machines, or a hybrid
combination of these.
Outpatient functionality provides the user with high volume
prescription processing and is automated with bar-code
checking. The advanced multi-site capability supports on-
line third-party claims adjudication with billing algorithms
and financial processing that is configurable for site-
specific variations.
FlexiMed incorporates standard clinical alerts such as drug
interaction and allergy alerts, and its configurable
medication management allows the pharmacist the necessary
time to evaluate and act on this advanced clinical
information.
Commercial and Medical Reference Laboratory Systems
Antrim, a wholly owned subsidiary of Sunquest, offers
commercial, reference and outreach laboratory systems for the
medical laboratory marketplace. The Antrim clinical systems
coupled with Antrim financial products provide a complete
solution for laboratory processing, billing processes, and
business practices in the commercial, reference and outreach
laboratory industry.
Clinical Systems
The Answers: General Laboratory is an efficient,
performance-oriented management system that streamlines
and expedites the daily operations within the laboratory.
5
Client specific features allow the laboratory to better
serve their client base in a competitive marketplace.
Client specific reporting conveniences, client specific
normals, criticals, and call parameters and client
specific management and statistical reports give
laboratories the tools to compete in the marketplace
while giving them information to more efficiently market
their business. Customer service features including
stat/call lists, courier tracking, client problem
tracking and streamlined inquiry options provide
convenient access to information that is needed to serve
a dynamic client base.
User defined features give the system the flexibility to
be tailored to fit the needs of the individual
laboratory.
The system offers quick and easy requisition entry to
place orders in the most efficient manner. Information
may be entered manually or electronically. Bar-coding is
supported to maximize efficiency and can be used in
conjunction with instrument interfaces. Batching is also
available to facilitate high volume processing.
Patient reports may be faxed, printed on-site, sent
electronically or printed remotely. Automatic report
scheduling with client specific features facilitate
prompt, accurate reporting.
The Answers: Microbiology product is fully integrated
with the Answers: General Laboratory product and features
user-defined workcards on which daily culture
observations and activity can be recorded. Instrument
interfaces and bar-coded plate labels are also available
to increase efficiency. Epidemiology and management
reports provide detail and summary information to be used
in statistical evaluation of the department's activities.
The Answers: Anatomic Pathology product is available for
laboratories providing pathology and cytology service.
The product uses the same flexible ordering, reporting,
and customer service features that have made the Answers:
General Laboratory product successful. Efficient storage
of historical data makes it possible to match large
volumes of patient history records with current work
quickly and efficiently, and the criteria for retention
is user-defined.
Cytology features include batching capabilities,
streamlined results entry screens, and comprehensive
statistical reporting. Pathology supports Systematized
Nomenclature of Medicine ("Snomed") coding, with
accompanying management reports for data analysis. QA
reporting is also available to correlate results and
document any discrepancies detected.
Financial Systems
The Answers: General Ledger application is the core
product of the Antrim Answers: Financial Systems. The
system is designed to provide complete management of
financial information in accordance with the Financial
Accounting Standards Board recommendations for double
entry accounting and is fully integrated with all
components of the Answers: Financial System.
6
The Answers: Accounts Receivable/Billing product provides
features that allow efficient billing and collections
processing of laboratory services. This product is used
as an option for the Sunquest FlexiLab, Antrim's Answers:
General Laboratory and non-Sunquest laboratory
information systems. These features include front-end
validations, full inquiry, cash receipts entry, one step
adjustment processing and comprehensive reporting. The
system also has tools that can assist the laboratory in
meeting regulatory compliance requirements of local
carriers.
The Answers: Accounts Payable product provides tools to
efficiently manage the expenditures of the laboratory.
The system offers the ability to evaluate commitments,
print and reconcile checks and produce comprehensive
vendor related management reports.
The Answers: Materials Management product offers the
ability to manage the supplies inventory of the
laboratory. Features include the capability to order,
receive, issue, transfer and report all activity within a
multiple location and/or multiple inventory environment.
The system also allows retail sales of supplies to
laboratory clients, with this activity automatically
transferring to the Answers: Accounts Receivable/Billing
product.
The Answers: Electronic Claims/EDI services provide the
capabilities to electronically transmit and
electronically receive payment and rejection activity.
These capabilities are available for Medicare, Medicaid,
Blue Shield and prominent clearinghouses such as NEIC,
CYDATA and IMS.
Information Support Systems
The Answers: Report Writer application allows the user to
create, design and produce customized reports by
extracting data from the host system. When integrated
with the other Antrim Answers products, it allows data to
be uploaded and downloaded to host files, and is ODBC
enabled, which allows interfacing with other ODBC enabled
applications.
The Answers: Optical Disk Archiving application captures
data from the host system, stores the information on
optical media and retrieves the information on demand.
Optical storage ensures efficient and accurate retention
of data and provides protection necessary for long-term
storage. Data is organized, indexed and cross-referenced
for quick retrieval. Retrieved data can be displayed on-
line, routed to other terminals, printed or transmitted
to other electronic media. Multilevel security features
prevent unauthorized access to archived material.
The Answer: Remote Web Access application allows
physicians and clinicians to view and print patient data
remotely using Web technology on a corporate intranet.
By accessing the general laboratory system through a
standard web browser, the user can view patient results,
print reports, order tests, graph cumulative results and
review the test dictionary.
7
Integration and Connectivity
Sunquest estimates that it has installed in its LIS
client base over 9,600 interfaces that were developed for
approximately 510 separate instruments and 550 HCISs of other
vendors. This interface library allows the Company to
seamlessly integrate virtually any lab instrument or HCIS into
a client's LIS, radiology information system or pharmacy
information system. The Company uses a variety of
configuration options to support multi-hospitals and
integrated delivery networks IDNs.
Instrument Interfaces facilitate the linking of clinical
laboratory instruments, utilizing the full communication
capability of each instrument.
Application Interfaces facilitate the linking of third-party
application systems, such as hospital information and
financial systems of other vendors, to Sunquest's
Departmental Clinical Systems. The ability to handle the
complexities of interacting information systems sets
Sunquest apart from other providers.
Clinical Data Management
Sunquest's Clinical Data Management products are designed
to provide integrated clinical patient care data directly to
the caregiver or clinical department either by combining
Sunquest's suite of ancillary systems or through integration
with disparate systems.
The Clinical Event Manager system monitors patient specific
data within a network and immediately alerts health care
providers to significant patient information based on
predetermined rules. Providers simply identify the clinical
rules of interest and the Clinical Event Manager module
notifies them via pager, fax or e-mail of any event
triggered by the rules. Additionally, the system can check
for reminders placed by the health care provider to order
tests at specific intervals. The system also checks for
interdisciplinary events for a given patient such as changes
in vital signs versus administration of a particular drug.
Third-Party Marketing Arrangements
Sunquest believes that there are advantages to open
system solutions that facilitate the interoperation of
products from other vendors. Consequently, the Company has
entered into several value added remarketer ("VAR")
agreements, joint marketing agreements and licensing
agreements with other vendors.
Hardware and resold software are purchased from third-
party vendors under VAR agreements and sold to customers in
conjunction with the Company's software products. Hardware
support is the responsibility of the hardware manufacturers
under agreements negotiated directly between the supplier and
the customer or agreements where Sunquest acts as an
intermediary in negotiating the support agreement.
Anatomic Pathology (Departmental Clinical Services Suite) In
February 1997, the Company entered into a VAR agreement with
Dynamic Healthcare Technologies, Inc. ("Dynamic") to relicense
the Dynamic anatomical pathology product. The agreement grants
the Company a non-exclusive license to modify, interface,
market, sublicense, support and otherwise use the
8
Dynamic software program known as CoPath Client/Server ("CoPath")
which is a computer clinical information system used in
surgical pathology, cytology and autopsy.
Medication Expert (Clinical Data Management Suite) In
February 1997, the Company entered into a non-exclusive
license agreement with Multum Information Services, Inc.
("Multum") to market Multum's MediSource clinical information
service to be provided as an option with Sunquest's
proprietary system. Multum's MediSource product is a smart
clinical information service that helps physicians to
prescribe drugs based on the latest medical research findings.
MediSource Expert Drug Orders provides each order individually
adjusted for the patient based on the patient's clinical
characteristics. MediSource Expert Dosing provides patient-
specific dosing recommendations including both loading and
maintenance doses when appropriate. The Company plans to
incorporate the Multum advanced clinical decision support
system into FlexiMed which will provide patient specific
expert system support.
Integration Server (Clinical Data Management Suite) In March
1995, the Company entered into a VAR agreement with Century
Analysis, Inc. ("CAI") which grants Sunquest a non-exclusive
license to sublease and market CAI's Transaction Distribution
Manager ("TDM") product. TDM greatly simplifies the task of
performing inter-application data interchange and performs a
number of functions including transaction store and forward
with built-in fault recovery and management tolls to control
all data interchange processing.
Products Under Development
The following products are under development utilizing
the same client-server architecture as the Company's existing
systems. The development of new products is an uncertain
process. There can be no assurance that the following
products will be successfully developed or, if developed, that
they will be accepted in the marketplace. See "Risk Factors"
below.
FlexiMed-Outpatient (Departmental Clinical Services Systems)
FlexiMed has two major systems components: an inpatient system
and an outpatient system. The inpatient system is used in
hospitals and is a proven product installed at two major
hospital systems. The outpatient system deals with retail
pharmacy functionality and is currently under development.
Its core functionality will be derived from the Meditrust
application recently purchased by Sunquest.
Clinical Suite Integration (Departmental Clinical Services
Systems) The Clinical Suite Integration will integrate the
three primary Sunquest suite products, FlexiLab, FlexiRad and
FlexiMed. Under development are a common viewing system and
cross inquiry between systems.
Lab Data Network ("LDN")(Clinical Data Management Suite) is an
open architecture system comprised of numerous component
solutions to address the laboratory consolidation trend in the
health care industry. LDN will enable disparate lab systems
within a health care network to send orders, specimens and
results to each other and to a central lab data repository.
"Core Labs" and "Centers of Excellence" models can be
effectively automated with LDN. The outreach client base will
be provided with longitudinal results views from the lab data
repository populated by disparate lab systems.
9
Departmental System Enterprise Viewer (Clinical Data
Management Suite) is an operating environment for information
management. Departmental System Enterprise Viewer will support
flexible results display, enable clinical decision-making, and
will be the medium for orders communication. Data can be
presented as spreadsheets, graphs, and/or text, as well as in
icon-based summaries. Results views can be customized for a
specific clinician or group, and can easily be defined. Views
can be presented for trending of results for one encounter or
across encounters and will allow providers to "drill down" for
more detailed results information. The system will be "web
enabled" to provide a uniform "look and feel" independent of
whether the provider is using Sunquest or other applications.
Infectious Disease Monitor (Clinical Data Management Suite)
Antibiotic resistant organisms are emerging at most hospitals
across the country. Infection control practitioners need to
be notified when these organisms have been identified so that
proper isolation procedures are implemented and appropriate
resources are notified. When the Infectious Disease Monitor
is used with Clinical Event Manager, all pertinent clinicians
can be notified when a resistant, unusual or reportable
organism is isolated in a hospital patient.
Enterprise Scheduler (Clinical Data Management Suite) In
January 1997, the Company entered into a VAR agreement with
Centennial Systems, Inc. which grants Sunquest a non-exclusive
license to market, sublicense, support and otherwise use the
Baseline 2000 Multi-Resource Scheduling System . This stand-
alone product allows clinicians to schedule IDN resources such
as rooms, beds, lab tests and outpatient clinics across the
IDN's multiple facilities and services. Enterprise Scheduler
facilitates complex scheduling of a health care enterprise's
resources and maximizes the facility's efficiency in
processing patient visits. The product's open interface will
further enable the scheduling users to interact with other
heterogeneous systems while taking advantage of a consolidated
database for resource scheduling. Enterprise Scheduler
provides user-selected record capabilities that offer focused
access to the immediate need of the clinician. These include
new patient registration forms, chart pull lists, record
outguides, record location and encounter forms.
Enterprise Master Person Index ("EMPI") (Clinical Data
Management Suite) EMPI is a generic term for a software
product required by IDNs for administration of their
membership. This product will permit the linkage of patient
information even if the information originated in disparate
information systems throughout a health care enterprise. EMPI
will allow information systems to reliably share information
without requiring a change in identification scheme. The EMPI
will accept inputs from network entities, assigns unique
identifiers, if required, and will provide positive
identification of the member. Enhanced versions of the
product will enable patient registration, physicians
registration, physicians credentialling, automated member
chart location and emergency admission data capture in
hospitals and others. A key component of the EMPI system is
an identity broker from a third-party that matches population
based on demographic information for each locality and has
been successfully used with similar data.
Year 2000 Compliance
The year 2000 issue is the result of computer programs
being written using two digits rather than four to define the
applicable year. Any of the Company's software programs,
whether sold as products of the Company or used internally,
may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or
10
miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal
business activities.
Based on a recent assessment, the Company believes that
the current releases of its products are all year 2000
compliant. The Company plans to have all clients converted to
year 2000 compliant versions of its products by September
1999. Pursuant to contract terms, clients are obligated to
cooperate with the Company in the installation of system
enhancements, including the current year 2000 compliant
versions.
In addition, the Company has determined that only a small
portion of software programs developed by other vendors and
utilized internally will require upgrades to new versions to
properly utilize dates beyond December 31, 1999. After
reviewing the plans of these vendors, the Company believes
that the upgrades to such software programs will be completed
by the end of 1998. The cost of year 2000 compliant software
related to systems developed by other vendors and used
internally is included in maintenance agreements. The Company
believes that consulting costs incurred in accomplishing the
installation of year 2000 compliant software will be
immaterial.
Client Services
At December 31, 1997, the Company's client services
section employed approximately 432 professionals who provide
implementation, application and system support, education and
consulting services to the Company's clients. The client
services section primarily employs medical technologists and
other health care professionals in supporting and implementing
clinical information systems. These personnel are
complemented by computer professionals to support complex
IDNs. Client services employees attend rigorous training
including, where required, a formal nine to 12-month initial
training program to comply with the Company's certification
requirements.
Sunquest utilizes a "train the trainer" philosophy to
educate its clients. This training consists of a structured
process of project management and education with flexible
schedule options, with training held at both the Company's and
the clients' sites. System conversion, instrument training
and operations training are included in the Company's post-
implementation program. Each client is assigned a support
analyst who understands how the software has been tailored for
the client and how best to provide ongoing support. Full
application and systems support coverage is available from the
Company's "help desk" 24 hours a day and seven days a week.
The Company uses outside consultants and self administered
surveys to tract the quality of its services. In addition,
Sunquest uses a third-party expert system to provide on-line
project status reports and on-line support. Instrument
interface, network consulting, operating system and hardware
support are provided by experts in each area.
Sunquest also provides consulting services to assist
clients in analyzing and implementing strategic organizational
changes, such as planning an IDN expansion program,
reengineering departmental processes, redesigning local or
wide-area networks, and establishing new commercial
laboratories. Additional client education services are
provided through computer-based training or formal ongoing
educational courses and seminars.
11
Balanced View Consulting is a division of Sunquest that
performs consulting primarily to the Company's installed base.
The consulting ranges from training in the better use of
Sunquest's products to full reengineering projects. Balanced
View Consulting will also provide System Managers on a monthly
or yearly basis, implementation assistance and specific
project work on a hourly-fee basis.
Marketing
The primary markets for the Company's systems and
services are the approximately 3,500 acute care hospitals in
the United States and Canada that have more than 250 beds and
the approximately 4,000 commercial and medical reference
laboratories in the United States. The Company also markets
its systems and services to the approximately 600 hospitals in
the United Kingdom and Germany that have more than 100 beds.
Sunquest's principal sources of referrals are its clients and
consultants. Sunquest also seeks to enhance its market
recognition through participation in industry seminars and
trade shows, Company-sponsored seminars, the Sunquest User
Group and Regional User Group meetings in the United States
and the United Kingdom, the Antrim User Group meetings, direct
mail campaigns, telemarketing and advertisements in trade
journals.
The Company's marketing department is composed of a team
of specialists in product management, marketing operations,
marketing communications and sales support. Its sales force
is organized into three divisions: (i) North American which is
divided into three areas, Western, Northern and Southern,
offering all of the Company's clinical products; (ii) European
Sales, offering the Company's systems in the United Kingdom
and Germany; and (iii) Antrim Sales, offering commercial and
medical reference laboratory systems. At December 31, 1997
the Company employed a sales and marketing force of
approximately 90 individuals.
Technology
Sunquest's clinical products operate on Intel-based PC
systems, IBM RS6000 and a variety of Digital Equipment
Corporation ("DEC") server systems. Users access the
Company's applications using IBM compatible PCs and/or
terminals. FlexiLab and FlexiRad are offered on both IBM and
DEC platforms. FlexiMed is offered on the IBM RS6000
platform. Antrim's suite of products is being offered on IBM
RS6000 and DEC platforms.
The Company utilizes the M computer language (also known
as "MUMPS" or "Massachusetts General Hospital Utility Multi-
Programming System") in the development of its laboratory and
radiology clinical systems. FlexiMed, the Company's pharmacy
product, is developed using Powerbuilder fourth generation
language on an Oracle database. All of the products use or
are migrating to Windows 95 for the client operating system.
Antrim has developed all its information systems in the M
language. The Answers: Remote Web Access product utilizes
both M and web standard HTML languages.
Sunquest is evaluating options to migrate its laboratory
and radiology clinical systems to new technology by developing
the object-oriented presentation layer and client-base
business logic layer so that M-based data structures,
relational data structures and object database structures (all
residing on the server) can be deployed incrementally,
depending on
12
the state of product evolution. Although the Company does not believe that
such migration is currently necessary to satisfy its clients' needs, the
Company expects to transition over time all of its systems and modules to
object orientation using the C++ programming language, Visual
Basic and relational and/or object database technology.
Sunquest resells third-party terminals, label and page
printers, storage devices and other peripheral devices. The
Company also provides services to configure computer systems
and networks. The Company has one-year renewable reseller
agreements with DEC and IBM and a variety of reseller
agreements with other middleware and device vendors.
Research and Development
The Company believes that the continuing rapid evolution
of the clinical information systems market has made a
substantial and sustained commitment to product development
essential to the long-term success of its business. The
Company has a defined product development process
characterized by its release management methodology. This
process includes on-going analysis of the marketplace,
determination of users' requirements, preparation of design
specifications, and usability testing to ensure that new
systems meet clients' standards.
Sunquest's product development managers are responsible
for product architecture, improvements to existing products,
construction verification and inspection. The Company's
product development engineers are assigned to one of three
distinct functional groups: (i) the product engineering group,
which is responsible for the ongoing evolution of the
Company's existing products to meet the changing demands of
the market; (ii) the service engineering group, which
prioritizes corrections and improvements to deployed systems;
and (iii) the technology group, which researches industry-
standard components and develops new technologies for
integration into the Company's current and future products.
As of December 31, 1997, approximately 156 product development
engineers were assigned to improving and extending the
Company's existing systems and approximately 69 engineers were
assigned to the development of products in new product areas.
In 1997, 1996 and 1995, the Company's research and
development expenses before capitalization of software
development costs totaled approximately $16.9 million, $12.8
million and $11.8 million, respectively. See "Risk Factors"
below.
Competition
The markets for HCISs, including the markets for the
Company's information systems, are highly competitive. Most
of the Company's revenues are derived from lengthy,
competitive procurement processes managed by sophisticated
purchasers that extensively investigate and compare the
products offered by the Company and its competitors. The
Company believes that the principal competitive factors
influencing the market for its HCISs include vendor and
product reputation, product architecture, functionality and
features, ease of use, rapidity of implementation, quality of
client support, product performance and price.
The Company's principal competitors are Cerner
Corporation, HBO & Company, Medical Information Technology,
Inc., Shared Medical Systems Corporation, Soft Computer
13
Consultants, Inc. and Triple G Corporation. In addition, the
Company competes with a large number of other information
system vendors. See "Risk Factors" below.
Proprietary Rights
The Company's future success depends in large part upon
its ability to protect its technology and proprietary rights.
The Company relies on a combination of patent, copyright,
trade secret and trademark laws and contractual restrictions
to establish and protect its proprietary rights, although the
laws of certain foreign countries in which the Company
licenses or may license its products may not protect the
Company's proprietary rights to the same extent as do laws in
the United States. It is the Company's policy to require
employees, consultants, clients and, in certain circumstances,
suppliers to execute nondisclosure agreements upon the
commencement of a relationship with the Company.
The system acquisition agreements under which the Company
licenses its software products to its clients generally
prohibit the assignment or transfer of the software or use of
the software by any person or entity other than the named
client or its affiliates or successors. The agreements provide
that the Company retains ownership of the software and
proprietary information and of all rights therein. Except for
information which is in the public domain, the client is
required to hold the software and proprietary information in
confidence and use reasonable care to preserve and safeguard
such information.
The trade name Sunquest and other marks used by Sunquest
in its business, such as FlexiLab and FLEXiRAD, have been
registered in the United States Patent and Trademark Office.
The name Sunquest has also been registered by Sunquest in the
United Kingdom and Germany. The trade name Antrim and marks
used by Antrim in its business, such as Answers, have also
been registered with the United States Patent and Trademark
Office. Sunquest Pharmacy has registered the mark PreciseCare
with the United States Patent and Trademark Office. In
addition, Flexi-3R, FlexiRad and Clinical Event Manager, among
other marks, are trademarks of Sunquest and FlexiMed is a
trademark of Sunquest Pharmacy. Also, certain of the
Company's products are the subject of patent protection or a
pending patent application.
System Acquisition Agreements
The Company typically furnishes its systems to its
clients pursuant to system acquisition agreements that grant
perpetual, non-exclusive and non-transferable licenses to use
those systems, including the source code for certain of the
Company's proprietary software included therein. Under these
agreements, the Company also resells certain items of hardware
to its clients. Clients pay specified fees for the license of
software proprietary to the Company and the sublicense of
software proprietary to third parties. Clients also pay
specified fees for hardware, installation and training in the
use of the system. License fees for the Company's systems are
typically based on a number of factors, including the number
and type of software modules included in the system, as well
as the volume of use by the client. The Company generally
supports and maintains the licensed systems and provides
modifications, enhancements and upgrades for a monthly fee
under separate maintenance agreements.
14
Backlog
At December 31, 1997, the Company had a total contract
backlog of $99.5 million, which consisted of $49.3 million of
system sales and $50.2 million of support and service. At
December 31, 1996, total contract backlog was $87.3 million,
which consisted of $41.9 million of system sales and $45.4
million of support and service. System sales backlog consists
of the unearned amounts of signed contracts which have not yet
been recognized as revenues. Support and service backlog
consists primarily of contracted software support for a period
of 12 months. The Company is unable to predict accurately the
amount of backlog it expects to fill in any particular period,
since it adjusts the timing of installations to accommodate
clients' needs and since installations typically require eight
to 12 months to complete.
Employees
As of December 31, 1997, the Company had 828 employees.
None of the Company's employees are represented by a labor
union, nor has the Company experienced any work stoppages.
The Company believes that it has good relations with its
employees.
Forward-Looking Statements
This report contains forward-looking statements with
respect to, among other things, the market for the Company's
products, the Company's future revenues and prospects, and
certain plans and objectives of the Company's management.
These statements are indicated by phrases such as "the Company
will" or use of verbs such as "believes," "plans," "expects,"
"anticipates" or words of similar impact. The following are
certain factors that may cause the Company's actual results to
vary materially from those which are the subject of any such
forward-looking statements.
Risk Factors
Dependence on Single Product. To date, the Company has
derived substantially all of its revenues from sales of
laboratory information systems ("LISs") and related
implementation support services. The Company expects that it
will continue to derive a significant portion of its total
revenues for the foreseeable future from sales of LISs and
related implementation and support services. Accordingly,
market factors adversely affecting sales of LISs could have a
material adverse effect on the Company's business and results
of operations. Such factors include, but are not limited to,
consolidation among the Company's customers, changes in the
criteria used by such customers in making purchase decisions,
and competitive pricing pressures. The Company's target
market for its LISs, consisting primarily of large and mid-
sized hospitals, is characterized by continuing consolidation
resulting in fewer purchasing decisions at a higher dollar
value, a trend that may favor larger vendors with greater
numbers of hospitals currently under contract. There can be no
assurance that the Company will continue to be the vendor of
choice as newly consolidated customers replace legacy systems.
In addition, changes in the criteria used in making purchasing
decisions such as a shift from purchasing best-of-fit systems
to purchasing single vendor, hospital-wide systems may have a
material adverse effect on the Company's ability to attract
new customers. Competitive pressures or other factors,
including the Company's efforts to expand its LIS offerings to new
15
markets, may result in significant price decreases that
could have a material adverse effect on the Company's business
and results of operations. There can be no assurance that the
Company will be able to sustain or increase the level of
revenues from sales of its LISs on an annual or quarterly
basis.
Rapid Technological Change and Dependence on New Product
Development, Enhancement and Acceptance. The HCIS market is
characterized by rapid technological advances, frequent new
product introductions and evolving industry standards that are
outside the control of the Company. The development and sale
of additional applications is a principal means of competition
in the HCIS market. Advances in both hardware and software
technology, including the introduction of new hardware
platforms, new programming languages and new software
applications, will require the Company to make significant
ongoing expenditures for research and development in order to
adapt the Company's existing and subsequently introduced HCISs
to such new technologies and to take advantage of the benefits
they offer. For the foreseeable future, the Company intends
to continue to devote substantial financial, managerial and
personnel resources to its product development efforts,
including the recently purchased pharmacy systems. The
development of new and enhanced HCISs is a complex and
uncertain process requiring high levels of innovation and the
accurate anticipation of technological and market trends, and
from time to time the Company has experienced delays in
introducing new HCISs and HCIS enhancements. The Company
intends to complete its migration of products and clients to
Windows-based and year 2000 compliant software. An inability
to accomplish this migration or any significant delay in such
migration could have an adverse effect on the Company's
business and results of operations. The failure of the
Company to develop and introduce new HCISs, such as its
pharmacy systems or its Clinical Data Management suite of
products, and HCIS enhancements successfully or the failure to
respond effectively to technological changes could have a
material adverse effect on the Company's business and results
of operations.
Significant Fluctuations in Quarterly Operating Results;
Revenue Recognition Policy. The Company's quarterly revenues
and results of operations have varied significantly as a
result of a number of factors, including (i) the volume and
timing of systems sales and installations; (ii) the timing of
client acceptances; (iii) the length and complexity of the
systems sales and installation cycles; (iv) seasonal buying
trends as a result of clients' annual purchasing and budgeting
practices; and (v) the Company's sales commission practices.
The Company expects that these variations will continue for
the foreseeable future. Revenues from the software portion of
system sales are recognized on the percentage-of-completion
method and are determined based upon actual hours incurred
related to total estimated installation hours. As a result,
the timing of revenue recognition varies considerably and
could be impeded by a number of factors, including
availability of Company personnel, the Company's need to
allocate system installation resources to other installations
or to research and development activities, availability of
client personnel and other resources, and complexity of the
clients' needs and delays imposed by clients. During 1997,
the Company identified a trend toward longer sales and
installation cycles with integrated delivery network
customers. Any continuing trend of delays in progress toward
completing a material system installation or a number of
smaller installations could reduce the revenues recognized in
any given period and could have a material adverse effect on
the Company's business and results of operations. Because a
significant percentage of the Company's expenses, particularly
employee compensation, is relatively fixed, variations in the
timing of system sales, installations and training costs can
cause significant variations in operating results from quarter
to quarter. If total revenues are below expectations in any
period, the Company's inability to adjust
16
spending to compensate fully for the lower revenues may magnify the
adverse effect of such a shortfall on the Company's results of
operations. Accordingly, the Company believes that period-to-
period comparisons of revenue and results of operations are
not necessarily meaningful and should not be relied upon as
indicators of future performance.
Competition. The markets for HCISs, including the
markets for the Company's information systems, are highly
competitive. Most of the Company's revenues are derived from
lengthy, competitive procurement processes managed by
sophisticated purchasers that extensively investigate and
compare HCISs offered by the Company and its competitors. The
Company believes that the principal competitive factors
influencing the market for its HCISs include vendor and
product reputation, product architecture, functionality and
features, ease of use, rapidity of implementation, quality of
client support, product performance and price. There can be
no assurance that the Company will be able to compete
successfully with respect to any of such factors. In
addition, many of the Company's current and potential
competitors have significantly greater financial, managerial,
development, technical, marketing and sales resources than the
Company and may be able to devote those resources to develop
and introduce new products more rapidly than the Company or
with significantly greater functionality than, and superior
overall performance to, those offered by the Company. These
competitors may also be able to initiate and withstand
significant price decreases more effectively than the Company.
To be competitive, the Company must be able to respond
effectively to the introduction of new and improved HCISs by
its competitors. There can be no assurance that the Company
will be able to develop new or improved HCISs and services in
a timely and cost effective manner or that the Company's
current and future HCISs and services will achieve and
maintain market acceptance.
Discontinuance of the Sale of Clinical Repository
Systems. On January 28, 1998, the Company announced its plan
to discontinue the sale of the IntelliCare suite of products
as an enterprise-wide computerized patient record solution and
to discontinue the development of a nurse clinical
documentation system. At that time, the Company had three
customer sites using certain of the IntelliCare products.
Although the Company continues to support these customers,
there can be no assurance that they or others will not assert
claims with respect to the discontinued products. In addition,
the Company's decision to withdraw from the enterprise-wide computerized
patient record market could have a material adverse effect on the
Company's ability to compete successfully with vendors who offer
such products in conjunction with LISs.
Dependence on Key Personnel; Management of Changing
Business. The Company's future success depends to a
significant extent upon the executive officers, the Board of
Directors, and certain other managerial, technical and
marketing personnel. The Company has experienced turnover at
the executive level in the past, and the loss of the services
of key personnel could have a material adverse effect on the
Company's business and results of operations. The Company's
ability to manage growth will require it to continue to
attract, motivate and retain highly skilled managerial,
technical and marketing personnel. Competition for such
personnel is intense, and there can be no assurance that the
Company will be successful in attracting, motivating and
retaining the personnel required to maintain and improve its
business and results of operations.
Risks Associated with Identifying and Integrating
Acquisitions; Other Strategic Alternatives. The Company
intends to continue to grow through the acquisition of
complementary products, technologies or businesses in the HCIS
industry. The Company's
17
management has limited experience in identifying appropriate
acquisitions and in integrating products, technologies and businesses
into its operations. The evaluation, negotiation and integration
of any such acquisition may divert the time, attention and resources of
the Company, particularly its management. There can be no
assurance that the Company will be able to integrate
successfully any acquired products, technologies or businesses
into its operations, including its pharmacy systems. In
addition, there is significant competition for acquisition
opportunities in the HCIS industry. Consolidation in the
industry may intensify such competition and thereby increase
the costs of such acquisition opportunities. The failure to
identify and compete successfully for strategic acquisition
opportunities or to integrate successfully any acquired
products, technologies or businesses could have a material
adverse effect on the Company. In addition to acquisitions,
the Company may from time to time consider other strategic
alternatives including, without limitation, mergers,
consolidations, joint ventures and recapitalizations. The
evaluation and implementation of any such alternative may
divert the time, attention and resources of the Company.
There can be no assurance that any such strategic alternative
would be implemented successfully.
Regulation. The United States Food and Drug
Administration ("FDA") is authorized to regulate medical
devices under the Federal Food, Drug and Cosmetic Act, as
amended. The Company expects that the FDA is likely to become
increasingly active in regulating computer software that is
intended for use in health care settings. In March 1994, the
FDA issued a letter advising that the FDA considers medical
devices to include software products intended for use in the
manufacture of blood and blood components or for the
maintenance of data used to assist personnel in making
decisions concerning the suitability of blood donors and the
release of blood or blood components for transfusion or
further manufacture. As such, the FDA determined that
manufacturers and distributors of these products, such as the
Company, are subject to FDA regulation. The FDA can impose
extensive requirements governing pre- and post- market
conditions such as device investigation, approval, labeling
and manufacturing. Compliance with these new requirements and
any future requirements imposed by the FDA could be costly and
could delay or preclude the introduction of certain new
products. The Company is unable to determine at this time the
effect, if any, that these requirements may have on its
business.
Sunquest was the subject of a good manufacturing
practices ("GMP") audit conducted by representatives of the
FDA that was completed on February 6, 1998. The Company was
informed that its LISs may be considered medical devices under
the Federal Food, Drug, and Cosmetic Act and regulations and
policies promulgated thereunder (the "FFDCA") and would, in
such event, be subject to regulation by the FDA. As such, the
Company would be required to, among other things, register and
list its LISs with the FDA. The Company does not believe that
its LISs are medical devices under the FFDCA and is in the
process of determining whether other LIS vendors have treated
their LISs as medical devices. Until such time as the FDA
formally notifies the Company that its LISs are medical
devices under the FFDCA, the Company does not intend to treat
its LISs as medical devices.
Antrim was the subject of a GMP audit conducted by the
FDA in March 1996. As a result of the audit, Antrim received
a warning letter from the FDA in June 1996 instructing Antrim
to resolve certain GMP issues and to contract with an
independent, third-party auditor to certify that certain
procedures were in place. The independent audit was conducted
in November 1996 and the results of the audit indicated that
the non-compliance issues had not been resolved. The Company,
working through the FDA's Dallas District Office, has proposed
to discontinue the marketing and development of the Antrim
blood bank product
18
and to replace it with the Company's blood bank software in lieu of
expending time and resources to bring the Antrim product into substantial
GMP compliance. The Company is currently awaiting a decision by the Center
for Biologics, Evaluation, and Research in Washington, D.C. as to
the acceptability of this proposal. In addition, the
Department of Health of the State of Texas (the "DOH") imposes
certain licensing requirements and other standards on certain
distributors and manufacturers of certain medical devices
located within Texas, such as Antrim. Antrim has filed the
required license application with the DOH. The DOH is
authorized to impose substantial penalties for non-compliance
with its regulations.
The health care industry is subject to changing
political, economic and regulatory influences that may affect
the procurement practices and operation of health care
providers. Many lawmakers have announced that they intend to
propose programs to reform the United States health care
system. These programs may contain proposals to increase
governmental involvement in health care, lower reimbursement
rates and otherwise change the regulatory environment in which
the Company's clients operate. Health care providers may
react to these proposals and the uncertainty surrounding such
proposals by curtailing or deferring investments, including
those for the Company's HCISs. This may result in greater
selectivity in the allocation of capital funds, which could
have a material adverse effect on the Company's ability to
sell its HCISs and services. Such regulatory changes, if
adopted, and the reaction of health care providers to such
changes may have a material adverse effect on the Company's
business and results of operations.
Dependence on Proprietary Rights. The Company's future
success depends in large part upon its ability to protect its
technology and proprietary rights. The Company relies on a
combination of patent, copyright, trade secret and trademark
laws and contractual restrictions to establish and protect its
proprietary rights, although the laws of certain foreign
countries in which the Company licenses or may license its
products may not protect the Company's proprietary rights to
the same extent as do laws in the United States. It may
nonetheless be possible for third parties to misappropriate
the Company's technology and proprietary information or to
develop independently similar or superior technology. There
can be no assurance that the legal protections afforded to the
Company and the measures taken by the Company will be adequate
to protect its intellectual property. Any misappropriation of
the Company's technology or proprietary information could have
a material adverse effect on the Company's business and
results of operations. Moreover, the Company is subject to
the risk that others will assert adverse claims and commence
litigation alleging infringement or misappropriation of their
intellectual property rights. There can be no assurance that
others will not assert claims or commence litigation with
respect to the Company's current or future HCISs. In any such
event, the Company may be required to engage in protracted and
costly litigation, regardless of the merits of such claims;
discontinue the use of certain software codes, processes or
trademarks; cease to manufacture, use and license infringing
products; develop non-infringing technology; or enter into
license arrangements with respect to the disputed intellectual
property. There can be no assurance that the Company would be
able to develop alternative technology or that any necessary
licenses would be available or that, if available, such
licenses could be obtained on commercially reasonable terms.
Responding to and defending any of these claims could distract
the attention of management and have a material adverse effect
on the Company's business and results of operations.
Product Liability. The Company's systems include
applications that may relate to confidential patient medical
histories and treatment plans. Improper disclosure of this
information or any failure by the Company's systems to provide
accurate and timely
19
information could result in claims against the Company by its clients
or their patients. A successful claim brought against the Company in
excess of its insurance coverage could have a material adverse effect
on the Company's business or results of operations, and even unsuccessful
claims could result in the expenditure of substantial funds in
litigation and the diversion of management time and resources.
There can be no assurance that the Company will not be subject
to such claims in the future, that such claims will not result
in liability in excess of any insurance coverage maintained by
the Company with respect to such claims, that insurance will
cover such claims or that appropriate insurance will continue
to be available to the Company at commercially reasonable
rates.
Fluctuations of Stock Price. In recent years, the stock
market in general, and the shares of software technology
companies in particular, have experienced extreme price
fluctuations that are often unrelated to the operating
performance of such companies. The Company has experienced
fluctuations in its stock price related to these general
market fluctuations and to such operating factors as quarterly
fluctuations in its revenues or results of operations, general
conditions in the information technology services industry and
announcements of new products or services by the Company or
its competitors. These fluctuations may adversely affect the
future market price of the Company's Common Stock.
Control by Current Shareholders; Payments upon Change in
Control. As of the date of this Report, Dr. Sidney A.
Goldblatt; Bradley L. Goldblatt, Dr. Goldblatt and Nina M.
Dmetruk, the Executive Vice President, Chief Financial Officer
and Secretary of the Company, as trustees for the benefit of
Bradley L. Goldblatt; Bradley L. Goldblatt, Dr. Goldblatt and
Ms. Dmetruk, as trustees for the benefit of Curtis S.
Goldblatt; and Jodi Beth Gottlieb, Dr. Goldblatt and Ms.
Dmetruk, as trustees for the benefit of Jodi Beth Gottlieb
(such trusts being collectively referred to herein as the
"Trusts") own approximately 77.4% of the outstanding Common
Stock. As a result, these shareholders, if acting in concert,
will be able to elect or remove the entire Board of Directors
and control the outcomes of all other issues submitted to the
Company's shareholders for approval. This concentration of
ownership may enable Dr. Goldblatt and the Trusts to cause or
prevent change in control of the Company without the approval
of other shareholders. There can be no assurance that this
concentration of ownership will not have a material adverse
effect on the market price of the Common Stock. In the event
that Dr. Goldblatt, his three children and trusts created in
their benefit (including the Trusts) cease to own, directly or
indirectly, fifty percent or more of the outstanding stock of
the Company, Ms. Dmetruk will be entitled to elect, during the
ninety days following such event, to terminate her employment
with the Company and receive $1.2 million in severance pay.
Effect of Certain Statutory Anti-Takeover Provisions.
The Company is subject to certain anti-takeover provisions of
the Pennsylvania Business Corporation Law. Under these
provisions, certain transactions with an "interested
shareholder" must be approved by a majority of votes that all
shareholders, other than the interested shareholder, are
entitled to cast, and if any person or group acquires 20% or
more of the voting power of the Company, with certain
exceptions, the remaining shareholders may elect to sell their
shares to such person or group for the fair value of the
shares, including a proportionate amount of any control
premium. In addition, there are special requirements for
business combinations between the Company and interested
shareholders, certain restrictions on the voting of shares by
persons who acquire 20% or more of the voting power of the
Company, and requirements for the disgorgement of profits in
certain circumstances. These provisions may have the effect
of deterring hostile takeovers or delaying or preventing
changes in control or management of
20
the Company, including transactions in which shareholders might
otherwise receive a premium for their shares over the current market
prices.
Foreign Sales. Sales of its systems and services to
clients located outside the United States have historically
accounted for less than ten percent of the Company's total
revenues. The Company's operations outside the United States
are subject to the risks that agreements may be more difficult
to enforce and receivables more difficult to collect through a
foreign country's legal system; foreign customers often have
longer payment cycles; foreign countries could make unexpected
changes in regulatory requirements or be the subject of
significant political and economic instability; foreign
subsidiaries, distributors and sales representatives may be
difficult to manage; foreign countries could impose additional
withholding taxes or otherwise tax the Company's foreign
income, impose tariffs or adopt other restrictions on foreign
trade; and intellectual property rights may be more difficult
to enforce in foreign countries. There can be no assurance
that any of these factors will not have a material adverse
effect on the Company's future international sales and,
consequently, on the Company's business, financial condition
and results of operations. In addition, exchange rate
fluctuations may render the Company's products less
competitive relative to local product offerings, or could
result in foreign exchange losses, depending upon the currency
in which the Company sells its products. To date, the Company
has not engaged in exchange rate hedging activities to
minimize the risks of such fluctuations. The Company may seek
to implement hedging techniques in the future with respect to
its foreign currency transactions. There can be no assurance,
however, that the Company will be successful in such hedging
activities.
Transactions with Affiliates. The Company has
historically engaged in transactions with affiliates,
including Dr. Sidney A. Goldblatt, the President and Chief
Executive Officer of the Company, the Trusts and certain
affiliates of the Trusts. Although the Company took
precautions to achieve results which the Company believes were
equivalent to arm's-length transactions, there can be no
assurance that actual results will be as favorable to the
Company as arm's-length transactions. In May 1996, the
Company adopted a policy that all future transactions between
the Company and its officers, directors, principal
shareholders and their affiliates shall be on terms no less
favorable to the Company than could be obtained by the Company
from unrelated third parties, and shall be approved by a
majority of the outside independent and disinterested
directors. This policy does not apply to transactions entered
into before the adoption of the policy or to renewals of
existing transactions on similar terms.
No Dividends Contemplated. The Company does not
anticipate that it will pay any dividends on its Common Stock
in the foreseeable future. The Company currently intends to
retain earnings, if any, to fund the development and growth of
its business. The Company has a bank line of credit agreement
that prohibits the payment of any capital distributions or
dividends.
21
Executive Officers of the Registrant
Information concerning the executive officers of the
Company is set forth below.
Name Age Position
---- --- --------
Sidney A. Goldblatt 63 President, Chief Executive
Officer and Director
Richard A. Wesson 57 Chief Operating Officer
Nina M. Dmetruk 45 Executive Vice President-
Chief Financial Officer,
Secretary and Director
James F. Garliepp 46 Executive Vice President-
Chief Technology Officer
Ivan G. Boyd 43 Senior Vice President-
Sales and Marketing
Joanna S. Broder 54 Senior Vice President-
Client Services
Samuel A. Miller 59 Senior Vice President-
Technology
Bradley L. Goldblatt 34 Treasurer and Director
Sidney A. Goldblatt, M.D., a co-founder of the Company,
has been President of the Company since 1986, Chief Executive
Officer since December 1994 and a director of the Company
since its formation in 1979. Dr. Goldblatt also served as
Chief Operating Officer of the Company from December 1992 to
August 1994. Dr. Goldblatt has served as President and sole
shareholder of S. Goldblatt Pathology Associates, P.C. since
1971.
Richard A. Wesson, Ph.D., has been Chief Operating
Officer since August 1994. From July 1990 until he joined the
Company, Dr. Wesson was employed by Wyse Technology, a
supplier of computer terminals, where he served as Vice
President of Business Development and Strategic Management
from July 1993 to June 1994 and as Vice President of the
Systems Division from February 1992 to July 1993.
Nina M. Dmetruk has served as Executive Vice President-
Chief Financial Officer of the Company since September 1991
and a director of the Company since December 1991. She has
served as Secretary of the Company since August 1996.
Effective May 26, 1996, Ms. Dmetruk entered into an employment
agreement with the Company under which she agreed to serve as
the Executive Vice President-Chief Financial Officer of the
Company on a full-time basis. During her earlier service as
Executive Vice President-Chief Financial Officer, Ms. Dmetruk
was not an employee of the Company and devoted approximately
60% to 80% of her time to the Company's business. Ms. Dmetruk
is a CPA and a CFP and until May 1996 was the sole owner of a
public accounting firm for more than five years.
James F. Garliepp has been Executive Vice President-Chief
Technology Officer since September 1991. Mr. Garliepp
previously served as Senior Vice President-Technology from
1989 to September 1991 and served in various other positions
from 1982 to 1989.
Ivan G. Boyd has been Senior Vice President-Sales and
Marketing since November 1997. From October 1995 to September
1997, Mr. Boyd was employed by ADAC HealthCare Information
Systems, a division of ADAC Labs, a health care information
systems company, where he served as Executive Vice President
of Sales and Marketing. From September 1994 to July 1995, Mr.
Boyd was employed by First Data Corporation, a health
22
care information systems company, where he served as Senior Vice
President of Sales. From June 1980 to September 1994, Mr.
Boyd was employed by Digital Equipment Corporation, a computer
manufacturing company, where he served as Worldwide
Healthcare Director from April 1993 to September 1994 and U.S.
Channels Marketing Director from July 1991 to April 1993.
Joanna S. Broder has been Senior Vice President-Client
Services since March 1997. From January 1995 until she joined
the Company, Ms. Broder was employed by AT&T Government
Markets, a telecommunications company, where she served as
Assistant Vice President, Collaborative Solutions. From
November 1989 to November 1994, Ms. Broder was employed by
Digital Equipment Corporation, a computer manufacturing
company, where she served as Program Manager.
Samuel A. Miller has been Senior Vice President-
Technology since February 1998. From January 1997 until
February 1998, Mr. Miller served as Senior Vice President-
Engineering of the Company. From August 1996 until January
1997, Mr. Miller served as Vice President-Strategic Planning
of the Company. From March 1996 to July 1996, Mr. Miller was
a Consultant for the Worldcare Corporation, a health care
telemedicine company. From March 1994 to December 1995, Mr.
Miller was employed by Massachusetts General Hospital, where
he served as Senior Vice President of Operations and Chief
Information Officer. From January 1992 to March 1994, Mr.
Miller was employed by Chedoke-McMaster Hospitals, where he
served as Vice President of Professional Services and Chief
Information Officer.
Bradley L. Goldblatt has been Treasurer and a director of
the Company since December 1992 and was employed by the
Company until February 1998. From June 1991 to February 1993,
he was a Research Laboratory Technician at the Eye and Ear
Institute of Pittsburgh. Bradley L. Goldblatt is the son of
Dr. Goldblatt.
The executive officers of the Company are elected by and
serve at the discretion of the Board of Directors.
Item 2. Properties.
The Company's principal executive and administrative
offices and its sales and marketing, customer services and
product development facilities are located in two buildings
containing 102,000 square feet of office space and 85,000
square feet of office space, respectively, in Tucson, Arizona.
The Company leases the buildings from Any Travel, Inc., a
travel agency located in Tucson, Arizona, which is owned by
the Trusts. The lease for the 102,000 square foot building,
which includes an adjacent two-level parking facility,
currently requires monthly rental payments of $96,792 and
expires in September 2001. The Company occupies approximately
48,000 square feet of office space in the other building and
subleases the remaining space to a number of subtenants. The
lease for the second building currently requires monthly
rental payments of $72,700 and expires in May 2004. Sunquest
receives monthly rental payments under the subleases totaling
approximately $23,000. In addition, the Company owns a
facility containing approximately 43,620 square feet, in
Tucson, Arizona, which was purchased in February 1997 for cash
in the amount of $1.8 million. The building is being leased
to third parties but will eventually be used for customer-
related activities. Currently, Sunquest receives monthly
rental payments of approximately $24,000 from this
23
facility. The Company also owns a two-story building, containing
approximately 18,000 square feet, in Johnstown, Pennsylvania,
which it may use as an office facility.
Antrim leases office space in Plano, Texas, containing
approximately 47,420 square feet. The lease currently
requires monthly rental payments of $58,287 and expires in May
2001. Antrim receives monthly rental payments under a
sublease totaling approximately $5,000.
The Company believes that its facilities will be adequate
for its current operations for at least the next twelve
months.
Borrowings under the Company's line of credit with Bank
of America National Trust and Savings Association ("Bank of
America") are secured by all of the Company's assets. The
Company has also granted liens on all of its assets to a
vendor to secure amounts due for the purchase of hardware and
other equipment.
Item 3. Legal Proceedings.
As of the date hereof, the Company is not a party to any
proceedings the outcome of which, in the opinion of
management, would have a material adverse effect on the
Company's results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of shareholders
during the quarter ended December 31, 1997.
24
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock is traded on the over-the-
counter market and is quoted on the Nasdaq National Market
System under the symbol "SUNQ." Trading commenced May 31,
1996 as a result of the Company's initial offering of stock to
the public. The following table sets forth, for the periods
indicated, the high and low sales prices of the Common Stock
as reported by the Nasdaq National Market System.
Price Range
Period High Low
--------------------------------------------------
1997
First quarter $17.625 $ 9.750
Second quarter $15.750 $ 8.125
Third quarter $17.175 $10.500
Fourth quarter $15.000 $ 6.500
Price Range
Period High Low
--------------------------------------------------
1996
Second quarter (from May 31) $19.750 $12.000
Third quarter $19.000 $10.125
Fourth quarter $18.625 $13.000
Except for S corporation distributions, no dividends have
been declared or paid on the Company's Common Stock. The
Company anticipates that it will retain future earnings, if
any, to fund the development and growth of its business and
does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company's line of credit
prohibits the payment of capital distributions or dividends.
At March 20, 1998, there were 36 holders of record of the
Common Stock, and the Company believes that on that date there
were in excess of 1,300 beneficial owners of the Common Stock.
25
Item 6. Selected Financial Data.
The information required by this item is included in the
Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1997 (the "Annual Report") and such
information is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information required by this item is included in the
Annual Report and such information is incorporated herein by
reference.
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the report
thereon of Ernst & Young LLP dated February 13, 1998, and
supplementary data required by this item are included in the
Annual Report and such financial statements and supplementary
data are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
On March 6, 1996, the Company's Board of Directors
ratified management's decision to retain Ernst & Young LLP as
the independent accountants for the Company and dismissed the
Company's former auditors. The former auditors did not report
on the Company's financial statements for the year ended
December 31, 1995. There were no disagreements with the
former auditors on any matter regarding accounting principles
or practices, financial statement disclosures or auditing
scope or procedures related to the financial statements which
the former auditors reported on at the time of the change or
with respect to the Company's financial statements which the
former auditors reported on for the fiscal year 1994, which,
if not resolved to the former auditors' satisfaction, would
have caused it to make reference to the subject matter of the
disagreement in connection with its report. Prior to
retaining Ernst & Young LLP, the Company had not consulted
with Ernst & Young LLP regarding accounting principles.
26
Part III
Item 10. Directors and Executive Officers of the Registrant.
The information set forth under the caption "Executive
Officers of the Registrant" in Part I of this Annual Report on
Form 10-K and the information set forth under the caption
"Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy
Statement for the 1998 Annual Meeting of Shareholders (the
"Proxy Statement") is incorporated herein by reference.
Item 11. Executive Compensation.
The information set forth under the caption "Executive
Compensation and Related Information" in the Proxy Statement
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
The information set forth under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information set forth under the caption "Certain
Transactions and Business Relationships" in the Proxy
Statement is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) The following documents are filed as a part of this Report:
(1) Financial Statements (Incorporated by reference in Item 8)
----------------------------------------------------------
Report of Independent Auditors dated February 13, 1998
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995
27
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
[All financial statement schedules are omitted as
inapplicable or because the required information is
included in the Consolidated Financial Statements or
the Notes to Consolidated Financial Statements]
(2) Exhibits
--------
3A Amended and Restated Articles of Incorporation of
the registrant. (1)
3B Amended and Restated Bylaws of the registrant. (1)
10A Profit Sharing Plan, as amended December 28, 1994,
together with Profit Sharing Trust Agreement. (1) (2)
10A.1 Profit Sharing Plan, as amended December 31, 1997. (2) (3)
10B Lease Agreement dated as of September 17, 1991
between the registrant, as lessee, and Any Travel,
Inc., as lessor, with respect to the premises located
at 4801 East Broadway Boulevard, Tucson, Arizona. (1)
10E Triple Net Lease Agreement dated as of May 2, 1994
between the registrant, as lessee, and Any Travel, Inc.,
as lessor, with respect to the premises located at 1121-
1161 North El Dorado Place in Tucson, Arizona. (1)
10H Employment Agreement dated July 24, 1994 between
Richard A. Wesson and the registrant. (1) (2)
10H.1 Amendment dated May 26, 1996 to Richard A.
Wesson's Employment Agreement. (2) (4)
10I.3 Stock Incentive Plan of 1996, as amended
March 12, 1998. (2) (3)
10K Business Loan Agreement dated as of March 8, 1996,
as amended March 11, 1996, among the registrant,
Sunquest Europa Limited and Bank of America Arizona, and
related Security Agreements. (1)
10N Tax Indemnification Agreement dated as of April 30,
1996, between the registrant and its shareholders of
record as of April 30, 1996. (1)
10P Employment Agreement effective May 26, 1996 between
Nina M. Dmetruk and the registrant. (1) (2)
28
10Q Lease dated June 1, 1996 between Antrim Corporation,
as lessee, and Massachusetts Mutual Life Insurance
Company, as lessor, with respect to office space in
Plano, Texas. (4)
10S Form of Underwriting Agreement dated May 30, 1996,
filed as Exhibit 1A to Registration Statement No. 333-
2790 and incorporated herein by reference.
10T Business Loan Agreement dated as of December 30,
1997, among the registrant, Sunquest Europa Limited,
Antrim Corporation, Sunquest Pharmacy Information
Systems, Inc., Sunquest Germany GmbH and Bank of America
National Trust and Savings Association. (3)
10U Stock Purchase Agreement with The Compucare Company,
dated as of November 26, 1996, filed as Exhibit 2A to
Form 8-K dated December 11, 1996 and incorporated
herein by reference.
13B Financial Information Section of Annual Report to
Shareholders for 1997. (3)
16A Letter regarding change in independent auditors,
dated May 9, 1996. (1)
21C Subsidiaries of the registrant. (3)
23I Consent of Independent Auditors, dated March 26, 1998. (3)
27F Financial Data Schedule for the year ended December 31,
1997. (3)
___________________
(1) Filed, under the same number, as an exhibit to Registration
Statement No. 333-2790 and incorporated herein by reference.
(2) Management contract or compensatory plan or arrangement.
(3) Filed herewith.
(4) Filed, under the same number, as an exhibit to the Form 10-K
for the year ended December 31, 1996.
29
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during
the quarter ended December 31, 1997.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Johnstown, Commonwealth of Pennsylvania, on March 30, 1998.
SUNQUEST INFORMATION SYSTEMS, INC.
(Registrant)
By: /s/ Sidney A. Goldblatt
_____________________________________
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Sidney A. Goldblatt President and Chief Executive March 30, 1998
____________________ Officer (Principal Executive
Sidney A. Goldblatt Officer) and Director
/s/ Nina M. Dmetruk Executive Vice President and March 30, 1998
___________________ Chief Financial Officer
Nina M. Dmetruk (Principal Financial and
Accounting Officer) and Director
/s/ Bradley L. Goldblatt Director March 30, 1998
________________________
Bradley L. Goldblatt
/s/ Richard W. Barker Director March 30, 1998
_____________________
Richard W. Barker
/s/ Stanley J. Lehman Director March 30, 1998
_____________________
Stanley J. Lehman
/s/ Larry R. Ferguson Director March 30, 1998
_____________________
Larry R. Ferguson
/s/ Peter P. Gombrich Director March 30, 1998
_____________________
Peter P. Gombrich
31
Sunquest Information Systems, Inc.
Form 10-K For Fiscal Year Ended December 31, 1997
Commission File No. 0-28212
---------------------------
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
3A Amended and Restated Articles of Incorporation of
the registrant. *
3B Amended and Restated Bylaws of the registrant. *
10A Profit Sharing Plan, as amended December 28, 1994,
together with Profit Sharing Trust Agreement. *
10A.1 Profit Sharing Plan, as amended December 31, 1997.
10B Lease Agreement dated as of September 17, 1991
between the registrant, as lessee, and Any Travel,
Inc., as lessor, with respect to the premises located
at 4801 East Broadway Boulevard, Tucson, Arizona. *
10E Triple Net Lease Agreement dated as of May 2, 1994
between the registrant, as lessee, and Any Travel, Inc.,
as lessor, with respect to the premises located at 1121-
1161 North El Dorado Place in Tucson, Arizona. *
10H Employment Agreement dated July 24, 1994 between
Richard A. Wesson and the registrant. *
10H.1 Amendment dated May 26, 1996 to Richard A. Wesson's
Employment Agreement. *
10I.3 Stock Incentive Plan of 1996, as amended March 12, 1998.
10K Business Loan Agreement dated as of March 8, 1996,
as amended March 11, 1996, among the registrant,
Sunquest Europa Limited and Bank of America Arizona, and
related Security Agreements. *
10N Tax Indemnification Agreement dated as of April 30,
1996, between the registrant and its shareholders
of record as of April 30, 1996. *
10P Employment Agreement effective May 26, 1996 between
Nina M. Dmetruk and the registrant. *
10Q Lease dated June 1, 1996 between Antrim Corporation,
as lessee, and Massachusetts Mutual Life
Insurance Company, as lessor, with respect to
office space in Plano, Texas. *
10S Form of Underwriting Agreement dated May 30, 1996. *
10T Business Loan Agreement dated as of December 30,
1997, among the registrant, Sunquest Europa Limited,
Antrim Corporation, Sunquest Pharmacy Information
Systems, Inc., Sunquest Germany GmbH and Bank of
America National Trust and Savings Association.
10U Stock Purchase Agreement with The Compucare Company,
dated as of November 26, 1996. *
13B Financial Information Section of Annual Report to
Shareholders for 1997.
16A Letter regarding change in independent auditors,
dated May 9, 1996. *
21C Subsidiaries of the registrant.
23I Consent of Independent Auditors, dated March 26, 1998.
27F Financial Data Schedule for the year ended December
31, 1997.
___________________
* Incorporated by reference.
Dates Referenced Herein and Documents Incorporated by Reference
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