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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 0-28132
LANVISION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1455414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Financial Way, Suite 400
Cincinnati, Ohio 45242-5859
(Address of principal executive offices) (Zip Code)
(513) 794-7100
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 par value
( Title of Class )
(continued)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. X
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The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed using the closing price as reported by The Nasdaq Stock
Market for the Registrant's Common Stock on April 21, 1998, was $15,707,904.
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of April 21, 1998: 8,806,000.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the year ended
January 31, 1998, are incorporated by reference into Part II of this Form 10-K
to the extent stated herein. Except with respect to information specifically
incorporated by reference in this Form 10-K, the Annual Report is not deemed to
be filed as a part hereof.
Portions of the Registrant's Definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on May 27, 1998, are incorporated by reference into
Part III of this Form 10-K to the extent stated herein. Except with respect to
information specifically incorporated by reference in this Form 10-K, the
Definitive Proxy Statement is not deemed to be filed as a part hereof.
This report consists of 128 pages and the Exhibit Index appears on page 31.
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FORWARD-LOOKING STATEMENTS
In addition to historical information contained herein, this Annual Report on
Form 10-K contains forward-looking statements. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in the sections entitled "Item 1. Business" and
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Registrant undertakes no obligation to publicly revise these
forward-looking statements, to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission, including the Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K.
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PART I
ITEM 1. BUSINESS
General
LanVision Systems, Inc. ("LanVision"TM or the "Company") is a leading
provider of Healthcare Information Access Systems and outsourced data center
operations that enable hospitals and integrated healthcare networks to capture,
store, manage, route, retrieve and process vast amounts of clinical and
financial patient information. The Company's systems deliver on-line,
enterprise-wide access to fully-updated patient information which historically
was maintained on a variety of media, including paper, magnetic disk, optical
disk, x-ray film, video, audio and microfilm. LanVision's systems, which
incorporate data management, document imaging/management and workflow
technologies, consolidate patient information into a single repository and
provide fast and efficient access to patient information from universal
workstations located throughout the enterprise, including the point of patient
care. The systems are specifically designed to meet the needs of physicians and
other medical and administrative personnel and can accommodate multiple users
requiring simultaneous access to patient information, thereby eliminating file
contention. By providing access to all forms of patient information, the Company
believes that its Healthcare Information Access Systems are essential components
of the computer-based patient record ("CPR"). In August, 1997, the Company
announced the establishment of Virtual Healthware Services ("VHS"), a new health
information service bureau division that delivers high quality,
transaction-based document imaging/management services to healthcare providers
from a centrally located data center. One of the first web-based services of its
kind, VHS offers an alternative to purchasing Healthcare Information Access
Systems for
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hospitals, outpatient clinics and integrated delivery networks. VHS, utilizing
LanVision applications across an Intranet/Internet, enables healthcare customers
to achieve enhanced patient care, and improved record security and accessibility
at significant cost savings. VHS helps hospitals, clinics and integrated
delivery networks, overcome the barriers of high start-up costs, additional
information systems and operations resources, extended payback periods and other
risks associated with purchasing a system. During 1997, VHS built the
centralized data center and the document capture centers for its first
customers. VHS began providing services to customers early in fiscal 1998.
Industry Background
Over the last ten years, healthcare expenditures have doubled to approximately
$1.0 trillion, and currently represent approximately 14% of the U.S. Gross
Domestic Product. In response to these dramatic increases, the healthcare
industry is undergoing significant change as competition and cost-containment
measures imposed by governmental and private payors have created substantial
pressures on healthcare providers to control healthcare costs while providing
quality patient care. At the same time, the healthcare delivery system is
experiencing a shift from a highly fragmented group of non-allied healthcare
providers to integrated healthcare networks which combine all of the services,
products and equipment necessary to address the needs of healthcare customers.
As a result, healthcare providers are seeking to cut costs, increase
productivity and enhance the quality of patient care through improved access to
information throughout the entire hospital or integrated healthcare network.
Today, the majority of the patient record is paper-based in most hospitals. The
inefficiencies of a paper-based record increase the cost of patient care.
Physicians often cannot gain access to medical records at the time of patient
visits, and users cannot simultaneously access the record when only a single
copy of the paper-based patient record is available. In the Company's experience
in installing its systems, a typical 500 bed hospital can produce 20,000 to
25,000 pages of new patient information each day even with computerized
admission, billing, laboratory and radiology systems, and individual physician
document retrieval requests can be as high as 100 documents per physician per
day. The volume of medical images in the patient record is expanding as well. In
addition to classic images such as x-rays and CAT scans, new image forms such as
digitized slides, videos and photographs proliferate. Thus, the ability to store
and retrieve images of voluminous paper records and medical images on a timely
basis is a critical feature of a complete CPR.
In order to simultaneously reduce costs and enhance the level of patient care,
hospitals and other healthcare providers are demanding comprehensive,
cost-effective information systems that deliver rapid access to fully updated
and complete patient information. Traditional healthcare information systems are
inadequate because: (i) they do not capture large amounts of the patient record
which are paper-based and stored in various sites throughout the enterprise;
(ii) computerized patient data is generated using a variety of disparate systems
which cannot share information; and (iii) multimedia medical information such as
x-rays, CAT scans, MRI's, video
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and audio information are frequently inaccessible at the point of patient care.
Accordingly, hospitals and other healthcare providers have begun to increase
their healthcare information systems expenditures. In the 9th Annual Healthcare
Information and Management Systems Society Leadership Survey in February 1998,
73% of the respondents expected an increase in their information technology
budget. Of those expecting an increase, 23% expect their healthcare information
system budgets to increase by over 20% or more over the next twelve months. In
addition, only 2% of the hospitals surveyed indicated that they had a fully
operational CPR system in place, approximately 17% of the respondents indicated
they have developed a plan to implement a CPR system and 17% indicated they have
begun to install CPR hardware and software.
Document imaging and workflow technologies are essential elements of a CPR
because they allow for the storage of unstructured data (i.e., patient record
elements other than data or text, such as photographs, images of a document,
video, x-ray images) and they enable digitized x-rays, CAT scans, MRI's, video
and audio information to be accessed and delivered to the caregiver at the point
of patient care. The Company's management believes the demand for the Company's
Healthcare Information Access Systems, which can supply imaging capabilities to
the CPR, will increase in future years.
The LanVision Solution
LanVision's Healthcare Information Access Systems provide solutions for the
patient information access needs of hospitals and integrated healthcare
networks. LanVision's systems enable medical and administrative personnel to
rapidly and efficiently capture, store, manage, route, retrieve and process vast
amounts of clinical and financial patient information.
LanVision's systems: (i) capture and store electronic data from disparate
hospital information systems through real-time, computerized interfaces; (ii)
facilitate the storage of digitized multimedia data and medical images such as
x-rays, CAT scans, MRI's, video and audio information; (iii) provide
applications for efficiently scanning and automatically indexing paper-based
records; (iv) allow storage of a patient's lifetime medical record on low cost
optical disks which also provides rapid access to high volumes of data
enterprise-wide; (v) provide workflow automation to facilitate the reengineering
of business processes; and (vi) incorporate physician-oriented interfaces that
allow the user to easily locate and retrieve patient information in the hospital
or clinical setting, including the point of patient care.
LanVision's Healthcare Information Access Systems provide financial,
administrative, and clinical benefits to the healthcare provider and facilitate
more effective patient care. These benefits include: improved access to patient
information by various search criteria to assist in making informed clinical and
financial decisions; reduced costs for administrative personnel due to increased
workflow efficiency, as data can be routed within an organization to all users
who need to process that information simultaneously or in sequence as required;
increased productivity through the elimination of file contention by providing
multiple users simultaneous access to
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patient medical records; reduced costs and improved care through the reduction
of unnecessary testing and admissions; improved cash flow through accelerated
collections and reduction of "technical denials" (which occur when a third-party
payor refuses payment because of the provider's inability to substantiate
billing claims due to loss of portions or all of the patient record); expedited
treatment decisions, improved predictability of patient outcomes and fewer
redundant tests as a result of timely access to complete information; fewer
medical record errors by minimizing misfiled, lost and improperly completed
records; and increased security of patient information through improved controls
on access to confidential data and the creation of audit trails that identify
the persons who accessed or even tried to access such information.
The LanVision Strategy
The Company's objective is to continue to be a leading provider of Healthcare
Information Access Systems. Important elements of the Company's business
strategy include:
Expand Sales, Marketing and Distribution Channels. Throughout 1996, LanVision
increased its sales and marketing staff from eight to thirty people as of
January 31, 1998. The expansion of the sales and marketing staff was designed to
increase the Company's direct and indirect sales capabilities and expand
LanVision's overall presence in the marketplace. Also during 1996 and 1997, the
Company established cooperative marketing or referral agreements with various
strategic third party vendors. (See Sales and Marketing.) Despite the expansion
of LanVision's sales and marketing efforts and the increase in LanVision's
remarketing and referral partners, revenues for fiscal 1996 and 1997 have been
less than the Company's plan for each year, and the overall market for the
Company's products has developed slower than management expected. (See
Management's Discussion and Analysis of Financial Condition and Results of
Operations.) However, the market for the Company's products is still in the
early stages of development, and management believes the market opportunities
are such that the Company should be able to significantly grow its revenues.
Additionally, in February 1998, LanVision took a major step forward in improving
and expanding its sales distribution when it entered into a Remarketing
Agreement with Shared Medical Systems Corporation ("SMS"), one of the leading
providers of information technology to the healthcare industry. SMS serves more
than 3,500 healthcare organizations throughout North America and Europe, and
will sell LanVision's electronic medical records imaging/management and workflow
products as integrated components of the SMS Novius product line.
Also, in the second half of 1997, the Company completed its development of
significant new products, including: On-Line Chart Completion(TM),
Enterprisewide Correspondence(TM), WebView(TM), and a new document capture
subsystem. Additionally, the Company intends to release its new version of
AccountVision(TM) in the first half of fiscal 1998.
Accordingly, based upon management's expectations that the market for the
Company's products is beginning to accelerate, the Company's improved and
expanded product portfolio, and the
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significant distribution capabilities as a result of the SMS agreement, the
Company intends to maintain its sales and marketing efforts at levels similar to
fiscal 1997.
Maintain Technological Leadership through the Development of New Software
Applications and Increased Functionality of Existing Applications. LanVision
intends to continue its product development efforts and increase the
functionality of existing applications along with the development of new
applications using document imaging and workflow technologies. Particularly, the
Company intends to increase the functionality of its web-based applications. Due
to the significant amount of development in 1997, management believes fiscal
1998 product development expense will be somewhat less than fiscal 1997.
During fiscal 1996, the Company increased its product development and quality
assurance staff from five to nineteen people and during 1997 the staff was
increased to thirty-four people. Also, in 1997, the Company outsourced portions
of its product development and paid approximately $2,540,000 to outside
contractors. During the second half of 1997 and the first two months of fiscal
1998, the Company added new functionality to ChartVision(R) and released On-Line
Chart Completion, Enterprisewide Correspondence, OmniVision(TM), WebView,
AVRemit(TM), and a new Document Capture System(TM). Additionally, the Company
has continued development of a new version of AccountVision which will share a
common data base with ChartVision, and this product will be released in the
first half of fiscal 1998. Management believes only the most robust, flexible,
dependable products will survive in the healthcare market, and the Company has
attempted to establish itself as the leader in document imaging/management and
workflow applications through strong product development.
Image-Enable Clinical Data Repositories and Other Applications Software. Today,
health information is often stored on numerous dissimilar host-based and
departmental systems that are spread throughout the enterprise and are not
integrated. Additionally, these current systems do not address the data stored
on paper or the increasing volume of medical images such as x-rays, CAT scans,
digitized slides, exploratory scopes, photographs, audio, etc. LanVision
believes the efficiencies and productivity of hospitals and integrated delivery
networks can be greatly enhanced by seamlessly integrating their historical
information systems with document imaging and workflow applications. Physicians,
clinicians and other healthcare users then have access to the complete patient
record, including the structured data, such as a lab result, and the related
unstructured data, such as an x-ray or a doctor's hand written note. Currently,
LanVision is working with several vendors, including Shared Medical Systems
Corporation, Oacis Healthcare Holdings Corporation ("Oacis"), IDX Systems
Corp.("PHAMIS/IDX"), and Cerner Corporation ("Cerner"), to image-enable their
clinical data repository systems and other applications. LanVision is marketing
image enabling through its product OmniVision. LanVision intends to continue to
aggressively market its unique image-enabling solutions to end users and other
third-party software application providers.
Market New Entry Level System. Historically, LanVision has focused on large
hospitals, where the initial investment by customers in LanVision's systems may
exceed $1,000,000. A study
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conducted in 1994 by the Rheinner Group, a consulting firm, indicated that over
60% of the document imaging market opportunities were in hospitals and clinics
planning to invest less than $500,000. Although LanVision has previously
packaged a product for the smaller end of the market, the Company has not
aggressively marketed the product. To address the needs of this market segment,
LanVision has recently introduced MicroVision(TM), a pre-configured departmental
electronic medical record system that can be purchased for less than $500,000
and subsequently be expanded enterprise-wide. The Company intends to distribute
this product through its resellers.
Provide Outsourced Information Systems Service Bureau Operations. LanVision has
established a new division, Virtual Healthware Services, which will utilize
LanVision's web-based applications across an Intranet/Internet, to deliver high
quality, transaction-based document imaging/management services to healthcare
providers from a centrally located data center. The division enables its
healthcare customers to achieve enhanced patient care, improved security and
accessibility to patient records at significant cost savings with minimal
up-front capital investment, maintenance and support costs. Customers realize
benefits more quickly, with less economic risk. VHS offers an alternative to a
hospital allocating several million dollars in its capital budget to establish
an in-house system. This service is made possible through the advancement of
web-based technology, state-of-the-art communication technology and advanced
software design. International Data Corporation, an information technology
market research firm, estimates that, in 1997, the healthcare industry spent
approximately $2.9 billion in the United States, and $6.2 billion worldwide, for
outsourcing information systems operations, processing services and other
information technology related business operations, and is expected to increase
at an annual growth rate of 10%.
Systems and Services
LanVision's systems employ an open architecture that supports a variety of
operating systems, including Microsoft Windows, Windows 95, Windows NT and UNIX.
The Company's systems can be configured with various hardware platforms,
including INTEL-compatible personal computers, IBM RS/6000 and Hewlett-Packard
9000. The Company's systems include a graphical user interface designed
specifically by the Company for physicians and other medical and administrative
personnel in hospitals and integrated healthcare networks. The Company's systems
operate on multiple imaging platforms, including FileNet and Kofax. The
Company's Healthcare Information Access Systems incorporate advanced features,
including workflow and security features which allow customers to restrict
direct access to confidential patient information, secure patient data from
unauthorized indirect access and have audit trail features. Currently, the
Company markets, installs and services its core products, ChartVision and
AccountVision. A brief description of the Company's products, including products
in the final stages of development follows.
ChartVision, is a highly evolved electronic patient record application, that is
designed to provide health information when and where it is needed. This
software replaces the physical paper
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medical record with optical imaging/management technology. In addition, it has
the ability to image-enable third-party applications as well as accept data from
other hospital information systems. Health information traditionally stored on
magnetic tape, optical disk, x-ray film, video, audio and microfilm is
consolidated into a single point of access with ChartVision.
AccountVision, is a patient financial services application based on document
imaging/management and workflow technology. It streamlines all areas of patient
financial services by reducing or eliminating the paper being gathered,
assembled, and manually routed through the department. AccountVision stores
documents on optical and magnetic disk for easy inquiry and retrieval
processing. This allows AccountVision to bring billing attachments and
documentation to patient financial service representatives when and where they
are needed. AccountVision allows automated management of the volumes of
information being transmitted electronically, including data from a healthcare
facility's registration, billing, managed care systems, etc.
On-Line Chart Completion, an add-on module to ChartVision provides healthcare
facilities with automated management of chart deficiencies. Through the
integration of medical records workflow processing and imaging technology,
On-Line Chart Completion enables the deficiency analyst to identify, assign,
review and reassign medical record deficiencies. The clinician can sign
documents, annotate and highlight, view the entire record while dictating,
attach notes and comments and complete assigned deficiencies. Management can
track and report on deficiency progress throughout the enterprise. On-Line Chart
Completion also provides standard Joint Commission on the Accreditations of
Healthcare Organizations reports and customer-defined reports. Cases can be
updated at any time and simultaneous access to the documents eliminates file
contention. The automated, flexible workflow processes were designed to be
intuitive to the end users, analysts and clinicians. This makes it easy for
clinicians to finish their on-line "paper work." Because it is flexible and easy
to use, On-Line Chart Completion helps customers increase efficiency
immediately. As a result, hospitals and integrated delivery networks can quickly
improve cash flow through faster billing, reduced denials and optimized coding.
Enterprisewide Correspondence, an add-on module to ChartVision, helps hospitals
and integrated delivery networks quickly and efficiently complete requests for
information from various sources. It is an automated, flexible workflow
processing and management reporting system. It provides on-line access to all
pertinent information. The implementation of a workflow system offers an
opportunity to streamline and re-design existing core operational processes. The
correspondence analyst's work queue accepts incoming requests that are faxed,
scanned (mail), manually created (phone call) or delivered through an interface
from another system within the enterprise. Once a request is received by the
Enterprisewide Correspondence system, it automatically initiates the workflow
process and moves the users through the pre-defined steps necessary to fulfill
the request. The actual requested document can also be routed as an attachment
and is then available as needed. Requests are tracked and the current status can
be viewed on-line. The Enterprisewide Correspondence system has a flexible
invoice processing option that can be built into the workflow process, and it
produces standard productivity, revenue, summary and ad hoc reports.
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OmniVision is a suite of image-enabling and workflow applications that provides
physicians, clinicians and other healthcare users with immediate, simultaneous
access to any patient information including multimedia and paper-based
information, through their existing applications. OmniVision delivers
unstructured data and workflow automation to any third-party application while
creating a complete historical repository. As a result, OmniVision allows
hospitals and integrated delivery systems to consolidate all health information,
whether text, document and medical images, sound, or video, into one easily
accessible repository. This provides a significant advantage to healthcare
organizations that currently rely on manual processes or multiple non-integrated
applications to access the complete patient record. OmniVision allows any
application across the entire enterprise to be image-enabled, from the host
healthcare information system, to human resources, materials management, patient
billing, as well as clinical data repositories ("CDR"), computer-based patient
record systems, and others. And when the CDR is image-enabled, users can access
any piece of information on the same workstation and from the same screen
display, including the point of patient care. This means that users can view
traditional electronic data and images simultaneously on the same screen without
signing in and out of multiple applications. LanVision is currently working with
various customers to image-enable their existing information systems using
OmniVision including: the "Oacis" clinical data repository system at UCSF
Stanford Health Care; the "PHAMIS/IDX" clinical data repository at
Grant/Riverside Methodist Hospitals of OhioHealth Corporation, Cerner's "Open
Clinical Foundation" at several hospitals and SMS's "Lifetime Clinical
Repositary." The Company views the seamless integration of its products with
third-party clinical data repository software systems and other applications
systems as a key element of the Company's business strategy. To the degree that
the Company is successful in image enabling these applications, the Company
believes that it will be able to offer its image-enabling systems to other
healthcare providers using systems such as Oacis, PHAMIS/IDX, Cerner, SMS, etc.
WebView is currently under development and installed at two beta sites and is
expected to be released in the first half of 1998. WebView will provide
seamless, easy access to any health information via an Intranet/Internet. With
WebView, hospitals and integrated delivery networks will be able to take
advantage of the World Wide Web for truly enterprise-wide access. Regardless of
where they are located, healthcare users will be able to immediately and
simultaneously access any healthcare information across an Intranet/Internet
with complete security and audit trail. Using popular Internet browsers, WebView
will allow authorized users to query LanVision systems, retrieving, displaying,
navigating and printing documents in accordance with appropriate security
permissions restrictions. WebView will allow healthcare organizations to
establish a private, secure Intranet (a private network that utilizes Internet
protocols and technology) and scale to the Internet as appropriate.
The Company continues to focus its research and development efforts to develop
new application software and increase the functionality of existing
applications. Customer requirements and desires influence the Company's research
and development efforts significantly. As a result of the expanded and
accelerated development in 1996 and 1997 and the general release of most of the
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major projects under development, the company intends to reduce its product
development budget in fiscal 1998, after the completion of products currently in
beta testing.
Product research and development expense was $5,553,778, $1,580,089 and $594,037
in 1997, 1996 and 1995, respectively. The Company capitalized $396,000, $170,000
and $123,307 in 1997, 1996 and 1995, respectively.
Professional Services provided by LanVision complements its systems by offering
high quality consulting services, which the Company believes, are critical to
attracting new customers and maintaining existing customer satisfaction. These
services include implementation and training, project management, business
process reengineering and custom software development. The implementation and
training services include equipment and software installation, system
integration and comprehensive training. The project management services include
needs and cost/benefit analysis, hardware and software configuration and
business process re-engineering. The custom software development services
include interface development, software development and modification services.
Existing Customers
The Company's customers include healthcare providers located throughout the
United States. LanVision has implemented or is in the process of implementing
one or more of its systems in the following institutions: Albert Einstein Health
Network, Philadelphia, PA; Beth Israel Medical Center, New York, NY; Phillips
Ambulatory Care Center, New York, NY; Cox Health Systems, Springfield, MO;
Holzer Medical Center, Gallipolis, OH; ProMedica Health Systems, Toledo, OH; St.
Alexius Medical Center, Bismarck, ND; UCSF Stanford Healthcare, Palo Alto, CA;
St. Francis Hospital and Medical Center, Hartford, CT; Summa Health System:
Akron City Hospital, Akron, OH; and St. Thomas Medical Center, Akron, OH;
University Hospital, Cincinnati, OH; University of Pittsburgh Medical Center,
Pittsburgh, PA; OhioHealth Corporation: Grant/Riverside Methodist Hospitals,
Columbus, OH; Children's Medical Center of Dallas, Dallas, TX; The Detroit
Medical Center, Troy, MI; Harris Methodist Health, Inc., Fort Worth, TX; Medical
College of Georgia, August, GA; Memorial Sloan-Kettering Cancer Center, New
York, NY; Providence Health System, Olympia, WA; Highland Park Hospital,
Highland Park, IL; and Christiana Care Health Services, New Castle, DE.
In fiscal year 1997, the Children's Medical Center of Dallas, Beth Israel
Medical Center, and Memorial Sloan-Kettering Cancer Center, accounted for 13%,
13%, and 12%, respectively of the Company's total revenues. In fiscal year 1996,
the University of Pittsburgh Medical Center, Beth Israel Medical Center and
University Hospital, Cincinnati, OH, accounted for 21%, 17% and 11%,
respectively, of the Company's total revenues. In fiscal year 1995, Beth Israel
Medical Center, Albert Einstein Health Network and University Hospital,
Cincinnati, OH, accounted for 35%, 19% and 16%, respectively, of the Company's
total revenues. The small number of customers and the extended sales cycle have
contributed to variability in quarterly and annual operating results. The
Company expects that as its customer base continues to increase, the
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actions of any one customer will have less of an effect on its quarterly and
annual operating results.
Signed Agreements - Backlog
LanVision enters into master agreements with its customers to specify the scope
of the system to be installed and services to be provided by LanVision, the
agreed upon aggregate price and the timetable for implementation. The master
agreement typically provides that the Company will deliver the system in phases
pursuant to the customer's purchase orders, thereby allowing the customer
flexibility in the timing of its receipt of systems and to make adjustments that
may arise based upon changes in technology or changes in customer needs. The
master agreement also allows the customer to request additional components as
the installation progresses, which additions are then separately negotiated as
to price and terms. Historically, customers have ultimately purchased systems
and services in addition to those originally contemplated by the master
agreement, although there can be no assurance that this trend will continue in
the future.
At January 31, 1998 and January 31, 1997, the Company's customers (excluding
customers of the Virtual Healthware Services division) had entered into master
agreements for systems and services (excluding maintenance) which had not yet
been delivered, installed and accepted which, if fully performed, would generate
sales of approximately $8,000,000 and $6,600,000, respectively, and are
currently expected to be performed over the next two to three years. In
addition, the Company anticipates approximately $7,600,000 in transaction-based
fee revenues for the new Virtual Healthware Services division's two clients over
the initial three years of their contracts. Because implementation and service
bureau fees are dependent upon the customer's schedule and usage, the Company is
unable to predict accurately the amount of revenues in future periods.
The Company's master agreements also generally provide for an initial
maintenance period and give the customer the right to subscribe for maintenance
services on a monthly, quarterly or annual basis. Maintenance revenues for
fiscal years 1997 and 1996 and 1995 were approximately $2,151,000, $1,186,000
and $906,000, respectively.
The commencement of revenue recognition varies depending on the size and
complexity of the system, the implementation schedule requested by the customer
and usage by customers of the VHS service bureau operations. Therefore,
LanVision is unable to accurately predict the revenue it expects to achieve in
any particular period. The Company's master agreements generally provide that
the customer may terminate its agreement upon a material breach by the Company,
may delay certain aspects of the installation. There can be no assurance that a
customer will not cancel all or any portion of a master agreement or delay
installations. A termination or installation delay of one or more phases of an
agreement, or the failure of the Company to procure additional agreements, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
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Royalties
The Company incorporates software licensed from various vendors into its
proprietary software. In addition, third party, standalone software is required
to operate the Company's proprietary software. The Company licenses those
software products, and pays the required royalties and/or license fees as their
software is delivered to LanVision customers.
The Company has agreed with several other customers that with regard to specific
customized software and, in one instance, certain derivatives thereof, the
Company will pay a specified royalty to the original customer each time the
Company provides the same software to another customer. As of the date hereof,
the Company has paid no royalties under these agreements.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Any of the
Company's internal use computer programs and its software products that are data
sensitive may recognize a date using "00" as the Year 1900 rather than the Year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in normal business activities.
Based on a preliminary assessment, the Company has determined that it will be
required to modify or replace some of its internal use software as well as
modify certain existing products so that the software will function properly
with respect to dates in the Year 2000 and thereafter. The Company presently
believes that with modifications to these products and conversions to new
internal use software, the Year 2000 issue will not pose significant operational
problems for the Company or its customers. However, if such modifications and
conversions are not made, or not completed timely, the Year 2000 issue could
have a material impact on the Company and its customers. The Company has
warranted, to certain customers, that its products will be Year 2000 compliant.
The Company has initiated formal communication with its vendors to determine the
extent to which the Company's software products are vulnerable to those third
parties' failure to correct their own Year 2000 issues. Generally, software
provided by third parties and included in the Company's systems is developed by
leading software suppliers with Year 2000 programs underway. There can be no
guarantee that the software of other companies, on which the Company's systems
rely, will be timely converted. However, management believes the Company has
alternative courses of action designed to ensure internal and customer
operations are not materially affected in an adverse manner.
The Company will utilize both internal and external resources to reprogram, or
replace and test its software products for the Year 2000 modifications. The
Company anticipates completing the Year 2000 project as soon as practical but
not later than January 1, 1999, which is prior to any
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anticipated impact. The total cost of the Year 2000 project has currently not
been determined, but will be funded through existing cash resources and future
operating cash flows. The requirements for the correction of Year 2000 issues
and the date on which the Company believes it will complete the Year 2000
modifications are based on management's best estimates which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third-party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that may cause such material differences include, but are not
limited to, the availability of personnel trained in this area, the ability to
locate and collect all relevant computer codes and similar uncertainties.
Sales and Marketing
At January 31, 1998, the sales and marketing force consisted of twelve
commissioned sales personnel and eighteen personnel in pre-sales support and
marketing. The sales force is involved in direct sales opportunities and
supports the Company's indirect sales activities through remarketing partners as
necessary.
Throughout 1996 and 1997, the Company experienced extended sales cycles which
adversely affected revenues. It is common for sales cycles to take from six to
eighteen months. The sales cycle consists of several steps, which include
initial contact and lead qualification, response to requests for proposals,
analysis of business requirements, site visits, preparation of final bid and
agreement negotiations. Members of the Company's product development, client
services and client support departments assist the Company's direct sales force
in making presentations to, and preparing comprehensive proposals for potential
customers. To support the Company's sales efforts, the Company conducts a
variety of programs intended to market and position its product line and
services. These programs include trade journal advertising, public relations
activities and trade show participation.
In March 1996, as an initial step in the Company's strategy to expand its sales,
marketing and distribution channels, the Company entered into a Marketing
Agreement with Lanier Worldwide, Inc. ("Lanier"), a wholly owned subsidiary of
Harris Corporation. LanVision granted to Lanier the non-exclusive right to
market and distribute ChartVision, AccountVision, On-Line Chart Completion and
related applications throughout North America until March 31, 1998. The original
agreement has expired. However, Lanier and LanVision are negotiating a new
agreement that takes into consideration the licensing rights granted by the
Company to SMS (see below). Through January 31, 1998, Lanier has licensed the
Company's products to two customers.
In 1997, the Company entered into Cooperative Marketing or Referral Agreements
with 3M Health Information Systems, Daou Systems, Inc, Synthesys Technologies,
Inc., Care Data Systems, Standard Register Corporation and Olicon Imaging
Systems, Inc. Typically, the terms of the agreement provide for LanVision and
its partner to engage in cross marketing activities and pay or earn commissions
on sales resulting from a qualified lead. To date, these arrangements
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have not resulted in significant revenue to the Company. However, LanVision
intends to continue to cultivate these relationships, and management believes
these relationships will yield improved results as the healthcare
imaging/document management market grows.
In February 1998, LanVision and Shared Medical Systems Corporation ("SMS")
signed a five-year Reseller Agreement. Under this agreement, SMS was granted an
exclusive worldwide license to distribute ChartVision, On-Line Chart Completion
and Enterprisewide Correspondence to the SMS customer base and prospect base, as
defined in the agreement, and a non-exclusive license to distribute all other
LanVision products. If SMS distributes any other electronic medical record
product competing with LanVision's products, the Company may terminate the SMS
agreement. SMS has the right to sub-license LanVision's proprietary (and
third-party) software in exchange for royalty payments. SMS has the option to
purchase hardware, professional services and support from LanVision. Both
companies intend to pursue joint product integration and marketing applications.
SMS is a worldwide leader in providing comprehensive healthcare solutions to
over 3,500 healthcare organizations throughout North American and Europe. Over
the last 29 years, SMS has established an excellent reputation and enjoys very
good relationships with its customers. Based upon SMS's reputation and strong
relationships within its customer base, LanVision management believes SMS will
be able to distribute LanVision's products in shorter sales cycles than the
Company's sales force has encountered in recent years. Additionally, LanVision
believes the endorsement of the Company's products by SMS will aid the Company's
direct sales efforts.
LanVision intends to continue to expand alternative channels of distribution and
increase LanVision's support of these third-party distributors.
Competition
Several companies historically have dominated the Healthcare Information Access
Systems market. The industry is currently undergoing consolidation and
realignment as companies position themselves to compete more effectively.
Strategic alliances between vendors of Healthcare Information Access Systems and
vendors of other healthcare systems are increasing. Barriers to entry to this
market include technological and application sophistication, the ability to
offer a proven product, a well-established customer base and distribution
channels, brand recognition, the ability to operate on a variety of operating
systems and hardware platforms, the ability to integrate with pre-existing
systems and capital for sustained development and marketing activities. The
Company believes that these barriers taken together represent a moderate to high
level barrier to entry. Foreign competition has not been a significant factor in
the market to date.
The Company's competitors include Healthcare Information Access Systems vendors
that are larger and more established and have substantially more resources than
the Company. In addition, information and document management companies serving
other industries may enter the healthcare information systems market. Suppliers
and companies with whom LanVision may
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establish strategic alliances may also compete with LanVision. Such companies
and vendors may either individually, or by forming alliances excluding
LanVision, place bids for large agreements in competition with LanVision. A
decision on the part of any of these competitors to focus additional resources
in the image-enabling and other markets addressed by LanVision could have a
material adverse effect on LanVision.
LanVision believes that the principal competitive factors in its market are
customer recommendations and references, company reputation, system reliability,
system features (including ease of use), technological advancements, customer
service and support, the effectiveness of marketing and sales efforts, price and
the size and perceived financial stability of the vendor. In addition, LanVision
believes that the speed with which companies in its market can anticipate the
evolving healthcare industry structure and identify unmet needs are important
competitive factors. There can be no assurance that the Company will be able to
compete successfully in the future against existing or potential competitors.
LanVision believes that its principal competitors are: American Management
Systems, Incorporated; IMNET Systems, Inc.; MedPlus, Inc. and the INTELUS
division of the SunGard Healthcare Information Systems Group of SunGard Data
Systems, Inc.
Employees
As of March 31, 1998, LanVision had 124 full-time employees. In addition, the
Company utilizes 45 independent contractors to supplement its staff, as needed.
None of the Company's employees are represented by a labor union or subject to a
collective bargaining agreement. LanVision has never experienced a work stoppage
and believes that its employee relations are good.
Liquidity and Capital Resources
Since its inception in 1989, LanVision has funded its operations, working
capital needs and capital expenditures primarily from a combination of cash
generated by revenues from operations, borrowings, a private placement of
convertible redeemable preferred stock and an initial public offering which
raised approximately $34,000,000, net of the underwriting discount and expenses,
through the issuance of 2,912,500 shares of common stock on April 18, 1996.
The Company's customers typically have been well-established hospitals or
medical facilities with good credit histories, and payments have been received
within normal time frames for the industry. Agreements with customers often
involve significant amounts, and contract terms typically require customers to
make progress payments.
The Company has no significant obligations for capital resources, other than
noncancelable operating leases in the total amount of $2,694,884, payable over
the next six years. However, the VHS service bureau operation will need to
acquire additional software and equipment as VHS adds additional hospitals and
clinics to its customer base. The centralized data center has been
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originally configured to serve approximately fifty hospitals, with significant
expansion capabilities. However, for each customer, VHS establishes one or more
onsite document capture centers and provides the equipment. Each document
capture center is expected to require at least $125,000 of equipment. Also,
because VHS charges for its services on a per transaction basis, LanVision's
cash flow for capital and operating expenses will normally be greater than cash
inflows until customers begin to use the system at anticipated normal volumes
for a period of time.
In March, 1997, the Company's Board of Directors authorized management, at its
discretion, to repurchase shares of the Company's common stock of up to
$1,000,000 in value on the open market. To date, the Company has acquired 90,500
shares at a cost of $430,188.
Over the last two years, the Company's revenues have been less than the
Company's internal plan. However, during the same time period, the Company has
expended significant amounts for capital expenditures, product research and
development, sales, support and consulting expenses as the Company expanded its
operations in anticipation of significant revenue growth. This has resulted in
significant net cash outlays over the last two years. Currently, management
intends to continue to maintain its operations at an expenditure level similar
to fiscal 1997, and may expand operations in connection with increased revenue
opportunities. Accordingly, to achieve profitability, and positive cash flow, it
is necessary for the Company to increase revenues. Management believes that
market opportunities are such that the Company should be able to significantly
increase its revenues. However, there can be no assurance the Company will be
successful in increasing its revenues. At January 31, 1998, the Company had cash
and investments of $11,052,047. Investments consist primarily of U.S. Government
obligations with maturities ranging from one month to thirty months. During
1998, management intends to secure borrowings or other equity financing to help
finance its operating and previous and anticipated capital expenditures.
Management believes existing cash balances and investment securities,
anticipated borrowings or other equity financing and revenues from operations
will be sufficient to meet its liquidity and capital spending requirements.
However, in the event revenues do not increase or financing is not secured,
management has the ability to reduce or defer operating and capital
expenditures.
To date, inflation has not had a material impact on the Company's revenues or
income.
ITEM 2. PROPERTIES
The Company's principle administrative and sales offices are located at One
Financial Way, Suite 400, Cincinnati, Ohio 45242-5859. The offices consist of
approximately 15,300 square feet of space under a lease that expires in August,
2001. The rental expense for these offices approximates $400,000 annually.
The Company also leases office space for a portion of its software engineering
and research and development operations at 5481 Creek Road, Cincinnati, Ohio
45242-4001. The offices consist
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of approximately 15,000 square feet of space under a lease that expires in
April, 2000. The rental expense for these offices approximates $112,000
annually.
The Company also leases office space for a portion of its software engineering
and research and development operations at 5970 Fairview Road, Suite 700,
Charlotte, North Carolina 28210-3167. The offices consist of approximately 3,800
square feet of space under a lease that expires in September, 1999. The rental
expense for these offices approximates $135,000 annually.
The Company also leases office space for its VHS Data Center at 4700 Duke Drive,
Suite 170, Mason, OH 45040-9374. The offices consist of approximately 9,200
square feet of office space and data center under a lease that expires in June,
2003. The rental expense for these facilities approximates $108,000 annually.
The Company believes that its facilities are adequate for its current needs and
that suitable additional or substitute space will be available as needed to
accommodate expansion of the Company's operations.
ITEM 3. LEGAL PROCEEDINGS
The Company may be subject to various legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims can not be predicted with certainty at this time,
management is not aware of any legal matters that will have a material adverse
effect on the Company's consolidated results of operations or consolidated
financial position.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions held by the Executive Officers of the Company on
April 27, 1998 are:
Elected to
Name Age Position(1) Present Position(2)
---- --- ----------- -------------------
J. Brian Patsy 47 Chairman of the Board, President,
Chief Executive Officer, and Director 1989
Eric S. Lombardo 45 Executive Vice President, Director, and 1989
President of the VHS Division
Robert F. Golden 43 Vice President and
Chief Technology Officer 1996
Alan J. Hartman 45 Vice President, General Counsel and
Corporate Secretary 1996
Thomas E. Perazzo 44 Chief Operating Officer,
Chief Financial Officer, and Treasurer 1997
(1) All current officers of the Company hold office until their successors
are elected and qualified or until any removal or resignation. Officers
of the Company are elected by the Board of Directors and serve at the
discretion of the Board. For purposes of the descriptions of the
background of the Company's Executive Officers, the term "Company" refers
to both LanVision Systems, Inc. and its predecessor LanVision, Inc."
(2) Represents date of election to Registrant or its predecessor.
J. Brian Patsy is a co-founder of the Company and has served as the
President, and a Director since the Company's inception in October, 1989. Mr.
Patsy was appointed Chairman of the Board and Chief Executive Officer in March,
1996. Mr. Patsy has over 25 years of experience in the information technology
industry.
Eric S. Lombardo is a co-founder of the Company, has served as a
Director since the Company's inception and as Executive Vice President of the
Company since May, 1990. Mr. Lombardo has over 23 years of experience in the
information technology industry.
Robert F. Golden joined the Company in February, 1996 as Chief
Technology Officer. From February, 1995 until he joined the Company, Mr. Golden
served as a consultant to the Company, responsible for new product development.
From 1992 to 1994, Mr. Golden served as
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Vice President and General Manager of Charm Bioengineering, Inc., a
biotechnology immunoassay manufacturer.
Alan J. Hartman joined the Company in June, 1996 as General Counsel. In
1997, he also became Corporate Secretary. From 1983 until he joined the Company,
Mr. Hartman served in various capacities, including General Counsel, of Cincom
Systems, Inc., an international software development and marketing company.
Thomas E. Perazzo joined the Company in January, 1996 as Chief
Financial Officer. In September 1997, he assumed the additional responsibility
of Chief Operating Officer. From 1993 until he joined the Company, Mr. Perazzo
served as Controller or Chief Financial Officer of Cincom Systems, Inc., an
international software development and marketing company. Prior to 1992, Mr.
Perazzo was a partner of KPMG Peat Marwick LLP, in Cincinnati, Ohio. Mr. Perazzo
is a Certified Public Accountant (inactive).
All Executive Officers currently have employment agreements with the Company
that generally provide annual salaries, minimum bonuses, discretionary bonuses,
stock incentive provisions and severance arrangements.
There are no family relationships between any Director or Executive Officers and
any other Director or Executive Officers of the Registrant.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock trades on The Nasdaq Stock Market's National
Market under the symbol LANV. The table below sets forth the high and low sales
prices for LanVision Systems, Inc. Common Stock for each of the quarters
indicated since the Company's initial public offering on April 18, 1996, as
reported by The Nasdaq Stock Market, Inc.
Fiscal Year 1996 High Low
---------------- ---- ---
1st Quarter (April 18, 1996 through April 30, 1996) $18.75 $14.50
2nd Quarter (May 1, 1996 through July 31, 1996) 18.75 8.50
3rd Quarter (August 1, 1996 through October 31, 1996) 14.50 7.75
4th Quarter (November 1, 1996 through January 31, 1997) 9.00 6.25
Fiscal Year 1997 High Low
---------------- ---- ---
1st Quarter (February 1, 1997 through April 30, 1997) $ 8.00 $ 3.37
2nd Quarter (May 1, 1997 through July 31, 1997) 6.75 4.50
3rd Quarter (August 1, 1997 through October 31, 1997) 8.00 4.62
4th Quarter (November 1, 1997 through January 31, 1998) 6.75 4.25
The market price of the Company's Common Stock has fluctuated significantly
since the initial public offering in April, 1996. The market price of the Common
Stock could be subject to significant fluctuations based on factors such as
announcements of new products or customers by the Company or its competitors,
quarterly fluctuations in the Company's financial results or other competitors'
financial results, changes in analysts' estimates of the Company's financial
performance, general conditions in the healthcare imaging industry as well as
conditions in the financial markets. In addition, the stock market in general
has experienced extreme price and volume fluctuations which have particularly
affected the market price of many high technology companies and which have been
often unrelated to the operating performance of a specific company. Many
technology companies, including the Company, have recently experienced
fluctuations in the market price of their equity securities. There can be no
assurance that the market price of the Common Stock will decline, or otherwise
continue to experience significant fluctuations in the future.
According to the transfer agent records, the Company has 118 stockholders of
record as of April 21, 1998. Because many of such shares are held by brokers and
other institutions on behalf of stockholders, the Company is unable to determine
with complete accuracy the total number of stockholders represented by these
record holders. The Company estimates that it has approximately 2,900
stockholders.
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The Company has not paid any cash dividends on its Common Stock since its
inception and does not intend to pay any cash dividends in the foreseeable
future.
(b) Use Of Proceeds from Public Offering
(1) Effective date of the Registration Statement (Commission File Number
2-01494) for which Use of Proceeds information is provided is April
17, 1996.
(2) The offering date of the Registration Statement was April 18, 1996.
(3) The Managing Underwriters were:
Jefferies & Company, Inc.
Unterberg Harris
McDonald & Company Securities, Inc.
(4) The Securities Registered were - Common Stock, $.01 Par Value.
(5) Aggregate offering price of securities registered and sold to date
for the account of:
Issuer -
Amount Registered 2,912,500 Shares
Aggregate Price of Offering Amount Registered $37,862,500
Amount Sold 2,912,500 Shares
Aggregate Offering Price of Amount Sold $37,862,500
Selling Security Holders -
Amount Registered 750,000 Shares
Aggregate Offering Price of Amount Registered $9,750,000
Amount Sold 750,000 Shares
Aggregate Offering Price of Amount Sold $9,750,000
(6) Amount of expenses incurred for the Registrant's account in
connection with the issuance and distribution of the Securities
Registered, all of which were made to "others" and none to directors,
officers, general partners or affiliates of the Registrant.
Underwriting Discount and Commission $2,651,353
Finders Fees -
Expenses paid to or for Underwriters -
Other Expenses, Estimated at $ 906,365
(7) Net offering proceeds to the Registrant after total expenses above
$34,304,782.
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(8) From the effective date of the Registration Statement through the end
of the annual period of this Form 10-K, the Registrant made direct or
indirect payments to "others" in the amounts listed below. No
payments direct or indirect were made to Directors, Officers, General
Partners, or Affiliates of the Registrant.
Construction of plant, building and facilities $ -
Purchase and installation of machinery and equipment $ 6,113,658
Purchase of real estate $ -
Acquisition of other business(es) - purchase of in
process research and development $ 400,000
Repayment of indebtedness $ 1,110,266
Working capital $ 762,060 *
Expanded Staff, facilities, advertising, and
software development $17,299,887 *
Repurchase of treasury stock $ 430,188
Temporary investment in U.S. Treasury Securities $ 8,188,723
*Represents estimates.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth consolidated financial data with respect to the
Company for each of the five years in the period ended January 31, 1998. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related notes incorporated herein by
reference elsewhere in this Annual Report on Form 10-K report.
Fiscal Year(1)
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands, except per share data)
Total revenues $ 8,676 $ 10,310 $ 5,019 $ 2,412 $ 3,250
Total operating expenses 22,493 16,271 5,324 3,105 3,138
Operating income (loss) (13,818) (5,961) (306) (693) 112
Net income (loss) (12,669) (4,669) (326) (572) 73
Basic net income (loss) per share of
common stock (1.44) (.56) (.05) (.09) .01
Diluted net income (loss) per share of
of common stock (1.44) (.56) (.05) (.09) .01
Total assets 22,200 33,300 3,046 1,518 769
Convertible redeemable
preferred stock - - 850 850 -
Total stockholders' equity (deficit) 16,816 29,921 (646) (319) 253
Weighted average shares outstanding 8,827 8,284 6,190 6,190 6,223
Cash dividends declared - - - - -
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(1) All references to a fiscal year refer to the fiscal year of the Company
commencing February 1 of that calendar year and ending on January 31 of
the following year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information regarding Management's Discussion and Analysis of the Company's
Financial Condition and Results of Operations as required by Item 303 of
Regulation S-K is incorporated herein by reference from pages 8 through 13 of
the Company's 1997 Annual Report to Stockholders appearing under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests its cash balances, in excess of its current needs, in U.S.
Government Securities. The Company does not invest for the purposes of trading
in securities, however, the portfolio is managed and invested for maximum return
on the investment. The marketable securities at January 31, 1998, which are
recorded at a fair value of $8,909,166 and include unrealized gains of $75,203,
have exposure to price risk. This risk is estimated, absent any economic
justification for the selection of a different amount, as the potential loss in
fair value resulting from a hypothetical 10% adverse change in price quoted by
dealers and amounts to $890,916. Actual results may differ.
The fair market values of investment securities are based on the quoted market
prices at the reporting date for those investments. The estimated fair market
value of investment securities by contractual maturity at January 31, 1998 is as
follows: $5,074,258 in 1998, $3,334,988 in 1999, and $499,920 in 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Financial Statements are incorporated herein by reference from
pages 15 through 25 of the Company's 1997 Annual Report to Stockholders. The
supplementary quarterly financial information regarding the Company as required
by Item 302 of Regulation S-K is incorporated herein by reference from page 25
of the Company's 1997 Annual Report to Stockholders appearing under the caption
"Quarterly Results of Operations (Unaudited)".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
No change in the Company's auditors has taken place within the twenty-four
months prior to, or in any period subsequent to the Company's January 31, 1998
Financial Statements.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding Directors required by Items 401 and 405 of Regulation
S-K is incorporated herein by reference from the Company's Definitive Proxy
Statement for its Annual Stockholder's Meeting to be held on May 27, 1998 from
the information appearing under the caption "Election of Directors" and "Stock
Ownership by Certain Beneficial Owners and Management." Certain information
regarding the Company's Executive Officers is set forth in Part I, Item 4 of
this Form 10-K under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information regarding Executive Compensation required by Item 402 of
Regulation S-K is incorporated herein by reference from the Company's Definitive
Proxy Statement for its Annual Stockholder's Meeting to be held on May 27, 1998
from the information appearing under the caption "Executive Compensation",
except that the information required by Item 402 (k) and (l) of Regulation S-K
which appears within such caption under the subheading "Compensation Committee
Report" and the caption "Stock Performance Graph" and set forth in the Company's
Definitive Proxy Statement for its Annual Stockholder's Meeting to be held on
May 27, 1998 is specifically not incorporated herein by reference into this Form
10-K or into any other filing by the Company under the Securities Act of 1933 or
the Securities Exchange Act of 1934.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding Security Ownership of the Company's Common Stock by
certain beneficial owners and management required by Item 403 of Regulation S-K
is incorporated herein by reference from the Company's Definitive Proxy
Statement for its Annual Stockholder's Meeting to be held on May 27, 1998 from
the information appearing under the caption "Stock Ownership by Certain
Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions
required by Item 404 of Regulation S-K is incorporated herein by reference from
the Company's Definitive Proxy Statement for its Annual Stockholder's Meeting to
be held on May 27, 1998 from the information appearing under the caption
"Certain Relationships and related Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
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FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Company included in the
Company's 1997 Annual Report to Stockholders are incorporated herein by
reference from pages 15 through 25 of the Annual Report. Reference is also made
to Item 8 of this Form 10-K.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets at January 31, 1998 and 1997
Consolidated Statements of Operations for the three years ended January 31, 1998
Consolidated Statements of Cash Flows for the three years ended January 31, 1998
Consolidated Statements of Changes in Convertible Redeemable Preferred Stock and
Stockholders' Equity (Deficit) for the three years ended January 31, 1998
Notes to Financial Statements
FINANCIAL STATEMENT SCHEDULE
The following Financial Statement Schedule of LanVision Systems, Inc. is
included in this Item 14.
Schedule Description
-------- -----------
II Valuation and Qualifying Accounts and Reserves
All other schedules have been omitted because the information either has been
shown in the Consolidated Financial Statements or Notes thereto, or is not
applicable or required under the instructions.
The Report of Independent Auditors on the Financial Statement Schedule of
LanVision Systems, Inc. is included in Exhibit 23.1 of this Form 10-K.
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EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Certificate of Incorporation of LanVision Systems, Inc.
3.2 Bylaws of LanVision Systems, Inc.
3.3 Certificate of the Designations, Powers, Preferences
and Rights of the Convertible Preferred Stock (Par
Value $.01 Per Share) of LanVision Systems, Inc.
4.1 Specimen Common Stock Certificate of LanVision Systems, Inc.
4.2 Specimen Preferred Stock Certificate of LanVision Systems, Inc.
10.1 # LanVision Systems, Inc. 1996 Employee Stock Option Plan
10.2(a) # LanVision Systems, Inc. 1996 Non-Employee Directors Stock Option Plan
10.2(b) # First Amendment to LanVision Systems, Inc. 1996 Non-Employee Directors
Stock Option Plan
10.3 # LanVision Systems, Inc. 1996 Employee Stock Purchase Plan
10.4 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and J. Brian Patsy
effective January 1, 1996
10.5 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and Eric S. Lombardo
effective January 1, 1996
10.6 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and Robert F. Golden
effective February 1, 1996
10.7 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and Thomas E. Perazzo
effective January 30, 1996
10.8 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and Alan J. Hartman,
effective June 1, 1996
10.9 # Stock Purchase and Shareholder Agreement among LanVision, Inc.,
Blue Chip Capital Fund Limited Partnership, J. Brian Patsy and
Eric s. Lombardo dated December 1, 1994
10.10 # Amendment No. 1 to Stock Purchase and Shareholder Agreement among Blue Chip Capital Fund
Limited Partnership, LanVision, Inc., J. Brian Patsy, Eric S. Lombardo and LanVision
Systems, Inc. dated February 8, 1996
10.11 Consent by Blue Chip Capital Fund Limited Partnership dated
February 8, 1996
10.12(a) Lease for office space between Duke Realty Limited Partnership and LanVision, Inc., dated
May 7, 1996
10.12(b) First amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated July 12, 1996
27
28
10.12(c) Second amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated February 25, 1997
10.12(d) Third amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated September 23, 1997
10.12(e) Fourth amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated January 16, 1998
10.13(a) Lease for office space between Green Realty Corporation and LanVision, Inc., dated April
7, 1997
10.13(b) First amendment to lease between Green Realty Corporation and LanVision, Inc., dated June
6, 1997
10.14(a) Lease for office space between Fairview Plaza Associates Limited Partnership and
LanVision, Inc., dated February 26, 1996
10.14(b) First amendment to lease between Fairview Plaza Associates Limited Partnership, Lessor and
LanVision, Inc., Lessee, dated August 12, 1996
10.14(c) Second amendment to lease between Fairview Plaza Associates Limited Partnership and
LanVision, Inc., dated May 21, 1997
10.15(a) Lease for office space between Duke Realty Limited Partnership and LanVision, Inc., dated
September 23, 1997
10.15(b) First amendment to office lease between Duke Realty Limited Partnership and LanVision,
Inc., dated January 16, 1998
10.16 Marketing Agreement between Lanier Worldwide, Inc. and LanVision, Inc.
effective March 1, 1996
10.17 Marketing Agreement between Shared Medical Systems Corporation and LanVision Systems, Inc.
and LanVision, Inc. entered into on February 21, 1998
10.18 Form of Indemnification Agreement for all directors and officers
11.1 Statement Regarding Computation of Per Share Earnings
13.1 Annual Report to Stockholders
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
# Management Contracts and Compensatory Arrangements
REPORTS ON FORM 8-K
During the fourth quarter of fiscal 1997, the Company filed no reports on Form
8-K.
28
29
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.
LANVISION SYSTEMS, INC.
DATE: April 27, 1998 By: /s/ J. BRIAN PATSY
-------------- --------------------
J. Brian Patsy
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
/s/ J. Brian Patsy Chief Executive Officer April 27, 1998
- -------------------------------------------- and Director
J. Brian Patsy
/s/ Eric S. Lombardo Director April 27, 1998
- --------------------------------------------
Eric S. Lombardo
/s/ George E. Castrucci Director April 27, 1998
- --------------------------------------------
George E. Castrucci
/s/ Z. David Patterson Director April 27, 1998
- --------------------------------------------
Z. David Patterson
/s/ Thomas E. Perazzo April 27, 1998
- --------------------------------------------
Thomas E. Perazzo Chief Financial Officer
and Chief Accounting Officer
29
30
Schedule II Valuation and Qualifying Accounts and Reserves
LanVision Systems, Inc.
for the three years ended January 31, 1998
Additions
-----------------------------
(in thousands) Balance at Charged to Charged to
Beginning costs Other Balance at
Description of Period and Expenses Accounts Deductions End of Period
----------- --------- ------------ -------- ---------- -------------
Year ended January 31, 1998:
Allowance for doubtful $ 205 $ 60 $ - $ - 265
accounts
Warranty reserve 164 135 - 34 265
Year ended January 31, 1997:
Allowance for doubtful 75 130 - - 205
accounts
Warranty reserve 75 95 - 6 164
Year ended January 31, 1996:
Allowance for doubtful 75 - - - 75
accounts
Warranty reserve 75 - - - 75
30
31
INDEX TO EXHIBITS
EXHIBITS
Sequential
Exhibit No. Description of Exhibit Page No.
----------- ---------------------- --------
3.1 Certificate of Incorporation of LanVision Systems, Inc. *(1)
3.2 Bylaws of LanVision Systems, Inc. *(1)
3.3 Certificate of the Designations, Powers, Preferences and Rights of the Convertible
Preferred Stock (Par Value $.01 Per Share) of LanVision Systems, Inc.
*(1)
4.1 Specimen Common Stock Certificate of LanVision Systems, Inc. *(1)
4.2 Specimen Preferred Stock Certificate of LanVision Systems, Inc. *(1)
10.1 # LanVision Systems, Inc. 1996 Employee Stock Option Plan *(1)
10.2(a) # LanVision Systems, Inc. 1996 Non-Employee Directors Stock Option Plan *(1)
10.2(b) # First Amendment to LanVision Systems, Inc. 1996 Non-Employee Directors
Stock Option Plan *(2)
10.3 # LanVision Systems, Inc. 1996 Employee Stock Purchase Plan *(1)
10.4 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and J. Brian Patsy
effective January 1, 1996 *(1)
10.5 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and Eric S. Lombardo
effective January 1, 1996 *(1)
10.6 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and Robert F. Golden
effective February 1, 1996 *(1)
10.7 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and Thomas E. Perazzo
effective January 30, 1996 *(1)
10.8 # Employment Agreement among LanVision Systems, Inc., LanVision, Inc. and Alan J. Hartman,
effective June 1, 1996 *(5)
10.9 # Stock Purchase and Shareholder Agreement among LanVision, Inc.,
Blue Chip Capital Fund Limited Partnership, J. Brian Patsy and
Eric s. Lombardo dated December 1, 1994 *(1)
10.10 # Amendment No. 1 to Stock Purchase and Shareholder Agreement among Blue Chip Capital Fund
Limited Partnership, LanVision, Inc., J. Brian Patsy, Eric S. Lombardo and LanVision
Systems, Inc. dated February 8, 1996 *(1)
10.11 Consent by Blue Chip Capital Fund Limited Partnership dated
February 8, 1996 *(1)
10.12(a) Lease for office space between Duke Realty Limited Partnership and LanVision, Inc., dated
May 7, 1996 *(3)
10.12(b) First amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated July 12, 1996 *(4)
31
32
10.12(c) Second amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated February 25, 1997 *(6)
10.12(d) Third amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated September 23, 1997 *(12)
10.12(e) Fourth amendment to office lease with Duke Realty Limited Partnership and LanVision, Inc.,
dated January 16, 1998 Page 34
10.13(a) Lease for office space between Green Realty Corporation and LanVision, Inc., dated April
7, 1997 *(7)
10.13(b) First amendment to lease between Green Realty Corporation and LanVision, Inc., dated June
6, 1997 *(9)
10.14(a) Lease for office space between Fairview Plaza Associates Limited Partnership and
LanVision, Inc., dated February 26, 1996 *(1)
10.14(b) First amendment to lease between Fairview Plaza Associates Limited Partnership, Lessor and
LanVision, Inc., Lessee, dated August 12, 1996 *(8)
10.14(c) Second amendment to lease between Fairview Plaza Associates Limited Partnership and
LanVision, Inc., dated May 21, 1997 *(10)
10.15(a) Lease for office space between Duke Realty Limited Partnership and LanVision, Inc., dated
September 23, 1997 *(11)
10.15(b) First amendment to office lease between Duke Realty Limited Partnership and LanVision,
Inc., dated January 16, 1998 Page 41
10.16 Marketing Agreement between Lanier Worldwide, Inc. and LanVision, Inc.
effective March 1, 1996 *(1)
10.17 Marketing Agreement between Shared Medical Systems Corporation and LanVision Systems, Inc.
and LanVision, Inc. entered into on February 21, 1998
Page 47 **
10.18 Form of Indemnification Agreement for all directors and officers *(1)
11.1 Statement Regarding Computation of Per Share Earnings Page 94
13.1 Annual Report to Stockholders Page 95
21.1 Subsidiaries of the Registrant Page 126
23.1 Consent of Independent Auditors Page 126
27.1 Financial Data Schedule Page 128
- ----------
* Incorporated by reference from document indicated below.
** The Company has applied for Confidential Treatment of portions of this
agreement
with the Securities and Exchange Commission
# Management Contracts and Compensatory Arrangements.
(1) Previously filed with the Commission, and incorporated herein by reference
from, the Registrant's Registration Statement on Form S-1, File Number
333-01494, as filed with the Commission on April 15, 1996.
32
33
(2) Previously filed with the Commission and incorporated herein by reference
from Exhibit 4.1(b) of, the Registrant's Registration Statement on Form
S-8, file number 333-20765, as filed with the Commission on January 31,
1997.
(3) Previously filed with the Commission as Exhibit 10 of the Registrant's
Form 10-Q for the quarter ended April 30, 1996, as filed with the
Commission on June 12, 1996.
(4) Previously filed with the Commission as Exhibit 10 of the Registrant's
Form 10-Q for the quarter ended July 31, 1996, as filed with the
Commission on September 4, 1996.
(5) Previously filed with the Commission as Exhibit 10.8 of the Registrant's
Form 10-K for the fiscal year ended January 31, 1997, as filed with the
Commission on April 29, 1997.
(6) Previously filed with the Commission as Exhibit 10.12(c) of the
Registrant's Form 10-K for the fiscal year ended January 31, 1997, as
filed with the Commission on April 29, 1997.
(7) Previously filed with the Commission as Exhibit 10.13 of the Registrant's
Form 10-K for the fiscal year ended January 31, 1997, as filed with the
Commission on April 29, 1997.
(8) Previously filed with the Commission as Exhibit 10.14(b) of the
Registrant's Form 10-K for the fiscal year ending January 31, 1997, as
filed with the Commission on April 29, 1997.
(9) Previously filed with the Commission as Exhibit 10.1 of the Registrant's
Form 10-Q for the quarter ended July 31, 1997, as filed with the
Commission on September 10, 1997.
(10) Previously filed with the Commission as Exhibit 10.2 of the Registrant's
Form 10-Q for the quarter ended July 31, 1997, as filed with the
Commission on September 10, 1997.
(11) Previously filed with the Commission as Exhibit 10.1 of the Registrant's
Form 10-Q for the quarter ended October 31, 1997, as filed with the
Commission on December 10, 1997.
(12) Previously filed with the Commission as Exhibit 10.2 of the Registrant's
Form 10-Q for the quarter ended October 31, 1997, as filed with the
Commission on December 10, 1997.
33
1
Exhibit 10.12(e)
LANVISION SYSTEMS, INC.
FOURTH AMENDMENT TO OFFICE LEASE WITH DUKE REALTY LIMITED PARTNERSHIP AND
LANVISION, INC., DATED JANUARY 16, 1998
PL/ALC/nm
4/28/98
FOURTH LEASE AMENDMENT
THIS FOURTH LEASE AMENDMENT (the "Amendment") is executed this 16th day
of January , 1998, by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana
limited partnership ("Landlord"), and LANVISION, INC., an Ohio corporation
("Tenant").
W I T N E S S E T H :
WHEREAS, Landlord and Tenant entered into a certain lease dated May 7,
1996, as amended July 12, 1996, February 25, 1997 and September 23, 1997 ("Third
Lease Amendment") (collectively, the "Lease"), whereby Tenant leased from
Landlord certain premises consisting of approximately 15,306 square feet of
space (the "Original Premises") located in Suite 400, One Financial Way,
Cincinnati, Ohio 45242; and
WHEREAS, Landlord and Tenant entered into the Third Lease Amendment to
reduce the Leased Premises but at the time of the Third Lease Amendment the
commencement date for the reduction of Minimum Annual Rent due to the reduction
in the Leased Premises was uncertain as set forth in Article 20.12 of the Lease;
and
WHEREAS, Landlord and Tenant have determined the date for the reduction
in Minimum Annual Rent and desire to amend subsections B, C, D and E of the
Basic Lease Provisions to reflect such date;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants herein contained and each act performed hereunder by the parties,
Landlord and Tenant hereby agree that the Lease is amended as follows:
1. Amendment of Basic Lease Provisions.
Commencing March 1, 1998, Subsections B, C, D and E of Section
1.02 of Article 1 of the Lease are hereby deleted and the following subsections
are substituted in lieu thereof:
34
2
B. Rentable Area: approximately 15,306 rentable square
feet;
Landlord shall use commercially reasonably standards,
consistently applied, in determining the Rentable Area and the
rentable area of the Building. The Rentable Area shall include
the area within the Leased Premises plus a pro rata portion of
the area covered by the Common Areas within the Building, as
reasonably determined by Landlord from time to time.
Landlord's determination of Rentable Area made in good faith
shall conclusively be deemed correct for all purposes
hereunder, including without limitation the calculation of the
Building Expense Percentage and the Minimum Annual Rent.
Notwithstanding anything to the contrary contained herein,
Tenant's pro rata portion of the area covered by the Common
Areas within the Building shall be the product of (i) the
Usable Area within the Leased Premises, as such amount may
change from time to time pursuant to the terms of this Lease
and (ii) Tenant's Common Area Factor. For purposes of this
Lease, Tenant's Common Area Factor shall be as reasonably
determined by Landlord; provided, however, that Tenant's
Common Area Factor shall not exceed 1.135.
C. Building Expense Percentage: 7.2% (15,306 / 212,125);
D. Minimum Annual Rent:
March 1, 1998 - September 13, 1998 $127,996.43 (7 mos. and 13
days)
September 14, 1998 - September 13, 1999 $206,631.00 per year
September 14, 1999 - September 13, 2000 $210,457.56 per year
September 14, 2000 - September 13, 2001 $210,457.56 per year;
E. Monthly Rental Installments:
March 1, 1998 - August 31, 1998 $17,219.25 per month
September 1, 1998 - September 13, 1998 $ 7,461.68 (13 days)
September 14, 1998 - September 13, 1999 $17,219.25 per month
September 14, 1999 - September 13, 2001 $17,538.13 per month;
2. Amendment of Section 20.12. Section 20.12 of the Lease is
hereby deleted in its entirety and is of no further force or effect.
3. Tenant's Representations and Warranties. The undersigned
represents and warrants to Landlord that (i) Tenant is duly organized, validly
existing and in good standing in accordance with the laws of the state under
which it was organized; (ii) all action necessary to authorize the execution of
this Amendment has been taken by Tenant; and (iii) the individual
35
3
executing and delivering this Amendment on behalf of Tenant has been authorized
to do so, and such execution and delivery shall bind Tenant. Tenant, at
Landlord's request, shall provide Landlord with evidence of such authority.
4. Examination of Amendment. Submission of this instrument for
examination or signature to Tenant does not constitute a reservation or option,
and it is not effective until execution by and delivery to both Landlord and
Tenant.
5. Definitions. Except as otherwise provided herein, the
capitalized terms used in this Amendment shall have the definitions set forth in
the Lease.
6. Incorporation. This Amendment shall be incorporated into and
made a part of the Lease, and all provisions of the Lease not expressly modified
or amended hereby shall remain in full force and effect.
36
4
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed on the day and year first written above.
LANDLORD:
DUKE REALTY LIMITED PARTNERSHIP,
WITNESSES: an Indiana limited partnership
/s/ Naomi Gump
- ---------------------
Naomi Gump By: Duke Realty Investments, Inc.,
- --------------------- its general partner
(Printed)
/s/ Ricena A. Watson By: /s/ James W. Gray
- --------------------- --------------------------
Ricena A. Watson James W. Gray
- --------------------- Vice President and
(Printed) General Manager
TENANT:
LANVISION, INC., an Ohio
corporation
WITNESSES:
/s/ Alan J. Hartman By: /s/ Eric Lombardo
- --------------------- --------------------------
Alan J. Hartman Eric Lombardo
- --------------------- Executive Vice President
(Printed)
/s/ Kimberly S. Farris
- -----------------------
Kimberly S. Farris
- -----------------------
(Printed)
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State, personally
appeared James W. Gray, by me known and by me known to be the Vice President and
General Manager of Duke Realty Investments, Inc., an Indiana corporation, the
general partner of Duke Realty
37
5
Limited Partnership, an Indiana limited partnership, who acknowledged the
execution of the foregoing "Fourth Lease Amendment" on behalf of said
partnership.
WITNESS my hand and Notarial Seal this 9 day of February , 1998.
--- ----------
/s/ Ricena A. Watson (McKee)
--------------------------------
Notary Public
Ricena A. Watson (McKee)
--------------------------------
(Printed Signature)
My Commission Expires: June 29, 2001
---------------
My County of Residence: Clermont
--------------
(NOTARIAL SEAL)
38
6
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State, personally
appeared Eric Lombardo, by me known and by me known to be the Executive Vice
President of LanVision, Inc., an Ohio corporation, who acknowledged the
execution of the foregoing "Fourth Lease Amendment" on behalf of said
corporation.
WITNESS my hand and Notarial Seal this 16th day of January , 1998.
-- ---------
/s/ Denise D. Dyer
----------------------------------
Notary Public
(NOTARIAL SEAL)
Denise D. Dyer
----------------------------------
(Printed Signature)
My Commission Expires: January 29, 2000
------------------
My County of Residence: Hamilton
-----------------
39
7
CONSENT OF GUARANTOR
The undersigned Guarantor to the Lease hereby consents to the foregoing
Fourth Lease Amendment and reaffirms that the Unconditional Guaranty of Lease
dated May 7, 1996, remains in full force and effect.
"Guarantor"
LANVISION SYSTEMS, INC., a
Delaware corporation
By: /s/ Eric Lombardo
--------------------
Eric Lombardo
Executive Vice President
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State, personally
appeared Eric Lombardo, by me known and by me known to be the Executive Vice
President of LanVision, Inc., an Ohio corporation, who acknowledged the
execution of the foregoing "Consent of Guarantor" on behalf of said corporation.
WITNESS my hand and Notarial Seal this 16th day of January , 1998.
---- ------------
/s/ Denise D. Dyer
---------------------------------
Notary Public
(NOTARIAL SEAL)
Denise D. Dyer
---------------------------------
(Printed Signature)
My Commission Expires: January 29, 2000
------------------
My County of Residence: Hamilton
-----------------
40
1
Exhibit 10.15(b)
LANVISION SYSTEMS, INC.
FIRST AMENDMENT TO OFFICE LEASE BETWEEN DUKE REALTY LIMITED PARTNERSHIP AND
LANVISION, INC., DATED JANUARY 16, 1998
PL/ALC/nm
4/28/98
FIRST LEASE AMENDMENT
THIS FIRST LEASE AMENDMENT (the "Amendment") is executed this 16th day
of January, 1998 by and between DUKE REALTY LIMITED PARTNERSHIP, an Indiana
limited partnership ("Lessor"), and LANVISION, INC., an Ohio corporation
("Lessee").
W I T N E S S E T H :
WHEREAS, Lessor and Lessee entered into a certain lease dated September
23, 1997 (the "Lease"), whereby Lessee leased from Lessor certain premises
consisting of approximately 9,200 square feet of space (the "Leased Premises")
located in an office building commonly known as 4700 Duke Drive, Suite 170,
Cincinnati, Ohio 45040; and
WHEREAS, Paragraph 36 of the Lease provided that the Minimum Annual
Rent under the Lease would be increased at the time Lessor leased the Reduced
Space, as defined in the Lease; and
WHEREAS, Lessor has leased the Reduced Space as of March 1, 1998 and
Lessee agrees to pay Minimum Annual Rent under this Lease as of March 1, 1998;
and
WHEREAS, Lessor and Lessee desire to amend subsections D and E of the
Basic Lease Provisions to provide for the payment of Minimum Annual Rent and
Monthly Rental Installments as of March 1, 1998; and
WHEREAS, Lessor and Lessee desire to amend certain provisions of the
Lease to reflect such changes;
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants herein contained and each act performed hereunder by the parties,
Lessor and Lessee hereby agree that the Leases is amended as follows:
41
2
1. Amendment of Section 1. Commencing March 1, 1998, Section 1 is
hereby amended to delete subsections D and E of the Basic Lease Provisions and
substitute the following in lieu thereof:
D. Minimum Annual Rent:
March 1, 1998 - November 30, 1998 $69,000.03 (9 months)
December 1, 1998 - November 30, 1999 $92,000.04 per year
December 1, 1999 - November 30, 2000 $92,000.04 per year
December 1, 2000 - November 30, 2001 $92,000.04 per year
December 1, 2001 - November 30, 2002 $92,000.04 per year
December 1, 2002 - June 30, 2003 $53,666.69 (7 months);
E. Monthly Rental Installments:
March 1, 1998 - June 30, 2003 $7,666.67 per month;
2. Amendment of the Lease. Section 36 of the Lease is hereby
deleted and is of no further force or effect.
3. Lessee's Representations and Warranties. The undersigned
represents and warrants to Lessor that (i) Lessee is duly organized, validly
existing and in good standing in accordance with the laws of the state under
which it was organized; (ii) all action necessary to authorize the execution of
this Amendment has been taken by Lessee; and (iii) the individual executing and
delivering this Amendment on behalf of Lessee has been authorized to do so, and
such execution and delivery shall bind Lessee. Lessee, at Lessor's request,
shall provide Lessor with evidence of such authority.
4. Examination of Amendment. Submission of this instrument for
examination or signature to Lessee does not constitute a reservation or option,
and it is not effective until execution by and delivery to both Lessor and
Lessee.
5. Definitions. Except as otherwise provided herein, the
capitalized terms used in this Amendment shall have the definitions set forth in
the Lease.
6. Incorporation. This Amendment shall be incorporated into and
made a part of the Lease, and all provisions of the Lease not expressly modified
or amended hereby shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed on the day and year first written above.
42
3
LESSOR:
DUKE REALTY LIMITED PARTNERSHIP,
WITNESSES: an Indiana limited partnership
/s/ Naomi Gump
- ---------------------
Naomi Gump By: Duke Realty Investments, Inc.,
- --------------------- its general partner
(Printed)
/s/ Ricena A. Watson By: /s/ James W. Gray
- --------------------- --------------------------
Ricena A. Watson James W. Gray
- --------------------- Vice President and
(Printed) General Manager
LESSEE:
LANVISION, INC., an Ohio
corporation
WITNESSES:
/s/ Alan J. Hartman By: /s/ Eric Lombardo
- --------------------- -------------------------
Alan J. Hartman
- ---------------------
(Printed) Printed: Eric S. Lombardo
--------------------
/s/ Kimberly S. Farris Title: Executive Vice President
- -----------------------
Kimberly S. Farris
- -----------------------
(Printed)
43
4
STATE OF Ohio )
---------- ) SS:
COUNTY OF Hamilton )
----------
Before me, a Notary Public in and for said County and State, personally
appeared James W. Gray, by me known and by me known to be the Vice President and
General Manager of Duke Realty Investments, Inc., an Indiana corporation, the
general partner of Duke Realty Limited Partnership, an Indiana limited
partnership, who acknowledged the execution of the foregoing "First Lease
Amendment" on behalf of said partnership.
WITNESS my hand and Notarial Seal this 9 day of February , 1998.
-- --------
/s/ Ricena A. Watson (McKee)
---------------------------------
Notary Public
---------------------------------
(Printed Signature)
My Commission Expires: June 29, 2001
-------------
My County of Residence: Clermont
-------------
(NOTARIAL SEAL)
STATE OF Ohio )
---------- ) SS:
COUNTY OF Hamilton )
----------
Before me, a Notary Public in and for said County and State, personally
appeared Eric S. Lombardo , by me known and by me known to be the Executive
Vice President of LanVision, Inc., an Ohio corporation, who acknowledged the
execution of the foregoing "First Lease Amendment" on behalf of said
corporation.
WITNESS my hand and Notarial Seal this 16th day of January , 1998.
---- --------
44
5
/s/ Denise D. Dyer
----------------------------------
Notary Public
(NOTARIAL SEAL)
Denise D. Dyer
----------------------------------
(Printed Signature)
My Commission Expires: January 29, 2000
----------------
My County of Residence: Hamilton
----------------
45
6
CONSENT OF GUARANTOR
The undersigned Guarantor to the Lease hereby consents to the foregoing
Fourth Lease Amendment and reaffirms that the Unconditional Guaranty of Lease
dated September 23, 1997, remains in full force and effect.
"Guarantor"
LANVISION SYSTEMS, INC., a
Delaware corporation
By: /s/ Eric Lombardo
------------------------
Eric Lombardo
Executive Vice President
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
Before me, a Notary Public in and for said County and State, personally
appeared Eric Lombardo, by me known and by me known to be the Executive Vice
President of LanVision, Inc., an Ohio corporation, who acknowledged the
execution of the foregoing "Consent of Guarantor" on behalf of said corporation.
WITNESS my hand and Notarial Seal this 16th day of January , 1998.
---- ---------
/s/ Denise D. Dyer
-------------------------------
Notary Public
(NOTARIAL SEAL)
Denise D. Dyer
-------------------------------
(Printed Signature)
My Commission Expires: January 29, 2000
----------------
My County of Residence: Hamilton
----------------
46
1
CONFIDENTIAL
Exhibit 10.17
LANVISION SYSTEMS, INC.
MARKETING AGREEMENT BETWEEN SHARED MEDICAL SYSTEMS CORPORATION AND LANVISION
SYSTEMS, INC. AND LANVISION, INC. ENTERED INTO ON FEBRUARY 21, 1998
CONFIDENTIAL
AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into this 21st day of
February, 1998 by and between SHARED MEDICAL SYSTEMS CORPORATION, located at 51
Valley Stream Parkway, Malvern, Pennsylvania 19355 ("SMS") and LANVISION
SYSTEMS, INC., located at One Financial Way, Suite 400, Cincinnati, Ohio 45242,
and LANVISION, INC., located at the same address (collectively, LanVision
Systems, Inc. and LanVision, Inc. shall be referred to as "LanVision").
1. Background.
(a) SMS is in the business of providing health information systems and
services to the health industry. LanVision is in the business of providing
computer software applications and services in document imaging and workflow
technologies to the health industry The following definitions shall apply:
(i) "Base Fee" shall mean an amount to be used for calculating
Software royalties due LanVision from SMS. The initial Base Fee is set forth in
Exhibit H. The Base Fee shall be adjusted, pursuant to the provisions of Exhibit
H, based on the actual sales experience of LanVision during the preceding
measurement period.
(ii) "Deliverables" shall mean the Software, Software-related
programming changes, and all associated Technical Materials and Documentation.
The Deliverables existing as of the date of this Agreement are also listed in
Exhibit A.
(iii) "Documentation" shall mean the technical and user
manuals, instructions and user guides, including updates thereto, relating to
the Software, whether in printed or electronic format, developed by or on behalf
of LanVision. Documentation existing as of the date of this Agreement is listed
in Exhibit A.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
47
2
CONFIDENTIAL
(iv) "End User" shall mean any SMS Client that enters into a
license agreement with SMS that includes the Software.
(v) "First-Level Support" shall mean issue recognition and
problem determination and resolution procedure processing.
(vi) "First Productive Use" shall mean the date on which live
data at an End User site is first processed through the Software and used in the
live operation of the End User's facility.
(vii) "Prospective End User" shall mean an SMS Client or
prospective SMS Client to whom SMS is actively marketing the Software and any of
the following SMS products (SMS may change any of these product names without
implications to this Agreement): INVISION, UNITY, ALLEGRA, MedSeries4,
SIGNATURE, products in the NOVIUS line (the "Core Applications"). "Actively
marketing" shall mean that SMS has conducted (i) executive level meetings
regarding the licensing of the Software and any Core Application at the subject
site within the preceding six (6) months, and/or (ii) demonstrations of the
Software and any Core Application at the subject site within the preceding six
(6) months.
(viii) "Releases" shall mean a redistribution of the Software
containing an aggregation of Updates and/or functional, operational and/or
performance improvements
(ix) "Second-Level Support" shall mean the resolution of
problems that are beyond the capabilities of the First-Level Support personnel,
but do not require access to, or knowledge of, the source code. In addition to a
more in-depth knowledge of the LanVision Software, individuals performing
Second-Level Support must have extensive knowledge of the hardware platform,
operating system, networking, database, imaging, workflow and other elements of
the overall system implementation. Onsite visits may be required in the
performance of Second-Level Support. Second-Level Support shall be available to
SMS 24 hours per day.
(xi) "SMS Client" shall mean any party that enters into a
license agreement with SMS that includes any Core Application.
(xii) "Software" shall mean the software (as described in
Exhibit A) developed, marketed and licensed by LanVision to SMS hereunder.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(xiii) "Technical Materials" shall mean the items describing
the technical functionality and specifications of the Software which are listed
under the heading "Technical Materials" in Exhibit A.
(xiv) "Third-Level Support" shall mean the resolution of
Software problems that require use of the Software source code, and the
development of all Updates, Releases, and Versions. Third-Level Support shall be
available to SMS between the hours of 8:00am to 5:00pm (EST).
(xv) "Update" shall mean packages of Software corrections as
well as revisions addressing common functional and performance issues.
(xvi) "Versions" shall mean a delivery of new features
packaged as part of existing and/or new Software.
(b) The parties desire to enter into a relationship in which SMS will
market and sublicense the Software and Documentation to End Users and offer
delivery, installation, and support services to End Users. LanVision will
provide marketing, installation, programming, development, and support services
to SMS, all as set forth hereunder.
2. Executive Team. To oversee the parties' relationship under this Agreement,
SMS and LanVision will create an Executive Team, comprising two senior managers
from each organization. The Executive Team will meet at least quarterly and more
frequently as required throughout the term of this Agreement and be responsible
for monitoring the progress of the relationship, recommending and causing
improvements to be implemented, and discussing mutual strategy as it relates to
this Agreement. Among the responsibilities of the Executive Team is to work to
avoid channel conflicts and to promptly and equitably resolve channel conflicts
that arise. In the event of a deadlock the Executive Team will submit to dispute
resolution pursuant to Section 14.
3. Initial Software Changes - Project Team.
(a) LanVision will perform a set of Software programming changes
("Initial Software Changes") intended to:
[confidential
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(b) The Initial Software Changes agreed to by the parties as of the
date of this Agreement are listed and described in Exhibit B. To oversee the
process of making the Initial Software Changes the parties will create a Project
Team comprised of dedicated and knowledgeable technical personnel from each
party. The Project Team will meet on a mutually agreed upon schedule, and shall
remain in existence until at least one year after completion of the Initial
Software Changes. Project Team leaders will also participate in Executive Team
meetings and issue status reports to the Executive Team as required by the
Executive Team. It is understood and agreed that all future Updates, Releases,
Versions and programming changes delivered to SMS shall be compatible with the
Initial Software Changes (e.g., new Versions will port with the same SMS
software the same or better than earlier Versions port with SMS applications).
(c) SMS and LanVision recognize that further integration of the
Software with SMS software will enhance the marketability of the Software to End
Users. SMS and LanVision intend to pursue those future integration requirements,
based upon the recommendations of the Project Team, throughout the term of this
Agreement.
(d) The first [confidential] of programming services performed by
LanVision on the creation of the [confidential] component of the Initial
Software Changes shall be at LanVision's expense. For other programming services
necessary to create the [confidential] component of the Initial Software
Changes, SMS shall compensate LanVision at a rate of [confidential]. As to all
other Initial Software Changes, each party shall bear its own expenses of
performing its responsibilities under this Section.
4. Software Rights and Licenses.
(a) Right to Marketing and Sublicense. LanVision grants to SMS and SMS'
subsidiaries the exclusive worldwide right to (i) market the Software and
Documentation to SMS Clients , and (ii) grant perpetual and term sublicenses of
the object code version of the Software to SMS Clients. SMS' rights include the
right to use the Software and Documentation as part of outsourcing services
(facility management-type functions in which a Software license is separately
acquired for each such customer) provided by SMS and to use the Technical
Materials internally in support of such activities.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(b) SMS has the exclusive right to market and sublicense the Software
to Prospective End Users. Upon LanVision's request, the Executive Team shall
determine whether a particular opportunity that would otherwise be designated as
a Prospective End User, and therefore exclusive to SMS, should be reserved for
LanVision to pursue.
(c) SMS has the non-exclusive right to market and sublicense the
Software to any entity that is not an SMS Client or a Prospective End User.
(d) Notwithstanding the exclusives granted to SMS in subsections (a)
and (b) above:
(1) As to entities that license the Software directly from
LanVision and later meet the definition of SMS Client or Prospective End User,
LanVision shall have the right to license additional Software to such entities
for use exclusively by such entities (e.g., a Software license granted by
LanVision to a subsidiary hospital shall not entitle LanVision to license
Software to that hospital's parent organization or to any affiliated hospital
that is not a licensee under the LanVision-customer agreement).
(2) SMS shall have the non-exclusive right to market and
license the Software to the entities listed in Exhibit G, which are entities to
which LanVision represents it is actively marketing the Software, during the
twelve (12) month period commencing on the date of this Agreement. If SMS
licenses the Software to any such entity during that twelve (12) month period,
SMS shall pay to LanVision a royalty equal to an amount to be determined by the
Executive Team. After that initial twelve (12) month period, SMS shall be
entitled to exclusive rights to market and sublicense the Software to such
entities, and the royalties as stated in Section 12 shall apply to all such
Software sublicenses granted by SMS.
(3) SMS shall have the right to sublicense the third party
software components of the Software listed in Exhibit C, Section 2 throughout
the United States. SMS' right to sublicense on a world-wide basis the third
party software components of the Software listed in Exhibit C, Section 2, is
conditioned on LanVision having or obtaining such rights from its third party
software suppliers for End Users located outside the United States. For any
rights that LanVision does not have, LanVision shall diligently, and using all
good faith efforts, promptly pursue such rights for SMS to sublicense all such
third party components on a world-wide basis, and LanVision shall provide
written status reports on such progress to SMS monthly and otherwise as
requested by SMS.
(4) In the event SMS markets and licenses a product (i) that
includes features and functions substantially similar to those contained in the
Software, and (ii) which a prospective
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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licensee could reasonably be expected to license in lieu of the Software
(collectively, the "Triggering Events"), then LanVision shall have the right,
upon [confidential] prior written notice to SMS received by SMS within
[confidential] after LanVision has actual notice of a Triggering Event, to
terminate this Agreement. If multiple Triggering Events occur, the
last--occurring Triggering Event shall be the basis for measuring such
[confidential] requirements. This right to early termination is contingent on
(x) SMS' right to a migration-out period that entitles SMS to execute Software
licenses with Prospective End Users during the [confidential] period commencing
on the effective date of termination, and (y) LanVision shall provide support
subject to the provisions of Section 8(b)(ii).
(5) SMS' rights to market and sublicense the modules denoted
"Other Modules" in Exhibit A, Section 1, shall be non-exclusive.
(e) Internal Use License. LanVision grants to SMS and SMS' subsidiaries
a royalty-free license for the internal use of the Deliverables by SMS and its
subsidiaries solely for purposes of enabling them, if elected by SMS, to create,
market, and license interface and integration programming; and to provide
support services to End Users.
(f) SMS shall not decompile or otherwise reverse engineer or decode the
Software; provided that in the event SMS receives delivery of the Software
source code from escrow, SMS shall have the right to use such source code to
perform programming changes and other development activities so long as
LanVision's intellectual property rights are protected.
(g) Other LanVision products.
(i) For purposes of avoiding channel conflicts and confusion
in the SMS Client/Prospective End User base, LanVision
shall not directly or indirectly market or license any
LanVision product existing as of the date of this
Agreement, whether or not listed in Exhibit A (except
MicroVision), to any SMS Client or Prospective End User.
SMS shall have the non-exclusive right to market or
license any existing LanVision product not listed in
Exhibit A under the terms and conditions of this
agreement. The Executive Team will determine the Initial
Base Fee for any existing LanVision product not listed in
Exhibit A.
(ii)SMS shall have the first opportunity to negotiate with
LanVision for the right to market and license any new
LanVision products. Notwithstanding the foregoing,
LanVision shall have the right to market and license the
Other Modules described in Exhibit A, Section 1, in
connection with new products.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(h) It is understood and agreed that in the event an End User, without
SMS' knowledge and consent, exceeds its licensed number of users/servers, SMS
shall use all reasonable efforts to enforce the End User license agreement.
Provided SMS performs its responsibilities under this subsection, LanVision
shall not treat such excess use as a license or other violation of LanVision's
intellectual property rights.
5. SMS Rights and Responsibilities.
(a) SMS shall market and sublicense the Software and Documentation to
prospective End Users within the markets defined in Section 4. SMS' marketing
efforts will be commensurate with market demand for the Software. SMS' marketing
efforts outside the United States are also conditioned on the availability of
localized versions of the Software. License agreements with End Users shall
conform to the requirements as stated in Exhibit E.
(b) SMS will incorporate appropriate information about the Software and
Documentation with LanVision's assistance in SMS' software documentation, will
identify the Software and Documentation as being proprietary to LanVision, and
will include all proprietary markings required by LanVision as shown in Exhibit
A, Section 3.
(c) SMS may, but is not required to, offer the Software and
Documentation for sublicense on a private label basis, i.e., SMS may sublicense
the Software under one or more trade names to be selected by SMS. In no event
shall LanVision market the Software under the mark chosen by SMS without SMS'
prior knowledge and consent in order to avoid duplication of efforts and
confusion in the SMS customer and prospect basis. [confidential]
(d) SMS shall have the right to use, modify, and/or distribute
LanVision's marketing materials and Documentation related to the Software as
deemed appropriate by SMS. SMS is responsible for the creation and delivery of
marketing materials to prospective End Users, including adaptation of LanVision
materials, associated with any private labeled Software and/or Documentation
offered for sublicense.
(e) SMS will receive training from LanVision at no charge, to enable
SMS to provide Software installation and support services and marketing and
sales support as described in Section 6. SMS may employ a "train the trainer"
approach, whereby LanVision will train and provide periodic update or refresher
training to a core group of SMS personnel identified by SMS such
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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that they will then be able to train other SMS personnel. If SMS requests that
training occur at other than LanVision's facilities, SMS shall reimburse
LanVision for reasonable travel and living expenses in accordance with SMS'
then-current travel and living reimbursement policy. SMS' current travel and
living policy is attached as Exhibit J.
(f) SMS will offer to contract with End Users for the provision of
installation, interface, integration, and/or support services, as appropriate.
(g) SMS will perform the tasks assigned to SMS relating to the Initial
Software Changes listed in Exhibit B.
(h) SMS will be prepared to receive support services from LanVision as
contemplated in Section 8. SMS will install appropriate Software Updates,
Releases, Versions, and programming changes that are provided to SMS by
LanVision.
(i) [confidential]
6. LanVision Rights and Responsibilities.
(a) LanVision agrees to diligently perform research and development
throughout the term of this Agreement to enhance and otherwise improve the
Deliverables. Such research and development shall include, without limitation,
(i) Software improvements that enable the Software to remain competitive with
other products available to prospective End Users, and (ii) the delivery to SMS
of Updates, Releases and/or Versions to ensure the compatibility of the Software
with third party vendor components of the Software, such compatibility to occur
within [confidential] after the general availability of such component from the
third party vendor if that timeframe and such compatibility are commercially
feasible; provided SMS shall receive such enhancement no later than LanVision
delivers such capability to any other entity. Except to the extent SMS'
participation will cause undue delay to LanVision's development process, or
involves matters that are proprietary to LanVision and are unrelated to this
Agreement, SMS shall have the right to participate on LanVision committees and
teams that perform research, development, and product planning for LanVision,
and SMS shall have the right to participate, if elected by SMS, as beta sites
for any LanVision products that proceed to beta testing.
(b) LanVision agrees to perform the tasks assigned to LanVision
relating to the Initial Software Changes listed in Exhibit B, and to use all
reasonable efforts to perform these tasks according to the timetable set forth
in Exhibit B, unless otherwise agreed by the Executive Team. Consequences of
late or non-performance are specified in Exhibit B.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(c) At rates to be negotiated by the parties at the time, LanVision
agrees to perform, in a mutually agreeable timeframe, technically-feasible
Software programming changes requested by SMS.
(d) LanVision agrees to provide training services to SMS to enable SMS
personnel to (i) provide Software support services directly to End Users, and
(ii) train SMS trainers to teach Software support services to SMS employees. By
way of example, such training will include installing Software programming and
stream of enhancement changes, and will include a `train-the-trainer' approach.
Such training shall, entitle SMS personnel, at no charge to SMS, to attend
[confidential] of regularly-scheduled LanVision training classes as selected by
SMS (e.g., [confidential]). In connection with the creation of any new Version
or net new product available under this Agreement, LanVision shall provide an
additional [confidential] of Software support training to SMS in the calendar
quarter the Version or new product is delivered to SMS. Additional training
requested by SMS shall be provided by LanVision at its then-current, published
training rates.
(e) LanVision will provide support services to SMS as described in
Section 8 in consideration of SMS paying to LanVision the support fees described
in Section 12(d).
(f) LanVision agrees to make available to SMS [confidential] LanVision
employees with technical and marketing expertise who shall train SMS personnel
to (i) perform marketing and sales support, and (ii) train SMS trainers to teach
marketing and sales support to SMS employees. Such LanVision personnel shall
also provide demonstrations and marketing presentations, and provide other
Software marketing assistance to SMS, such as onsite pre-sale assessments, as
reasonably requested by SMS and at places to be designated by SMS. Such
LanVision personnel shall be provided at no charge to SMS. SMS will reimburse
LanVision for reasonable travel and living expenses incurred by LanVision in the
course of providing this marketing and sales support. In connection with the
creation of any new Version available under this Agreement, LanVision shall
provide an additional [confidential] of marketing and sales support training to
SMS in the calendar quarter the Version or new product is delivered to SMS.
Additional training requested by SMS shall be provided by LanVision at its
then-current, published training rates.
(g) LanVision will identify in Exhibit A any distinguishing marks or
proprietary notices that must accompany the Software and Documentation when
distributed to End Users.
(h) LanVision will provide to SMS source Documentation material in
machine-readable
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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form such that SMS may adapt and include the Documentation in SMS' softcopy
library (for CD-ROM distribution to End Users), the specific formats of such
materials to be specified by SMS.
(i) LanVision will participate in SMS user group meetings as reasonably
requested by SMS for purposes of receiving input into LanVision's development
plans.
7. Delivery of Software and Deliverables. Within [confidential] after SMS'
request, LanVision will deliver to SMS the object code version of the Software
existing as of the date of this Agreement. Thereafter, LanVision will promptly
deliver to SMS all Software Updates, Releases, Versions, and Software
programming changes, along with updates or revisions to Technical Materials and
Documentation as they are developed.
8. Support.
(a) LanVision Support Services. Attached as Exhibit D is a standard SMS
End User support agreement. As between SMS and LanVision, LanVision shall
perform for SMS all Third-Level Support support services assigned in that
document to SMS, and shall otherwise perform in a manner that enables SMS to
comply with End User support obligations, as such are stated in Exhibit D;
except that (i) LanVision shall have no responsibility for providing First-Level
Support obligations undertaken by SMS in subsection (b) below, and (ii)
LanVision's support obligations under this Agreement shall only apply to the
current Version of the Software, and the preceding Version of the Software
(e.g., LanVision agrees to support the current Version and Version-minus-one;
earlier Versions will be supported by LanVision, as requested by SMS, at
LanVision's professional service rates ). In addition to the above, LanVision
shall perform Second-Level Support as requested by SMS in consideration of SMS
paying Second-Level Support fees as described in Section 12(d).
(b) End User Support.
(i) SMS will offer to provide all levels of support directly
to End Users, including First-Level Support. LanVision shall have no obligation
to provide First-Level Support directly to End Users. Notwithstanding anything
to the contrary, SMS shall have the right to perform, or cause to be performed,
any End User support necessary to cause the Software to perform as warranted by
LanVision.
(ii) The parties agree that continuation of End User support
after the expiration or termination of this Agreement is very important.
Therefore, SMS shall have the right to continue providing support services to
End Users after the expiration or termination of this Agreement,
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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and LanVision will continue to provide support services to SMS for the remainder
of the then-current term of each End User's support agreement with SMS, at
LanVision's then prevailing support rate, less a [confidential] discount if this
Agreement is terminated due to LanVision's breach. If the Agreement is
terminated due to SMS' breach, LanVision shall provide support services to SMS
at LanVision's then-prevailing support rate. If SMS is unable or does not elect
to provide support services to End Users, LanVision agrees to offer support
services to affected End Users subject to LanVision's then current, generally
applicable support terms and fees.
(c) LanVision shall not be responsible for Software problems or errors
to the extent those problems or errors are the result of (i) modifications or
other Software programming changes made by SMS, (ii) SMS' or End Users' failure
to use correct operating procedures, or (iii) error or malfunction in the
equipment or other software (other than the third party software listed in
Exhibit C) with which the Software is used. If SMS requests services that
LanVision believes are not LanVision's responsibility for the reasons stated in
this subsection, as soon as LanVision is made aware of this fact LanVision shall
so advise SMS in writing, including a statement of LanVision's charges to
perform such services. SMS shall pay LanVision on a time and materials basis at
LanVision's then-current rates for any support services rendered regarding
problems or errors for which LanVision is not responsible.
9. Confidentiality.
(a) Each party shall retain in strict confidence the confidential
information of the other party. Examples of confidential information include,
without limitation, trade secrets, software, the Deliverables, specifications,
designs, development plans, business plans, sales projections, business records,
prices, the business terms of this Agreement, and customer lists. Confidential
information of a party shall only be used by the other party in the course of
performing its responsibilities under this Agreement, and will be disseminated
only on a need-to-know basis among its employees and agents that have executed
an appropriate confidentiality agreement
(b) The obligations of confidentiality set forth in this Section shall
not apply to information (i) disclosed to the extent required by a court of law
or federal, state or local statutes or regulations; (ii) independently developed
by the party receiving the information; (iii) acquired by a party from a third
party not subject to such obligations, unless that party knew or should have
known that the information being revealed is confidential as described in this
Agreement; or (iv) which is or becomes part of the public domain through no
breach of this Agreement by the revealing party.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(c) The obligations under this Section 9 shall survive termination of
this Agreement. Each party acknowledges that a breach of its obligations under
this Section 9 may cause irreparable harm to the other party for which monetary
damages may be inadequate. Each party will be entitled to seek injunctive relief
for any such breaches, threatened or actual.
10. Warranties.
(a) LanVision warrants that the Software will operate materially in
accordance with its Documentation, and that the equipment configuration in
Exhibit C is sufficient to operate the Software. LanVision shall promptly repair
or replace non-conforming Software so that it performs in accordance with its
Documentation at no cost to SMS or End Users. Except to the extent otherwise
expressly indicated in Exhibit A, LanVision warrants that all Software is
presently generally available for license and support from LanVision. Due to the
nature of computer software programs, the Software may not be entirely error
free; however, this fact shall not relieve LanVision of any obligation under
this Agreement.
(b) LanVision warrants that the Documentation and Technical Materials
provided by LanVision to SMS will be accurate and complete to the best of
LanVision's knowledge.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(c) Each party warrants that the services it provides under this
Agreement will be provided in a timely, competent, and workmanlike manner.
(d) LanVision warrants that it owns or otherwise has the right to grant
the licenses and rights set forth in this Agreement. Additionally, LanVision
warrants that neither SMS nor any End User will be required to obtain any third
party software in order to operate the Software, except for the items designated
"End User to License" in Exhibit C.
(e) LanVision warrants that it has not placed, nor is LanVision aware
of, any disabling code in the Software which would alter, destroy, or inhibit
the Software or SMS or any End User's use of the Software or the data contained
therein.
(f) LanVision warrants that it will not terminate or attempt to
terminate, by modem or by electronic means or by other means, use of the
Software by SMS or an End-User in connection with any dispute; provided,
however, that LanVision does not waive its right to seek an injunction to
terminate use of the Software in connection with any material dispute with SMS
hereunder, which dispute shall remain unresolved after the parties' good faith
efforts and all contractually-obligated efforts to resolve such dispute.
(g) LanVision warrants that the Software will be Year 2000 compliant by
January 1, 1999, i.e., that the Software will process dates including the year
2000 and beyond in accordance with the Software Documentation.
(h) LanVision warrants that SMS shall at all times during the term of
this Agreement be entitled to rely on the warranties stated in this Section, and
any additional or other warranties that LanVision makes generally available to
its customers [confidential]
(i) THE WARRANTIES SET FORTH ABOVE ARE IN LIEU OF ALL OTHERS INCLUDING
WITHOUT LIMITATION THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
11. Intellectual Property Indemnification. At LanVision's expense as described
herein, LanVision shall indemnify, defend and hold SMS harmless from and against
any claim that any of the Software and/or Documentation infringes a patent,
copyright, trademark, or other intellectual property right by defending against
such claim and paying all amounts that a court finally awards or that LanVision
agrees to in settlement of such claim. LanVision shall also reimburse SMS for
all reasonable expenses incurred by SMS at LanVision's request. To qualify for
such defense,
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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SMS must (i) provide prompt notice of all claims to LanVision, (ii) allow
LanVision to control the defense of the matter, and (iii) cooperate with
LanVision in the defense of the matter.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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12. Payments and Expenses. SMS shall pay LanVision the following fees:
(a) Sublicense fees - For each sublicense of the Software granted by
SMS to an End User, SMS shall pay to LanVision the associated royalty fees as
indicated in Exhibit H. Software sublicenses may be granted by SMS on a term or
perpetual basis.
(i) Perpetual Basis. Royalty fees due LanVision for Software
sublicenses granted by SMS on a perpetual basis shall be due and payable to
LanVision within [confidential], as follows:
[confidential] upon execution by SMS of an End User license agreement which
includes the Software;
[confidential] upon delivery of the Software to an End User (i.e., the date on
which Software implementation activities commence).
SMS will provide LanVision with a quarterly royalty report
which identifies the End User's name, contract date, whether contract is term or
perpetual, and the appropriate royalties owed. The royalty report will sent to
LanVision within 30 days after the end of the calendar quarter in which the
milestone occurs.
(ii) Term Basis. Royalty fees due LanVision for Software
sublicenses granted by SMS on a term basis shall equal the royalty fee
that would have been due LanVision pursuant to subsection (i) above, in
installments with each installment being equal to the perpetual license
royalty fee divided by the number of months in the SMS-End User
contract, plus interest calculated at [confidential]. Term license fees
shall be due and payable to LanVision [confidential] over the term of
the End User's contract. The first payment will be prorated and will be
due [confidential]. SMS reserves the right to pay royalty fees due
LanVision for Software sublicenses granted by SMS on a term basis using
the Perpetual payment basis described in subsection (i) above (without
interest),
(b) [confidential].
(c) Commission fees - If an SMS customer elects to license the Software
directly from LanVision and SMS provides written approval on such sale, SMS
shall earn a commission from LanVision. For each such license, LanVision shall
pay SMS a commission equal to [confidential].. The commission will be due and
payable to SMS within [confidential].
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(d) Support - In consideration of LanVision providing Third-Level
Software Support as described in Section 8, SMS will pay LanVision, per End User
being supported by SMS, an annual support fee equal to [confidential]. SMS'
right to sublicense Versions made generally-available by LanVision after the
date of this Agreement is contingent on SMS paying royalties to LanVision
pursuant to Exhibit H. SMS has the right to purchase Second-Level Support for
all then-existing End Users. In consideration of LanVision performing
Second-Level Support pursuant to Section 8(a), SMS shall pay to LanVision, an
annualized support fee equal to [confidential]. SMS shall provide written notice
of such election to LanVision, which notice shall include the duration of time
that SMS desires to obtain Second-Level Support (one-year minimum per End User).
As to each End User, these fees will commence on [confidential] following
delivery of the Software to that End User, and will be reported and paid
[confidential].
(e) Implementation Services - SMS has the right to purchase
implementation services from LanVision for specific End Users at the rates
published in Exhibit I. LanVision shall perform such services as SMS'
subcontractor pursuant to the provisions of Exhibit F.
(f) Miscellaneous Expenses and Costs. Except as otherwise expressly
provided, each party shall bear its own expenses and costs of performing under
this Agreement. If SMS agrees to reimburse LanVision for any expenses, LanVision
must submit correct invoices to SMS within 60 days after the expense is incurred
to qualify for payment.
(g) Payment Terms. Amounts to be paid by SMS to LanVision shall be
payable on the date or event specified in this Agreement, or if not specified,
thirty (30) days after receipt of a correct invoice from LanVision. Subject to
subsection (h) below, SMS shall pay a monthly service charge prorated at 1.5% on
all amounts not paid within thirty (30) days after receipt by SMS of a correct
invoice. All payments shall be in U.S. dollars.
(h) Right to Withhold or Set-off. Notwithstanding anything to the
contrary, in the event of a good faith dispute regarding services rendered,
Software performance, late delivery, or any other matter regarding LanVision's
performance under this Agreement, SMS shall have the right to withhold or
set-off--as determined by SMS--amounts claimed due by LanVision pending
resolution of the dispute. SMS shall pay undisputed amounts in a timely manner,
and LanVision shall not declare SMS in default for withholding or setting-off
monies claimed due by LanVision, provided SMS pays undisputed amounts in a
timely manner and SMS cooperates with LanVision to promptly resolve the dispute
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(i) Taxes. SMS shall be responsible for the payment (directly or by
reimbursement of LanVision) of all taxes imposed on LanVision or SMS and
resulting from this Agreement or any performance under this Agreement, excluding
taxes based on LanVision's income, and employment taxes and unemployment
insurance relating to LanVision's employees. If SMS provides LanVision with a
copy of its tax exemption letter or number, LanVision shall not bill SMS for
taxes to which the exemption applies.
(j) Third Party Components. All Third Party Components identified in
Exhibit C as embedded shall be offered to SMS at no additional fee. All Third
Party Components identified in Exhibit C as non-embedded shall be offered to SMS
at fees [confidential]. That document is incorporated herein by reference.
(k) Service Fee Increases. All service hourly rates in this Agreement
shall be subject to increase annually by a percentage equal to [confidential].
13. Force Majeure. Neither party shall be responsible for any delay or failure
of performance resulting from causes beyond its control and without its fault or
negligence.
14. Dispute Resolution. In the event that a dispute arises between SMS and
LanVision which cannot be resolved in the normal course, the following dispute
resolution procedures shall be followed:
(a) Within ten (10) business days of a written request by either party,
the parties' respective Project Team Leaders shall meet to resolve the issue; if
these parties cannot resolve the issue within ten (10) business days of the
meeting, then (ii)) the issue shall be submitted to LanVision's President and
SMS' Vice President, Purchasing, and the parties' respective Executive Team
members.
(b) This dispute resolution process may occur concurrently with the
exercise of other rights and remedies available under this Agreement. This
provision shall not apply to claims for equitable relief (e.g., injunction to
prevent disclosure of confidential information).
15. Mediation. Any controversy or claim arising out of or relating in any way to
this Agreement, or the breach thereof, which has not been resolved pursuant to
the Dispute Resolution Procedure set forth in Section 14 may be settled by
non-binding mediation. Such mediation shall be conducted under the auspices of
the American Arbitration Association ("AAA"), and shall be governed by the AAA's
Commercial Mediation Rules (except to the extent that such rules are modified by
this Section). The parties further agree as follows:
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(a) that once either party has submitted a written request for
mediation to the AAA, the parties shall choose a Mediator from a list provided
by the AAA of individuals knowledgeable and experienced in the area of computer
information systems that are designed for processing healthcare data. Within ten
days of receipt of such a list, each party shall notify the AAA which
individuals listed are acceptable as mediators. The Mediator shall be chosen by
the AAA from the listed individuals which both parties found acceptable. If the
parties are unable to choose a mutually acceptable Mediator in this manner, the
AAA shall then promptly choose the Mediator.
(b) the Mediation must include all parties and claims involving common
questions of fact or law whose presence is required to resolve the dispute.
(c) the Mediator shall be instructed to conduct the proceedings and
render a recommendation in the shortest reasonable time;
(d) this Mediation provision shall not apply to any claim for equitable
relief (e.g. an injunction to stop copyright infringement) which any party has
relating to this Agreement.
(e) if the parties so agree, they may exchange with each other
memoranda submitted to the Mediator setting forth their respective positions
with regard to the issues that need to be resolved.
(f) the Mediator may retain an expert or consultant only with the
express agreement of the parties upon terms, conditions and fees agreed upon by
the parties.
(g) that information and documents not otherwise in the public domain
that are used at or in connection with the mediation shall not be disclosed to
third parties by the Mediator or the parties without the prior written consent
of both parties. Neither the fact that the mediation occurred nor the result of
the mediation shall be admissible in evidence in a subsequent proceeding brought
on the same claims that were presented at the mediation. This Section shall
survive termination of the Agreement.
16. Default.
(a) If either party fails to observe or perform any material obligation
under this Agreement, the non-defaulting party may give written notice of breach
specifying the material default. This Agreement may be terminated by the
non-defaulting party thirty (30) days after the date of such notice unless (i)
the material failure is corrected within such thirty (30) day period; or
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(ii) if it is not possible to correct within such thirty (30) days, the
defaulting party commences correction within thirty (30) days and proceeds
diligently to a cure.
(b) The right of the non-defaulting party to terminate this Agreement
under this Section is in addition to all other rights as are available to it at
law or equity under this Agreement.
(c) Termination of this Agreement for any reason shall have no effect
on sublicenses previously granted to End Users. Each party shall return to the
other, at its own expense, all proprietary information of the other party then
in its possession or control, except as required by a party to provide
continuing support services as described in Section 8.
17. Liability.
(a) Limitation of Liability. LanVision's total liability to SMS under
this Agreement shall be limited to [confidential]. Neither party shall be liable
to the other for consequential damages. Any sums paid under Sections 11 or 17(b)
or damages resulting from violations of Section 9 shall not be subject to the
limits of this Section.
(b) Third Party Indemnity. LanVision shall indemnify, defend, and hold
harmless SMS against any third party claim that the Software fails to meet the
warranties in Section 10 by defending such claims and paying damages that a
court finally awards or that LanVision agrees to in settlement. To qualify for
such defense, SMS must (i) provide prompt notice of all claims to LanVision,
(ii) allow LanVision to control the defense of the matter, and (iii) cooperate
with LanVision in the defense of the matter.
18. Right to Audit. During the term of this Agreement SMS and LanVision shall
maintain complete and correct financial, business, and product development
records required to verify compliance with this Agreement. At any time during
the term of this Agreement and for a period of twelve (12) months thereafter,
each party shall have the right to inspect and audit the relevant portions of
the other's financial, business, and product development records to verify
compliance. Such audits shall take place during normal business hours upon
reasonable advance written notice to the other party. Upon a party's request,
the other party shall perform an audit to verify its compliance with this
Agreement and deliver the audit report and supporting documentation to the
requesting party.
19. Software Ownership. LanVision shall own or otherwise have rights in the
Software and all Software programming changes made by LanVision or SMS; provided
that as to any Software programming changes made by SMS as permitted under the
terms of this Agreement ("SMS-
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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Programmed Software"), (i) SMS shall be entitled to market and sublicense such
SMS-Programmed Software without paying royalties to LanVision, until SMS' costs
of developing such items are recouped, and LanVision shall pay to SMS a
commission equal to 100% of all revenues received by LanVision from the license
of SMS-Programmed Software, until SMS' costs of developing such items are
recouped, (ii) and the Executive Team shall determine what adjustment, if any,
is required to the Base Fee in consideration of future licenses of the
SMS-Programmed Software, pursuant to the Base Fee adjustment provisions in
Exhibit H. Notwithstanding LanVision's ownership of the SMS-Programmed Software,
LanVision shall not allow access, use or sublicense rights in the SMS-Programmed
Software to any reseller, remarketer, value added reseller or other non-end user
business partner of LanVision without the prior written consent of an SMS
corporate officer.
20. Term. The term of this Agreement shall commence on the date first written
above and continue for a period of sixty (60) consecutive months. Thereafter,
this Agreement shall automatically renew for successive twelve (12) month
periods unless a party provides to the other written notice of non-renewal at
least [confidential] prior to the end of the then-current term.
21. Site Visits. Subject to the agreement of affected Software licensee, each
party agrees to share site visit information with the other and to promote the
availability of their customers to host site visits.
22. Software Escrow.
(a) Source code for the Software, including all associated technical
documentation and source code cross reference materials, shall be placed into
escrow pursuant to the provisions of a source code escrow agreement, to be
agreed upon by the parties within thirty (30) days after the date of this
Agreement, that includes source code release provisions as described in
subsections (i)-(iv) below. (the "Escrow Agreement"). The source code shall be
released to SMS by the escrow agent in the event any of the following events
occur:
[confidential].
(b) Software source code obtained by SMS under this Section shall be
returned to LanVision when all of SMS' rights to the Software terminate. All
such source code shall be treated by SMS as LanVision confidential information
as provided in Section 9. SMS' rights to use source code shall be to accomplish
the license, delivery, installation, support, development, and modification of
Software to meet the needs of SMS' customers.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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23. Miscellaneous.
(a) This Agreement constitutes the entire agreement of SMS and
LanVision with respect to the subject matter hereof and supersedes all other
prior and contemporary agreements and understandings. No provision of this
Agreement may be terminated, modified or waived unless such termination,
modification, or waiver is set forth in writing executed by authorized
representatives of SMS and LanVision.
(b) This Agreement shall not be assigned by either party without the
prior written consent of the other, except to a parent or subsidiary, or a
subsidiary of its parent, or to a successor by purchase, merger, or
consolidation; provided that neither party may assign this Agreement to a
Competitor (defined below) of the other. For purposes of this Agreement, a
Competitor shall mean any entity, including its parents, subsidiaries, and
divisions, or partnerships and joint ventures, that derives at least fifty
percent (50%) of its gross revenues from hardware, software, and/or services
that that compete with those of the assigning party. Competitor shall not
include a parent, subsidiary, or division of a Competitor, or any partnerships
and joint ventures; provided that the entity comprising the Competitor has no
right to access, use, license, market, remarket, or support the non-assigning
party's proprietary information. No assignment shall relieve the assignee of its
obligations under this Agreement. Any assignment not in accordance with these
provisions shall be null and void and shall be deemed a material breach of this
Agreement.
(c) [confidential]
(d) SMS and LanVision are independent contractors, are not related and
shall not be construed and shall not hold themselves out to be co-employers,
joint venturers, partners or otherwise.
(e) SMS and LanVision agree not to hire or attempt to hire each other's
employees during the term of this Agreement or any extensions thereof without
the prior written consent of the other party.
(f) All materials developed by SMS and/or LanVision for marketing,
distribution and promotion of the relationship with the other party, or which
otherwise mentions or refers to the other party, must first be approved in
writing by the other party, which approval shall not be unreasonably withheld.
Materials sent to SMS shall be addressed to "Marketing Communications, Mail Code
H07". Review of materials by both parties will occur in a timely manner.
Approval shall be deemed to occur if the sending party does not receive written
notice of objection within fifteen (15) days after receipt of the marketing
materials by the other party.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(g) Upon SMS' request, LanVision shall provide SMS with certificates of
insurance evidencing that its employees are covered by: (i) General Liability
insurance with a minimum limit of $1 million combined single limit bodily injury
and property damage; (ii) Professional Liability insurance (Errors and
Omissions) with limits not less than $1 million aggregate for all claims each
policy year for computer programming and data processing services as required by
this Agreement; and (iii) Worker's Compensation insurance in the state in which
each LanVision employee is employed. Except as to the two (2) FTEs described in
Section 6(f), LanVision agrees that none of its employees shall individually
perform more than an aggregate of 1,500 hours of services under this Agreement
during any consecutive twelve month period.
(h) SMS is an Equal Employment Opportunity and Affirmative Action
(EEO/AA) employer and adheres to Executive Order 11246 and its accompanying
regulations. SMS' EEO/AA commitments extend to its hiring and staffing practices
and all conditions of employment, including, working conditions, benefits and
privileges of employment, compensation, training, promotions, transfers, and
termination of employment (including layoffs and recalls) for all employees.
This policy is carried out without regard to race, color, religion, national
origin, sex, age, veteran status, disability, or any other condition which is
deemed to be unlawfully discriminatory under applicable state or federal law.
(i) SMS acknowledges that the laws and regulations of the United States
restrict the export and re-export of commodities and technical data of United
States origin. SMS agrees that it will not export or re-export the Software in
any form, without appropriate United States and foreign governmental licenses,
if any. In exercising its rights and performing its obligations under this
Agreement, SMS will comply with all applicable international, national, and
local laws and regulations. SMS agrees that its obligations pursuant to this
Section shall survive and continue after any termination or expiration of rights
under this Agreement.
(j) All notices shall be deemed received on the date of receipt and
shall be delivered by overnight express or facsimile (with confirmation sent via
U.S. mail by the next business day) as follows:
If to SMS: If to LanVision:
Chief Financial Officer Chief Operating Officer
Shared Medical Systems Corp. LanVision, Inc.
51 Valley Stream Parkway One Financial Way, Suite 400
Malvern, PA 19355 Cincinnati, OH 45242
FAX: 610-219-3124 FAX: 513-794-7272
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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with a copy to:
General Counsel, LanVision, Inc.,
at
the same address/fax.
IN WITNESS WHEREOF, and intending to be legally bound, SMS and
LanVision have executed this Agreement as of the day and year first written
above.
Executed on behalf of Executed on behalf of
SHARED MEDICAL SYSTEMS LANVISION SYSTEMS, INC.
CORPORATION
By: /s/ MAYNARD HONESTY By: /s/ J. BRIAN PATSY
-------------------- ----------------------
Name: Maynard Honesty Name: J. Brian Patsy
Title: VP, Purchasing Title: President & CEO
LANVISION, INC.
By: /s/ J. BRIAN PATSY
-------------------
Name: J. Brian Patsy
Title: President & CEO
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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Exhibit A
Deliverables
1. The Deliverables existing on the date of this Agreement are as follows:
(a) Software. The Software shall be defined as the modules listed
below, the Initial Software Changes, Documentation, and installation manual, all
as described in the Technical Materials and Documentation existing as of the
date of this Agreement, and regardless of product name. Also included are all
Software programming changes, Updates, Releases, Versions, streams of
enhancement, and developed by or on behalf of LanVision, regardless of the
product name, and updates to the Documentation.
Modules include:
ChartVision Version 3.xx
ChartVision Version 4.xx*
OnLine Chart Completion (OCC)
Correspondence
WebView**
Other Modules
ScanHi
ScanLo
BarCode
Cache
Print/FAX
Document Capture System***
*[confidential]
**[confidential]
***[confidential]
(b) Technical Materials.
o Functional Specifications
o Data flow diagrams
o File layouts
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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(c) Documentation.
User Manuals for:
ChartVision
OnLine Chart Completion (OCC)
Correspondence
WebView
Other Modules
ScanHi
ScanLo
BarCode
Cache
Print/FAX
Document Capture System
LanVision will also provide its then-current Software implementation
and training manuals to SMS.
2. The following trademark, servicemark, or other proprietary notices shall be
displayed, in the following form and manner, in documentation for SMS products
that include the Software:
(C) 199X LANVISION, INC.
ALL RIGHTS RESERVED
This material contains proprietary and confidential information and is
protected by copyright and trade secret laws. Unauthorized
reproduction, distribution, or transfer of this material, or any
portion of it, is strictly prohibited and may result in civil and
criminal penalties. Known violators will be prosecuted to the maximum
extent possible under the law.
The following are trademarks or registered trademarks of LanVision,
Inc.: AccountVision(), ChartVision(), Document Capture System(),
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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Enterprisewide Correspondence(), LanVision(), (), MultiView(),
OmniVision(), On-Line Chart Completion(), VisionFlow() and WebView().
All other trademarks are trademarks or registered trademarks of their
respective companies.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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Exhibit B
Initial Software Changes
Description
1. Modify the modules of the Software as appropriate to
[confidential]
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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Exhibit C
Configuration
The following configuration (including the third party software listed
below) is required to operate the Software as of the date of this Agreement.
LanVision shall promptly update this Exhibit as required to reflect the addition
of new items of Software and new Software programming changes, Releases and
Versions.
1. End User to License
[confidential]
2. LanVision shall provide hardware configurations upon SMS' request.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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Exhibit D
SMS Support Program
SMS will provide a program of support for the SMS Applications and
Custom Programming listed in the Supplements under the following terms and
conditions. This Support Program shall become effective on the date of this
Agreement and shall remain in force throughout the applicable Warranty Period
for each Application and item of Custom Programming, and thereafter during the
term of support for same as specified in its Supplement.
1. SMS SUPPORT RESPONSIBILITIES. SMS shall have the following support
responsibilities:
1.1 Correct, at no additional charge, failure of the Applications and
SMS' Architectural Software (if any) to perform substantially in accordance with
the Documentation. Correct, at no additional charge, failure of items of Custom
Programming, for which Customer is paying for support, to perform substantially
in accordance with its Specification. Time spent on warranty and non-warranty
support activities will be calculated in minimum time increments of one-half
(1/2) hour.
1.2 Provide Customer for eighteen (18) months from the date of this
Agreement with a monthly allowance of eight (8) hours of remote non-warranty
telephone support at no additional charge. The monthly allowance may be used for
assistance and advice on the operation and functions of the Applications, for
help with diagnostics and other problem determination procedures, and for advice
and assistance in problem situations. Any unused portion of this monthly
allowance cannot be carried forward to subsequent months. After the initial
eighteen (18) months Customer's non-warranty support usage and monthly allowance
will be reviewed as part of the annual review, outlined in subsection 1.6 of
this Exhibit.
1.3 Initiate work on urgent issues within one hour of Customer's
request for assistance to the Customer Support Center ("CSC"), 24 hours per day
and 7 days per week. Generally, urgent issues would be those involving
substantial Application failure or those which, in Customer's reasonable
judgment, are critical to Customer's overall operation. SMS will initiate work
on non-urgent issues, including the correction of non-urgent software problems,
during Customer's normal business hours from SMS' Corporate offices or the local
SMS office, either on a remote basis or on-site, as is most effective and
efficient.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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1.4 Provide a record in SMS' events tracking system ("EVTS") of
requests received at the CSC from an employee or other representative of
Customer including a description of the request, the time spent and the actions
performed in satisfying the request, and the resolution of the request. When
made available by SMS, Customer may, at its option, access this information to
review the support effort being performed at Customer's request and the status
of work in process. Prior to availability, SMS shall make available to Customer
information on such access capability.
1.5 For Applications and Architectural Software provided via remote
computing services and/or on a term licensed basis under this Agreement, SMS
shall provide periodic Updates, Releases and Versions (if applicable) to the
standard SMS Application and Architectural Software functions and Documentation
of these items at no additional charge. For Applications and Architectural
Software provided under a perpetual license under this Agreement, SMS shall
provide periodic Updates and Releases to the standard Application and
Architectural Software functions and Documentation of these items at no
additional software charge. New Versions (if applicable) of previously-delivered
perpetual-licensed Application and Architectural Software will be charged at
SMS' then-current rates for those Applications and Architectural Software
receiving standard support services; and for no additional software charge for
those Applications and Architectural Software indicated in a Supplement as
receiving extended support services.
1.6 Meet annually with Customer's management staff to: (i) jointly
develop an annual support schedule, (ii) evaluate support performance, and (iii)
review Customer's utilization of the System . The annual support schedule will
state which support services will be provided at no additional charge and which
will be provided for an additional fee.
1.7 Provide Customer with all generally applicable federally-mandated
regulatory changes and state-mandated billing changes. Federally-mandated
programming changes to the payroll and accounts payable Applications and to the
case mix groupers/schemes will be provided at no additional charge. SMS'
charges, if any, for other generally applicable federally-mandated programming
changes or state-mandated billing changes are contingent on the scope of such
changes and are set on a multi-customer/fair-share basis for programming.
Changes will be provided to Customer when made generally available to SMS'
customers.
1.8 Provide Customer with an allowance of thirty-two (32) hours of
local SMS education during the first twelve (12) months of the term. Thereafter,
the annual education allowance will continue to be thirty-two (32) hours or as
otherwise mutually agreed in the annual support schedule as outlined in
subsection 1.6 of this Exhibit.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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2. CUSTOMER SUPPORT RESPONSIBILITIES. Customer shall have the following support
responsibilities:
2.1 Ensure the appropriate Customer personnel have been trained in
the operation, support, and management of the System.
2.2 Appoint an SMS system support coordinator, a LAN administrator,
establish a central help desk, and, if applicable, a departmental help desk for
the effective support and operation of the Applications and to ensure that
Customer's support responsibilities are performed.
2.3 Cause Customer help desk personnel to report and close, upon
resolution, all support issues electronically, or, if an electronic means is
unavailable, via telephone. Upon resolution, Customer, at its option, may
indicate a satisfaction value to assist SMS and Customer in evaluating the
support process.
2.4 Provide SMS with both on-site access to each Facility and remote
access to the System through the SMS-approved support network which Customer
shall be responsible for acquiring and maintaining, as described in Schedule 1,
as updated by SMS.
2.5 If required by SMS, maintain a support testing environment,
configured with the Application(s) and such SMS-recommended Equipment and
non-SMS software as specified in Schedule 1.
2.6 Maintain up-to-date Documentation, and, for the System located at
the Facility, be solely responsible for maintaining all necessary backup,
recovery and required system operating procedures as specified in the
Documentation.
2.7 Complete proper problem determination procedures, as specified in
the Documentation and SMS' electronic bulletin board services, before contacting
SMS and then perform problem diagnostic activities and remedial actions, as
reasonably requested by SMS, and procedures specified by the third party
software and Equipment suppliers. Remedial diagnostic actions that SMS may
require may include Customer installation of generally available Updates,
Releases and required Versions (if applicable).
2.8 Implement Updates within sixty (60) calendar days, Releases
within six (6) months and Versions with eighteen (18) months after the item's
general availability, unless a delay is
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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mutually agreed upon by the parties, or unless SMS announces extensions to these
implementation time frames at the time of general availability.
2.9 Obtain at Customer expense all additional equipment, latest level
of Third-Party Software as designated by SMS, and professional services required
in response to federal and state regulatory change, or relating to Updates,
Releases, Versions, Custom Programming or optional net new function obtained by
Customer, or as required by Third Party Software LanVision requirements.
2.10 Remain on the latest release and/or version of all third party
software as designated by SMS and obtain support for all third party software
from the respective LanVision or support provider.
3. MONTHLY SUPPORT FEES. Customer will pay the Monthly Support Fees, if any, for
the items listed in the Supplements for which a Monthly Support Fee is indicated
(generally these will be perpetual licensed Applications, certain term-licensed
Applications, and items of Custom Programming), commencing upon the first of the
month immediately following the expiration of the initial Warranty Period of
each item. For Applications or Custom Programming already installed, the Monthly
Support Fee shall commence on the date of this Agreement. Other charges, if any,
shall be invoiced separately. SMS may increase the Monthly Support Fee once in
any twelve (12) month period, upon thirty (30) days' written notice, by the
previous calendar year's percentage increase in the United States Department of
Labor Consumer Price Index, All Urban Consumers ("CPI"); however, no such
adjustment shall be made in the first twelve (12) months following the date of
this Agreement. The Monthly Support Fee, if any, for Custom Programming
requested by Customer shall be quoted at the time of mutual agreement to the
Specification.
4. MISCELLANEOUS.
4.1 If the parties objectively determine a problem is not covered by
the warranty provisions of this Agreement, or if Customer elects not to perform
the Customer's responsibilities, or if a problem exists
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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in Customer-created Adaptations, any support efforts made by SMS may result in
additional charges which shall be pursuant to SMS' then-current rates and terms.
4.2 Telecommunication services, remote programming support
connections charges, installation by SMS of Updates, Releases or Versions,
charges for non-warranty support in excess of Customer's monthly allowance,
travel and living expenses and other expenses associated with support provided
by SMS shall be paid by Customer pursuant to SMS' then-current rates and terms.
5. DEFINED TERMS.
5.1 "Applications" shall mean all of the computer software listed as
Applications in the Supplements, exclusive of Adaptations, Modifications, and
Custom Programming, if any. [For purposes of the SMS-LanVision agreement, all
references to "Applications" shall mean "Software" as relating to LanVision's
obligation to provide support services to SMS.]
5.2 "System" shall mean, collectively, the Applications,
Architectural Software, Equipment, and Operating System Software as specified in
a Supplement and its associated Schedule 1.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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Exhibit E
End User License Provisions
Reproduced below are standard SMS confidentiality and license
provisions as of the date of this Agreement. SMS will license the Software to
End Users pursuant to software licensing terms and conditions that include
provisions similar to the following. SMS reserves the right to update these
provisions to be consistent with SMS' then-current license terms and conditions
that apply generally to its own software.
GRANT OF LICENSE.
1. SMS grants to Customer a license to use one (1) copy of object code
for each perpetual-licensed Application and term-licensed Application during the
associated term and their related Deliverables to be operated at one Customer
data processing location by Customer's employees for the sole purpose of
processing data of the Facilities. Each license granted herein shall be either
perpetual or for a term, as indicated in the corresponding Supplement.
Notwithstanding the one-copy license indicated above, where an Application is
indicated as being licensed for specific number of installed workstations or
servers, as applicable, such number indicates the maximum number of workstations
or servers on which such Application may be installed. Where an Application is
indicated as being licensed for a specific number of concurrent users, such
number indicates the maximum number of users permitted to use such Application
concurrently and such Applications may contain embedded software controls
limiting user log on to the number of concurrent users licensed. For
Applications which by their nature are PC-based, if no restriction for
concurrent users or workstations or servers is indicated, then Customer may make
whatever number of copies of such Applications as is reasonable and necessary.
2. Customer may make a reasonable number of backup copies (not to be
concurrently used for active data processing) of each Application to be used
solely for backup, emergency and/or testing purposes at the Customer location.
Customer shall not disassemble, decompile, or otherwise reverse-engineer any of
the Deliverables. Customer shall be responsible for the compliance with this
Agreement by all of Customer's users granted access hereunder. Customer shall
not transfer its license nor sublicense the Deliverables, except that this
Agreement may be assigned by Customer pursuant to the assignment provisions of
this Agreement.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
3. The Architectural Software provides Customer with flexibility and
control over Adaptations. Adaptations shall be made in a reasonable manner. With
regard to Adaptations, SMS and Customer shall work together to identify
efficiency issues which may be improved by changes to Customer's operational
procedures, screen logic, pathways, data base access, etc.
4. SMS or its suppliers shall have the exclusive title to, copyright
and trade secret right in, and the right to grant additional licenses to, the
Applications and related Deliverables. Customer shall not remove or permit to be
removed from any of the Deliverables (and shall include on any copies or partial
copies thereof) any identifying mark or indicia of SMS' or other suppliers'
rights in such item. If SMS incorporates the programs of any other suppliers in
the Applications, those suppliers shall be entitled to the benefit of the
obligations incurred by Customer in this Section and in the Confidentiality
Section. Third Party Software provided by SMS may have license restrictions on
the number of concurrent users and other qualifying terms and conditions. With
respect to certain Third Party Software, where applicable, SMS shall hereby pass
through to Customer the associated Third Party Software vendor's required
license terms and conditions, as shall be indicated either in Schedule 1 or in
another appropriate part of this Agreement, as applicable.
5. Schedule 1 contains the sizing and capacity assumptions and the
Equipment and software configuration for the Facility. The configuration is
based on, and limited to, use of the Version of the Applications listed in
Schedule 1 within the operating context described in the Assumptions.
. CONFIDENTIALITY.
1. Each party shall retain in strict confidence the terms and
conditions of this Agreement and all information and data relating to the other
party's business, patients, employees, development plans, programs,
documentation, techniques, trade secrets, systems, and know-how, and shall not,
unless otherwise required by law, disclose such information to any third party
without the other's prior written consent. Upon SMS' request, Customer shall
inform SMS in writing of the number and location of the original and all copies
of each of the Deliverables.
2. For ISC-based Applications, SMS shall have the right to compile and
distribute statistical analyses and reports utilizing aggregated data derived
from information and data obtained from Customer, other SMS customers, and other
sources, and for in-house Applications, Customer agrees to provide SMS with
tapes on a semi-annual basis which contain the required information and data.
Such reports and analyses shall be appropriately redacted and shall not
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
identify Customer or any physician, employee, member of the medical staff or
patient of Customer.
3. Customer shall have the right to disclose the Deliverables and other
SMS information to Customer's employees, consultants, and agents on a
need-to-know basis, provided that: (a) all such consultants and agents have
entered into a confidentiality agreement with SMS in the form attached hereto as
Exhibit D or other such agreement with SMS prior to such disclosure; (b)
consultants and agents shall not access either the Implementation Methodology
(used for development of Implementation Workplans) or the Builder's Edge
development tools (an item of Architectural Software) without first entering
into a corresponding license agreement with SMS; and (c) requests by Customer
for SMS to permit a third party to operate the Applications on Customer's behalf
and/or requests to permit any competitors of SMS to have access to the
Deliverables must receive separate prior written approval from SMS.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
Exhibit F
Subcontracted Services
1. Generally. From time to time, SMS may wish to engage LanVision to perform
implementation services (an "Engagement"). This Exhibit shall generally govern
the relationship between SMS and LanVision regarding such Engagements. The
particulars of such Engagements, such as the identity of the End User for whom
the services are to be performed, the location of the Engagement, the
description of the precise nature of the services to be performed, scheduling
matters, the identification of project leaders, etc., shall be set forth in a
written Engagement Letter which specifically refers to this Exhibit and which is
signed by both parties. The Engagement can be extended by SMS within 20 days
prior to its termination. If any provision in an Engagement Letter is
inconsistent with any provision in this Exhibit, the former shall govern. SMS
grants to LanVision a non-transferable, non-exclusive limited license to use
Confidential Information (as hereinafter defined) certain SMS' software licensed
to the End User, Documentation and other Deliverables solely for the purpose of
assisting an End User identified in an Engagement Letter and solely for the
purpose and duration of such engagement as set forth in the Engagement Letter
and for no other purpose. SMS shall offer LanVision access to training in
certain courses, at SMS' then-current rates, to install SMS applications
software/systems in SMS' End User's facilities according to SMS' policies,
reporting guidelines and SMS' proprietary methodologies and protocols. SMS shall
be responsible for implementation project management which includes, but is not
limited to, implementation workplan task definition, task assignment and
scheduling, staff utilization, and the development, implementation and
enforcement of all policies and procedures necessary to accomplish the
implementation tasks in a timely and efficient manner. SMS shall be solely
responsible for the billing of End Users for all implementation tasks in
accordance with the application software/system agreement between SMS and SMS'
End User. All services provided by LanVision employees under this Exhibit shall
be performed in a competent and workmanlike manner.
2. Amounts Payable By SMS To LanVision. LanVision shall submit to SMS, on a
monthly basis, one invoice detailing: the hours and reasonably incurred expenses
spent each week by each of its employees performing services described in
Section 1 of this Exhibit and in an Engagement Letter. Such invoice must be
submitted within thirty days from the end of the month in which the services
were rendered and will include a copy of the LanVision expense report. LanVision
shall also submit on a monthly basis, a SMS expense report detailing all
Professional Service time provided and reasonable expenses incurred. Such report
must be submitted within seven days from the end of the week in which such
services were rendered. SMS shall pay the rates set forth in Exhibit I for
services performed by LanVision employees, and shall pay the reasonably incurred
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
expenses of such LanVision employees in accordance with the travel and living
reimbursement policy, as described in Exhibit J. The rates described in the
preceding sentence shall be effective for all new Engagements commencing after
the effective date hereof. SMS shall pay the amount invoiced by LanVision within
thirty (30) days from the date of receipt of an invoice, subject to its right to
withhold payment of any portion of an invoice that is the subject of a good
faith dispute.
3. Relation Of The Parties. LanVision is an independent consulting firm and all
LanVision employees performing work pursuant to this Exhibit shall remain
employees solely of LanVision and shall not be considered employees of SMS for
any purpose. LanVision acknowledges that its employees will be performing work
for the benefit of SMS' End Users and that LanVision is responsible for the
performance of the work performed by its employees. LanVision shall remain
responsible for payment of all wages and/or salaries and benefits due such
employees, and for all applicable federal, state and local tax liabilities
arising from its employees' work performed pursuant to this Exhibit.
4. Proprietary Rights. LanVision hereby assigns to SMS, without further
consideration, sole right, title and interest in and to all programming, code,
documentation and other written product, methodologies, processes, training
materials, inventions, software, ideas and other information and work product
(collectively, "Work") developed or generated by or on behalf of LanVision
during the course of its and any of its subcontractors' performance under this
Exhibit, including any and all patents, copyrights, trade secrets and other
proprietary rights related thereto. All Work shall be deemed " Work for Hire"
within the meaning of the Copyright Act of 1976, as amended. LanVision agrees to
execute and deliver, or cause to be executed and delivered, all documents and
instruments requested by SMS to evidence the foregoing assignment. LanVision
represents and warrants that its performance under this Exhibit and ownership or
use of the Work by SMS will not constitute an infringement of any third party
proprietary right. Any trade secrets conveyed to SMS by LanVision shall be
treated as "Confidential Information" as defined in Section 6 hereof. LanVision
may offer usage of LanVision's work product developed outside the scope of this
Exhibit which is not derivative of SMS intellectual property without impairment
of LanVision's right of sole ownership of such work product, so long as
LanVision makes no improper use of Confidential Information
5. Term. The term of this Exhibit shall be coterminous with the term of the
Agreement; provided that SMS shall be entitled to terminate any Engagement
immediately upon any breach by LanVision of Sections 1, 4 or 6 of this Exhibit.
Both parties shall make all reasonable efforts to cooperate in the timely
completion of any Engagements that remain pending at the termination of the
Agreement.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
SMS shall be entitled to replace the LanVision consultant or terminate an
Engagement if in SMS and/or its End User's reasonable opinion, the consultant's
work is unsatisfactory or his or her conduct is inappropriate. The parties shall
make all reasonable efforts to resolve any staffing issues in such a way as to
avoid adverse customer impact. Sections 4, 6, 7 and 8 shall survive any
termination of the Agreement.
6. Confidentiality. The confidentiality provisions in Section 9 of the Agreement
apply fully to all Engagements.
7. Activities Outside This Exhibit. The parties recognize that LanVision has
been, and is, in the business of providing services to its healthcare industry
customers. Except as expressly provided herein, it is understood and agreed
that: (i) services provided by LanVision to SMS are provided on a non-exclusive
basis and that LanVision retains the right to continue to provide the same type
of services, and any other services, to any other of its customers, including
competitors of SMS; (ii) LanVision retains the right to carry on and expand its
business including without limitation, that part of its business involved with
the installation and implementation of software systems that are similar to or
in competition with those of SMS, for LanVision's present and future customers:
(iii) during the term of an Engagement and for a period of one year after phase
1 of an implementation (as defined below), LanVision will not provide or solicit
to provide to a SMS customer when LanVision has been placed in an Engagement any
direct services that LanVision could provide under this Exhibit, nor will
LanVision respond to or solicit an SMS customer once SMS has identified that
customer to LanVision as having requested services from SMS and customer has not
previously contacted LanVision for this particular resource request prior to
such customer being identified by SMS to LanVision. Notwithstanding the
foregoing, LanVision shall be free to provide such services to its then-existing
customers. For purposes of this Section 6(c), "phase 1 of an implementation"
shall mean the date of first productive use of the particular set of SMS
software applications, as defined in the Workplan. Nothing in this Exhibit shall
be deemed in any way to prevent, restrict or limit LanVision in providing
installation and implementation of software systems that are similar to or in
competition with those of SMS provided that Confidential Information is not used
in connection with such activities.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
Exhibit G
Entities Being Actively Marketed to by LanVision
[confidential]
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
Exhibit H
Royalties
(a) Initial Base Fees. SMS shall pay to LanVision a royalty equal to
[confidential] of the Base Fee. The Initial Base Fees as of the
date of this Agreement are as follows:
(i) Named User Fees
[confidential]
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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\ CONFIDENTIAL
(i) Concurrent User Fees
Concurrent, or Simultaneous Logged-on User, fees are based upon the
number of simultaneous users rather than the number of workstations
on which the software is installed. The cost of Concurrent
Sublicenses is calculated as follows:
o Concurrent Server Sublicense Fees - these are calculated using
the server fees listed in Section (i) of this Exhibit for the
number of clients that equals the number of concurrent users.
Example: the ChartVision concurrent server license fee for
[confidential] concurrent users would be [confidential].
o Concurrent Client Sublicense Fees - these are calculated by
multiplying the number of concurrent users times the per
workstation client fee (listed in Section (i) of this Exhibit)
multiplied by [confidential].
Example: The ChartVision concurrent client license fee for
[confidential] concurrent users would be [confidential]
(b) Adjustments to the Base Fee. As part of the activities of the
Executive Team, the parties agree to adjust the Base Fee of each Software module
identified in Exhibit A used for calculating royalties due to LanVision on an
annual basis throughout the term of this Agreement, with the new Base Fees
becoming effective on April 1 of each year. The first such adjustment shall
occur March 31, 1998, and adjustments shall be made annually thereafter. The
Software module license fees and related third party software components
reflected in license agreements (fees per concurrent and or named user, per
Software module) executed between LanVision and its Software shall be the basis
for adjusting the Base Fee. The license fees for non-embedded third party
("TPS") components of the Software (as identified in Exhibit C) used in this
calculation shall be the greater of [confidential].
Examples:
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
[confidential]
The Base Fee for each Software module will be adjusted based on the
previous 12 month period, not to exceed [confidential] per adjustment (increase
or decrease) based on a calculation that is the average of the contracts
accounted for in the Base Fee measurement period as follows:
Base Fee Adjustment Calculation - For purposes of calculating
the Base Fee, [confidential]. The average discount/premium factor for the
remaining contracts will be used to adjust the Base fee. For example:
[confidential]
Additional Base Fee Adjustment Considerations.
(i) In the event that a Base Fee adjustment results in an
increase in the Base Fee of any Software module, price proposals previously
disseminated by SMS shall be price protected for [confidential] from the date
the Base Fee increase becomes effective.
(ii) In the event LanVision licenses the Software other than
on a concurrent and/or named user fee basis, the Executive Team shall be
responsible for determining the effect of such pricing on Base Fee adjustments.
(iii) In the event new Versions are introduced, the Executive
Team shall determine the initial Base Fee and any special criteria, if any, for
adjustment of that Base Fee. It is agreed that the Base Fee for any such new
Version shall be reviewed and adjusted on April 1 following the introduction of
the new Version and annually thereafter.
(iv) Fees used to calculate adjustments to the Base Fee shall
be exclusive of installation, delivery, support, hardware, training, consulting,
professional services, and any other non-Software fees. For example, if
LanVision licenses the Software and the fee includes installation and support,
the installation and support components shall be deducted and the net fee shall
be used for calculating Base Fee adjustments.
(c) LanVision shall provide to SMS semi-annual Software Sales reports,
due no later than 30 days following the close of the semi-annual period,
indicating all contracts executed by or on behalf of LanVision for the Software
during the previous six (6) months, including at a minimum, the number of
concurrent and/or named users licensed, the Software modules licensed, and the
dollar amount per concurrent and/or named user charged for each Software module
and
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
non-embedded third-party software components. The parties agree to work through
the Executive Team to define a common reporting format to facilitate this
reporting process.
(d) [confidential]
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
Exhibit I
Professional Service Rates
The Professional Service hourly rates for LanVision are:
Operational Consultant [confidential]
Technical Consultant [confidential]
Engagement Manager [confidential]
Database Administrator [confidential]
Installation Consultant [confidential]
Technical Account Manager [confidential]
Technical Account Specialist [confidential]
Field Engineer [confidential]
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
Exhibit J
Summary of SMS' Travel and Living Policies
The following is a summary of the principal provisions of SMS' present
policy for employee reimbursement for United States travel and living expenses.
SMS passes these charges through to Customer.
1. Commercial Air Fare. Coach class, except business class is
reimbursable on coast-to-coast flights if it is not more than twenty percent
(20%) more expensive than coach class.
2. Car Rental. Compact car (unless the number of people being
transported requires a larger car) from a car rental firm that provides SMS
special reduced rates.
3. Use of Personal Automobile. At a rate of $.31 per mile plus tolls
for the United States, except Puerto Rico which is reimbursed at the rate of
$.34 per mile plus tolls.
4. Other Commercial Travel. Coach class for trains and buses. Airport
vans are to be used in preference to taxi cabs for travel to and from airports
where practical.
5. Parking. The maximum amount which is reimbursable for parking at any
airport or train station is the standard per-day rate for remote parking.
6. Lodging. Lowest-priced, satisfactory accommodation. The use of
hotels which provide SMS special reduced rates is encouraged.
7. Meals. An allowance for breakfast and dinner only Monday through
Friday and additionally for lunch on weekends. The rates for these allowances
are as follows:
Alaska, Chicago, Hawaii, Los Angles,
New York City Vicinity, Puerto Rico, San All Other
Meal Francisco, Washington, D.C. Locations
Breakfast $ 8.00 $ 6.00
Lunch $ 5.00 $ 5.00
Dinner $24.00 $21.00
Receipts are required for commercial travel, car rental, parking, and
lodging.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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CONFIDENTIAL
Where SMS employees visit more than one client on the same trip, the
expenses incurred are apportioned in relation to time spent with each client.
SMS' policy for employee reimbursement may be changed by SMS from
time to time to reflect changes in economic and business factors.
Note: Portions marked "[confidential]" have been omitted for reasons of
confidentiality and have been filed separately with the U.S. Securities and
Exchange Commission pursuant to Rule 24b-2.
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Exhibit 11.1
LANVISION SYSTEMS, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Fiscal Year
--------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
Net (loss) $ (12,669,451) $ (4,668,540) $ (326,229)
================= ================= =================
Average shares outstanding 8,827,478 8,283,761 4,488,000
Stock options:
Total options - - 586,858
Assumed treasury stock buyback - - (380,533)
Convertible redeemable preferred
stock assumed converted - - 1,496,000
================= ================= =================
Number of shares used in per
common share computation 8,827,478 8,283,761 6,190,325
================= ================= =================
Basic net (loss) per share of common stock $ (1.44) $ (.56) $ (.05)
================= ================= =================
Diluted net (loss) per share of common stock $ (1.44) $ (.56) $ (.05)
================= ================= =================
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Exhibit 13.1
LANVISION SYSTEMS, INC.
ANNUAL REPORT TO STOCKHOLDERS
LanVision Systems, Inc.
1997 Annual Report
[Art work - photograph of workstation with photo - montage of
healthcare images]
[Company Logo]
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PAGE 1
Table of Contents
- -----------------------------------------------------
Letter to Stockholders..............................2
Products............................................3
Selected Financial Data.............................7
Management's Discussion and Analysis................8
Report of Management...............................14
Report of Independent Auditors.....................14
Financial Statements...............................15
Notes to Financial Statements......................18
Directors and Officers.............................26
Corporate Information..............................26
Stock Prices
- -------------------------------------------------------
HIGH LOW CLOSE
---- --- -----
1st Quarter $ 8.00 $ 3.37 $ 4.50
2nd Quarter 6.75 4.50 5.25
3rd Quarter 8.00 4.62 6.03
4th Quarter 6.75 4.25 4.62
The Company has not paid a dividend on its Common Stock since its inception and
does not intend to pay any cash dividends in the foreseeable future.
Corporate Profile
- --------------------------------------------------------------------------------
In today's dynamic healthcare environment, hospitals and integrated delivery
systems are continually struggling to increase the quality and level of care
while reducing their overall costs. However, many healthcare executives claim
that the lack of ready access to health information by those who need it remains
the foremost hurdle to achieving these goals.
LanVision was founded in 1989 with the sole purpose of helping hospitals and
integrated healthcare delivery systems solve their information access and
document management problems through advanced document imaging/management and
workflow technologies.
LanVision is a leading provider of Healthcare Information Access Systems that
enable hospitals and integrated healthcare networks to capture, store, manage,
route, retrieve and access vast amounts of clinical and financial patient
information through use of a private Intranet or the World Wide Web, the lowest
cost network infrastructure, for truly enterprisewide secure access. Unlike
other systems that have limited usage at the point of patient care, LanVision's
systems are used intensively by a variety of users. As a result, LanVision's
clients, some of the largest and most respected healthcare provider systems in
the country, are able to manage and deliver information more effectively than
its competitors.
LanVision has established itself as a national leader in information systems
integration. LanVision's professional staff members are committed to quality and
have the necessary strategic and technical expertise to develop and deliver the
information systems that today's healthcare providers need.
[LOGO]
LanVision(TM)
Healthcare Information Access Systems
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PAGE 2
LETTER TO STOCKHOLDERS
- --------------------------------------------------------------------------------
Dear Stockholder:
Fiscal 1997 was a very difficult and challenging year for LanVision. Revenues
fell well below our expectations, and the combination of significant
expenditures for product development, sales, marketing and support along with
lower revenues contributed to a net loss of $12.7 million.
In 1997, LanVision spent approximately $5.2 million in its sales and marketing
efforts. However, our direct sales force and indirect sales partners continued
to experience lengthy sales cycles, and we did not generate the expected
revenues. The shortfall in revenues occurred for a variety of reasons. First,
the market for healthcare applications using document imaging and workflow
technologies is relatively new, and the market is still in its early stages of
development. The market has moved slower than management expected, and
competition is intense. Additionally, it has been difficult for companies with
relatively small sales forces to influence buying decisions as effectively as
the largest Healthcare Information Access Systems providers, such as Shared
Medical Systems Corporation, HBO & Company, Cerner Corporation, etc.
Furthermore, healthcare organizations are assessing and implementing many new
technology solutions, and although many of these systems do not compete with the
LanVision product suites, these systems do compete for capital dollars and the
available time of information system personnel within the healthcare
organizations.
However, despite the difficulties in growing revenues this year, fiscal 1997 was
a year of significant accomplish-ments. We believe the investments in our people
and technology have created a solid foundation, and LanVision is well positioned
to significantly improve revenues and operating results in fiscal 1998 and
beyond.
In fiscal 1997, we significantly increased our spending on product Research and
Development to establish LanVision as the leader in document imaging/management
and workflow applications and to secure a sustainable competitive advantage in
the healthcare industry. The technology market changes rapidly, and only the
most robust, flexible, dependable products will survive in the healthcare
market. During the last three years, LanVision has invested more than $8.4
million in the development of its products. LanVision believes it now has the
most robust, comprehensive and dependable suite of document management products
in the marketplace.
I am pleased to announce that, on the strength of our product line and the
related investment in Research and Development in 1997, we signed eight new
agreements, including four since August, with major hospitals, including the
prestigious Memorial Sloan-Kettering Cancer Center, the Medical College of
Georgia Hospital and Clinics, Harris Methodist, Inc. and Children's Medical
Center of Dallas, TX. This compares with two new agreements signed in fiscal
1996. As a result of these new agreements, we have significantly increased our
backlog of future revenues.
During 1997, we thoroughly analyzed the market forces restraining our direct
sales efforts, and we concluded that if we don't like the way the game's played,
we need to change the rules, and that's what we did. In August, we announced the
launch of Virtual Healthware Services (VHS), a new healthcare information
service bureau division that delivers high quality, transaction-based document
imaging/management services to healthcare providers from a centralized data
center. One of the first Intranet/Internet capable, web-based service bureaus of
its kind in the healthcare industry, VHS offers an alternative to a hospital
allocating several million dollars in its budget to establish an in-house
system. VHS maintains and operates the centralized data center and customers
electronically access the medical record through web-based technology on a fee
per transaction basis. We are very excited about how positively VHS has been
received in the market place. During 1997, we signed our first two agreements
for VHS services, including The Detroit Medical Center, a group of eight
hospitals and 120 clinics, which is expected to generate revenues in excess of
$6 million over the initial three year term. We believe VHS will help many
healthcare organizations overcome the obstacles to implementing new information
systems, and this should shorten sales cycles. This will encourage more
healthcare organizations to use document imaging/management and workflow
software applications to solve their business needs.
J. William Gurley, in his article When Software Is More Than Software (Fortune
magazine December 8, 1997) said "Now the Internet is forcing software companies
to ask the question, What business are we in? The Internet blurs distinction
between such seemingly disparate business as software, content, services and
commerce. Wise software companies will embrace this trend and deliver the
solution most desired by customers. Others - the myopic ones will fall behind."
We believe this is true, and we are a pioneer in offering web-based electronic
access to the entire medical record on a fee per transaction basis. The results
of a recent study by International Data Corporation, (Healthcare Informatics
magazine February, 1998) indicates that the healthcare industry spent
approximately $2.9 billion in the United States for outsourcing information
systems operations, processing services and other Information Technology-related
operations, and the composite annual growth rate of outsourcing spending will
increase ten percent through the year 2001.
Management is highly focused on accelerating revenues and expanding the
distribution of our products. In February, 1998, LanVision took a major step
forward in improving and expanding our sales distribution as we entered into a
Remarketing Agreement with Shared Medical Systems Corporation (SMS), one of the
leading providers of information technology to the healthcare industry. In the
past 29 years, SMS has become a worldwide leader in providing comprehensive
healthcare information solutions to over 3,500 healthcare organizations in 20
countries and territories in North America and Europe. Under the terms of the
agreement, SMS will sell LanVision's highly evolved electronic medical records
imaging/management and workflow products, as an integrated component of the SMS
NOVIUS product line. Management believes this agreement will strengthen both
companies and position LanVision to be the predominant provider of document
imaging/management, workflow and other multimedia applications in the healthcare
market. The combination of the LanVision and SMS technology will allow users in
a healthcare enterprise to have immediate and simultaneous access to the
electronic patient information wherever it is located. This significant
expansion in the distribution of our products should help ensure LanVision
begins to capitalize on the market opportunities and achieve significant revenue
growth.
Although management is very disappointed in its 1997 revenues and operating
results, we are optimistic about the Company's future. We believe LanVision's
investments in new products, VHS, and our people have helped ensure the Company
is built on a solid foundation. Additionally, we believe these investments, the
significant Remarketing Agreement with SMS, and increased sales from our direct
sales force will help ensure 1998 is a year of significant revenue growth and
improved operating results.
We are thankful for your continued confidence, and look forward to the
challenge, greater opportunity and a more successful 1998.
Sincerely,
/s/ J. Brian Patsy
J. Brian Patsy
Chairman of the Board and
Chief Executive Officer
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"Not only were we up and running in five months, but with WebView, we realized
we would be able to achieve enterprisewide access within one year."
Director Health Information Management Services, Medical College of Georgia
(AccountVision Suite Icon Graphic)
LanVision Products
LanVision products are built using advanced document imaging/management and
workflow automation technology. Imaging technology makes paper-based
information, as well as medical images, sound and video information as readily
available and easy to process as traditional electronic data. Workflow
automation offers intelligent electronic routing of documents, sophisticated
management tools and reporting to increase efficiency and to support business
process re-engineering efforts.
For maximum flexibility, the LanVision family of products is made up of four
advanced software suites: the Foundation suite, the Input suite, the ChartVision
application suite, and the AccountVision application suite. Moreover, users can
choose from various viewers to support multiple implementation options, from
traditional client/server networks to Internet-based installations that take
advantage of standard web browsers and "thin clients."
Image-Enabling Technology
LanVision provides powerful image-enabling and workflow technology that allows
healthcare users to immediately and simultaneously access any patient
information - including multimedia and paper-based information - through their
existing applications. As a result, any application across the entire enterprise
can be image-enabled including the host HIS, human resources, materials
management, patient billing, CDRs and others. When the CDR is image enabled,
users can access any piece of information on the same workstation and from the
same screen display, including the point of patient care. This means users can
view traditional electronic data and images simultaneously on the same screen
without signing in and out of multiple applications.
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The Foundation Suite
As the name implies, the industrial-strength Foundation suite is the bedrock of
the LanVision product family. Built for maximum performance in a high volume
setting, this powerful suite ensures that the LanVision applications deliver in
the most demanding environments. Optimized for healthcare, the Foundation suite
also ensures ease of use and practicality in a non-technical clinical or
administrative situation.
The modules within the Foundation suite include:
Storage and Retrieval Services
Security Services
Database Services
Optical Services
Printing and Faxing Services
System Administration Services
(Input Suite Icon graphic)
The Input Suite
LanVision's Input suite software is designed to help hospitals and integrated
delivery networks enter information into the ChartVision and AccountVision
application suites from a variety of sources in the most efficient and
error-free manner. The sources of this information include paper, faxed
documents, electronic documents interfaced from any system and more.
The Input suite includes the following modules: Scanning and Indexing OCR
(optical character recognition) COLD (computer output to laser disk) with Forms
Overlay Custom Interfaces
(ChartVision Suite Icon graphic)
The ChartVision Application Suite.......a highly evolved electronic patient
record application
The ChartVision application suite provides physicians, clinicians and health
information management professionals throughout the healthcare enterprise with
immediate and simultaneous access to the complete patient record. ChartVision is
a highly evolved electronic patient record application suite that provides
streamlined processing and fast, easy access to all forms of healthcare
information regardless of the source. Unlike some systems that are cumbersome
and complex, ChartVision is so easy to use that physicians and clinicians
actually prefer it over paper.
In addition, the ChartVision application suite includes the following modules:
On-Line Chart Completion
Automates the identification of deficiencies in patient charts and
electronically routes the incomplete documents to the appropriate medical and
administrative personnel for on-line processing, completion, electronic
signature and reporting.
Enterprisewide Correspondence
Fulfills internal and external requests for information and allows for automatic
invoicing capability. It also provides the ability to electronically search for,
print, mail, or fax information to third-party requesters.
Workflow
Offers intelligent electronic routing of documents plus sophisticated management
tools and reporting capabilities to support business process re-engineering
efforts.
Registration Processing
An interactive, electronic pen-based module that allows patients to read, edit
and sign consent forms and other documents on a portable tablet device. The
forms are automatically filed in the patient's folder.
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The AccountVision Application Suite........a patient financial services
application
The AccountVision application suite enables hospitals and integrated delivery
networks to streamline their business services operations by tracking patients
from pre-admission and registration through account follow-up and final payment.
As a result, cash flow is greatly improved.
The system facilitates improved communication by providing immediate and
simultaneous access to documents thus promoting prompt response to patient and
third-party inquiries.
AccountVision's financial folder concept closely integrates patient and
non-patient documents to substantially improve productivity in a variety of
areas, including secondary billing and claims follow-up which improves cash
flow.
Utilizing the latest in Workflow and COLD technologies, the system helps clients
actively manage work in process by monitoring staff workloads, reassigning work
to avoid backlogs, and focusing work on appropriate revenue-producing tasks.
AccountVision helps clients increase productivity by automatically routing
job-specific documents based on client-defined parameters.
In addition, the AccountVision application suite includes the following modules:
Remittance Processing
Applies optical character recognition (OCR) and form processing technologies to
automatically extract payment amounts and calculate adjustments from third-party
payer remittance documents.
Registration Processing
An interactive, electronic pen-based module that allows patients to read, edit
and sign consent forms and other documents on a portable tablet device. The
forms are automatically filed in the patient's folder.
(VHS Icon Graphic)
VHS
Virtual Healthware Services
Virtual Healthware Services, a division created by LanVision, Inc., offers
healthcare providers a cost-effective solution to managing patient information.
Through its use of Intranet technology, VHS helps hospitals and integrated
delivery networks overcome the barriers of high capital and start up costs as
well as the technological burdens of implementing a document imaging/management
and workflow system.
VHS delivers document imaging/management and workflow services to its healthcare
customers from a remote data center. Hospitals and integrated delivery systems
can therefore take advantage of a private Intranet or the World Wide Web, the
lowest cost network infrastructure, for truly enterprisewide, secure access to
healthcare information.
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Virtual Healthware Services Data Center
[Photo of Data Center]
accessANYware
"VHS allows us to implement an advanced Electronic Medical Record System with
minimal capital cost in a fraction of the time previously required."
Senior Vice President and Chief Financial Officer, The Detroit Medical Center
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PAGE 7
Selected Financial Data
- --------------------------------------------------------------------------------
Fiscal Year(1)
---------------------------------------------------------------------------------
Operating Statement Data: 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share data)
Total revenues $ 8,676 $ 10,310 $ 5,019 $ 2,412 $ 3,250
Total operating expenses 22,493 16,271 5,324 3,105 3,138
Operating income (loss) (13,818) (5,961) (306) (693) 112
Net income (loss) (12,669) (4,669) (326) (572) 73
Basic and diluted net income
(loss) per share of common
stock $ (1.44) $ (.56) $ (.05) $ (.09) $ .01
Shares used in computing
per share data 8,827 8,284 6,190 6,190 6,223
Fiscal Year(1)
---------------------------------------------------------------------------------
Balance Sheet Data: 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
Cash, cash equivalents and
investment securities $ 11,052 $ 26,592 $ - $ 618 $ 137
Working capital (deficiency) 7,141 17,864 (81) 271 (26)
Total assets 22,200 33,300 3,046 1,518 769
Convertible redeemable
preferred stock - - 850 850 -
Total stockholders' equity
(deficit) 16,816 29,921 (646) (319) 253
(1) All references to a fiscal year refer to the fiscal year commencing
February 1 of that calendar year and ending January 31 of the following
year.
Certain Factors That May Affect Future Results of Operations
In addition to historical information, this Annual Report of LanVision Systems,
Inc. contains certain forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. Such statements are based on
management's current expectations and are subject to a number of factors and
uncertainties which could cause actual results to differ materially from those
described in the forward-looking statements. Such factors include, without
limitation, the risks and uncertainties discussed herein and as part of the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The Company's future development efforts involve a high degree of
risk, and the Company cautions investors that there can be no assurance that
actual results or business conditions will not differ materially from those
projected or suggested in such forward-looking statements.
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PAGE 8
Management's Discussion and Analysis
of Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Overview
LanVision is a leading provider of Healthcare Information Access Systems and
outsourced data center operations that enable hospitals and integrated
healthcare networks to capture, store, manage, route, retrieve and process vast
amounts of clinical and financial patient information. The Company's systems
deliver on-line enterprise-wide access to fully-updated patient information
which historically was maintained on a variety of media, including paper,
magnetic disk, optical disk, x-ray film, video, audio and microfilm. LanVision's
systems, which incorporate data management, document imaging/management and
workflow technologies, consolidate patient information into a single repository
and provide fast and efficient access to patient information from universal
workstations located throughout the enterprise, including the point of patient
care. The systems are specifically designed to meet the needs of physicians and
other medical and administrative personnel and can accommodate multiple users
requiring simultaneous access to patient information, thereby eliminating file
contention. By providing access to all forms of patient information, the Company
believes that its Healthcare Information Access Systems are essential components
of the computer-based patient record.
The Company's revenues are derived from: the licensing and sale of systems
comprising LanVision and third-party software and hardware components; product
support, maintenance and professional services; and service bureau operations.
Professional services include implementation and training, project management
and custom software development and currently are provided only to the Company's
customers with installed systems or who are in the process of installing
systems. Revenues from professional services, maintenance and support services,
typically are expected to increase as the number of installed systems increase.
The Company earns its highest margins on proprietary LanVision software and the
lowest margin is on third-party hardware. Systems sales to customers may include
differing configurations of software and hardware, resulting in varying margins
among contracts. The margins on professional services revenues are expected to
fluctuate based upon the negotiated terms of the agreement with each customer
and the Company's ability to fully utilize its professional services,
maintenance and support services staff. Revenues from the Company's service
bureau operations, that provide high quality, transaction-based document
imaging/management services from a central data center, are expected to commence
in the first quarter of fiscal 1998 and increase as the number of hospitals
outsource services to the Company's Virtual Healthware Services division (VHS).
Additionally, revenue from each VHS customer is expected to increase as the
volume of archived historical data increases and retrievals of data increases as
the systems are fully implemented within a healthcare facility.
Sales are made by the Company's direct sales force and through Healthcare
Information Access Systems distribution partners. In 1996, the Company entered
into a non-exclusive Remarketing Agreement with Lanier Worldwide, Inc. (Lanier).
Under the terms of the agreement, Lanier is entitled to market and distribute
ChartVision, On-Line Chart Completion and related products throughout North
America. The original agreement has expired. However, Lanier and LanVision are
negotiating a new agreement that takes into consideration the licensing rights
granted by the Company to Shared Medical Systems Corporation (SMS) (see below).
Through January 31, 1998, Lanier has licensed the Company's products to two
customers.
LanVision also maintains Joint Marketing Agreements with, among others, 3M
Health Information Systems, Daou Systems, Inc. and Olicon Imaging Systems, Inc.
To date, these marketing relationships have not contributed to the Company's
revenues. However, management expects these relationships will contribute to
revenue growth in fiscal 1998 and beyond.
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10
On February 23, 1998, the Company entered into a Remarketing Agreement with
Shared Medical Systems Corporation. Under the terms of the agreement, SMS was
granted an exclusive worldwide license to distribute ChartVision, On-Line Chart
Completion and Enterprisewide Correspondence to the SMS customer base and
prospect base, as defined in the agreement, and a non-exclusive license to
distribute all other LanVision products. If SMS distributes any other electronic
medical record product competing with LanVision's products, the Company may
terminate the SMS Remarketing Agreement.
The decision by a healthcare provider to replace, substantially modify or
upgrade its information systems is a strategic decision and often involves a
large capital commitment requiring an extended approval process. Throughout 1996
and 1997, the Company experienced extended sales cycles which adversely affected
revenues. It is common for sales cycles to take six to eighteen months from
initial contact to the execution of an agreement. As a result, the sales cycles
can cause significant variations in quarter to quarter results. These agreements
cover the entire implementation of the system and specify the implementation
schedule, which typically takes place in one or more phases. The agreements
generally provide for the licensing of the Company's proprietary software and
third-party software
PAGE 9
with a one-time perpetual license fee that is adjusted depending on the number
of workstations using the software. Third-party hardware is usually sold
outright, with a one-time fee charged for installation and training.
Site-specific customization, interfaces with existing customer systems and other
consulting services are sold on a fixed fee or a time and materials basis.
Generally, revenue from systems sales is recognized when a purchase agreement is
signed and products are shipped. Revenue recognition related to routine
installation and integration and other insignificant obligations is deferred
until the work is performed. If an agreement requires the Company to perform
services and modifications that are deemed significant to system acceptance,
revenue is recorded either on the percentage-of-completion method or revenue
related to the delivered hardware and software components is deferred until such
obligations are deemed insignificant, depending on the contractual terms.
Revenue from consulting, training and services is recognized as the services are
performed. Revenue from short-term support and maintenance agreements is
recognized ratably over the term of the agreements. Billings to customers
recorded prior to the recognition of the revenue are classified as deferred
revenues. Revenue recognized prior to progress billings to customers is recorded
as unbilled receivables.
During 1997, the Company announced the formation of the Virtual Healthware
Services (VHS) service bureau division that will deliver, starting in the first
quarter of 1998, high quality, transaction-based document imaging/management
services to healthcare providers from a centralized data center. One of the
first web-based services of its kind, VHS offers an alternative to purchasing
Healthcare Information Access Systems.
Results of Operations
The following table sets forth, for each fiscal year indicated, certain
operating data as a percentage of total revenues, the cost of systems sales as a
percentage of systems sales and the cost of service, maintenance and support as
a percentage of revenues from service, maintenance and support.
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Consolidated Statements of Operations(1)
Fiscal Year(2)
------------------------------------------------
1997 1996 1995
---- ---- ----
Systems sales 46.4% 65.5% 66.9%
Service, maintenance and support 53.6 34.5 33.1
------------- -------------- -------------
Total revenues 100.0 100.0 100.0
Cost of sales 87.4 78.0 64.8
Selling, general and administrative 107.8 64.5 29.5
Product research and development 64.0 15.3 11.8
------------- -------------- -------------
Total operating expenses 259.2 157.8 106.1
------------- -------------- -------------
Operating (loss) (159.2) (57.8) (6.1)
Other income (expense), net 13.2 12.5 (0.5)
------------- -------------- -------------
(Loss) before income taxes (146.0) (45.3) (6.6)
Income tax expense (benefit) - - (0.1)
------------- -------------- -------------
Net (loss) (146.0)% (45.3)% (6.5)%
============= ============== =============
Cost of systems sales 60.7% 61.8% 55.9%
============= ============== =============
Cost of service, maintenance and support 110.6% 108.9% 82.8%
============= ============== =============
(1) Because a significant percentage of the Company's operating costs are
expensed as incurred, a variation in the timing of systems sales and
installations and the resulting revenue recognition can cause
significant variations in operating results. As a result, period to
period comparisons may not be meaningful with respect to the past
operations of the Company nor are they necessarily indicative of the
future operations of the Company. The data in the table is presented
solely for the purpose of reflecting the relationship of various
operating elements to revenues for the periods indicated.
(2) All references to a fiscal year refer to the fiscal year of the Company
commencing on February 1 of that calendar year and ending on January 31
of the following year.
PAGE 10
Comparison of Fiscal Year 1997 with 1996
Revenues. Total revenues in fiscal year 1997 were $8,675,748 compared with
revenues of $10,310,052 in fiscal year 1996, a decrease of $1,634,304, or 16%.
Revenues from systems sales in fiscal 1997 were $4,027,707, a decrease of
$2,728,519, or 40%, over systems sales in fiscal 1996. The decrease in systems
sales is primarily attributable to less hardware and third-party software sales
for the newer installations compared with the prior year installations. The mix
of hardware, third-party software and LanVision software varies significantly
among contracts based upon the individual hospital needs, the timing of the
installations, and implementations of future phases. Revenues from service,
maintenance and support in fiscal 1997 were $4,648,041, an increase of
$1,094,215, or 31%, over fiscal 1996. Maintenance revenues in fiscal 1997 were
$2,150,770, an increase of $965,105, or 81%, over maintenance revenues in fiscal
1996. The increase in maintenance revenues in fiscal 1997 is primarily due to
new installations in 1996 and 1997 and the purchase of support services by these
customers subsequent to the warranty period. Professional services revenues in
fiscal 1997 were $2,497,271, an increase of $129,110, or 5%, over the
professional services revenues in fiscal 1996. Substantially all of the increase
came from increased project management fees. The eight new agreements signed in
fiscal 1997, contributed $4,272,118 of revenue in fiscal 1997. The remaining
system revenues for the year represent the implementation of previously signed
agreements (backlog) and from add-on sales to existing customers. In fiscal
1997, three customers accounted for 38% of the Company's total revenues. In
fiscal 1996, three customers accounted for 49% of the Company's total revenues.
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Revenues for fiscal 1996 and 1997 have been less than the Company's plan for
each year. The shortfall in revenue has occurred for a variety reasons,
including intense competition, extended sales cycles, the management attention
required to be devoted to internal operations resulting from the addition of
many new employees and several management changes. In addition, it took longer
to deliver products such as On-Line Chart Completion and Enterprisewide
Correspondence than originally anticipated. Also, the market for the Company's
products is still in the early stages of development. Hospitals and integrated
healthcare delivery networks have many new technologies to assess, and various
projects compete for capital dollars and the necessary allocation of information
system personnel to oversee the projects. Additionally, buying decisions at
certain hospitals and integrated healthcare delivery networks are influenced by
the recommendations of the largest Healthcare Information Access Systems (HIS)
vendors, including: Shared Medical Systems Corporation, HBO & Company, Cerner
Corporation, etc. Prior to the Company's agreement with SMS, the Company's
products were not actively promoted by any of the five largest HIS vendors.
Management believes the large HIS vendors, end users at hospitals and integrated
healthcare delivery networks now have a better understanding of the valuable
role document imaging/management and workflow applications play in providing a
truly computerized patient record. Additionally, as more companies demonstrate
the significant economic and operating benefits of document imaging/management
and workflow applications, management believes the future demand for the
Company's products and services will increase.
The Company's VHS service bureau has been designed to overcome obstacles in the
buying decision such as large capital commitment, length of implementation, and
the scarcity of time for healthcare information systems personnel to implement
new information systems. Through VHS, customers can access healthcare
information using web-based technology from a centralized data center on a fee
per transaction basis.
Cost of Sales. Cost of sales consists of cost of systems sales and cost of
service, maintenance and support. Cost of systems sales includes amortization of
capitalized software costs, royalties and cost of third-party software and
hardware. Cost of system sales, as a percentage of systems sales, will vary from
period to period depending on the hardware and software configuration of the
systems sold. Cost of service, maintenance and support includes salaries and
benefits for support and professional services personnel and the cost of
third-party maintenance contracts. The cost of systems sales and service,
maintenance and support, as a percentage of revenues, were substantially the
same as the prior year. The cost of systems sales reflects a lower margin on
hardware and third-party software in 1997. Customers are able to purchase
hardware and third-party software products from other vendors which result in
competitive pricing and lower margins. The service, maintenance and support
costs increased substantially in 1997, as additional customers elected to
purchase support services subsequent to the warranty period. Fiscal year 1997
expenses reflect increased average staffing levels compared with 1996 staffing
levels, additional travel and living expenses for onsite support, increases in
third party support services and increased general operating expenses of the
support department.
Selling, General and Administrative. Selling, general and administrative
expenses consist primarily of personnel and related costs, travel and living
expenses, advertising, trade shows, brochures, etc., costs for selling and
marketing activities and general corporate and administrative activities. In
fiscal 1996, selling, general and administrative expenses were $9,356,723
compared with $6,647,470 in fiscal 1996. The increase in fiscal 1997 is
primarily attributable to the full impact, in 1997, of the gradual build up in
1996 of staff and
PAGE 11
the associated occupancy, travel and living costs, etc. as the Company expanded
operations in 1996. In 1996, the Company's selling, general and administrative
average monthly employee head count approximated thirty-four employees compared
with forty-nine employees in fiscal 1997.
Product Research and Development. Product Research and Development expenses in
fiscal 1997 were $5,553,778, compared with $1,580,089 in fiscal 1996. The fiscal
1997 increase is primarily attributable to: the increase in the software
development and quality assurance staff, from an average of thirteen employees
in 1996, to an average of twenty-nine in fiscal 1997, and approximately
$2,200,000 increase in the cost of independent
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contractors for specific development projects, including ChartVision upgrades,
On-Line Chart Completion, Enterprisewide Correspondence, AccountVision Version
4.0, AV Remit, a new 32 bit core services architecture, etc. Fiscal 1997
Research and Development expenses include a one-time charge of $475,000, which
primarily represents the in process Research and Development purchased from
Optika Imaging Systems, Inc. Accordingly, the purchase of technology was
accounted for net of the write-off. The Company capitalized $396,000 and
$170,000 in product Research and Development costs in fiscal 1997 and 1996,
respectively.
Other Income (Expense), Net. Other income in fiscal 1997 consisted primarily of
interest and gains on the sale of investment securities. The decrease is due
primarily to less interest on fewer investments as securities were sold to fund
operations.
Provision for Income Taxes. The Company is in a tax (loss) carryforward
position, and is unable to recognize a tax benefit for losses because the
realization of a tax benefit for such losses is not assured. The tax (loss)
carryforward approximates $16,300,000.
Net (Loss). The Company's net (loss) in fiscal 1997 was $12,669,451, compared
with $4,668,540 in fiscal 1996. Fiscal 1997 net (loss) per share was $1.44,
compared with a net (loss) per share in fiscal 1996 of $.56. The approximately
$8 million increase in the fiscal 1997 loss compared with 1996 results primarily
from increases of approximately: $4.0 million in research and development; $2.7
in selling, general and administrative; a decrease in gross margin from systems
sales of approximately $1.2 million on lower revenues; and approximately $.3
million for other, including interest income.
Since commencing operations in 1989, the Company has, from time to time,
incurred operating losses. Although the Company achieved profitability in fiscal
years 1992 and 1993, the Company incurred a net (loss) in fiscal years 1994,
1995, 1996, and 1997. Based upon the expenses associated with current and
planned staffing levels, profitability is dependent upon increasing revenues.
There can be no assurance that the Company will be able to achieve consistent
profitability on a quarterly or annual basis nor be able to sustain or increase
its revenue growth in future periods. Management believes historical operating
results are not indicative of the future performance of the Company in the
long-term.
Backlog. At January 31, 1998, the Company has master agreements or purchase
orders, which if fully performed, would generate future revenues of
approximately $17,700,000. The related products and services are expected to be
delivered over the next two to three years. However, because implementations and
service bureau fees are dependent upon the customer's schedule or usage, the
Company is unable to predict accurately the amount of revenues in future
periods.
Impact of Year 2000. The Year 2000 issue is the result of computer programs
being written using two digits rather than four digits to define the applicable
year. Any of the Company's internal use computer programs and its software
products that are data sensitive may recognize a date using "00" as the Year
1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business activities.
Based on a preliminary assessment, the Company has determined that it will be
required to modify or replace some of its internal use software as well as
modify certain existing products so that the software will function properly
with respect to dates in the Year 2000 and thereafter. The Company presently
believes that with modifications to these products and conversions to new
internal use software, the Year 2000 issue will not pose significant operational
problems for the Company or its customers. However, if such modifications and
conversions are not made, or not completed timely, the Year 2000 issue could
have a material impact on the Company and its customers. The Company has
warranted, to certain customers, that its products will be Year 2000 compliant.
The Company has initiated formal communication with its vendors to determine the
extent to which the Company's software products are vulnerable to those third
parties' failure to correct their own Year 2000 issues. Generally, software
provided by third parties and included in the Company's systems is developed by
leading
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14
software suppliers with Year 2000 programs underway. There can be no guarantee
that the software of other companies, on which the Company's systems rely, will
be timely converted. However, management
PAGE 12
believes the Company has alternative courses of action designed to ensure
internal and customer operations are not materially affected in an adverse
manner.
The Company will utilize both internal and external resources to reprogram, or
replace and test its software products for the Year 2000 modifications. The
Company anticipates completing the Year 2000 project as soon as practical but
not later than January 1, 1999, which is prior to any anticipated impact. The
total cost of the Year 2000 project has currently not been determined, but will
be funded through existing cash resources and future operating cash flows. The
requirements for the correction of Year 2000 issues and the date on which the
Company believes it will complete the Year 2000 modifications are based on
management's best estimates which were derived utilizing numerous assumptions of
future events including the continued availability of certain resources,
third-party modification plans and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that may cause such material
differences include, but are not limited to, the availability of personnel
trained in this area, the ability to locate and collect all relevant computer
codes and similar uncertainties.
Comparison of Fiscal Year 1996 with 1995
Revenues. Total revenues in fiscal year 1996 were $10,310,052 compared with
revenues of $5,018,521 in fiscal year 1995, an increase of $5,291,531, or 105%.
Revenues from systems sales in fiscal 1996 were $6,756,226, an increase of
$3,399,066, or 101%, over systems sales in fiscal 1995. The increase in systems
sales is primarily attributable to expansion of systems at customers existing
prior to January 31, 1996, and two new customers. Revenues from service,
maintenance and support in fiscal 1996 were $3,553,826, an increase of
$1,892,465, or 114%, over fiscal 1995. Maintenance revenues in fiscal 1996 were
$1,185,665, an increase of $279,304, or 31%, over maintenance revenues in fiscal
1995. The increase in maintenance revenues in fiscal 1996 is primarily due to
billings on prior installations subsequent to the warranty period. Professional
services revenues in fiscal 1996 were $2,368,161, an increase of $1,613,161, or
214%, over the professional services revenues in fiscal 1995. Substantially all
of the increase came from the Company's fiscal 1995 client base as previously
signed agreements were implemented in fiscal 1996. The two new agreements signed
in fiscal 1996, contributed $1,423,652, or 27%, of the increase in total
revenues in fiscal 1996, as they were signed and implementation began in the
last half of the year; the remaining 73% of the increase came from
implementation of original phases, or expansion of systems at existing clients.
In fiscal 1996, three customers accounted for 49% of the Company's total
revenues. In fiscal 1995, three customers accounted for 70% of the Company's
total revenues.
Cost of Sales. The cost of systems sales increased to 61.8% from 55.9% compared
with the prior fiscal year due to the mix of fewer new customers with
traditionally higher software revenues, at higher margins, and the increase in
add-on hardware sales to existing customers at lower margins. The cost of
service, maintenance and support increased to 108.9% from 82.8%, as the Company
increased the support and professional services staff in anticipation of
expanded revenue from new customers. The Company's shortfall in obtaining new
customers contributed to higher professional service costs as a percentage of
revenues because the staff was unable to be fully utilized on billable projects,
resulting in more non-billable professional service hours. In addition, the
professional services staff was used on various internal consulting projects and
performed several special projects for customers on a complimentary basis or at
discounted rates. The new professional services staff required training and
product orientation, leaving less time available for billable hours.
Selling, General and Administrative. In fiscal 1996, selling, general and
administrative expenses were $6,647,470 compared with $1,477,401 in fiscal 1995.
The increase in fiscal 1996 is primarily attributable to: the increase in sales
and marketing personnel from eight to thirty; an increase in marketing and sales
activities including advertising, trade shows, telemarketing, brochures, etc.;
and the increase in personnel from five to twenty-one in the finance, management
information systems, quality assurance and administrative departments, necessary
to
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15
support the expanded, and future anticipated expansion of revenues. In addition,
the increase in personnel required increased office space and the related
facility costs. During the fourth quarter of fiscal 1996, the Company expensed
$250,000 related to the termination of a West Coast agent. This market is now
being covered by the Company's direct sales force and its third-party
distributors.
Product Research and Development. Product Research and Development expenses in
fiscal 1996 were $1,580,089, compared with $594,037 in fiscal 1995. The fiscal
1996 increase is primarily attributable to: increased Research and Development
staffing from five to seventeen; increased use of outside contractors; and
associated increased overhead costs, as expanded efforts were undertaken to
develop new products and enhancements to existing products. The Company
capitalized $170,000 and $123,307 in product Research and Development costs in
fiscal 1996 and 1995, respectively.
PAGE 13
Other Income (Expense), Net. Other income in fiscal 1996 consisted of interest
on investment securities, net of interest expense on indebtedness outstanding
prior to the Company's initial public offering.
Provision for Income Taxes. The Company is in a tax (loss) carryforward
position, and is unable to recognize a tax benefit for losses because the
realization of a tax benefit for such losses is not assured.
Net (Loss). The Company's net (loss) in fiscal 1996 was $4,668,540, compared
with a net (loss) in fiscal 1995 of $326,229. Fiscal 1996 net (loss) per share
was $.56, compared with a net (loss) per share in fiscal 1995 of $.05.
Liquidity and Capital Resources
Since its inception in 1989, LanVision has funded its operations, working
capital needs and capital expenditures primarily from a combination of cash
generated by revenues from operations, borrowings, a private placement of
convertible redeemable preferred stock and an initial public offering which
raised approximately $34,000,000, net of the underwriting discount and expenses,
through the issuance of 2,912,500 shares of common stock on April 18, 1996.
The Company's customers typically have been well-established hospitals or
medical facilities with good credit histories, and payments have been received
within normal time frames for the industry. Agreements with customers often
involve significant amounts, and contract terms typically require customers to
make progress payments.
The Company has no significant obligations for capital resources, other than
noncancelable operating leases in the total amount of $2,694,884, payable over
the next six years. However, the VHS service bureau operation will need to
acquire additional software and equipment as VHS adds additional hospitals and
clinics to its customer base. The centralized data center has been originally
configured to serve approximately fifty hospitals, with significant expansion
capabilities. However, for each customer, VHS establishes one or more onsite
document capture centers and provides the equipment. Each document capture
center is expected to require at least $125,000 of equipment. Also, because VHS
charges for its services on a per transaction basis, LanVision's cash flow for
capital and operating expenses will normally be greater than cash inflows until
customers begin to use the system at anticipated normal volumes for a period of
time.
In March, 1997, the Company's Board of Directors authorized management, at its
discretion, to repurchase shares of the Company's common stock of up to
$1,000,000 in value on the open market. To date, the Company has acquired 90,500
shares at a cost of $430,188.
Over the last two years, the Company's revenues have been less than the
Company's internal plan. However, during the same time period, the Company has
expended significant amounts for capital expenditures, product research and
development, sales, support and consulting expenses as the Company expanded its
operations in anticipation of significant revenue growth. This has resulted in
significant net cash outlays over the last two years. Currently, management
intends to continue to maintain its operations at an expenditure level similar
to fiscal 1997, and may expand operations in connection with increased revenue
opportunities. Accordingly, to achieve
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16
profitability, and positive cash flow, it is necessary for the Company to
increase revenues. Management believes that market opportunities are such that
the Company should be able to significantly increase its revenues. However,
there can be no assurance that the Company will be successful in increasing its
revenues. At January 31, 1998, the Company had cash and investments of
$11,052,047. Investments consist primarily of U.S. Government obligations with
maturities ranging from one month to thirty months. During 1998, management
intends to secure borrowings or other equity financing to help finance its
operating and previous and anticipated capital expenditures. Management believes
existing cash balances and investment securities, anticipated borrowings or
other equity financing and revenues from operations will be sufficient to meet
its liquidity and capital spending requirements. However, in the event revenues
do not increase or financing is not secured, management has the ability to
reduce or defer operating and capital expenditures.
To date, inflation has not had a material impact on the Company's revenues or
income.
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17
PAGE 14
Report of Management
- --------------------------------------------------------------------------------
LanVision Systems, Inc. is responsible for the preparation, integrity and fair
presentation of its published financial statements. The accompanying
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and, as such, include amounts based on
judgments and estimates made by management. Management also prepared the other
information included in this Annual Report and is responsible for its accuracy
and consistency with the consolidated financial statements.
The consolidated financial statements have been audited by the independent
accounting firm, Ernst & Young LLP, which was given unrestricted access to all
financial records and related data, including minutes of all meetings of
stockholders, the Board of Directors and committees of the Board. The Company
believes that all representations made to the independent auditors during their
audit were accurate and appropriate. Based on their audit of the consolidated
financial statements, Ernst & Young LLP has issued their audit report, which
appears below.
In meeting its responsibility for the integrity of the financial statements,
management relies on a system of internal controls. This system is designed to
provide reasonable assurance that assets are safeguarded and that transactions
are properly recorded and executed in accordance with management's
authorization. The Company continuously assesses the effectiveness of the
internal controls and makes improvements thereto as necessary.
/s/ J. Brian Patsy /s/ Thomas E. Perazzo
J. Brian Patsy Thomas E. Perazzo
Chairman of the Board and Chief Operating Officer and
Chief Executive Officer Chief Financial Officer
Report of Independent Auditors
- --------------------------------------------------------------------------------
Board of Directors
LanVision Systems, Inc.
We have audited the consolidated balance sheets of LanVision Systems, Inc. as of
January 31, 1998 and 1997, and the related consolidated statements of
operations, changes in convertible redeemable preferred stock and stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
January 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LanVision Systems,
Inc. at January 31, 1998 and 1997 and the consolidated results of its operations
and its cash flows for each of the three years in the period ended January 31,
1998 in conformity with generally accepted accounting principles.
Cincinnati, Ohio
March 12, 1998 /s/ Ernst & Young LLP
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18
PAGE 15
Consolidated Balance Sheets
ASSETS
Fiscal Year
------------------------------------
1997 1996
---- ----
Current assets:
Cash and cash equivalents $ 2,142,881 $ 664,223
Investment securities 5,074,258 16,407,270
Accounts receivable, net of allowance for doubtful
accounts of $265,000 and $205,000, respectively 2,992,987 2,934,230
Unbilled receivables 1,135,365 663,626
Other 1,179,603 572,968
-------------- ---------------
Total current assets 12,525,094 21,242,317
Property and equipment:
Computer equipment 3,876,962 1,536,513
Computer software 487,841 173,359
Office furniture, fixtures and equipment 1,424,036 962,880
Leasehold improvements 931,020 267,244
-------------- ---------------
6,719,859 2,939,996
Accumulated depreciation and amortization (1,563,202) (687,832)
-------------- ---------------
5,156,657 2,252,164
Investment securities 3,834,908 9,520,279
Capitalized software development costs, net of accumulated
amortization of $661,896 and $533,563, respectively 612,033 244,366
Other 71,430 40,519
-------------- ---------------
$ 22,200,122 $ 33,299,645
============== ===============
Liabilities, convertible redeemable preferred stock and stockholders' equity
Current liabilities:
Accounts payable $ 1,631,941 $ 1,249,337
Accrued compensation 943,221 555,235
Accrued other expenses 1,746,883 1,073,167
Deferred revenues 1,061,996 500,783
-------------- ---------------
Total current liabilities 5,384,041 3,378,522
Convertible redeemable preferred stock, $.01 par value per share,
5,000,000 shares authorized - -
Stockholders' equity:
Common stock, $.01 par value per share, 25,000,000 shares
authorized, 8,896,500 shares issued 88,965 88,965
Capital in excess of par value 35,110,817 35,110,817
Treasury stock, at cost, 90,500 shares (430,188) -
Accumulated (deficit) (18,028,716) (5,359,265)
Unrealized net gains on investment securities 75,203 80,606
-------------- ---------------
Total stockholders' equity 16,816,081 29,921,123
============== ===============
$ 22,200,122 $ 33,299,645
============== ===============
See accompanying notes.
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PAGE 16
Consolidated Statements of Operations
Fiscal Year
--------------------------------------------------------------
1997 1996 1995
---- ---- ----
Revenues:
Systems sales $ 4,027,707 $ 6,756,226 $ 3,357,160
Service, maintenance and support 4,648,041 3,553,826 1,661,361
-------------- -------------- --------------
Total revenues 8,675,748 10,310,052 5,018,521
Operating expenses:
Cost of systems sales 2,443,319 4,173,707 1,876,525
Cost of service, maintenance and support 5,139,672 3,869,636 1,376,191
Selling, general and administrative 9,356,723 6,647,470 1,477,401
Product research and development 5,553,778 1,580,089 594,037
---------------- ---------------- ----------------
Total operating expenses 22,493,492 16,270,902 5,324,154
---------------- ---------------- ----------------
Operating (loss) (13,817,744) (5,960,850) (305,633)
Other income (expense), net (including interest expense
of $79,925 and $38,301 in fiscal years 1996 and
1995, respectively) 1,148,293 1,292,310 (26,143)
---------------- ---------------- ----------------
(Loss) before income taxes (12,669,451) (4,668,540) (331,776)
Income tax expense (benefit) - - (5,547)
---------------- ---------------- ----------------
Net (loss) $ (12,669,451) $ (4,668,540) $ (326,229)
================ ================ ================
Basic net (loss) per common share $ (1.44) $ (.56) $ (.05)
================ ================ ================
Diluted net (loss) per common share $ (1.44) $ (.56) $ (.05)
================ ================ ================
Number of shares used in per common share computations 8,827,478 8,283,761 6,190,325
================ ================ ================
Consolidated Statements of Changes in Convertible Redeemable
Preferred Stock and Stockholders' Equity (Deficit)
Stockholders' Equity (Deficit)
------------------------------------------------------------------------------------
Convertible Unrealized Total
redeemable Capital in net gains on stockholders'
preferred Common excess of Treasury Accumulated investment equity
stock stock par value stock (deficit) securities (deficit)
-------------- ------------ ------------- ----------- ------------ ------------ -----------
Balances at January 31, 1995 $ 850,000 $ 45,000 $ - $ - $ (364,496) $ - $ (319,496)
Net (loss) - - - - (326,229) - (326,229)
Balances at January 31, 1996 850,000 45,000 - - (690,725) - (645,725)
----------- -------- ----------- --------- ------------ --------- -----------
Issuance of common stock - 29,005 34,275,777 - - - 34,304,782
Conversion of
preferred stock (850,000) 14,960 835,040 - - - 850,000
Unrealized net gains on
investment securities - - - - - 80,606 80,606
Net (loss) - - - - (4,668,540) - (4,668,540)
----------- -------- ---------- --------- ------------ --------- -----------
Balances at January 31, 1997 - 88,965 35,110,817 - (5,359,265) 80,606 29,921,123
Purchase of Common Stock - - - (430,188) - - (430,188)
Change in unrealized
net gains on
investment securities - - - - - (5,403) (5,403)
Net (loss) - - - - (12,669,451) - (12,669,451)
----------- -------- ----------- --------- ------------ --------- -----------
Balances at January 31, 1998 $ - $ 88,965 $35,110,817 $(430,188) $(18,028,716) $ 75,203 $16,816,081
=========== ======== =========== ========= ============ ========= ===========
See accompanying notes.
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PAGE 17
Consolidated Statements of Cash Flows
Fiscal Year
---------------------------------------------------------
1997 1996 1995
---- ---- ----
Operating activities:
Net (loss) $ (12,669,451) $ (4,668,540) $ (326,229)
Adjustments to reconcile net (loss) to net cash
(used for) operating activities:
Depreciation and amortization 1,003,703 451,452 152,697
Cash provided by (used for) assets and liabilities:
Accounts and unbilled receivables (530,496) (1,049,137) (1,989,223)
Other assets (606,635) (408,786) (119,642)
Accounts payable 382,604 64,180 718,381
Accrued expenses 1,061,702 1,417,675 169,204
Deferred revenues 561,213 (345,321) 666,796
--------------- --------------- ---------------
Net cash (used for) operating activities (10,797,360) (4,538,477) (728,016)
--------------- --------------- ---------------
Investing activities:
Purchases of investment securities (29,409,163) (42,377,849) -
Proceeds from sales of investment securities 46,422,143 16,490,387 -
Purchases of property and equipment (3,779,863) (2,444,620) (66,834)
Purchase of technology (100,000) - -
Capitalization of software development costs (396,000) (170,000) (123,307)
Other (30,911) - -
--------------- --------------- ---------------
Net cash provided by (used for) investing activities 12,706,206 (28,502,082) (190,141)
--------------- --------------- ---------------
Financing activities:
Payments on line of credit - (600,000) (426,000)
Proceeds from line of credit - - 726,000
Issuance of common stock - 34,304,782 -
Purchase of treasury stock (430,188) - -
--------------- --------------- ---------------
Net cash provided by (used for) financing activities (430,188) 33,704,782 300,000
--------------- --------------- ---------------
Increase (decrease) in cash 1,478,658 664,223 (618,157)
Cash and cash equivalents at beginning of year 664,223 - 618,157
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 2,142,881 $ 664,223 $ -
=============== =============== ===============
Supplemental cash flow disclosures:
Interest paid $ - $ 79,925 $ 36,232
=============== =============== ===============
See accompanying notes.
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PAGE 18
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies
LanVision Systems, Inc. (the "Company") is a provider of Healthcare Information
Access Systems and outsourced data center service bureau operations that enable
hospitals and integrated healthcare delivery systems in the United States to
capture, store, manage, route, retrieve and process vast amounts of clinical and
financial patient information.
Fiscal Year
All references to a fiscal year refer to the fiscal year of the Company
commencing February 1 in that calendar year and ending on January 31 of the
following year.
Consolidation
The consolidated financial statements include the accounts of LanVision Systems,
Inc. and its Subsidiary, LanVision, Inc. All significant intercompany
transactions are eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
Revenue is derived from: the licensing and sale of systems comprising internally
developed software, third-party software and hardware components; product
support, maintenance and professional services; and service bureau operations
that provide high quality, transaction-based document imaging/management
services from a central data center. The Company's revenue recognition policies
through the end of fiscal 1997, conformed to Statement of Position 91-1,
Software Revenue Recognition. Generally, revenue from software license fees and
hardware sales is recognized when a master agreement is signed and products are
shipped. Revenue related to routine installation and integration and other
insignificant obligations is deferred until the work is performed. If a contract
requires the Company to perform services and modifications that are deemed
significant to system acceptance, revenue is recorded either on the
percentage-of-completion method or revenue related to the delivered hardware and
software components is deferred until such obligations are deemed insignificant,
depending on the contractual terms. Revenue from consulting, education and
services is recognized as the services are performed. Revenue from short-term
support and maintenance agreements is recognized ratably over the term of the
agreements. Billings to customers recorded prior to the recognition of revenue
are classified as deferred revenues. Revenue recognized prior to progress
billings to customers is recorded as unbilled receivables. Effective for fiscal
1998, the Company's revenue recognition policies will conform to Statement of
Position 97-2, Software Revenue Recognition. The change in accounting policy is
not expected to have a material impact on revenue recognition.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits, overnight repurchase
agreements, money market accounts and highly liquid investments with original
maturities of three months or less. For purpose of the Consolidated
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22
Statements of Cash Flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
PAGE 19
Investment Securities
The Company accounts for its investment securities under the provisions of
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company's investment securities
are classified under Statement No. 115 as "available-for-sale," and accordingly,
are carried at fair market value. Unrealized net gains are included as a
component of stockholders' equity, net of income taxes, until realized. Interest
earned is included in other income (expense) in the Consolidated Statements of
Operations. Effective for fiscal 1998, the Company's accounting policies for
unrealized net gains, will conform to Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. The change in policy is not
expected to have a material impact on future financial statements.
Concentrations
Financial instruments which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk, consist
primarily of investment securities and accounts receivable. The Company's
investment securities consist primarily of U.S. Government obligations. The
Company's accounts receivable are concentrated in the healthcare industry.
However, the Company's customers typically have been well established hospitals
or medical facilities with good credit histories and payments have been received
within normal time frames for the industry.
To date, the Company has relied on a limited number of customers for a
substantial portion of its total revenues. The Company expects that a
significant portion of its future revenues will continue to be generated by a
limited number of customers. The failure to obtain new customers or expand sales
through distribution partners, the loss of existing customers or reduction in
revenues from existing customers could materially and adversely affect the
Company's operating results (see Note 7).
The Company currently buys all of its hardware and some major software
components of its Healthcare Information Access Systems from third-party
vendors. Although there are a limited number of vendors capable of supplying
these components, management believes that other suppliers could provide similar
components on comparable terms. A change in suppliers, however, could cause a
delay in system implementations and a possible loss of revenues, which could
adversely affect operating results.
Other Current Assets
Other current assets at January 31, 1998, are primarily: prepaid insurance,
commissions and maintenance, deposits and prepaid expenses related to future
revenues. At January 31, 1997, other current assets consisted primarily of
prepaid insurance, and prepaid expenses related to future revenues.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight line, half year convention method (except for service bureau operations
which begins depreciation of computer equipment and software when the assets are
placed in service), over the estimated useful lives of the related assets.
Estimated useful lives are as follows:
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Computer equipment and software 3-4 years
Office equipment 5 years
Office furniture and fixtures 7 years
Leasehold improvements Life of lease
Depreciation expense for 1997, 1996 and 1995 was $875,370, $373,452 and $92,479,
respectively.
PAGE 20
Capitalized Software Development Costs
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Software to
be Sold, Leased or Otherwise Marketed. Costs associated with the planning and
designing phase of software development, including coding and testing activities
necessary to establish technological feasibility are classified as product
Research and Development and are expensed as incurred. Once technological
feasibility has been determined, additional costs incurred in development,
including coding, testing and product quality assurance, are capitalized and
subsequently reported at the lower of unamortized cost or net realizable value.
The Company capitalized $396,000, $170,000 and $123,307 in 1997, 1996 and 1995,
respectively. Research and Development expense was $5,553,778, $1,580,089 and
$594,037 in 1997, 1996 and 1995, respectively.
Amortization is provided on a product-by-product basis over the estimated
economic life of the software, not to exceed three years, using the
straight-line method. Amortization commences when a product is available for
general release to customers. Unamortized capitalized costs determined to be in
excess of the net realizable value of a product are expensed at the date of such
determination. Amortization expense was $128,333, $78,000 and $60,218 in 1997,
1996 and 1995, respectively.
Accrued Other Expenses
Accrued other expenses at January 31, 1998 and 1997 includes: a warranty reserve
and accrued franchise and property taxes and professional fees, and in 1997, an
accrued termination fee to an agent of $250,000.
Income Taxes
The provisions for income taxes are accounted for in accordance with Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under
the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
Stock Options
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, was issued in October, 1995, and was effective beginning with
fiscal year 1996. The Statement establishes a fair value method of financial
accounting and reporting for stock-based compensation plans. The Company elected
to continue to account for stock options under the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and, accordingly, has adopted the disclosure only
provisions of Statement 123.
Net (Loss) Per Common Share
The net (loss) per common share is computed in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share. The basic net (loss)
per common share is computed based on the weighted average
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24
number of common shares outstanding during each period. The diluted net (loss)
per common share reflects the potential dilution that could occur if stock
options were exercised into common stock, under certain circumstances, that then
would share in the earnings of the Company. The diluted net (loss) per common
share calculation, in fiscal 1997, 1996 and 1995, excludes the effect of the
common stock options as the inclusion thereof would be antidilutive.
PAGE 21
In accordance with the Securities and Exchange Commission, Staff Accounting
Bulletin No. 83, the weighted average number of shares used in the computation
of the net (loss) per common share for fiscal year 1995, was calculated assuming
all common share equivalents issued at prices below the initial public offering
price, during a one year period before the filing of the initial public
offering, were outstanding, even though the effect was antidilutive. Also, the
computation of common and common equivalent shares includes the 1,496,000 shares
of common stock issued upon the automatic conversion of the convertible
redeemable preferred stock. Accordingly, the weighted average shares outstanding
for fiscal year 1995 is calculated at 6,190,325 shares.
Other Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, Comprehensive Income and No. 131, Segment
Information. These new pronouncements, which become effective in 1998, are
presently being reviewed by the Company, and are not expected to have a material
effect on the Company's financial position or results of operations, although
they may result in additional disclosures in the future.
2. Investment Securities
Investment securities at January 31, 1998 and 1997, include the following:
Fair market Cost Unrealized
value basis net gains
-------------- --------------- ---------------
U.S. Government obligations - 1998 $ 8,909,166 $ 8,833,963 $ 75,203
U.S. Government obligations - 1997 25,373,347 25,292,741 80,606
The fair market values of investment securities are based on the quoted market
prices at the reporting date for those investments. The estimated fair market
value of investment securities by contractual maturity at January 31, 1998, is
as follows: $5,074,258 in 1998, $3,334,988 in 1999, and $499,920 in 2000.
3. Operating Leases
The Company rents office space and equipment under noncancelable operating
leases which expire in 2003. Future minimum lease payments under noncancelable
operating leases for the next five fiscal years are as follows: 1998: $739,182;
1999: $704,267; 2000: $606,382; 2001: $443,490; 2002: 153,605; thereafter
$47,958. Rent expense was $637,110, $252,383 and $60,441 for fiscal years 1997,
1996 and 1995, respectively.
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4. Income Taxes
The expense (benefit) for income taxes is as follows:
Fiscal Year
----------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
Current:
Federal $ - $ - $ -
State and local - - (5,547)
---------------- ---------------- ----------------
- - (5,547)
Deferred:
Federal - - -
State and local - - -
---------------- ---------------- ----------------
- - -
---------------- ---------------- ----------------
$ - $ - $ (5,547)
================ ================ ================
PAGE 22
The expense (benefit) for income taxes differs from the Federal statutory rate
as follows:
Fiscal Year
----------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
Federal tax expense (benefit) at
statutory rate $ (4,307,613) $ (1,587,304) $ (110,918)
(Loss) for which benefit not provided 4,307,613 1,587,304 110,918
State income tax (benefit), net of Federal tax
benefit - - (5,547)
================ ================ ================
$ - $ - $ (5,547)
================ ================ ================
The Company provides deferred income taxes for temporary differences between
assets and liabilities recognized for financial reporting and income tax
purposes. The income tax effects of these temporary differences are as follows:
Fiscal Year
----------------------------------------------------------
1997 1996(1) 1995(1)
---------------- ---------------- ----------------
Deferred tax assets:
Net operating (loss) carryforwards $ 6,061,074 $ 2,352,493 $ 470,628
Accounts payable and accrued liabilities 849,876 1,064,764 464,277
Other 98,050 185,290 313,058
---------------- ---------------- ----------------
7,009,000 3,602,547 1,247,963
Less valuation allowance (6,991,066) (1,989,722) (242,158)
---------------- ---------------- ----------------
Net deferred tax assets 17,934 1,612,825 1,005,805
Deferred tax liabilities:
Accounts and unbilled receivables - (1,311,369) (942,152)
Capitalized software costs - (90,416) (56,375)
Prepaid assets - (204,482) -
Equipment (17,934) (6,558) (6,558)
---------------- ---------------- ----------------
(17,934) (1,612,825) (1,005,805)
================ ================ ================
$ - $ - $ -
================ ================ ================
(1) Calculations based on a cash basis tax return for fiscal years 1996 and
1995.
At the end of fiscal 1997, the Company had a net operating (loss) carryforward
of approximately $16,300,000 which begins to expire in 2009.
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26
5. Convertible Redeemable Preferred Stock
In December, 1994, the Company sold 8,500 shares of Convertible Redeemable
Preferred Stock for $850,000. The shares were converted into 1,496,000 shares of
common stock immediately prior to the initial public offering.
6. Retirement Plan
The Company has established a 401(k) retirement plan which covers substantially
all employees. Company contributions to the plan may be made at the discretion
of the Board of Directors. No Company contributions have been made to the plan.
7. Major Customers
During fiscal 1997, three customers accounted for 13%, 13% and 12% of total
revenues. During fiscal 1996, three customers accounted for 21%, 17% and 11% of
total revenues. During fiscal year 1995, three customers accounted for 35%, 19%
and 16% of total revenues. At January 31, 1998 and 1997, 44% and 47%,
respectively, of the Company's accounts receivables were due from three
customers.
PAGE 23
8. Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations, in
accounting for its stock options because, as discussed below, the alternative
fair value method of accounting provided for under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, requires
use of option valuation models that were not developed for use in valuing stock
options. Accordingly, the Company adopted the disclosure only provisions of
Statement 123. All of the Company's stock options have been issued with an
exercise price equal to the estimated fair market value of the underlying stock
at the date of grant. Accordingly, under Opinion 25, no compensation expense is
recognized.
The Company's Employee Stock Option Plan authorizes the grant of options to
employees for up to 825,000 shares of the Company's common stock. The options
granted have terms of ten years or less and generally vest and become fully
exercisable ratably over three years of continuous employment from the date of
grant, except with respect to 50,490 options which were granted in fiscal 1995,
and became fully vested and exercisable on December 1, 1996. At January 31,
1998, options to purchase 571,425 shares of the Company's common stock have been
granted under the Plan.
The Company's Non-Employee Directors Stock Option Plan authorizes the grant of
options for up to 100,000 shares of the Company's common stock. All options
granted have terms of ten years or less and vest and become fully exercisable
ratably over four years of continuous service as a Director from the date of
grant. Options for 5,000 shares have been granted under this plan to one
Director, of which 1,250 options are excercisable and vested. In addition,
non-qualified stock options to purchase 5,000 shares were granted to the same
Director in April, 1996, and vest ratably over two years.
The Company also issued non-qualified stock options to purchase 119,823 shares
of the Company's common stock to two employees prior to the initial public
offering of the Company's common stock. Of the total, 89,760 were granted in
fiscal 1995, with a term of ten years and vest ratably over three years,
commencing two years from the date of grant, and have an exercise price of $1.00
per share. The remaining 30,063 options were granted in 1990, with a term of
approximately eleven years and became exercisable in 1991 with an aggregate
price of $1.00.
Pro forma information regarding the net (loss) and net (loss) per common share
is required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that
120
27
Statement. The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions for fiscal 1997, 1996 and 1995: risk-free interest rates of 6.3% in
1995 and 1996, and 5.4% in 1997; a dividend yield of zero percent; a volatility
factor of the expected market price of the Company's common stock of .827 in
1995 and 1996, and .788 in 1997, and a weighted average expected life of the
options of five years.
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in the Company's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' average vesting period. The Company's
pro forma information is as follows:
Fiscal Year
---------------------------------------------------------------
Pro forma 1997 1996 1995
--------- ----------------- ----------------- -----------------
Net (loss) $ (13,266,041) $ (6,276,119) $ (1,762,737)
================= ================= =================
Basic net (loss) per common share $ (1.50) $ (.76) $ (.28)
================= ================= =================
The pro forma disclosures are not likely to be representative of the effects on
earnings reported for future years.
PAGE 24
A summary of the Company's stock option activity and related information is as
follows:
Fiscal Year
-----------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- ------------------------- ---------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
----------- ----------- --------- ----------- ----------- ------------
Outstanding - beginning of year 650,873 $ 8.84 527,018 $ 8.21 30,063 $ - (1)
Granted 166,500 5.32 141,840 11.40 496,955 8.70
Forfeited (116,125) 10.34 (17,985) 10.40 - -
=========== ========= ===========
Outstanding - end of year 701,248 7.78 650,873 8.84 527,018 8.21
=========== =========== ========= =========== =========== ============
Exercisable at end of year 387,217 $ 8.02 299,605 $ 9.36 30,063 $ - (1)
=========== =========== ========= =========== =========== ============
Weighted average fair value of
options granted during year $ 3.51 $ 7.87 $ 6.07(2)
=========== ========= ===========
(1) $1.00 in the aggregate for all 30,063 options.
(2) The weighted average fair value of the 89,760 options issued in fiscal year
1995 for $1.00 per share was $.70, and for 407,195 options was $7.25.
121
28
The following table summarizes, by range of exercise price, the options as of
January 31, 1998:
Weighted
Options average Approximate
- ----------------------------------
exercise remaining life
Outstanding Exercisable price in years
- ---------------- -------------- ------------- -----------------
30,063 30,063 $ -(1) 3
89,760 29,620 1.00(2) 7
581,425 327,534 9.17(3) 8
================ ==============
701,248 387,217 7.78
================ ==============
(1) $1.00 in the aggregate for all 30,063 options.
(2) $1.00 per share for each of the 89,760 options.
(3) The exercise prices ranges from $4.63 to $14.50, of which 419,925 shares
are between $10.40 and $14.50 per share and 161,500 shares are between $
4.63 and $7.38 per share.
Exercise prices for options outstanding as of January 31, 1998 ranged from $1.00
in the aggregate for 30,063 options to $14.50. The weighted average remaining
contractual life of these options is approximately eight years.
9. Commitments and Contingencies
Maintenance Agreements
The Company has maintenance agreements to provide services in future periods
after the expiration of an initial warranty period. The Company invoices the
customers in accordance with the agreements and records the invoicing as
deferred revenues and recognizes the revenues ratably over the term of the
maintenance agreements.
Employment Agreements
The Company has entered into employment agreements with officers and employees
that generally provide annual salary, a minimum bonus, discretionary bonus,
stock incentive provisions and severance arrangements.
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29
PAGE 25
10. Quarterly Results of Operations (Unaudited)
The following sets forth selected quarterly financial information for fiscal
years 1997, 1996, and 1995.
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter 1997
--------------------------------------------------------------------------------
Revenues $ 2,113 $ 1,569 $ 2,329 $ 2,665 $ 8,676
Operating (loss) (3,176) (3,815) (2,951) (3,876) (13,818)
Net (loss) (2,846) (3,530) (2,664) (3,629) (12,669)
Basic and diluted net (loss) per share(a) (.32) (.40) (.30) (.41) (1.44)
Weighted average shares
outstanding 8,886 8,813 8,806 8,806 8,827
=========== ============ =========== =========== ==========
Stock Price(c)
High $ 8.00 $ 6.75 $ 8.00 $ 6.75 $ 8.00
Low $ 3.37 $ 4.50 $ 4.62 $ 4.25 $ 3.37
Quarter-end close $ 4.50 $ 5.25 $ 6.03 $ 4.62 $ 4.62
Cash dividends declared(d) $ - $ - $ - $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter 1996
--------------------------------------------------------------------------------
Revenues $ 2,113 $ 3,370 $ 3,035 $ 1,792 $ 10,310
Operating (loss) (701) (609) (1,636) (3,015) (5,961)
Net (loss) (780) (139) (1,179) (2,571) (4,669)
Basic and diluted net (loss) per share(a) (.12) (.02) (.13) (.29) (.56)
Weighted average shares
outstanding 6,405 8,896 8,896 8,896 8,284
=========== ============ =========== =========== ==========
Stock Price(b)(c)
High $ 18.75 $ 18.75 $ 14.50 $ 9.00 $ 18.75
Low $ 14.50 $ 8.50 $ 7.75 $ 6.25 $ 6.25
Quarter-end close $ 18.37 $ 9.50 $ 8.62 $ 7.12 $ 7.12
Cash dividends declared(d) $ - $ - $ - $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter 1995
--------------------------------------------------------------------------------
Revenues $ 402 $ 1,182 $ 667 $ 2,767 $ 5,018
Operating income (loss) (356) (118) (287) 455 (306)
Net income (loss) (357) (129) (284) 444 (326)
Basic and diluted net income (loss)
per share(a) (.06) (.02) (.05) .07 (.05)
Weighted average shares
outstanding 6,190 6,190 6,190 6,190 6,190
========= ========= ========= =========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Quarterly amounts are not additive.
(b) The Company began trading on The Nasdaq Stock Market on April 18, 1996, the
date of the initial public offering.
(c) Obtained from The Nasdaq Stock Market, Inc.
(d) The Company has not paid a dividend on its Common Stock since its inception
and does not intend to pay any cash dividends in the foreseeable future.
123
30
PAGE 26
Directors and Officers
- --------------------------------------------------------------------------------
DIRECTORS
George E. Castrucci(1)(2)*
Retired Chief Executive Officer
Great American Broadcasting Company
Eric S. Lombardo
Executive Vice President
LanVision Systems, Inc.
J. Brian Patsy
Chairman of the Board and Chief Executive Officer
LanVision Systems, Inc.
Z. David Patterson(1)*(2)
Executive Vice President
Blue Chip Venture Company
(1) Audit Committee
(2) Compensation Committee
* Committee Chairman
OFFICERS
J. Brian Patsy
Chairman of the Board, Chief Executive Officer
and President
Eric S. Lombardo
Executive Vice President
President, Virtual Healthware Services Division
Thomas E. Perazzo
Chief Operating Officer, Chief Financial Officer and
Treasurer
Robert F. Golden
Vice President and Chief Technology Officer
Alan J. Hartman
Vice President, General Counsel and Corporate Secretary
Corporate Information
- --------------------------------------------------------------------------------
Corporate Headquarters
LanVision Systems, Inc.
One Financial Way, Suite 400
Cincinnati, Ohio 45242-5859
(513) 794-7100
Stock Transfer Agent
Fifth Third Bank
Corporate Trust Administration
Fifth Third Center
Mail Location 1090D2
Cincinnati, Ohio 45263
Independent Auditors
Ernst & Young LLP
Cincinnati, Ohio
Annual Meeting
The Annual Meeting of Stockholders will be held on May 27, 1998 at 9:30 a.m.
(local time) at the Embassy Suites Hotel, 4554 Lake Forest Drive, Cincinnati,
Ohio.
Form 10-K and Investor Contact
The Company's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available without charge to stockholders and investment
professional securities analysts upon written requests. These requests should be
directed to: Investor Relations at the Corporate Headquarters.
Common Stock
The Company's common stock trades on The Nasdaq Stock Market under the symbol
LANV.
As of March 31, 1998, there were approximately 2,900 stockholders
LanVision Systems, Inc. World Wide Web Site
Visit us at - http://www.lanvision.com
124
31
[LOGO]
LanVision(TM)
Healthcare Information Access Systems
LANVISION SYSTEMS, INC.
ONE FINANCIAL WAY, SUITE 400
CINCINNATI, OH 45242-5859
PHONE: 800.878.LAN2, PHONE: 513.794.7100, FAX: 513.794.7272
(C)LanVision Systems, Inc. 1998
All Rights Reserved
The following are servicemarks, trademarks or registered trademarks of
LanVision, Inc.: accessANYware(SM), AccountVision(TM), AVremit(TM),
AVregister(TM), ChartVision(R), Document Capture System(TM), Enterprisewide
Correspondence(TM), LanVision(TM), [LanVision Logo](TM), MicroVision(TM),
MultiView(TM), OmniVision(TM), On-Line Chart Completion(TM), SCAN32(TM),
VisionFlow(R) and WebView(TM). All other trademarks are trademarks or registered
trademarks of their respective companies.
125
1
Exhibit 21.1
LANVISION SYSTEMS, INC.
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of
Name Incorporation % Owned
---- ------------- -------
LanVision, Inc. Ohio 100%
Exhibit 23.1
LANVISION SYSTEMS, INC.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of LanVision Systems, Inc. of our report dated March 12, 1998, included in the
1998 Annual Report to Stockholders of LanVision Systems, Inc.
Our audits also included the financial statement schedule of LanVision Systems,
Inc. listed in Item 14. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule, referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the following Registration
Statements and related prospectuses of LanVision Systems, Inc. of our report
dated March 12, 1998, with respect to the consolidated financial statements and
schedule of LanVision Systems, Inc. incorporated by reference in the Annual
Report on Form 10-K for the year ended January 31, 1998.
126
2
Form Registration No. Description
---- ---------------- -----------
S-8 333-28055 1996 Employee Stock Purchase Plan
S-8 333-18625 1996 Employee Stock Option Plan
S-8 333-20765 1996 Non-Employee Directors Stock
Option Plan
S-8 333-20761 Robert F. Golden and Jeffrey L. VanVoorhis
Option Agreements
S-8 333-20763 George E. Castrucci Option Agreement
Cincinnati, Ohio /s/ Ernst & Young LLP
April 27, 1998
127
5
1
U.S. DOLLARS
12-MOS
JAN-31-1998
FEB-01-1997
JAN-31-1998
1
2,142,881
8,909,166
4,393,352
265,000
0
12,525,094
6,719,859
1,563,202
22,200,122
5,384,041
0
0
0
88,965
16,727,116
22,200,122
8,675,748
8,675,748
7,582,991
22,493,492
0
0
0
(12,669,451)
0
(12,669,451)
0
0
0
(12,669,451)
(1.44)
0
